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					Ship Management
                    January 2004




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          NIPPON STEEL SHIPPING CO LTD
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             Drewry Shipping Consultants Ltd.
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Ship Management
is Published and Distributed by


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 2004 by Drewry Shipping Consultants Ltd




ACKNOWLEDGEMENT

Drewry Shipping Consultants Ltd. acknowledges
the contributions of D.M. Jupe Consulting in the
preparation of this report.




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Foreword

About Drewry Shipping Consultants Ltd.

Drewry Shipping Consultants (Drewry) provides commercial, economic and technical consulting services to
the international shipping industry. The company is headquartered in London, with a support organisation
in India and a number of overseas representatives. Established in 1970, Drewry’s activities are grouped
around the business practices:

•   Specialist Shipping
•   Bulk Shipping
•   Containers, Ports and Logistics
•   Technical services

Drewry is a specialist, not a generalist company. Its expertise lies in shipping and related maritime and
transport sectors. It has been built by providing specialised advice to leading companies in these industries
over three decades.

Nigel Gardiner – Managing Director
Email: gardiner@drewry.co.uk
Tel: + 44 20 7538 0191

Paula Puszet – Marketing Director
Email: puszet@drewry.co.uk
Tel: + 44 20 7536 6522


Drewry Specialist Shipping Group

The Drewry Specialist Shipping Group provides high level strategic consulting and advisory services to the
shipping and marine industries, undertaking consultancy assignments for a wide range of shipping interests
as well as producing specialist publications.

John C. Harris – Director
Email: harris@drewry.co.uk
Tel: + 44 20 7536 6508


Drewry Bulk Shipping Group

The Drewry Bulk Shipping Group is a leading consultancy to the bulk shipping industry specialising in Dry
Bulk, Oil tanker, Chemical, and the Gas markets. It boasts a wealth of economic and analytical skills that
are further enhanced by operational, sea-going and technical experience. The group provides: a bespoke
consultancy and advisory services for leading industry players as well as publishing; Drewry Monthly – a
comprehensive digest of news events, market data, sales listing and much more; Drewry Quarterlies –
Quarterly reports covering Oil, LPG, Chemicals and Dry Bulk, containing 18 month forecasts of key market
variables and Drewry Annuals – five annual market reviews.

Susan Oatway – Director
Email: oatway@drewry.co.uk
Tel: + 44 20 7536 6516
Drewry Container, Port and Logistic Group

The Drewry Container, Port and Logistic Group has established itself as a leading analyst in these sectors
through its private client consultancy work and published reports. Drewry has undertaken market
consultancy assignments for many leading industry players, including ocean carriers, port authorities, and
terminal operating companies’ container lessors and ship owners, as well as financial institutions.

Neil Davidson – Director (Ports)
Email: davidson@drewry.co.uk
Tel: + 44 20 7536 6513


John Fossey – Director (Container Shipping)
Email: fossey@drewry.co.uk
Tel: + 44 20 7536 6519


Drewry Technical Services Group

The Drewry Technical services group provides a range of technical advisory services to ship owners,
chartering interests, financial institutions and insurance companies across the globe and across all main
fleet sectors.

Kamar Zaman – Director (Technical Services)
Email: zaman@drewry.co.uk
Tel: + 44 20 7536 6525
Ship Management                                                                                   Contents




Contents

Section 1          Executive summary                                                                1-12
     1.1           Why choose a ship manager?                                                           3
     1.2           What are the potential costs and benefits?                                           3
     1.3           Technical management                                                                 4
     1.3.1         Crewing                                                                              5
     1.3.2         Repairs and maintenance                                                              5
     1.3.3         Stores and supplies                                                                  6
     1.3.4         Insurance                                                                            6
     1.3.5         Regulatory and contingency measures                                                  7
     1.4           Commercial management                                                                8
     1.5           Administration                                                                       8
     1.6           The main ship managers                                                               9


Section 2          Components of ship management – an introduction                                13-30
     2.1           The shipping industry – adversarial, cost-focused and politically vulnerable        13
     2.2           Ship owners – not a homogenous body                                                 14
     2.3           Outsourcing                                                                         17
     2.4           Ship management                                                                     20
     2.5           The ‘market’ for ship managers                                                      28


Section 3          Commercial management                                                          31-71
     3.1           Ship chartering – securing the revenue stream                                       31
     3.1.1         Types of charter                                                                    32
     3.1.2         Charter type – cost relationship                                                    34
     3.1.3         Arrangements between the buyers and sellers of goods                                35
     3.1.3.1       The bill of lading                                                                  35
     3.1.3.2       INCOTERMS                                                                           37
     3.1.4         ‘Reading’ the market                                                                38
     3.1.4.1       Evaluating market trends and developments                                           41
     3.1.4.2       Market cycles                                                                       42
     3.1.4.2.1     Economic cycles                                                                     42
     3.1.4.2.2     Industrial sectors and re-structuring                                               43
     3.1.4.2.3     Cycles in the shipbuilding industry                                                 44
     3.1.4.2.4     Cycles in the ship finance sector                                                   45
     3.1.4.3       Freight market cycles                                                               46
     3.1.4.4       The shipping markets – what can be monitored and analysed?                          48
     3.1.4.4.1     The ‘fundamentals’                                                                  49
     3.1.4.4.2     Freight rates                                                                       49
     3.1.4.4.3     Operating/running cost expenses                                                     51
     3.1.4.4.4     Resale values and the S&P market                                                    54
     3.1.4.4.5     The newbuilding marketplace                                                         54
     3.2           Voyage estimating                                                                   56
     3.2.1         Software applications                                                               66
     3.3           Post fixture                                                                        67
     3.4           Green Awards                                                                        68


© Drewry Shipping Consultants Ltd                                                                      (i)
Contents                                                                                     Ship Management


Section 4          Technical management                                                             73-175
       4.1         Introduction                                                                           73
       4.2         Manning and crew management                                                            73
       4.2.1       Background                                                                             73
       4.2.2       Changing perspectives                                                                  74
       4.2.3       Crew availability – is a supply problem looming?                                       75
       4.2.3.1     Seafarer retention                                                                     80
       4.2.4       Main sources of seafarers                                                              81
       4.2.5       Seafarer costs and quality                                                             83
       4.2.6       Tours of duty                                                                          85
       4.2.7       Manning budgets                                                                        87
       4.2.8       Seafarer identity requirements                                                         91
       4.2.8.1     Seafarer scrutiny                                                                      92
       4.2.9       Crew protection                                                                        92
       4.2.10      Travel                                                                                 93
       4.2.11      Shipboard cash management                                                              95
       4.3         Repairs and Maintenance (R&M)                                                          95
       4.3.1       Classification societies and class survey requirements                                 95
       4.3.1.1     Condition assessment programmes                                                        99
       4.3.1.1.1   Condition assessment survey                                                           100
       4.3.1.2      Classification societies and software products                                       102
       4.3.2       Equipment recommendations and policy choices                                          110
       4.3.3       Paints and coatings                                                                   111
       4.3.4       Propellers                                                                            113
       4.3.5       Shipyard choices                                                                      116
       4.3.6       Regional cost variations                                                              118
       4.4         Stores and supplies                                                                   119
       4.4.1       Principal elements in the stores and supplies budget                                  120
       4.4.2       Lubrication oils (lubes)                                                              121
       4.4.2.1     Price influences in the lubes market                                                  122
       4.4.3       Improving the purchasing and supply process                                           123
       4.4.3.1     E-platforms and on-line purchasing systems                                            124
       4.5         Software systems for technical ship management                                        126
       4.5.1       Satellite communications                                                              129
       4.5.1.1     Satellite systems                                                                     129
       4.5.1.1.1   GEO systems                                                                           130
       4.5.1.1.2   MEO systems                                                                           132
       4.5.1.1.3   LEO systems                                                                           133
       4.6         Insurance                                                                             133
       4.6.1       Hull and Machinery (H&M)                                                              134
       4.6.2       Protection and Indemnity (P&I)                                                        137
       4.6.3       Others                                                                                140
       4.6.3.1     Freight Demurrage and Defence (FDD)                                                   140
       4.6.3.2     War risks and trade disruption                                                        140
       4.6.4       Ship manager’s influence                                                              143
       4.7         Regulatory considerations                                                             144
       4.7.1       SOLAS                                                                                 145
       4.7.1.1     ISM                                                                                   148
       4.7.1.2     ISPS                                                                                  151
       4.7.2       STCW                                                                                  155


(ii)                                                                        © Drewry Shipping Consultants Ltd
Ship Management                                                                                  Contents


     4.7.2.1       Port State Control                                                               159
     4.7.3         Marpol                                                                           161
     4.7.4         Emerging regulatory areas                                                        163
     4.7.4.1       Emission controls                                                                163
     4.7.4.2       Ballast water management                                                         165
     4.7.4.3       Waste discharge                                                                  167
     4.7.4.4       Access areas                                                                     167
     4.7.4.5       Ship scrapping/recycling                                                         167
     4.8           Response planning                                                                170
     4.9           Budgeting                                                                        172


Section 5          Administration                                                               177-182
     5.1           Ship owners’ administrative activities                                           177
     5.2           Ship manager’s administrative activities                                         181
     5.2.1         Illustrative technical management staffing structure                             181


Section 6          Training                                                                     183-186
     6.1           Introduction                                                                     183
     6.2           Sample approach – India                                                          183
     6.3           Selected other examples                                                          183
     6.4           Ship manager approaches                                                          186


Section 7          Management agreements and documentation                                      187-191
     7.1           Introduction                                                                     187
     7.2           “SHIPMAN 98”                                                                     187
     7.2           “CREWMAN”                                                                        189


Appendices                                                                                      193-230

     Appendix 1    Key cargo manifest information required by US Customs from 2 December 2002       195
     Appendix 2 Port state control target lists                                                     197
          A2.1 Paris MOU                                                                            197
                Table A2.1      Black to Grey list                                              197-198
                Table A2.2      White List                                                          199
                Table A2.3      Explanatory note: Paris MOU                                         200
          A2.2 Tokyo MOU                                                                            201
                Table A2.4      Black to Grey List                                                  201
                Table A2.5      Classification Societies with detention percentages exceeding
                                3 year rolling average                                              202
          A2.3 US Coast Guard                                                                       203
     Appendix 3A Standard ship management agreement – SHIPMAN 98                                205-214
     Appendix 3B Standard ship management agreement – CREWMAN A                                 215-222
     Appendix 3C Standard ship management agreement – CREWMAN B                                 223-230


Tables

     Table 1.1     Third party ship management – some ‘pros’ and ‘cons’                                2
     Table 1.2     The main technical management components and current issues                         4


© Drewry Shipping Consultants Ltd                                                                    (iii)
Contents                                                                                      Ship Management


       Table 1.3    Main ship managers – strategies                                                        11
       Table 2.1    Top 20 owners of containerships                                                        17
       Table 2.2    Why choose a ship manager?                                                             20
       Table 2.3    Components of the ISMA Code                                                            27
       Table 2.4    Ship management – market size                                                          28
       Table 2.5    World fleet – by domicile of owner                                                     29
       Table 3.1    INCOTERMS 2000                                                                         37
       Table 3.2    Key fleet order backlogs, end-2003                                                     55
                    (a) The tanker orderbook                                                               55
                    (b) The dry bulk carrier orderbook                                                     56
                    (c) Containership orderbook by size and scheduled delivery year                        56
       Table 3.3    Indicative bunker price examples – late July 2003                                      62
       Table 3.4    Example of indicative bunker quality reports (regional summaries) for 380cSt
                    fuel oil – mid-July 2003                                                                63
       Table 3.5    Green Award incentive providers                                                         70
       Table 3.6    Green Award tariffs                                                                     71
       Table 4.1    Selected ITF wage scales, 2003                                                          77
       Table 4.2    Reported officer availability by country                                                81
       Table 4.3    Reported ratings availability by country                                                82
       Table 4.4    Sample wage cost summaries – 2003 conditions                                            84
       Table 4.5    Countries holding “White List” status                                                   86
       Table 4.6    Selected tour of duty terms – 2003 conditions                                           87
       Table 4.7    Handymax bulk carrier manning budget (3/4 years old – Worldwide trading)                88
       Table 4.8    Small tanker manning budget (9/10 years old – North Europe trading)                     89
       Table 4.9    Product tanker manning budget (9/10 years old – worldwide trading)                      90
       Table 4.10   Class survey requirements                                                            96-97
       Table 4.11   Shipyards which have produced ships to ABS SafeHull designs                        103-104
       Table 4.12   Alternatives to TBT based antifoulings                                                 114
       Table 4.13   Key Non-IGA P&I Insurers (primarily fixed premium insurers), 2003                      138
       Table 4.14   Recent performance of IG member P&I Clubs                                              139
       Table 4.15   War risks exclusions and AP estimates, mid-2003                                        142
       Table 4.16   Main components of SOLAS 1974                                                      145-148
       Table 4.17   Core Activities of Company and Ship Security Officers                                  154
       Table 4.18   Main components of the STCW convention                                             156-159
       Table 4.19   Example of PSC ship detention list: UK, September 2003                                 160
       Table 4.20   Main components of the Marpol convention                                           161-162
       Table 4.21   Typical diesel exhaust gas composition                                                 163
       Table 4.22   Shipbreaking activities and associated hazards                                         169
       Table 4.23   Elements in the proactive and reactive approaches                                      171
       Table 4.24   Ship operating cost reduction expectations through using a third party ship manager 174
       Table 6.1    Criteria for selection of candidates for various pre-sea training courses in India     184
       Table 6.2    Selected indicators on training regimes                                                185



Figures

       Figure 1.1   The main elements in managing ships                                                     1
       Figure 1.2   Main ship managers’ fleets, 2003                                                        9
       Figure 1.3   Main ship managers – service offering                                                  10
       Figure 1.4   Main ship managers – distribution of clients                                           12


(iv)                                                                         © Drewry Shipping Consultants Ltd
Ship Management                                                                            Contents


     Figure 2.1    Typical P&L for a ship manager                                              19
     Figure 2.2    Management and administration overview                                      21
     Figure 3.1    Ship cost and charter type relationships                                    34
     Figure 3.2    Consolidation – charterers faster than shipowners?                          39
     Figure 3.3    GDP/GNP trends and predictions, mid-2003                                    43
     Figure 3.4    Trend in bulk carrier time charter rates                                    47
     Figure 3.5    Trend in tanker spot rates                                                  47
     Figure 3.6    Evolution of reefer seasonal rates                                          48
     Figure 3.7    Forecast bulk shipping supply/demand balances                               50
     Figure 3.8    Pattern of operating costs and charter revenues: Panamax bulk carrier       52
     Figure 3.9    Pattern of operating costs and charter revenues: Vlcc                       52
     Figure 3.10   Bunker price trend                                                          53
     Figure 3.11   Crude oil spot prices: monthly averages                                     53
     Figure 3.12   Pattern of bunker and crude oil price movements                             53
     Figure 4.1    Reported officer availability by country                                    81
     Figure 4.2    Reported ratings availability by country                                    82
     Figure 4.3    CAS planning programme                                                     101
     Figure 4.4    The VeriSTAR process                                                       107
     Figure 4.5    Outline of PrimeShip elements                                              108
     Figure 4.6    Ship manager’s overview of planning for drydocking                         112
     Figure 4.7    Indicative regional repair price competitiveness, 2002                     119
     Figure 4.8    Indicative steelwork price trends                                          119
     Figure 4.9    Communication system options                                               130
     Figure 5.1    Typical structure of a technical ship management company                   180




© Drewry Shipping Consultants Ltd                                                               (v)
Ship Management                                                                                   Executive Summary




1. Executive summary
                  Owning and running ships is a complex business. No two ships are exactly the same,
                  there are no universal standards or authorities such as those that govern aviation while
                  owners face an array of choices on ship employment and operating expenses. A vessel’s
                  flag state need have no connection with the owner’s domicile whatsoever. Furthermore,
                  the world’s oceans create a perilous environment. Expertise, therefore, is a vital
                  commodity. However, levels of experience and expertise will vary from ship owner to
                  ship owner with the result that standards attained, efficiency, cost control and ability to deal
                  with a hazardous or emergency situation are also variable.

                  This ‘operational mixed bag’ creates its own problems. It leaves shipping vulnerable to
                  ‘knee jerk’ legislation (where political factors can be as important as safety) and to added
                  demands for additional vessel inspection rights from an array of third parties. This may be
                  exacerbated by shipping’s propensity towards ‘secrecy’, ‘corporate veils’ and ‘media
                  anonymity’. There may not be ‘anything to hide’ but the shipping ‘system’ allows those
                  outside the business every opportunity to speculate that there might be – usually without
                  any reply or correction and perhaps abetted by the fact that the ‘anonymous charterer’
                  might also look ‘somewhat shady’ if exposed to scrutiny.

                  The position is at its most difficult in the mainstream tramp shipping sectors as here the
                  market ‘provision’ emanates from a large number of independent operators, many of whom
                  operate relative small fleets and are content to focus primarily on ship ‘asset plays’ (the
                  ship being the commodity – buy when the market is low, sell when the market is high)
                  rather than long-term ‘industrial’ shipping arrangements.

Figure 1.1
The main elements in managing ships

 Commercial management              Technical management                         Administration




   Securing vessel income              Crew management             Financial, legal,       Advertising/marketing
                                                                     accounting
       Organising and                   Organising and                                     Training programmes
      managing various                  managing ship                 Taxation
    operating and voyage              operations/functions                                  Relationship with
        cost streams                                               Office overheads        agents, brokers, etc.
                                      Supervision of R&M
                                           regime                  Policy/planning

                                         Supervision of
                                          procurement
                                      Maintaining vessel in
                                     class and in seaworthy
                                            condition
                                     Preserve owner's asset




Source: Drewry Shipping Consultants Ltd, D.M. Jupe Consulting



© Drewry Shipping Consultants Ltd                                                                                  1
Executive Summary                                                                                     Ship Management


Table 1.1
Third party ship management – some ‘pros’ and ‘cons’

Pros                                                       Cons


     Managers have to justify actions to                       Owners relinquish some control over resources
     principals - hence owners have control                    and operations. Some fear that this can
     over key policy issues.                                   lead to managers dictating to owners.


     Managers often perceived as a cheaper                     Loss of immediate communication
     alternative - the larger managers have                    with technical and crew management
     greater 'market muscle' and 'buying                       personnel. Loss/downgrading of in-
     power' in the marketplace.                                house technical expertise. (However,
                                                               an owner may be able to 'implant' an
     Cost saving may be a bigger issue for                     owner's employee within the manager's
     small/medium owners than larger ones.                     office).


     Owners can focus time and effort on business              Replication in accounting and book-
     development - with the basics of ship                     keeping areas.
     management not being an opportunity cost.
                                                               Loss of direct involvement in some price
     Owners can vary the size of their fleet                   negotiations. Some more general loss
     and/or its composition without having to                  of transparency.
     make changes to their office organisation,
     staffing structures, etc.                                 ‘Bad press'/union issues if the move to
                                                               management involves job losses.
     Management operations may have more
     in the way of dedicated resources than an                 Some charterers might not approve of
     individual owner. A crucial area will be                  the management arrangements.
     the manager's access to officers, crew and
     shore side specialists. (Increasingly, the issue          The owner may feel that the manager is
     of seafarer sourcing and retention is a key               not achieving all the desired goals.
     weapon in the manager's armoury).


     Management operations may have                            The manager may be acting on behalf
     broader experience in dealing with                        of a rival fleet operator which may
     problems and emergencies.                                 require the imposition of ‘Chinese walls’.
                                                               However, these might not be secure.
     Management may assist in dealing with
     liabilities' and may be seen as an
     advantage by financiers and insurers.


     ‘Politically', it may be an expedience
     for an owner to be able to blame a
     manager if things go awry.


Sources: Lloyd’s Ship Manager, Drewry Technical Services, D.M. Jupe Consulting.



2                                                                                 © Drewry Shipping Consultants Ltd
Ship Management                                                                               Executive Summary


                  All of these concerns are management issues. In dealing with them, ship owners
                  have a critical choice – do they deal with them in-house or do they outsource them?

                  The decision is not ‘all or nothing’. Owners have to make the in-house versus
                  outsource decision in (i) commercial matters, (ii) technical matters and (iii) administrative
                  matters. Outsourcing administrative aspects is rarely countenanced. Outsourcing
                  commercial management is a factor that owners will consider but only a limited number will
                  go down this route – possibly in a specific vessel sector. Consequently, technical
                  management (or its key subcomponent, crew management) is the main focus for
                  outsourcing.

                  Third party ship management is a growth sector – and the industry consensus is
                  that this is a trend that will continue. Currently, however, an apparent element in
                  achieving success in third party ship management is scale. For ship managers, though,
                  the maxim seems to be that ‘big is necessary’ rather ‘big is beautiful’.

1.1     Why choose a ship manager?

                  While this may appear a straightforward question, it does not necessarily have a
                  straightforward answer. The key criteria shaping the decision will vary with the size of the
                  ship owner’s operation and the operational experience the owner has built up with the
                  vessel type(s) being evaluated for outsourcing. Increasingly, it is being influenced by the
                  owner’s viewpoint on dealing with the progressive increase in regulatory demands. Some
                  general influences are noted in Table 1.1.

1.2     What are the potential costs and benefits?

                  Ship managers will argue that they represent good value for money.           However, what
                  supporting evidence might be offered to support this contention?

                  The first argument almost certainly will be cost – and not merely the scale of the
                  management fee but also the claim that fees have been virtually static for some time. In
                  2001, the then managing director of Denholm Shipmanagement was quoted as saying that
                  “customers are expecting an awful lot more. In 1978, we (Denholm) regularly enjoyed
                  $145,000 or $150,000 a year for our services. Today, $100,000 is good and there is an
                  awful lot more to do now than there was”. By implication, this points to a considerable
                  level of efficiency improvements within the ship management operation.

                  Owner side information reports seems to suggest that an annual sum per vessel between
                  US$ 100,000 and US$ 175,000 appears to cover most eventualities.

                  However, owners will be looking to secure cost savings elsewhere as a result of
                  utilising management services. Such areas could be expected to include crew travel,
                  stores, spares, repairs, shipyard bills, port agency and, perhaps, insurance. There could
                  be some less easily measured gains in areas such as bunker purchasing (perhaps through
                  the manager having a good ‘credit’ rating with suppliers – although with the many
                  managed vessels that are chartered out bunker arrangements would be the charterer’s
                  responsibility while other bunker procurement work may well remain with the owner’s
                  commercial department). With a manager responsible for sourcing and replacing seagoing
                  personnel (these being provided to the owner’s vessel from the manager’s own labour
                  pool), the owner will not see any direct cost saving – unless they replace a higher cost staff
                  employed directly by the owner – but the continuity of employment offered by the manager
                  to the labour pool is seen generally as a bonus in terms of crew quality.


© Drewry Shipping Consultants Ltd                                                                              3
Executive Summary                                                                                      Ship Management


1.3        Technical management

                 In a nutshell, the requirement of technical management is to keep the hardware (that
                 is, the ship and all its systems) running. Within this, the most costly aspect – and the
                 key component – is crewing. The other key ‘hardware’ aspects include repair and
                 maintenance regimes and routines as well as organising the acquisition and inventory
                 policies needed to supply the ship and the crew.

                 Additionally, technical management has to embrace the regulatory environment and
                 ensure that necessary standards and stipulations are met. Increasingly, managers have to
                 be concerned also with aspects of contingency planning (primarily in the fields of safety,
                 security and pollution prevention).

                 Table 1.2 notes the key areas embraced by technical management and a number of the
                 important issues that those involved have to address.

Table 1.2
The main technical management components and current issues

Area          Components                          Issues


Manning       Sourcing                            A potential future supply problem? Is there a prospect of an
              Certificating                       officer 'shortfall' looming? Who will source and train cadets?
              Alcohol/drug test                   How can existing personnel be persuaded to stay at sea?
              Training                            What are the implications for expertise 'coming ashore'?
              Travel                              Should seafaring roles be 'redefined'? How are security
              Victualling                         measures affecting seafaring? How is the creation and
              Payroll                             maintenance of a safety culture to be achieved? What
              'Indirect' manning aspects          incentives can be created to secure loyalty and staff retention?


R&M           Class requirements                  Planning and supervising the maintenance regime.
              Charterers’ requirements            Paint and coatings performance in the post-TBT
              Condition assessment programme      based paints era. Monitoring vessel performance.
              Routine maintenance/servicing       Repair tenders and evaluating yards in terms of
              Shipyard choices                    prices, location, quality, timeliness of work, seasonal
              Supervision                         or climatic factors, etc.


Stores &      Purchasing and inventory policies   Product and supplier diversity. Emergence of
Supplies                                          e-purchasing options and solutions.


Insurance     H&M, P&I, FDD, etc.                 Claims record, deductibles, underwriter's assessment,
                                                  P&I Club choices or fixed premium provider, additional/
                                                  ‘optional' areas of cover (e.g. War Risk).


Regulatory    SOLAS, ISM, ISPS, STCW, Port        Planning, accreditation, recording and reporting of
Environment State Control, Marpol, emerging       issues and incidences, review processes, planning
              regulations, contingency planning   for future rules and for dealing with emergencies.


Source: D.M. Jupe Consulting.


4                                                                                © Drewry Shipping Consultants Ltd
Ship Management                                                                               Executive Summary


1.3.1 Crewing

                  For the vast majority of ship owners, ship managers or crew managers, there are no
                  fundamental constraints on the nationalities of the officers and crew they employ.
                  The decisions, therefore, will relate to cost and availabilities together with wider
                  acceptabilities (such as ITF approval or White List status as recognised under the STCW
                  regulations).

                  However, seafarer cost decisions do not relate solely to wage structures. There will
                  be issues relating to tours of duty and the treatment of overtime. Furthermore, there are
                  other direct costs such as victualling, crew travel/repatriation, training and union dues. In
                  addition, there are a number of indirect costs areas – all of which are part of the crewing
                  remit such as recruitment, selection and processing, medicals, drug/alcohol tests,
                  welfare/social dues, sick pay, standby pay, etc.

                  New issues are now emerging that will tax manager’s abilities further. In the main,
                  these are security driven with the main focus being on developing some form of seafarer
                  ID card. Finding an effective vehicle, legislating for it where required around the world and
                  ensuring the systems to read the cards are available at all relevant locations clearly is a
                  major task. However, security concerns are leading to more stringent (and, for the
                  manager, more problematical) rulings in terms of seafarer visas within some countries,
                  notably the USA, which has implications in terms of shore leave and crew travel/transits.
                  Some operations have switched crew nationality as a consequence.

1.3.2 Repairs and maintenance

                  At the core of the process of ‘keeping the hardware running’ is a vessel or fleet’s repair
                  and maintenance regime. This will have to deal with repair needs that are unplanned –
                  e.g. following a grounding or a collision. It will need also to factor in items that emerge as
                  ‘voyage repairs’ – although, where minor, these may be held over until the vessel is next in
                  a repair facility.

                  Some routine maintenance work will be undertaken by the ship’s crew – although the
                  option does exist to commission specialist ‘riding crews’ or ‘flying squads’ to undertake
                  work while the ship is at sea.

                  The main concern in the context of the management of the R&M regime, however,
                  will be the planned maintenance policy and regime. The basis of the regime will be set
                  by a number of criteria, including:

                  •   Rules and requirements set down by the ship’s classification society.
                  •   Recommendations of equipment manufacturers.
                  •   The owner or manager’s own policies.

                  The choice of classification society is a matter for the owner. However, there will be
                  pressures from financiers and insurers – and, perhaps, charterers and ship managers
                  themselves – to ensure that this choice involves one of the more reputable societies. For
                  some, this will mean an IACS member. Less highly regarded societies are likely to be
                  targeted by Port State Control inspectors.

                  Class survey requirements demand periodic inspections (normally but not always
                  requiring a drydocking) that normally enable the docking process to operate within a


© Drewry Shipping Consultants Ltd                                                                              5
Executive Summary                                                                             Ship Management


                30 month cycle (though there are exceptions in the case of some ship types which make
                more frequent dockings necessary). The most significant event is the Special Survey
                which is due at five year intervals.

                However, the demands placed on vessels have become more complicated through
                added needs for condition assessment surveys and enhanced special surveys.

                There are a number of issues to evaluate when selecting locations for drydocking
                and repair work other than the price quoted by the yard in response to the tender.
                Location is important for commercial purposes – i.e. in respect of diversion costs and the
                opportunity cost of being off-hire. There also will be questions of work quality and level
                of supervision needed – the latter being an important management consideration.

                Few companies have a specific repair team that will co-ordinate all aspects of ship repairs.
                In most cases, repairs are undertaken with the superintendent being responsible for the
                day-to-day operation. This, however, has its drawbacks if it entails a long absence from
                the ‘office’. In addition, there can be issues over whether the ‘on the spot’ superintendent
                is pressured to remain within budget – even if these means that some repair work is
                ‘sacrificed’. The superintendent’s task is not merely to witness/be present during the repair
                period but to keep a complete list of the work done, extra work entrusted, overtime worked,
                etc.

1.3.3 Stores and supplies

                For shipowners and operators/managers, the stores and supplies sector of the
                operating cost account can appear to be an area of ‘disproportionate effort’. This
                arises as a result of the cost head embracing a wide and varied product mix while the
                taking on of stores and supplies can take place at a wide number of global locations
                (depending, obviously, on the vessel’s trading pattern) which can add to procurement
                complexity, may involve suppliers with whom the owner/manager is not especially familiar,
                local “practices” and currency issues. The logistics of deliveries is another vital concern.

                Consequently, while the establishment of a cost-effective stores and supplies policy is a
                vital part of effective ship management, equally it is vital that an owner or manger does not
                fall into the pitfall of ‘knowing the price of everything, but the value of nothing’.

                In general terms, the principal stores and supplies items (excluding victualling) are:

                •   Marine and deck stores (including paints – both sea stock and drydocking paints).

                •   Engine room stores (which includes the main cost item, lubricating oils, chemicals and
                    gases).
                •   Steward’s stores.

1.3.4 Insurance

                Insurance considerations will breakdown into three main parts – (i) Hull and Machinery, (ii)
                Protection and Indemnity and (iii) Others. The first is largely self-explanatory (although it
                can cover additional features such as increased value cover or War Risk), the second
                involves incidents leading to claims from ‘third parties’.

                Decisions relating to insurance – in terms of the range of cover taken out and who it


6                                                                           © Drewry Shipping Consultants Ltd
Ship Management                                                                               Executive Summary


                  is placed with – are a matter for the ship owner. However, the ship manager is often
                  an important element in the equation. Insurers will take a view on management choices
                  and may rate this favourably if they believe it improves quality and reduces their risk
                  exposure.

                  Ships tend not to be insured as ‘singletons’ – if they are they are likely to attract a higher
                  premium. Rather, it is normal where there are several ships in operation to evaluate them
                  on ‘fleet terms’. Effectively, this means that the assessment focuses on the owner being
                  insured as much as or more than the ship per se. If a ship is placed under the care of a
                  third party ship manager, the insurer may well factor the manager’s performance into the
                  ‘fleet’ thinking, subject to the manager having a good slip. In any event, the manager is
                  nominated as the co-assured under the owner’s P&I policy and, as a general rule, a cover
                  note indicating this position is sought by manager, particularly relating to defence under
                  owner’s FD&D arrangements. Managers should have ready access to the global towage
                  and salvage presence and so be capable of effecting prompt action to contain any incident
                  and rendering the vessel with appropriate assistance. The manager is normally the first
                  point of contact and nominated within the emergency response services of classification
                  societies to control incidents arising in respect of a grounding or a breach of the hull.

                  Management influence can be important when claims are made or have to be defended in
                  the sense that it is vital that all relevant facts are recorded accurately. This has a better
                  chance of being achieved where the management has ensured that the ‘on the spot’
                  personnel are fully aware of what is required, assisted by the appointment of legal experts
                  and, later, by the appointment of adjusters to deal with the apportionment of claims.

1.3.5 Regulatory and contingency measures

                  The increasingly difficult regulatory environment is becoming an ever more
                  important factor in the considerations of owners pondering in-house versus third
                  party management alternatives. Some will argue that, in the light of the anonymity
                  ‘treasured’ by many owners, the specialist ship management company may have the
                  greater concern in terms of needing to protect its reputation.

                  The current key areas include:

                  •   The International Convention for the Safety of Life at Sea (SOLAS). This provides
                      the basis for such considerations as the International Life Saving Appliance Code, the
                      Global Maritime Distress and Safety System, the International Maritime Dangerous
                      Goods Code (and similar), the mandatory International Safety Management Code,
                      various Port State Control powers and, currently, the International Ship and Port
                      Facility Security Code.

                  •   The International Convention on Standards of Training, Certification and
                      Watchkeeping (STCW). This also provides enhanced powers to Port State Control.

                  •   The International Convention for the Prevention of Pollution from Ships
                      (Marpol).

                  Emerging issues include:

                  •   Emission controls.
                  •   Ballast water management.
                  •   Ship demolition – and issues of hazardous components.

© Drewry Shipping Consultants Ltd                                                                              7
Executive Summary                                                                          Ship Management


                The common theme of most of these measures is that owners/vessels and/or managers
                have to plan systems, put them in place and have them verified and approved by an
                independent assessment body. However, the process then tends to be iterative –
                continuous monitoring is needed, regular drills might need to be conducted, prompt action
                has to be taken when necessary while the whole process is subject to periodic re-
                inspection, verification and approval. For many owners, outsourcing in these areas has an
                appeal.

                The most fundamental outcome of these measures is that it requires ship
                management (in-house or third party) to become pro-active rather than reactive. At
                first glance, those involved with ship management might perceive this as an added burden
                making further onerous demands on staff time and resources. On reflection, it may be that
                – with well thought out systems put in place – there will be improvements in efficiency,
                early warnings of problems, etc. which might reduce costs and save staff time.



                    SECTION 4 considers technical management features and issues in more detail.




1.4     Commercial management

                The main focus of a commercial ship manager normally is described as ‘securing
                the revenue stream’. This involves a number of strategic decisions relating to chartering
                policy and other commercial commitments. It is for this reason that the outsourcing of
                commercial management is less common than the outsourcing of technical management.

                In many respects, whether undertaken in-house or by a third party ship manager, the
                essence of commercial management is the ability to ‘read the market’. From this,
                judgements will be made on whether to seek long-term charter cover or play the ‘spot’
                market and at what stage it would appear propitious for the buying or selling of ships.

                Success will be derived from a combination of experience, expertise and a good measure
                of luck. The shipping sectors are not all the same – the pressures driving supply/demand
                in the refrigerated ship (reefer) market differ markedly from those of, say, bulk carriers,
                tankers or LNG ships. The liner trades are a different business to tramp shipping.

                Luck comes into the equation because the shipping markets are a very long way from
                being transparent. As a result, market trends often pick up disproportionate pace on the
                back of sentiment.



                    SECTION 3 focuses on issues relevant to the commercial management of ships
                    through an evaluation of shipping’s ‘commercial elements’ and guidelines to the
                    marketplace.




1.5     Administration

                In addition to the management functions that can be identified as falling under either the
                technical or commercial remit, all ship owners have to deal with the activities and costs


8                                                                         © Drewry Shipping Consultants Ltd
Ship Management                                                                                      Executive Summary


                    involved with ‘running their office/business’. The expectation is that some of the vessel(s)
                    earnings will contribute to these costs. Some ship owners will re-title some or all of their
                    administrative element as financial management. It is highly unlikely that administrative
                    activities of this nature would be outsourced.



                        SECTION 5 considers briefly some of the management/administrative areas that
                        could have an influence on the shipping operation.             In addition, brief
                        consideration is given to the potential structure of a ship manager’s ‘office’ –
                        providing insight into the type of expertise that an owner could ‘tap into’. Other
                        elements in the main body of the report include SECTION 2 which seeks to
                        provide an overview of the nature of the shipping industry and the place of the
                        ship manager therein and SECTION 6 which touches upon the evolving issue of
                        training.




1.6       The main ship managers

                    When reference is made to well known ship managers, the tendency is to reference
                    technical specialists. These operations might also undertake commercial management.
                    On the other hand, when commercial management is outsourced the tendency normally is
                    for an owner to commit the vessel(s) to a manager who may also be thought of as an
                    ‘owner’.


Figure 1.2
Main ship managers’ fleets, 2003 (Million dwt)

22,500


20,000


17,500


15,000


12,500


10,000


 7,500


 5,000


 2,500


      0
            V Ships        Wallem   Anglo-Eastern   Barber      Columbia   Fleet Shipm.     Univan      Hanseatic
          Tankers      Bulkers   Container    Dry Cargo      Reefer   Combis     Offshore      Pax/ferry    RoRo
Source: Drewry Technical Services


© Drewry Shipping Consultants Ltd                                                                                   9
10
                                    Figure 1.3
                                    Main ship managers – service offering
                                                                                                                                                                                           Executive Summary




                                                              Head                 Other                Crew         Crew      Technical
                                                                                                                                           Operations   Commercial   Finance   Insurance
                                                              office               office            management    training   management


                                      V Ships              Monte Carlo   1, 2, 3, 4, 5, 6, 7, 8, 9


                                      Wallem                Hong Kong    1, 2, 3, 7, 8


                                      Barber                 Norway      2, 3, 5, 10


                                       Anglo Eastern        Hong Kong    3, 8, 11, 12


                                      Hanseatic Group        Hamburg     1, 3, 5, 8, 11, 13, 14


                                       Fleet Shipm.         Hong Kong    3, 8


                                       Univan Shipm.        Hong Kong    3, 8




                                                                1 UK            2 USA          3 India        4 Brazil         5 Russia     6 Poland     7 China
                                                                8 Norway        9 Greece      10 Malaysia    11 Singapore     12 Canada    13 Cyprus    14 Hungary



                                    Source: Drewry Technical Services
                                                                                                                                                                                           Ship Management




© Drewry Shipping Consultants Ltd
Ship Management                                                                            Executive Summary


Table 1.3
Main ship managers – strategies

                  Marketing                  Technical                 Crewing             Investment
                  Plan/Strategy              Position/Expertise                            & Acquisition

V Ships           Organic growth             Cruise industry           Development of      Acquisition
                  New business development   Offshore industry         training centres    Joint venture
                                             I.T.                      in China, Russia,   Secondment
                                                                       India, Poland       New offices


Wallem            Organic                    Offshore industry         Development of      New offices
                  New business development   I.T.                      training centres    Joint venture
                  Relationship building                                in China, India
                  Green field new project


Anglo-Eastern     Organic                                              Development of      Investment
                  Relationship                                         training centres    in acquiring
                  New business development                             in China, India     dominant
                                                                                           manager at
                                                                                           specific location


Barber            Organic                    Joining Kvaerner in       Development of      Joint venture
                  Relationship               specific high             training centres    with client
                  New business development   value project             in India
                  Green field new project    Focus on P.C.C.
                                             I.T.


Hanseatic         Organic growth             Cruise industry           Training centre     KS investments
                  Relationship building      Containership expertise   in India, UK        companies
                  New business development


Fleet             Organic growth             I.T.                                          Commercial
Management        Client relationship                                                      partnering
Service           New business development


Univan            Organic growth                                       Training centre
                  Business development                                 in India


Columbia          Organic growth             Cruise industry           Training centre     Acquisition
                  Business development       Containership expertise   in UK, India


Source: Drewry Technical Services.




© Drewry Shipping Consultants Ltd                                                                              11
Executive Summary                                                                                 Ship Management


Figure 1.4
Main ship managers – distribution of clients


                              Head         North        South       North      South        Asia
                                                                                                         Japan
                              office      America      America     Europe      Europe     Ex. Japan


     V Ships               Monte Carlo


     Wallem                Hong Kong


     Barber                  Norway


     Anglo Eastern         Hong Kong


     Hanseatic Group        Hamburg


     Fleet Shipm.          Hong Kong


     Univan Shipm.         Hong Kong



Source: Drewry Technical Services



                     Until relatively recently, third party ship management has evolved by way of organic
                     growth. However, latterly there has been consolidation through merger or acquisition. For
                     example:

                     •   V Ships acquired Acomarit.

                     •   Anglo Eastern combined with Denholm.

                     •   Clarkson joined forced with Univan – although there has been a subsequent parting of
                         the ways.

                     •   Pacific Basin acquired Jardine Ship Management and Lothian Shipping.

                     •   ASP acquired Singa Ship Management.

                     •   Transpetrol and ITM combined their technical management.

                     The most significant of these is the V Ships tie in with Acomarit, as Figure 1.2 illustrates.
                     Meanwhile, Figures 1.3 and 1.4 provide some insight into the service offerings of these
                     leading players and their client base while Table 1.3 offers a view on their strategic
                     approaches.




12                                                                              © Drewry Shipping Consultants Ltd
Ship Management                                                   Components of Ship Management – An Introduction




2. Components of ship management –
   an introduction
                  Virtually all industries – at some level or other – face choices over whether to keep
                  particular functions in-house or to outsource them to third parties. The decisions taken will
                  be influenced by whether the activity in question is considered to be ‘core business’, the
                  scope for achieving scale economies, accessing other professionally provided solutions,
                  etc. There are very few fully integrated proprietary shipping operations – indicating that
                  users of shipping services/supply chain controllers do not want to own ships, rather this is
                  a function they outsource to the professional shipping industry and its marketplace. For
                  the ship owner, the issue is between running matters in-house versus utilising a third party
                  ship manager. The key to the decision is down to economics. However, there is a
                  strengthening regulatory environment within which shipping has to function and this has
                  made the choice more complex.

                  This said, shipping and ship ownership is not a simple business. One size does not fit all.
                  Consequently, for both owners and managers to arrive at optimum solutions there is a
                  need for each to have a basic understanding from the outset of the nature of each other’s
                  business arenas.


2.1     The shipping industry – adversarial, cost-focused and
        politically vulnerable

                  Shipping vies with banking and insurance for the position of the world’s largest
                  industry. Hence, it is a surprise that shipping is an industry of which there is a very
                  little understanding among the general public. Shipping is described universally as
                  ‘highly conservative’. However, this in itself may be an understatement. Although the
                  precise context is different, media sources reporting from the 2003 Connecticut Maritime
                  Association (CMA) conference cited former president Don Frost’s comment that (shipping)
                  “is the only industry I know that has gone out of its way for more than 200 years to stay
                  invisible”.

                  One consequence of the ‘institutionalised framework’ in which shipping has evolved
                  is that the industry is generally introverted. That is, especially in the tramp shipping
                  sectors, the ship operators are seldom ‘close’ to the customers and have little or no real
                  understanding of the wider needs of the industries that they serve. This is a factor in the
                  inability of many ship owners/operators to have much control over the income stream (i.e.
                  they are ‘at the mercy of the market’) and, hence, the concentration of their focus on
                  cost management and control.

                  The shipping industry is also adversarial. Owners and charterers will battle with each
                  other over what can seem to an outsider to be a trivial difference in freight rates. Owners
                  will look to squeeze every fraction of gain from negotiations on manning, insurance,
                  repairs, provisioning, etc. (and on third party shipmanagers’ fees). There are signs of
                  change with newer generations at the top of shipowning companies showing a more
                  ‘corporate’ approach to business but these attitudes are not yet the norm.

                  The industry is also adversarial in other ways. Returning to Mr. Frost and CMA 2003, he
                  noted that the CMA had a history of creating ‘power breakfasts’ aimed at leading to a


© Drewry Shipping Consultants Ltd                                                                             13
Components of Ship Management – An Introduction                                                Ship Management


                  common focus for shipping. These events attracted bodies such as Bimco, Intercargo,
                  Intertanko, the International Chamber of Shipping, etc. Mr. Frost reportedly claims,
                  “however, instead of talking to each other, I realised that we ended up talking at each
                  other”.

                  Added to this, shipping has a political dimension – which too often gets a negative
                  portrayal. The public perception of shipping is not of the huge volume of cargo that
                  moves around the globe without incident. The 365/24/7 ‘supermarket’ culture that most
                  advanced economy consumers expect as a norm cannot be achieved without highly
                  efficient supply chain and logistics systems which embrace efficient and cost-effective
                  shipping operations. Rather, shipping hits the headlines on issues such as oil spills from
                  tankers, passenger vessel incidents, ‘green’ shipbreaking issues, etc.

                  No one is suggesting that these events (even if taken out of context) are trivial or
                  unimportant. However, shipping’s ‘invisibility’ allows these issues to dictate political
                  agendas.

                  At the end of 2002, the tanker Prestige broke up off the Spanish coast – the spill being put
                  at up to 77,000 tonnes. In the ‘political equation’ issues of owner or charterer or cargo
                  owner appear to have become less important than the fact that the ship was a single hull
                  tanker. This type of ship already is on a phase-out programme under the auspices of the
                  IMO’s Marpol 13G regulation. However, probably driven most by the political need to be
                  seen to be doing something, various EU states have pressed for faster elimination of
                  single hull tankers – and this has dominated the news agenda rather than (a) what
                  arguably is the more important issue of ports of refuge and (b) the arbitrary removal of
                  ships which could be in excellent condition and have exemplary port state control
                  inspection records.

                  Stepping into this ‘maelstrom’ is the third party ship management business. At a
                  practical level, many managers make far reaching decisions on the owner’s behalf –
                  and have to bear the responsibilities and consequences of this. However, the
                  ‘traditional’ owner approach is to look to minimise the sums they pay to managers while at
                  the same time demanding ever more from them in the way of service provision.

                  This said, there is a fairly widely held view in shipping that third party ship management is
                  a growth business.

2.2      Ship owners – not a homogenous body

                  When looking at the ship owner:ship manager relationship, it needs to be kept in
                  mind that different owners are involved in shipping activities for different reasons
                  and motivations. These differences will be influential in whether they opt to manage their
                  vessels in-house (vessel operations have to managed by someone) or outsource some or
                  all of the management functions, their views on ‘commitment periods’, etc. As noted
                  earlier, shipping is adversarial and there will be ‘debates’ over the balance of power and
                  control between the two parties.

                  Broadly speaking, ship owners can be put within one of five generic types – although
                  these may not be mutually exclusive.

                  •   Liner shipping operators: Today, this normally conjures up container shipping
                      although there are other contributors, including Ro/Ro, some Heavy Lift operations


14                                                                           © Drewry Shipping Consultants Ltd
Ship Management                                                 Components of Ship Management – An Introduction


                      and conventional general cargo ships. However, it is not so much the ship type that is
                      the key (there are large numbers of containerships built for the ‘charter market’) but
                      rather the manner of their employment. These vessels sail on set port rotations –
                      as part of service strings – to pre-advertised timetables. They may be integrated
                      with landside logistics operations.

                  •   Tramp market operators with an asset play focus: These owners tend to view the
                      vessel itself as the ‘commodity’ that they trade in. Earnings from transporting cargo
                      are important but the key may be the ‘capital gain’. With some owners this leads
                      to their vessels having a reputation for being ‘always open for sale’ (which may not
                      necessarily fit well with outsourcing arrangements). This approach is widespread in
                      many sectors in shipping – certainly more so than the general public tends to
                      appreciate – particularly where operators are ‘family’ or ‘private’ companies where
                      there may be a history of holding either ships or cash.

                  •   Tramp market operators with an industrial shipping focus: These owners are more
                      likely to tie in vessel employment over the longer term and may well focus on
                      the needs of a particular commodity, trade sector or customer. They might seek
                      cargo guarantees, long-term time charters or contract of affreightment work rather
                      than spot market opportunities. At the extreme, this could extend into ‘project
                      mentality’ business such as virtually all of the existing LNG shipping operations.

                  •   National shipowners: There are still some countries that feel it appropriate to
                      operate fleets via state-controlled companies.

                  •   Reluctant shipowners: Most ships are acquired under finance/mortgage agreements.
                      On occasion, there will be defaults. Most lenders will do everything possible to
                      avoid foreclosure on a mortgage but at times this is the only solution. The
                      takeover by the lender could be amicable. On the other hand, it could be triggered by
                      a ship arrest which might oblige the lender to ensure acquisition at the subsequent
                      auction. Once acquired – presumably in difficult trading conditions – it may not be
                      desirable to put more ships onto the sale and purchase (S&P) market. The normal
                      recourse of such ‘owners’ in these circumstances tends to be either (a) to seek to
                      place the ships under third party ship management or (b) to place the ships with
                      another owner within its portfolio by way of some form of ‘sweetheart’ deal.

                  The other critical factor about ship owners is that most of them own relatively small
                  fleets of ships. However, as with much in shipping the detailed picture is far from clear.
                  In part, this is due to the common practice of placing individual vessels within one
                  ship companies – with the companies, in practice, being little more than ‘brass plates’ in
                  an offshore tax shelter. This approach to ownership in part is intended to ‘ring fence’
                  the vessel. This can be an advantage when looking to sell the ship. However, the aim
                  also may be defensive – to try and prevent the arrest of ‘associated vessels’ within a
                  fleet, although this may not always be a successful ploy.

                  An implication of this practice is that it can create ‘corporate veils’ – adding another
                  tier to shipping’s general lack of transparency.

                  A further blurring of the picture may occur through bareboat charter arrangements
                  (and, not dissimilarly, through lease finance or bareboat/hire purchase arrangements).
                  Here, the company operating the ship – and making decisions to all intents and purposes


© Drewry Shipping Consultants Ltd                                                                           15
Components of Ship Management – An Introduction                                                              Ship Management


                  as though it is the owner* – in fact is the disponent owner (the registered owner being
                  another company or a lending institution).

                  Certainly, there are some large fleet operations. For example, focusing on the
                  independent sector (i.e. excluding fleets under China’s Cosco umbrella, etc.), at mid-2003
                  the Drewry Shipping Consultants Ltd./Marbase database suggested that the two largest
                  independent fleets were owned by the Japanese majors, Mitsui OSK (MOL)-Navix and
                  Nippon Yusen Kabushiki Kaisha (NYK). The source put the Mitsui OSK fleet at 241 ships
                  with a total capacity of 19.33 million dwt or 12.99 million gt. NYK was recorded at 227
                  ships with a total capacity of 15.78 million dwt or 11.77 million gt. For various reasons
                  (e.g. bareboat charter arrangements, activities within subsidiary companies or joint
                  ventures) the figures cited may contain a margin for error. However, impressive as they
                  may look they have to be set in the context of a Drewry Shipping Consultants Ltd./Marbase
                  global fleet of some 50,250 ships**. In numerical terms, this gives the largest player a
                  share of around only 0.5%. The share rises to around 0.6% if the numbers of
                  passenger/ferries and offshore vessels is excluded.

                  In ship numbers, the largest fleet is covered by elements of the Chinese state run fleet –
                  with a combination of Guangzhou Ocean, Coscon, Cosbulk, Cosco HK, PRC government,
                  etc. amounting to a fleet of close on 600 ships. The China Shipping group adds another
                  150+ ships. However, a sizeable chunk of the Chinese fleet is on domestic service –
                  including upriver operations and cabotage trades.

                  Leaving aside the Chinese fleet and the Russian ‘Soviet legacy’ fleet (many of these are
                  small ships involved in river trading), the giant fleet operations (over 60 ships identified by
                  the Drewry Shipping Consultants Ltd./Marbase database at mid-2003) amounted to only:




                      > 200     Mitsui OSK Lines                                   60-100      IRISL*
                      ships     NYK                                                 ships      Malaysian International
                                A.P. Moller group                                  (cont’d)    Shpg. (MISC)*
                                                                                               Egon Oldendorff
                                                                                               Pan Ocean
                  100-200       Kawasaki KK (K Line)                                           Bergesen
                   ships        Zodiac Maritime Agencies/SAMAMA                                Laskaridis Shpg.
                                                                                               Rickmers Rederi
                                                                                               Seatrade Groningen**
                      60-100    Shipping Corp. of India*                                       Teekay Shipping
                      ships     Nav. Maritime Bulgare*                                         Seacor Marine
                                Mediterranean Shipping Co.                                     Latvian Shipping
                                Wagenborg**

                      * State company.
                      ** Pool or co-operative operation.
                      Source: Drewry Shipping Consultants Ltd/Marbase.




                  *  The disponent owner is responsible for manning, insuring, repairing, maintaining, provisioning and
                     otherwise operating the ship.
                  ** This figure in itself could be an understatement as it will exclude some non-international ships, river/sea
                     ships, Great Lakes only tonnage, etc.


16                                                                                      © Drewry Shipping Consultants Ltd
Ship Management                                                       Components of Ship Management – An Introduction


                  In some respects, the above listing adds to the confusion as it contains two pool type
                  operations that have a number of ship owner member/contributors. There are a number of
                  other pools which might also enter if the list if the fleets of individual owner members were
                  combined. However, the aim here is not to be definitive. Rather, it is to highlight that small
                  fleets are the norm.

                  Furthermore, the picture does not get any stronger if the focus is shifted to the mainstream
                  shipping sectors – other than some of the niche areas such as car carriers, chemical
                  carriers or reefers. The pattern in the containership sector – where the nature of liner
                  shipping makes ‘disguising’ ownership less acceptable – is offered by way of example
                  through Table 2.1

                  Table 2.1
                  Top 20 owners of containerships

                          OWNER                                         No.           Total Teu Capacity          %

                      1   Möller                                        107                388,699              6.51
                      2   COSCON (China)                                110                230,816              3.86
                      3   Conti*                                         54                204,651              3.43
                      4   Mediterranean SC                               65                183,247              3.07
                      5   Evergreen                                      49                178,039              2.98
                      6   P&O Nedlloyd                                   42                170,588              2.86
                      7   NYK                                            44                153,701              2.57
                      8   APL                                            37                138,873              2.32
                      9   E R Schiffahrt*                                36                136,637              2.29
                  10      Costamare                                      39                123,138              2.06
                  11      MOL                                            33                119,965              2.01
                  12      Offen C-P*                                     43                117,157              1.96
                  13      Zodiac                                         33                113,704              1.90
                  14      Hapag-Lloyd                                    24                111,099              1.86
                  15      K Line                                         32                105,040              1.76
                  16      Lloyd Triestino**                              28                104,127              1.74
                  17      Maersk Sealand***                              30                100,055              1.67
                  18      OOCL                                           26                 95,963              1.61
                  19      Yangming                                       29                 93,601              1.57
                  20      Hanjin                                         20                 89,456              1.50
                  21      Others                                      2,064              3,014,957             50.47

                          Total                                       2,945              5,973,513

                  *   German KG fleet managers (vessels on charter). Vessels run by Greek operator, Costamare,
                      are also chartered to container lines.
                  ** Lloyd Triestino is owned by Evergreen
                  *** Maersk SeaLand is part of Möller.
                  Source: Drewry Shipping Consultants Ltd./Marbase.


2.3     Outsourcing

                  Outsourcing has become a ‘buzz word’ of the late 1990s and early years of the 21st
                  century. It has evolved both good and bad connotations. The negatives tend to come with
                  job losses in traditional areas (especially if the operation is relocated to a low cost labour



© Drewry Shipping Consultants Ltd                                                                                 17
Components of Ship Management – An Introduction                                                         Ship Management


                  region)*. There also can be a negative spin if the moves are tied in with another emerging
                  ‘buzz word’ – globalisation**.

                  The good side projected for outsourcing tends to be that it relives various burdens so
                  allowing a business to concentrate on its core attributes.

                  Shipping is a global business. Furthermore, it is one in which outsourcing is not a
                  new phenomenon. However, it may not have thought of it in precisely this way.
                  Three, perhaps four, decades back shipping embraced the concept of the flag of
                  convenience. Initially, the driver was labour costs – and crew budgets were driven down
                  as low cost crews (and, subsequently, officers) replaced those from the ‘traditional
                  maritime’ nations.      Subsequently, flag choices have taken into account wider
                  considerations – perhaps relating to tax regimes. Regrettably, there is also a downside to
                  these choices effected by operators at the ‘sub-standard’ end of the shipping market. That
                  is, some flag regimes are unable to enforce the domestic and international rules and
                  regulations that they have signed up for.

                  Shipping serves the global economy. Within the global economy, the ‘power base’
                  is changing. The world now has only one superpower. The EU is expanding. Eastern
                  Europe is a low cost region with emerging potential. Some of the Asian ‘tigers’ have risen
                  and fallen while China takes on greater importance to trade almost day-on-day. In such
                  an equation, it becomes ever more likely that the owners of shipping hardware
                  become more detached from the suppliers of labour and other services needed by
                  shipping. Major ship managers do have something of a track record in locating
                  themselves geographically to service the new order.

                  For example, the major ship manager, Anglo Eastern now claims a presence in all the key
                  shipping centres as well as being responsible for one of the largest and most diverse fleets
                  under third party management. Anglo Eastern’s global make up includes Hong Kong
                  (management of containerships and bulk carriers), Singapore (management of tankers and
                  gas carriers), Glasgow (management of product tankers and ro/ros), Montreal (for St.
                  Lawrence Seaway operations and Canadian flag ship management), Isle of Man (crew
                  management) plus regional offices in Mumbai, Manila, Guangzhou and Poland. The group
                  has opted to concentrate expertise on a ship type basis – though there are some
                  geographical variations to meet specific owner requests.

                  Whatever one might think of the pros and cons, outsourcing is a feature of most industries
                  around the world. In shipping – and related sectors such as insurance – one area targeted
                  is ‘back office’ functions. However, the most crucial is ship management.

                  One element in the outsourcing decision will be the ship owner’s level of experience
                  in operating and employing ships (or a ship of a particular type). Working with a
                  ship manager could provide a vital learning curve. Another might be fleet size – an
                  owner with one or two ships might feel that placement with a manager able to exert greater
                  ‘muscle’ and bargaining power in parts of the market and offer scale economies is an
                  avenue worth pursuing.


                  * Clearly, the regions gaining this work take the opposite view.
                  ** Globalisation is a concept that has different meanings in different circumstances. In the outsourcing
                     context, key components tend to be access to low cost labour (which today is enhanced by cheap
                     communications costs) supported by advanced technology where relevant. Shipping (transportation)
                     tends to be regarded as cheap and almost incidental. That is, it is cheaper to move goods and
                     components several times than it is to produce in the high labour cost area.


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Ship Management                                                   Components of Ship Management – An Introduction


                  However, in taking this route an owner has to be prepared to sacrifice some independence
                  and control.

                  Developments in recent times point to a view that ship managers have to be
                  a sizeable entity in order to be effective. In part, this may be due to what managers
                  would perceive to be inadequate remuneration from others – they will have a threshold for
                  the numbers of staff needed per number of ships being managed in order to be cost-
                  effective.

                  Anglo Eastern, again mentioned for illustrative purposes, employs about two people per
                  ship under management. However, as ships are added, corporate procedure allows for a
                  “modular approach to ship management” with “fleet managers of high technical standing
                  controlling a fleet of 20-30 ships of a certain type, belonging to between 2-5 owners” while
                  “the key person” is “the superintendent with an overall responsibility and authority over a
                  small number of ships”.

                  However, even some key managers have reservations along the lines that ‘big
                  is necessary’ rather than ‘big is beautiful’. Some thoughts on this might be gleaned
                  from Figure 2.1 which seeks to illustrate a typical profit and loss position for a technical
                  ship manager (basis 3-4 tankers or 4-5 dry bulk carriers allocated per technical
                  superintendent).


                  Figure 2.1
                  Typical P&L for a ship manager ($)
                  10,000,000

                   8,000,000

                   6,000,000

                   4,000,000

                   2,000,000

                           0
                               10          15          20          25            30            50           100
                                                              Number of ships
                                                        Income   Expenses

                  Source: Drewry Technical Services


                  This question of size will strike a chord with some ship owners who have fears that
                  managers can become too big and, as a result, begin to dictate to owners.

                  However, a further aspect in the size of a ship manager’s fleet portfolio is in dealing with
                  fleet turnover (e.g. ships withdrawn through onward sales or other reasons). If, for
                  argument’s sake, a manager loses 10-12 ships from its ‘stable’ – the implications will differ
                  markedly if this marks a withdrawal from a portfolio of 30 ships as opposed to one of 300
                  ships.

                  For the inexperienced or the reluctant ship owner, placements with a ship manager may be
                  a prudent and not too difficult step to take. For others, even those with small fleets, there


© Drewry Shipping Consultants Ltd                                                                             19
Components of Ship Management – An Introduction                                                             Ship Management


                  Table 2.2
                  Why choose a ship manager?

                  Small Ship Owner                        Medium Ship Owner                 Large Ship Owner

                  Cost                                    Cost                              Non-core ship type
                  Regulatory requirements                 Regulatory requirements           Benchmarking own operation
                  Seagoing staff                          Crew                              Catalyst for internal changes
                  Shore based staff                       Shore based staff                 Crewing/flag requirements
                  Management skills                       Flexibility of ship type          Entry to different sector
                  Flexibility with different ship types   Unwarranted increase in           Union pressure
                  Operators' liability                    infrastructure                    Tax advantage
                  Reputation with oil majors              Shared operators' liability       Ship management seen
                  and other ship charterers               Benchmarking own operation        as non-core business
                  Ship trading patterns                   Lack of internal experience       Joint venture
                                                          Ship trading patterns             Shared operators' liability

                  General

                  Financial performance demands by shareholder(s)

                  Outsourcing becoming more common

                  Operators' responsibilities becoming more pronounced, hence outsourced ship management
                  offers a shared responsibility

                  Source: Drewry Technical Services


                  are a number of factors to weigh up or trade off but, in the main, these will centre on the
                  level of control over the ships or shipping operation and the ‘added value’ that can be
                  offered from the skills and reputation of a high quality ship manager.

                  For ship owners, relationships with ship managers can be lengthy, fruitful and
                  successful collaborations. However, this is not guaranteed. Therefore, there can be
                  a parting of the ways and the ship owner has to look to protect his/her interests
                  should this come about. In the technical field, there is a belief that the ship manager can
                  be the party ‘in control of the divorce’ since removal from the management arrangement
                  might see some vessel approvals withdrawn for three months or the owner lose certain
                  advantages (in terms of crewing, insurance, industry compliances, etc.) gained primarily by
                  virtue of the manager’s status.

2.4      Ship management

                  A shipping operation (excluding landside elements that apply in the liner trades) broadly
                  breaks down into:

                  •      The acquisition of the ship(s). If a new ship, there will be issues of yard choice and
                         design matters to evaluate and a newbuilding process to supervise. If a secondhand
                         ship, there will options to evaluate, bids to negotiate and inspections to be undertaken.
                         There may be a need to work via shipbrokers. Once acquired, the focus switches to
                         meeting the requirements of the loan(s) and mortgage.

                  •      Securing income from the ships. That is, securing charters and dealing with various
                         shipbrokers.


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Ship Management                                                             Components of Ship Management – An Introduction


                   •     Operating the ships. This embraces manning, insurance, repairs and maintenance,
                         provisioning, securing stores, spares, etc. and, if the vessel is working under a voyage
                         charter party, fuel (bunker) purchases*, port arrangements (including payment of dues
                         and disbursements and, if specified, cargo handling matters) and costs and other
                         matters relating to canal or seaway transits.

                   •     Running the business: This includes elements such as the head office facilities and
                         requirements, administration, general banking and insurance, marketing, information
                         gathering, etc. (A number of these activities may have only a tenuous relationship to
                         the ship itself – especially, if the company involved is active also in areas other than
                         ship operation – but a proportion of these costs may be sought from the revenues
                         earned by the ship).

                   An overview of how the main ship management functions and those of administrating the
                   shipping operation might inter-relate is shown in Figure 2.2.

                   For all ships (and ship owners) these functions have to be performed. The question is,
                   however, is it a better option for some or all of these activities to be undertaken by a third
                   party manager rather than resource them in-house? Naturally, the answer varies from
                   individual to individual.




                   *   Naturally, the owner has to cover fuel expenses when the ship is ‘off hire’. Bunkers, port and canal
                       costs – known collectively as voyage expenses – are for the charterer’s account when a ship operates
                       under a time charter arrangement.


Figure 2.2
Management and administration overview

                       Management                                                     Administration


                                                                                     Business functions
      Commercial                        Technical


                              Crewing                                  Unavoidable                  Potentially optional



                                                                          Finance.                      Advertising.
 Ensuring the income               Management of ship                   Accounting.                     Marketing.
 stream is maintained.             operations/functions.                   Legal.                   Use of agents and
    Organising and                 Supervision of R&M                     Taxation.                       brokers.
   managing various                      regime.                                                  E-trading platform use.
 operating and voyage                                                Office overheads.
                                      Supervision of                                               Education/training for
     cost streams.                 procurement needs.                Communications.
                                                                     Policy/Planning.                 seagoing and/or
                                                                                                  shore-based personnel.


                                                    Interlinked functions


      Employment/chartering decisions, trading patterns, S&P policy, drydock and off hire, accounting systems, etc.


Source: D.M. Jupe Consulting


© Drewry Shipping Consultants Ltd                                                                                          21
Components of Ship Management – An Introduction                                                Ship Management


                  However, where the decision is taken to outsource management functions the
                  services devolved normally fall under one of two main remits, namely:

                  •   Commercial ship management – concerned primarily with ‘getting the income in’.

                  •   Technical ship management – concerned primarily with ‘keeping the hardware/
                      seagoing operation going’.

                  The general industry perception is that most outsourcing by owners centres on
                  technical management. If, however, an owner opts to outsource both commercial and
                  technical management it does not follow that both functions will be placed with the same
                  manager.

                      Commercial ship management

                  The commercial ship management function – whether undertaken in-house or
                  contracted out to a third party ship manager – is an integral part of a ship owner’s
                  business plans and strategy.

                  Consequently, much will depend on whether the owner views shipping in the light of long-
                  term service provision, logistics service provision, single or multiple fleet area operations
                  (e.g. tankers, bulk carriers, reefers, etc.), general or niche market exposure or merely as a
                  speculative investment vehicle. Such views are crucial when a third party ship manager is
                  employed. It will influence the extent to which the manager can make choices between
                  ‘spot’ and ‘period’ employment cover and give an indication of the owner’s degree of
                  commitment.

                  Also relevant to decisions facing ship managers will be any added restrictions put
                  in place by the owner, the insurers or via any covenants on the mortgage/finance
                  agreement relating to geographical trading restrictions or on the carriage of any
                  specific cargoes.

                  In a nutshell, commercial management is about ensuring the income stream is
                  obtained and brought in as well as organising and managing a number of the
                  operating/voyage cost streams. Naturally, this includes negotiations relating to charters,
                  issuing voyage orders, appointing on/off hire surveyors, etc. but it also takes in the whole
                  post fixture workload, including collection of freight/hire, dealing with demurrage claims,
                  etc.

                  For owners using the services of a commercial ship manager, the benefits being sought
                  will include:

                  •   Specialist expertise and industry knowledge.

                  •   Market presence and ‘bargaining muscle’.
                  •   Scale economies – through sharing the overheads of the management operation with
                      other owners who have placed tonnage with the manager.

                  It is possible that the commercial ship manager may be asked to become involved with the
                  process of vessel acquisition and/or disposal. This could embrace arrangements with
                  brokers, financiers and others. However, the probability is that the involvement of a
                  manager in this area primarily would be in some form of advisory or consultancy capacity


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                  rather than via the activity being outsourced to the manager. It seems improbable that an
                  owner would wish to outsource negotiations over finance/mortgage terms. Moreover,
                  assistance on sale and purchase matters normally would see an owner turn to a specialist
                  broking house. However, it may be that some managers have in-house brokers who might
                  be invited to become involved.

                  However, the more regular expected tasks are likely to centre on:

                  •   Freight development – negotiating and securing charters.

                  •   Any requirements relating to cargo booking and ship scheduling.

                  •   Voyage estimation – covering such cost side elements as:
                          Bunkers and lubes; consumption and costs.
                          Hull and engine maintenance; work inputs and costs.
                          Crew (and costs).
                          Insurance (and costs).
                          Administration (and costs).
                          Capital costs – though this may be an ‘owner’s input’ into the equation.
                          Owner’s account voyage costs (as applicable) for ports, agency, pilotage, cargo
                          handling, canal transits, etc.

                  •   Voyage estimation – covering revenue side components such as:
                          Total freight (hire) earned.
                          Brokerage and commissions.
                          Demurrage and despatch.

                  •   Voyage planning and management – bunker stemming, etc.

                  •   Financial control and accounting.

                  It will be evident from the nature of a number of the items noted above that they
                  impinge on an owner’s strategic commercial decision making processes –
                  potentially, both in the short and long term. The owner, consequently, has to assess
                  whether there are risks in involving a third party interest within this process.

                  This is not to suggest that mangers would breach client confidentiality in any overt
                  way. However, the commercial shipping markets – whether chartering or S&P – are
                  very far from being transparent. Even the knowledge base on currently open (for
                  charter) or available (for sale) vessels and charterer or buyer requirements is imperfect.
                  Hence, the market place – of necessity – has to function around information
                  exchanges relating to reported business (which for most is ‘the market’ in terms of
                  information) coupled with broker/analyst interpretations together with a mix of gossip,
                  rumour, spin and hype that the market accepts as being the influence of ‘sentiment’.
                  For the ship owner, correctly judging how much of his/her hand to reveal at any given time
                  is crucial to commercial success.

                      Technical ship management

                  The technical side of the ship management equation effectively is about keeping the
                  ‘hardware’ functioning to an acceptable standard (based on regulatory and owner set
                  criteria) in order that the vessel can service its commercial commitments.


© Drewry Shipping Consultants Ltd                                                                           23
Components of Ship Management – An Introduction                                                Ship Management


                  With, belatedly, the industry as a whole now becoming intolerant of ‘sub-standard’
                  operating practices while, at the same time, being faced with a barrage of environmental
                  and safety driven legislation and regulatory requirements (often of a piecemeal and not
                  always complementary nature), the demands placed on those responsible for
                  management functions in this sector have become more onerous.

                  Hence, the technical ship manager will need to be cognisant of the various safety and
                  environment regimes and stipulations – and their legal implications under various
                  jurisdictions – in order to co-ordinate measures with the owner to ensure vessel
                  compliance. This co-ordination and compliance also will need to be in place in respect of
                  other areas, including:

                  •   Flag state requirements – including rules, regulations and treaties to which the flag
                      state has signed up to.

                  •   Port State Control requirements – including being aware of any specific defects likely
                      to provoke detention under the various MOUs. (It is unlikely that a reputable third
                      party manager would want to deal with vessels operating under flag, class or other
                      regimes that put them at the top of detention list targets).

                  •   Classification Society requirements.

                  •   H&M and P&I insurer requirements.

                  •   ISM Code requirements – both initial and ongoing.

                  Technical management is not solely about rules and regulations. It can embrace
                  crewing (although sometimes crew management is an area for separate outsourcing to a
                  specialist operating only in this field). Indeed, many ship managers will build up a cadre of
                  officers and, perhaps, ratings which they can deploy on various ships within the managed
                  portfolio.

                  This often appeals to ship owners as it can give broad continuity of employment to
                  the seagoing personnel while allowing the owner to have some reliance on the
                  standards required by the ship manager.

                  Technical management also will focus on a number of ‘policy areas’. The manager
                  will be involved in working through the planned maintenance policies and programmes
                  established with the owner – bearing in mind also the stipulations imposed by classification
                  societies and any other relevant bodies. Similarly, the manager will be engaged in
                  ensuring that policies and decisions agreed with the owner relating to spare parts and
                  supplying stores and other materials to the ship are carried out efficiently.

                  The workload also will cover some aspects of performance monitoring (in terms of
                  the vessel itself and services provided to the ship) and incident monitoring. For
                  instance, if the crew is sourced by the ship manager then it may be a requirement that the
                  manager ensures that the relevant seafaring personnel are familiar with safety measures,
                  routines and protocols as well as being aware of (and acting upon) the information that
                  needs to be amassed and actions taken in response to, say, a collision with another vessel
                  or a damage incident while at berth or in cargo damage matters or other events (e.g.
                  commencement and interruption of laytime) that might give rise to a legal or insurance
                  claim.


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                  As is the case with commercial ship management, advantages sought when utilising the
                  services of a third party ship manager on the technical account include:

                  •   Specialist expertise and industry knowledge.

                  •   Bargaining ‘muscle’ within the marketplace
                  •   Scale economies – through shared cost overheads.

                      Other management considerations

                  Although perhaps not explicit features of the specific owner:manager contractual remit,
                  there are two other areas of critical importance to the relationship.

                  The first concerns communications. An effective owner:manager relationship will
                  rely on timely communications between the two parties. At the most basic level,
                  this requires that owner’s intentions need to be made clear while managers will need to
                  feed back information in areas where owner’s instructions would be needed in order to
                  proceed.

                  Also, it will require good communications between the vessel and shore side
                  (which might be the owner’s office, the manager’s office or both). This is likely to require
                  some level of compatibility between computer software packages and consistency in
                  inputting data, etc. Systems exist which enable synchronicity (i.e. a change made on a
                  shipboard computer almost instantaneously updates the shore side database and vice-
                  versa).

                  Some ship managers will be involved in the development and promotion of software
                  systems and modules.

                  For most vessels, these systems will not need to extend beyond the owner’s office,
                  manager’s office and vessel ‘triangle’. However, there will be exceptions in the liner
                  trades in particular where, for example, arrival ports will need pre-receipt of bayplan
                  information (Baplie messages). Added needs have arisen latterly in terms of manifest
                  information demanded by US authorities prior to ships sailing to US ports. Sometimes,
                  there may be a need for compatibility with systems operated by ports (community
                  systems), which might be accessed by shippers, cargo owners, lines, customs authorities,
                  etc., as well as any specific systems operated by supply chain managers or logistics
                  providers.

                  The second – and this is a potentially evolving area – concerns risk management and
                  contingency planning. Shipping exists within a growing ‘looking for someone to blame’
                  culture (and the losers could be the ‘politically expedient’ rather than the ‘true’ culprit) and
                  the danger of becoming increasingly litigious. It is also an area that over time will see
                  much ‘moving of the goalposts’. There could be circumstances that will arise where a legal
                  system may not see any distinction between the owner and the manager in terms of
                  responsibility or may decide to hold a manager rather than the owner responsible for some
                  particular failing.

                  Consequently, ship managers need to be aware that such events could arise in the future
                  – even if they feel them to be remote. Measures intended to minimise the potential for
                  problems to occur and plans to mitigate them if they should occur may be necessary tasks
                  for managers to add to their existing workloads.


© Drewry Shipping Consultants Ltd                                                                               25
Components of Ship Management – An Introduction                                                 Ship Management


                      Management quality

                  Accusations of ‘sub-standard’ operation within the shipping industry, regrettably, occur all
                  too frequently.

                  One element in this is that ‘standards’ are set by a whole raft of different national and
                  international bodies. Some are incapable of enforcing their own rules.

                  Another is that many ship owners cannot seem to gain any tangible reward for ‘extra
                  quality’. As a result, there is often a view taken that the minimum stipulated standard,
                  therefore, is the level to aspire too.

                  Quality, naturally, has to be an issue in ship management. In part, this will be
                  recognised via the owner’s satisfaction (or otherwise) with the services provided by a
                  particular manager – and, no doubt, their cost.

                  However, it may be that, as time progresses, ship managers will come under
                  increasing pressure themselves to secure additional ‘quality standing’ levels. This
                  might involve achieving various ISO standards. It is conceivable that one day in the future
                  managers might face audits to secure something akin to Standard & Poors’ ratings. (The
                  P&I Clubs, for example, face these rigours and ship owners looking to raise funds on the
                  capital markets accept similar scrutiny).

                  The ship management sector can claim to have taken some measures over the years in
                  respect of the quality issue. In this context, most are likely to mention the establishment of
                  the International Ship Managers’ Association (ISMA).

                  The origins of ISMA can be traced back to 1991, however its genesis lay in part with the
                  ‘bad press’ that elements within ship management were attracting during the depressed
                  market years of the 1980s which some felt saw the sector being held up as a ‘scapegoat’
                  and being saddled with the blame for being an ‘instrument of cost cutting and shoddy
                  operation’.

                  A key aspect cited in ISMA’s raison d’être is an aim of “aspiring to higher quality standards
                  than that demanded by international regulations”. Hence, one aspiration may be to
                  promote the concept that working with an ISMA member manager may be seen in a
                  favourable light by an owner’s financiers and insurers – and this may offer some (cost)
                  advantage there.

                  ISMA members have to satisfy the ISMA Audit (normally carried out every five years),
                  which is carried out by a Classification Society as lead auditor, the Society chosen being
                  determined – on rotation – by ISMA*. ISMA also appoints two other auditors, the intention
                  being to achieve a random selection and one which is above suspicion.

                  The ISMA Code is based on the standards indicated in Table 2.3.

                  From 1994, ISMA membership was extended beyond ship management companies to
                  take in crew managers.




                  *   The ISMA Audit Body draws on American Bureau of Shipping (ABS), Det Norske Veritas (DNV),
                      Germanischer Lloyd (GL) and Lloyd’s Register of Shipping (LR).


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                  Table 2.3
                  Components of the ISMA Code

                   ISO 9002         ISM Code   ISMA       Procedure
                                      (IMO)

                                                          Business Ethics/Politics
                                                          Organisation
                                                          Personnel
                                                          Contingency Planning
                                                          Operational Capability
                                                          Maintenance/Maintenance Standard
                                                          Corrective Action
                                                          Records
                                                          Document Control
                                                          Internal Quality Audits
                                                          Safety
                                                          Environmental Protection
                                                          Technical Support
                                                          Certification and Compliance Rules
                                                          Cargo Handling and Cargo Care
                                                          Communication Procedures
                                                          Auditing Body
                                                          Cost Efficiency/Purchasing/Contracting
                                                          Contract Review
                                                          Management Review
                                                          Quality System
                                                          Drug and Alcohol Policy
                                                          Insurance
                                                          Accounting

                  Source: ISMA


                  The aims and aspirations of ISMA may well have hoped that the grouping became
                  something of an ‘elite group’ in a similar manner to the IACS members among the
                  Classification Societies or the International Group members among the P&I Clubs.
                  However, today’s ISMA membership listing does not contain the names of some of the
                  largest ship management operations – including V-Ships, Anglo-Eastern, Univan, etc.

                  Whether ISMA is or is not the vehicle for this is a topic for debate but there could be an
                  advantage to be gained from being a member of an ‘elite group’ based on adherence
                  to quality standards. Ship owners might feel that such an aim is advantageous to
                  them if signing up ships to a member of such a group (assuming, obviously, the
                  owner adheres to the requirements imposed) automatically gained them an
                  ‘acceptable status’ within the plethora of shipping regulations and inspection
                  regimes.


© Drewry Shipping Consultants Ltd                                                                              27
Components of Ship Management – An Introduction                                              Ship Management


2.5      The ‘market’ for ship managers

                  There are no readily available statistics mapping out precisely the extent to which the
                  global fleet is operated by third party ship managers. In September 2001, Lloyd’s List
                  reported that the ship management sector was estimated to control 25% of the
                  world fleet – up from 20% in 1990. A prediction of a market share of 33% by 2010 was
                  postulated.

                  A recent viewpoint developed within Drewry Shipping Consultants Ltd. is noted in
                  Table 2.4.


                  Table 2.4
                  Ship management – market size


                      No reliable statistics but estimates suggest:

                           Technical management (including crew):                     1,500-1,700 vessels
                           Crew management (including supply):                        4,500-5,500 vessels

                      Growth potential:

                           Annual trend (long-term) increase in number of vessels:    2.0% pa
                           Increase in fleet of third party ship managers;            6-8% pa

                      Total growth:

                           Over the next 10 years, 3,500-4,500 vessels under full technical management.
                           Growth in crew management services will be lower – as this part of the business
                           is presently more developed.


                  Source: Drewry Technical Services.


                  According to one ship manager source, “the average turnover of ships in ship
                  management is around 5%-10% per year” with this being attributable mainly to ships
                  sold on for further trading or for demolition.

                  The key for ship managers, consequently, will be where the additional recruits for
                  its portfolio can be garnered from. Operators of emerging fleets – probably from the
                  less traditional maritime nations – will be a key target. However, this might be seen by
                  some as a ‘stepping stone’ especially if they utilise personnel ‘implants’ within the
                  management company with a long term aim of possessing their own in-house team.

                  On the other hand, the most significant targets will be those that until now have
                  been generally resistant to outsourcing.

                  The large fleets controlled out of Greece and Japan tend to be cited as prime
                  examples in this case. With Greece, much will depend on the extent to which the
                  ‘new generations’ move away from any long standing family ‘tradition’ of being 2-3
                  ship outfits.


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                    With Japan, the claim is misleading. Japan is a nation with a high degree of
                    commitment to ship management, however, matters normally remain domestic. Many
                    of Japan’s multitude of small scale fleet operators have very close operational and vessel
                    employment ties with one of the Japanese ‘majors’. It may be that tonnage is committed
                    under bareboat charter to them or operated under their management. Whether this will
                    change and become ‘international’ will depend on the extent to which traditional
                    conservative approaches change. There has been evidence of a ‘tradition’ in a number
                    of Far East countries (including Japan, South Korea and Taiwan) – particularly in relation
                    to shipping matters – to see developments (and the providers of these developments)
                    establish a track record. In some cases, the ‘proving’ time frame can be as much as
                    20-25 years. If so, it could mean that overtures from proven quality managers may have
                    an improving chance of success. (It also may be worth noting in this context that recently
                    the major Japanese ship owner, NYK, as well as other Japanese ‘majors’, has been
                    seeking to establish itself as a third party ship manager with operations being run out of
                    Singapore).

                    The key to gaining business is for managers to be able to win owners’ confidence.
                    To do this, they may need to have a physical presence (e.g. regional offices) in the
                    region where the owners are located and/or take in owners’ personnel within their
                    own offices. An issue in the prospects for ‘internationalising’ the Japanese market is that
                    the costs of operating regional offices there are seen as prohibitive by all but the largest
                    managers.

                    Another target area for third party ship management will be with vessels where
                    there is a multiple ownership (and the same rationale might apply also to certain ‘pool’
                    arrangements or operations which have been financed through bond issues). Some of
                    these links may be in place from the outset – for example, the German KG style investor
                    schemes see the ships tied in with managers with close links to the emission house behind

Table 2.5
World fleet – by domicile of owner*

                   Tankers      Bulk        Obo/ Container- General Reefers Ro/Ro        Gas      Pass. Others   Total    Total
                               Carriers O/O        Ships    Cargo-                     Carriers                          as % of
                                                            Ships                                                        Global
                                                                                                                          Fleet

Japan                  1,136       916         1     224      978       182       84    304       268     444    4,537    12.7
Greece                  500       1,059       22      84      435       140       27      34       60     583    2,944     8.3
Germany                 126        138         2     768      965        32       60      51        9     192    2,343     6.6
Norway                  338            89     30      15      265        68     237       80      199     501    1,822     5.1
USA                     290        119        11     112       60        63       48      19      145     355    1,222     3.4
UK                      161        100         0      95      134        44       51      18       78     123     804      2.3

Total (of above)       2,551      2,421       66   1,298    2,837       529     507     506       759    2,198 13,672     38.4

Total (of above)

As % of global fleet
                        41.0       42.8 48.2        45.8     29.8      42.4     31.5 57.2         41.9    38.6    38.4

* Ships of >10,000 dwt.

Source: Drewry Technical Services.


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                  the scheme. Norway’s K/S system has a manager (often a shipowner) with a prescribed
                  percentage holding in the vessel. However, there are other ventures where companies
                  may hold minority stakes in ships (or the one ship company that owns them) and, in these
                  circumstances, there may be pressure to involve third party managers as a means of
                  ensuring a ‘fair’ arrangement.

                  As a concluding thought, analysis undertaken by Drewry Technical Services (see
                  Table 2.5) in the first part of 2003 concluded that close to 40% of the fleet of >10,000
                  dwt (in terms of ship numbers) was run by owners domiciled in just six countries –
                  Japan, Greece, Germany, Norway, the USA and the UK. (If one were to add China to
                  this list, one might be looking at half of the available fleet). It may well be to these
                  countries that third party ship managers have to make their ‘primary pitches’ for business.




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3. Commercial management
                  Shipping continues to be a fragmented industry. Hence, its fortunes are ‘at the mercy of
                  the market’. Although 2003 has seen owners in the dry bulk market experiencing
                  unprecedented good fortune, the periods when owners enjoy the upper hand have tended
                  to be fairly infrequent. Commercial strategies, therefore, have to envisage the bad times
                  as well as the good. For the majority of owners, commercial matters are seen as being
                  best kept in-house although outsourcing commercial management is an important aspect
                  in the third party management equation. Whatever course is followed, the key is to be able
                  to understand and ‘read’ the relevant market trends and developments.

3.1     Ship chartering – securing the revenue stream

                  Assuming that the vessel under consideration is not one of the very few examples of
                  proprietary tonnage* within the world fleet, then the commercial focus of operation will
                  be with earning income either from freight rates secured for the carriage of cargo or
                  from hire received from chartering out the ship for a specified period. The level of
                  earnings achieved will be set by (a) market conditions at the time and (b) the market’s
                  perception of whether a particular ship takes any form of ‘discount’ to the market on
                  account of, say, age, condition, equipment, configuration, etc.

                       Liner shipping or tramp shipping

                  When considering the carriage of cargo, it is important to understand the distinction
                  between liner and tramp shipping.

                  •    Liner shipping:      This is the mode which involves bringing cargo to the ship. The
                       ships – which may be owned by a single company or operated as part of a consortium
                       or alliance – sail to set timetables** between specified ports***. The timetables are
                       pre-advertised. The service needs a string of vessels in order that the published
                       timetable can be maintained. Furthermore, the service may need to interlink with
                       others as the various ‘line haul’ services connect through ‘hub’ ports which have
                       ‘feeder service’ links to ‘out ports’. Liner shipping tends to considered as being largely
                       synonymous with the services of the containership lines, although this is not wholly the
                       case.

                                        The process of securing cargo is complex. It will involve
                       arrangements with agents, freight forwarders, logistics service providers, hauliers,
                       NVOCCs****, large corporations providing high volumes of goods (through service



                  *     Such ships are owned by the cargo interests and their operation is integral to the owning company’s
                        operations. In practice, most cargo controllers do not wish to be ship owners. One might argue that
                        ships owned by an oil major might count in this category but generally the wider view would be that
                        they would not. These ships may well carry third party cargoes and be chartered out to other
                        operations. Historically, the examples normally cited have tended to be ships owned by aluminium
                        companies that were used to transport bauxite and/or alumina from mine or refinery to the site of the
                        aluminium potlines. Alcoa continues to operate in this manner to/from a transhipment station in the
                        Caribbean.
                  **    These timetables can be very specific – e.g. a service may be advertised as sailing, say, not just on a
                        weekly basis but every Thursday afternoon.
                  *** Calls might be made at other ports ‘on inducement’.
                  **** Non-vessel operating common carriers.

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                     contracts) and others. The information flows are complex. The administration is
                     highly complex. Arrangements may be on a door-to-door basis.

                                           In this environment the possibilities of outsourcing commercial
                     matters to third party management could at best be described as fairly remote. This
                     said, elements within the supply chain (including door-to-door business) do attract the
                     attention of third or fourth party logistics providers and some liner shipping companies
                     are making moves into this field of operation.

                •    Tramp shipping: This is the mode which involves taking the ship to where the cargo
                     is. Such cargoes are likely to be ‘bulks’ in the sense that predominantly they offer full
                     shiploads*.

                                          Here, the process of securing cargo is more straightforward. It
                     involves negotiation between the ‘ship’ and the ‘cargo’** and, almost inevitably, will be
                     a port-to-port arrangement.

                                        Clearly, this is an arena in which a commercial ship manager
                     can have a role to play.

3.1.1 Types of charter

                Excluding the bareboat charter – which in most respects is a financing (or, possibly, hire
                purchase) tool – charter arrangements will be of either a voyage or time charter type.

                Voyage charters is the collective category for single voyage charters, consecutive voyage
                charters and contracts of affreightment (COAs).

                Time charters is the collective category for period charters and trip (or one-trip time)
                charters.

                To elaborate further:

                •    A single voyage charter is an agreement to carry a specified volume of a
                     particular cargo between one or more load port and one or more discharge port
                     in return for an agreed freight rate.

                     For example, 160,000 tonnes (5% more/less) of coal from Richards Bay (South Africa)
                     to Rotterdam (Neths.) at a rate of US$ 12.45/tonne.

                     The arrangement will have other key elements. These will include the lay days or
                     laycan period (e.g. 5-17.5.03). These dates relate to the period in which the vessel
                     can be presented to the charterers. The last date mentioned is the cancelling date. If
                     the vessel has not been made available by this date the charterer can exercise the
                     right to cancel. Also critical will be the terms (e.g. 40,000 SHinc/25,000 SHinc fio). In
                     this example, the time available to the charterers for loading equates to 40,000


                *   Naturally, some loading will be of less than full loads. Also, ships can create full loads by loading a
                    number of cargo parcels.
                ** Negotiation could be principal-to-principal but it is commonplace to utilise shipbroking intermediaries. In
                    this context, the ‘ship’ would be the owner (or commercial manager if one is being used) and the ‘cargo’
                    would be the charterer. However, it is important to keep in mind that chartering can be in ‘chains’ with
                    the ship used being chartered-in or arranged business being ‘sub-let’ to another owner.


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                       tonnes/day at the loading port and 25,000 tonnes/day at the discharge port. Other
                       charters might specify a set numbers of days (e.g. 4 days both ends or 8 days all
                       purposes; and there are issues over the applicability of ‘time saved at loading’ being
                       used to add to ‘time at discharge’) or a combination of time and cargo measures*.
                       SHinc indicates that the time allowed has Sundays and Holidays included. Fio (free in
                       and out) indicates that the cargo handling expenses fall to the charterer’s account.

                       In the tanker sector, especially in the crude oil/oil products trades, business is likely to
                       be concluded in terms of Worldscale. Essentially, Worldscale is a calculation based
                       on a nominal vessel operating on the route in question. The nominal vessel’s costs
                       are calculated (in US$/tonne) with this figure then indexed as the Worldscale 100 rate
                       for that route. A charter struck at Worldscale 75, therefore, would mean that the actual
                       freight paid (in US$/tonne) would be 75% of the Worldscale 100 figure. The intention
                       of this approach is that rates can be agreed on a regional basis (e.g. AG-East) with the
                       final rate paid being determined by the final route plied. The motivation for this is the
                       trading ethos that prevails within the oil market with cargoes often being re-sold while
                       on the high seas. It would be impractical to have to renegotiate the freight rate with
                       every cargo transaction.

                  •    If the charterer were to desire the same ship perform further voyages on the
                       same route then consecutive voyage charter deals could be put in place. Such
                       arrangements, however, tend to be enacted only where it is reasonable to expect
                       ships to operate on a round voyage basis.

                  •    Consequently, where a charterer seeks to arrange freight cover for large
                       volumes/several shiploads on a particular route the tendency is not to be vessel
                       specific. In this case, the arrangement would be a contract of affreightment
                       (COA).

                       For example, a report may look like – Richards Bay to Brindisi (Italy), 520,000 tonnes
                       of coal as a COA for 8 cargoes of 65,000 tonnes each. (There will be more/less
                       provisions). 40,000 SHinc/12,000 SHinc fio. US$ 11.25/tonne. Cargoes to be spread
                       over 01.04-12.04. Clearly, there will be a number of other specific arrangements
                       factored in on timing, vessel nominations, etc.

                  •    With a period charter, the nominated vessel and its specifications (probably including
                       some data on speed/fuel consumption relationships) will be spelt out as will the laycan
                       period and the charter duration. The period mentioned tends not to be highly specific
                       mainly because there are implications relating to the ‘final voyage’ under the time
                       charter that the charterer may be undertaking.

                       An example report is – ‘Galene’ (bulk carrier), built 1995, 73,656 dwt, 13k/32fo, laycan
                       19-24.6.03, delivery Vietnam, 4-6 months charter, US$ 15,750pd.

                  •    With a trip charter, the essential difference is that the specific time period is
                       replaced by an indicated delivery and redelivery location. The report might
                       indicate also where the trip is ‘via’.


                  *   If the charterer exceeds the allowed laytime the owner is entitled to financial recompense. This is
                      known as demurrage. It applies at an agreed daily rate (or pro rata) and is intended to represent the
                      owner’s costs. In reality, this is a ‘negotiable’ item. If the charterer completes loading and discharging
                      in less than the allowed laytime then recompense may be due to the charterer through the payment of
                      despatch. Traditionally, despatch has been set at half the level agreed for demurrage.


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                            For example – Delivery SouthWest Pass for a trip via the Mississippi River with
                            redelivery in the Singapore-Japan range. ‘Eastern Queen’ (bulk carrier), built 1994,
                            70,196 dwt, 13k/29.5fo, laycan 1-10.7.03, US$ 17,000pd plus US$ 350,000 in ballast
                            bonus.


3.1.2 Charter type – cost relationship

                       The most crucial factor in management terms between the two charter modes
                       (voyage and time) concerns their variation in cost responsibilities between the ship
                       owner and the charterer.


                       This is summarised in Figure 3.1.


                       If the services of shipbrokers are used, then the ship owner will be liable for
                       payments of their commission (brokerage). Explanations as to why appear to be lost in
                       history, but established practice is for brokerage to be calculated at 1.25% (of the freight or
                       hire) per broker.


                       In some instances, there might be an agreement also to pay address commission.
                       The origins of address commission lie in the days of sailing ships and when the ship itself
                       was the fastest means of communication. Today, in truth, it is effectively a discount on the
                       freight rate.



Figure 3.1
Ship cost and charter type relationships
                                                                                              Charter type:

                                                                        Bareboat*                 Time**                Voyage***

Cost:                    Main components

Capital                  Deposit
                         Repayment of loan principal
                         Interest

Operating                Manning
                         Insurance
                         Repairs and maintenance
                         Stores, spares and supplies
                         Administration and management

Voyage                   Fuel (bunkers)
                         Port disbursements****
                         Canal and seaway transit costs



                                       Cost for owner's account          Cost for charterer's account
   *   Also known as a demise charter. Mainly a financing tool. Bareboat charterer may have option to buy.
  **   Includes period charters and time charter trips (or trip charters).
 ***   Single voyages, consecutive voyages and contracts of affreightment (COA).
****   Fio basis — all costs on charterer's account. Liner terms — all costs on owner's account. Gross load/discharge free — loading
       costs on owner's account, discharge costs on charterer's account.
Source: Drewry Shipping Consultants Ltd


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3.1.3 Arrangements between the buyers and sellers of goods

                  In the context of chartering, the contractual arrangements are those between the
                  owner (aided by the manager where necessary) and the charterer. However, in the
                  wider transportation equation will be other considerations affecting the arrangements
                  between the buyer and the seller of the goods being transported. Some of these will be
                  influential in determining which of these parties acts as the charterer – and can be
                  influential in the demands made on the shipping provision.

3.1.3.1 The bill of lading

                  One long established – but still contentious – feature is the bill of lading*. This is
                  seen variously as a receipt for goods and a document of title. If the whys and
                  wherefores involved with bills of lading are not adhered to precisely then claims for,
                  say, wrongful release of cargo can surface. It does not help that US and UK law differs
                  on interpretations of bills of lading.

                  For guidance, a few items of terminology to consider include:

                  Straight bills of lading: This is an ‘ill defined’ term although US law redefines this as
                  a ‘non/not negotiable’ bill of lading. This involves the consignee being clearly
                  nominated and without any qualification. This compares with other formats which might
                  have vaguer terms such as ‘to the order of …’ or ‘to bearer’ – the latter being termed a
                  bearer bill of lading rather than a straight bill of lading. Hence, a straight bill of lading
                  cannot be negotiated and cannot be used to transfer title by endorsement nor,
                  unlike a bearer bill, can it be used as a ‘blank’ endorsed bill.

                  In the USA, delivery of goods by a straight bill of lading can be made to the nominated
                  consignee without surrender of documentation but merely on proof of identity.

                  Elsewhere, there is a reluctance to equate the straight bill of lading to the waybill and so,
                  generally, the surrender of the straight bill of lading in return for the delivery of goods (in
                  the same way as an ‘order’ or ‘bearer’ bill) appears to be the norm**.

                  Consequently, US export law permits the former but the latter is likely to factor in at
                  the receiving end. At the import end, the process often is seen as less to do with
                  controlling title than with controlling delivery. US importers are pressing for the same
                  regime to apply as for exports – but, presumably, this process will have become
                  complicated further by the new and evolving anti-terrorist measures being applied to cargo
                  movements into US ports.

                  Many in the shipping industry would be keen to see these apparent anomalies rationalised.
                  However, a new transport convention will take time to be agreed and ratified.

                  Waybills: A waybill is a receipt and evidence for the existence of a contract of
                  carriage but it does not act as a document of title. Exporters in a number of areas are
                  keen to see waybills replace bills of lading – and some successes have been reported.


                  * In a nutshell, he/she who holds the bill of lading holds the goods.
                  ** Singapore law has offered a possible clarification – where a contract of carriage is required that is not a
                      document of title, there is the waybill. In contrast, a bill of lading should always be a document of title.
                      Hence ‘order’ bills and ‘straight’ bills are documents of title but only the ‘order’ bill is negotiable. This
                      said, laws in, for example, Hong Kong provide a contradictory interpretation.


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                Arguably, the bill of lading is seen by some as akin to a ‘cheque for the goods’* –
                necessary where it provides some form of security for payment/delivery or where the
                goods in transit may be under negotiation/sold while at sea and hence the documentation
                has to reflect the implications of such a sale and transfer of title to ownership. However, in
                some instances, these requirements may not be necessary – an example being an
                ‘internal’ movement within a company ‘chain’ where payment processes may be ‘book
                based’.

                Waybills have attractions to some in that they can enable ‘paperless’ transactions. As yet,
                transfer of title requires ‘paper’ and so ‘breaks the e-chain’.


                     Bill of lading or waybill?


                The current position is that the bill of lading will be the requirement where:

                •    The shipper’s requirement is to be paid and to retain control over his/her cargo until
                     paid.

                •    The consignee requires that the seller does not get paid without giving up control of
                     the goods to the consignee or the consignee’s nominated agent.
                •    If the shipping arrangements are linked to advanced financing from a bank or other
                     lender, the bank will require security for its payment or promised payment or letter or
                     credit. This security can come from a document of title.

                •    It is a requirement for an insurer in order to minimise risk/protection position.


                     Other aspects:


                Dealing with the bill of lading has other implications within the chartering
                procedures. For example, a bill of lading might state the name of the ‘intended vessel’.
                The bill consequently requires the addition of details through an onboard notation
                relating to the date of loading and the name of the vessel involved – even if it has been
                stated as the ‘intended vessel’. There may be other onboard notations required and it is
                necessary for these to be added to the full set of papers if there is more than just a sole bill
                of lading. Some bills of lading may indicate they are subject to a charter party**.

                An extremely important consideration will be if the bill of lading incorporates a
                demise/identity of carrier clause. With this in place, the carrier – who is not the owner or
                operator of the ship on which the cargo is transported – has transferred the contract to
                ‘merchants’ and so has exited the contract once the ship has loaded. Hence the contract
                of carriage shifts to one between the ‘merchant’ and the vessel. However, such clauses
                are not legally valid in all of the jurisdictions around the world.

                If transhipment or lighterage may feature, there may be a requirement for clauses to
                ensure that these actions are at the merchant’s risk.



                *  Effectively, in the way that a ‘cheque’ applies to ‘money’ so does a bill of lading apply to goods – i.e. the
                   carrier is the ‘bank’, the seller/shipper is the ‘account holder’ and the buyer/consignee is the
                   ‘beneficiary’.
                ** This is a potentially difficult legal area depending on how well the two documents are worded.
                   Contradictions between the two are possible. Potentially, it might even place the ship owner/operator in
                   the position of being ‘more than merely the carrier’.


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                  Bills of lading are critical to international trade in that they can be negotiated and
                  sold – and payment will be against this. Hence, a major problem is when what is
                  recorded on the bill of lading does not tally with the final outturn from the vessel –
                  once again highlighting the importance of all the required onboard notations and
                  adherence to correct procedures. The so-called ‘doctrine of estoppel’ (which applies once
                  a bill of lading is in the legal possession of ‘an innocent third party purchaser for value’)
                  prevents (in law) the denial of the accuracy of any detail that has been acknowledged in
                  the bill of lading. Any carrier who inputs incorrect information* onto the bill of lading would
                  need to be able to prove that this was not done knowingly or else they could face
                  proceedings for fraud.


3.1.3.2 INCOTERMS

                  INCOTERMS are a set of terms drafted by the International Chamber of Commerce
                  codifying the interpretation of trade terms, rights and obligations of both buyer and seller in
                  an international transaction.

                  The key aspect of INCOTERMS is that they define where the transfer of risk between
                  the buyer and seller takes place. This is significant to the ship owner/manager
                  sector as it will define where in the process the charterer lies – i.e. acting for an
                  exporter, importer or a merchant/intermediary** acting for one of these.

                  Table 3.1
                  INCOTERMS 2000

                  INCOTERM        Definition of point of delivery to the buyer

                  EXW             Ex-works (named location)

                  FAC             Free carrier (named location)
                  FAS             Free Alongside Ship (named port of shipment)
                  FOB             Free On Board (named port of shipment)

                  CFR             Cost and Freight (named port of destination)*
                  CIF             Cost, Insurance and Freight (named port of destination)
                  CPT             Carriage Paid To (named place of destination)
                  CIP             Carriage and Insurance Paid To (named place of destination)

                  DAF             Delivered at Frontier (named place)
                  DES             Delivered Ex-Ship (named port of destination)
                  DEQ             Delivered Ex-Quay (duty paid, named port of destination)
                  DDU             Delivery Duty Unpaid (named place of destination)
                  DDP             Delivery Duty Paid (named place of destination)

                  * In previous guises, this was noted as C&F.
                  Source: International Chamber of Commerce


                  *  This is a historical area of difficulty in shipping when, for example, the documentation is produced ‘late’
                     and is dealt with very cursorily as the ship has to sail. Equally, ship owners tend not to view kindly
                     delays to the ship through cargo work being prevented because onboard personnel are not satisfied
                     with a ‘bill of lading nicety’. If everything associated with the voyage and the cargo’s safe delivery
                     passes smoothly there will not be repercussions but if something goes awry, ‘loopholes’ tend to be leapt
                     upon by lawyers.
                  ** This could be a ship owner looking to time charter in a vessel to meet a contractual requirement or a
                     contract holding ship owner seeking to sub-let a cargo.


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                The importance of this may increase if goods are damaged while on the ship.
                Ascertaining where the risk lies on this tends to be fairly straightforward when dealing with
                bulk or ‘conventional’ general cargoes. On the other hand, the position is less clear if the
                goods have been transported in a container or, perhaps, have gone through some other
                form of unitisation/pre-packaging before loading. If the damage is not evident until post
                discharge it may not be clear whether this damage occurred during discharge, while at
                sea, while loading or before loading onto the ship. The transfer of risk also has
                implications for the cargo insurance cover.

                The current set of INCOTERMS are as noted in Table 3.1.


3.1.4 ‘Reading’ the market

                The judgements made in respect of the perceived future performance of the freight
                markets will be seen through the strategic operating choices made – whether by the
                owner or a commercial ship manager – relating to vessel employment and acquisition/
                disposal policy.

                The ‘spot’ market offers the greatest exposure level and so, unsurprisingly, is the
                setting for the extremes in risk:reward equation. Good market fundamentals buoyed
                by market sentiment will push spot rates to peak levels. Conversely, spot rates are likely
                to be the arena for the poorest rates when cyclical fortunes are at their most adverse. The
                ‘period’ market – or long term contracts such as a COA – ties in earnings positions
                over a set period*.

                Hence, trade offs have to be made between, say, a stable position versus the prospect of
                not being able to capitalise on a market peak.

                The balance of power in the tramp shipping markets normally lies with the
                charterers. The reasons for this are understood best if one thinks not in terms of owners
                and charterers but of sellers and buyers of shipping services (which, effectively, is what the
                two parties are).

                There are large numbers of sellers (owners), mostly operating independently and in
                direct competition with other. Often, their product (whether a Panamax bulk carrier or a
                Vlcc) has no particular ‘special advantage’ over the competition. There is a much smaller
                number of buyers (charterers). Many are serving a specific business agenda. Market
                logic suggests that the smaller, more powerful bloc will prevail more often than not.
                Furthermore, as with the oil majors (see Figure 3.2) these power blocs are also
                consolidating.

                Can anything be done to alter this balance of power?

                One consideration would be for those on the ‘sellers’ side’ to link themselves more
                closely to the ‘real buyers’ (i.e. move closer to an industrial shipping or logistics


                *   There are ‘hedging vehicles’ available to shipowners such as Forward Freight Agreements (FFAs).
                    These are derivative products or ‘swaps’ and are ‘paper contracts’ – i.e. no physical delivery or
                    performance occurs under the arrangement. The FFA market is growing but it is ‘over the counter’
                    business and so not open to wider analytical scrutiny. It is an option for owners and, consequently,
                    could be one for a commercial ship manager acting on an owner’s behalf. However, a more
                    established view in the shipping community tends to be that the ‘spot’ versus ‘period’ consideration is a
                    hedging vehicle in its own right and, moreover, one that has stood the test of time.


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Figure 3.2
Consolidation – charterers faster than shipowners?

                   Globalisation is affecting all industries, including the major ship charterers.
                    The pace of change is often faster than among ship owning companies.


                                       In the Oil Sector 14 Companies/Charterers
                                    Exxon | Mobil | BP | Amoco | Arco | Total | Elf | Fina |
                                     Chevron | Texaco | Repsol | YPF | Philips | Tosco




                                                      Have become....




                                                 6 Companies/Charterers
                                          Exxon/Mobil | BPAmoco | Total/Fina/Elf |
                                         Chevron/Texaco | Repsol | Philips/Conoco


Source: Drewry Technical Services



                  environment) but, at least for the present, this is a step too far for most independent ship
                  owners. An alternative would be for ship owners to find means of co-operating in
                  order to increase their power base.


                  This second route leads to two principal options – to enter into a pool arrangement
                  or to gain added market presence through working with a commercial ship manager.
                  It may be the two are interlinked as a pool operation might involve a commitment to a pool
                  appointed manager.


                  Pool ventures, to be effective, are likely to need the presence of essentially like-
                  minded ship owners and broadly similar vessels. A ‘mixed bag’ of ships may hamper
                  the ability of a pool to secure COA business and, also, does not provide the pool with any
                  real commercial strength. Shared owner aims makes it more likely that committed vessels
                  will remain committed to the pool so enabling the operation to make longer-term
                  commitments. Pool operations in ‘niche ship’ areas (e.g. forest products transport, reefer
                  shipping, liquid chemical movements) are likely to have less transient membership than
                  pools in sectors such as general purpose bulk carriers. (The latter will always see some
                  members tempted to pull out in a rising/high freight market).


                  Pools can be problematical. Some pools will have a dominant owner presence. Pool
                  policy, therefore, may sway in favour of the majority position. Pools also have to address
                  the issue of apportioning the remunerations. Pool ships will vary in terms of their cost-
                  efficiency. Adjustment mechanisms will be put in place to ‘balance’ these out.


© Drewry Shipping Consultants Ltd                                                                                39
Commercial Management                                                                                   Ship Management


                     Pools and consortia

                Pool structures vary in their roles and in the split of autonomy between the pool and
                the owners that participate in the pool.

                As a general picture:

                One option is to develop a pool structure, which, in practice, is little more than a
                loose association of owner interests under which individual owners handle all their
                own operating and chartering activity but use the pool arrangement for marketing
                and administrative purposes. This type of pool tends to be most in evidence within short
                sea trading environments. (In some of these localised pools, the make up of fleet might be
                of owner-master run vessels).

                A development on this is a more formal member-owned pool within which the
                members enable the pool to take on commercial matters (e.g. chartering, arranging
                contracts of affreighment and related vessel scheduling, chartering in substitute tonnage
                when required, etc.) and, perhaps, some vessel management functions. The pool’s
                administrative entity would be responsible for the collection of income, the payment of
                expenses, calculating any vessel-by-vessel adjustments and distributing the revenues and
                profits to members based upon the agreed distribution principles.

                The third option, which is a further stage ‘evolution’ is for the pool to act as the
                paramount body. That is, it becomes in essence an ‘administration-controlled’ pool*. It
                continues to have commercial, management, administrative and marketing roles but also
                the pool will be the policy-making vehicle. Policy decision areas could include having the
                autonomy to determine who (or which vessels) is (are) acceptable as a pool member.
                Compared with the second option, this approach could make it more difficult for an
                individual owner within the pool to withdraw its vessel tonnage. It is also possible that
                under this third stage set up that the pool (rather than individual owners) might enter into
                newbuilding contracts.

                However, whatever the precise configuration, all pools tend to have the following
                underlying aims (although the weight placed on the individual aims will vary with the nature
                of the pool and the fleet sector in which it operates):

                •    Ensuring that no pool tonnage is idle due to lack of cargo.

                •    Minimising the level of in ballast (unladen) voyage sailings – possibly via ‘spot’
                     positioning fixtures to link COA schedules.

                •    Minimising (ideally, eliminating) waiting time for new business after a cargo has been
                     discharged.

                •    Securing full, rather than part cargoes, through measures such as parcelling up cargo
                     segments into a full load.




                *   In practice, while the pool’s management team might operate as a separate, standalone operation, it
                    may find it impossible to ignore the impact of the percentage make up of the stakeholdings held by the
                    individual owner members when it comes to policy direction. This would be relevant particularly – and
                    not unreasonably – if the pool was seeking to obtain finance or adjust its debt levels.


40                                                                                  © Drewry Shipping Consultants Ltd
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                       Commercial ship management


                  Commercial management links might provide an owner with added market ‘muscle’
                  but this is not guaranteed. As with pools, a commercial manager may not gain much
                  advantage if the vessel tonnage being placed with the manager is a ‘mixed bag’ of a fleet.
                  In such circumstances, the advantages may be mostly administrative.

                  Herein, lies a potential problem. It may be that owners with a mixed fleet (which includes
                  a few ‘oddities’ from outside their mainstream sphere of operation acquired as an ‘asset
                  play’ investment) may see third party management as a temporary home for ‘atypical’
                  ships.


3.1.4.1 Evaluating market trends and developments

                  As noted elsewhere, for various reasons, ship owners find themselves at the ‘mercy of the
                  market’ when it comes to income. Certainly, rates will be set by the ‘minimum’ that any
                  individual owner will accept and often this ‘marginal vessel’ will be a low cost vessel.
                  Hence, owners need to be astute in their timing of vessel acquisitions and disposals and in
                  their evaluation of the risks of spot exposure versus period charter offers.

                  In other words, it is crucial for success in shipping that the market’s cyclical
                  positions are interpreted correctly and appropriate actions taken. The choice
                  between going it alone and working with a commercial ship manager could come
                  down to an owner’s view on which party has the most experience and best track
                  record in ‘reading the market’.

                  What are the vital market measures and points to monitor?

                  Probably the most important points to keep in mind, however expert the owner or
                  manager believes themselves to be, are that (a) with ships ‘one size does not fit all*’
                  and (b) the information available is incomplete, imperfect and subject to undue
                  influence by sentiment.

                  Lack of transparency also has important commercial implications. On the one hand,
                  this is perfectly reasonable. Commercial transactions being concluded on a private and
                  confidential basis are commonplace in most business sectors. However, shipping –
                  especially the tramp sector – needs a ‘market’. Hence, some business is reported. (This
                  differs markedly from some of the highly transparent futures markets where effectively all
                  transactions are logged and known). Consequently, the issues facing owners and
                  commercial ship managers are (a) what proportion of the activity in the market is put in the
                  public domain?, (b) how accurately is this reported? and (c) why has it been reported?

                  •    Activity:    This is highly variable. In the crude oil sector, the figure (as measured by
                       reported single voyage cargoes noted in the Drewry Shipping Consultants Ltd.
                       database**) is remarkably high and may be of the order of 60%-70%. However, the oil
                       industry has a ‘trading culture’ and a cargo can be sold several times while on the high
                       seas hence there is a greater predisposition towards spot shipping. With the leading


                  *  The workings of, say, the reefer sector or the car carrier market is competitively different from the ways
                     of the tanker or bulk carrier markets. In addition, for example, the market for Handy bulk carriers shows
                     significant differences from that of Capesize bulk carriers.
                  ** Further information can be gained by reference to The Drewry Monthly.

© Drewry Shipping Consultants Ltd                                                                                           41
Commercial Management                                                                          Ship Management


                    dry bulks – coal and iron ore – a more likely figure would be around 10%-15%
                    (although this figure may turn out to be higher in the ‘frenzied’ market seen during
                    2003). In part, this can be attributed to much greater use of term contracts or
                    contracts of affreightment. It will also reflect, in part, charterer choice to work business
                    on a trip or time charter rather than a voyage charter. For most other trades, the
                    reported percentage is very low indeed – and, often, can be non-existent – or available
                    information is only available from a small group of sector-specialist brokers who may
                    restrict the circulation of this information.

                •   Accuracy: The accuracy of reported business is reasonable but far from perfect.
                    Some reports will come from the broking house that concluded the deal but the report
                    will appear also via the broking ‘grapevine’. The influence of ‘Chinese whispers’ is
                    well known. Owners’ brokers will be happy to round the reported rate up a little if they
                    can (as their principals have a vested interest in the market being ‘talked up’).
                    However, reports may be piecemeal on the details involved – and this can be crucial.
                    An apparently higher rate may not be what it first seems if there is an above average
                    deduction for brokerage or there is a deduction for address commission.

                •   Why reported?:       A market cannot function without some information. This may be
                    piecemeal and may lack some accuracy but if this is the information that everyone has
                    to work with then it will reflect the ‘market’ and perceptions will be built around this.
                    This also implies that there may be some advantage to the party that releases the
                    information.


3.1.4.2 Market cycles

3.1.4.2.1 Economic cycles

                At the macro level, there is a relationship between the fortunes of the shipping
                sector and economic performance. However, the relationship is not as clear cut as
                some might imagine.

                Economic growth (or recession) influences consumer demand and buying power.
                Hence, it is a stimulus to seaborne trade as a demand driver and, sometimes, as a
                demand multiplier. However, it is crucial to keep in mind that there will be a number of
                countries/economies where demand exists but there is not the ability to pay. In such
                circumstances, politics often enter into equation as a key influence could be attitudes
                towards ‘aid cargoes’ or the offering of special loans or subsidies.

                In the industrial sectors, much depends on the maturity of an economy. If it is highly
                industrial then economic growth will be linked closely to the output of these industries. On
                the other hand, if it is ‘post industrial’ (i.e. the economy is dominated by the services
                sector) then the links are much less strong.

                At the ship type level, there is another area of distinction. While the raw material trade
                sectors may follow the economic pattern after a fashion, the finished goods areas (now
                primarily the domain of the containership) have seen trade growth running well in excess
                of GDP/GNP growth rates. (This has much to do with the propensity of large scale
                transhipment inputs within the container trades).

                Another pointer emerging from this is that economic changes are likely to impact first
                on the finished goods sector as these are closest to consumer purchasing. These


42                                                                           © Drewry Shipping Consultants Ltd
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                  sectors may lead the way into and out of recession*. Bulk commodity trades respond
                  after a time lag as the changing market position filters back down the line.

                  Rightly or wrongly, many analysts begin their shipping market projection forecasts (for the
                  demand side) with viewpoints on economic growth – typically drawing upon projections
                  published by the OECD or one of the major financial institutions. Consequently, for
                  owners and commercial ship managers, there needs to be an awareness that these
                  prognoses are an early influence on the market sentiment that will spill into the
                  shipping market mix.

                  Figure 3.3 notes, merely as an example, some offerings relating to GDP/GNP growth and
                  consumer price inflation derived from financial sector sources around the middle of 2003.
                  It may be that, with the benefit of hindsight, the pundits may feel that they underestimated
                  the performance of the Chinese economy in 2003. Figure 3.3 also adds to the case that to
                  ‘read’ the shipping market one has delve much further below the surface of any broad
                  economic overview.

                  Figure 3.3
                  GDP/GNP trends and predictions, mid-2003
                  (Annualised % change)
                  10

                      8

                      6

                      4

                      2

                      0

                  -2
                    1998                 1999              2000             2001             2002             2003             2004
                                                 Global economy       USA      Europe     Japan      China

                  Source: Drewry Shipping Consultants Ltd

                  Other macro-factors that might be influential include industrial production trends
                  (and data sub-sets on subjects like construction or housing starts) and currency
                  exchange rates. When particularly volatile, movements on the world’s stock markets also
                  add to the mix. Oil prices also have the potential to shape the economic performance
                  equation.

3.1.4.2.2 Industrial sectors and re-structuring

                  Partly in line with the broader economic trends but within their own macro environments,
                  different industries exhibit their own cyclical behaviour. For example, in the dry bulk
                  sector the positions in the industry cycles for steel making, aluminium production,
                  construction activities, fertiliser usage, agricultural outputs, chemical manufacturing, etc.
                  will each be at different stages in their own supply/demand cycles even though they may
                  exhibit some similar traits in terms of their relationship to the global macroeconomic
                  picture.

                  *       The project cargo/heavy lift sector is the sector often at the other extreme – i.e. into recession early but
                          one of the slowest to emerge.


© Drewry Shipping Consultants Ltd                                                                                                  43
Commercial Management                                                                         Ship Management


                However, these cycles may be ‘distorted’ by structural changes created by
                competing products or industrial advancements.

                Hence, the energy market – and the knock-on implications for shipping – will impact
                (through changing fortunes, competing product pricing, ability to switch fuel-burning
                options, politics and industrial decisions, etc.) on shipping needs for oil, petroleum
                products, LPG, LNG and coal.

                Another economic ‘fundamental’ is the desire of producers to add value at source.
                This means that an improving economic position might not mean more trade in
                volume terms but rather a shift ‘downstream’. This could take the form of a crude oil
                producer switching to shipments of refined products (or, perhaps, chemicals) or a
                phosphate shipper switching to shipments of manufactured fertilisers. There are a host of
                other similar possibilities. One outcome of this could be a major shift in ship choice.

                In practice, these changes do not tend to occur dramatically – there is a lot of inertia
                in shipping. However, an owner or manager of a ship type that offers only limited
                trading flexibility needs to aware of the possibility that the arrival on stream of various
                new industrial projects could have a bearing on the vessel’s economic obsolescence.

3.1.4.2.3 Cycles in the shipbuilding industry

                Historical analysis will reveal that most seaborne trade sectors show a long – and
                seldom interrupted – pattern of growth. Consequently, the case for the continued
                addition of new ships (for replacement and new trade needs) to the fleet seems to be
                made.

                However, there are complications. Replacement ships tend to be bigger than those
                they replace. Also, trading patterns alter. Emerging routes might shorten the average
                transport distance between origin and destination. This can mean that while trade grows
                in tonnage or volume terms, the change in tonne-mile demand may be less (i.e. ships can
                complete more voyages on the route, therefore, fewer ships are needed).

                Despite this, the shipping markets have experienced a series of serious
                depressions. The reason is a cycle based on over-ordering in strong markets
                exacerbating the severity of the demand downturn.

                The problem faced is that the supply/demand position in the shipbuilding industry
                often can be out of sequence with that in the shipping markets. Furthermore, the
                shipbuilding industry continues to evolve geographically which means that there will be
                emerging shipbuilders with an aim of gaining market share.

                In recent years, this has tended to keep newbuilding prices within a fairly narrow
                range and at what are widely regarded as being at relatively low levels – and this has
                eased fluctuations that might otherwise have been mirrored in more dramatic price peaks
                and troughs. Hence, there has been little or no deterrent to speculative investments.

                Of course, there is some element of oversimplification in this as the shipbuilding position
                has further complications with the different shipbuilders and shipbuilding regions operating
                at different levels of efficiency/productivity, automation, modularisation and expertise – and
                with different levels of labour, steel, materials and equipment costs. Currency fluctuations
                are a further factor in the equation.


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                  Furthermore, not all yards are capable of building the most coveted ship types. However,
                  the main shipping market concerns are likely to focus on activity relating to what
                  shipyards regard as basic ‘market’ type ships (including bulk carriers, tankers and
                  some containerships) where for buyers ‘the price is everything’.

                  The crucial point is that the shipbuilding industry exists to build ships. It wants to be
                  profitable in its own right but achieving this, more often than not, requires building berths to
                  be filled for a significant forward time period. Consequently, even if the shipping market
                  (or sectors therein) really does not need additional new tonnage the shipbuilders
                  still need to be active. Offers to owners can be extremely tempting.

                  It is for individual shipowners to decide whether or not to succumb to this temptation.
                  When assessing the market’s future as an owner or commercial ship manager, a
                  view – based on judgement and experience – has to be taken on how other owners
                  are likely to move.

3.1.4.2.4 Cycles in the ship finance sector

                  Some would suggest that ship finance is even more cyclical than shipping itself.
                  There are a number of established players but, depending on perceived returns from
                  shipping (against investment performance in other industrial sectors), there are also a
                  variable number of ‘tourist’ lenders. From time-to-time, the ‘investment bank’ sector
                  appears on the scene promoting bond issues and similar – an area in which shipping
                  issues, in practice, have an undistinguished record. In addition, there will be some funding
                  sourced from government-backed import-export banks.

                  The availability of finance and its cost are crucial to most acquisitions in both the
                  newbuilding and secondhand ship markets. Availability tends to be influenced by the
                  attitude of the bank’s credit committees – and this may place limits on amounts made
                  available to shipping companies or restrictions on funds advanced in particular
                  geographical regions.

                  The cost of finance can be a complicated issue and will depend on factors such as the
                  owner’s status*, the existing relationship with the bank and the ‘aggressiveness’ of the
                  bank in terms of seeking business**.

                  Under a mortgage-linked arrangement – which is by far the dominant means used to
                  finance ships – the cost to the owner (in addition to repayments of principal) is the
                  ‘spread’ over Libor***. The ‘spread’ will vary with the owner’s status – ‘blue chip’
                  being treated more favourably than ‘highly speculative’. However, the finance
                  package may also be conditional on an acceptance of a number of ‘cross sold’ products
                  intended to increase the ‘spread’ (but in a more covert manner).

                  The new ‘Basle II Rules’ being imposed on the world’s banks oblige lenders to take
                  more account of the varying risk levels associated with different spheres of lending.


                  *   The key distinction here is between the ‘bilateral’ deal (a specific ship deal covered by a mortgage) and
                      a ‘corporate’ arrangement. The latter may be secured by the bigger shipping companies and they have
                      greater freedom over how the loaned funds are used.
                  ** There is a risk:reward balance. Riskier propositions may be entertained with higher interest rates
                      applied.
                  *** London Inter-bank Offered Rate.

© Drewry Shipping Consultants Ltd                                                                                           45
Commercial Management                                                                           Ship Management


                Shipping’s record is not good. Hence, the cost of ship finance, in general, looks set to be
                more costly.

                One expectation is for the shipping banks to start to assess the shipping sector in a
                manner not dissimilar to that adopted by the ratings agencies (e.g. Standard &
                Poor’s). If so, this is likely to put the issue of management under greater scrutiny
                than in the past. Whether selecting a particular commercial ship manager will gain an
                improved ‘rating’ for the time being is a moot point.

3.1.4.3 Freight market cycles

                By way of illustration, Figures 3.4-3.6 set out to illustrate the fortunes in three sample
                market sectors – bulk carriers, crude oil tankers and refrigerated cargoships (reefers).

                Figure 3.4 considers the bulk carrier market measured in terms of one-year period charter
                rates. This measure has been considered to be an accepted yardstick for gauging the
                market even though the majority of reported period charters may cover shorter time
                periods (perhaps 3-6 months). A problem with focusing on the shorter period business is
                that it overlaps with durations on trip charter business and, consequently, issues of
                delivery and redelivery location take on far greater significance in the derivation of the hire
                rate.

                It will be evident from Figure 3.4 that 2003 has been ‘something special’. To add further
                colour to this is worth noting that:

                •   The indicative ‘spot’ market pattern set by the Baltic Exchange Indices has developed
                    as follows:


                                                          Dry      Panamax             Cape       Handymax

                                           High         1,599          1,649           2,186*           9,649
                    2001
                                           Low            843            822             898            6,727

                                           High         1,739          1,731           2,381           10,282
                    2002
                                           Low            882            892             991            6,552

                             1st half      High         2,337          2,323           3,155           14,089
                                           Low          1,530          1,496           2,016            9,460

                             July          High         2,240          2,292           2,941           13,812
                                           Low          2,123          2,083           2,736           13,132

                             Aug           High         2,343          2,225           3,301           13,779
                                           Low          2,176          2,026           2,948           13,665

                             Sep           High         2,993          2,880           4,386           15,423
                    2003
                                           Low          2,262          2,061           3,188           13,747

                             Oct           High         4,560          4,539           6,854           22,720
                                           Low          3,138          3,057           4,608           15,763

                             Nov           High         4,558          4,484           6,659           23,119
                                           Low          4,026          3,808           5,860           21,406

                             Dec           High         4,765          4,521           6,911           26,244
                                           Low          4,442          4,393           6,250           23,366

                    * The peak was recorded on January 2nd.


46                                                                             © Drewry Shipping Consultants Ltd
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Figure 3.4
Trend in bulk carrier time charter rates* (US$/day)

55,000

50,000

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

 5,000

      0
          78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
                                    Handy   Medium/Handymax   Panamax   Cape

* Approximately 12 month periods.
Source: Drewry Shipping Consultants Ltd


Figure 3.5
Trend in tanker spot rates (Worldscale at time of fixing)

225

200

175

150

125

100

 75

 50

 25

  0
      78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
                                      Vlcc: AG-NWE   Suezmax: WAfr-Car/USES

Source: Drewry Shipping Consultants Ltd


© Drewry Shipping Consultants Ltd                                                                47
Commercial Management                                                                                   Ship Management


Figure 3.6
Evolution of reefer seasonal rates* (Cents/cu.ft/30 days)
180


160


140


120


100


 80


 60


 40


 20


      Jan-Jun Jan-Jun Jan-Jun Jan-Jun Jan-Jun Jan-Jun Jan-Jun Jan-Jun Jan-Jun Jan-Jun Jan-Jun Jan-Jun Jan-Jun Jan-Jun
        1990    1991    1992    1993    1994    1995    1996     1997       1998   1999   2000   2001   2002   2003*
* Provisional.
Source: D.M. Jupe Consulting (interpolated from various brokers' reports)


                   •   Mid-October brought reports of progressively higher trip charter rates culminating in
                       rumours that a 1996 built, 211,000 dwt bulk carrier had secured US$ 100,000 per day
                       for a trip between Dampier and Japan.

                   Figure 3.5 notes the tanker market trend as shown by the pattern in Worldscale routes on
                   two key trade runs. With a more ‘spot’ operational focus, this more volatile arena is
                   regarded as a better gauge of market fortune. Here, it will be evident that 2000-2003 has
                   been a period of considerable shifts of fortune.


                   Figure 3.6 turns to a more specialised market niche. The reefer market has two core
                   measures – annual time charter rates and the pattern seen over the ‘season’. Figure 3.6
                   concerns itself with the latter. For this market, the 2003 season has seen rates achieve
                   their best levels for around six years (although the impact of severe ice conditions in the
                   Baltic Sea was an influencing factor). However, the reefer market is in a state of flux as it
                   seeks to hold on to its business under pressure from competing containership operations
                   carrying cargo in reefer boxes. Any commercial management decisions in this sector have
                   to be conscious of the fact that the underlying supply/demand fundamentals are being
                   altered through changes in the modal split.


3.1.4.4 The shipping markets – what can be monitored and analysed?

                   Markets respond to changes in the actual or perceived imbalance between supply
                   and demand. In shipping, the absolutes are often impossible to measure with real
                   precision. Indeed, it could be argued that precise measures are impossible to achieve.


48                                                                                    © Drewry Shipping Consultants Ltd
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                  For instance, on the supply side no source can be sure of the precise status and numbers
                  of all ships undergoing repairs or routine maintenance, idle ‘awaiting orders’ or delayed by
                  some form of port congestion. Voyages (laden or in ballast) can be delayed by adverse
                  weather conditions. On the demand side, there is no clear public information on cargoes
                  loaded or whether ships are operating with less than full or optimum load factors. How the
                  influence of multi-port load or discharge impacts on trade volumes is also not fully
                  transparent.

                  Equally, the underlying base of term contracts – perhaps with individual voyages being
                  ‘sub-let’ – and ‘spot’ market charter chains means that the ‘open’ vessel supply/demand
                  picture is even more difficult to evaluate.

                  Also crucial is the fact that trade flows are imbalanced, so some vessel tonnage has to be
                  ‘in ballast’ on repositioning voyages at any given time. Some ships are more flexible in
                  their employment scope than others. In other words, there has to an inbuilt imbalance in
                  the equation as perfect equilibrium is an impossibility.

3.1.4.4.1 The ‘fundamentals’

                  Having indicated that there is some imprecision in the concept, attempts to assess
                  the market’s health and future direction have to take some account of the market’s
                  underlying fundamentals.

                  Clearly, it is not the remit of this report to undertake a sector-by-sector assessment of
                  trade flows and fleet profiles and the changes envisaged therein. There may be a need for
                  such exercises in the course of justifying the claim for funds for investing in particular types
                  of ships. However, in the context of ongoing vessel management viewpoints are likely to
                  centre on more cursory assessments. A current summary picture for the main bulk sectors
                  is noted via Figure 3.7.

3.1.4.4.2 Freight rates

                  Section 3.1.4.3 has provided an overview of cyclical activity as registered by
                  representative freight rate measures.

                  In the management/strategy assessment, patterns set by freight rates are a crucial
                  feature for monitoring and assessing. However, it may be that analytical appraisal – in
                  a manner that would satisfy pure statisticians – may not yield overly useful results. As
                  noted already, the market is not fully transparent but, more crucial still, is what ‘swing
                  factor’ should be allowed (in addition to the view evident from the ‘fundamentals’) to
                  account for sentiment in the marketplace.

                  Sentiment takes freight rates to their upper and lower extremes and, to a significant
                  degree, influences the pace of recovery or market decline. For those who are not
                  shipping insiders it can be quite a shock to realise the extent to which the most
                  crucial analytical tool is intuition.

                  Herein lies the crucial factor and something of a conundrum. It suggests that expertise
                  and experience are vital. This has to be acquired. This may be a factor that works in
                  favour of the established commercial ship manager. (However, the same argument
                  might be made for a close alliance with an established shipbroker). But, much of this


© Drewry Shipping Consultants Ltd                                                                              49
Commercial Management                                                                                      Ship Management


Figure 3.7
Forecast bulk shipping supply/demand balances (Million dwt)

                                                           Bulk carriers

                       (a) 10-55,000 dwt                                           (b) 55-100,000 dwt
140                                                                110

135                                                                100
                                          Surplus supply                                                Surplus supply
                                                                    90
130
                                                                    80
125
                                                                    70
                                Demand                                                   Demand
120                                                                 60

115                                                                 50
  2003        2004       2005        2006         2007      2008     2003   2004     2005       2006       2007      2008

                       (c) >100,000 dwt                                              (d) Total fleet
130                                                                370
                                         Surplus supply            360
120
        'Theoretical' deficit                                      350
110                                                                340                                  Surplus supply
100                                                                330
                                                                   320
 90                                                                310
 80                             Demand                             300
                                                                                         Demand
                                                                   290
 70
                                                                   280
 60                                                                270
  2003        2004       2005        2006         2007      2008     2003   2004     2005       2006       2007      2008

                                                             Tankers

                       (a) 10-80,000 dwt                                           (b) 80-200,000 dwt
80                                                                 130
75                                                                 120
70                                                                 110
65                       Surplus supply                            100                Surplus supply
60                                                                  90
55                                                                  80
50                              Demand                              70                   Demand
45                                                                  60
40                                                                  50
 2003       2004        2005         2006         2007      2008     2003   2004     2005       2006       2007      2008

                       (c) >200,000 dwt                                              (d) Total fleet
150                                                                360
                                 Surplus supply                    340
140
                                                                   320
130                                                                300
                                                                                      Surplus supply
120                                                                280
                                                                   260
110
                                Demand                             240                   Demand
100
                                                                   220
 90                                                                200
  2003        2004       2005        2006         2007      2008     2003   2004     2005       2006       2007      2008

Source: Drewry Shipping Consultants Ltd



50                                                                                    © Drewry Shipping Consultants Ltd
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                  vital knowledge is personal not corporate*. The conundrum is that, despite the benefits
                  of accumulated experience, the shipping market continues to spring its surprises.
                  (The change in the containership charter market ‘sentiment’ over the last 12 months or so
                  – from unrelieved gloom with no glimmer of hope on the horizon to belief in a boom that
                  will run at least 18 months – is a recent example).


                  The above thoughts must raise the question, is what has gone before any sort of guide to
                  the future?


                  The answer is yes, but only to a limited extent. Freight rates are a measure of effect
                  rather than cause.


                  Probably, the most valuable element in freight rate trends is that they offer some
                  guide to the scale of the downside risk (an issue that is probably not exercising too
                  many minds when a market sector seems to be on its ‘bull run to heaven’ – though
                  strategically perhaps it should). That is, when the market going gets rough, at what level
                  do freight rates bottom out? For the ship owner this prompts additional questions such as
                  (a) could the venture survive at this income level and (b) for how long?


                  In the bleakest markets, freight rates have slumped to levels at or around those
                  required to cover operating expenses. Rates can fall below this level but only for a
                  limited period. If the period was extensive, ships would be laid up (loss minimisation) or
                  scrapped – both of which would adjust the supply/demand position.


3.1.4.4.3 Operating/running cost expenses

                  The issue of operating cost elements features in greater detail under the remit of
                  considerations relation to technical ship management (see Section 4). For the record, the
                  main operating cost heads are (a) manning/crewing, (b) insurance, (c) repairs and
                  maintenance, (d) stores and supplies and (e) management and administration.


                  Direct control of these elements would not be part of a commercial ship manager’s
                  remit – although commercial activities would have to dovetail with requirements for crew
                  replacement/repatriation, drydocking choices, etc. However, in evaluating charter
                  options there is a requirement to:


                           Have an awareness of the underlying level of operating costs that have to be
                           recovered (see, for example, Figures 3.8 and 3.9).

                           Be aware of how cost changes are affecting the different operating cost
                           components**.


                  The other crucial cost issue to monitor is the price of fuel (bunkers). Fluctuations
                  here will have a bearing on the appeal or otherwise of a freight rate (on a voyage charter)


                  *  This is evidenced by cases of a client base moving with a particular shipbroker when the broker moves
                     from one broking house to another.
                  ** Further insight into the factors and drivers at work in the operating cost equation can be found in the
                     Drewry Shipping Consultants Ltd. report “Ship Operating Costs Annual Review and Forecast 2003-04”.
                     For further information please www.drewry.co.uk or contact Drewry by telephone (+44 (0)20 7538
                     0191), fax (+44 (0)20 7987 9396) or e-mail (enquiries@drewry.co.uk).


© Drewry Shipping Consultants Ltd                                                                                        51
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Figure 3.8
Pattern of operating costs and charter revenues: Panamax bulk carrier
(US$/day)
5,000                                                                                                           16,000

4,800                                                                                                           14,000

4,600                                                                                                           12,000

4,400                                                                                                           10,000

4,200                                                                                                           8,000

4,000                                                                                                           6,000

3,800                                                                                                           4,000

3,600                                                                                                           2,000
         1990    1991    1992 1993 1994 1995 1996 1997 1998 1999 2000 2001                             2002
                         Operating cost (left axis) Average T/C rate: 12 month basis (right axis)

Note: Time charter revenue needs to cover operating and capital costs.
Source: Drewry Shipping Consultants Ltd


Figure 3.9
Pattern of operating costs and charter revenues: Vlcc (US$/day)
11,000                                                                                                          40,000

10,000                                                                                                          35,000

 9,000                                                                                                          30,000

 8,000                                                                                                          25,000

 7,000                                                                                                          20,000

 6,000                                                                                                          15,000

 5,000                                                                                                          10,000
          1990    1991     1992 1993 1994 1995 1996 1997 1998 1999 2000 2001                           2002
                         Operating cost (left axis) Average T/C rate: 6-12 month basis (right axis)

Note: Time charter revenue needs to cover operating and capital costs.
Source: Drewry Shipping Consultants Ltd


                  and affect the time charter equivalent (TCE) figure*. Bunker price moves also have an
                  influence on freight market sentiment.

                  Oil refineries break down crude oil into its component parts. The components located
                  towards the ‘bottom of the barrel’ being of the lowest value. Most ship’s fuel is derived
                  from these ‘lower reaches’. This is a factor in fuel quality as most refineries want to
                  maximise ‘top end’ output with the result that the ‘undesirable’ elements are more likely to
                  be found in ‘residual’ fuels. Hence, viscosity is not the only consideration. There is now a
                  further concern – if, on a regional basis, some ships are obliged to burn lower sulphur
                  content fuel. Currently, this is more costly to produce – but this will change as and when
                  demand for it rises.

                  Hence, with little ‘added value’ involved in the process, the trend in bunker prices
                  correlates closely with that of crude oil prices.

                  *   The TCE is derived by deducting the voyage cost expenses (bunkers, port dues, canal transit costs)
                      from the freight earned and expressing this balance on a per day basis.


52                                                                                 © Drewry Shipping Consultants Ltd
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Figure 3.10
Bunker price trend (US$/tonne)

300



250



200



150



100



 50
       1990   1991   1992    1993    1994   1995   1996     1997       1998     1999    2000      2001    2002    2003
                               Rotterdam      Rotterdam           Singapore       Singapore
                                fuel oil    marine diesel oil       fuel oil    marine diesel oil

Source: Drewry Shipping Consultants Ltd


Figure 3.11                                                 Figure 3.12
Crude oil spot prices: monthly                              Pattern of bunker and crude oil price
averages (US$/bbl)                                          movements (Index 1990=100)
36
                                                                180
34

32                                                              160
30
                                                                140
28

26                                                              120

24
                                                                100
22

20                                                               80

18
                                                                 60
16
                                                                 40
14

12                                                               20
10
                                                                  0
      1996 1997 1998 1999 2000 2001 2002 2003                         72 75 78 81 84 87 90 93 96 99 00 01 02 03
                     Dubai   Brent   WTI                                       Crude   Fuel oil     Marine diesel oil

Source: Drewry Shipping Consultants Ltd                         Source: Drewry Shipping Consultants Ltd


© Drewry Shipping Consultants Ltd                                                                                        53
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                Bunker pricing assumptions are a key component in voyage estimating (see Section
                3.2) as there are location related influences to take into account. Bunker prices vary
                both regionally and locally within geographical regions. This is influenced by the
                number of refineries within the region (and their costs), whether the bunkers have to be
                ‘imported’ to the location, what grades of fuel and stem sizes are available and the means
                of getting bunkers to the ship (e.g. ex-wharf or ex-barge). In addition, some bunkering
                calls trigger additional port disbursements.

                Although of potentially greater concern to the technical department, it needs to be
                kept in mind that bunkers are of variable quality and will be inconsistent in terms of
                their (potentially harmful) chemical constituents. In the main, this raises issues
                relating to the performance and well being of the main engine. However, there are
                regulations emerging concerning pollutants – notably sulphur emissions from seagoing
                vessels – and these will add to the complications involved in bunker purchasing and price
                evaluation. Furthermore, it may be that these regulations – at least initially – will vary from
                region to region.

3.1.4.4.4 Resale values and the S&P market

                Strategic decisions concerning the buying or selling or ships are not normally
                something that would be determined at the third party manager level. The likeliest
                exceptions would be where either the manager is acting on behalf of an ‘administration
                controlled’ pool or is managing ships on behalf of a financial institution that has found itself
                in the position of being a ship owner.

                In practice, trends in the S&P market tend to mirror those seen in the ship’s
                respective freight market. Hence, they are an additional key in the exercise of trying
                to ‘read the market’. The S&P market will offer more pointers than reported prices.
                Information may come to light about how many different parties had inspected a particular
                ship. Equally, it can identify ‘problems’ – including arrested ships sold off at judicial
                auction. It can pinpoint major buyers and sellers and, importantly, it gives some insight
                into market liquidity.

3.1.4.4.5 The newbuilding marketplace

                The recent complexities of the newbuilding market (including the emergence of China
                and the acrimonious dispute the EU and South Korea over allegedly unfair pricing
                practices) have meant that trends in price levels have not been as good a guide to
                market fortunes as one might expect. Indeed, newbuilding prices have been exhibiting
                remarkable stability despite a dramatic upsurge in ordering activity.

                Variations between newbuilding and secondhand prices are a market pointer –
                especially when the market becomes so ‘overheated’ that buyers will pay either close to or
                above the newbuilding price if it ensures prompt delivery of a modern ship. Another sign of
                market ‘overheating’ will be an upsurge in the level of newbuilding resales.

                However, for the owner or manager looking to interpret market prospects a more
                salient focus will be the newbuilding order backlog – as, given most of shipping’s
                difficulties stem from tonnage supply growth exceeding demand growth, it can often be a
                key early warning sign of a turn for the better or the worse. Furthermore, this is a
                pointer where the analysis centres on the current and prospective. Historical data is just
                that – historical.


54                                                                           © Drewry Shipping Consultants Ltd
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                   So, what questions should be considered?

                   •     What is the time spread of the order backlog? That is, how far into the future are
                         (a) berth space and (b) completion dates being booked? Also, analysts need to be
                         wary of heavy backlogs concentrated into the near term horizon. A view has to be
                         taken on whether this is correct or whether through delays and misreporting of
                         information, a significant element is set to suffer ‘slippage’. The position can be
                         confused by the reporting of options as firm orders. Clearly, it is to the advantage of
                         shipbuilders to imply that berths are fuller than they may be in order to keep upward
                         pressure on contract prices.

                   •     What is the spread of vessel ‘popularity’ within the order backlog? Shipyards
                         want to concentrate on the more lucrative contracts. This could mean, for example,
                         that in a period of high tanker ordering there might not be a delivery spot for say 24
                         months. An owner might want to build another ship type – which might have a small
                         backlog. However, it does not follow that the shipyards will be able to offer a berth slot
                         until they have cleared their tanker building commitments. Shipbuilding capacity and
                         potential output is notoriously difficult to evaluate due in the main to variations in
                         shipbuilding expertise and efficiency superimposed on the different work input
                         requirements generated by the different sizes and types of ships. The current
                         prodigious demand for (very large) post-Panamax containerships has introduced a
                         new dimension into the large ship/berth sector that previously had focused on the
                         larger tankers and bulk carriers.

                   •     What is the relationship between the order backlog and the current fleet? In
                         many respects, this relationship is the most crucial – but it might not always lend itself
                         to the simplest interpretation. Clearly, a high percentage order backlog in either
                         an overall fleet sector or within specific size tranches therein sends a major
                         warning. If there is a genuine growth in demand to justify this, all well and good.
                         However, a more likely scenario is an over large element of speculative ordering.
                         Does a low percentage indicate the opposite? Not necessarily. It could be that
                         the sector is suffering from changes in charterer preferences and/or economic
                         obsolescence. An added guide here could be the age profile of the relevant sector of
                         the existing fleet.


Table 3.2
Key fleet order backlogs, end-z2003

(a) The tanker orderbook (‘000 dwt)

Size                   2003            2004              2005             2006+            Total          % of Fleet
('000 dwt)        No.         Dwt    No.      Dwt     No.       Dwt     No.       Dwt    No.       Dwt

10-50             55      1,991      160    6,115     144    5,671       69   2,832      428     16,609     29.5
50-80             11        779       55    3,950      63    4,266       34   2,265      163     11,260     62.6
80-120            19      2,034       50    5,413      61    6,585       37   4,003      167     18,036     30.5
120-200           14      2,113       23    3,631      30    4,787       23   3,573       90     14,104     32.9
200-320            8      2,428       37   11,071      38   11,471       19   5,751      102     30,721     25.6
320+               -          -        -        -       -        -        -       -        -          -      -

Total             107     9,345      325   30,180     336   32,780      182 18,424       950     90,730     30.1

Source: Drewry Shipping Consultants Ltd



© Drewry Shipping Consultants Ltd                                                                                  55
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Table 3.2 (cont’d)

(b) The dry bulk carrier orderbook (‘000 dwt)

Size              2003               2004                2005                    2006+            Total            % of Fleet
('000 dwt)     No.       Dwt       No.      Dwt        No.          Dwt      No.         Dwt   No.          Dwt

10-30           14       258       36       709         9           175          1        28    60         1,170       2.8
30-55           36    1,515        97      4,427       80       3,503        25      1,182     238     10,627         12.5
55-80           14       999       99      6,942       80       5,684        45      3,158     238     16,783         21.9
80-100           1           84    11       928        11           899      18      1,488      41         3,399      68.0
100-150          1       100         -         -         -            -          2       200     3          300        1.3
150+             3       517       35                  39       7,005            8   1,461      85     15,241         21.7

Total           69    3,473       278     19,264       219     17,266        99      7,517     665     47,520         15.7

Source: Drewry Shipping Consultants Ltd



(c) Containership orderbook by size and scheduled delivery year ('000 teu at October 2003)

Teu Range            2003         2004       2005            2006         2007       Total      Current        % of Current
                                                                                                 Fleet            Fleet

<500                     1                                                                 1         140              0.7%
500-999                 12          30         23               4                         68         409             16.7%
1,000-1,499              5          18         14               1                         38         604              6.3%
1,500-1,999              7          17         23               4                         51         679              7.5%
2,000-2,499             10          39             7                                      57         586              9.7%
2,500-2,999             23          36         42              59                        160         621             25.8%
3,000-3,999              9          26         12              16                         64         943              6.8%
4,000-4,999             40         153        129              46           13           380     1,014               37.5%
5,000-5,999             17         152        175              44            6           393         704             55.9%
6,000-6,999             33          32         13              61           27           166         482             34.5%
7,000-7999               8          53         53              46                        161         190             84.7%
8,000+                              89        178             317           48           633          16           3,923.5%

Total                 163          648        670             598           94       2,173       6,388               34.0%

Source: Drewry Shipping Consultants Ltd



3.2       Voyage estimating

                 Advances in computer software have made the voyage estimators life easier to some
                 extent. However, as with use of any such benefits, the maxim of ‘garbage in, garbage out’
                 applies. The tools may have changed but not the need for an understanding of the
                 relevance of the different elements that need to be considered.

                 Shipowners can undertake this exercise themselves. However, if the services of a
                 commercial ship manager are engaged the responsibility for voyage estimates is likely to
                 transfer to the manager.

                 The purpose of voyage estimating – which seems self-evident – is to ascertain the


56                                                                                       © Drewry Shipping Consultants Ltd
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                  potential value of a proposed voyage, series of voyages or alternative voyages* on a
                  consistent basis. Effectively, it is a costing exercise that enables judgements to be made
                  relative to ‘offers and counters’ being made between owners and charterers in terms of
                  freight rates and charter terms. These judgements may embrace comparisons between
                  business on alternative routes and/or the implications of the charter rate being settled at
                  different levels (e.g. + 25c/tonne, - 50c/tonne, etc.).

                  Other issues could involve making decisions between different types of charter –
                  e.g. deriving a time charter equivalent (TCE) value of a voyage charter for comparison with
                  an alternative time charter or trip charter offer**.

                  In all probability, there will be a ‘post performance’ exercise which compares the estimated
                  outcome with the final income result after the voyage has been performed.

                  The voyage estimating process embraces four core elements, namely:

                           The revenue consideration.

                           Cargo considerations.

                           Routing decisions.

                           Lay time.

                      The revenue consideration

                  The key figure will be the freight rate (either under negotiation or agreed). In the
                  crude/products tanker sector, this is likely to be a Worldscale figure. This will be route
                  specific and be based on a calculated underlying cost for that route. Hence, if a tanker
                  agrees Worldscale 75 and, say, the Worldscale 100 rate for that route is US$ 10/tonne
                  then the income would be US$ 7.50/tonne for the cargo tonnage carried.

                  In the dry cargo sector – and on a few tanker routes also – there may be instances where
                  the freight is agreed as a lumpsum figure. However, a US$/tonne rate is likely to be the
                  norm.

                  The freight will be earned on the actual cargo volume transported. The negotiations
                  will take place based on a ‘round’ number – e.g. 160,000 tonnes of coal – but the contract
                  will normally embrace a margin such as 5% more or less. However, the margin will be
                  specified in one party’s favour – i.e. 5% more or less in owner’s option (moloo) or 5% more
                  or less in charterer’s option (molco).

                  The income calculated on this basis will be the gross freight. The probability is that
                  a further consideration of the nett freight will need to be evaluated. There may (or
                  may not) be a ‘discount’ on the freight secured by the charterer by way of address
                  commission. Brokerage (payable to the ship brokers used for their services) also would
                  need to be deducted.


                  * Clearly, this evaluation pertains to tramp rather than liner shipping operations.
                  ** The discussions below focus on the voyage elements. When considering the time charter in the
                     comparative process, it needs to be kept in mind that time charters involve delivery and redelivery
                     surveys of items such as bunkers and the condition of the ship and its cargo areas. Also, a period
                     charter will have to make provisions for ‘off hire’ which can include such matters as diversion to a ship
                     repair yard and the niceties of redelivering the ship to the charterer in ‘an equivalent position/location’ –
                     which is not the same thing as returning it to the location where the ship went ‘off hire’.


© Drewry Shipping Consultants Ltd                                                                                              57
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                    Cargo considerations

                Ships are permitted to load to their maximum ‘marks’ – which vary between summer
                and winter conditions and with the type of water (salt, brackish or fresh). There can
                be additional ‘marks’ where the freeboard is affected by the carriage of deck cargo – an
                example being the ‘timber load line’.

                Clearly, a first consideration is the relationship between the load (weight) being
                assessed and the draft that this will set the ship at. (Ports may have draft limits while
                entries or exits on certain drafts might only be permitted only at certain states of the tide).
                However, the cargo is not the only consideration, allowance has to be made for
                bunkers and the ship’s constant weights. The vessel’s details will include a draft to
                deadweight tonnage (dwt) scale.

                A second consideration is the stowage factor. This relates the cargo’s cubic capacity
                to its weight. It is possible for a vessel’s cargo area to be full without it reaching its full
                ‘deadweight’ cargo.

                There may be other cargo issues to consider, including angle of repose. If this is
                such that it requires the cargo to be trimmed, then there may be time and cost implications
                to consider. There could also be special cleaning requirements necessary with certain
                cargoes (again this takes time and resources) and certain combinations of cargoes
                within a series of voyages may not be acceptable.

                Non-free flowing cargoes may bring in needs for special stowage arrangements,
                dunnage provision and removal, etc.

                It may seem slightly ridiculous that it is necessary to undertake calculations to be sure that
                the ship can actually carry the amount of cargo being negotiated. However, legal cases do
                arise where a quantity of cargo has been left on the quayside – which could leave the
                owner with a sizeable bill from the carriage of the balance and, perhaps, other claims for
                consequential loss. Equally, there have been reports of a gearless bulk carrier at an
                offshore loader with cargo loaded to a level preventing the closure of the hatch covers. A
                floating crane plus a barge had to be brought alongside to rectify this.

                One other issue that can arise concerns the rate at which shiploaders may operate. This
                can be at a faster speed than some older vessels can de-ballast. This could require
                changes to the loading ‘run’ at the terminal – and getting this changed can be a major
                issue.

                    Routing decisions

                The shortest distance between two points may be a ‘straight line’ but this is not
                always the fastest or the optimum route. Weather conditions also can play a part. In
                addition, there can be cost complications. For example, there may be a trade off between
                the tolls paid and time saved by transiting the Suez Canal as opposed to the longer haul
                via the Cape of Good Hope. However, there are periods of the year when conditions on
                the Cape route may be more adverse hence routing decisions may be considered
                seasonally.

                This said, distance tables exist, which tend to reflect the optimum distances between ports,
                and these will be the backbone of voyage calculations.


58                                                                           © Drewry Shipping Consultants Ltd
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                  One further commercial factor that enters into the voyage estimator’s evaluation
                  process will be where the vessel will become ‘open’ for new business once the
                  voyage has been performed. Owners or commercial managers will not be looking at
                  single voyages in total isolation. It will be evident from considering trip charter options
                  from a particular delivery region that the daily rates on offer will vary depending on where
                  the ship is to be redelivered. Some redelivery regions will offer new employment while
                  others will trigger a lengthy ballast voyage. Trade flows are imbalanced and the ‘structure’
                  of market rates reflects this.

                  This can be an area where experience plays a part. For example, an owner may be
                  experienced in – and comfortable with – operating within the Atlantic Basin. Hence, the
                  owner might dismiss options to trade into the Pacific even if they look lucrative (the owner
                  may be uncertain about backhaul options and may have limited knowledge of the
                  charterers providing business to/from the region). A commercial manager with a global
                  market exposure therefore may be an option if an owner wishes to branch out into a wider
                  trading arena.

                      Key components in the voyage estimate

                  Where does the voyage start?

                  Most owners or commercial managers will begin their assessment options from the point
                  where the vessel becomes ‘free’ – i.e. at the port of discharge. This is more logical than
                  starting at the loading port since this would mean that the evaluation of the ‘ballast leg’ to
                  the following loading port could be nothing more than guesswork. (There might be an
                  alternative for some tankers as the basis of Worldscale assumes the ship is performing a
                  round voyage). However, some estimators might start at the load port and work in their
                  own ‘standard’ voyage equalisation leg. At the end of the day, this is a matter for individual
                  choice and as more voyage estimates are worked up then some of these niceties become
                  less pivotal.

                  Distance calculations

                  Under the scenario outlined above, this would be the sum of the distance to the loading
                  port and from the loading port to the discharge port. Not all voyages are undertaken on a
                  1:1 port basis. Hence, there could be distances between other load or discharge ports to
                  factor in.

                  The next consideration is the assumption made for the speed that the vessel is expected
                  to achieve on the voyage. This will determine the duration of the seagoing element of the
                  calculation. Speed may vary between laden and in ballast condition.

                  An estimator may add in an extra time allowance for bad weather if this is a likely prospect.
                  (Many vessels have access to onboard weather routing systems – supported by satellite
                  communications and detailed weather forecasts – which make it feasible to anticipate
                  adverse conditions and plot an alternative, longer route to mitigate the hazard).

                  Port calculations

                  In most instances, the port time allowance will be based on the time spent at the berth plus
                  time arriving and departing. It may be that the estimator will utilise the agreed charterparty


© Drewry Shipping Consultants Ltd                                                                            59
Commercial Management                                                                                        Ship Management


                terms for the cargo working period – working on the basis that time used in excess of
                this would incur demurrage payments from the charterer.

                Using the dry cargo sector for purposes of illustration, the charter terms are likely to allow
                (a) a set number of days, (b) a set tonnage per day or (c) a combination of these*. Note
                will need to be made of (and allowed for in the estimates) whether the terms are SHinc or
                SHex (Sundays and Holidays included or excluded)**.

                However, there are a number of other influences which add to the actual times spent
                in port. These include:

                •    Waiting time – waiting for a berth, waiting for the tide, waiting to enter a lock. (The
                     latter two may also be an issue on departure).

                •    Manoeuvring, berthing and unberthing.

                •    Tendering notices (and these being accepted***), securing health and customs
                     clearances.

                •    Opening up the cargo areas – cargo areas are likely to be subject to inspection before
                     loading begins. Some regulations (e.g. US ‘grain clean’ will be particularly stringent).
                     Cleaning needs would add to the time.

                •    Shifting from one berth to another.

                •    Warping the ship along a berth.

                Canals/rivers

                Operations that are not on the ‘high seas’ tend to take longer as ships may be required to
                operate at restricted speeds. Movements on river systems may involve ‘waiting for the
                tide’ and, perhaps, might be permitted only during daylight hours while operations on, say,
                the Panama Canal or St. Lawrence Seaway involve time spent in locks. There can be
                waiting time. The Suez Canal transit regimes more or less guarantees waiting time as
                transits are in convoys which only leave at set times of the day. (The implications of fresh
                or brackish water drafts – and, perhaps, air draft – may be other considerations influencing
                operations on river systems).

                Bunkering

                Bunkering might occur while in port or at anchor or the vessel might call at a specific
                bunkering facility.

                Time requirements

                On the basis of the foregoing considerations, a picture of the voyage – in terms of time at
                sea, in port and for activities – will have emerged. This breakdown will be the key to
                calculations relating to the vessel’s fuel consumption.



                * For example, 3 days both ends, 40,000/25,000 tonnes pd or 5 days/10,000 tonnes pd.
                ** In Islamic states, the alternative of FHinc or FHex (Fridays and Holidays included or excluded) may
                    need to be considered.
                *** In some ports certain activities may only be possible during ‘working hours’ as not all ports (or facilities
                    therein) function on a 24/7 basis. The same applies to health and customs requirements.


60                                                                                      © Drewry Shipping Consultants Ltd
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                  Fuel consumption

                  Experience will indicate typical fuel consumptions for the vessel operating both
                  laden and in ballast – and these can be important issues when time chartering as figures
                  put forward may be taken as a ‘guarantee’ by the charterer*. Adjusted consumption
                  figures will need to be applied for activities on rivers/canals and in port. (However, it needs
                  to be kept in mind that speed/consumption performances will be influenced by a vessel’s
                  condition and its maintenance regime. A build up of ‘foulings’ below the water line and
                  damage to the propeller will impair performance).

                  The norm for motorships is to burn a grade of heavy fuel oil (probably a high
                  viscosity fuel of around 380 centiStokes) in the main engine and marine diesel oil
                  (mdo) to fuel the auxiliaries (e.g. to generate the onboard electric power load). Some
                  vessels have shaft generators or other waste heat driven systems that can greatly reduce
                  and even eliminate the need for mdo consumption while the ship is at sea.

                  Most motorships seek to minimise heavy fuel oil consumption when in port. On dry
                  cargoships, there will be an increase in the level of mdo consumed in port if cargo is
                  worked using the ship’s gear.

                  Allowing for these factors, the voyage estimator will arrive at a requirement for
                  tonnage of fuel (both fuel oil and mdo) required. The exercise may undergo a
                  further ‘refinement’. The estimator is likely to factor in a ‘safety margin’,** although
                  this might not be factored in when assessing the estimated versus the actual voyage
                  performance.

                  Fuel costs

                  Section 3.1.3.4.3 has looked at the evolution of bunker prices over time at the general
                  level. However, voyage estimates require more specific assessments.

                  In the bunker price equation, there are determining impacts that emerge within
                  various ‘tiers’ – essentially, at the global, regional and local levels. It will be important
                  for the voyage estimator to appreciate these (though this will be more critical for an owner
                  or manager actually arranging bunker stems) but at this stage of exercise the key concern
                  is for relevant regional price indications (plus some views on likely availabilities and
                  quality).

                  As guidance, Table 3.3 considers as an example data issued by two bunker brokers as at
                  late July 2003. This indicates variations within regions and within individual
                  ports/locations themselves. It also points, at this juncture, to prices being swayed more
                  by wider price changes in the oil market than specific ‘tightness of availability’ at
                  particular locations. However, this last point is a factor that a voyage estimator needs to
                  have an appreciation of.


                  *  There continues to be disputes over figures recorded in charterparties which are qualified by the word
                     ‘about’.
                  ** This could be at a set percentage (perhaps at a level as high as 20%-25%) or an allowance for a set
                     number of extra days of sea time - but this is a matter of judgement and experience. In practice, the
                     costing aspects have other complexities as there will be bunkers remaining on board (rob) at the start of
                     the exercise. These will have a cost which may not be the same as those purchased subsequently.
                     Bunkers prices – and availabilities – vary geographically. If the vessel is in a location where bunkers
                     are cheap, consideration (relative to cargo requirements and the dwt:draft ratio) might be given to taking
                     on extra quantities.


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Table 3.3
Indicative bunker price examples – late July 2003
(US$ per tonne)

                                                 HVF 380    MDO                        Comment
                                                   cSt

Great Belt                                        174-176   243-245   European prices sliding significantly
Rotterdam                                         159-162   165-170   despite tight availabilities.In general,
Hamburg                                           168-172   215-219   hvf prices down by about $7-8/t in
Antwerp                                           159-162   216-219   AH Range from preceding week.
Le Havre                                          173-180   260-272
Falmouth                                          169-170   276-282
Algeciras                                         173-175   261-263

Gibraltar                                         170-174   259-262   Med. prices showing sharper price
Fos                                               173-177   250-258   fall from preceding week. Availability
Augusta/Genoa                                     174-178   256-261   reported as tight but easing with the
Malta                                             168-173   254-258   arrival of Russian cargoes in the
Piraeus                                           169-171   242-244   Med.
Istanbul/Bosporus                                 178-185   236-245

Ceuta                                             174-176   261-262   Some shortages in the Canary
Tenerife                                              178       259   Islands. Prices lower than preceding
Las Palmas                                        177-179   255-259   week.
Dakar                                             204-206   275-277
Lagos                                             210-215   310-315
Durban                                                n/a   240-245

Suez Canal                                        169-172   305-310   Fujairah market reported to have
Jeddah                                            178-179       270   softened. Otherwise, prices stable.
Aden                                                  175       280   Availability tight in Suez region.
Fujairah                                              174       250
Offshore UAE                                      172-174   235-240
Dammam/Ras Tanura                                     n/a       240

Singapore                                         174-180   213-220   Steady to softer markets. Hvf prices
Colombo                                               n/a   280-301   in general down $1-5/t from preceding
Tokyo Bay                                         195-200   265-270   week. Australian market supplies
South Korea                                       179-182   250-260   tightening and some re-supplies may
Hong Kong                                         191-193   219-223   be a month away.
Sydney                                            218-220   270-275

Montreal                                          182-189   305-320   USA market, generally stable. US
St. Eustatius                                         165       300   Gulf prices fell as availability improved
New York                                          189-192   365-370   post-Hurricane Claudette. US East
Norfolk/Hampton Roads                             194-196   305-310   Coast availability tighter pending
New Orleans                                       169-171   250-255   arrival of Caribbean cargoes. US
Houston                                           170-172   250-255   West Coast prices dipping.
Cristobal                                         173-176   280-285
Los Angeles                                       187-190   270-305
Seattle                                           188-190   300-305

Rio de Janeiro                                        179       307   Little change.
Buenos Aires                                      175-177   270-276
Montevideo                                        175-178   289-295

Sources: Cockett Marine Oil, Egil Bjorn-Hansen


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                  A further point that needs to be kept in mind is that bunkers will vary in quality and
                  chemical composition. The ship’s technical managers – as well as the shipboard
                  engineering personnel – will be aware of the potential damage that ‘cheap and nasty’
                  bunkers could wreak. Consequently, they may put embargoes on certain bunker
                  sources. Information on quality measuring does get into the public domain – and it may
                  be that on the technical side the vessel’s operators participate and benefit from such
                  facilities. For the estimator, there might some pointers to monitor from general information
                  in finding its way into the media – an excerpt from which forms Table 3.4.

                  Technically, however, it is not necessarily the case that purchasing bunkers that
                  meet the ISO standard at the time of purchase will be problem free. The critical factor
                  will be the ship’s fuel treatment plant. DNV Petroleum Services has been reported in this
                  context as suggesting that buyers should start from a presumption that residual fuel oils
                  are ‘contaminated’ and so never use them prior to proper cleaning.

                  The fuel treatment system will consist of one of more fuel settling tanks (with heating coils
                  and draining cocks). Within such a tank, water and impurities in the fuel eventually will
                  settle at the tank bottom from where they can be drained off. Fuel flows from the settling
                  tank to the bowl of centrifuge (which spins at between 5,000-10,000 rpm and so amplifies
                  gravitational force) where more water, sludge and residual matter is separated out within
                  discs stacked inside the bowl and thence ejected.

                  The recommendations of fuel and engine experts is that chief engineers should
                  allow the maximum time they can for the initial slow settling process within the
                  settling tank. This may have implications for the bunker purchasing and monitoring
                  process within the voyage estimating exercise. Equally, failure to clean bunkers to a
                  reasonable level is likely to have ‘knock on’ implications in terms of performance and
                  maintenance as piston damage is an area of risk.

Table 3.4
Example of indicative bunker quality reports (regional summaries) for 380cSt
fuel oil – mid-July 2003
(Data shown are the reported average and maximum figures)

                       Units      ISO Limits N. Europe   W.Med. Mid East        ECUS         USG        WCUS     Far East

Density               kg/cu.m.*      991       983.3/    984.6/     971.4/     985.6/      988.9/       988.7/    982.6/
                                                990.7     991.3      989.0      991.1      994.7        991.4     990.8

Water                  % v/v           1         0.1/       0.1/       0.2/         0.3/     0.2/         0.2/      0.3/
                                                  0.6       1.4        1.5            3       0.5          0.7        4

Micro Carbon           % m/m          18        12.2/      14.1/     13.1/      15.3/       15.1/        13.5/     14.3/
Residue (MCR)                                    15.7      18.3       17.1          17.8    18.2         17.5      18.7

Ash                    % m/m        0.15        0.04/      0.05/     0.04/      0.05/       0.05/        0.06/     0.04/
                                                 0.06      0.09       0.09          0.09    0.08         0.09      0.22

Aluminium & Silicon     ppm           80          19/     21/40          3/          19/      28/          29/       18/
                                                  86                    33           57       65           85        71

Total Sediment         % m/m         0.1        0.01/      0.03/     0.01/      0.02/       0.02/        0.01/     0.03/
                                                 0.09      0.07       0.16          0.08    0.06         0.03      0.09

* At 15ºC.
Source: Derived from reports attributed to DNV Petroleum Services (www.dnvps.com)



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                Other costs

                Costs will need to be included for port dues and disbursements. Assuming the charter
                is on FIO terms, these will relate to charges incurred by the vessel. (Cargo handling costs
                would be for the charterer’s account). The basis for these costs will include elements of
                berthing/dockage costs*, specific activity costs (ranging from towage or lock fees through
                to garbage disposal charges) and other miscellaneous items. Some items will be
                determined by the port itself, others by the berth or terminal. Also, it is likely that there will
                be agency costs. There may be discounts for regular callers.

                Port dues may be hard to pin down with absolute precision and so the figures used will be
                based on estimator experience, industry sources/contacts or agents active in the port itself.
                Some bunker only calls create their own port disbursements.

                Tolls and other disbursements will arise as a consequence of transiting the world’s
                major canal and seaways – including the Suez Canal, Panama Canal, St. Lawrence
                Seaway System and Kiel Canal. The Suez and Panama Canal assessments will need
                reference to the vessel’s Suez and Panama net tonnage. On top of the tolls themselves
                there will be other costs for agency matters and particular services. On the St. Lawrence
                Seaway/Great Lakes runs, there can be significant costs relating to pilotage charges and,
                if not so built, vessels could incur the cost of temporary Lakes fitting.

                Pilotage and related disbursements may also be added costs to factor in if the ship is
                trading on the Mississippi River or the River Plate. Such costs might appear elsewhere
                (e.g. on the Amazon or Orinoco or on Lake Maracaibo).

                Trading to and from some locations might lead to increased insurance premiums. These
                could be down to the legacy of the Institute Warranty Limits (IWL) or could have more
                specific drivers such as strike cover or war risk.

                     Lay time

                Lay time is likely to be the single most complex item in the (commercial)
                performance of the voyage. There are a remarkable number of alternatives in terms of
                when a ship has arrived and been delivered. This can impact on when laytime actually
                starts. In addition, there will be instances of laytime being interrupted – some legitimate,
                some not. All of these issues are vital in determining when all of the allowed laytime has
                been used – and so, for the additional time used, for what period the owner is entitled to
                receive demurrage**. It is vital operationally that precise records are kept*** as (a)
                demurrage continues to be a controversial area and a source of dispute between owners
                and charterers and (b) the established maxim in shipping has been ‘once on demurrage,
                always on demurrage’.




                *   These might be calculated against ship tonnage (dwt, gt or nt) or one of the ship’s dimensions (e.g. loa)
                    and may or may not have a time-based component to them.
                ** Demurrage is intended to be a reflection of a vessel’s running costs (itself a concept open to
                    interpretation – running from operating cost levels to ‘opportunity cost’ or earnings foregone). What will
                    be agreed is a daily sum that will apply once a vessel ‘goes on demurrage’. In practice, the daily
                    demurrage figure is a negotiable item (especially if it is seen as an ‘opportunity cost’). Experience may
                    point to demurrage being ‘more than likely’ on a particular set of terms and it may be that shading a
                    fraction off the freight rate but scaling up the demurrage level might be an accepted ploy.
                *** More often than not owners will be seeking to claim demurrage down to the nearest minute if they can.

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                  Examples on when delivery could commence include:

                  •    Arrival pilot station.

                  •    At arrival port – whether in berth or not.

                  •    At berth.

                  •    After customs/health clearances, notice of readiness tendered* and accepted and with
                       cargo areas open.

                  Laytime allowances break down into three categories:

                  •    Indefinite laytime. An owner normally would wish to avoid this but this may prove
                       impossible. For instance, recent reported fixtures to some Chinese ports have
                       included, as discharge terms, ‘custom of port’ (cop) or ‘customary quick discharge/
                       despatch’ (cqd). In other words, it will take ‘as long as it takes’ and there will be no
                       demurrage. (Freight rate ideas will need to address this).

                  •    Definite laytime. The terms specify a particular number of days. (There may need to
                       be qualifications on whether these are ‘days of 24 hours’ or ‘days of the period when
                       the port facilities are functioning’).

                  •    Calculated laytime. The terms specify a set tonnage per day or, on occasion, tonnage
                       per hatch per day. (The latter may need clarification on whether this presumes all
                       hatches can be worked simultaneously or the issue relates to tonnage per workable
                       hatch per day).

                  The other key laytime concern relates to interruptions. Issues that need to be
                  evaluated to determine to what extent they do or do not count could include:

                  •    Sundays and Holidays**. (Fridays in Islamic countries).

                  •    Saturdays. (Some terms might also slip in Sat pm Ex).

                  •    Time required to shift berths or to warp a vessel along a berth.

                  •    Strikes.

                  •    Force majeure. (This has implications for cargo not being at the berth when it is
                       required to be***).

                  •    Weather disruptions. (This might bring the term ‘weather working day’ (wwd) or
                       ‘weather working day of 24 hours’ into the terms. The laytime measure – whether
                       definite or calculated – might also have ‘weather permitting’ added).


                  *   It is possible that some notices can only be submitted during office hours. Hence, it is conceivable that
                      a notice of readiness tendered at say 19.00 hours on a Friday might not be ‘received’ until 09.30 hours
                      on the following Monday.
                  ** The voyage estimator needs to be aware of the multiplicity of holiday dates that apply around the world
                      and also the extent to which they are fully observed. It may be that the payment of overtime rates might
                      see a port open and operating on a holiday. This means further scrutiny of the ‘time to count’ as terms
                      do emerge such as SHex ‘even if used’).
                  *** A partial cargo shortfall could see the vessel sail with less than its planned load but with the charterer
                      paying deadfreight on the missing volume/tonnage. This would have implications for the voyage
                      performance as port times might reduce and fuel consumption might be lower than projected.


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                The final laytime consideration occurs when terms might be agreed as ‘all
                purposes’, whether they are fixed at the load and the discharge end (non-reversible) or
                whether they might have some flexibility (reversible). The concept of reversible laytime is
                that it would provide for any time ‘saved’ at the loading end to be added to the laytime
                allowed at the discharge port. ‘All purposes’ implies something similar to ‘reversible’
                except that specific load/discharge allowances are not identified directly.

3.2.1 Software applications

                In a number of respects, as voyage estimating principles have not altered, the transfer of
                the exercise from ‘pen and paper’ to the ‘spreadsheet’ may have been a relatively
                straightforward ‘in house’ exercise for many ship owners and managers.

                However, the scope exists for developing more generic packages which enable more
                ‘compatibility’ between the measures calculated by different players and build into them
                ‘value adding’ features such as marine distance tables* or charterparty documentation.

                To provide an illustrative example of an option open in this sector mention might be made
                of Strategic Software Solutions (which amalgamated with Dataworks** in 2001). Their
                current shipping applications list – which focus more on charter and market elements than
                the basics of voyage estimating – includes:

                         Sale and Purchase
                         Dry Position List
                         Dry Tonnage List Processor
                         Dry Fixtures Database
                         Gas Position List
                         Gas Tonnage List Processor
                         Tanker Position List
                         Tanker Tonnage List Processor
                         Tanker Fixtures Database
                         Quick Updates
                         Offshore Positions
                         Offshore Fixtures
                         Claims
                         Laytime Calculator
                         Post Fixtures
                         Charter Party Editor



                *  For most in the shipping sector, the definitive source has tended to be the BP Shipping Marine Distance
                   Tables. These distances, for example, underpin Worldscale assessments in the tanker market.
                   Consequently, it is worthy of note that in August 2003 BP announced that it had engaged a marine
                   software house to provide the output for a new distance tables package that will be made available in
                   book form and via the internet. Originally devised in 1958, the last major overhaul of the BP distances
                   took place in 1976. The new information will be important as developments such traffic separation
                   schemes, regulatory changes, exclusions from environmentally sensitive areas and the use of larger
                   ships unable to navigate existing routes have altered the ‘typical’ voyage distance on a number of
                   routes.
                ** Dataworks had built a reputation of providing software applications in the shipbroking sector.

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                  Among the other tools being marketed in the commercial sector are Veson’s Integrated
                  Maritime Office System (IMOS) and Norwegian Maritime Software’s Route 99.

                  IMOS 2000 is a system that can be purchased as a series of individual modules. The
                  IMOS areas of ‘functionality’ are described as:

                  •   Chartering – which includes the voyage estimating component.

                  •   Distances.

                  •   Operations – including voyage analysis, freight invoicing, reports (cargo loaded/
                      discharged, consumption analysis, performance summary, profit/loss summary,
                      general operations summary, sea operations summary, port operations summary) and
                      bunker management (purchase, purchase summary, bunker consumption summary,
                      bunker inquiries).

                  •   Scheduling – for managing vessel schedules.

                  •   Freight Commission

                  •   Demurrage

                  •   Time Charter-Out Management (including billing, bill scheduling and hire statements).

                  •   Database (embracing, among others, delays and weather, charterparty terms,
                      currency, fuel types, time zones, etc.)

                  •   Accounting (transaction management and accounting database functions, etc.).

                  The voyage estimating module (V-Charter) embraces all the normal voyage estimation
                  inputs plus it allows for in-built selection of shortest distances between ports and an
                  automatic check for port restrictions. It also interfaces with vessel information – on
                  speed/consumption, etc. – and third party databases. It also includes bunker cost
                  sensitivities on the time charter equivalent (TCE) calculated.

                  Route 99 is promoted as a decision support tool that targets three key areas:

                  •   Global Strategic Analysis – analysis of acquisitions and synergies from combining
                      fleets.

                  •   Corporate Strategic Analysis – analysis of newbuilding projects, to go ‘long’ or ‘short’
                      on tonnage, hedging strategies, adding or withdrawing pool partners in an operation,
                      annual budget calculations, impact of new cargo contracts, strategic scheduling of
                      vessels against trades.

                  •   Tactical Analysis – Optimal scheduling, evaluation of contracts versus spot orders,
                      strategies for re-letting cargoes, analysis to improve performance.

                  In addition, there are software providers working across both the commercial and technical
                  sectors – such as Norway’s ShipNet (see also Section 4.5).


3.3     Post fixture

                  The ambit of the post fixture remit that generally falls on the commercial manager
                  concerns the carrying out of an analysis of the vessel’s performance in respect of the
                  charter party terms.


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                When a vessel has been employed under a voyage charter, the post fixture analysis
                requires a close follow-up on:

                        Vessel speed.
                        Time of arrival.
                        Time of readiness, notice served and accepted.
                        Rate of loading/discharging of cargo.
                        Time utilised in each of loading/discharge ports.

                The operations manager in charge of making the post fixture calculations will then
                be required to raise invoices for payments of demurrage or to arrange to remit the
                appropriate sum to the charterer if there is a despatch payment to be made.

                When a vessel is time chartered, usually it is the charterer that makes claims for
                non-performance of the vessel, usually in the form of deductions from charter hire and
                disbursements received from the agents for services rendered to the vessel’s master,
                usually relating to such services as providing:

                        Cash advances to master (if there is a specific agreement in the charter party for
                        this payment).
                        Cash delivery to master.
                        Postage and petties.
                        Transfer of crew.
                        Medical attendance of crew.
                        Immigration and custom attendance relating to crew.
                        Water and other supplies.
                        Launch and other transportation for crew.
                        Agency fee, unless it has been agreed specifically that the charterer’s agents are
                        to assist the master without additional fee.

                The post fixture manager’s task is to verify hire payments, counter any off-hire and
                excess fuel consumption claims and to check the veracity of the agents’
                disbursements.

                There are now a number of specifically developed software packages that make the task
                of the post fixture manager relatively simple and quick, such that prompt invoicing can take
                place in the case of a voyage chartered vessel. However, for non-performance claims
                arising in respect of a time chartered vessel the process is more drawn out and lengthy
                correspondence is usually the norm, as neither party is willing to accept easily claims or
                arguments put forward by the other and quite often such cases end up in litigation or at
                arbitration, especially if the amount claimed is large.

3.4     Green Awards

                Environmental issues span both the technical and commercial aspects of ship
                management. One issue that many owners will complain about is that generally
                they fail to see any commercial advantage from adhering to higher standards.


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                  One development that may go some way to rectifying this is that developed via the
                  Green Award Foundation (which was launched in 1994) that started out as an initiative
                  from the Port of Rotterdam and the Dutch Ministry of Transport. In the early 1990s, the
                  Rotterdam port authorities searched for solutions to improve the quality of vessels calling
                  at Rotterdam. From several proposals raised, ranging from more stringent port regulations
                  to a method to distinguish quality ships and their owners, the port management and
                  the Rotterdam Municipality decided to focus on the latter.

                  This proposal resulted in a voluntary certification/incentive system for crude oil
                  tankers calling at the port of Rotterdam. The requirements for certification were, alongside
                  mandatory rules and regulations, derived from marine industry guidelines and
                  recommendations, the ISO 9002 standard and IMO standards in process of ratification by
                  member states. Compliance with these requirements would identify the good owner (and
                  his/her respective vessel) who takes seriously the responsibility to transport goods in a
                  safe, efficient manner and which results automatically in the protection of the marine
                  environment. Compliance is rewarded by an incentive consisting of a premium paid
                  to the owner. The level of the incentive is based on the port tariff. As the project
                  developed it became apparent that it should not be restricted merely to the Port of
                  Rotterdam.

                      Vessels eligible for certification

                  Starting in 1994 with crude oil tankers of > 50,000 dwt, the system is now open to oil
                  tankers (crude & product) and dry bulk carriers of > 20,000 dwt. An extension to other
                  categories of vessels is expected in the near future. The Green Award certificate
                  applies to the individual vessel.

                  Prior to certification of the first vessel of an owner/manager, an office audit is
                  carried out in order to verify compliance with the Green Award requirements. This
                  audit is repeated every three years. The initial vessel inspection starts after the
                  office audit has been concluded successfully. The certificate is valid for three
                  years, with compliance of the vessel verified annually. After this period, an extensive
                  renewal survey will take place. During the course of its certification period, the vessel’s
                  performance (with respect to the Green Award requirements) is monitored.

                      Incentives

                  Since 1994, the certificate holder of a Green Award certified vessel has received a
                  premium equal to 6% of the port fee from the Port of Rotterdam for each call made at the
                  port. Shortly thereafter, the Port of Sullom Voe followed this example. Today about 47
                  ports grant an incentive to Green Award certified vessels. These ports can be found in
                  South Africa, Spain, Portugal, the Netherlands, the United Kingdom, Germany, Lithuania
                  and Belgium (see Table 3.5). Apart from this, several maritime service providers (for
                  example, the Dutch Pilots organisation) are also granting an incentive.

                      Costs

                  Clearly, there are a number of potential financial benefits for Green Award status – which it
                  is hoped will multiply as and when more port authorities adopt its principles. However
                  achieving Green Award status is not without its costs – and, hence, owners and managers
                  will need to weigh the cost-benefits relative to the likely geographical trading
                  circumstances.


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Table 3.5
Green Award incentive providers

Country                 Port                                           Incentive

     Ports & Harbours
Belgium                 Port of Ghent                                  6% on port fees.

Lithuania               Klaipeda State Seaport Authority               5% on vessel dues.

Netherlands             Amsterdam Port Authority                       6% on port fees.
                        Port of Rotterdam                              6% on port fees.
                        Port of Dordrecht                              6% on port fees.
                        Moerdijk Port Authority                        6% on port fees.
                        Zeeland Seaports (Vlissingen, Terneuzen)       6% on port fees.

New Zealand             Westgate Port Taranaki                         5% on port fees.

Portugal                Administracao do Porto de Sines                5% on tariff of port use.
                        Administracao dos Portos do Douro e Leixoes    3% on tariff of port use.
                        Administracao do Porto de Lisboa               3% on tariff of port use.

South Africa            National Ports Authority of South Africa       5% port dues rebate in all South
                        (Durban, East London, Port Elizabeth, Mossel   African national ports if not enjoying a 5%
                        Bay, Cape Town, Saldanha)                      rebate in terms of double hulled/SBT scheme.

Spain                   Puertos del Estado                             Vessel will be charged 93% on the
                        (Bilbao, Santander, La Coruna, Huelva, Bahia   T1 tariff.
                        de Cadiz, Bahia de Algeciras, Malaga,
                        Cartagena, Valencia, Castellon, Tarragona,
                        Barcelona, S.C. de Tenerife and other ports)

UK                      Port of Sullom Voe                             5% on payable harbour dues.


     Nautical Service Providers
Netherlands             AVR Industrie (Port of Rotterdam)              5% discount on disposal cost of slops at the
                                                                       Port of Rotterdam.
                        Dirkzwager's Coastal & Deepsea Pilotage        5% on published tariff.
                        Dutch Pilotage Association                     Possibility of personnel transfer during
                                                                       helicopter transfer at no charge if operations
                                                                       allow this.
                        Euroshore International                        All members provide a 5% discount in
                                                                       Belgium, Germany, UK, France, Spain,
                                                                       Greece and the Netherlands.
                        Maritime Simulation Rotterdam (MSR)            5% reduction on MSR training programme
                                                                       standard fees.
                        Royal Boatmen Association Eendracht            For vessels of >200m loa, free assistance in
                                                                       (un) mooring by two qualified boat men - one
                                                                       at bow, one at stern; no charge for transport,
                                                                       waiting time and travelling time for boat men
                                                                       required on deck for assistance in (un)
                                                                       mooring.
                        Smit International                             Free places on managing marine enterprises
                                                                       course.
                        Van Esch International                         7.5% rebate on invoiced port services with
                                                                       crane barges.

UK                      Hammond Marine Services                        5% rebate of pilotage element of the tariff of
                                                                       Hammond Deepsea Pilots.

Source: Green Awards Organisation.



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                  Table 3.6
                  Green Award tariffs
                  (as applicable from 1 January 2003)


                  Dwt                               Office Audit Fee*             Application Fee**       Annual Fee***

                  (a) Crude oil and products tankers

                  20-50,000                               € 3,340                         € 4,690            € 2,920
                  50-150,000                              € 3,340                         € 5,320            € 3,340
                  150-250,000                             € 3,340                         € 6,155            € 3,755
                  250-350,000                             € 3,340                         € 6,790            € 4,170
                  >350,000                                € 3,340                         € 7,820             € 4,590

                  (b) Bulk carriers

                  20-50,000                               € 2,605                         € 3,545             € 2,295
                  50-80,000                               € 2,605                         € 4,070             € 2,605
                  80-180,000                              € 2,605                         € 4,690             € 2,920
                  >180,000                                € 2,605                         € 5,320             € 3,235


                  *   This fee will be charged together with the application fee of the first ship of an owner. In the
                      case of a continued certification only the office audit fee will apply.

                  ** The application fee includes costs of the initial review and ship survey and the right to use the
                      logo after the Green Award has been granted.

                  *** The annual fee includes cost of the annual ship inspection and has to be paid from the second
                      year onward. With continued certification, the renewal fee is the annual fee.


                  Additional costs:

                  Survey/inspection (tankers):              Air travel - costs based on business class.
                                                            Car travel - € 0.5/km or car rental costs.
                                                            Travel time - € 100/hour upto a maximum of € 830
                                                            per person per day.
                                                            Accommodation costs.
                                                            Misc. (taxis, meals, etc.).
                                                            A surcharge of 5% will be added based on travel and
                                                            accommodation expenses charged by third parties.
                                                            If survey/inspection takes longer than 1 day (excluding
                                                            travel time), there will be a surcharge of € 830 per person
                                                            per day.
                                                            If survey/inspection takes place on Sat/Sun or holidays,
                                                            there will be a surcharge of € 830 per person per day.
                                                            If an extra survey is needed, there will be a charge of
                                                            € 100 per man/hour upto a maximum of € 830 per day.


                  Survey/inspection (bulk carriers):        As above except time based charges are € 80/hour
                                                            up to a maximum of € 670 per person per day.

                  Source: Green Awards Organisation.




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4. Technical management
                  Operating ships is a skilled business. The requirement of management is to keep the
                  hardware operating, with this having to be undertaken in a perilous environment
                  (seafaring, statistically, remains one of most dangerous occupations) and one where legal
                  and political ramifications are never far from the surface.

4.1     Introduction

                  Technical management is concerned with the physical resource that is the ship. This
                  includes its crewing – its most costly component – with the consequence that technical
                  management embraces a wide range of personnel/human resources functions – from
                  recruitment through certification and testing to travel and repatriation. Communications
                  between sea staff and the shore/office personnel have to be effective necessitating ‘man
                  management’ to be a key requirement of technical managers.

                  The other key ‘hardware’ aspects include repair and maintenance regimes and routines as
                  well as organising the acquisition and inventory policies needed to supply the ship and the
                  crew.

                  Additionally, technical management has to embrace the regulatory environment and
                  ensure that necessary standards and stipulations are met. Increasingly, managers have to
                  be concerned also with aspects of contingency planning (primarily in the fields of safety
                  and pollution prevention).

4.2     Manning and crew management

                  In the arena of technical management, crewing takes on major importance on
                  two key counts. First, manning is the largest cost component in the operating
                  cost budget. Second, crewing has become the key to technical management
                  business.

4.2.1 Background

                  The current concept of crew management has its origins in the mid-1970s. Then,
                  liner business was waning while tramp business had become very competitive. Ship
                  owners seeking to get a competitive edge looked to Asia as the supply source for
                  adequate and cost effective crews. The Indian sub-continent/Philippines appeared to be
                  their preferred choice of supply source. Meanwhile the unions (and the ITF in particular)
                  had begun to be aggressive, demanding higher world wide scales to be applied to all crew
                  serving onboard national flag vessels. In order not to jeopardise their liner operations and
                  at the same time to compete in tramp shipping, many owners opted to flag-out their
                  non-core vessels under a flag of convenience (FOC) and so ‘distance themselves’
                  from these vessels. ‘Further away the better’ appeared to the unofficial maxim. Asia
                  seemed to be the ‘ideal choice’. Initially some of the owners preferred that the officer
                  ranks were retained and filled by their existing seafarers, opting to use only the ratings
                  hired from distant sources but, gradually, the knowledge and dedication of the Asian
                  seafarers, particularly those from India, was soon being acknowledged and they began to
                  displace European officers. Old habits died hard and it took some time before full reliance
                  on officers from India became the norm and acceptable.


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                 These officers, many of whom held certificates issued in the UK, were acknowledged to
                 have a good educational background, fluency in the English language and had a better
                 grasp of the newer technologies creeping into the ship building industry. The cost saving,
                 resulting from the utilisation of this labour force was self evident as more ship owners
                 turned towards this source of supply. The emerging maritime unions, having increased
                 their membership as a result of greater number of Asians being employed onboard FOC
                 vessels, affiliated themselves with the ITF but in the process exacted a comprehensive
                 concession relating to the world wide rates that the ITF wished to enforce its will on. This
                 was known as the collective bargaining agreement (CBA), which allowed a substantially
                 lower salary-scale for the Asian personnel. This reinforced the moves to ‘flag out’ and
                 created greater demand for managers from this region.

                 Ship managers also recognised the potential for the new source officers to serve ashore
                 as technical superintendents and managers. What was once a crew supply region was
                 beginning to take on the role of full responsibility for ship operation.

                 A combination of ever increasing regulatory environments, newer technologies and
                 dwindling human resources/rising costs at the owner’s office made the economic
                 case to justify the outsourcing of this service to ship managers, many of which had
                 now developed more varied experience with different ship types. Ship managers
                 additionally offered the ship owner greater flexibility to exploit different sectors of shipping,
                 without the restriction of not having adequate expertise available in-house, and the
                 flexibility of quick entry/exit.

                 Institutional players also began to enter this segment of market, realising the
                 possibility of outsourcing non-core functions to ship managers while concentrating
                 on asset play.

                 Most ship managers do not like to have the owner’s crew imposed on them as they will
                 want to provide this service as a package. Where a ship manager provides both crew and
                 technical management, a ship owner will hope that he/she can relax in the knowledge that
                 the manager’s selection has been appropriate to the vessel type – with appropriate training
                 and that the vessel will be operated under the DOC (Document of Compliance) of the
                 manager and the vessel will be issued with ISM certificate based on the manager’s DOC

                 The larger managers will have undertaken the task of training their seafarers in various
                 aspect of ship operation from ship handling through specific engineering practices to safety
                 training in line with the company’s ISM documentation, thus ensuring uniformity of practice
                 and safety culture enhancement. A small/medium sized ship owner is likely to rely on the
                 minimum training required by regulations while crew agents do not have the will nor the
                 funds to impart additional training to the crew they engage and deploy on board.

4.2.2 Changing perspectives

                 The second consideration noted in the opening paragraph of Section 4.2 – that crewing
                 has become the key to technical management business – reflects a change in the
                 decision making process by ship owners and, in many respects, reflects the
                 opposite of the position when ship management began to come to the fore in the
                 mid 1980s and 1990s. Then, owners tended to want management in the non-people
                 areas and this was the driver behind their choices. Now, while this remains important,
                 owners contemplating the outsourcing of a vessel’s management are more ‘people
                 focused’.


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                  There are two primary reasons for this change. One is the advance of IT and
                  computer systems. Many complex technical areas (e.g. procurement, synchronicity of
                  shipboard and onshore information, planned maintenance regimes, etc.) have seen
                  software systems evolve that remove some of the unique drivers and needs that existed
                  before – i.e. there is more rationality and consistency between the services that competing
                  managers can offer. The second is that the operational and legislative environment
                  has changed (through STCW, ISM, ISPS, etc.) to the extent that the quality (and cost) of
                  the onboard personnel may now be the paramount issue.

                  Hence, there is now a strong body of opinion behind the view that if the crew
                  arrangements fit the bill for the owner, then the owner will then send the technical
                  management with it.

                  This said, while in some cases manning will be dealt with by a third party ship manager
                  handling the entire technical management account in others the third party involvement will
                  be via a specialist dealing only with crew management*. However, with this last point, it is
                  important also to distinguish between crew management companies and some of
                  the manning agents that might describe themselves as managers. Some of the
                  latter will turn out to be little more than ‘body providers’ and this alone may become
                  increasingly unacceptable as demands on skills, qualifications, ID matters, etc. take on
                  ever greater degrees of importance.

                  In addition, there may be other ‘people provider’ specialists in the equation on specialised
                  ships, notably cruise ships. Some of the onboard complement would come via ‘technical
                  management’ links but there may need to be other resource providers in areas such as
                  entertainment staff, various beauticians and therapists and possibly in some areas of
                  ‘hotel, leisure and catering’.


4.2.3 Crew availability – is a supply problem looming?

                  The harbinger on this issue is the five yearly report produced by Bimco and the ISF.
                  The last full Bimco/ISF report dates from 2000 and it reached the conclusion that:

                  •   The global supply of officers amounted to around 404,000 – and that this represented
                      a 4% shortage.
                  •   The global supply of ratings amounted to around 823,000 – and that this constituted a
                      27% surplus.

                  The Bimco/ISF results have their critics but no one could honestly claim that it possible to
                  produce perfect results from such a process. Requirements are not simply a function of
                  numbers and types of ships – they need to allow for ‘tours of duty’ etc. which will vary from
                  one supply country to another. Not all of the world’s ships are active at any given time.
                  New ship delivery and old ship scrapping programmes can be swayed by ‘market
                  fortunes’.

                  Furthermore, no ships appear to be unable to sail because the officers ‘do not exist’**.



                  *  In the past these arrangements may have been more to do with the need to utilise what is in effect the
                     owner’s ‘own’ crews on ships that might not be owned (e.g. leased or bareboat chartered). In such
                     circumstances, decisions may have more to do with flag or tax matters than ship management issues.
                  ** Whether ships may be sailing with inadequately qualified or certificated personnel is another much
                     murkier issue.


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                        Nevertheless, the essential Bimco/ISF conclusions merit further scrutiny. The
                        second – a surplus of ratings – does have some tangible evidence from the market
                        place. During 2003, the ITF agreed to the postponement of agreed pay rises – with
                        affiliated seafarer unions claiming that the rises priced their members out of the market*.
                        Certainly, there has been evidence in the major source location – the Philippines –
                        of significant seafarer unemployment. There has even been some pressure to cut
                        AB rates to the ILO benchmark figure – part of the supporting argument being that in,
                        for example, the Philippines a US$ earning seafarer (AB) may be earning more than the
                        director of a shipping company in the Philippines. One can argue the merits or otherwise
                        of this but it does indicate why a seagoing career can have a major economic appeal in a
                        number of countries. Whether the supply of seafarers will diminish if this advantage is
                        taken away remains a matter for speculation for the time being.

                        During 2003 Bimco/ISF issued some additional ‘interim views’ on changes since 2000
                        based on a survey of ship owner associations during mid-2002. Some of the reported
                        conclusions of this were:

                        •    46% of ISF members believed that officer demand had increased since 2000 but only
                             7% reckoned that supply had increased to match demand. 61% thought supply had
                             remained the same while 32% recorded a decrease in supply.
                        •    61% of members thought there was a ‘moderate shortage’ of officers. 21% felt the
                             shortage was ‘serious’.
                        •    The most severe shortages affected Chief Officers and 2nd Engineers.
                        •    71% of members reported an increase in average age for all officers. None reported a
                             decrease. For senior officers, 82% believed the average age had increased.
                        •    46% of members indicated that demand for ratings had been stable with the same
                             percentage reckoning that supply and demand had equalled out over the period.

                        •    21% of members felt there was a ‘moderate surplus’ of ratings with 11% indicating that
                             there was a large surplus.

Per cent of ISF members reporting shortages of particular officer grades
since 2000

 Junior Engineers


Second Engineers


     Chief Engineers


        Junior Deck


       Chief Officers


            Masters

                        0       5      10     15      20      25      30      35     40      45      50      55     60      65
Source: ISF


                        *   Given the buoyancy of most of the freight markets during 2003 it is likely that the ITF will be less
                            amenable to this argument in 2004.


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                  The ITF’s much quoted ‘minimum wage’ is that for ABs. However, it has become
                  accepted that rates paid for other grades are based on a differential from this figure
                  – although in reality officer rates are market driven and consequently may be well
                  above the ITF minimum. The 2003 picture is as noted in Table 4.1. However, 2003 has
                  seen some owner groups starting to make moves away from the rigidity of such
                  packages and it may be that eventually this could lead to an agreed overall
                  collective pay total for the complement but greater flexibility in how this is
                  apportioned across the officer and rating grades.

                  The first step down this path surfaced in November 2003 with the announced of
                  a deal between the ITF and the employers’ Joint Negotiating Group. The deal
                  is being described as a complex, no-strike pay pact that will come into effect in 2004.
                  The deal enables employers to weight pay increases to address specific skill
                  shortages. However, it is not expected that there will be any pay cuts. ‘Blue certificate’
                  arrangements will remain in place but new agreements will seek to be made under
                  ‘green certificate’ arrangements. Here, pay rises “will be negotiated with local unions
                  within a wider framework”. The basis of the new arrangements are understood to feature
                  a minimum sum per ship on a total crew cost (TCC) basis assuming a model ship with
                  a crew of 23.


                  Table 4.1
                  Selected ITF wage scales, 2003
                  (US$ per month served)


                                       Rank        Basic   Guaranteed Hourly O/T   Leave      Leave      Total
                                    Differential   Wage     Overtime     Rate      Pay     Subsistence    Pay

                  Master               3.369       2,087     1,550       15.05      487        126       4,250
                  Chief Engineer       3.062       1,897     1,409       13.68      443        126       3,875
                  Chief Officer        2.175       1,347     1,001        9.71      314        126       2,788
                  AB                       1        619        460        4.47      145        126       1,350

                  Source: ITF


                  But, what is the reality in terms of officers?

                  The position is quite complex. The real issues appear to be retirement and staff
                  retention.    Many senior officers (hailing from OECD countries) are nearing
                  retirement age. They will need to be replaced by emerging cadre of junior officers.
                  However, many of these younger officers have been exhibiting considerable
                  reluctance to remain at sea beyond the age of 50. This then puts added pressure on
                  ensuring that there is a steady stream of cadets to take up these officer roles. The
                  problem then looks to be that because many of the cadets come from traditional maritime
                  nations they consequently become ‘too costly’ to employ once they have qualified.

                  Once again, not everyone will subscribe to this picture of the manning scene. However,
                  few will refuse to accept that some future difficulties are on the horizon – especially if the
                  number of ships in the world fleet continues to increase.

                  Media reports in August 2003 noted the conclusions of a study undertaken the Seafarers’
                  Research Institute at Cardiff University on behalf of the UK union, Numast.


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                 Among its reported conclusions were:

                 •     Over the next decade and a half, the majority of European masters and chief
                       engineers will be aged 60+ or have retired.

                 •     By 2010, Europeans will have disappeared almost entirely from EU owned ships
                       (currently put at around 35% of the global fleet) – and, crucially, none subsequently
                       will be available for continuing employment ashore. EU owned ships still tend to
                       favour own national senior officers.

                 •     European standards will cease to provide an industry benchmark.

                 •     Measures appropriate to the problem of producing a renewal stream of junior officers –
                       through enhanced training officer cadet schemes – have not come about despite the
                       issue being on the agenda of ship owner organisations and trade unions for at least a
                       decade.

                 •     In Northern Europe, there are two second officers to every 10 masters in Germany,
                       there are four second mates to every 10 masters in the UK – with the ratio for third
                       officers more than halved.

                 •     In Southern Europe, the ratios are a ‘slight improvement’ but young officer throughput
                       remains well below replacement needs.

                 In contrast, the study notes that in China “the ratios show the pattern needed to produce a
                 balanced flow”. Here, there are 14.4 third officers and 13.5 second officers to every 10
                 masters and 11.9 third engineers and 11.4 second engineers to every 10 chief engineers.

                 These figures might suggest that Chinese seafarers present the solution to the
                 problem in the longer term. However, it is not quite that simple. According to reports
                 emanating from Chinese sources, Chinese seafarers face ‘internal’ and ‘external’
                 prejudices.

                 Internally, this arises from the different economic fortunes of the coastal eastern
                 regions against China’s western regions. The former tends to be the area of greater
                 education and qualification and higher standards of English. This is attractive to the
                 seafaring sector but these attributes are also a major draw for the burgeoning businesses
                 within this region of China. In contrast, the western regions currently yield low
                 performance with respect to English. Added to this, a student in China seeking to gain a
                 relevant bachelor degree level qualification needs to find the tuition resources (reported at
                 around US$ 3,600) plus the costs of accommodation, subsistence, etc. over this period.
                 Such funds may not seem large by many Western nation’s standards but they are not
                 regarded as trivial by Chinese sources.

                 Externally, there have been claims reported in the media that Chinese seafarers are
                 treated less favourably than Indian or Filipino equivalents. Clearly, in the context of this
                 report, it is not possible to take these suggestions as anything more than anecdotal or
                 hearsay views – and, doubtless, there will be some alternative claims. On the other hand,
                 the special seafarer study centre at Cardiff University has been reported as
                 indicating; that “Chinese ratings tend to be older (average age 41) and serve shorter
                 periods (5-8 years)”. If this is interpreted as (a) Chinese seafarers go to sea later in life
                 and, currently, have more experience than qualifications and (b) are not a long term


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                  employment prospect then it is easier to see why an international operator may be more
                  reluctant to ‘invest’ in the development of Chinese personnel. (However, other industry
                  experts have indicated that this situation is not unique to Chinese ratings and the ‘criticism’
                  – if that is what it is seen as – could be applied to a number of other leading supply
                  sources). This said, this is not a situation that cannot be altered over time – as the
                  apparent heavy investments in training being made in China should bear out.

                  The perception of the ‘approaching officer’ problem has brought voice to a number
                  of possible outcomes – though industry insiders do not regard the ideas as being
                  anything new. The two main suggestions are:

                  •   Fast tracking.
                  •   Redefining roles.

                  The first – fast tracking – sounds good in theory but critics are fearful that this will
                  be achieved by reducing the seagoing experience/expertise requirements. Fast
                  tracking is an employment feature in a number of organisations but the starting point
                  normally is within the highest calibre recruits. Equally, there is no merit in fast tracking
                  if the real issue turns out to be an inability to retain personnel willing to make a
                  long-term career at sea.

                  However, the Seafarers’ International Research Centre (SIRC) – based at the
                  University of Cardiff – is making moves to seek EU funding for a trial project that is
                  being dubbed in some quarters as the ‘baby captains’ scheme. It hopes to produce
                  mechanisms leading to captains and chief engineers being appointed by the age of 25.
                  The proponents of the scheme see it as a means of alleviating a shortage of maritime skills
                  and labour and cutting the average age of masters by around 10 years. It hopes also to
                  encourage trainees to stay at sea rather than seeking shore based jobs. Naturally, there
                  are critics – with a fear voiced being that captains of ‘such tender years’ would lack
                  authority and experience. SIRC also claims support from the Japanese government and
                  shipowners’ associations. The approach to the EU involves a proposal for subsidising
                  ship owner participation.

                  Redefining roles onboard ship may appear to be contentious – primarily because
                  shipping has a traditional, established hierarchy and deck and engine room
                  personnel structures. There is also the issue of differing expertise needed for work on
                  different ship types or trade routes. Some of these differences, effectively, are set by
                  ‘customer requirements’ as the principles of shipping different commodities are likely to be
                  broadly the same.

                  Furthermore, while officer cadets are likely to be willing to gain skills and seek
                  promotion, there is less indication of ratings being desirous of looking to progress
                  ‘up the ladder’. (This said, many ratings – even if capable – will not have the financial
                  resources to pursue the training that might enable them to enter the officer ranks).

                  Hence, the notion of multi-skilled, polyvarient seafarers may not be a solution.
                  Equally, the question of whether ‘deck’ and ‘engine’ can be combined has not
                  yielded an answer. On the other hand, there are views surfacing about the potential
                  for changing the nature of the management of shipboard activities. One suggestion
                  recently aired in media sources was for the vessel to possess a single overall manager –
                  who could be from either the ‘deck’ or the ‘engine’ department (where this leaves the
                  Master seems unclear) – with a single ‘office’ managing the primary functions of the ship.


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                 The manager would have ‘support’ from the ‘operational’ sections. The industry reaction to
                 this appears to be that the issue of whether the ‘manager’ came from the ‘deck’ or the
                 ‘engine’ was something that could be treated on its merit but there would be reluctance to
                 countenance the idea of a ‘fast tracked’ manager with little or no seagoing experience.

                 There appears to be a seafarer viewpoint that some shore functions could be redeployed
                 to the ship but the reverse move is not seen as advantageous.

                 For the moment, much of this may appear to be ‘unlikely’. Perhaps the point really is that
                 the fact that a debate may be starting in the industry is a sign that a problem may be on
                 the horizon. The nearer the problem comes to looking like it could become a reality, the
                 more ‘new permutations’ will be raised.

4.2.3.1 Seafarer retention

                 The role of the ship manager in the context of crew provision often highlights a
                 paradox. That is, by contracting out the owner does not want to be involved directly
                 with the crew and its selection, etc. However, the owner does want continuity – that
                 is, for the crew to be familiar with the ship and its ‘foibles’ and to have some
                 understanding of the owner’s trade requirements.

                 As Section 4.2.5 notes, not many seafarers are permanent, salaried employees.
                 Rather, they are fee earners with periods ‘off ship’.

                 The position tends to be resolved by the ship manager building up a cadre of
                 seafarers which are divided into dedicated groups for each owner. The owner may
                 be looking for ‘90% return’ – i.e. the owner expects to get about 90% of the complement
                 returning with the balance having been promoted or left*. How close this takes the
                 seafarers to be being fully employed by the manager can be a significant factor in
                 the owner’s eyes.

                 The key to good crew management at present is seen by many as the ability to be
                 ‘ahead of the labour market’. This tends to involve having established a base in key
                 supply centres (e.g. the Philippines, India, China, Russia, Ukraine, etc.) with this operation
                 being their own office (either newly established or through the purchase of/joint venture
                 with an existing firm in the country**). This is often seen as an advantage – in marketing
                 and, no doubt, in practice – over a head office dealing with overseas agencies. However,
                 this approach is seen as enabling the crew manager to influence (some have even
                 suggested dictate to) the client on the basis of ‘these are the crews that I have got’***.

                 The other potential complication of a high ‘return’ requirement may be conflicts of
                 influence/loyalty allegiances from the crew. Ultimately, the manager is the ‘boss’ if that
                 is where the pay comes from. However, established relationships with owners can also
                 evolve. This may appear more complex if the owner has put a personnel ‘implant’ into the
                 management company.



                 *   This assumes a degree of continuity also between the owner and the manager. An owner that regular
                     ‘chops and changes’ the outsourcing cannot expect the same degree of crew continuity. Although it is
                     not unknown for a crew to ‘change managers’ if the vessel is transferred.
                 ** The crew manager is likely to have ‘home office’ personnel as an ‘implant’ in the operation.
                 *** However, this may be an indicator to the owner also. If, say, a European owner wants some European
                     personnel input and a crew manager only offers, say, Filipino and Chinese personnel then such an
                     owner would not go with such a crew manager.


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4.2.4 Main sources of seafarers

                    Figures 4.1 and 4.2 along with Tables 4.2 and 4.3 highlight the leading supply countries as
                    identified in the Bimco/ISF Manpower Update 2000.

                    Table 4.2
                    Reported officer availability by country

                    Country                         Numbers                   Country                          Numbers

                    Philippines                      50,000                   Norway                               12,000
                    China (PRC)                      34,197                   India                                11,700
                    Russia                           21,680                   South Korea                           9,506
                    USA*                             19,241                   Italy                                 9,500
                    Japan                            18,813                   Croatia                               6,500
                    Greece                           17,000                   Latvia                                6,170
                    Indonesia                        15,500                   Germany                               6,021
                    Turkey                           14,303                   Myanmar                               6,000
                    Ukraine                          14,000                   Poland                                5,944
                    United Kingdom                   13,285                   The Netherlands                       5,707


                    * Including those serving on the Great Lakes fleet.

                    Source: BIMCO/ISF 2000 Manpower Update



Figure 4.1
Reported officer availability by country

 Philippines
China (PRC)
     Russia
 USA/Lakes
      Japan
     Greece
   Indonesia
     Turkey
    Ukraine
         UK
     Norway
       India
South Korea
        Italy
     Croatia
      Latvia
   Germany
   Myanmar
     Poland
Netherlands

                0     5,000       10,000   15,000   20,000    25,000      30,000      35,000   40,000     45,000     50,000
Source: BIMCO/ISF 2000 Manpower Update



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                      Table 4.3
                      Reported ratings availability by country

                      Country                        Numbers                   Country                          Numbers

                      Philippines                     180,000                  Honduras                          15,341
                      Indonesia                         68,000                 Italy                             14,000
                      Turkey                            48,144                 Croatia                           13,000
                      China (PRC)                       47,820                 Japan                             12,000
                      India                             43,000                 Canada                            10,076
                      Russia                            34,000                 United Kingdom                    10,860
                      USA                               26,837                 Norway                            10,200
                      Myanmar                           23,000                 Sri Lanka                          9,977
                      Ukraine                           23,000                 Pakistan                           9,327
                      Greece                            15,500                 Germany                            8,462

                      * Including those serving on the Great Lakes fleet.

                      Source: BIMCO/ISF 2000 Manpower Update




Figure 4.2
Reported ratings availability by country


 Philippines
     Indonesia
       Turkey
China (PRC)
         India
       Russia
 USA/Lakes
     Myanmar
      Ukraine
       Greece
     Honduras
          Italy
       Croatia
        Japan
      Canada
           UK
       Norway
     Sri Lanka
      Pakistan
     Germany

                  0      20,000     40,000     60,000     80,000     100,000   120,000      140,000   160,000    180,000
Source: BIMCO/ISF 2000 Manpower Update



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4.2.5 Seafarer costs and quality

                  For the vast majority of ship owners, ship managers or crew managers, there are no
                  fundamental constraints on the nationalities of the officers and crew they employ.
                  The decisions, therefore, will relate to cost and availabilities together with wider
                  acceptabilities. Crews which are not ‘ITF acceptable’ or not from an IMO ‘White List’
                  country under the STCW requirements may lead to problems with the acceptability of
                  the ship in many geographical locations and, if this is widely known, is likely to propel the
                  ship up the target list for Port State Control attention.

                  When evaluating the subject of seafarer costs, the analysis will not centre solely on
                  wage rates. Employment conditions have to be factored in. So too do indirect
                  manning costs.

                  In simplified format, the split between direct and indirect manning costs divides broadly as
                  flows:


                          Direct Cost Areas           Indirect Cost Areas

                          Wage costs.                 Recruitment/selection and processing.
                          Travel costs.               Medicals and drug/alcohol tests.
                          Onboard victualling.        Welfare/social dues.
                          Training.                   Communications/bank charges.
                          Union fees.                 Crew accident insurance cover.
                                                      Sick pay.
                                                      Standby pay.
                                                      Port expenses.
                                                      Agency fees.



                  Wage costs embrace a number of aspects including:

                  •   Basic pay: This is likely to be either (a) a salary (i.e. monthly or periodic payment
                      which relates normally to service on board plus leave while ashore), hence, the salary
                      continues at the same rate once the seafarer has left the ship (it is not uncommon for
                      Western European officers to be salaried) or (b) a fee (where earned leave is
                      compounded into the on board rate of pay; hence, the seafarer is ‘off pay’ when
                      ashore).

                  •   Overtime: Today, officers normally will have overtime consolidated within their salary
                      or fee. Ratings may receive overtime payments but a consolidated package based on
                      a set number of hours may be more likely.

                  •   Leave: Costs will be built into the salary or fee arrangement.

                  •   Pension/Provident Fund: Probably a trade union required ‘fringe benefit’ – but also
                      likely to be contributory and conditional on a set period of service.

                  In the ship or crew management arena, there is an issue of staff retention to consider
                  and this may shape the packages on offer. A third party ship manager is likely to have a
                  higher public/industry profile than many ‘brass plate’ ship owners. Hence, the manager
                  may have more of a reputation to protect (especially as the manager has to compete for


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                 his/her client base) and so cannot afford to be involved with STCW deficiencies or crews
                 that have not been paid/owed vast sums or who are deficient in terms of their required
                 skills.

                 It is possible that the ship manager will want to protect the ‘investment’ in skilled
                 officers and crews and so may look to establish an arrangement with them that at
                 least involves some degree of retention if not having them as full time employees.

                 Table 4.4 provides some insight into comparative wage costs and highlights the
                 wide ranging differentials that exist. Table 4.4 focuses on dry cargo ships (e.g. bulk
                 carriers) and tankers. Work on some of the specialised ship types (e.g. gas carriers or
                 chemical carriers) will require the paying of a wage rate premium. Some of the lowest cost
                 indications may not be ITF ‘acceptable’.

                 Table 4.4
                 Sample wage cost summaries – 2003 conditions*
                 (US$ per month served)


                 Master                                            Dry Cargo                        Tanker

                 China                                            2,700-3,300                   3,550-4,150
                 India                                            4,700-4,900                   5,500-5,900
                 Philippines                                      3,600-4.000                   3,800-4,300
                 Poland                                           4,500-4,700                   5,900-6,100
                 Russia                                           4,200-4,400                   4,500-4,800
                 UK                                               8,000-9,500                 9,500-11,000
                 Ukraine                                          3,400-3,600                   3,900-4,100



                 Chief Officer/1st Asst. Eng.                      Dry Cargo                        Tanker

                 China                                            1,950-2,300                   2,570-2,900
                 India                                            3,300-3,500                   4,200-4,500
                 Philippines                                      2,400-2,600                   2,500-2,900
                 Poland                                           3,400-3,600                   3,900-4,100
                 Russia                                           2,700-2,900                   3,500-3,700
                 UK                                               6,300-7,500                   7,500-8,500
                 Ukraine                                          2,400-2,600                   2,900-3,100



                 AB                                                Dry Cargo                        Tanker

                 China                                             820-1,000                     970-1,200
                 India                                            1,160-1,350                   1,215-1,350
                 Philippines                                      1,050-1,350                   1,100-1,350
                 Poland                                           1,100-1,350                   1,400-1,500
                 Russia                                           1,300-1,350                   1,350-1,450
                 UK                                               3,000-3,600                   3,000-3,600
                 Ukraine                                             850-950                     950-1,050

                 * Basic pay, vacation and guaranteed overtime.
                 Source: Precious Associates Ltd.



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                  Crew ‘quality’ is a feature of training, competence, qualifications and experience. It
                  also embraces the ability to communicate well both onboard and with the various
                  shoreside contacts including ‘head office’, the manager, port authorities and
                  officials, pilots, etc. This can be a significant issue if the officers and crew are multi-
                  national and so provide a range of ‘mother tongues’.

                  In the ‘international world’, English tends to be the language that is used to provide
                  the ‘common base’ and hence standards achieved in English are influential in
                  the crew selection process. For most of the key supply countries the general
                  assessment of English tends to be in the ‘good-to-excellent’ range for most officer
                  grades (especially at senior level) although China currently rates ‘adequate-to-good’ at
                  officer level. However, the picture in terms of ratings seldom matches the levels achieved
                  at officer level.

                  The discussion offered earlier relating to pay packages points to areas where
                  international bodies (e.g. the ILO) or unions (e.g. the ITF) look to set minimum
                  remuneration levels. However, seafarers from some supply countries are paid less
                  than these minima. Naturally, one would not normally expect an owner or manager
                  of repute to be embracing such practices.

                  Many owners, in practice, will sign up to an ITF Collective Agreement (which obliges
                  them to make an annual contribution to the Special Seafarers’ Section of the ITF) which
                  will enable the ITF to issue them with a ‘blue certificate’* which carries the approval
                  of the ITF and local unions. The pay agreement covered by a ‘blue certificate’ could be
                  either through applying ITF Standard Collective Agreement Rates or Total Crew Cost
                  Concept (TCC) Rates.

                  The other ‘quality’ related issue arises under the International Convention on
                  Standards of Training, Certification and Watchkeeping for Seafarers 1978 (amended
                  1995) – commonly referred to by the acronym, STCW.

                  Focusing on the context of the implications for seafarer selection – a critical activity
                  whether undertaken by owner, technical ship manager or crew manager – is the
                  development (since December 2000) by the IMO of the so-called ‘White List’ of
                  acceptable manning supply countries. A presence on the ‘White List’ is indicative of the
                  IMO being satisfied with the submitted documentary evidence that the country in question
                  has taken the legal and administrative measures necessary to comply with STCW 95. The
                  IMO issued an extended list of countries in February 2003 (see Table 4.5) and advised
                  that it plans its next update/revision by mid-2005.


4.2.6 Tours of duty

                  Earlier, it was noted that while some seafarers might be employed permanently on a
                  salaried basis, the likelihood is that many will be on fee terms. The latter brings
                  with it the distinction between onboard and ‘off pay’ periods.

                  Table 4.4 has offered some indications on variations in pay scales for different seafarer
                  nationalities but these also have to be set in the context of the overall employment


                  *   This will specify minimum wages, holidays, hours and conditions of work plus the contribution to the
                      Seafarers’ International Assistance, Welfare and Protection Fund.


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                 Table 4.5
                 Countries holding “White List” status

                       Algeria                          Ghana                               Panama
                       Antigua and Barbuda              Greece                              Papua New Guinea
                       Argentina                        Honduras                            Peru
                       Australia                        Hungary                             Philippines
                       Azerbaijan                       Iceland                             Poland
                       Bahamas                          India                               Portugal
                       Bahrain                          Indonesia                           Republic of Korea
                       Bangladesh                       Ireland                             Romania
                       Barbados                         Islamic Republic of Iran            Russian Federation
                       Belgium                          Italy                               Saint Vincent and
                       Belize                           Israel                              the Grenadines
                       Brazil                           Jamaica                             Samoa
                       Brunei Darussalam                Japan                               Senegal
                       Bulgaria                         Kiribati                            Singapore
                       Canada                           Kuwait                              Slovak Republic
                       Chile                            Latvia                              Slovenia
                       China *                          Lebanon                             Solomon Islands
                       Columbia                         Liberia                             South Africa
                       Comoros                          Lithuania                           Spain
                       Côte d’Ivoire                    Luxembourg                          Sri Lanka
                       Croatia                          Madagascar                          Sweden
                       Cuba                             Malaysia                            Switzerland
                       Cyprus                           Maldives                            Thailand
                       Czech Republic                   Malta                               Tonga
                       Democratic People’s              Marshall islands                    Trinidad & Tobago
                       Republic of Korea                Mauritius                           Tunisia
                       Denmark **                       Mexico                              Turkey
                       Dominica                         Micronesia                          Tuvalu
                       Ecuador                          (Federated States of)               Ukraine
                       Egypt                            Morocco                             United Arab Emirates
                       Estonia                          Mozambique                          United Kingdom ****
                       Ethiopia                         Myanmar                             United States
                       Fiji                             Netherlands ***                     Uruguay
                       Finland                          New Zealand                         Vanuatu
                       France                           Nigeria                             Venezuela
                       Georgia                          Norway                              Vietnam
                       Germany                          Pakistan                            Yugoslavia

                 Note: Includes: * Hong Kong SAR
                                 ** Faeroe Islands
                                 *** Netherlands Antilles & Aruba
                                 **** Isle of Man
                 Source: IMO




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                  package. Within this, a key factor is the expectations on tours of duty – and to some
                  extent also issues of the defined working week and overtime.

                  The tour of duty issue, obviously, is important in the context of crew change over –
                  as the ship manager has to deal with the scheduling in of the replacement crew and
                  repatriating the existing crew. The costs of travel, etc. might be dealt with by an owner,
                  a manager or a specialised travel agent.         However, the vessel’s location when
                  changeovers need to be made may be dictated by the employment pattern set by the
                  charterer.

                  For the nationalities noted in Table 4.4, an indication of expected tour of duty periods is
                  noted in Table 4.6.

                  Table 4.6
                  Selected tour of duty terms – 2003 conditions

                  (a) Officers


                                     Voyage          Leave Days    Standard      Guaranteed      Additional
                                     Lengths         (Per Month      Week            O/T          Paid O/T
                                     (Months)         Served)       (Hours)      (Per Month)

                  China                  10               6           44             90             No
                  India                 4-6            15-20      Consolidated   Consolidated       No
                  Philippines           3-8               8           44         Consolidated       No
                  Poland                4-6             8-15      Consolidated   Consolidated       Yes
                  Russia                  6               8       Consolidated   Consolidated       No
                  UK                    3-4            18-21      Consolidated   Consolidated       No
                  Ukraine               5-7               4           47             103            No




                  (b) Ratings


                                     Voyage          Leave Days    Standard      Guaranteed      Additional
                                     Lengths         (Per Month      Week            O/T          Paid O/T
                                     (Months)         Served)       (Hours)      (Per Month)

                  China                  12               6           44             90             Yes
                  India                9-10              6-7         40-44           103            Yes
                  Philippines          8-12               8           44             85             Yes
                  Poland                4-6              6-7          40             103            Yes
                  Russia                  6               8           40             103            Yes
                  UK                    3-5            11-14      Consolidated   Consolidated       No
                  Ukraine               5-9               4           47             85             Yes

                  Source: Precious Associates Ltd.



4.2.7 Manning budgets

                  To provide further insight into the building up of sample manning budgets, Tables 4.7-4.9
                  note some representative calculations based on 2003 conditions.


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Table 4.7
Handymax bulk carrier manning budget (3/4 years old – Worldwide trading)
(US$ per month)




Manning scale:          Master, Chief Officer, 2nd Officer, 3rd Officer
                        Chief Engineer, 2nd Engineer, 3rd Engineer, Electrician          (8)
                        Bosun, Fitter, AB x 3, OS, Motorman x 2
                        Chief Cook, Messman                                             (10)


Total complement:       18




                                                   8 Danish Officers                    8 Filipino Officers
Manning budget                                    10 Filipino Ratings                 10 Filipino Ratings

Wages, vacation, overtime                              $71,000                                 $32,800
Wage overlap/standby/miscellaneous                          7,100                                 3,300
Victualling                                                 3,600                                 3,600

Total US$ per month                                    $81,700                                 $39,700




Terms and conditions                                Danish                                     Filipino


Tours of duty:
     Officers                                     3-4 months                               3-8 months
     Ratings                                          n/a                                 8-12 months


Normal working week:
     Officers                                      40 hours                               Consolidated
     Ratings                                          n/a                                      44 hours


Guaranteed/fixed overtime:
     Officers                           Master & C/Eng – consolidated                     Consolidated
                                              Other Officers – Nil
     Ratings                                          n/a                                      85 hours


Leave per month served:
     Officers                                     21-23 days                                   8 days
     Ratings                                          n/a                                      8 days


ITF Blue Certificate status                        Available                                Available

Note: Danish Master and Chief Engineer may be on paired manning basis – i.e. equal time on / time off.

Source: Precious Associates Ltd.


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Table 4.8
Small tanker manning budget (9/10 years old – North Europe trading)
(US$ per month)




Manning scale:          Master, Chief Officer, 2nd Officer
                        Chief Engineer, 2nd Engineer               (5)
                        Cook/AB, AB x 2                            (3)


Total complement:       8




                                                5     Polish Officers    5   Croatian Officers
Manning budget                                  3     Polish Ratings     3   Croatian Ratings

Wages, vacation, overtime                              $21,500                   $22,300
Wage overlap/standby/miscellaneous                       2,100                     2,200
Victualling                                              1,600                     1,600

Total US$ per month                                    $25,200                   $26,100




Terms and conditions                                  Polish                  Croatian


Tours of duty:
    Officers                                        2-3 months               2-3 months
    Ratings                                         2-3 months               2-3 months


Normal working week:
    Officers                                        Consolidated             Consolidated
    Ratings                                          40 hours                 40 hours


Guaranteed/fixed overtime:
    Officers                                        Consolidated             Consolidated
    Ratings                                          103 hours                103 hours


Leave per month served:
    Officers                                         8 -15 days              7½ -15 days
    Ratings                                           8 days                   6 days


ITF Blue Certificate status                          Available                Available

Source: Precious Associates Ltd.


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Table 4.9
Product tanker manning budget (9/10 years old – worldwide trading)
(US$ per month)




Manning scale:          Master, Chief Officer, 2nd Officer, 3rd Officer
                                                                          th
                        Chief Engineer, 2nd Engineer, 3rd Engineer, 4 Engineer                (8)
                        Bosun, Pumpman, Fitter x 2, AB x 3, OS x 3, Motorman x 2,
                        Chief Cook, 2nd Cook, Messman                                        (15)


Total complement:       23




                                                 4 British Senior Officers                   8 Indian Officers
Manning budget                                   4 Indian Junior Officers                   15 Indian Ratings
                                               15 Filipino Ratings

Wages, vacation, overtime                                 $67,000                                   $50,400
Wage overlap/standby/miscellaneous                          6,700                                     5,000
Victualling                                                 4,850                                     3,000

Total US$ per month                                       $78,550                                   $58,400




Terms and conditions                           British                         Indian                    Filipino


Tours of duty:
     Officers                                 4 months                    4-6 months                          n/a
     Ratings                                     n/a                      9 months                     8-12 months


Normal working week:
     Officers                               Consolidated               Consolidated                           n/a
     Ratings                                     n/a                       40 hours                      44 hours


Guaranteed/fixed overtime:
     Officers                               Consolidated               Consolidated                           n/a
     Ratings                                     n/a                      103 hours                      85 hours


Leave per month served:
     Officers                               18-21 days **                 10-15 days                          n/a
     Ratings                                     n/a                       7-8 days                       8 days


ITF Blue Certificate status                   Available                   Available                     Available

Note: British Master and Chief Engineer may be on a paired manning basis – i.e. equal time on / time off.
Source: Precious Associates Ltd.



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4.2.8 Seafarer identity requirements

                  2002 and 2003 will be remembered as years where issues relating to security took
                  on considerable prominence. One consequence of this has been that the issue of
                  identity and means of identification has become a major issue.

                  In the past, there have been ‘identity issues’ but in the main these have tended to
                  centre around misrepresentation – e.g. seafarers being in possession of
                  certificates/tickets to which they were not entitled or not qualified. Clearly, this involves
                  issues of fraud and may put ships and lives at risk.

                  Today, however, seafarers have to be evaluated in the context of terrorism risks –
                  and, perhaps not surprisingly, the USA is exerting considerable pressure in this area. For
                  ship owners and managers problems are emerging not just in the nationality make
                  up that might be acceptable or unacceptable on some vessels/trade routes but also
                  through problems relating to nationals from some countries being refused
                  permission to leave the vessel on shore leave.

                  On top of this, crews in transit to and from vessels also may be subject to being
                  refused entry or right of transit in some countries.

                  In June 2003, the ILO announced the advent of its new Convention on Seafarers’
                  Identity (to replace the ILO’s Convention 108 enacted back in 1958*). The new ILO
                  agreement – which is described as a compromise – could lead to every seafarer in
                  the world having a fingerprint-based international identity document**. However,
                  with a claimed seafarer population mentioned by the ILO of 1.2 million, this is not going to
                  be exercise that can be completed swiftly. While the technology involved is said not to
                  be too costly, the process will place a huge cost burden on the industry overall.
                  Every port in the world would require the necessary scanning equipment***. Furthermore,
                  there are doubts that a fingerprint-based method could be foolproof. (However,
                  possibly the major flaw is simply that while the fingerprint on the ID document may match
                  that of the bearer this does not guarantee that the bearer is the named person identified on
                  the document).

                  Part of the intention appears to be for the document to be acceptable in the context
                  of shore leave, transit and transfer and aspects of visa exemptions. (The USA was
                  reported to have been hostile to inclusion of visa exemptions and, along with Australia, is
                  the most prominent country insisting on visas for temporary shore leave).

                  Once a country has ratified the convention, it will be required to maintain a database
                  which will be available for ‘consultation’ by ‘authorised officials’. However, ratification
                  can be complex and in many states this will require primary legislation. It could experience
                  difficulties also in areas such as the EU where (a) measures may need to be ‘harmonised’
                  and (b) there is freedom of movement between member states once an individual has
                  passed through the original point of entry. Another issue may be where countries are


                  *   Ironically, perhaps, although the current Bush administration in the USA has been at the forefront of
                      pressing the ILO to reach a new agreement, the USA never ratified Convention 108).
                  ** This is described as a biometric indicator based on a fingerprint template encoded in a bar code – to be
                      based on a uniform international standard – plus a digital or original authorised photograph. Each card
                      will carry a unique document number.
                  *** However, the question has been raised as to whether these need to be portable (i.e. they would be
                      taken onto the ship) or would be solely shore based. All of this will affect hardware and software costs
                      – and probably the reliability and durability of the equipment itself.


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                 unwilling to implement all aspects in full (e.g. requiring visas for shore leave) – here, the
                 requirement is for arrangements that are ‘substantially equivalent’. In practice, every
                 inconsistency of application is going to cause problems for owners, managers,
                 ports and the trade as a whole*.

                 The first major stumbling block to the exercise is the establishment of the “uniform
                 international standard”. Even if the ISO adopts a ‘fast track’ procedure there are doubts
                 that a draft could be out for consultation before 2005. It has been pointed out also that the
                 ILO agreement does not set out the performance guarantees that are required under the
                 “uniform international standard”.

                 A number of security specialists are of the belief that a more effective and
                 technically superior ID system would be one focused on the eye (e.g. iris
                 recognition). The technology for this is claimed to be virtually in place. If the case for
                 developments in this direction gathers pace there may be pressure on the ILO to
                 think again. Certainly, the ability to get the new convention ratified by individual states will
                 be hampered if the case evolves that (a) the ILO plan is extremely costly, (b) it is believed
                 to be flawed to an extent that it is by-passed by those it seeks to ‘root out’ and (c) other
                 options might be more foolproof.

                 Another area of concern may be the inclusion of additional information on the card’s ‘chip’.
                 This might include, say, the seafarer’s qualifications. However, any moves in this direction
                 tend to trigger complaints from privacy lobbyists, human rights lobbyists, etc.

4.2.8.1 Seafarer scrutiny

                 Issues ranging from security/anti-terrorism to basic competences and the safety of
                 ship dictate that crews should be who they say they and are qualified/certificated to
                 the level they claim to be.

                 Who, however, is responsible for verifying this? This is a vital issue in terms of
                 liabilities in an increasingly ‘blame focused’ culture.

                 Under the ISM Code, crew managers take on this responsibility and ought to be
                 guaranteeing that all is in order in terms of flag state rules, IMO, White List, etc.
                 Normally, the Master would be expected to provide the ‘double check’. Some ship
                 managers will take on this liability. The process, however, can have loopholes.

                 A difficulty in the equation can be that large elements of paperwork enter the
                 equation. For instance, there may need to be checks on college papers, eyesight checks,
                 drug/alcohol tests, AIDS test, visa requirements, etc.

4.2.9 Crew protection

                 Seafaring is a hazardous profession. However, to add to the ‘perils of the sea’, all too
                 often seafarers are made to be the ‘fall guys’ when things go wrong – especially if
                 there is a ‘political’ edge to events.


                 *     In addition, there will be the ‘aggravations’ caused by malfunctioning scanner readings. Experts claim
                       that there will be a number of both ‘false positive’ and ‘false negative’ readings. If this means that a key
                       crew member is ‘wrongly’ prevented from boarding a vessel, there could be delays to the vessel’s
                       sailing schedules – with the ‘knock on’ commercial problems that would ensue. This could also become
                       an issue where there are large, multinational complements such as those on cruise ships.


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                  Perhaps the most disturbing of these is the all too frequent practice, in the first
                  instance, of arresting – and often jailing – of the Master. This seems to occur whether
                  the Master (or the vessel) has been obviously negligent or whether the Master has done
                  everything within his power to mitigate any problems that have arisen. (In contrast, there
                  do not seem to be wholesale arrests of pilots when a ship incident occurs with a pilot at the
                  helm and issuing instructions).

                  These events provide headaches for the supporting management (whether in house
                  or third party) which should plan to minimise the risks. However, these plans can be
                  torn to shreds if countries refuse to offers ports or havens of refuge or make
                  demands about the disposal of ship-derived waste but do not provide any facilities
                  for their proper disposal.

                  The other area of inadequate ‘political action’ concerns piracy. These acts may well
                  see crew lives put at risk.

                  According to the International Maritime Bureau (IMB), there were 234 reported attacks on
                  ships during the first half of 2003 – a rise of 37% on the corresponding period in 2002.
                  Over this period, 16 seafarers lost their lives, 52 were injured, 165 ships were boarded and
                  9 ships were actually hijacked.

                  The main locations cited during the first half of 2003 were Indonesia (64 attacks),
                  Bangladesh (23), India (18), Nigeria (18), Malacca Straits (15) and Gulf of Aden (14).


4.2.10 Travel

                  Crew travel arrangements have to be factored in within the context of contractual
                  tours of duty and the ship’s trading pattern. Clearly, some crew transfer locations
                  offer more economic options than others. Another factor might be visa requirements –
                  with the USA, for example, apparently being increasingly reluctant to accede to visa
                  requests from nationals of Islamic states. (According to media reports, this is now having
                  wider repercussions as Jo Tankers and B&N Moerman have been reported as sacking
                  Indonesian crews and replacing them with Filipinos. The companies are reported as
                  claiming that visa waiting times have been as long as six weeks, seafarers with “common
                  Islamic sounding names” have been subjected to prolonged questioning and that the
                  companies have been forced to pay bills for security guards).

                  The key question relating to crew travel is, who deals with it? Often the requirements
                  will be channelled through a specialist travel agent but they could emanate from the owner,
                  the manager or a crewing agent. Does this matter? For the ship manager, the answer
                  may well be ‘yes’ if the manager sees this as ‘part of the income’*.

                  Managers who have agreed a fixed manning cost budget with an owner will be looking at
                  measures within this to improve their margin. Travel can be such an area. One source
                  has advised that this is “an area with a lot of double entry bookkeeping” – by inference,
                  there is scope to make money.




                  *   It could be an issue also in terms of liability. Suppose an officer breaches the alcohol or drugs policy
                      and has to be dismissed. Who then is responsible for the costs of flying in a replacement and
                      repatriating the offender – the owner, the manager or even the offender?


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                 Crew travel is big business. One recent suggestion is that some 2.5 million seafarers
                 travel to and from ships in a year. Within a working figure ‘assuming not too many difficult
                 routes’ of perhaps US$20-30,000 per annum in air fares for vessels with international
                 crews on deep sea trades (there have been suggestions of double this figure) these costs
                 soon mount at the global level. However, to this one might need to add agents’ fees or
                 commission and any additional accommodation or subsistence expenses.

                 For the owner or manager involved there are a number of ‘logistical’ factors to
                 consider, including:

                 •     Price sensitive ship operators want to minimise travel costs. However, often the
                       requirements of seafarer travel are not conducive to maximising the chances of
                       securing the lowest cost air travel.

                 •     Crew travel tends to be ‘booked late’ – perhaps only a few days to a week before
                       departure.

                 •     In the ‘golden era’ of standby fare promotions this might have created some
                       advantage but today the airlines have different ideas in terms of dealing with their
                       ‘distressed inventory’ or ‘sell down classes’.

                 •     The airlines are pitching the ‘distressed inventory’ more and more at the leisure
                       market and within this process are switching the benefits from ‘last minute’ to ‘early
                       bookings’.

                 •     The marine sector may make a case for special treatment because of its volume of
                       business but the counter argument is that if fares fall further the airlines may see less
                       need to consider ‘special treatment’ marine business at all.

                 However, there may be some measures that managers could consider but the
                 benefits gained would need to be greater than the time/cost of the staff needed to
                 organise them. For instance:

                 •     Tickets (bought in advance presumably to obtain better deals) could be delivered to
                       the ship by the replacement crew. This is a form of ‘ticket on departure’ approach.
                       However, there can be problems with this if the ‘ticket on departure’ is channelled
                       through the local agent or is to be held at the airport. (The local agent would prefer to
                       do the bookings as this would generate a commission – perhaps 5%. There are
                       anecdotes of the agent being ‘unable to find’ tickets on departure and so re-books the
                       business).

                 •     While the manager may not have much if any choice in terms of the crew travel for
                       those boarding the vessel this is not the case for those departing. It could be that it
                       might be better to put the crew in a hotel and delay the departure slightly in order to
                       secure a much cheaper flight.

                 •     Some airlines may have a pricing policy which seeks actively to gain business from
                       particular countries and price accordingly.

                 •     There will be advantages in maximising large group discounts. One example cited in
                       Europe includes a complement flown on a group package to the UK and then booked
                       on by coach/bus to end destinations.


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4.2.11 Shipboard cash management

                  The issue of victualling is one area which has led to the need for the vessel to carry
                  considerable sums of cash. (The 21st century may be the era of the credit card but, if
                  utilised by the ship, on whose behalf would it be issued? – the owner, the manager? How
                  would they be credit rated?). A further cash need arises from paying the complement.

                  Normally, the crew will be due payment for each month served – and so paid at the
                  end of each month. Some crew may be obliged to send an allotment back home (or they
                  may choose to do this). This could be handled on a bank-to-bank basis. However, the
                  reality on many vessels is that the crew work on cash advances when onboard and take
                  the balance when they leave. This said, money transfer mechanisms continue to evolve
                  and their uptake will increase.

                  It could be that a vessel in the deep sea sector may be carrying perhaps US$10-
                  20,000 on board – this figure could rise astronomically on a cruise ship – and this
                  will require costly insurance cover on it. (This is a factor behind the continuation of
                  piracy in certain regions). Clearly, owners and managers wish to minimise the cash
                  sums involved (not least because there is an opportunity cost in terms of lost interest).
                  One option is to arrange lumpsum bank transfers to agents and require them to pass these
                  on to seafarers. The issue then is to ensure that agents do not ‘sit’ on the funds.

                  Clearly, establishing the most cost effective way of distributing the funds to meet
                  the wage bill and other ship ‘cash costs’ is a vital task for the ship manager.


4.3       Repairs and Maintenance (R&M)

                  At the core of the process of ‘keeping the hardware running’ is a vessel or fleet’s
                  repair and maintenance regime. This will have to deal with repair needs that are
                  unplanned – e.g. following a grounding or a collision. It will need also to factor in items
                  that emerge as ‘voyage repairs’ – although, where minor, these may be held over until the
                  vessel is next in a repair facility.

                  Some routine maintenance work will be undertaken by the ship’s crew – although
                  the option does exist to commission specialist ‘riding crews’ or ‘flying squads’ to
                  undertake work while the ship is at sea.

                  The main concern in the context of the management of the R&M regime, however,
                  will be the planned maintenance policy and regime. The basis of the regime will be set
                  by a number of criteria, including:

                  •   Rules and requirements set down by the ship’s classification society.
                  •   Recommendations of equipment manufacturers.
                  •   The owner or manager’s own policies.


4.3.1     Classification societies and class survey requirements

                  It is accepted that it is a basic requirement of shipping that vessels are kept ‘in
                  class’. That is, they satisfy the requirements of a classification society. There are,
                  regrettably, some ships that may be operating with ‘class withdrawn’ but these ships – and


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                 Table 4.10
                 Class survey requirements

                 1. Intervals and conditions


                 All ships are subject to periodical surveys to ascertain the condition of the structure, machinery
                 installations, equipment and appliances. Periodical surveys, in general, will belong to one of
                 the following categories:

                 •     Annual surveys.
                 •     Intermediate surveys.
                 •     Renewal surveys.
                 •     Other complete periodical surveys.

                 Annual surveys are normally visual examinations to ascertain the general condition of the ship
                 or relevant item. A more thorough annual survey may be required for particular structures,
                 machinery installations or equipment due to consequences of failure or age. There is normally
                 a ± 3 month window allowed around the due date. Annual surveys will be undertaken
                 concurrently with renewal or complete periodical surveys. Today, many vessels will meet their
                 annual survey requirements and some of their periodic requirements through a process of
                 continuous survey which avoids the requirement to dock the vessel every year. Typically,
                 these arrangements provide for the survey of approximately 20% of the total periodic survey
                 items during each year of the five-year period. The annual survey will not be credited and the
                 Certificate of Classification will not be endorsed unless continuous survey items which are due
                 or overdue at the time of the annual survey are either completed or granted an extension.

                 Intermediate surveys are due between the second and third annual survey. These embrace
                 visual examinations of hull structures, machinery and electrical installations and equipment.
                 These surveys may contain items additional to the requirements of annual surveys.

                 Renewal surveys (or special surveys) mainly fall at five-year intervals. These are major
                 surveys of hull structures, machinery installations and equipment. They embrace visual
                 inspections plus other measurements and tests.

                 Other complete periodical surveys may relate to additional class notations, boiler surveys,
                 radio communication surveys, safety equipment and other issues. These might be due at 1,
                 2.5 or 5 year intervals depending on the item in question.

                 A drydocking survey is to be carried out twice in any five-year period, with an interval not
                 exceeding three years. It may be possible in some circumstances for an underwater survey
                 accompanied by a hull survey to be accepted in lieu of a docking survey.


                 2. Special Survey elements


                 The following items are to be examined and placed in satisfactory condition:

                 •     The keel, stem, stern frame, rudder, propeller and outside of side and bottom plating are
                       to be cleaned and examined together with bilge keels, thrusters, exposed parts of the
                       stern bearing and seal assembly, sea chests, rudder pintles, and gudgeons together with
                       their respective securing arrangements.
                 •     All sea connections and discharge valves and cocks, including their attachments to hull or
                       sea chests, are to be externally examined.




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                  Table 4.10 (cont’d)


                  •   Various expansion items plus bearing clearances and weardown – including stern bearing
                      and rudder.
                  •   Hull – sufficient examination and tests to certify the hull, equipment and related piping to
                      be in satisfactory condition and fit for purpose.
                  •   Rudder and related fittings.
                  •   Anchors, chain cables and related items – gauging to be more demanding from second
                      special survey onwards.
                  •   Openings.
                  •   Decks, watertight bulkheads, internal and external shell plate surfaces – especially
                      sideshell and superstructure.
                  •   Spaces – holds, decks, double bottoms, ballast tanks, other tanks, pumprooms, tunnels,
                      ducts, machinery spaces, dry spaces, cofferdams and voids, etc.
                  •   Protective devices.
                  •   Tank inspections – become more demanding with each special survey.
                  •   Hatch covers and coamings.
                  •   Load line marks.
                  •   Machinery – all related to sea openings (incl. sanitary and other discharges).
                  •   Pumps and pumping arrangements.
                  •   Shafts.
                  •   Main and auxiliary machinery.
                  •   Heat exchangers.
                  •   Steering machinery.
                  •   Gearing.
                  •   Cargo handling machinery.
                  •   Anchor windlass.
                  •   Propellers.
                  •   The entire electrical installation.
                  •   Engines.
                  •   Automatic/Remote control systems.

                  There will be other items particular to specific ship types.

                  The more stringent requirements with increased vessel age manifest themselves through
                  enhanced survey requirements. These rules have most application to bulk carriers though
                  they also affect other ship types. For bulk carriers these rules have focused examination on
                  all cargo holds and increased the requirements for the examination of shell frames and
                  adjacent plating – with these becoming more stringent as the vessel ages.



                  Source: D. M. Jupe Consulting – interpreted from the rules and requirements of
                          Det Norske Veritas (DNV) and the American Bureau of Shipping (ABS).



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                 those that put cargo on them – operate at the sub-standard/unacceptable margins of the
                 business. Without ‘class’ a ship will not have any insurance cover*.


                 When considering ‘class’ there are a number of important points to bear in mind at
                 the outset:


                 •     The selection of a classification society is a choice for the ship owner. (In strict
                       legal terms, this makes the society the ‘servant’ of the owner. This could put a society
                       – represented at the ‘sharp end’ by a class surveyor looking over ship – at risk of a
                       potential conflict of interest. Consequently, the industry at large – including insurers,
                       financiers, port state control inspectors, etc. – tends to look favourably on ships
                       classed by societies that are perceived to be of ‘high repute’. This definition
                       tends to crystallise on societies which are members of the International Association of
                       Classification Societies – IACS**).

                 •     Being ‘in class’ cannot be taken to mean that a vessel is deemed to be
                       seaworthy in the strict legal sense. (The analogy often used is that of the UK
                       requirement for road vehicles of over three years old to satisfy the ‘MOT Test’. This is
                       a legal requirement but possession of a certificate that the vehicle has passed its
                       ‘MOT’ does not mean it can claim to be roadworthy for the period for which the
                       certificate applies). Rather, it means that, on a set inspection date, the vessel satisfied
                       a number of laid down requirements.

                 •     Classification societies do not have any sort of policing role or remit.


                 There are two fundamental aspects to classification – one is the process by which
                 standards (Classification Society rules) are established, the other is the process by which
                 they are administered***. ‘Class’ begins at the newbuilding stage and needs to be
                 maintained throughout the vessel’s operational life.

                 Class Rules require a vessel to undertake periodic surveys – the conditions of
                 which become more onerous (and, hence, financially demanding) as the ship ages.


                 For most commercial ships – assuming that they are undertaking elements of their
                 survey requirements on a continuous basis – drydocking periods (the vast majority
                 of class surveys will be undertaken in a drydock) run out at approximately every 30
                 months (although, depending on the precise nature of the continuous survey regime,
                 some interim surveys might be permitted while the vessel remains afloat). Some vessel
                 types – e.g. passenger carrying vessels – may still be obliged to be inspected annually in
                 respect of their particular safety certification. The 30 month cycle embraces the interim
                 survey and the special survey. It is the special survey – due every 5 years – that is the
                 most important.


                 *   This is not the same things as operating with class instructions or recommendations pending. This
                     would be regarded as legitimate for trading provided the matters to be rectified are dealt with within the
                     time frame or conditions specified.
                 ** The full members of IACS are American Bureau of Shipping (ABS), Bureau Veritas (BV), China
                     Classification Society (CCS), Det Norske Veritas (DNV), Germanischer Lloyd (GL), Korean Register of
                     Shipping (KR), Lloyd’s Register of Shipping (LR), Nippon Kaiji Kyokai (NK), Registro Italiano Navale
                     (RINA) and Russian Maritime Register of Shipping (RS).
                 *** Class Rules are administered through a design review and survey process. Class engineers assess
                     plans to determine if they adhere to the Rules. Class surveyors attend shipyards and manufacturing
                     facilities to see that approved plans have been followed and that the Rules have been adhered to.


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                  However, pressures to improve standards continue to see added inspection requirements
                  (e.g. enhanced survey programmes) being demanded above and beyond those set out in
                  Table 4.10.

4.3.1.1 Condition assessment programmes

                  Tankers that are 15 years of age and older require a condition assessment
                  programme (CAP) certificate. In line with the requirements of major oil charterers, most
                  classification societies will carry out an independent condition assessment programme
                  which provides an independent evaluation of the condition of the ship. An owner
                  possessing a CAP certificate can benefit from preferential chartering opportunities, early
                  identification of deficiencies and maximised residual asset values.

                  Major oil tanker charterers require an independent appraisal of the ships they
                  charter to help ensure that they meet recognised standards of quality. Participation
                  in a condition assessment programme ultimately results in the ship acquiring a CAP rating.
                  A ship which has been through the programme and achieves a high CAP rating
                  consequently can claim to be easily identified as being well maintained and so offering
                  many benefits for the owner and charterer.

                      Preferential chartering

                  Ships with a favourable CAP rating of 1 or 2 can benefit from increased commercial
                  opportunities because charterers will accept this accreditation as an indication that they
                  are well-maintained vessels.

                      Identification of deficiencies

                  The condition assessment procedure includes inspections which can identify areas of
                  deficiency. Early identification of these areas provides an opportunity for targeted
                  maintenance which, in turn, can reduce the risk of unplanned downtime and increase the
                  time available for charter.

                      Asset value enhancement

                  The CAP ratings that a ship acquires will be a further indicator to prospective purchasers
                  and financial institutions that the ship has been well maintained and this can help
                  maximise its residual value.

                      CAP survey

                  The programme covers:

                          Hull structure assessment.
                          Machinery assessment.
                          Cargo systems assessment.

                  Combining the CAP survey with the vessel’s structural survey provides minimal
                  disruption to the operational schedule. The hull structure assessment may include a
                  fatigue assessment that can identify specific areas or locations to be inspected. The
                  machinery and cargo inspections are combined in a single operational voyage that
                  culminates in a cargo discharge. Ratings are computed for each of the programme


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                 assessments, ranging from 1 (high) to 4 (low). Separate reports are prepared covering
                 the hull, fatigue and machinery and cargo systems. Class societies aim to provide the
                 critical hull CAP rating to clients within a few weeks of the survey. The CAP aims to offer a
                 full view of the ship and assesses the risks of pollution, structural failure and machinery
                 downtime. A set of comprehensive reports and associated certificates are issued to
                 the shipowner upon completion of each stage – well within the three month time frame
                 allowed by major charterers. This provides the potential for an uninterrupted trading
                 pattern and maximises the revenue from the ship.

                 Furthermore, a ship owner can show these reports to third parties as evidence of the ship’s
                 condition. The CAP rating demonstrates to charterers that the critical quality areas of the
                 vessel have been assessed and certified.

4.3.1.1.1 Condition assessment survey

                 As a consequence of the Erika disaster, the phase out dates for single hull tankers were
                 enforced via an amendment to Regulation 13G of Marpol Annex I. The amended allows, to
                 a certain extent, for continued trading providing a condition assessment survey (CAS) is
                 carried out with satisfactory result. (This said, it should also be noted that EU introduced
                 stricter requirements for single hull tankers which entered into force on 1 September
                 2003). In short, the CAS survey is an enhanced version of the survey scope applicable at
                 the 4th renewal survey as defined in enhanced survey programme (ESP) rules. The main
                 differences are related to survey planning, survey reporting, flag state involvement and that
                 a strict timeline needs to be followed:

                       Application

                 A CAS is a voluntary survey in order to allow for continued trading beyond the phase out
                 date as defined in Regulation 13G of Marpol. The requirements of a CAS can be applied
                 to tankers of Category 1 and 2 as defined by Marpol but it is not applicable to Category 3
                 tankers.

                 “Category 1 oil tanker" means an oil tanker of 20,000 dwt and above carrying crude oil,
                             fuel oil, heavy diesel oil or lubricating oil as cargo and of 30,000 dwt and
                             above carrying oil other than the above, which does not comply with the
                             requirements for new tankers defined in Reg.1 (26).

                 “Category 2 oil tanker" means an oil tanker of 20,000 dwt and above carrying crude oil,
                             fuel oil, heavy diesel oil or lubricating oil as cargo and of 30,000 dwt and
                             above carrying oil other than the above, which does comply with the
                             requirements for new tankers defined in Reg.1 (26).

                 “Category 3 oil tanker” means an oil tanker of 5,000 dwt and above but less than that
                             specified in the preceding definitions.

                       EU requirements

                 In June 2003, the EU endorsed requirements which speeds up substantially the phase-out
                 of single hull tankers and the introduction of CAS. These requirements became applicable
                 from 1st September 2003 for all single hull tankers entering or leaving a port or an offshore
                 terminal or anchoring in an area under the jurisdiction of an EU member state or flying the
                 flag of a member state.


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Figure 4.3
CAS planning programme

                                                  Activity                 Responsibility


                                            Notification to class               Owner

  8 months
                                       Survey questionnaire to owner            Class
        Min. 7 months
                                       Instruction to class and owner         Flag State


                                     Return of completed questionnaire          Owner


                                     Develop agreed planning document

                  5 months
                                       Submission of signed planning         Class/Owner
                                        document to Class/Flag state            Owner

                        2 months
                                            Examine document                    Class



                                    Survey meeting and commencement        Class/Owner/UT
                                              of CAS survey                    Gauging


                                         Completion of CAS survey            Class/Owner


                                        Submission of signed survey
                                                                                Class
                                            report to Flag State


                                         Review and verification of
                                                                              Flag State
                                         final report by Flag State
                  Min. 2 months

                                         Issuance of statement of
                                                                              Flag State
                                        compliance to Owner/Class



                                             CAS DEADLINE



                                             Communication of
                                             CAS result to IMO


Source: Drewry Technical Services



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                 For category 2 & 3 vessels, a CAS will be required from 2005 or when the vessel reaches
                 15 years of age.

                 The CAS survey is an enhanced version of the survey scope applicable at the 4th renewal
                 survey as defined in ESP IACS UR Z10.1 and IMO resolution A 744 (18).

                       Planning

                 Without the Notification and the planning document, the CAS will not be initiated.

                 A major change from the past is that the flag state is now being held accountable
                 through being a party to the process of verification of a ship’s condition.

4.3.1.2 Classification societies and software products

                 Most of the leading classification societies have been involved in the development
                 of software products – which owners and managers can purchase and utilise –
                 devised mainly to assist with class matters and planned maintenance work.

                 The following paragraphs are offered by way of illustrative insight. Relationships between
                 owners and classification societies are developed through owner choice. However, it does
                 not follow that if an owner or manager decides to utilise a software package from a
                 classification society that it need necessarily be one from the society with which its ships
                 are ‘in class’. Indeed, individual ships in a fleet may be classed with different societies.
                 This said, not all information systems will be compatible between the products from
                 different societies and this will be an issue that has to be weighed up. Equally, some
                 societies will want to use their systems to strengthen their owner-class ties. Others appear
                 more content to ‘sell’ to any player - whether there is a class tie-in or not. This is a
                 significant consideration.

                       American Bureau of Shipping (ABS)

                 ABS is seen by many as being the early pace setter in the IT products field. ABS
                 has progressed in this area through its SafeHull system, first introduced in 1993, which
                 applies to newbuildings. Effectively, SafeHull sets out to provide analysis of the safe
                 design and building of a ship or structure – with every part assessed in the context of its
                 ‘fatigue life’.

                 Four years later, ABS introduced SafeNet. Emerging via ABS's consultancy arm, the aim
                 of SafeNet was for it to develop into an integrated fleet management and information
                 network (arguably, desktop vessel management) but, importantly, the system is not class-
                 dependent so it is available if the ship is classed with Lloyd's Register or any of the other
                 societies. The system's modules enable it to move beyond obvious R&M considerations
                 such as planned maintenance and the electronic purchasing process (from request to
                 office to quotations/best quotation/purchase order, etc.). ABS describes the system as a
                 complete suite of modules handling every aspect of operational management – from
                 regulations to payroll to planned maintenance programmes.

                 The SafeNet system can be either office-based or office and onboard-based, the key
                 requirement of the latter being e-mail linkage (via one of the Satcom options) – the precise
                 vehicle being down to the ship owner's preference. ABS regards the system as being
                 “integrated architecture” enabling simple modular additions. The key is to avoid repetitive


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                     data entry, share information and permit rapid switching from one modular area to another.
                     A further key element is synchronicity.

                     Today, SafeHull is structured under the umbrella of ABS SafeShip, launched in 2000 and
                     intended to bring together elements of SafeHull’s dynamic, ship design evaluation system
                     and SafeNet’s operating modules. The ABS SafeShip package brings together:

                     •      The design of the ship – SafeHull

                     •      The construction of the ship – SafeHull Construction Monitoring Program

                     •      Vessel drawing storage

                     •      In-service operation – Hull Maintenance

                     Entry into package is open to all new and existing ships ordered and built to ABS SafeHull
                     criteria.

Table 4.11
Shipyards which have produced ships to ABS SafeHull designs*

(a) Tankers


VL/ULCC                  Suezmax           Aframax              Panamax           Shuttle          Product

Daewoo HI                Avondale          Daewoo HI            3 Maj             Izar - Sestao    3 Maj
Halla                    Daewoo HI         Dalian New Shyd      Dae Dong          Samsung HI       Avondale
Hitachi Zosen            Gdynia            H&W                  Daewoo HI                          Dae Dong
Hyundai HI               H&W               Hyundai HI           Dalian New Shyd                    Daewoo HI
Imabari                  Hyundai HI        Imabari              Gdynia                             Dalian Shyd
IHI                      Mitsui E&S        Izar - Puerto Real   Hudong-Zhonghua                    Guangzhou Shyd
Izar - Puerto Real       Namura            Namura               Hyundai HI                         Halla
Kawasaki                 Nat. Steel        Samho                Onomichi                           Hyundai HI
Mitsubishi               NKK               Samsung HI           Samsung HI                         Hyundai Mipo
Mitsui E&S               Samho             Sanoyas                                                 Izar - Sestao
NKK                      Samsung HI        Sasebo                                                  Jiangjiang Shyd
Samho                    Sasebo            Sumitomo                                                Jurong
Samsung HI                                 Tsuneishi                                               Mazagon Dock
Sasebo                                                                                             New Century
Sumitomo                                                                                           Newport News
                                                                                                   Oshima
                                                                                                   Pan United
                                                                                                   PT Pal
                                                                                                   Samho
                                                                                                   Samsung HI
                                                                                                   Shina
                                                                                                   Szczecinska
                                                                                                   Viana do Castello




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Table 4.11 (cont’d)


(b) Bulk carriers


VLOC                    Cape                    Panamax                   Handymax                Handy

Daewoo HI               B&W licensed design     China Shipbldg Corp.      China Shipbldg Corp.    Bohai Shyd
                        China Shipbldg Corp.    Dae Dong                  Dae Dong                Cheung Ku
                        Daewoo HI               Daewoo HI                 Halla                   Dalian Shyd
                        Halla                   Halla                     Hindustan               Hindustan
                        Hyundai HI              Hitachi Zosen             Hitachi Zosen           Hudong-Zhonghua
                        IHI                     Hudong-Zhonghua           Hudong-Zhonghua         IHI
                        Kawasaki                Hyundai HI                IHI                     IR Caneco
                        Namura                  Imabari                   Jiangnan Shpyd          INP
                        NKK                     Jiangnan Shpyd            Kawasaki                Jurong
                        Samho                   Mitsui E&S                Mitsui E&S              Kouan
                        Samsung HI              NKK                       Nantong Ocean           Mitsui E&S
                        Sasebo                  Oshima                    New Century             NACKS
                        Waigaoqiao              Samho                     Oshima                  New Century
                                                Sanoyas                   Samho                   Oshima
                                                Sasebo                    Sanoyas                 Shina
                                                Sumitomo                  Tsuneishi               Xingang
                                                Tsuneishi                                         Zheijang Shyd




(c) Containerships


<1,000 teu           1,000-4,000 teu                         >4,000 teu

Kyokuyo              China Shipbldg Corp.                    China Shipbldg Corp.
                     Dae Dong                                Hyundai HI
                     Jurong                                  Imabari
                     Kouan                                   IHI
                     Kvaerner Philadelphia                   Kawasaki
                     Naikai                                  Mitsubishi
                     Samsung HI                              Nantong Ocean
                     Zheijang Shyd                           Odense Steel
                                                             Samsung HI



* Either SafeHull approved/built designs or reviewed under SafeHull criteria. Izar accreditations achieved as Ast.
  Espanoles. A number of the Japanese shipyards mentioned subsequently have merged.

Source: ABS.




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                  The main in-service elements are:

                  (a)    inspection planning tool with electronic storage of survey and structural details –
                         including condition and damage photographs,
                  (b)    advance planning for thickness measurements, repairs, structural surveys and
                         maintenance,
                  (c)    automatic generation and submission of various reports,
                  (d)    assessments of alternative repair scenarios – including repair cost estimation and
                         preparation of specifications for the shipyard,
                  (e)    development of rational plate renewal criteria,
                  (f)    enhanced coating and corrosion monitoring and (g) risk based inspection planning.

                  SafeNet provides owners or managers with a suite of modules which focus on aspects of
                  operational management. The modules integrate with each other, however, owners or
                  managers can be selective over the precise modules they take up.

                  The current suite of ABS SafeNet Marine Modules are:


                  (a) Operational and Technical                 (b) Commercial

                          Hull maintenance                             CharterCalc (Estimates)
                          Vessel drawings                              CharterCalc (Actuals)
                          Maintenance and repair                       Lay Time
                          Purchasing and inventory                     CharterClaim
                          Financial planning                           ShipInvest


                  (c) Compliance                                (d) System administration

                          ISM/STCW compliance                          Crew Management
                          Document management                          Crew Payroll
                                                                       Replication Manager


                        Lloyd’s Register (LR)

                  Lloyd's Register, the world's oldest classification society, has a presence in the IT-based
                  life cycle systems through ShipRight. This product is described as “a comprehensive
                  system of procedures that are aimed at helping ensure the highest standards of safety,
                  quality and reliability are applied at the design stage, during construction and for the whole
                  operational life time of a ship”.

                  ShipRight links rule requirements to the analysis of the strength and fatigue of ship
                  structures. This leads into an approved structural design and a construction monitoring
                  plan that will be used to help ensure the ship is built to required tolerances and that the
                  process reflects industry best practice. The key components are (a) Structural Design
                  Assessment – SDA, (b) Fatigue Design Assessment – FDA and (c) Construction
                  Monitoring – CM.

                  Also in the LR stable is ClassDirect Live. To an extent, this product acts as a portal giving
                  direct, live access to LR databases. The purpose of this system is to provide access (to
                  approved people) to the very latest information on the status of vessels. Typically, these
                  approved people will be authorised clients, shipowners or their managers.


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                 The main items available through ClassDirect Live are:

                 •     Fleet particulars, irrespective of classification society.
                 •     Up-to-date survey status and 5-year planner for all LR-classed ships.
                 •     Downloadable Survey Status (for off line working).
                 •     On-line survey ordering facility.
                 •     Hull and machinery master lists.
                 •     Status of Conditions of Class and Memoranda items.
                 •     6 month fleet planner.
                 •     Detailed survey histories and complete survey reports for at least 12 years.
                 •     Incident summaries which link to hull and machinery defects.
                 •     Details of hull and machinery ‘as built’ configuration.
                 •     LR surveyors’ Survey Checklist.
                 •     ISM Code certification status for all ships, irrespective of Class.
                 •     Access to Rules, Regulations, Classification News, Approved Supplier Lists and
                       technical services.

                 A report filed by a Lloyd’s Register surveyor anywhere in the world will be filed and made
                 accessible to clients within 48 hours. The system, for example, can illustrate - using colour
                 coded flow charts - surveys passed, due, work requirement "windows", etc. There are
                 different levels of password activated access as security is of major importance.

                       Det Norske Veritas (DNV)

                 DNV provides various product lines under the Nauticus brand. Once again, the focus is
                 with the design, analysis and operation of ships during their entire life cycle. In addition,
                 DNV Exchange acts as an internet-based, secure, on-line access to an owner’s vessels’
                 class, survey and certificate data and 3D model.

                 Nauticus Hull is a package dealing with the design and strength assessment of the ship’s
                 hull. There are various options available from basic ‘Rule Check’ packages to 2D and 3D
                 modellers for visualisation, weight assessment, wave load analysis, etc.

                 Other packages on offer include the Ship Environmental Accounting System (SEAS) – for
                 managing a ship’s ‘environmental status’ – and the Nauticus Machinery Calculation
                 Package.

                       Bureau Veritas (BV)

                 The BV offering comes under the VeriSTAR banner. VeriSTAR Hull has two primary
                 functions:

                 •     Hull structure design review.
                 •     Hull condition monitoring.

                 The VeriSTAR system works on the basis of a ‘dynamic process’ of periodic updating and
                 enhancement of hull structure information derived primarily from class surveys. The basic
                 process is as shown in Figure 4.4.


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Figure 4.4
The VeriSTAR process


                                                      Hull design analysis



                                                  Ship's database installation



                                                   "As built" state updating




                                                Planning of next special survey



                                           Thickness gaugings during special survey



                                        Analysis with scantlings according to gaugings




         Information from                                                        Yes
           other surveys                           More gaugings required?

                                                                No


                                     Updating of database with "as inspected" survey state




                                                                                             No
                                        Compliance with class requirements checked?

                                                                Yes


                                                  Renewal of class certificate



                                     Updating of database with "as repaired" survey state



                                             Analysis with "as repaired" scantlings



Source: Derived from VeriSTAR data



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108
                                    Figure 4.5
                                    Outline of PrimeShip elements



                                           Technical services based on                                                                                                             Measurement, analysis and
                                                                                                                    Calculation software
                                                                                                                                                                                                                          Technical Management




                                           Class NK technical guidelines                                                                                                           technical support software



                                      Hull Structure Strength Assessment Service                               Integrated Program for determining                              Emergency Technical Assistance Service
                                                   (PrimeShip – Hull)                                      Ship Performance Capability (Design-IPCA)                                         (ETAS)

                                                                                                           Manoeuvrability Simulation System (MASIM)                               Fuel Oil Analysis Service (FOAS)

                                                                                                            NK Advanced Structural Analysis Support                             Lubrication Oil Analysis Service (LOAS)
                                            Software applications and                                                System (NASTASS)
                                                                                                                                                                                Condition and Life Assessment System
                                            services to industry clients                                      Advanced Ship Structural Analysis and                                            (CLAS)
                                                                                                                   Validation System (ASSAS)
                                                                                                                                                                              Ship Condition Monitoring System (SCMS)
                                                                                                        Crankshaft Stress Calculation Program (CRANK)
                                                                                                                                                                                Measurement Service of NOx Emitted
                                           Integrated Program for determining                            Propulsion Shafting Alignment System (SHAFA)                              from Diesel Engines (KNOX)*
                                      Ship Performance Capability (Onboard-IPCA)
                                                                                                           Propeller Blade Strength Analysis Program                          Comprehensive Hull Structural Information
                                        Basic design Omnibus program System                                                 (PBSAP)                                                   Database (HullExpert)*
                                        Using NK Rules (BOSUN or CS-BOSUN)
                                                                                                             Torsional Vibration Calculation Program
                                                                                                                            (TORRES)

                                                                                                            Ship Noise Estimation System (KNOISE)

                                                                                                           Rule Dimensioning Calculation Program for
                                                                                                               Machinery Installations (MCRUP)

                                                                                                       Chemical Properties Analysis Program (CHEMSYS)



                                    * Services listed in italics are currently under development.
                                    In addition, NK produces NK-SMART (Safety Management Audit Report) as Class NK’s online information system for ship management companies that have obtained ISM
                                    certification from Class NK. This provides ISM Audit Status information, including due date of next audit, history of previous audits and descriptions of non-conformities and
                                    observations from past audits.
                                    Source: Class NK
                                                                                                                                                                                                                          Ship Management




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                  The main option in the process deals with a ship dealt with right from the newbuilding
                  stage. However, ships in service are eligible to enter the VeriSTAR system if the
                  shipowner applies and makes clear an intention to comply with the VeriSTAR requirements
                  throughout the ship's working life. The ship owner will be required to supply the ship's
                  main structural drawings together with previous survey information on thickness gaugings,
                  structural deficiencies and/or repairs. If ship is already BV classed this information may be
                  archived. BV will then undertake a structural analysis of the ship in original condition.
                  Data is then updated based on latest available thickness gaugings, etc. to produce the
                  actual in-service condition.

                  In addition, BV has developed VeriSTAR Machinery, which has as its aim a new concept
                  of classification based on continual risk analysis of an owner’s or manager’s planned
                  maintenance system. The risk calculations cover main machinery, safety and pollution
                  prevention items. BV indicates that the risk analysis splits into two main categories –
                  (a) the Probability Analysis and (b) the Significance Analysis. Together, these yield the
                  Risk Index.

                  The Probability Analysis focuses on an item’s failure behaviour in order to determine the
                  probability of occurrence or Expected Life Failure Frequency (ELFF). This will allow for
                  maintenance practices and any modifications undertaken. The Significance Analysis sets
                  out to assess the severity of the consequences of the failure of the item in terms of ship
                  operation, ship safety and pollution.

                  All of these elements build in to a ship-specific database. VeriSTAR Machinery then
                  features within the owner’s or manager’s planned maintenance system. However, the
                  exercise does assume a continuing relationship between the vessel and BV.

                      Nippon Kaiji Kyokai (NK)

                  PrimeShip is the title under which NK promotes its integrated group of systems and
                  services for total lifetime ship care.

                  A summary of the PrimeShip set up is shown in Figure 4.5.

                      Germanischer Lloyd (GL)

                  The Poseidon system is operated by GL with this, primarily, focusing on hull design
                  software.

                  In evaluation the packages on offer form the different societies, views will need to be
                  taken, naturally, on their cost but other considerations will include whether choices are
                  ‘ties’ to a particular society and, if so, whether this is a route that the owner or manager is
                  happy to follow. A ship manager may be running ships which the owners have opted to
                  place with a mix of societies, hence, some software selections may be incompatible with
                  each other.

                  The final thoughts, however, may be commercial. First, the concept behind most of the
                  offerings is with the entire life cycle of the ship. This form of thinking is likely to stand an
                  operation in good stead with those seeking to rid the industry of the ‘sub-standard’. On the
                  other hand, many ship owners do not envisage operating a vessel ‘from cradle to grave’.
                  Hence, the question could be raised as to whether the presence of a good monitoring
                  system of this type being in place and adhered to is a ‘good selling point’ when seeking to
                  dispose of the ship via the S&P market.


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4.3.2 Equipment recommendations and policy choices

                 Part of the planning process within a maintenance regime involves inspection and
                 regular work on items of ship’s equipment. These will introduce policy choices
                 incorporating the frequency and cost of activities versus their benefits. For example, an
                 engine manufacturer* may recommend an overhaul every 15,000 hours. However, it might
                 be a company’s experience that its particular engine achieves its ‘optimum’ if overhauled
                 every 12,000 hours. (Either way, it may require a ‘right time and place’ for this to be done
                 to be factored into the ship’s employment pattern).

                 However, the major focus of activity will be with the drydocking process. The
                 process of preparing for an intermediate docking or special survey, in most cases,
                 begins well in advance. For vessels undertaking a CAS or CAP (voluntary) survey the
                 process of planning begins about eight months in advance of the scheduled date – with
                 the ship preparing an initial repair report scheduling in all repair and service
                 requirements, supplemented with appropriate requisitions for spare parts and
                 supplies associated with the requirement for the docking (e.g. stern tube seals,
                 servicing of gyro, etc).

                 These reports are sent to ‘the office’ for review and additions. The office, in many
                 cases, will schedule a superintendent’s visit to undertake a final onboard review of
                 this report and discuss the arrangements in terms of logistics and manpower
                 requirements with the ship’s staff.

                 For vessels fitted with stress analysers, indicators may be extracted and sent off for
                 analysis and, consequently, gauging of the identified areas may be subject to more intense
                 verification and, perhaps, strengthening will be contemplated.

                 During this interim period a close liaison with the operations department becomes
                 imperative for logistical support and delivery.

                 Revised specifications are then forwarded to several shipyards in the area of vessel’s
                 trading route and initial quotations are analysed and computed to arrive at most cost
                 effective area in which the repairs can be undertaken.

                 Many repair areas are affected by seasonal temperature gradients or potentially
                 adverse climatic conditions and these will need to be factored in to minimise a
                 vessel’s offhire period.

                 Few companies have a specific repair team that will co-ordinate all aspects of ship
                 repairs and upgrading (according to company stated policy), but, in most cases, repairs
                 are undertaken with the superintendent being responsible for the day-to-day
                 operation, as it is felt that he/she would have an in-depth knowledge of the individual
                 vessel. Whilst allocating the superintendent-in-charge to undertake repairs may have
                 the advantage of the superintendent’s built up knowledge about the vessel, it has
                 drawbacks, namely:

                 (i)     The superintendent’s long absence during a docking period of one vessel could
                         mean that other vessels under his supervision may lack attention. (With the benefit

                 *     Although most main engines installed on ocean going vessels tend to be either from the MAN B&W
                       stable or the Wärtsilä Sulzer stable, the majority of these will have been built under licence.
                       Consequently, ‘variations’ will be experienced between engines which are ostensibly the same.


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                         of improved communication systems the superintendent may remain in touch with the
                         other ships under supervision during an absence from the office, but divided attention
                         and potentially adverse effects are not wholly removed)*.

                  (ii)   As the superintendent, ultimately, is responsible for budgeting and its control, he/she
                         may try to remain within forecast, sacrificing some essential/timely repairs.

                  Managers can ill afford to create specialist cells unless there is a sufficient number
                  of vessels and so generally multi-task their superintendents, relying on them
                  arranging specialist back up to assist them in their tasks.

                  China has gained the status of most favoured area for undertaking major steel
                  renewal because of its competitive pricing policy. However, these yards tend to
                  require more intensive supervision (both in terms of quality and safety control) and in
                  respect of keeping to schedule. It may be, therefore, that a comprehensively worded
                  penalty clause is essential in order to achieve a satisfactory completion. (Generally the
                  penalty clause accepted by the repair yard tends to limit itself to a percentage of the repair
                  bill and the company’s repair terms should be drafted to ensure its enforceability). This,
                  however, may end up being an ‘interim measure’ as it would be expected that China’s
                  yards will improve their efficiency with time and experience.

                  The superintendent’s task is not merely to witness/be present during the repair
                  period but to keep a complete list of the work done, extra work entrusted, overtime
                  worked etc.

                  Deferred repairs (i.e. grounding/damage, stevedore damage repairs, etc.) may be
                  undertaken at this time and it is essential that the superintendent separately keeps
                  full accounts for each category of repairs, ensuring the H&M and stevedores
                  representatives are fully cognisant of the repairs/rectification undertaken and thus avoid
                  unnecessary disputes later.

                  An illustrative overview of the process, as envisaged by a ship manager, is provided via
                  Figure 4.6.

4.3.3 Paints and coatings

                  For ship owners and managers, the application – and cost – of paints and coatings
                  is an issue where the ‘profile’ has been raised. This is attributable to the IMO
                  convention on anti-foulings which calls for a ban on new applications** of coatings
                  incorporating tri-buytl tin (TBT) from 1 January 2003 and the complete removal or
                  overcoating of all TBT paints by 1 January 2008***. IMO conventions need to be
                  ratified by a specified number of maritime states to become ‘statutes’. While this is not yet
                  the case, most believe it is an inevitability.

                  Consequently, while this means that after 1 January 2003 the provision and application of
                  TBT-based antifoulings would not be illegal, there would be implications for the ship owner


                  *   This is yet another reason why many third party ship managers highlight that the size of their portfolio is
                      important – more vessels equals more support time equals better possibility of cover for key staff.
                  ** Newbuildings and existing vessels in dock.
                  *** Effectively, a total ban on contact with sea water. This has implications for vessels that are
                      “overcoated” and become damaged exposing the underlying TBT paint. Complete blasting and
                      repainting, however, is an expensive option. It is possible that a progressive policy of part removal and
                      part overcoating – with the latter removed on a subsequent docking – might be a compromise option.


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112
                                     Figure 4.6
                                     Ship manager’s overview of planning for drydocking


                                                                                             Office                        Sources: Service technicians / supplies /
                                                                                                                           parts / additional personnel
                                                                                                                                                                        Technical Management




                                                      Ship                Collates repair requisitions deferred for D/D
                                        Raises repair specification       Clarifies / amplifies specification              Communicates: Ship owner, classification
                                                                                                                           society, flag state, commercial operators,
                                        Requisitions connected with D/D   Allocates job numbers                            ship
                                        identified
                                                                          Despatches superintendent for                    Negotiates: Shipyards, paint suppliers,
                                        Servicing of equipment            identification / clarification                   logistics, services
                                        Prepares for docking              Prepares revised specification                   Identifies: Suitable yard, supplier(s),
                                                                          Attaches terms and conditions                    service providers



                                                                           Appoints: Agents, towage, tank cleaning /
                                                                           sludge removal, specialists
                                                                           Schedules: Ships arrival for refurbishment
                                                                           Attends repairs



                                                                             Commencement of repairs to ship



                                                                                   Completion of repairs
                                                                          Review work done / reports
                                                                          Receipt of calibrations / measurements
                                                                          Receipt of trading certificates / revalidation
                                                                          Negotiate final bills / payment schedule


                                    Source: Drewry Technical Services
                                                                                                                                                                        Ship Management




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                  or manager’s industry standing and, conceivably, refusal to accept the vessel in regions
                  where the environmental lobby is strong.

                  The shipping industry’s understandable concern is that alternative antifoulings will
                  not be as effective or long lasting as those which contain “harmful organotins” and,
                  consequently, they would be more costly, both in terms of price per se and in the
                  extra volumes and frequencies of application that might be needed.

                  The reaction from the paint and coatings makers initially was that problems with
                  TBT alternatives were (or soon would be) resolved and that they would be capable
                  of achieving a full five year performance but they would cost more – “and this cost
                  would need to borne by the customer”. There were also suggestions that while new paints
                  might cost more they would be ‘more sophisticated’ and so smaller quantities would be
                  needed.

                  Subsequently, there has been some back tracking on this. Talk of cost increases
                  have ranging between ‘plus 40%’ to ‘between two and five times’. (Price wise, the ‘jury
                  has to be still out’ on this as price structures will not settle down until the manufacturers
                  find an industry-acceptable product that can be produced in large volumes and so grant
                  scale economies).

                  However, of more concern to ship owners and managers will be some less guarded
                  comments to emerge from inquiries with industry sources including suggestions that the
                  idea that less paint may be used was a ‘myth’ and an admission that the alternatives ‘may
                  not last as long’. For ship managers – both technical and commercial – the implications of
                  the latter will provide the greatest cause for concern.

                  However, perhaps the critical message for owners and managers may be this. One
                  paint sector source commented that “the alternative top quality coatings are as
                  good as the TBT types”. However, a number of manufacturers, allegedly, “might be
                  pushing less than top quality as being as good as”. As ever, caveat emptor.

                  One factor in the buyer’s favour is that the paints and coatings sector remains
                  highly competitive. There has been a reluctance among the industry’s main players to
                  consider consolidations, mergers or acquisitions. This can mean that suppliers will be
                  responsive to approaches from players with some ‘market muscle’ (such as ship managers
                  and major ship owners) especially if deals can be struck on a fleet basis. For example, in
                  October 2002 it was reported that Hempel Marine Paints had secured a major contract
                  from A.P. Moller, which called for the supply of coatings for the maintenance of 95% of the
                  company's fleet. The contract covers all coating-related maintenance requirements for the
                  owner's vessels above the waterline and interior areas such as ballast tanks. The contract
                  runs over a two-year period.

4.3.4 Propellers

                  In addition to the state of the hull (in terms of foulings, general condition, etc.) and the
                  main engine (plus other propulsion-related elements such as gearboxes, turbochargers,
                  etc.), a ship’s performance is influenced by the condition of the propeller.

                  As propeller performance is influenced by ongoing maintenance levels, it enters
                  into the management considerations.


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                 Table 4.12
                 Alternatives to TBT based antifoulings

                 •      Traditionally, the performance of antifoulings is driven by the choice of biocides and the
                        technology used to control (or leach) their release.



                 •      The main biocide in non-TBT antifoulings is copper, however this is likely to be boosted by
                        further rapidly degrading biocides which do not bio-accumulate in the marine environment.
                        Copper is reported to work well against shells, barnacles, etc. but boosters tend to be
                        required to cope with weed and algal fouling.



                 •      Release technologies:


                     Rosin                                  Self Polishing Co-Polymer            Hybrid


                     Allows seawater to penetrate the       Releases biocides by hydrolysis      Combines CDP surface
                     paint film, dissolve the biocide and   or ion exchange reaction of an       tolerance with SPC polishing
                     enable release by diffusion.           acrylic polymer with sea water.      rate control and control of
                                                                                                 biocide release.


                     Low level types are known as           Reaction occurs near the surface
                     Contact Leaching Antifoulings.         of the coating with - unlike Rosin
                     Mechanically tough but no              systems - deeper seawater
                     polishing characteristics.             penetration being prevented. This
                     In service life of about               is reckoned to give control over
                     24 months.                             biocide release.


                     Higher level types are known as        High performance self polishing
                     controlled depletion polymer (CDP).    copolymer (SPC) products are
                     In service life varies between 36-60   reputed to have achieved a 60
                     months depending on which part         month performance record which
                     of the vessel is involved and its      is on a par with comparable TBT
                     trading route.                         SPC coatings.




                 •      Alternative technology being advertised relates to Foul Release. This method does not use
                        biocides. Instead, it adopts a low surface energy principle aimed at the minimisation of
                        fouling adhesion. The current developments in this sector are based on silicone
                        technology. However, an issue with Foul Release is that such products do not do not stop
                        organisms from settling on their surface but, rather, release them relatively easily if the
                        vessels are cleaned or operated at high speeds frequently. The EU Copper Antifouling
                        Task Force (AFTF) – an aim of which is reported to be “to support the industry by supplying
                        data that can be used to show that a ban on antifoulings using copper would be misguided”
                        – points out that Foul Release products are effective only on vessels that move fast through
                        the water and do not stand still for long – in other words, in AFTF’s view, they would be
                        effective on approximately 10% of the world's tonnage.


                 Source: Derived primarily from information attributed to International Marine Coatings.



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                  According to John Crane-Lips, a specialist manufacturer that is now part of the Wärtsilä
                  group, propeller maintenance subdivides into:

                  •    Maintenance and minor repairs: Mainly to rectify the impact in surface roughness.
                       Causes of this tend to be normal wear and tear, local cavitation* erosion, collision
                       damage and overall erosion. Physical damage may mean heat application to
                       straighten blades or welding to replace damaged elements – and probably the removal
                       of the propeller while this is undertaken. For surface roughness correction, the
                       primary solution is polishing. (Wire brushing is sometimes used but this removes
                       fouling rather than dealing with roughness).

                  •    Reconditioning: Main causes of the need for this type of work include heavy running
                       of fixed pitch propellers or operating the vessel at a speed lower than that for which
                       the propeller is designed.

                  •    Major repairs.

                  Heavy running occurs when engines reach their maximum continuous rating (MCR)
                  before they reach their full rpm.

                  The propeller is designed to work with an engine’s trial curve – i.e. at 100% rpm the
                  absorbed engine power should be 85% MCR – as the margin between trial power at 100%
                  rpm and the MCR (the sea margin) is crucial in propeller design along with consideration of
                  ship resistance. The engine’s service curve trends to 100% rpm at 100% engine power.
                  Heavy running leads to a curve above the service curve – which results in the engine
                  operating in overload conditions at inadequate rpm.

                  A few further considerations emerge from data issued by Scamp Underwater Service
                  Worldwide Network. Scamp indicates that its divers assess the blade surface against the
                  Rubert Gauge Roughness scale. This runs from new (A) to very rough (F).

                             The Rubert Gauge Roughness impact:


                                                    % Power Increase
                                Gauge                  Required

                                   A                          -
                                   B                      negligible
                                   C                         1.7
                                   D                         2.9
                                   E                         4.9
                                   F                         5.7


                  Scamp’s view is that maximum allowable roughness should not exceed D while polishing
                  should bring the position back to B. Scamp notes also that while the entire blade
                  surface should be polished, 75% of the benefit is derived from the outer half and
                  leading edges of the blade.



                  *   As the speed at which a propeller blade passes through the water increases, the pressure holding the
                      water to the side of the blades is lowered. Depending on conditions, this can lead to a process where
                      bubbles form then collapse immediately with the energy released causing a cavitation burn on the
                      blade.


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4.3.5 Shipyard choices

                 While there can be some flexibility in terms of precise timing, entry of the vessel
                 into a ship repair facility/drydock will have to be factored into the planned
                 maintenance regime.

                 Ostensibly, choice will be made based on a mixture of cost, time and quality.

                 A first consideration, however, may be the degree to which a ship owner or manager
                 has a specific yard of choice. Such an arrangement could come about through the
                 owner or manager and the repair yard agreeing to a ‘favoured customer alliance
                 partnership’. For example, Singapore’s Sembawang operation has a number of such
                 partnership arrangements with Shell International Trading & Shipping, BP Shipping, BHP
                 Transport & Logistics, Jo Tankers and Tschudi & Eitzen. In 2002, Sembawang launched
                 its first ‘Shiprepair Alliance Portal’ in conjunction with its Shell International Trading &
                 Shipping ‘evergreen alliance’. The web-housed portal is reported as being aimed at
                 improving joint planning and providing faster and more extensive information sharing.
                 Other aspects are said to embrace project management tools and tie-ins with e-
                 procurement hubs and management processes covering procurement and logistics.

                 However, the majority of ship owners and managers have not opted to become so
                 closely involved with any particular repairer. This does not preclude repeat business
                 regularly being channelled into a particular yard. There may be advantage to be gained
                 through the stemming of several ships through block bookings.

                 Aside from limitations imposed by the physical size of the docks and berths
                 available, repair yards vary in their capability to undertake different levels of repair
                 work. Some may be regarded as ‘basic’ centres where an owner or manager would stem
                 a ship for so-called ‘haircut and shave’ work. Others will have a reputation for their low
                 cost steel renewal work or for blasting and painting. At the other end of the spectrum are
                 so-called ‘full service shipyards’.

                 Another influence will be the ability to draw specialist repair companies into the
                 region of the yard (either in the yard itself or the near locality). These could include
                 specialists in engine repairs, boiler work, work on engine blocks, cylinders or pump
                 housings, cargo access equipment specialists, electrics and electronics specialists,
                 providers of underwater inspections, etc.

                 In dealing with cost aspects of a repair project, an owner or manager will come up
                 against the shipyard’s tariff.

                 There is some debate about the ‘substance’ of shiprepair yard’s tariff structures.
                 Some see them merely as elements in the ‘bargaining process’. There is an element
                 of truth in this as, while the tender for business will have cognisance of the tariff, the
                 negotiating process also may embrace adjustments based on the level of ‘owner’s inputs’
                 (particularly in the areas of spares and materials, including paint) and, possibly, any
                 address commissions and the like.

                 Some tariff elements may be unavoidable. There may be port/harbour/berthage dues,
                 etc. over which the shipyard has no control. Also, there are likely to be set (probably ship
                 size/gt related) costs covering drydocking dues (which may vary between “first” and “last”
                 day rates and “other day” rates, line handling, pilotage and tugs (perhaps on a per shift or


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                  per manoeuvre basis). Tariff terms may well apply to services provided to the ship – such
                  as power and water supplies, waste disposal, etc.

                  More ‘flexible’ tariff items are likely to embrace:

                  •   Normal Drydock Works – e.g. washing, grit blasting, touch up, full coating, descaling,
                      chipping - probably rated on a per square metre basis. Also, repainting of marks,
                      valve overhaul, sea chest opening/cleaning/coating, anode renewals, anchor and
                      chain cleaning/restoration, chain locker overhaul, tailshaft and stern tube seals,
                      propeller dismantling and polishing, rudder works.

                  •    Pipe Work – renewal work, heating coils.

                  •    Steel Renewal – typically based on a unit price.

                  •    Mechanical Works – Main engine, auxiliaries, boilers, pumps.

                  •    Electrical Works – cables, etc.

                  Most elements may be tariffed by individual item or element however there may be a set
                  charge for a “standard servicing” of engines that varies by engine type/size/make/model.

                  Alongside the tariff, yards will build in a number of terms and conditions. These
                  might include:

                  •   The yard’s overall responsibility – and that shipyard personnel act only on instructions
                      of shipyard management.

                  •   The requirement for the owners to provide an attending superintendent who has
                      owner’s powers of authorisation. (The vessel itself may remain under the authority of
                      the master).

                  •   The absolving of parties from liabilities arising from riots, civil insurrections, war,
                      epidemics, fire, loss of energy supply systems, Acts of God, etc*.

                  •   Owner’s obligations to provide technical work/drawings and where owner’s inputs
                      embrace necessary spares and paints that owner’s guarantee them to be ‘proper, fit
                      and ready for use’.

                  •    The role and cost responsibilities for the Class surveyor.

                  •   Safety issues – e.g. concerning pre-arrival gas freeing (and certification thereof),
                      disposal of slops, sludge, dirty ballast and the vessel being ‘completely discharged of
                      cargo’. There will be obligations on the yard relating to a ‘safe berth’. There will be a
                      ban on activities such as refuelling.

                  •   The repair period – start/finish plus the allowable period under which the owner can
                      alter the repair specifications and cancellation rules. This aspect might also bring in
                      that any ‘not agreed price’ work is charged as per the tariff. Any SHex type factors
                      also will be noted.


                  *   There may be other less widespread elements in some yard’s terms. For instance, there might be an
                      exclusion for “bad weather affecting painting and/or blasting”.


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                 •     The payment conditions – including when (before departure) the owner is notified of
                       differences between the estimated and the final bill, what amounts are payable before
                       departure and when further instalments – if any – are made and the interest rate
                       applicable on the balance.

                 •     Guarantee periods*.

                 One other important consideration in evaluating yard cost indications is to establish
                 the extent to which they are on a like-for-like basis. For example, steelwork prices
                 ($/kg) will drop as the volume of basic steel renewal in ‘uncomplicated’ areas
                 increases. More complex work will be costed at a higher rate. However, some
                 quotes for steelwork may relate purely to the provision and renewal of the steel
                 itself. Others may encompass this plus, say, blasting and painting with one coat of
                 ‘shop primer’.

                 The question of repair cost – in terms of prices paid – owes much to economic
                 geography. Activities tend to be labour intensive and so lowest prices are likely to
                 emerge from locations with low labour costs (e.g. China, Vietnam, Eastern Europe).
                 Some key repair locations (e.g. Singapore and Arabian Gulf) rely considerably on ‘ex-pat’
                 labour forces.

                 However, price alone will not be the yard choice determinant. Other considerations
                 are likely to embrace:

                 •     The time taken to undertake the work (both as estimated by the yard and in terms of
                       any previous experience).

                 •     The yard’s record on meeting its deadlines.

                 •     The location of the yard in terms of commencement of ‘off hire’, diversion and
                       redelivery of the vessel to the charterer**.

                 •     The yard’s reputation for quality of work and its quality of work management. (This will
                       have implications for the level of physical supervision that the owner or manager has
                       to put in place). There is a budgetary parallel between price paid and the period for
                       which the work can be relied upon***.

                 •     Access to/from the location – and shoreside facilities – for supervisory staff and,
                       perhaps, the ship’s complement.


4.3.6 Regional cost variations

                 An indication of comparative regional repair costs can be gathered from Figure 4.7. In
                 addition, Figure 4.8 provides some indicative cost ranges for steelwork replacement.




                 *   Inquiry among shipyards has not produced too many forthcoming responses but indications appear to
                     be guarantees for 6 months – in some instances rising to 12 months.
                 ** If the vessel is operating under a time charter, this will need to take cognisance of the off hire clauses in
                     the charterparty. Some ship types – e.g. cruise ships – have very tight off hire time windows and this
                     reduces yard choices considerably and may oblige the ship to call at very high cost facilities.
                 *** This is “in practice” and is not a reference to any form of guarantees or warranty that may or may not be
                     offered.


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Figure 4.7
Indicative regional repair price competitiveness, 2002 (Basis: Singapore=100)

250


225


200


175


150


125


100


 75


 50

  Chin
      a          sia              ast       apor
                                                e
                                                          alka
                                                              ns         rope        e/Me
                                                                                         d          an        USA
             SE A         Mid
                              E
                                        Sing                         E Eu        urop           e/Sc
                                                  kS ea/B                     SE            urop
                                             Blac                                         NE
                                                                                       UK/
                                                    High   Low Average

Source: D.M. Jupe Consulting (based on a consensus of views from various shipyard agents)


Figure 4.8
Indicative steelwork price trends (US$/kg)
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
            W.EuroMed                     Middle East                   Singapore                  China
                                                              High
                                                              Low
Source: Drewry Shipping Consultants Ltd


4.4       Stores and supplies

                  For shipowners and operators/managers, the stores and supplies sector of the
                  operating cost account may not be especially large overall but it can be an area of
                  ‘disproportionate effort’. This arises as a result of the cost head embracing a wide and
                  varied product mix.


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                 Sources in the supplies sector reckon that most buyers seem to spend a
                 disproportionate amount of time and effort ‘knowing the price of everything’ and so
                 are seeking constantly to reduce costs but, too often, fail to appreciate that there can
                 be (a) false economies, (b) behind the order lies a supplier logistics and delivery chain –
                 with some being better than others – and (c) some suppliers are more likely than others to
                 ‘substitute’ products (i.e. supply goods other than the brand specified).

                 In addition, it needs to be kept in mind that the taking on of stores and supplies can
                 take place at a wide number of global locations (depending, obviously, on the vessel’s
                 trading pattern) which can add to procurement complexity, may involve suppliers with
                 whom the owner/manager is not especially familiar, local ‘practices’ and currency
                 issues. While securing, say, a 5% cost saving on a supplies order may appear to be a
                 worthwhile gain, it may not look as appealing if the order is delivered late and the vessel is
                 prevented from sailing at its intended time.

                 Consequently, while the establishment of a cost-effective stores and supplies policy
                 is a vital part of effective ship management, equally it is vital that an owner or manger
                 does not fall into the pitfall of ‘knowing the price of everything, but the value of nothing’.

4.4.1 Principal elements in the stores and supplies budget

                 In general terms, the principal stores and supplies items (excluding victualling) are:

                 •     Marine and deck stores. These embrace both routine and specific needs. The
                       latter tends to be the area where there is overlap with drydocking incidences and R&M
                       budgets.

                           In terms of routine purchases, typical components are likely to embrace
                           paints (for crew maintenance work), ropes, wires, tools, safety equipment,
                           etc. There might be a need for some specialist clothing related to the use of
                           these materials. (Here again, however, it is possible to see overlap with both
                           R&M and Manning cost considerations).

                           This category also tends to embrace the cost of supplying fresh water to the
                           vessel. Some vessels may resolve some of this requirement via the use of
                           onboard de-salination equipment. However, fresh water intake while in port is
                           also a normal occurrence. (This, again, can complicate the budget reconciliation
                           process. The cost is almost certain to appear via the port cost bill – in turn likely
                           to form part of the port agent’s bill. Some owners, therefore, might opt to leave
                           this expense within the voyage cost account).

                 •     Engine room stores. The product mix requirement here will take in such items
                       as greases, gases, chemicals, electrical items, cleaning equipment and
                       products, washers, gaskets and other miscellaneous spares.

                           In addition, there will be one particularly significant cost item – lubricating
                           oils (lubes). Indeed, some dub this entire cost category as “stores and lubes”
                           rather than stores, spares and supplies.

                 •     Steward’s stores. This category tends to be the most fragmented and hardest to
                       define clearly. Among the elements will be non-engine or marine/deck cleaning
                       equipment and materials, special clothing needs, galley supplies (other than
                       those elements which might come under the victualling head), laundry needs,


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                      office/shipboard administration        items    and   items    relating   to   shipboard
                      recreational needs.

                  Stores and supplies are crucial areas of a shipping company’s operating,
                  management and administrative policy. At the core may be the levels of respective
                  responsibility held by the shoreside and the onboard staff. However, this may vary
                  depending on the specific items involved.

                  An added consideration is the implication for tying-up capital. Stores or spares being
                  carried onboard represents money spent. (Some operators might have the vessel ‘put in
                  funds’ leaving some purchasing decisions/arrangements with seagoing personnel.).
                  Ideally, some might like there to be an equivalent of just-in-time delivery procedures in this
                  sector. This ideal is some way off – and may be impossible – with the result that whatever
                  system is put in place the vessel and its operators must run an efficient stores policy
                  control and inventory system.

4.4.2 Lubrication oils (lubes)

                  In total, lubes will make up the largest cost sub-component within the stores and
                  supplies account. However, it needs to be borne in mind that the lubes used on a ship
                  are not a single, homogenous item. There will be a need for products of various types
                  and grades, including lubricating products for an array of engine, motor and
                  machinery items – spanning main propulsion systems, auxiliary motors, gearboxes,
                  winches, compressors, turbochargers, refrigeration units, cargo access and
                  handling machinery, etc. – in fact any item where there is a need to reduce friction
                  and wear, remove heat or ensure the working cleanliness of equipment.

                  The owner or manager’s choice centres is whether to make ‘spot’ purchases or
                  whether to lock in to longer-term contract arrangements with major suppliers
                  (normally oil company suppliers). Spot buying might include linking the purchase of
                  lubes with the buying of bunkers – using the same broker/supply channels for both.
                  However, it is understood that most – if not all – management operations work under
                  term contracts.

                  For those advocating spot purchases, the argument normally put forward by buyers is that
                  “it is cheaper”. The counter view – principally voiced by oil company suppliers – might be
                  that “cheap” might mean that products may not be what they seem. They might, perhaps,
                  not meet with type/grade specifications recommended by equipment suppliers. Clearly,
                  the risk factors in this have to weighed up by owners/managers and choices made
                  accordingly.

                  The other aspect voiced by oil company suppliers is that by contracting for their products
                  owners or managers benefit from (a) a “guaranteed” product and (b) the supplier’s “value
                  added” services. The latter could include back-up and advisory services, product analyses
                  and testing and onboard engineering support.

                  Other budgetary/policy aspects that might need to considered include:

                  •   Scale economies. The more product being supplied, the better the deal is likely to
                      be. Consequently, dealing with a major supplier ought to generate a ‘better deal’ if the
                      owner/manager is able and willing to strike a supply deal on a fleet basis.
                  •   Logistics of delivery. Critical delivery factors will be location and timeliness.


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                 •      Commitment period. Indications are that ‘better terms’ prevail with term contracts. A
                        typical contract might cover a three year period. Such an arrangement might also
                        provide some benefits in terms of credit periods.

4.4.2.1 Price influences in the lubes market

                 As with many management/policy decisions, part of the process is based on
                 judgements about how the market is likely to move. In many respects, the
                 assessment is similar to a commercial management decision – to go ‘spot’ or on a ‘term’
                 contract.

                 As lubes are products derived from oil refining there has to be some correlation
                 between crude oil and lubes prices. One industry rule of thumb is that lube price trends
                 (for ‘spot’ purchases) will mirror the pattern of crude oil prices but with a time lag of about
                 60 days.

                 The other key price benchmark area – but one which is less overtly transparent – is that
                 set by base oils and additives*. Effectively, refineries produce base oils (or base stocks)
                 and these are then blended (with or without additives) to produce value added products
                 such as lubes. (Lubes are normally about 85% base oil stock).

                 The performance of the finished product is determined by the base stock
                 composition in terms of (a) viscosity, (b) saturate content and (b) wax content – variations
                 in these affect performance and stability – and the blend that different base oils create.
                 Grades of oil on the ship’s agenda could include compressor oils, crankcase oils, cylinder
                 oils, gear oils, hydraulic oils, refrigeration system oils, piston oils, turbine oils and marine
                 grease.

                 Industry sources have indicated that preferred crude oils for producing lubes are low wax,
                 naphthenic products or higher wax content paraffinic crudes. Examples of the latter are
                 understood to include West Texas and Arab Light.

                 The base oil market itself, however, is a complex entity. It has regional bases – with
                 distinct market sectors being identified in the Pacific, USA and NW Europe – which set
                 different supply/demand (and hence “micro” price) patterns. As noted earlier, there is a
                 correlation with crude pricing but there can be a more important correlation with the price
                 of fuel. Circumstances where crude oil prices are relatively high place pressure on the
                 refineries leading to a tightening of refinery (profit) margins. When this occurs, refiners
                 become particularly selective on which crudes they run. If this means that the refinery opts
                 to concentrate on fuel (regarded as one of its more lucrative outlets) it can mean that the
                 outrun is not suitable for lubes – i.e. it create no (or only a low level) suitable yield.
                 Furthermore, sources have suggested that even in more favourable conditions only about
                 1.5% of a barrel of crude will end up as lubes.

                 In the lube oil sector views offered have included one that “the key to pricing is
                 consolidation … ship managers have taken the bulk of the growth”. (Presumably,
                 this is a reference to the advantages of bulk buying). Mention has been made also to
                 the significance of base oil prices – indeed, one source has suggested that “all issues


                 *     With marine lubes the probable additives will be (a) a polymer which acts as a viscosity modifier and
                       helps control the “thinning” process as temperatures rise and (b) a detergent inhibitor (or DI pack) which
                       holds debris, soot, etc. in suspension and neutralises acid content. The base oils provide the fluid
                       element.


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                  of pricing over the past 24 months have been base oil related”. With lubes seen as
                  “low margin business”, the volatility in base oils has led to a “rigid approach on price
                  increases”. The source adds “if base oils were stable you would see a more flexible
                  stance on pricing”.

                  Looking to the near term future, ship owners, managers and engineers will need to
                  keep in mind prospective legislative influences that could impinge on lube use and
                  purchasing policy. This arises from proposal to cap the sulphur emission from ships.
                  The immediate impact of this will be on marine fuels. However, changes in fuel selection
                  have implications for engine performance parameters. In turn, this could influence lube
                  selection. This could see buyers need to be more selective in terms of the base number
                  (BN) grading of their purchases.

                  Total Lubmarine has highlighted a problem with a company source quoted thus – “as
                  owners adjust to the idea of having to change lube oils to lower BN numbers to cope with
                  strict fuel sulphur limits in Europe, they will still have to cope with burning very high sulphur
                  fuels in other areas”. The Total Lubmarine view has been reported as being that “while
                  switching to lube oils with a BN less than 70 is the course to follow if fuel sulphur level is
                  reduced below average, the reverse is not necessarily true”.

4.4.3 Improving the purchasing and supply process

                  In managing a stores and supplies purchasing and inventory policy, it is important that
                  the system adopted minimises the chances of errors entering into the process
                  while, at the same time, there is need to control (and whenever possible minimise)
                  transactional costs.

                  Naturally, crucial to whole process will be where the decision making process lies. Most
                  businesses will want to keep budgetary control close to the heart of its management.
                  However, it may be that implementing the procurement process – provided the budgetary
                  constraints are in place – might be delegated down the line. For instance, it might be that
                  shipboard personnel might be provided with funds to make their own purchases relating to
                  victualling as well as some routine items if this can be achieved most effectively by shore
                  visiting personnel heading off to the ‘local supermarket’.

                  However, there are going to be circumstances where the need is for pre-ordering
                  items to be delivered to the ship while it is at berth. (This will have a number of
                  logistical considerations to factor in, particularly if, say, the ship is at an ‘out port’ and/or
                  deliveries can be made only during ‘office hours’.

                  The essence of the marine purchasing process is straightforward. The buyer submits
                  a request for quotation (RFQ), vendors respond with details of price and availability, a deal
                  is struck and a purchase order placed, the goods are delivered and the invoice is settled.
                  The crucial factor is its efficiency.

                  However the process is conducted, it has to be more efficient – and less prone to error – if
                  the necessary information is not re-recorded and re-input at different stages in the process
                  by different parties. The less the need for ‘interpretation’, the better the procedure is
                  likely to be. One way in which this ‘error reduction’ process has evolved is through the
                  cataloguing of products. That is, the developing of product codes that are understood
                  by buyers, vendors, chandlers and operators of storage facilities and warehouses.


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                 However, there is not a single, unique system available. Most buyers will be cognisant
                 of the catalogues developed by the International Marine Purchasing Association (IMPA)
                 and the International Ship Suppliers’ Association (ISSA).


4.4.3.1 E-platforms and on-line purchasing systems

                 The 1990s brought in the so-called ‘dot com’ revolution. However, many of the ventures
                 that emerged then are now long consigned to the ‘dot gone’ pile. The theory behind many
                 of the systems targeted at the shipping industry was ‘disintermediarisation’. That is, it saw
                 transactions taking place which earned commissions for those providing broking or
                 intermediary services - so, replicate the system electronically, undercut the
                 commission/transaction cost, goodbye brokers and agents, huge rewards for the new
                 system operators. Certainly, there was no shortage of investment money available to be
                 ‘thrown at’ these ventures.

                 What most of the ‘no longer with us’ brigade tended not to appreciate was that shipping
                 business is not ‘simplistic’, shipping is very conservative and so the ‘e-age’ initially (a)
                 brought resistance and scepticism rather than any perceived opportunity and (b)
                 highlighted that most of the intermediaries they sought to eliminate were not mere ‘letter
                 boxes’ but rather they did provide some ‘added value’ to the equation.

                 After a time, the realisation dawned that shipping was not going to see its traditional
                 ways swept away. However, the industry is not ‘luddite’. What it does want, however,
                 are vehicles that enhance tried and trusted methods and not those that replace them.
                 If it can make life easier and cut costs – particularly those costs eaten up by
                 transactions and ‘price mark ups’ – then ship owners and managers start to hear a
                 tune that appeals to them.

                 E-procurement, consequently, is not an area that ship owners and managers will dismiss
                 out of hand. Nevertheless, not all are yet convinced that it has proved its worth.

                 Rather than seek to produce definitive listings – and run the risk of errors and omissions –
                 of all the products on offer, the following paragraphs make brief mention three of the more
                 ‘high profile’ platforms and the latest entrant.


                       ShipServ


                 ShipServ is seen generally as the current market leader – and this view was enhanced
                 at the start of 2003 when ShipServ incorporated the Asian market focused iShipExchange.
                 ShipServ is the ISSA preferred partner (ISSA’s other preferred partner had been
                 iShipExchange).

                 ShipServ describes itself as a provider of ship supply management solutions which
                 “significantly facilitate the buying and supplying of provisions and spare parts”.
                 ShipServ’s products are based on the Marine Trading Mark-up Language (MTML) and
                 have been put together in association with IMPA and adopted subsequently by ISSA
                 “and the ship management software vendors”.

                 ShipServ’s reported list of ‘selected suppliers’ with TradeNet numbers – as at August 2003
                 – ran to 195 companies.


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                  The operation includes software products and professional services but the trading arena
                  is ShipServ TradeNet. Within TradeNet shipowners/managers can be linked to leading
                  suppliers in a number of key segments – indicated to be lubes, gases & chemicals, spares,
                  paints and general chandlery. TradeNet can connect via ShipServ’s own software –
                  WebBuyer – or can be integrated with company in-house systems via a “middleware”
                  product (MTMLink) and a MTML adapter. WebBuyer and “some third party purchasing
                  solutions” can link through ShipServ ShipLink to enable seagoing personnel to create and
                  transmit requisitions.


                  The latest addition to the ShipServ offering – announced in late June 2003 – is
                  WebLogistics. This is reported to provide logistical ‘track and trace’ functions. Effectively,
                  it provides more information on shipment status following an order being place on-line.
                  According to ShipServ, there are customers where “on line logistics is as important as on
                  line purchasing”. Freight forwarders can connect via TradeNet to provide clients with
                  delivery schedules.


                       Marine Provider


                  Marine Provider has been through some troubled times and March 2003 brought media
                  reports hinting at the arrival of a liquidator. However, the operation continues ‘under new
                  ownership’.


                  Marine Provider also operates as a neutral e-procurement ‘solution’ system. Marine
                  Provider reports that it “has chosen to become an ‘integration specialist’ … allowing
                  customers to continue working with software systems already in use … and integrating
                  these seamlessly”.


                       SeaSupplier


                  SeaSupplier was formed in mid-2001 through the merger of PrimeSupplier and
                  OneSea.com. SeaSupplier describes itself as an e-procurement, logistics and contracting
                  application. SeaSupplier claims that it is not a portal* but an Application Service Provider.
                  SeaSupplier claims its liquidity equates to a combined turnover of more than $10 bn and in
                  excess of 1,000 ships.


                       RealMarine Solutions


                  RealMarine’s Total Procurement System (TPS) has evolved from a buyer and seller
                  collaboration drawing on the experiences of a long established ship manager,
                  Wallem, and a supplier, Drew Marine – a subsidiary of the chemical manufacturer,
                  Ashland.


                  Hence, the TPS offering comes marketed as “e-solutions that come with knowledge
                  of how the marine industry conducts business”. Among the features being promoted
                  are the ‘ability to drill down into the information’ using features of the “buyer’s cockpit”.
                  Phase II of TPS was launched in October 2003.


                  *   It describes a portal as a gateway through which a user accesses many different applications and
                      services, offered by a series of third parties, which while having a common industry focus are likely to
                      be delivered in different ways.


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4.5     Software systems for technical ship management

                 As with a number of other product references in this report, the examples noted below are
                 intended as being illustrative only and merely a guide to the type of products that the
                 individual owner or manager might encounter or choose to utilise.

                       BASS

                 The BASS applications have been developed within the Barber Management group
                 (Barber Software Solutions). The BASS suite comprises:

                 •     BASS Accounting – a system that, BASS has claimed, looks to link together a system
                       “with the shipping industry in mind” whilst allowing for corporate reporting. BASS adds
                       that the system “manages multi-object, multiple company and multiple currency
                       transactions”.

                 •     BASS Purchasing – a procurement and budgeting system that targets the
                       procurement process including producing/receiving requisitions, creating purchase
                       orders, follow up, invoicing, etc. (It is understood that such modules ‘interface’ with e-
                       platforms such as ShipServ).

                 •     BASS PayNet – a payroll management and shipboard accounting system that can
                       range from the single crewman up to shore-side office administration. (BASS
                       indicates that there are office and vessel versions). The system, BASS claims, offers
                       various database functions and “value added book keeping functions”.

                 •     BASS CrewNet – a software facility links crew management functions helps match
                       crew and vessels. The system deals with the exchange of crew information to meet
                       regulatory requirements and other human resources/crew management routines and
                       procedures. This information sharing vehicle, BASS claims, “puts a world of manning
                       agents” through the desktop while allowing the management of “a global work force”.

                 •     BASS EasyInfo – a knowledge management system including workflow management
                       (all processes between ship and office). An advantage, BASS claims, is that it
                       “enables a fixed amount of human resources to manage more vessels”.

                 •     STAR Information and Planning System (STAR IPS) – software focusing on the
                       planning and execution of fleet maintenance and the management of spares and
                       stocks. Star IPS is described as an integrated onboard solution for inventory control
                       and maintenance. It focuses on planned maintenance, stock/stores/spares control,
                       fleet management and work planning – providing, amongst others, tracking of spare
                       parts, work instructions and consumables across the fleet.

                 •     Safir – a software module focused on avoid accidents and protecting lives, the
                       environment and property at sea. The system has been developed in co-operation
                       with ship owners and maritime authorities and seeks to improve safety and quality
                       routines. It has been developed against the backcloth of the ISM Code and ISO 9000.

                       Danaos

                 Another noted player in the field of integrated ship management systems provision is
                 Danaos Management Consultants – a Greek based operation founded in 1986.


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                  The products offered include:

                  •   ISM Administrator (danaosISM) – a package for the creation and maintenance of a
                      quality system. Functionality includes Manuals, ISM Checklists, Training Assistant
                      and Accident Reporter.

                  •   Provisions Control System (danaosPROVISIONS – a module in the danaosSUPPLY
                      system) – including supply cycle history, information management, budgeting and cost
                      control.

                  •   Vessel Operations (danaosOPERATIONS) – for ‘operational follow up’ purposes,
                      including Sea Passage Log, Port Log, Scheduling, Speed/Consumption Monitor,
                      Charterparty Compliance, Port Operations Follow-Up, Bunkering/Lubricants,
                      Performance Reporter.

                  •   Technical Control Applications (danaosPMS) – claimed to be system in use in 300
                      shipping companies worldwide. Covers planned maintenance, spare parts and
                      inventory control and links to Purchasing, Marine Accounting and Crewing modules
                      leading to integration of technical, economic and personnel management areas.
                      DanaosPMS (with danaosONBOARD) can be enabled to run with the office and
                      vessel set ups in synchronised mode. Elements include Planning (specifications,
                      library of equipment job schedules, planning reports, rescheduling, condition based
                      maintenance), Class (survey status, survey associated with job reporting, integration
                      of maintenance with class surveys, maintenance history), Spares (usage and
                      inventory, automatic requisition generator, spares future prediction, job performance
                      analysis), Technical Management (docking/repair planner, job performance analysis,
                      budget control, personnel evaluation, overdue maintenance follow up) and Vessel
                      (Follow ups, Planning and rescheduling, reporting to office).

                  •   Spare Parts Control System (danaosSPARES – a module in the danaosSUPPLY
                      system) – including supply cycle support, spares coding, historical information,
                      budgeting, integration with danaosMIS).

                  •   Crewing System (danaosCREW) – Crew information (history, past employment,
                      evaluation, medical history), appraisal points system, licences and qualifications
                      (expiry dates, validity, eligibility), reporting (port authority requirements, etc.). Can be
                      linked to danaosMGA.

                  •   MGA Administration (danaosMGA) – Accuracy of accounts (calculations of wages),
                      overtime follow up, consolidated accounting, tax and wage statements.

                  •   Voyage Estimation (danaosESTIMATOR) – Voyage analysis, job to vessel matching,
                      breakdown analysis, profit and loss statements, demurrage/despatch calculations,
                      parcel cargo list contribution, continuous restrictions check, sensitivity analysis.

                  •   Maritime Accounting (danaosMIS) – Budgeting and Payments modules. Includes
                      cash flow analysis, running cost reporting, voyage accounting. Integrates with
                      danaosMGA,       danaosSPARES,       danaosSTORES,        danaosPROVISIONS,
                      danaosONBOARD and danaosFREIGHT.

                  •   Monitoring System (danaosMONITORING) – system to enhance measurement and
                      control onboard. Triggers alarms that can initiate a job via danaosPMS.


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                 •     Stores Control System (danaosSTORES – a module in the danaosSUPPLY system) –
                       Includes global catalogues – either from suppliers or via IMPA or ISSA – with linkages
                       to show ‘equivalents’, budgeting and cost control features and management evaluation
                       features. Integrates with danaosMIS.

                 •     Vessel Performance (danaosPERFORMANCE) – Sea/port statistics, consumption
                       reporting, etc. leads to the ability to utilise messages from the vessel to generate
                       results about the main systems – hull, propulsion, electric power, etc.

                 •     DanaosONBOARD – onboard system enabling integration and consistency of
                       information through the company and fleet.

                       ShipNet

                 ShipNet straddles the commercial and technical sectors with its offerings. The former
                 includes Chartering and Scheduling, Pool Management, Demurrage Management, Vessel
                 Reporting, Financial Management, Post Fixture Management, Time Charter Management,
                 Disbursement Management, Vessel Form Management and Accounting & Budgeting.

                 ShipNet also markets its Liner Principal Management Solutions (chartering, scheduling,
                 time charter management, disbursement management), and ShipNet Agency Solutions
                 (Booking, Receipting, Equipment Control, Integrated Transport, Claims Management,
                 Documentation, Tariff Management, R&M, Job Costing, Electronic Data Management).

                 The technical management packages include:

                           Procurement

                           Planned maintenance

                           Electronic manuals
                           Non-conformity management

                           Financial management

                           E-procurement
                           Safety management

                           Form management
                           Budgeting and accounting


                       Ulysses Task Assistant

                 The proponents of Task Assistant argue that it is often the case that software applications
                 come to dictate the way people work and functions are performed. Hence, established
                 and tried and trusted routines have to be ‘re-jigged’. The claim of Task Assistant is that it
                 takes the opposite approach and designs itself around the company way of working. It
                 claims also to be ‘developed by mariners for mariners’.

                 Task Assistant claims to have three aims that it builds around existing roles and tasks,
                 namely: (a) providing reliable and timely information from an array of sources, (b)
                 incorporating software and communications tools to manage this information and (c) to
                 enable the knowledge and information to be shared by those that need access to it.


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                  Areas of potential support in this way, as seen by Task Assistant’s promoters, include
                  (onboard ship) the Master, Navigation Officer and Safety Officer and (ashore) the
                  Operations Manager and the Technical Manager.

                      Xantic

                  Xantic was created out of a merger between Station 12, Telstra Global Satellite, SpecTec
                  and KPN Broadcast. Hence, it is a major satellite communication providers as well as
                  providing the AMOS service packages including:

                  •   AMOS Express – the ship management package covering maintenance scheduling
                      and spare parts control which is fully compatible with AMOS Personnel Onboard,
                      AMOS Maintenance, AMOS Purchase and AMOS Mail.

                  •   AMOS Maintenance & Purchase – claimed by Xantic to be the world’s leading
                      maintenance management system for the maritime industry and “used daily on 5,000
                      vessels”. New elements added recently include enhanced finance reporting and
                      account coding, cost centre analysis and the stock optimiser module.

                  •   AMOS Personnel.

                  •   AMOS Connect – an integrated e-mail and messaging system which, for example,
                      integrates with the SPOS weather forecasting system.

                  •   AMOS InfoManager – described by Xantic as a “business information system for the
                      maritime market”.


4.5.1     Satellite communications

                  To be at their most effective, those responsible for the safe operation of vessels –
                  both onboard and ashore – need to be able to communicate rapidly and, where
                  necessary, exchange sizeable volumes of information. It is desirable for shipboard
                  and onshore computer systems and data stores to offer synchronicity.

                  A feature of the late 20th century was the explosion in communications – whether through
                  cellular ‘mobile phones’ or via satellite communication. For the maritime sector, satellite
                  communication is crucial as, obviously, the high seas do not have the adornment of the
                  mobile phone mast.

                  For satellite communication, vessel operators have to make product selections – based on
                  ease of use and cost. Sections 4.5.1.1 provides a short résumé of the alternative
                  satellite systems.


4.5.1.1 Satellite systems

                  Although ‘land lines’ and ‘cellular systems’ play their part in the telephone communication
                  and IT equation, the global nature of the marine sector and the fact that ships operate in
                  isolated mid-ocean environments means that, for many in shipping, satellite systems are
                  crucial. Nevertheless, satellite systems have hit problems with the nature of the handset
                  devices used and, more importantly, price competition. While not relevant to deep ocean
                  arenas, the roaming potential of GSM has increased the pressures.


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Figure 4.9
Communication system options
                                             GEO (32,500 km; Inmarsat)




                                     MEO (8-10,350 km; access via large handset)

                               LEO (1,500 km; access via palm held, microwave system)




                                               GSM/terrestrial systems




Source: Drewry Shipping Consultants Ltd



                  The main satellite system that has been developed over recent decades is Inmarsat –
                  which is a high orbit, geo-stationary system. Other developments include medium and low
                  orbit systems. The altitude of the satellite determines its ‘footprint’ – the higher the
                  altitude, the larger the ‘footprint’. In this context, it is necessary to note that there are three
                  categorisations. These are:

                  Geo-stationary or geosynchronous earth orbit (GEO): These are 32,500km above the
                  earth and have an orbit travel at the same rate as the earth turns – i.e. they complete one
                  revolution every 24 hours. Inmarsat is a GEO system.

                  Medium earth orbit (MEO): These seem to vary between around 8,000-10,350km above
                  the earth. ICO is an MEO system. Ellipso also lays claim to being an MEO system but, as
                  later discussion points out, its main orbital path is elliptical making it almost a MEO/LEO
                  hybrid.

                  Low earth orbit (LEO): These are about 1,500km above the earth.                       Iridium and
                  Globalstar are LEO systems.

4.5.1.1.1 GEO systems

                       Inmarsat

                  On 15 April 1999 Inmarsat was sold off by the 79 member countries that developed it and
                  became a private company. However, Inmarsat retained the public service obligations


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                  under the IMO convention with particular reference to the distress system GMDSS. Other
                  public sector obligations are being met by a new inter-governmental organisation called
                  the International Mobile Satellite Organisation (IMSO).

                  Inmarsat-A is an analogue system supporting direct-dial telephone, fax, data, telex, High
                  Speed Data (HSD) and electronic mail for maritime users worldwide. About 18,000
                  stations have been installed across the spectrum of vessel types.

                  Inmarsat-B is the digital follow up to Inmarsat-A. It offers the higher quality and speed that
                  digital transmission offers over analogue.

                  Inmarsat-C supports two-way global messaging, telex, fax, e-mail and special code.
                  Inmarsat-C3 is a lower cost system suitable for vessels operating within coastal waters.

                  Inmarsat delivers global mobile satellite communication via its own Inmarsat-2 and
                  Inmarsat-3 satellites. Each of the four Inmarsat-2 spacecraft has a capacity equivalent to
                  250 Inmarsat-A voice circuits. Inmarsat-3 satellites feature a spot beam capability and
                  each are eight times more powerful than an Inmarsat-2.

                  This first Inmarsat-3 was launched in April 1996, the second in September 1996, the third
                  in December 1996, the fourth in September 1997 and the fifth in January 1998. The
                  system is expanding and will use twelve satellites (ten operational and two in-orbit spares)
                  at an altitude of about 32,500 km and arranged in two intermediate circular orbital planes
                  inclined at 45 degrees to the equator.

                  The Inmarsat-EPIRB (emergency position indicating radio beacon) was introduced in
                  January 1997 and supports radio beacons including GPS (global positioning system).
                  Position accuracy is now to within 200 metres worldwide.

                  Fleet operators can use Inmarsat A or B to monitor inventory and track spare parts, access
                  weather routing services, place orders and keep staff records including payroll, sick leave
                  and benefits. The facility can support cargo planning and monitor onboard maintenance.
                  This service is being used to comply with international legislation, in particular the
                  International Safety Management (ISM) code.

                  •   Video/image transmission

                  A number of companies are offering packages yielding very high data rates for
                  transmission. Using compression and store-and-forward techniques not only can social
                  functions such as news and sport be transmitted but the system allows shoreside
                  engineers and experts to assist their shipboard equivalents by viewing video or still
                  pictures of maintenance or repairs carried out onboard and offering advice if required.

                  •   Electronic data interchange

                  Electronic Data Interchange (EDI) can be used to submit customs documentation via
                  Inmarsat A or B in advance of the ship's arrival in port. Electronic customs processing
                  results in more efficient port clearance, shorter vessel turnarounds, position and data
                  reporting.

                  Inmarsat-C supports the transmission, at pre-arranged intervals, of data such as position,
                  course and speed, fuel stocks and consumption.


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                 Alternatively the operator's company can interrogate a ship earth station (SES) at any
                 time, triggering automatic transmission of the required information. Inmarsat-C terminals
                 can be integrated with GPS to provide a highly reliable, round the clock global position
                 reporting capability.

                 •     E-mail

                 Four Inmarsat systems – A, B, C and Inmarsat telephone – are being used for electronic
                 mail in the maritime environment. The use of e-mail is increasing rapidly as shipowners
                 and operators integrate them with on-board ship management applications. An examples
                 of an area of potential connectivity might periodic updating/electronic chart corrections.

                 •     Distress alerting

                 The Inmarsat-E service provides a fast, reliable accurate global distress alerting service.
                 An alert is delivered via the Inmarsat satellite system to a maritime rescue co-ordination
                 centre (MRCC) within five minutes at most and two minutes typically.

                 •     GMDSS

                 The Global Maritime Distress and Safety System (GMDSS) was implemented in 1999.
                 Under this scheme, all ships, wherever their location, will be able to transmit a
                 distress alert to shoreside authorities. The satellite communications elements of
                 GMDSS are provided by Inmarsat. GMDSS, which as its name implies is a global
                 system for automatic alerts, is triggered by a transponder and has been mandatory for
                 most vessels since March 1999.

4.5.1.1.2 MEO systems

                 The first MEO option, ICO, utilises MEO (Medium Earth Orbit) satellites requiring ten units,
                 arranged in two planes of five satellites each, to obtain global coverage. The altitude of
                 these units is 10,355 km and they will operate in orthogonal planes with each plane
                 inclined at 45 degrees to the equator to give complete continuous overlapping coverage.

                 The merits of MEO are said to be:

                 •     High average elevation angle from user satellites minimising probability of blockage by
                       terrain.

                 •     High probability of more than one satellite being in view at any one time.

                 •     Slow path transit – about one degree/minute – through the users’ field of view.

                 The lifespan of the satellites is expected to be about twelve years and they will utilise
                 ground-based satellite access nodes (SANs) linked by optical cables to a wider network.

                 Ellipso, which describes itself as an MEO system though some sources describe it
                 as a ‘big LEO’ system, is a development by Boeing, Lockheed Martin Global
                 Telecommunications, L-3 Communications, Harris Corporation, Spar Aerospace and IAI.

                 The Ellipso system claims to be unique in that it divides its global coverage into two zones,
                 each with its own constellation of satellites – with this being based on an evaluation of the
                 earth's distribution of land and population.


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                  The significance of this, it is claimed, is that:

                  •   The northern hemisphere has a much greater landmass north of 40°N than the
                      southern hemisphere has south of 40°S. The former includes virtually all of Europe,
                      about half of the USA, all of Canada, the CIS and part of Japan.

                  •   In the light of this asymmetry, Ellipso opts to provide greater coverage to northern
                      latitudes. This means that (whether MEO or LEO), the satellites deployed have to be
                      placed on inclined orbits. (Circular orbits give equal coverage).

                  Consequently, the Ellipso system satellites are set within two "constellations". The
                  Borealis constellation covers the northern temperate latitudes using ten satellites in two
                  elliptical orbital planes, inclined at 116.6° with apogees of 7,605 km and perigees (near the
                  northern extremity) of 633 km. The Concordia constellation covers tropical and southern
                  latitudes. However, this constellation does not need to provide high capacity at high
                  latitudes so enabling an "economical orbital configuration". This translates into a circular
                  equatorial orbit at around 8,050 km.

                  The elliptical orbits concentrate most of the satellite deployment to the north of the equator
                  for the greater part of their orbits. When below the equator, the batteries are recharged.
                  By these means, Ellipso reckons it can provide the same coverage using four satellites
                  that would need six satellites in circular orbit. The orbits are also configured to be sun-
                  synchronous – this is said to enable the system to increase capacity during daylight hours.


4.5.1.1.3 LEO systems

                  The system works through the hand-held mobile telephone communicating with a satellite
                  using a ground network of fifteen ‘gateways’ around the world which channel received
                  signals into terrestrial telephone networks. However, this may not be a system suited
                  especially to shipping if systems follow the Globalstar model which claimed to offer global
                  cover except for "polar regions and deep mid-ocean regions" which it regards as
                  "extremely margin".

                  The pioneers in this sector subsequently have become known as ‘Big LEO’ systems. This
                  has been due to the emergence of ‘Little LEO’ systems. The distinctions between the two
                  are said to be:

                  •   Little LEO – focus on data. Allocated 3.5MHz of primary spectrum.
                  •   Big LEO – focus on voice. Allocated 33 MHz of primary spectrum.

                  At the outset of the planning for its ‘Little LEO’ operation, Orbcomm, reckoned on
                  ‘ship captains’ and ‘surveyors’ as among the groups it saw as its potential market.


4.6     Insurance

                  Decisions relating to insurance – in terms of the range of cover taken out and who it is
                  placed with – are a matter for the ship owner. However, the ship manager is often an
                  important element in the equation.

                  This may arise because it is likely to be the ship manager that has to take the first
                  actions if an incident arises that is going to lead to a claim. How this takes shape in


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                 terms of the systems put in place for recording events and actions taken to mitigate loss or
                 prevent pollution will be crucial.

                 Furthermore, the insurance industry assesses its risks on a case-by-case basis. Hence,
                 the owner’s ‘track record’ in terms of claims is highly significant. An insurer, naturally,
                 wants to minimise risk. Consequently, considerable store will be set on the perceived
                 quality of the ship’s management (whether in-house or third party).

                 Insurance is not an exact science. Most underwriters pride themselves on their
                 knowledge of the industry and, in particular, their close relation with their clients even
                 though, in most cases, these clients are introduced through a broker. Therefore, there is
                 a strong subjective element in the calculations of marine insurance premiums. It is
                 emphatically not a tariff market and the final premium outcome can seldom be predicted
                 with any consistent accuracy. Marine insurance brokers can be very helpful at this stage
                 in that they can, when necessary, encourage the underwriter to “think again” and to help
                 smooth out some of the more extreme swings. For better or worse, this is very much a
                 human business.

                 Ships tend not to be insured as ‘singletons’ – if they are they are likely to attract a
                 higher premium. Rather, it is normal where there are several ships in operation to
                 evaluate them on ‘fleet terms’. Effectively, this means that the assessment focuses
                 on the owner being insured as much as or more than the ship per se. If a ship is
                 placed under the care of a third party ship manager, the insurer may well factor the
                 manager’s performance into the ‘fleet’ thinking, subject to the manager having a good
                 slip. However, many owners will prefer to isolate their vessels from a manager’s
                 general slip particularly if the owner’s perception is that the manager’s slip has that
                 too many old ships under its remit. (Insurers will apply ‘over age’ increases to
                 premiums).

                 In any event, the manager is nominated as the co-assured under the owner’s P&I
                 policy and, as a general rule, a cover note indicating this position is sought by
                 manager.

                 Insurance considerations will breakdown into three main parts* – (i) Hull and
                 Machinery, (ii) Protection and Indemnity and (iii) Others.

4.6.1 Hull and Machinery (H&M)

                 H&M cover relates to the ‘physical asset’ and the position relating to losses thereon.
                 Clearly, the largest monetary figures involved will relate to a total loss**. The insurance
                 world also has categories such as ‘major loss’ and ‘minor loss’ – with a rough proxy being
                 that the former requires rectification work in the immediate vicinity and the latter requiring
                 work at the next scheduled repair berth stemming.

                 Hull cover is obtained via the global insurance market – although substantial
                 elements of the marine account (either directly or via reinsurance) are channelled
                 through the London markets. Premiums are set by underwriters based on claims


                 * It is not usual for the owner or manager to be responsible for cargo insurance.
                 ** Total loss does not necessarily mean that the vessel has been lost at sea. There are other forms
                       including constructive total loss (where the cost of repairs exceed the value of the ship) or where the
                       insurer has ‘written off’ the ship after, say, it has been inactive through ‘blocking and trapping’ for a
                       considerable period.


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                  records and risk perceptions. However, the pure marine sector is becoming absorbed
                  within wider insurance market areas and, hence, influences beyond shipping are coming to
                  bear. In part, this is due to the progressive subsuming of marine accounts into the
                  broader Marine, Aviation and Transport (MAT) categorisation*. This means that the
                  marine sector’s previously clearly defined performance record in terms of claims
                  and profitability (to insurers) is being blurred and moving towards wider insurance
                  market performance records.

                  Whether this is a good or a bad move as far as shipping is concerned remains a matter of
                  debate. If it leads to the traditional and much prided ‘personal’ relationships between
                  underwriters and ship owners (albeit that much of this is enacted through agents and
                  brokers) diminishing this may be seen as a negative. On the other hand, introducing
                  greater discipline from other sectors may be no bad thing either.

                  As noted earlier, premiums and conditions are set in the global marketplace. Hence, a
                  major influence will be changes in the capacity levels being offered. (These in turn will be
                  influenced by the profit or loss position in the marine insurance market). Recently,
                  premium levels have been rising but – insurers will be quick to point out – they
                  remain far from ideal and are still way below levels seen a decade back.

                  Rising premiums increase capacity – which, in turn, eases the rate of increase in
                  premiums. However, this brings other issues into play. First, this capacity may be in
                  locations not overly familiar with shipping. Second, this capacity may be inadequate to
                  underwrite large volumes of business on its own – hence it may be reinsured via, say,
                  Lloyd’s of London. This reinsurance cost has to be factored back into the premiums levied
                  on ship owners. Third, new capacity tends to arrive without a claims’ ‘tail’.
                  Consequently, it may have little or inadequate experience of processing marine
                  claims and, until it develops claims, it has yet to establish whether it can function
                  effectively as a marine insurer over the longer term.

                  In the management process, the owner has to consider two other key aspects of hull
                  insurance cover. The first is deductibles. The second is the extent of the cover.

                  Deductibles are the proportion of the claim for which the ship owner is self-insured.
                  In other areas of insurance the term ‘excess’ has similar connotations. Some owners (e.g.
                  state controlled fleets) may be wholly self-insured. For the rest, in theory, the greater the
                  level of deductibles (and reduced exposure of the insurer) is, the lower the premium
                  (subject to previous claims records and other considerations). In practice, it is not quite
                  that simple. Hull insurers tend to want to impose a limit on the level of deductibles.
                  Indeed, the evidence on balance points to the position that underwriters prefer a higher
                  premium to higher deductibles. Furthermore, the trend in premium movements and
                  deductibles levels is not always consistent.

                  The subject of extent of cover has two components – one relates to the H&M policy
                  itself and the other to additional or optional cover.

                  November 2002 brought important changes to the H&M sector with the advent of the
                  new ‘Hull Clauses’. These were developed by the Joint Hull Committee (JHC) and
                  designed to be a ‘new beginning’ for the London hull market. The new product wording


                  *   As an example, the losses related to the World Trade Center in New York impacted on the marine
                      account as the cover was entered on behalf of the owners, the Port Authority of New York/New Jersey.


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                 now carries the label of the International Hull Clauses (IHC 01/11/02) rather than the
                 previous Institute Time Clauses (ITC). It was also designed to replace the unpopular 1995
                 wording which may have contributed to a substantial loss of business in London.
                 However, as with all changes in the conservative world of shipping, the new clauses have
                 met with some criticism and the possibility of some further ‘fine tuning’ has not
                 been ruled out. Indeed, revisions were announced in late 2003.

                 The vital point for those owning and running ships to take into account is that the new
                 ‘Hull Clauses’ – as with their predecessors – are not an ‘All Risks’ policy, as
                 shipowners may have hoped. This remains a step too far for the London market. As
                 before, the '02 wording is structured on a ‘named perils’ basis to be used within a
                 MAR policy form. In other words, a vessel or owner is covered only for what he/she
                 has signed up for specifically. For owners – perhaps guided by advice from a third party
                 ship manager – there is a cost/benefit risk assessment to be made.

                 On the plus side, an aspect of the new ‘Hull Clauses’ that has been applauded is that
                 the wording avoids the use of warranties wherever possible. Warranties in an
                 insurance policy must be complied with strictly and literally. This has led to some
                 harsh inequities for ship operators and a move away from warranties toward specific
                 clauses is seen as a welcome development. The revised wording also supports the
                 provisions of ISM, flag states and classification societies, which is also welcome.

                 In summary, the view on the new ‘Hull Clauses’ appears, on balance, to be that the ’02
                 wording:

                 •     Is more logically structured.
                 •     Uses clearer language.

                 •     Tightens up claims handling and settlement procedures.
                 •     Has better explanations of consequences and more clarity on duties.
                 •     Makes modification to various standard clauses such as Inchmaree (latent defect),
                       Constructive Total Loss, Classification and ISM, and various exclusions.

                 What the wording does not do is to increase substantially the scope of cover
                 available to the ship owner.

                 Other considerations beyond the ‘basic’ H&M policy could include:

                 •     Increased Value (IV) and disbursements – IV or ‘excess liabilities’ cover relates to a
                       situation where the contributory value of the vessel in the case of collision, salvage,
                       etc. exceeds the hull value under the H&M policy. So, for example, if a vessel had an
                       insured value of U$$20 million and an ‘excess liability’ cover of 10% of the hull value
                       (US$2 million), the owner would be covered for, say, an incident costing US$21.25
                       million. If declared a total loss, both policies pay out in full.

                 •     Loss of hire or freight – timecharter income (say, upto 50% of next 18 months’ gross
                       hire) could be recoverable if the ship becomes a total loss. However, an added
                       concern might be if the vessel is damaged. Cover for loss of daily agreed earnings
                       might be obtained subject to stipulations such as (a) a limit of the number of days per
                       incident, (b) a limit on the number of such claims within a policy year and (c) a number
                       of days ‘excess’ – i.e. where the owner is self-insured.


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                  Owners might also want to consider other items such as port risks, war risks,
                  blocking and trapping risks, recovery of outstanding premia in the event of a total
                  loss, risks related to ice regions, etc. These could be very specific issues where
                  owners and managers need to have good lines of communication.

4.6.2 Protection and Indemnity (P&I)

                  P&I cover relates to claims arising from incidents involving ‘third parties’ (i.e. ‘third
                  parties’ to the Hull). Consequently, the incidents that could lead to a claim arising can be
                  wide ranging.

                  For the ship owner, the P&I market offers two choices – (a) to place a vessel(s) with
                  a P&I Club or (b) with a fixed premium insurer. The P&I Clubs operate as mutuals,
                  managed on behalf of their ship owner members – hence in theory claims are met by
                  member resources paid into the Club but in practice Clubs have investment resources*
                  and, if members of the International Group, have recourse to wider arrangements for
                  dealing with very large claims such as major pollution incidences. Fixed premium
                  insurers operate on the general insurance market.

                  The vast bulk of the world’s deep-sea fleet is entered with a P&I Club. An owner does
                  not have to place all his/her ships with one Club – indeed, split fleet arrangements are
                  not uncommon. Transfer between Clubs is possible but rules prevent a new Club
                  offering more favourable terms until after a new claims year record has been
                  established.

                  As with H&M, deals tend to be struck on ‘fleet terms’ rather than with ships as
                  ‘singletons’. Also, as with H&M, premiums reflect an owner’s previous claims record
                  while deductibles also will apply. However, although matters relating to deductibles are
                  on the owner’s account, most of the management teams behind the P&I Clubs prefer to
                  handle this aspect of claims processing as well. Given that claims could trigger litigation
                  this is seen by many owners as a prudent measure**.

                  Fixed premium insurance (some of the better known providers are noted in Table 4.13)
                  has its bedrock in the small ships categories and ‘brown water’ sectors. Generally,
                  claims will be smaller and the claims process may not merit many of the ‘bells and
                  whistles’ that go with cover through a P&I Club. At the end of the 1990s the fixed premium
                  sector enjoyed a resurgence in the ‘deep sea’ sector – though not to the extent it had
                  hoped. As with many aspects of insurance, the ‘new’ sector can undercut on price initially
                  but problems can arise as the claims begin to mount up. The P&I Clubs traditionally
                  have levied their premiums via an advanced call and, if necessary, supplementary
                  call(s). Naturally, ship owners have not appreciated the uncertainty this can create.
                  Clubs now try to avoid supplementary calls if possible (or predicting them at low
                  levels), preferring to charge upfront so that the advance call comes close to being a
                  fixed premium. However, much has to depend on what arises in terms of claims.

                  * From investing their ‘free reserves’.
                  ** The level of deductibles as specified in individual Clubs’ Rules traditionally are low, usually in the
                     US$5,000 to US$10,000 range depending on the nature of the claim. Crew claims can even be lower.
                     The reason for such modest deductibles, compared with, for example H&M deductibles, is that Clubs
                     generally prefer to be involved in claims management from the ground up. Indeed, an important part of
                     the Club services is a comprehensive claims management service. This will not change in principle, but
                     Clubs will encourage their members to take a greater share of claims costs at the lower levels. Most
                     P&I claims continue to be cargo related and expressed on an “each single voyage” basis. This means
                     ship owners have to set aside more funds to cover the increased voyage deductibles and, possibly,
                     even to pay their Club for a claims handling service below the deductible.


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Table 4.13
Key Non-IGA P&I Insurers (primarily fixed premium insurers), 2003

Insurer                      S&P Rating          Location           Specialty                  Comments

British Marine Mutual        BBB+ (positive)     London             Short Sea Shpg.            Premium income about
                                                                    H&M/P&I                    US$25m. P&I

Raets Club Marine            Api                 Rotterdam          Charterers only            Fortis NV;
                                                                                               US$18m. premium

RaetsRiver P&I               Api                 Rotterdam          Inland barges              Fortis NV; Est. 2002
                                                                                               1,000 craft

InterCoastal P&I             Api                 Rotterdam          Vessels <10k gt. No        Fortis NV; 1,600 ships;
                                                                    tankers                    4m gt; US$18m.

Antra*                       Unrated             Hamburg            Mainly German              Ex Trampfahrt (P&I) and
                                                                    operators                  Niederelbe (Hull)

NNPC                         Unrated             Haren              Mainly local operators     Noord Nederlandsche
                                                                                               P&I Club

AXA Corporate Solutions                          Paris              General                    Est. 1.5m gt;
                                                                                               US$7m premium

Terra Nova Insurance Co.                         London             Smaller vessels; local     Part of Markel Corp.
Ltd.                                                                trading

Osprey U/W Agencies Ltd. A                       London             Smaller vessels; local     Lloyd’s facility.
                                                                    trading                    About US$17m
                                                                                               premium

QBE Specialist Risk          A                   Hong Kong          Far East Owners only       QBE/Swiss Re.
                                                                                               Est. 2002

China Shipowners’ Mutual                         Shanghai           Mutual                     Applied to join IGA
Insurance

Ingosstrakh JS Insurance     Unrated             Moscow             General. Mainly local
Co.                                                                 operators

Transmarine                  A                   London             Trade Disruption           Lloyd’s facility

The Strike Club              Unrated             Monte Carlo        Strikes – Crew and         4,000 ships; 40m gt;
                                                                    Shoreside                  US$15m premium

Charterers P&I Club          A                   London             Charterers only            Lloyd’s facility. Est.
                                                                                               US$15m premium

*   During 2003 Antra-Niederlebe-Trampfahrt (the largest P&I and hull insurer in Germany) failed through
    insolvency. During October 2003 it was announced that a plan to keep the fleet intact (involving Skuld and
    Steamship Mutual) had failed. Antra had been prevented from accepting new business in March 2003.

Sources: Ensign Marine Consulting Ltd., Drewry Shipping Consultants Ltd.



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Table 4.14
Recent performance of IG member P&I Clubs

IGA     CLUB                   S&P         Ave.        2003        2003         2002        2001       2002 Free      2001 Free
                           Rating        Expense       Incr.       Supp.         (%)         (%)*      Reserves       Reserves
                                         Ratio (%)      (%)        Calls                                 (US$)          (US$)

American                   BBB-           10.00           25        20%          12.5          10          17m           13.7m
Britannia                  Api             8.06           15        40%            15          10         137m          161.0m
Gard                       Api             7.80           15        25%            25          10         195m          204.0m
Japan                      BBpi            6.17           10        20%             0           0          54m           59.1m
London                     BBBpi           7.30           25        40%          27.5          10          81m          105.8m
North of England           A-              8.40           25        25%            25          10          87m           84.4m
Shipowners’ SOP            Api            18.00          15*        25%            20           0          58m           64.0m
Skuld                      BBpi           10.20           25        20%            30          10          73m           76.5m
Standard                   AA-             7.60         25**        28%          12.5         7.5         127m          153.2m
Steamship Mutual           BBpi            9.30           25        40%            25          10         149m           83.0m
Swedish                    BBpi            8.90           25          nil          25         7.5          61m           83.6m
UK                         A+              9.85           25        30%            20         7.5         211m          349.0m
West of England            BBBpi           9.96           25        20%            25          10         138m          155.2m

Average/Total              -               9.35         21.5            -        23.5        8.54       1,388m        1,592.5m

Notes: Standard & Poor’s “pi” refers rating based on public information only.

        *   Inclusive of RI increases.
        ** Plus 10% increase on deductibles with minimum increase of $1,000.

Source: Ensign Marine Consulting Ltd.


                    While Clubs are very loath to charge unforecast calls they will endeavour to keep
                    release calls at a high level to discourage exit and to bolster premium income from
                    those members who do.

                    Assuming that an owner has adopted the route of entering with a P&I Club, the choice of
                    Club is for the owner*. A recent insight into International Group member statistics forms
                    Table 4.14.

                    Several points stand out from the Table 4.14:

                    (a)        Free reserves declined by over US$200 million over a single year, about 12% of total
                               gross premium for the International Group as a whole. Overall free reserves have
                               fallen by about US$500 million over the past three years.
                    (b)        The 2003 increases required by individual Clubs were remarkably similar. On
                               balance, there appears little to choose from among the Clubs of the International
                               Group.
                    (c)        Supplementary calls are declining in importance.

                    Account needs to be taken also of other specific charges that might appear
                    alongside the basic P&I premium. In view of the risks of oil pollution from tankers, for


                    *     However, there might be some influence exerted by the ship’s financiers who may insist on placement
                          with an International Group member under a finance loan or mortgage covenant. It is also to be borne
                          in mind that financiers will be interested in insurance placements as the requirements for the transfer of
                          insurances are engrained in the clauses of their agreements with the owner.


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                 the USA trade, there is an additional voyage surcharge while tankers working the US
                 trades also require the Certificate of Financial Responsibility (COFR) – though the COFR
                 is a separate consideration from P&I cover.

4.6.3     Others

4.6.3.1 Freight Demurrage and Defence (FDD)

                 Freight, Demurrage and Defence, generally referred to as defence cover, provides cover
                 for the cost of legal disputes in certain defined areas between ship owners,
                 charterers or other second parties. However, it does not cover exposure to the principal
                 sum in dispute.

                 Strictly speaking it is not insurance but a service offered by all P&I Clubs and very
                 much a trade-off between in-house costs of legal disputes and costs of Club
                 assistance.

4.6.3.2 War risks and trade disruption

                 While H&M and P&I are very much unavoidable costs in operating ships, war risk
                 and trade disruption insurances have a degree of discretion. Whether or not to incur
                 these further costs – which can be considerable – will depend very much on where the
                 vessel operates. The key is to evaluate the risks involved when operating ships in
                 specific regions of the world. In addition, ship operators need to consider the individual
                 components within these general headings. Each can be subdivided into two main
                 categories – (a) war risk and terrorism and (b) loss of use and strikes.

                       War Risk and Terrorism

                 War Risk is an established consideration within ship insurance. Terrorism is one which is
                 becoming an added primary concern.

                 Institute War Clauses are included as an addition to the standard marine hull policies.
                 This will insure the ship owner for loss of or damage to the ship for an agreed period of
                 time as a consequence of an act of war. However, this will not be worldwide, nor under all
                 circumstances.      Institute Warranty Limits, incorporated into the insurance policy,
                 specifically exclude war risk cover for those defined areas where an act of war is in
                 progress or likely to be so.

                 Such areas are determined from time to time by the War Risks Rating Committee and are
                 advised to the insured ship owner, and the marine market in general, whenever any aspect
                 changes. The standard war risk policy, therefore, specifically excludes those named
                 areas.

                 If the Committee decides to add an area to the list of exclusions, then the war risk
                 underwriter will give seven days notice of automatic cancellation to the ship owner.
                 However, underwriters may offer to reinstate war risk insurance for the excluded area if
                 requested by the ship owner, subject to whatever additional terms and conditions may be
                 required.

                 Invariably, one of the additional conditions will be an increased premium, expressed
                 in percentage terms and based on the declared value of the vessel trading within the


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                  excluded area. The offer to reinstate cover, subject to terms and conditions, usually will
                  only be valid for 48 hours and the cover itself will be only for a maximum period of seven
                  days.

                  On this basis, the ship owner has a protection against the possibility of being
                  caught in an unanticipated war zone – for up to seven days, as per the notice. The
                  owner, however, cannot claim for loss or damage resulting from an act of war on the
                  insurance policy if vessels are traded with impunity in known areas of hostility unless the
                  owner makes special arrangements with war risk underwriters. The owner, therefore, is
                  covered for the ‘fortuitous’ event of war, but not as a matter of routine operations.

                  The ship operator must be aware of the current exclusion zones and should have
                  some idea what it may cost in additional insurance premiums should the decision be taken
                  to risk trading in those areas. However, the owner cannot be certain of the costs until
                  receiving a quotation two days before entering the exclusion zone.

                  It is not only the Middle East that suffers from instability and high additional premiums
                  (APs) have arisen in response to terrorist activity in Bali and the threat of war in
                  India/Pakistan.

                  Ship owners will need to decide whether the cost is commensurate with the
                  commercial gain. There is always a point in the cost-benefit equation where the war
                  risk premium stops trading altogether, as happened in Sri Lanka in 2001 – and certain
                  parts of the world are never far from that scenario.

                  The mid-2003 situation is understood to be as noted in Table 4.15*.

                  The AP rates noted in Table 4.15 are in addition to an estimated annual War Risk
                  premium of 0.04% of declared hull value which already is built into the hull rates
                  where applicable. All percentage figures are estimates based on various previous
                  advices. These are indicators only and should not be used for voyage planning purposes
                  without confirmation from war risk brokers.

                  Since the compilation of Table 4.15 a noteworthy development has occurred with respect
                  to Yemen. Rates for calls at Aden and Hodeidah soared in the aftermath of the attack on
                  the VLCC Limburg**. There was a subsequent fall back reported – to around 0.0875% for
                  containerships and 0.15% for tankers and ‘others’. However, this coincided with the
                  Yemeni government depositing some US$50 million in an account with HSBC Bank with
                  the intention that this money could be drawn down by insurers in the event of a war risk
                  loss. It is understood that war risk rates have eased further since – indications for tankers
                  being perhaps 0.1%.

                  The motivation for the Yemeni government action is understood to have been driven by the
                  need to protect container transhipment business. This was the major concern in Sri Lanka
                  in 2001 and reportedly this was alleviated by an apparently not dissimilar measure
                  engineered via the insurance broking giant, Marsh. It is understood that similar
                  ‘public/private insurance partnerships’ are being evaluated in Nigeria, Dubai, Pakistan and
                  Israel.


                  *  August brought reports that new additions to the list of locations excluded from annual war risks policies
                     included locations near oil loading locations in Nigeria.
                  ** According to reports, the Limburg was valued for insurance at US$70 million but with Increased Value
                     cover this is understood to have lifted the figure to nearer US$ 90 million.


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Table 4.15
War risks exclusions and AP estimates, mid-2003

        Area                      Sub-Region                             Conditions                Additional
                                                                                                   Premium

  A     Arabian Gulf              Kuwait & Neutral Zone                  48 hrs/7 days                 0.1%
        (Adjacent waters          Iran west of 50° East                  48 hrs/7 days            0.135%-0.25%
        Incl. Gulf of Oman        Iraq                                   48 hrs/7 days               0.5-0.6%
        North of 24° N)           General                                UN Approved                    Nil
                                  Bahrain, Qatar                                                     0.0125%

  B     Angola                    Luanda
                                  Lobito
        Cabinda                   Offshore
                                  Onshore

  C     Israel                                                           Guaranteed by Israeli       0.275%
                                                                         Government                (up to 0.4%)

  D     Lebanon                   North of Beirut                        Subject to full              0.2%
                                  Beirut and South of Beirut             compliance with
                                                                         Israeli searches

  E     Libya                     Incl. Gulf of Sidre/Sirte                                           0.2%

  F     Eritrea

  G     Somalia                   Mogadishu                              Warranted UN
                                  Other Areas                            Approved

  H     Congo, DR                 Matadi
        (formerly Zaire)          Other ports inland

   I    Liberia                   Excl. NPFL held ports                  Warranted ECOMOG            0.025%
                                                                         Approved

  J     Sri Lanka                 Waters not north of 7° 30' North                                 0.0125% to
                                  Other areas                                                        0.075%

  K     Sierra Leone

  L     Gulf of Aqaba                                                                                0.115%
        Red Sea

  M     Rep. of Yemen             Aden – Onshore                                                      0.45%
        also People's Rep.        Aden – Offshore
        of Yemen -                Hodeidah
        (North & South            Mukhalla
        Yemen)                    Straits of Bab el Mendab

  N     Pakistan                                                                                      0.2%

  O     Oman                                                                                         0.075%

  P     Syria

  Q     Algeria

  R     Egypt                                                                                         0.15%

  S     India                     Ports North 18º N and
                                  West of 73º E

  T     Indonesia                                                                                    0.025%

Source: Based on information compiled by Ensign Marine Consulting Ltd.



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                      Terrorism

                  While War Risk insurance is associated primarily with the Hull & Machinery market
                  and often underwritten by the same insurers, terrorism falls into both the H&M and
                  P&I markets. A Limburg type terrorist act comes under war risk whereas a less
                  sophisticated attack not using automatic weapons or explosives is more akin to piracy
                  and comes under P&I cover.

                  The War Risks P&I cover, as offered by the P&I Clubs, essentially is an excess cover and
                  is conditional on an underlying cover up to at least the market value of the vessel.
                  Generally, there is no additional premium for the ship owner and the costs are absorbed
                  within the P&I premium, although there are some minor exceptions. The upper limit is
                  US$100 million in excess of the market value of the ship. A ‘non war risk’ terrorist act
                  should be covered by the Clubs up to normal limits but as of 2002 this has been limited to
                  a US$200 million cover, much to the annoyance of ship owners.

                  In most cases, the P&I Clubs would prefer not to be involved with war and terrorist
                  insurances. The concept of mutuality makes this a difficult service to sell to all their
                  members and the ultimate risk is out of all proportion to the premium charged. This
                  problem will not get any easier in the short term.

                      Trade disruption

                  Loss of use insurance is activated on the occurrence of an insured event which deprives
                  the ship owner of the gainful employment of his/her vessel. The most important sub
                  category is Strikes Insurance but other categories are loss of hire/loss of earnings,
                  blocking and trapping, trade disruption and delay to cargo delivery – all caused by
                  an insured peril such as fire or explosion, extreme weather and natural disasters,
                  contact and obstructions, port closures and certain political acts such as border
                  closure, improper arrest and expropriation.

                  This is a highly sophisticated form of insurance which is becoming increasingly
                  popular with risk managers but it is very much a discretionary insurance and can be
                  expensive. Therefore, it requires a relatively high profit margin within a particular trade.

                  Loss of use insurance recognises the extent of capital that is applied to a sea going
                  venture and is designed to ensure that this capital is not left idle due to forces beyond the
                  control of the ship operator.

                      Strikes insurance

                  Strike insurance usually is divided into two separate classes – strikes by own crew
                  and strikes by shoreside personnel. In each case the premium is a percentage of the
                  daily running costs (or charter hire) and the cover deductible is expressed in days, usually
                  nil to 14 days, and the cover limit is usually between 7 to 45 days.

4.6.4 Ship manager’s influence

                  Where a manager has a well established insurance department, the manager will use its
                  broker to try and persuade an owner to placing his/her vessel(s) under the manager’s slip -
                  no doubt seeking to convince the owner with competitive rates applicable should he/she
                  choose to follow this advice. Being under manager’s slip has two advantages:


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                 •      Possibly, a better rate (a manager’s broker might ‘shave’ his/her commission in order
                        to be more competitive).

                 •      In the event of an incident, immediate follow-up is initiated.

                 Whoever actually places the insurance cover, the ship manager usually handles claims –
                 i.e. all necessary follow-ups; including, if necessary, with owner’s consent appointing
                 adjusters. In some areas, such as those where claims relate to crew illness/injury, a
                 manager may be better placed to deal with such matters, until the case is completed and
                 the claim is paid.

4.7     Regulatory considerations

                 The operation and management of ships comes under the auspices of a wide range
                 of rules and regulations – some national and some international or global. Some of
                 these regulations will impact if a specific incident occurs. For example, the vessel’s owner
                 and/or manager needs to be conversant with the regulations and procedures covering,
                 say, Salvage liabilities and responsibilities, the Collision Regulations or the Maritime
                 Search and Rescue or Wreck Removal Conventions. There will also need to be
                 procedures in place in case of the need to ‘jettison’ cargo in order to protect the vessel and
                 hence an understanding of the principles of General Average*. This said, whilst the
                 owner/manager will have some understanding of these conventions the detail and practice
                 will be handled by the P&I Club, which will be responsible for the appointment of a
                 qualified person to deal with specific incidences.

                 While not seeking to play down the importance of any of the above, the continuing
                 concerns of the owner or third party ship manager have to centre on the
                 continuing/ongoing requirements. Some of these will be laid down by the ship’s
                 classification society. Others will arise from country specific legislation (e.g. the US Oil
                 Pollution Act – OPA 90 or the new electronic pre-filing requirements for cargo manifests on
                 ships bound for US ports that have emerged under the ‘Homeland Security’ policies – see
                 Appendix 1). Generally, this is applicable to contents within containers and so a matter for
                 the shipper. However, the US authorities have threatened to extend the scope of these
                 policies in some way to tramp business. As yet, nothing practical has emerged.

                 However, at the top of the list is most operators’ eyes will be a number of Rules and
                 Conventions concluded under the auspices of the International Maritime
                 Organisation (IMO). The main IMO conventions in this context are:

                 •      The International Convention for the Safety of Life at Sea (SOLAS).

                 •      The International Convention on Standards of Training, Certification and
                        Watchkeeping (STCW).

                 •      The International Convention for the Prevention of Pollution from Ships
                        (Marpol).


                 *     General Average (with ‘average’ interpretable as ‘damage’) was defined in 1906 as “where any
                       extraordinary sacrifice or expenditure is voluntary and reasonably made or incurred in time of peril for
                       the purpose of preserving the property imperilled in the common adventure”. An added consideration
                       may be Particular Average – partial loss or damage to the insured ship or cargo. Clearly, when
                       instances of this nature are necessary (and where the decision ultimately has to come from the onboard
                       decision makers), those responsible for the operational management of the ship have to be aware that
                       the actions taken are likely to come under considerable subsequent scrutiny and potential legal action.


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4.7.1 SOLAS

                  The current SOLAS requirements were adopted on 1 November 1974 and came into
                  force on 25 May 1980. This version of SOLAS is in fact the sixth incarnation – the first
                  being adopted in 1914 as a response to the loss of the Titanic – while the fifth (adopted in
                  1960) was the first major task undertaken by IMO. The 1974 convention was in part of
                  tidying up procedure but it introduced the vital concept of the ‘tacit acceptance
                  procedure’. Prior to this, the process of transforming amendments to the convention into
                  actual requirements had been a laborious process that tended to prevent the entry into
                  force of amendments within a ‘reasonable’ time period. The new procedure circumvents
                  this by replacing the need for the acceptance of a specified number of parties with a ruling
                  that the amendment will come into force on a specified date unless, prior to that
                  date, objections have been received from a specified, agreed number of parties.

                  The component parts of SOLAS 1974 are noted in Table 4.16.

Table 4.16
Main components of SOLAS 1974

Chapter/Amendment*        Subject                Comments

Chapter I                 General Provisions

Chapter II - 1            Construction           Issues include Watertight compartments, bilge pumping,
                                                 subdivision of vessel areas, machinery and electrical equipment
                                                 under emergency conditions, steering gear requirements.

Chapter II - 2            Fire                   Fire protection, fire detection and fire extinction provisions. (A
                                                 revised Chapter II - 2 was adopted in December 2000 and
                                                 entered into force on 1 July 2002)

Chapter III               Life saving            Life saving appliances and arrangements. (A revised Chapter III
                                                 was adopted in 1996 and entered into force on 1 July 1998. This
                                                 saw specific technical needs switched to the new International
                                                 Life Saving Appliance Code - LSA - which is mandatory).

Chapter IV                Radiocommunication     This chapter was revised fully in 1988 to incorporate the
                                                 introduction of the Global Maritime Distress and Safety System
                                                 (GMDSS). This saw the focus move from Morse Code to the era
                                                 of satellite emergency position indicating radio beacons and
                                                 search and rescue transponders.

Chapter V                 Safety of navigation   Issues include maintenance of meteorological services, ice patrol
                                                 services, search and rescue requirements on states. For the
                                                 ship, it contains the general obligation on a master to assist those
                                                 in distress. It also requires the ship to be sufficiently and
                                                 efficiently manned from a safety standpoint. (A revised Chapter
                                                 V was adopted in December 2000 and entered into force on 1
                                                 July 2002. This introduces the mandatory requirements for
                                                 voyage data recorders and automatic ship identification systems
                                                 to be fitted on certain ships).




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Table 4.16 (cont’d)

Chapter/Amendment*      Subject                Comments

Chapter VI              Carriage of cargoes    Requirements for stowage and securing, etc.

Chapter VII             Dangerous goods        Includes the International Maritime Dangerous Goods Code
                                               (IMDG), the International Bulk Chemical Code (IBC), the
                                               International Gas Carrier Code (IGC) and the International
                                               Code for the Safe Carriage of Packaged Irradiated Nuclear
                                               Fuel, Plutonium and High Level Radioactive Wastes on Board
                                               Ships (INF).

Chapter VIII            Nuclear ships

Chapter IX              Management for the     This makes mandatory the International Safety Management
                                               (ISM) Code. This requires a safety management system
                        Safe Operation of
                                               to be established by the ship owner "or any person who has
                        Ships                  assumed responsibility for the ship".

Chapter X               High speed craft

Chapter XI              Special measures to    Authorisation of recognised organisations to carry out surveys
                        enhance maritime       and inspections on behalf of authorities, enhanced surveys, Port
                        Safety of navigation   State Control on operational requirements.

Chapter XII             Additional safety
                        measures for bulk
                        carriers

Protocol of 1978        Tanker safety          Rules on radar, steering gear and inert gas systems (IGS).

1981 amendments         Steering gear, fire    Affected Chapters II -1 (driven by the Amoco Cadiz incident),
                        and navigational       II - 2 and V with some minor amendments elsewhere.
                        equipment

1983 amendments                                Created IBC and IGC Codes.

April 1988 amendment                           Response to loss of Herald of Free Enterprise.

October 1988 amend't.                          Response to loss of Herald of Free Enterprise.

Protocol of 1988                               Introduced new harmonised system of surveys and certification
                                               (HSSC) to harmonise with two other conventions - Load Line and
                                               Marpol. Avoids 'multiple' dry dock surveys. Entered into force - 3
                                               February 2000.

1988 GMDSS amend't.

1989 amendments                                Affected Chapters II - 1 and II - 2 and amended IGC.

1990 amendments                                Introduced Section B-1 to Chapter II - 1.




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Table 4.16 (cont’d)

Chapter/Amendment*       Subject                 Comments

1991 amendments                                  Chapter VI - International Grain Code made mandatory. Code of
                                                 Safe Practice for Cargo Stowage and Securing recommended,
                                                 also considerations on Timber Deck Cargoes and Solid Bulk
                                                 Cargoes.

1992 amendments          Ro/Ro - passenger       Include some measures for existing ships (removing earlier
                                                 exclusions via "grandfather clauses". Also, IBC and IGC codes
                                                 amended as well as the voluntary Dangerous Chemicals in Bulk
                                                 (BCH) Code.

1994 amendments          Procedural              Related to resolution time frames.

New Chapter IX           Tacit acceptance - in   Safety Management Objectives - namely:
                         force 1 July 1998
                                                    -    To provide safe practices in ship operation and a safe
                                                         working environment.
                                                    -    To establish safeguards against all identified risks.
                                                    -    Continuously, to improve safety management skills of
                                                         personnel, including preparing for emergencies.


                                                 There is a requirement to establish a safety management system
                                                 (SMS) by whoever has assumed responsibility for the ship. This
                                                 could be owner, manager or bareboat charterer. A policy then
                                                 has to be established and implemented that will these objectives.
                                                 This includes the requirement for necessary resources and
                                                 shore-based support. Every company is "to designate a
                                                 person(s) ashore having direct access to the highest levels of
                                                 management". The ISM procedures are to be complied and
                                                 documented in a Safety Management Manual - with a copy kept
                                                 on the ship.


                                                 N.B. The "designated person" is a major development in the
                                                 attribution of responsibility**.

New Chapter XI                                   Affecting surveys and Port State Control

May 1994 amend't.                                Including emergency towing fittings on tankers, bridge visibility
                                                 and mandatory use of ship reporting systems.

December 1994 amend.                             Code of Safe Practice for Cargo Stowage and Securing made
                                                 mandatory.

May 1995 amend't.                                Ship routing systems made compulsory.

November 1995 amend.                             Influenced by loss of the Estonia.

1996 amendments                                  Life saving appliances and arrangements.




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Table 4.16 (cont’d)

Chapter/Amendment*           Subject                    Comments

June 1997 amend't.                                      Vessel Traffic Services regulation.

November 1997 amend.                                    Additional measures relating to Bulk Carriers.

May 1998 amend't.                                       Including watertight bulkhead testing.

May 1999 amend't.                                       INF Code made mandatory.

May 2000 amend't.                                       Helicopter landing areas.

December 2000 amend.                                    Rules on voyage data recorders.

May 2002 amend't.                                       IMDG Code made mandatory.

December 2002 amend. ISPS                              Introduces mandatory requirement to comply with the
                                                        International Ship and Port Facility Security Code (ISPS).
                                                        Enters into force on 1 July 2004 under tacit acceptance. Existing
                                                        Chapter XI becomes XI -1 with a new Chapter XI – 2
                                                        incorporating ISPS, the role of the Master in exercising
                                                        judgement over the security of the ship and the need for a ship
                                                        security alert system.


*     Not all of the amendments and their provisions are referenced in Table 4.16.

**    The issue of a "designated person" may have serious legal implications, although this has not yet been tested.
      In the UK, for example, attempts to bring 'corporate manslaughter' charges following major rail disasters have
      foundered on problems of establishing responsibility through specific actions by specific directors or individuals.

Sources: IMO, Drewry Shipping Consultants Ltd.



4.7.1.1 ISM

                    The ISM Code – made mandatory through SOLAS – has its origins in the IMO-adopted
                    Guidelines on management for the safe operation of ships and for pollution prevention,
                    adopted in 1989. The ISM Code establishes the international standard for the safe
                    management and operation of ships and for the implementation of a safety
                    management system (SMS).

                    According to IMO, “effective management of the ISM Code should lead to a move away
                    from a culture of ‘unthinking’ compliance with external rules towards a culture of ‘thinking’
                    self-regulation of safety – the development of a ‘safety culture’. The safety culture involves
                    moving to a culture of self-regulation, with every individual – from top to bottom – feeling
                    responsible for actions taken to improve safety and performance”.

                    However, for this to be truly effective there will need to be a genuine change in mindset
                    within certain elements of the shipping community. Sadly, laying down a set of mandatory
                    minimum rules to which shipping operations aspire to as the maximum that needs to be
                    done is a picture that many in shipping will be able to cite examples of. Self-regulation can
                    leave things ‘open to interpretation’ (especially in troubled operating circumstances) but


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                  this is vital as there is no effective overall policing body that can enforce its will globally.
                  The requirements of the ISM Code has been – and could continue to be – a factor
                  behind a number of owners placing their ships with third party ship managers as
                  this effectively ‘transfers’ responsibilities with it. (In fact, via related resolution A
                  680(17), IMO recognises “the need for appropriate organisation of management to enable
                  it to respond to the need of those on board ships to achieve and maintain high standards
                  of safety and environmental protection”).

                  Part A of the ISM Code – which applies to all ships – deals with Implementation. It
                  sets various definitions of terms and its objectives, which include:

                  •    The provision for safe practices in ship operation and a safe working environment.

                  •    Establishing safeguards against all identified risks.

                  •    Continuous improvement of safety management skills – both ashore and onboard –
                       and in preparations for emergencies.

                  The ensuing SMS must comply with mandatory rules and regulations and applicable
                  codes, guidelines and standards recommended by IMO, administrations, flag states,
                  classification societies and other relevant maritime industry organisations.

                  Every company is required to produce:

                  •    A safety and environmental protection policy – which sets out how the objectives
                       of the ISM Code* will be achieved and ensures that it is maintained and implemented
                       at all levels of the organisation.

                  •    Instructions and procedures to ensure safe operation and protection of the
                       environment in compliance with relevant legislation and rules.

                  •    Defined levels of authority and lines of communication between (and amongst)
                       shore and shipboard personnel.

                  •    Procedures for accident reporting and reporting of non-conformities within the
                       provisions of the ISM Code.

                  •    Procedures for preparing for and responding to emergencies.

                  •    Procedures for internal audits and management reviews.

                  In addition, there is a requirement to identify who holds operational responsibility (if
                  not the owner directly) and to define and document the responsibilities, authorities
                  and inter-relationships of all personnel who perform, manage and verify safety and
                  anti-pollution measures.       Within this, there is a requirement to nominate the
                  ‘designated person ashore’.

                  Aboard ship, the Master needs to have defined and documented responsibilities
                  made evident in respect of implementing and reviewing the SMS, motivating the crew to
                  observe all policy points, etc.


                  *   To ensure safety at sea, prevention of human injury or loss of life. To avoid damage to the environment
                      (especially the marine environment) and to property.


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                 The crucial point relating to the ISM Code and the SMS is that it is a continuing and
                 iterative process. That is, it is not a ‘one off’ achievement. Furthermore, all parties
                 ashore and at sea have inputs.

                 Part B of the ISM Code relates to certification and verification. Certificates are issued
                 by ‘administrations’ or ‘organisations recognised by the administration’. The latter may be
                 a classification society – and certainly a substantial number are issued by members of the
                 International Association of Classification Societies (IACS).


                 The two key elements are (a) the document of compliance (DOC) and (b) the safety
                 management certificate (SMC).


                 The DOC – which should not cover a period of more than five years – is to be
                 accepted as evidence that the company involved is capable of complying with the
                 requirements of the ISM Code. The DOC also is valid only for the ship types indicated
                 explicitly and these ship types can only be those cited when the initial verification was
                 undertaken. Other ships types can be added but the company will need to be
                 verified additionally for them.

                 The validity of the DOC is subject to annual verification (within ± 3 months of the
                 DOC anniversary date). The DOC will be withdrawn if an annual verification is not
                 requested or if there is evidence of major non-conformities. (If this occurs, the SMC is also
                 withdrawn).

                 A copy of the DOC has to be kept on board ship in order that the Master can
                 produce it on request from a relevant body. However, the copy itself does not have to
                 be authenticated or certificated.

                 The SMC also should not be issued for a period in excess of five years. It is to be
                 issued once it has been verified that the company and its shipboard management operate
                 in accordance with the approved safety management system. Where as the DOC is
                 evidence of being capable of complying with the ISM Code, the SMC is evidence that
                 the ship is complying.

                 The validity of the SMC is subject to a minimum of one intermediate verification. If
                 this occurs under a five year span, it is required between the second and third
                 anniversaries of the issuing of the SMC.

                 An interim DOC might be issued if (a) a company is newly established or (b) new ships
                 are to be added to an existing DOC following verification of the safety management
                 system. An interim DOC has a maximum limit of 12 months. An interim SMC might
                 be issued if (a) it relates to new ships on delivery, (b) when the company takes on
                 the operation of a ship new to the company or (c) when a ship changes flag. An interim
                 SMC has a maximum limit of 6 months – without special sanction. With this, a further
                 six month extension is possible. The interim SMC would require that (a) the ship in
                 question has a DOC or interim DOC, (b) the safety management system includes key
                 elements of the ISM Code and has been assessed during the audit for DOC issuance or
                 demonstrated for the interim DOC, (c) an audit of the ship is planned within 3 months and
                 (d) the Master and officers are familiar with the safety management system and
                 interpretation arrangements.


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                  Vessels and the office must be audited internally on an annual basis and any non-
                  conformity must be closed within a specified period before subjecting the vessel or the
                  office to an external audit. As the aforesaid ISM is intended to lead to continuous
                  improvements in the company’s safety procedure, one measure actively encouraged to
                  achieve this goal is ‘near-miss reporting’ – with the information received being analysed to
                  identify the root cause.


4.7.1.2 ISPS

                  The International Ship and Port Security Code (ISPS) is the latest piece of regulation
                  facing the shipping industry. It emerged via the December 2002 adoption of new
                  elements to SOLAS – including Chapter XI. These changes saw the Chapter subdivided.
                  Chapter XI – 1 has been enhanced to include additional requirements covering ship
                  identification numbers and the carriage of a Continuous Synopsis Record. Chapter XI – 2
                  brings in the requirement to comply with ISPS.

                  For ISPS, Part A is mandatory, Part B is recommended and contains guidance on
                  the implementation of ISPS. However, the US Coast Guard has decreed that Part B
                  is mandatory for all US-flagged ships and ships of other flags that trade with the
                  USA. Chapter XI –2 also concerns itself with requirements for ship Security Alert Systems
                  and control/compliance measures for port states and contracting governments*.

                  In essence, ISPS sets out to:

                  •    Enable the detection and deterrence of security threats within an international
                       framework.

                  •    Establish roles and responsibilities.

                  •    Enable the collection and exchange of security information.

                  •    Provide a methodology for assessing security.

                  •    Ensure that adequate security measures are in place.

                  This requires ship and port staff to (a) gather and assess information, (b) maintain
                  communication protocols, (c) restrict access, (d) provide the means to raise alarms
                  and (e) establish vessel and port security plans with appropriate training and the
                  conducting of drills.

                  Under ISPS Part A, the obligations of the company are:

                  •    To possess a ship security plan with a clear statement of the Master’s authority and
                       indicating that the Master holds overall authority and responsibility for decisions in
                       respect of the security of the ship and can request the assistance of the company or
                       any contracting governments as necessary.

                  •    To ensure that the company security officer, Master and ship security officer are given
                       all necessary support in the fulfilment of their duties and responsibilities.



                  *   Alongside this, SOLAS Chapter V has been amended to accelerate the implementation of the fitting of
                      Automatic Identification Systems (AIS).


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                 Under ISPS Part A, the ship’s activities include:


                            Activities to be carried out*


                     1      Ensuring the performance of all security duties.

                     2      Controlling access to the ship.

                     3      Controlling the embarkation of persons and their effects.

                     4      Monitoring restricted areas to ensure that only authorised persons have access.

                     5      Monitoring of deck areas and areas surrounding the ship.

                     6      Supervising the handling of cargo and ship's stores.

                     7      Ensuring that security communication is readily available.


                 * In line with Part B guidance and the advised security level.


                 Security will be set at either Level 1, Level 2 or Level 3* – with each increase in level
                 requiring further specific measures within the context of the seven noted activity
                 areas. If Level 2 or Level 3 is set, the ship is required to acknowledge receipt of the
                 instructions on the change of security level. Procedures will exist for communications
                 between the ship and port facility security officers if for some reason the parties are
                 operating at different levels in order to liase and co-ordinate the appropriate actions.

                 An essential and integral part of Code compliance is the Ship Security Assessment.
                 The company security officer is required to ensure that the assessment is carried out by
                 persons with the appropriate skills to evaluate this. The assessment will include an ‘on
                 scene’ security survey covering the following items at least:

                 •        Identification of existing security measures, procedures and operations.

                 •        Identification and evaluation of key shipboard operations that it is important to protect.

                 •        Identification of possible threats to key shipboard operations and the likelihood of their
                          occurrence – with the intention that this ‘risk assessment’ will set the priorities in terms
                          of security measures.

                 •        Identification of weaknesses (including human factors) in the infrastructure, policies
                          and procedures.

                 The Ship Security Assessment has to be documented, reviewed, accepted and
                 retained by the company.

                 Every ship therefore will be required to carry an approved, three level of security,
                 Ship Security Plan. The plan is to be written in the working language(s) of the ship and
                 include translations into either English, Spanish or French. The plan has to address at
                 least:



                 *       Level 1 is normal (i.e. the level at which the ship or port operates normally). Level 2 is reflects a
                         ‘heightened risk’ while Level 3 is an ‘exceptional risk’ with credible information that security incident is
                         ‘probable’ or ‘imminent’.


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                  (a)     Measures designed to prevent weapons, dangerous substances and devices
                          intended for use against people, ships or ports – and the carriage of which is not
                          authorised – from being taken onboard the ship.
                  (b)     Identification of the restricted areas – and measures for the prevention of
                          unauthorised access to them*.
                  (c)     Measures for the prevention of unauthorised access to ship.
                  (d)     Procedures for responding to security threats or breaches of security – including
                          provisions for maintaining critical operations of the ship or ship/port interface*.
                  (e)     Procedures for responding to any security instructions that contracting governments
                          may issue at Security Level 3*.
                  (f)     Procedures for evacuation in the event of security threats or breaches of security.
                  (g)     Duties of shipboard personnel assigned security responsibilities and of other
                          shipboard personnel relating to issues of security*.
                  (h)     Procedures for auditing security activities.
                  (i)     Procedures for training, drills and exercises associated with the plan.
                  (j)     Procedures for interfacing with port facility security activities.
                  (k)     Procedures for the periodic review of the plan and its updating.
                  (l)     Procedures for reporting security incidents.
                  (m) Identification of the ship security officer.
                  (n)     Identification of the company security officer – including 24 hour contact details.
                  (o)     Procedures to ensure the inspection, testing, calibration and maintenance of any
                          security equipment provided on board*.
                  (p)     Frequency for the testing or calibration of any such equipment.
                  (q)     Identification of the locations where the ship security alert activation system points
                          are provided* (this information may be kept elsewhere on board in a document
                          known only to the Master, the ship security officer and other shipboard personnel so
                          authorised by the company).
                  (r)     Procedures, instructions and guidance on the use of the ship security alert system –
                          including testing, activation, deactivation and re-setting – in order to limit false
                          alarms*.


                  The plan can be kept in an electronic format provided it has been protected against
                  procedures that prevent unauthorised deletion, destruction or amendment.
                  Obviously, the plan has to be protected from unauthorised access or disclosure.

                  Activity records are to be maintained in respect of (a) training, drills and exercises, (b)
                  security threats and security incidents, (c) breaches of security, (d) changes in security
                  level, (e) communications relating to the direct security of the ship, (f) internal audits and
                  reviews, (g) periodic reviews of the security assessment, (h) periodic reviews of the ship
                  security plan, (i) implementation of plan amendments and (j) maintenance and testing of
                  security equipment results.



                  *     Areas of confidential information not open to inspection – unless agreed by the contracting
                        governments – if duly authorised officers of a contracting government have clear grounds to believe a
                        ship is non-compliant with SOLAS Chapter XI – 2 or ISPS Part A and the only means of verification is
                        through inspection of the ship security plan.


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Table 4.17
Core Activities of Company and Ship Security Officers

       Company Security Officer                                   Ship Security Officer

  1    Advising the level of threats likely to be encountered     Undertaking regular security inspections of the ship to
       by the ship.                                               ensure that appropriate security measures are
                                                                  maintained.

  2    Ensuring ship security assessments are carried out.        Maintaining and supervising the implementation of the
                                                                  ship security plan and amendments.

  3    Ensuring the development, submission for approval,         Co-ordinating the security aspects of the handling of
       implementation and maintenance of the plan.                cargo and ship's stores with other shipboard personnel
                                                                  and relevant port security officials.

  4    Ensuring the ship security plan is modified to correct     Proposing modifications to the ship security plan.
       deficiencies and meet the requirements of the
       individual ship.

  5    Arranging for internal audits and reviews of security      Reporting to the Company Security Officer any
       activities.                                                deficiencies or non-conformities identified during audits,
                                                                  periodic reviews or security inspections. Verification of
                                                                  compliance and implementation of corrective actions.

  6    Arranging for the initial and subsequent verifications     Enhancing security awareness and vigilance on board.
       of the ship by the Administration or recognised
       security organisation.

  7    Ensuring that deficiencies and non-conformities            Ensuring that adequate training has been provided to
       identified during audits, reviews, etc. are addressed      shipboard personnel.
       and dealt with promptly.

  8    Enhancing security awareness and vigilance.                Reporting all security incidents.

  9    Ensuring adequate training for personnel                   Co-ordinating implementation of the ship security plan
       responsible for the security of the ship.                  with the Company Security Officer and relevant port
                                                                  facility security officials.

 10    Ensuring effective communication and co-operation          Ensuring that security equipment is operated properly
       between the Ship Security Officer and relevant port        and is tested, calibrated and maintained.
       security officials.

 11    Ensuring consistency between security
       requirements and safety requirements.

 12    Ensuring that, if sistership or fleet security plans are
       used, the plan for each ship reflects ship-specific
       information accurately.

 13    Ensuring that any alternative or equivalent
       arrangements approved for a particular ship or
       group of ships are implemented and maintained.

Sources: IMO, Drewry Shipping Consultants Ltd.



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                  The core activities of the Company Security Officer and Ship Security Officer are noted in
                  Table 4.17.

                  During 2003 and 2004, ISPS is likely to be the major ‘talking point’ among ship owners and
                  operators. Like all such measures it leads to a ship owner’s ‘pet aversion’ – increased
                  costs. For the moment, these costs are the subject of much speculation. A survey
                  undertaken by Lloyd’s Ship Manager* concluded that over 70% of its survey respondents
                  expected ISPS implementation would add US$10,000-20,000 to the annual budget per
                  vessel. Meanwhile, around 14% reckoned the figure would be between US$30,000-
                  40,000 with a similar percentage of respondents estimating more than US$50,000. One
                  management source has qualified the US$10-20,000 per ship figure as reflecting initial
                  ISPS implementation – with this being before the costs of hiring staff, additional training
                  costs and audit costs.

                  For the moment, the real costs are unclear. Much could well depend on ‘scale
                  economies’ – i.e. the security officer:fleet size ratio – and this, as with the ISM Code, may
                  provide some incentive for some owners to commit themselves to the ‘protection’ of third
                  party ship management.

                  There has been some claims already by the seamen’s union in the Philippines that
                  implementation of ISPS requires an additional crew member to be engaged and trained.
                  One ship manager is known proactively to have engaged security personnel from a
                  disbanded Ghurkha regiment to counter the threat of piracy in the Malacca Straits and it
                  may well come to pass that this sort of initiative may be duplicated by others.

4.7.2 STCW

                  The 1978 STCW Convention was the first vehicle to set out basic requirements with
                  respect to training, certification and watchkeeping for seafarers at an international
                  level. Prior to this, standards applicable to officers and ratings were set at national level
                  and generally without reference to practices elsewhere. Consequently, ‘the most
                  international of all industries’ found itself with standards and procedures showing wide
                  variations.

                  STCW brought in minimum standards with respect to training, certification and
                  watchkeeping for seafarers which individual countries are obliged to meet or exceed.

                  STCW does not deal with manning levels (this being a matter for regulation 13 of
                  SOLAS Chapter V and IMO Resolution A890(21) on the Principles of Safe Manning,
                  adopted in 1999).

                  STCW has undergone a radical overhaul leading to the adoption of STCW 95.

                  The component parts of STCW 78 and STCW 95 are noted in Table 4.18**.



                  * September 2003.
                  ** STCW 1978 was adopted on 7 July 1978 and entered into force on 28 April 1984. The 1995
                     amendments revised the Convention extensively. These entered into force on 1 February 1997.
                     However, up until February 2002 parties were able to continue to issue, recognise and endorse
                     certificates which applied before 1 February 1997 with respect to seafarers who began training or
                     seagoing service before 1 August 1998. Hence, the original 1978 text remained applicable until 2002.


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Table 4.18
Main components of the STCW convention

Chapter/Amendment          Subject              Comments

1978 - Chapter I           General provisions   Definitions, content of certificates and endorsement forms, requirement
                                                for a version in English.


1978 - Chapter II          Master - deck        Basic principles in keeping a navigational watch, including watch
                           department           arrangements, fitness for duty, navigation, navigational equipment,
                                                navigational duties and responsibilities, duties of the look-out,
                                                navigation with a pilot on board, protection of the marine environment.
                                                Mandatory requirements for certificating Masters and chief mates, for
                                                certificating officers in charge of a navigational watch, for certification of
                                                deck ratings forming part of a navigational watch. Basic principles for
                                                keeping watch in port. Mandatory minimum requirements for a watch in
                                                port on ships carrying hazardous cargo.


1978 - Chapter III         Engine department    Basic principles in keeping an engineering watch, mandatory minimum
                                                requirements for certification of chief engineering officers and second
                                                engineering officers, mandatory requirements for certification of chief
                                                engineers in charge of a watch in a traditionally manned engine room
                                                or designated duty officers in a periodically unmanned engine room,
                                                requirements to ensure the continued proficiency and knowledge
                                                updating of engineering officers, mandatory minimum requirements for
                                                ratings forming part of an engine room watch.


1978 - Chapter IV          Radio department     Mandatory minimum requirements for certification of radio officers,
                                                provisions for continued proficiency and knowledge updating, minimum
                                                requirements for certification of radio-telephone operators. (Mandatory
                                                provisions exist also in the ITU Radio Regulations and other
                                                requirements are included within the SOLAS convention).


1978 - Chapter V           Tankers              Special requirements for tankers designed to ensure that officers and
                                                ratings with specific cargo related duties have completed appropriate
                                                shore-based firefighting courses and an appropriate period of at sea
                                                service or an approved familiarisation course. Requirements are most
                                                stringent for Masters and senior officers. Issues include safety and the

                                                prevention of pollution. Covers oil tankers, chemical tankers and
                                                liquefied gas carriers.


1978 - Chapter VI          Survival             Requirements governing the issue of certificates of proficiency in
                                                survival craft, including minimum knowledge requirements.


Other resolutions adopted in 1978


Resolution 1                                    Basic principles in keeping a navigational watch.


Resolution 2                                    Operational guidance for engineering officers in charge of an
                                                engineering watch - with an annex covering a watch when underway
                                                and at an unsheltered anchorage.




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Table 4.18 (cont’d)

Chapter/Amendment         Subject   Comments

Resolution 3                        Principles and operational guidance for deck officers in charge of a
                                    watch in port - including detailed recommendations.


Resolution 4                        Principles and operational guidance for engineering officers in charge
                                    of a watch in port - including detailed recommendations.


Resolution 5                        Basic guidelines/operational guidance relating to safety radio
                                    watchkeeping and maintenance for radio officers.


Resolution 6                        Basic guidelines/operational guidance relating to safety radio
                                    watchkeeping and maintenance for radio-telephone officers.


Resolution 7                        Radio operators - minimum requirements and training.


Resolution 8                        Additional training for ratings forming part of a navigational watch -
                                    including bridge equipment and pollution prevention.


Resolution 9                        Minimum requirements for a rating nominated as the assistant to the
                                    engineering officer in charge of the watch.


Resolution 10                       Training and qualification of officers and ratings on oil tankers.


Resolution 11                       Training and qualification of officers and ratings on chemical tankers.


Resolution 12                       Training and qualification of officers and ratings on liquefied gas
                                    carriers.


Resolution 13                       Training and qualification of officers and ratings on ships carrying
                                    dangerous/hazardous cargo other than in bulk.


Resolution 14                       Training for radio officers.


Resolution 15                       Training for radio-telephone officers.


Resolution 16                       Technical assistance for the training and qualifications of Masters and
                                    other responsible personnel on oil, chemical or liquefied gas tankers.


Resolution 17                       Additional training for Masters and chief mates of large ships and of
                                    ships with unusual manoeuvring characteristics. (Aim mainly to assist
                                    those joining from smaller ships).


Resolution 18                       Radar simulator training. (For all Masters and deck officers).


Resolution 19                       Training of seafarers in personal survival techniques.


Resolution 20                       Training in use of collision avoidance aids


Resolution 21                       International Certificate of Competency - invitation for IMO to develop.




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Table 4.18 (cont’d)

Chapter/Amendment        Subject                Comments

Resolution 22                                   Human relationships - emphasis on importance in achieving safety.


Resolution 23                                   Promotion of technical co-operation.


Amendments to the 1978 Convention

1991 Amendment                                  New requirements arising from implementation of GMDSS.


1994 Amendment           Chapter V              Replacement chapter on special training needs for crews on tankers.


1995 Amendments                                 Established mandatory (Part A) and recommended (Part B) elements in
(major revision)                                Chapters. Sought to eliminate 'loose wording' leading to a 'lack of
                                                uniform application', 'different interpretations' and lack of 'strict
                                                obligations on parties'.


                         Chapter I              Requirements aimed at ensuring compliance. Port State Control gains
                                                enhanced procedures concerning the allowance of intervention in the
                                                case of deficiencies deemed to pose a danger to persons, property or
                                                the environment. Measures introduced for watchkeeping personnel to
                                                prevent fatigue. Procedures for investigation and disciplinary measures.
                                                Mandatory training on simulators for radar and automatic radar plotting
                                                aids. Use of other simulators and training aids recognised. Training,
                                                certification and other procedures to be subject to continuous
                                                monitoring by a quality standards system. Maximum five year interval
                                                for every Master and officer to meet fitness standards and levels of
                                                professional competence. If necessary to require training or refresher
                                                courses to be undertaken.


                         Chapters II, III, IV   Revised and updated.


                         Chapter V              Introduction of special requirements for Ro-Ro/passenger ships (as a
                                                consequence of the Estonia tragedy) including crowd and crisis
                                                management and human behaviour.


                         Chapter VI             Survival craft - mandatory minimum requirements for familiarisation,
                                                basic safety training and instruction for all seafarers. Requirements for
                                                rescue boats/fast rescue boats. Mandatory minimum requirements for
                                                advanced firefighting training and medical first aid/medical care.


New Chapters

Chapter VII              Alternative            Enabling crews to gain training and certification in various departments
                         certification          of seafaring rather than being confined to one branch such as
                                                engineering or deck.


Chapter VIII             Watchkeeping           Requirement to establish and enforce rest periods for watchkeeping
                                                personnel and to ensure the efficiency of watchkeeping personnel is
                                                not impaired by fatigue. Introduces Part A and Part B elements.




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Table 4.18 (cont’d)

Chapter/Amendment           Subject                Comments

1997 Amendments             Regulation V/3         Mandatory minimum requirements for the training and qualifications of
                                                   Masters, officers, ratings and other personnel on passenger ships other
                                                   than Ro/Ro passenger ships. Includes crowd management training,
                                                   familiarisation training, safety training for personnel involved directly
                                                   with services to passengers in passenger spaces, passenger safety,
                                                   crisis management and human behaviour training.


1998 Amendments             Bulk Carriers          Improving minimum standards of competence of crews, including cargo
                                                   securing, loading and unloading on bulk carriers and understanding
                                                   implications of undue stresses on ship structure.


Compliance


The White List*                                    The Maritime Safety Committee (MSC) has issued the White List of
                                                   countries deemed to be "giving full and complete effect" to STCW 95.


* The current White List status can be found in Table 4.5.

Sources: IMO, Drewry Shipping Consultants Ltd.




4.7.2.1 Port State Control

                  Port State Control (PSC) has become one of the key ‘policing’ elements in shipping
                  through its powers and inspections and requirements for the rectification of vessel
                  defects. Mention is made in Table 4.18 of Port State Control’s enhanced powers of
                  intervention under STCW 95.

                  Regulation I/4 refers to deficiencies deemed to pose a danger to persons, property
                  or the environment – which in itself is a wide ranging remit. STCW 95 points to
                  intervention if certificates are not in order or if the ship is involved in a collision or
                  grounding. Other grounds for intervention could include an illegal discharge of substances
                  (causing pollution) or if the ship is “manoeuvred in an erratic or unsafe manner, etc.”.


                  PSC is willing to ‘name and shame’ and publish ‘rust buckets of the month’ on
                  internet web sites.


                  Over time, the key PSC bodies have begun to target their inspection processes
                  focusing on ‘poor performance’ flags or classification societies.

                  Recent assessments relating to the Paris MOU, Tokyo MOU and US Coast Guard can be
                  found in Appendix 2.


                  Purely as an example of the type of incidents arising from detentions, Table 4.19 notes a
                  sample listing relating to the authority responsible within the UK – the Maritime and
                  Coastguard Agency (MCA).



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Table 4.19
Example of PSC ship detention list: UK, September 2003

Location         Vessel Identity     Flag         Company     Class      Remarks

River Crouch     Istanbul B -        Turkey       Tango M.    ABS        Detained for 3 days. 20 recordable
                 1,543 gt -                                              deficiencies. Problems with anchor lights,
                 Gen. Cargo                                              doors to steering gear and engine room, fire
                                                                         and boat drill.

Seaham           Sinbad - 499 gt -   Cyprus       Warnholtz   GL         Detained for 2 days. 5 recordable
                 Gen. Cargo                       Schmidt                deficiencies. Engine room quick closing
                                                                         valves inoperable.

Grimsby          Langust - 716 gt    Cambodia     Norfos      Inclamar   Detained for 5 days. 17 recorded
                 - Gen. Cargo                     Shipping               deficiencies. MF radio installation
                                                                         inoperative. Engine room fire risk. Charts for
                                                                         local area out of date. Classification society
                                                                         not authorised to issue ISM documentation
                                                                         on behalf of flag state.

Falmouth         Wolfraad            St Vincent   SMIT Int.   LR         Detained for 1 day. 5 recorded deficiencies.
                 Woltemade -         & Grens.                            No flag state endorsements on officer's
                 2,918 gt –                                              certificates of competency.
                 Salvage Tug

River Tees       Sunny Blossom -     Bahamas      Hanseatic   DNV        Detained for 1 day. 11 recorded deficiencies.
                 11,598 gt -                      Shipping               Auxiliary engine not fitted with high pressure
                 Oil Tanker                                              fuel delivery lines. Radio transmission
                                                                         defective.

Newport &        Gina M -            Malta        Eastern     NK         Under detention at end-September. 29
Avonmouth        19,369 gt -                      Med.                   recorded deficiencies. Lifeboat block cheek
                 Bulk Carrier                     Maritime               severely wasted. Fire and abandon ship
                                                                         drills unsatisfactory. Maintenance of ship
                                                                         and equipment unsatisfactory. Emergency
                                                                         preparedness poor and crew training
                                                                         unsatisfactory.

Portbury         Samos Sky -         Liberia      Samos       GL         Under detention at end-September. 12
                 23,237 gt -                      (Island)               recorded deficiencies. Hook extension bars
                 Bulk Carrier                     Maritime               on lifeboats dangerously wasted. Reserve
                                                                         source of power to radio station inoperative.
                                                                         Fire drill unsatisfactory. ISM non-
                                                                         conformities with regard to emergency
                                                                         preparedness, staff training and maintenance
                                                                         of ship and equipment.

Seaham           Indian -            Norway       Sunbay      BV (GL*)   Under detention at end-September.
                 1,920 gt-                        Mgt.                   Inadequate charts for local area. Nautical
                 Gen. Cargo                                              publications out of date. Inadequate lookout
                                                                         during hours of darkness.

Par              Sea Thames -        Antigua &    Gebr.       BV         Detained for 1 day. Magnetic compass
                 1,616 gt -          Barbuda      Person                 binnacle not mounted. Main engine double
                 Gen. Cargo                                              wall fuel pipes not connected to drain tank
                                                                         and alarm. Oil retained in engine room bilges
                                                                         and oily water separator not in accordance
                                                                         with MARPOL for operation in special areas.

* ISM auditor.

Source: Maritime and Coastguard Agency (UK).


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4.7.3 Marpol

                  The International Convention for the Prevention of Pollution from Ships (Marpol) is
                  the main international convention relating to the prevention of pollution in the
                  marine environment arising from ship operations or accidental causes. It comprises
                  an amalgamation of two agreements (1973 and 1978) plus subsequent amendments and
                  focuses on pollution from oil, chemicals, harmful substances in packaged form, sewage
                  and garbage.

                  The main components of Marpol are noted in Table 4.20.

Table 4.20
Main components of the Marpol convention*

Annex/Amendment            Subject                   Comments

Annex I                    Prevention of pollution   Limitations on the quantity of oil a tanker may discharge in
                           by oil                    ballast condition while underway. Requirement for an oil
                                                     record book recording the movement of cargo oil and its
                                                     residues from loading to discharging on a tank-to-tank basis.
                                                     Ban on any discharge within 50 miles of land. Complete ban
                                                     on discharges in "special areas" - including the Mediterranean
                                                     Sea, Black Sea, Baltic Sea, Red Sea and Arabian Gulf. Oily
                                                     wastes to be retained on board and to discharge same at
                                                     shore reception facilities. Requirement for segregated ballast
                                                     tanks (SBTs) on new ships - with these being protectively
                                                     located. Requirement for crude oil washing (COW) systems.

Annex II                   Control of pollution by   Discharge of proscribed substances/residues permitted only to
                           noxious liquid            reception facilities until certain concentrations are complied
                           substances                with (which varies from substance to substance). No
                                                     discharge or residues within 12 miles of land. More stringent
                                                     restrictions in Baltic and Black Sea areas.

Annex III                  Prevention of pollution   Detailed standards on packaging, marking, labelling,
                           by harmful substances     documentation, stowage, quantity limitations, exceptions and
                           in packaged form          notifications. (The IMDG Code includes some marine
                                                     pollutants).

Annex IV                   Prevention of pollution
                           by sewage from ships

Annex V                    Prevention of pollution   Specifies manners of disposal and stricter requirements of
                           by garbage from ships     special areas. Includes a total ban on dumping of all forms of
                                                     plastic into the sea.

Annex VI                   Prevention of air         Adopted 1997 but not yet in force.
                           pollution from ships

Amendments

1984                       Annex I                   Aimed at making implementation easier and more effective.

1985                       Annex II                  Allowing for technical developments. Also made IBC Code
                           Protocol I                mandatory for ships built after mid-1986. Annex II covers only
                                                     discharge procedures for chemicals while the Code covers
                                                     carriage requirements. Making it an explicit requirement to
                                                     report incidents involving discharge into the sea of harmful
                                                     substances in package form.




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Table 4.20 (cont’d)

Annex/Amendment               Subject                       Comments

1987                          Annex I                       Gulf of Aden given special area status.

1989 (March)                                                Update of lists of chemicals.

1989 (October)                Annex V                       North Sea given special area status.

1990                          HSSC                          Harmonisation with Load Line and SOLAS conventions. IBC
                              IBC                           Code amendments. BCH Code amendments.
                              BCH
                                                            Antarctic given special area status.
                              Annexes I and V

1991                          Annex V                       Wider Caribbean given special area status.

                              Annex I                       New chapter requiring ships to carry an oil pollution
                                                            emergency plan.

1992                          Annex I                       Amendments relating to double hull tankers. Regulation 13F
                                                            requires new tankers to be fitted with double hulls. (Other
                                                            methods deemed acceptable "if they can ensure at least the
                                                            same level of protection against oil pollution in the event of a
                                                            collision or stranding and are approved in principle by the
                                                            Marine Environmental Protection Committee"). Marpol 13G -
                                                            in effect - is the single hull tanker phase out vehicle.

1994                          Annexes I, II, III, V         Effectively permitted Port State Control to extend into
                                                            operational arrangements - e.g. to ensure crews are able to
                                                            carry out essential shipboard procedures relating to the
                                                            prevention of marine pollution.

1995                          Annex V                       Garbage management plans and garbage record keeping.

1996                          Protocol I                    More precise requirements.

1997                          Annex I                       Specification of intact stability criteria for double hull tankers.
                                                            North West European waters (North Sea and its approaches,
                                                            Irish Sea and its approaches, the Celtic Sea, English Channel
                                                            and its approaches and part of the Atlantic immediately to the
                                                            west of Ireland) given special area status.

                              Protocol of 1997              Adopted Annex VI. This will set rules relating to SOx and NOx
                                                            emissions from ship exhausts and prohibit deliberate
                                                            emissions of ozone depleting substances (including halons
                                                            and CFCs).



1999                          Annex I/13G                   Extension of the regulation.

                              Annex II                      Requirement for a shipboard marine pollution emergency plan
                                                            for noxious liquid substances.

2000                          Annex III                     Deletion of 'tainting' as a criterion for marine pollutants.

2001                          Annex I                       Revised 13G. New global timetable for accelerating the phase
                                                            out of single hull tankers.

* States ratifying the convention have to accept Annexes I & II. Others are optional.
Sources: IMO, Drewry Shipping Consultants Ltd.




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4.7.4      Emerging regulatory areas

4.7.4.1 Emission controls

                   Although the Marpol Annex dealing with the prevention of air pollution from ships
                   has not entered into force, the subject remains a ‘live topic’. Already there has been
                   some regional activity – notably in Europe – which has implications for ship’s bunker
                   fuels and lube oils within the context of their sulphur emissions.

                   Consequently, an area where ship owners and managers will need to be increasing their
                   awareness and knowledge base is in the arena of diesel exhaust emissions.

                   Table 4.21 notes information relating to typical diesel exhaust gas composition.

                   Generally speaking, most attention tends to focus on NOx and SOx emissions. NOx
                   refers essentially to nitric oxide (NO) and nitrogen dioxide (NO2) – with the former
                   accounting for around 95% of NOx emissions from diesel engines. Along with SOx, NOx
                   emissions are precursors of acid rain. In the presence of unburned hydrocarbons
                   and sunlight, NOx participates in the formation of photochemical smog and tropospheric
                   ozone.

                   NOx emissions from engines already have been subjected to tighter limits – seeing
                   the introduction of measures utilising fuel pre-treatment, intake air pre-treatment,
                   modifications to the combustion process and flue gas after-treatment. Nevertheless, the
                   high local combustion temperatures within marine diesel engines and the
                   consideration that NOx formation is thermal (taking in nitrogen from the air) do lead to

Table 4.21
Typical diesel exhaust gas composition

Component                                   Typical Concentration in                           Concentration in
                                               Diesel Exhaust Gas                           Natural Dry Ambient Air

Nitrogen                     N2                    75-77% by volume                                78.08% by volume
Oxygen                       O2                 11.5-15.5% by volume                               20.95% by volume
Carbon dioxide               CO2                  4%-6.5% by volume                         about 350 ppm by volume
Water                        H2O                    4%-6% by volume
Argon                        Ar                       0.8% by volume                               0.934% by volume



Additional Components Found in Diesel Exhausts:                                                             Comment

Nitrogen oxides              NOx           1,000-1,500 ppm by volume                 Relatively high, unless controlled
Sulphur oxides               SOx               30-900 ppm by volume                        Determined by fuel choice
Carbon monoxide              CO                20-150 ppm by volume              Relatively low with good combustion
Total hydrocarbons           THC               20-100 ppm by volume              Relatively low with good combustion
Volatile org. compounds      VOC               20-100 ppm by volume              Relatively low with good combustion
Particulates                 PM         20-100 mg/Nm2, dry, at 15% O2            Relatively low with good combustion
                                                                        but influenced by fuel ash and sulphur content
Smoke

ppm = parts per million.
Source: Wärtsilä


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                 relatively high emission levels.        Consequently, solutions may require additional
                 ‘ingredients’ including perhaps water and/or selective reduction catalysts.

                 SOx (sulphur dioxide, SO2, and sulphur trioxide, SO3) contribute to acid rain and there is
                 evidence of their ability to cause damage to vegetation, buildings and human health.
                 However, there is a viewpoint that SOx emissions are not a major issue when at sea
                 and some distance from coastlines as SOx does not have transmission distances
                 above 100km and also it is absorbed via the alkalinity of sea water.

                 Nevertheless, it does appear that SOx is a ‘big issue’ in areas such as NW Europe.
                 In dealing with this, ship operators appear to have one useful guide. SOx emissions from
                 the engine are almost directly proportional to the fuel’s sulphur content (and,
                 naturally, the volume of fuel consumed). Consequently, this is an issue that can be
                 addressed to a considerable extent within the bunker purchasing process.

                 Carbon dioxide is the main end product arising from the combustion of fuel oils. It
                 is regarded as the major greenhouse gas contributing to the global warming of the
                 atmosphere. Virtually all of the carbon entering the combustion chamber is oxidised to
                 form CO2, with this being emitted in the exhaust gases. As with the sulphur content in the
                 fuel used, CO2 emissions from the engine are almost directly proportional to the
                 fuel’s carbon content (and, naturally, the volume of fuel consumed). This said, it is
                 claimed that – within prime movers – the diesel process leads to the lowest specific
                 CO2 emissions (assuming the same quality of fuel).

                 The fuel oil mixing process during combustion produces soot particulates – some
                 of which fail to become oxidised. These absorb hydrocarbons from the fuel oil and
                 lubes and expand further through absorbing water and sulphur. Heavy fuel oil adds
                 substantially to particulate emissions via fuel ash. When visible, the emissions become
                 smoke. Fine particulates can travel considerable distances and some are understood
                 to be carcinogenic.

                 Carbon monoxide arises when there is insufficient local air in the combustion chamber (low
                 air:fuel oil ratio) and low local temperatures. CO emissions from marine diesel engines
                 tend to be low and, hence, are not currently regarded as a major area of concern.

                 THCs and VOCs can be contributors to smog and ozone formation, greenhouse
                 effects and some might be carcinogenic. However, these products cover a wider of
                 array of compounds making generic conclusions difficult.

                 THCs and VOCs arise in the combustion chamber through incomplete combustion through
                 excess local air and other factors plus the evaporation of unburned fuel oil or lubes.
                 Evaporation is lower with heavy fuel oil than light fuel oil. However, as with CO,
                 emissions from marine diesel engines tend to be low and, hence, are not currently
                 regarded as a major area of concern.

                 Within this context, management issues (wherever undertaken) look set to centre on
                 ensuring that the ship’s prime mover operates at optimum efficiency while more
                 intense scrutiny may be needed with respect of the chemical composition – as well
                 as the viscosity, etc. – of the bunkers being purchased. (However, as Section 3.2 has
                 intimated, bunker purchasing already can be a complex business). The most serious
                 area may turn out to be NOx as this may necessitate new or additional equipment
                 items.


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                  The other key uncertainty will be what measures are imposed relating to non-
                  compliance – especially as environmental issues hold different priorities with individual
                  governments.

                  As a final point, the Institute of Marine Engineers reported in 2000 that shipping
                  produced 5% of the global oil based CO2 generated, 3%-5% of global SOx emissions
                  and 13% of global fuel based NOx production. However, in July 2003 media reports
                  noted references to a report emanating from MAN B&W Diesel which painted a more
                  disturbing picture with the company’s senior manager for technical promotion being
                  reported as claiming that the study concludes that pollutant emissions generated by
                  shipping activity are “considerably greater” than thought. The report claims that NOx
                  emissions from main and auxiliary engines on vessels of >100 gt in 2001 were “more
                  than double levels hitherto attributed to merchant shipping”. However, in terms of
                  global fuel based NOx emissions, shipping’s contribution is put at 17%. In addition, CO2
                  emissions were “up to two and half times more than earlier calculations”.

                  In terms of the make up of the fleet, the MAN B&W Diesel analysis reportedly reckons that
                  shipping’s NOx emission contributions breakdown included general cargoships (24.8% of
                  overall NOx from shipping), containerships (23.2%), bulk and combined carriers (16.5%)
                  and tankers (10.7%). However, relative to the share of the fleet in terms of vessel
                  numbers, this places containerships way ahead in the merchant vessel NOx sector.

                  All exercises undertaken of this type will have their critics – as methodologies include
                  assumptions in areas such as engine types, load ranges, fuel consumption, etc. – but
                  whatever the true ‘absolutes’ may be, shipping clearly has an issue to deal with. No
                  doubt, legislators will be swayed by the types of conclusions arising. MAN B&W Diesel
                  points out also that it reckons that shipping ‘out pollutes’ aircraft in terms of NOx by a ratio
                  of 22:3. It also ‘out pollutes’ in other areas. Hence, shipping will be the main target in
                  legislators’ sights. This said, the source adds also that – in tonne-kilometre terms –
                  shipping accounts for 71% of total annual global trade while aircraft account for just 0.6%.

4.7.4.2 Ballast water management

                  Ballast water management is an item on the current IMO agenda, although the issue
                  has prompted unilateral action in certain regions. The issue at the core of this is the
                  transfer of marine organisms between different regions of the world and consequent
                  catastrophic effects on local marine eco-systems as invasive organisms take over.

                  In an ideal world, a means would be devised that eliminated ballast water exchange
                  by the retention of ballast on board. Currently, this is not a realistic option but it
                  does not detract from the aim that a proper ballast water management system
                  should aim to minimise the volume of ballast water exchanged or requiring
                  treatment. There are suggestions that onshore water ballast treatment is an alternative
                  ‘ideal’ – however, ships would need to possess the capability within their piping systems to
                  discharge the water to the shore.

                  In current operational circumstances, the mainstream view is that the exchange of
                  ballast water at sea is the single most practical method. This ought to occur in open
                  waters so as to reduce the level of organisms taken on board – and, conversely,
                  should be avoided in shallow waters, coastal shelves, estuarine environments, stagnant
                  areas, in the vicinity of sewage outflows, in areas where dredging has been (or is being)
                  undertaken or where known pathogens may be present.


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                 One of two methods tends to be used:

                 •     Sequential method: This entails emptying ballast tanks completely and refilling with
                       open ocean water. This is a complex exercise as the emptying of certain tanks may
                       affect ship stability, create increased stresses and increased ‘sloshing’ pressures and
                       influence forward drafts.

                 •     The flow through (or overflow) method: This reduces/eliminates the problems of
                       stability and stresses. The flow through method involves pumping ocean water into a
                       full ballast tank. However, ballast water equal to around three times the tank’s
                       capacity is likely to have to be pumped through in order to achieve around 95%
                       effectiveness in terms of eliminating aquatic organisms. (However, whether 95% will
                       be established as an ‘acceptable global standard’ has not been determined).

                 Use of the sequential method requires considerable planning to ensure that the ship
                 remains within acceptable criteria. The flow through method is less onerous in this
                 respect but it remains vital that the piping and overflow arrangements have been
                 assessed to ensure that the tank(s) are not over-pressurised and that flow through
                 is possible with the venting and overflow arrangements in place. (For example, this
                 method may be unacceptable where tanks overflow into enclosed spaces). There may be
                 a need to open manhole covers and other venting areas or operate standpipes and valves
                 – which may be labour intensive – and introduces some accident risks to the personnel
                 involved. Flow through exchange ought to be undertaken in favourable weather conditions
                 and not at times when there is a risk of icing.

                 Shipboard ballast water treatment is a sector that has been under evaluation for a number
                 of years without reaching any definitive solutions. Options might include:

                 •     Mechanical methods – e.g. filtration, cyclonic separation.

                 •     Physical methods – e.g. UV or ultrasound.

                 •     Chemical methods – e.g. disinfectants, organic biocides, electrolytic methods,
                       manipulation of ambient conditions.

                 During 2003, the USA’s MH Systems in conjunction with the Scripps Institution of
                 Oceanography (University of California) brought forward the argument that
                 “deoxygenation” may be “the ultimate weapon in the battle against invasion by
                 aquatic nuisance species in ballast water”. The approach – for which funding is being
                 sought – consists of bubbling inert gas via a row of pipes into a tank* while maintaining
                 negative pressures at the ullage space. The process “equilibriates” the ballast water using
                 the inert gas generator to reduce oxygen levels sufficiently to make it “hypoxic”, with raised
                 CO2 levels and increased acidity**, leading to “total lethality” within 24 hours. Once this
                 has been achieved, the tank may need to be oxygenated and the CO2 washed out before
                 the “hypoxic” substances are dumped.

                 The problem for ship owners and managers is that there is no clear guidance yet in
                 this field and hence it is difficult to plan for at both the technical, commercial and
                 financial level. The picture may become clearer in 2004 once IMO’s diplomatic


                 *  These would be jetted in order to stir up the sediment in the tank and the bubbles would then rise to the
                    surface.
                 ** The claim from MH Systems is that the ballast water adjusts from pH8 to pH6 – but that it would require
                    pH4 before there was any risk of corrosive activity on the tank surface.


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                  conference has debated the ‘final draft’ of the International Convention for Control and
                  Management of Ships’ Ballast Water and Sediments. This looks like obliging all ships to
                  have a mandatory ballast water and sediments plan. At Tier 1, requirements look set to be
                  a ballast water record book and ‘management procedures’ to a given standard/range of
                  standards. Tier 2, the ‘special procedures’, awaits clearer definition.

4.7.4.3 Waste discharge

                  Other areas of regulatory activity – again often working unilaterally – focus on
                  garbage disposal and waste water/sewage. Clearly, there are issues relating to
                  garbage disposal into the sea – and, in practice, this ought to be an activity dealt with
                  when in port. However, many countries are encountering problems with shortages of
                  ‘landfill’ sites as well as bringing in more stringent demands in terms of re-cycling. This is
                  an area with a potential to lead to ‘local difficulties’ in future years.

                  Waste water discharge quality has become a progressively more significant issue –
                  particularly for cruise ships and other vessels operating in areas of outstanding natural
                  beauty or sensitive eco-systems and environments. Punitive financial penalties lie in wait.

                  Furthermore, the system treatments have to work on several levels. These include
                  sanitary water, laundry water, galley water, etc. Galley water, for example, will need
                  effective treatments for fat and grease removal. Other considerations will relate to
                  gas/vapour emissions, solid material screenings and liquid/slurry waste. Consideration will
                  have to be given to the storage of different waste products.

4.7.4.4 Access areas

                  The aftermath of the Erika has tended to focus on single hull tankers and their presumed
                  failings – with this gaining momentum with the loss of the Prestige. One added outcome of
                  the Erika incident – emanating from the Bahamas – was a recommendation to IMO that:

                  •   The design philosophy for every ship should include a provision for lifetime
                      maintenance and, in particular, means to ensure that surveyors can have suitable
                      access to all parts of the structure of the ship.

                  This has led to the development of a new SOLAS regulation (II – 1 /3-6) which will apply to
                  new bulk carriers and tankers from 2005.

4.7.4.5 Ship scrapping/recycling

                  The other sector attracting scrutiny is ship demolition. Here, the agenda is being
                  driven from (a) an environmental perspective and (b) a health and safety perspective
                  with respect to the workforce in shipbreaking sites.

                  Shipbreaking has ‘evolved’ into a rather primitive industry operating principally at beach
                  sites in India, Bangladesh and China reliant on low cost labour. For those involved in the
                  business, profit margins tend to be slim and the business is subject to disruption through
                  the monsoon season and through changing budgetary/fiscal measures, tax changes, fuel
                  price changes and price trends in the steel sector.

                  The cost of developing alternative arrangements – based on dismantling in dock
                  areas – is potentially huge.


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                 It seems likely that shipping will face regulatory requirements in this area and –
                 based on experience elsewhere – one might expect a requirement for an ‘ongoing’
                 audit of hazardous materials within the ship’s structure and its equipment and plans
                 for removal once a ship is sold for breaking. The last part could be far from
                 straightforward. The ‘ideal’ may be for hazardous materials, where possible, to be
                 removed within a ‘safe area’ (probably a shiprepair yard) prior to the final voyage.
                 This, doubtless, would need to be certificated. However, removal of some materials
                 may put the ship – and crew – in peril on the final voyage. For example, the ship may
                 have asbestos for fire prevention – and this is a product that ought to be removed within a
                 highly controlled environment. However, it is not reasonable to send a vessel on a final
                 voyage with inadequate fire protection.

                 In addition, any rules would have to deal with the role of third parties in the ship
                 demolition equation. That is, deals are often not concluded directly between the owner
                 and the breaker. Instead, the owner often sells to a ‘cash buyer’. This buyer then takes
                 on the responsibilities for delivery to the breaker. Another ‘market’ consideration is that
                 breakers do not have the right to inspect vessels before delivery. If any certification
                 process is not ‘absolutely watertight’, rights of inspection might be demanded.
                 There would be a need also to ensure that a ship sold for breaking is broken up. If the
                 freight market improves, it is not unknown for a ‘cash buyer’ to find a buyer for further
                 trading.

                 In many respects, this is an area where, if they act, legislators have to get everything right.
                 The risks are of bringing the already fragile shipbreaking industry into chaos. This would
                 have commercial repercussions for owners (the residual value of the ship on disposal
                 might collapse or worse still it might lead to current shipbreakers exiting the industry –
                 which would open up a whole new ‘Pandora’s Box’ of problems in terms of ultimate vessel
                 disposal).

                 Any developments by IMO will need to be cognisant of moves made already via the
                 United Nations Environment Programme (UNEP) and its Basel Convention’s
                 guidelines for the environmentally sound management (ESM) practices to control
                 transboundary movements of hazardous wastes and their disposal. ESM provides
                 technical guidelines for environmentally friendly procedures, processes and practices in
                 ship dismantling.

                 Generally, it is accepted that the decommissioning and dismantling of ships was not
                 considered when the Basel Convention was adopted. However, a ship contains various
                 materials (used in the construction and operation of ships) that figure in the Basel
                 Convention's list of hazardous materials. These materials include, amongst others,
                 asbestos, PCBs and substrates deriving from the normal operation of ships, such
                 as oil residues and products containing heavy metals. However, subsequently, the
                 convention has developed technical guidelines on environmentally sound
                 management for the full and partial dismantling of ships. In addition, the convention
                 provides a list of hazardous wastes and substances under the Basel Convention
                 applicable to ship dismantling.

                 The main sources of environmental and health hazards that have been identified in
                 the shipbreaking industry are:

                 •     Oils and fuels.
                 •     Bilge and ballast water.


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                  •    Paints and coatings.
                  •    Asbestos.
                  •    Polychlorinated biphenols (PCBs).
                  •    Others – such as anodes, radiation sources, lead, mercury, etc.

                  Finally, it ought not to be forgotten that the demolition sector itself has ideas on
                  changing regulatory requirements. For example, breaking industry sources would
                  like there to be a Ship Inventory Dossier that defines the environmental status of
                  the ship. The dossier could summarise all onboard substances requiring particular
                  attention. It could identify and quantify further the hazardous waste that would
                  be generated while breaking the ship and provide guidelines for safe handling and
                  disposal of various waste materials. This information should enable the yards to plan
                  and prepare for safe and environmentally friendly operations. The ship inventory dossier
                  also is likely to give information of commercial interest. The information in the inventory
                  dossier should be open for verification by a competent body while the dossier could
                  serve also as documentation for possible future certification requirements prior to
                  decommissioning.


                  Table 4.22
                  Shipbreaking activities and associated hazards

                  Activity                                     Potential Environmental         Potential Occupational and
                                                               Hazards                         Health Hazards

                   BLOCK BREAKING:                             Oil and fuel spills.            Toxic Vapours.
                                                               Bilge and blast water spills.   Asbestos.
                   Removal of oil and fluids.                  Paint and coatings.             Carbon dioxide.
                   Dismantling of reusable equipment.          Heavy metals.                   Risk of explosion.
                   Cutting of large ship segments.             PCB.                            Risk of falling, crushing and
                   Further cutting of primary blocks for       Anodes.                         electric shock.
                   transportation.                             TBT.                            Risk of radiation.
                                                               Batteries.                      Fire & burns.
                                                               Freon, etc.

                   SORTING & STORAGE:                          Oil and fuel spills.            Toxic Vapours.
                                                               PCB.                            Asbestos.
                   Sorting of material and equipment.          Mercury.                        Risk of explosion.
                   Segregation of composite materials.         Lead.                           Risk of radiation.
                   Reconditioning of re-usable materials.      Tributyltin (TBT).
                   Cleaning and finishing material for sale.   Polyvinyl chloride (PVC).
                   Storing sorted and finished materials.      Freon.
                                                               Batteries, etc.




                   DISPOSAL:                                   Seepage of toxic liquids.       Toxic liquids.
                                                               Contamination of air by toxic   Dangerous gases.
                   Waste disposal facilities.                  gases.                          Asbestos.
                   Land filling.
                   Incineration.

                  Source: Drewry Shipping Consultants Ltd.


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                 One of these additional desires is a ‘decommissioning certificate’, with the flag state
                 authenticating that all required measures had been met. Breaking sources see the
                 process then leading to the flag state receiving a final report at the point of completion of
                 the decommissioning indicating that decommissioning had been performed in accordance
                 with all the safety guidelines. The flag state would also inform IMO when a
                 decommissioning certificate is issued. Similarly, regulatory authorities in the
                 country (port) which receives the vessel for scrapping should ensure that the scrap
                 yards only contract vessels with a decommissioning certificate. Another suggestion
                 is that classification societies might take on the certification of decommissioning.

                 From the other side of the coin, a principal concern would be that any regulations relating
                 to designing for demolition and recycling could impact adversely on existing tried and
                 tested safety and operational standards – and priority must be given to fitness for service.
                 Therefore, with the provision that the constructional and operational safety of ship is
                 not compromised, the following aspects have been voiced by a source from Lloyd’s
                 Register:

                 •     Minimise the use of materials hazardous to health or the environment.

                       To an extent, national and international regulators are addressing this matter already
                       but further research and development work to produce equally effective but safer
                       alternative products should be promoted by the industry.


                 •     Use materials which can be recycled.

                       Broadly, this would imply increased use of metals rather than plastics.


                 •     Minimise the use of composite construction methods.

                       The purpose of this would be to facilitate the separation process by limiting the use of
                       construction techniques involving the bonding of dissimilar materials.


                 •     Provide a materials inventory.

                       The provision of a design materials and systems inventory, updated to reflect changes
                       made during the life of a ship, in a form that can be used for planning would facilitate
                       the scrapping process. It is worthy of note that, in certain industries (e.g. the offshore
                       industry) the decommissioning and the demolition plans are required as part of the
                       design process. Similar consideration could also be applied to shipping. However,
                       the recommendations followed by the offshore industry only cover the subject of
                       dumping at sea and no universal regulations are available for the disposal once dry
                       land is reached.


4.8     Response planning

                 The regulatory environment – both current and potential – is transforming ship
                 management functions (whether dealt with in-house or through the services of third party
                 ship managers). The conventional management arenas of commercial management
                 activities and technical work (effectively securing the revenue stream and keeping the
                 hardware working) have been expanded to embrace increased demands for record
                 keeping and systems/procedural maintenance – some of which may strike some as
                 partly bureaucratic – and contingency/response planning.


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                    In addition, new developments may force some re-thinking on the budget/costing
                    process. For example, will any new costs arising in the context of ballast water exchange
                    be an ‘operating’ cost or, as with hold cleaning, a ‘voyage’ expense? Will plans for future
                    decommissioning of the vessel have a bearing on the R&M regime and its budget?

                    However, perhaps the most fundamental development is that ship management (in-
                    house or third party) is having to become pro-active rather than reactive.

                    At first glance, those involved with ship management might perceive this as an
                    added burden making further onerous demands on staff time and resources. On
                    reflection, it may be that – with well thought out systems put in place – there will be
                    improvements in efficiency, early warnings of problems, etc. which might reduce
                    costs and save staff time.

Table 4.23
Elements in the proactive and reactive approaches

             Proactive Approach                     Action                                 Reactive Approach

Stage 1      What might go wrong?                   Hazard identification.                 What went wrong?

Stage 2      What are the probabilities?            Risk analysis.                         -
             How often? How likely?                 (Risk is probability x consequence).
             How bad?                               Cause/frequency analysis provides
                                                    options to reduce frequency.
                                                    Consequence analysis pinpoints
                                                    scope to reduce consequences.




Stage 3      What can be done to improve            Risk control measures.                 How can matters be improved?
             the situation/reduce the risk or
             the consequences?

Stage 4      How much of an improvement             Analysis of costs and benefits -       -
             can/has been achieved? Is it           the latter may need to be
             cost-effective?                        considered in more than the
                                                    immediate monetary context.




Stage 5      What actions should be taken?          Recommendations and                    What actions should be taken?
                                                    implementation.

Stage 6      Is this all?                           Monitor performance of actions         'Done and dusted' until the next
                                                    taken. Are aims being met?             incident triggers another Stage 1.
                                                    Have costs of equipment, etc.
                                                    fallen making discarded better
                                                    options now viable?



Sources: Lloyd’s Register, Drewry Shipping Consultants Ltd., D.M. Jupe Consulting.



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                 The problem, inevitably, will be a perception that as an incident has not arisen (albeit aided
                 by proactive management) – and, hence, costs of rectification and adverse publicity have
                 not arisen – the sums spent on prevention are in some way not justifiable. This, in
                 practice, underlines one of the more unfortunate aspects of shipping operations and
                 management, namely that the vast majority of customers (charterers) are not
                 prepared to discriminate on service provision. If a ‘borderline’ ship and a high quality
                 ship are competing for the same cargo, it is generally unlikely that a charterer would agree,
                 say, 50 cents for the comfort of his/her cargo being carried by the latter. Consequently, for
                 proactivity to really gain ground it is not merely ship owners and managers that need to be
                 part of the education process.


4.9     Budgeting

                 At the core of technical ship management is the ability to plan and implement a
                 vessel budget. Achieving this task successfully is a function of expertise, experience and
                 an element of good fortune. However, as Section 4.7 has illustrated, the management
                 process increasingly requires forward planning and compliance with systems for recording
                 and managing additional information – and taking responsibility for any actions that might
                 arise. The principles involved remain the same when management is undertaken in-house
                 or through the offices of a third party ship manager. The owner has to undertake his/her
                 own internal cost:benefit analysis over whether or not to outsource.


                 Leaving aside for the moment the implications of the transfer of responsibilities and
                 liabilities for incidents – which would have cost implications – the essential ‘cost trade
                 off’ relates to the fee payable to the ship manager versus the costs saved on other
                 budget items by going down this route.


                 Indications from industry sources point to little or no substantive change in the
                 level of third party ship manager’s fees for some time. Technical management
                 (including crew management) is likely to be fee based (e.g. x thousand US dollars per
                 month) with variations by vessel type and age – and, presumably, number of vessels
                 entered by a particular ship owner. Fees reflect what the market will bear. Commercial
                 management also has a fixed fee element to it but the commercial manager also
                 may be in a position to claim a proportion of the earnings from the freight booked,
                 usually as a broking commission.


                 Quantifying fee levels is difficult – as they encroach on commercial sensitivities – while an
                 indication from owner sources described only as ‘management fees’ does not give a clear
                 idea as to what mix of management services are involved. However, albeit that the
                 comment was first reported in February 2001, the following was attributed to the then
                 managing director of Denholm*:


                 “Customers are expecting an awful lot more. In 1978, we (Denholm) regularly enjoyed
                 $145,000 or $150,000 a year for our services. Today, $100,000 is good and there is an
                 awful lot more to do now than there was”.


                 If nothing else, this points to a considerable level of efficiency improvements within the
                 ship management operation.



                 *     Denholm has since become part of Anglo Eastern Shipmanagement.


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                  Owner side information reports seems to suggest that an annual sum per vessel between
                  US$ 100,000 and US$ 175,000 appears to cover most eventualities.

                  Manager side sources have hinted at technical side fees – depending on ship type and
                  age – running out at between US$7,000-US$10,000 per month per vessel. On a
                  US$10,000 level, perhaps around US$3,000 might be earmarked for crew management
                  matters. On the commercial account, the fee might be akin to the lower end of the
                  technical cost range but with, perhaps, income of 1%-2% of the freight booked added.

                  However, what is the scope in terms of costs saved? Table 4.24 offers some approximate
                  indications.

                  For those using the services of the ship manager, these ‘savings’ would be expected to be
                  a tangible factor within the budget presented.

                  The budget itself is a crucial element in the management cost equation – particularly
                  for the manager. This is because the budget will translate into the manager’s
                  monthly fee income. It may be fixed for a year.

                  Consequently, the negotiations between the owner and the manager will need to
                  determine whether the budget is fixed absolutely – though most managers do not work to
                  a fixed budget – or to what extent there will be some ‘tolerances’. (Crew management
                  can be arranged on cost plus fee or lumpsum terms).

                  Arguably, the crew make up is a known quantity and with it its terms of employment
                  and pay arrangements. Overtime may be a variable – much depending on the extent to
                  which this is consolidated within the terms of employment package. Other ‘swing
                  factors’ might be overlaps and travelling time – though, again, this would be expected
                  to be minimised while exchange rates also might enter into the equation (US dollars
                  might need to be purchased to make payments to the crew or domestic currencies – or US
                  dollars – might need to be purchased where there is a requirement to send an allotment to
                  the crew’s home country) if the currency markets are volatile. A suggestion offered in
                  this sector is for an accuracy tolerance of between 0% and 5%.

                  Crew travel costs are less certain with variables including the number of reliefs over
                  the course of a year, uncertainty over locations, difficulties in securing discounted,
                  seafarer’s travel prices and, again, exchange rate factors. This might take an
                  accuracy tolerance level out to a maximum of 10%.

                  Stores ought to be a reasonably controllable item – with an accuracy tolerance of
                  perhaps 0%-5% – as most requirements fall within the remit of planned maintenance
                  activities. Paint might be a ‘swing cost’. Lubes could be another – although it might
                  be expected that arrangements are in place under term contracts with lube suppliers
                  rather being exposed to ‘spot’ purchasing. This said, lube consumption can be a variable
                  factor and it would not be acceptable to forego taking on extra supplies (to save money)
                  if this took the onboard position below that required for safe passage plus a safety
                  allowance. It might be that there are times when an acceptable tolerance for lubes
                  could be as high as 30% – though much will depend on the volatility of oil prices, refinery
                  product outturn priorities, uplift ports, etc. Stability in oil prices gives lube suppliers greater
                  scope for considering their ‘margins’ and, probably, to respond favourably to larger
                  scale buyers.


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Table 4.24
Ship operating cost reduction expectations through using a third party
ship manager

       Cost Item        Expected     Other Advantages to Small/Medium Fleet Ship Owners
                        Reduction

  1    Crew                 Nil      The manager will undertake sourcing and replacement of seagoing personnel from
                                     its own labour pool. However, by offering seafarers employment continuity, the
                                     manager's labour pool may be of better quality.

  2    Crew Travel         10%       Using manager's travel resources. This can provide timely replacement and
                                     easier/quicker visa arrangements. With larger numbers of personnel travelling,
                                     better deals may be struck with agents, airlines, etc. Change over locations may be
                                     optimised.

  3    Stores            5%-10%      Using manager's centralised purchasing contracts and credit arrangements.
                                     Managers may obtain a more reliable service due to their larger buying
                                     volumes/scale economies and ensuing 'market muscle'.

  4    Spares            5%-10%      Essential spares tend to be available more readily to managers from suppliers or
                                     manufacturers. Urgent spares might be sourced from another vessel in close
                                     proximity. Managers may be better placed with regard to credit. As with stores, it
                                     can be a factor of larger buying volumes/scale economies and ensuing 'market
                                     muscle'. Lubricating oils managers negotiate between 50-60% off the published
                                     rates choosing the most favoured supply points for the application of these rates and
                                     generally obtain low rates at other ports. Whilst not all of the discounts may be
                                     passed onto owner, the managers will retain some of the “volume discount” for
                                     themselves, rates may well be better than a single vessel owner may be able to
                                     negotiate independently.

  5    Repairs          10%-12%      Shipyards will offer discounts for repeat business/stemmings, with this being
       &Shipyards                    something that managers can provide. Again, managers may enjoy favourable
                                     credit arrangements whereas a small ship owner might be looking at an advanced
                                     payment of up to 50% of the estimated bill. Managers may be better placed to
                                     ensure docking at favoured yards during busy periods, when a smaller owner might
                                     be 'deterred' or obliged to divert to a costlier site (increasing offhire and opportunity
                                     costs) which might also be less efficient in terms of turnround time and work quality.

  6    Port Agency         5%        A manager might not be asked for an advance payment.

  7    Insurance           9%        Through joining the manager's 'slip' there may be a reduced premium. A manager's
                                     reputation and good standing is a factor in insurer's evaluations of premiums and
                                     levels of deductibles. Insurers may gain 'comfort' from the manager's involvement in
                                     areas such as the ISM Code, STCW and other regulatory areas - as this may be
                                     perceived by then as a feature likely to reduce the insured risk.

  8    Bunkers              Nil      However, managers may benefit in terms of credit with suppliers and in ensuring
                                     that stems of the correct quantity and quality are available.

  9    Port State           Nil      The manager's reputation and good standing could reduce the risk of being targeted
       Control                       for increased frequency/stringency of inspection.

 10    Green Award                   Some of the major ship managers have processed their tankers for this award with
                                     the consent of the owner, which has resulted in substantial savings in port costs.
                                     (See Section 3.4 for details).

Sources: Drewry Technical Services, D.M. Jupe Consulting.



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                  Victualling costs tend to remain close to budget as managers normally have ‘daily
                  feeding rates’ worked out fairly accurately. Ships are not likely to indulge in
                  ‘entertainment’.

                  R&M and spares can be a problematical area as there are also elements of the
                  ‘unknown’ in terms of the work required. However, with ever wider use of
                  monitoring systems, computerised maintenance planning regimes, etc. these
                  surprises ought to be less frequent and less dramatic. The most likely times for
                  uncertainty will be over the period in which the ship is ‘new to management’ (i.e.
                  only recently come under the remit of a particular ship manager – though it might have
                  been under other management before). Here, much will depend on the state of previous
                  record keeping – and the ability of the new management to perceive areas where work
                  may be looming. This, ideally, would involve some co-operation from the previous regime.
                  However, this is not a ‘given’ if there are changes of classification society or the previous
                  management is reluctant. (If the ship is a ‘problem’ would the outgoing manager advising
                  the new manager be a positive or a negative in the eyes of the owner?). There could be a
                  case for a high accuracy tolerance – conceivably up to 50% in ‘special’ circumstances,
                  likely to be related to ‘new to management’.

                  Another area of normally high accuracy tolerance is ‘port matters, communications
                  and miscellaneous’. However, the sums involved may not be unduly large while the
                  costs of communication have been driven down.

                  Insurance may or may not be dealt with via the manager. However, if it is, one might
                  expect arrangements to be on fleet terms – with some adjustments for any special ship
                  types, overage vessels, etc. – which should reduce the margins for error. Certainly, there
                  is a growing trend throughout marine insurance to make as much of the premium as
                  possible ‘fixed’.

                  The one item on which tolerance always will be zero is the management fee.

                  From a third party ship manager’s standpoint a crucial factor in the budgetary
                  process is that – as is common in, say, the legal profession – the owner is required
                  to place the manager ‘in funds’. In other words, it is a question of invoicing the
                  owner first and dealing with the disbursements later.

                  Depending on the scale of operations, this may have some significance to the manager as
                  the funds will have a period when they can ‘earn’ on the manager’s account.

                  However, particularly when some or part of the budget is agreed as absolute (i.e. without
                  tolerances), this is also an area of motivation to the manager to achieve the best possible
                  result. That is, if activities can be completed at a cost below that agreed within the budget
                  it provides a bonus to the manager. (Equally, going over budget could lead to a loss that
                  the manager has to bear). Clearly, these ‘bonuses’ can never be huge – if they were then
                  the owner would not countenance the budget. However, if the managed fleet is large
                  enough then they might accumulate into a sum reckoned to be of consequence. The other
                  area of comfort to the ship owner is that the manager has a reputation to uphold – which is
                  a key factor in the manager’s ability to secure favourable terms in the marketplace – and
                  so it is not to the manager’s advantage to ‘skimp’ or enter into arrangements where the
                  result might turn out to be ‘substandard’.




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5. Administration
                  Administrative overheads are an unavoidable element in any business operation. This
                  applies whether the administration is concerned with the functioning of the ship owner’s
                  head office (and any subsidiary offices) or the ship manager’s shore side establishments.
                  While these activities would not expect to be outsourced to third parties, they are
                  funded to some degree from vessel-related earnings – hence they do form part of
                  the overall management and administration picture. Within the context of this report,
                  the brief comments put forward within Section 5 are aimed primarily at achieving
                  ‘completeness’.

5.1     Ship owners’ administrative activities

                  In many ship owner circles, administration is regarded under the heading of
                  financial management. This is not necessarily an area in which third party management
                  will be involved but it may have some elements that could find its way into such a remit.
                  However, even when undertaken in-house it still forms part of the overall management
                  operation.

                  The overheads relating to ship operation cover both management functions attributable
                  directly to the ship and its trading/ operation and costs associated with the process of
                  ‘running a business’. As the operation of a ship or ships cannot be divorced from ‘the
                  business’ it stands to reason that these further overheads need to be factored into the
                  ship budgets as the income derived has to contribute these costs.

                  However, what seems logical in theory can be complex in practice. For example,
                  what if the ‘business’ is not concerned solely with the running of ships? What if the
                  ‘business’ owns property, which it sub-lets to others? It is not difficult to add to the list of
                  “what ifs”. Furthermore, the scale – and cost – of ‘back office’ operations (and
                  commissions to third parties) will vary considerably between a single centre operation and
                  one with a spread of offices around the globe or between a small fleet tramp operator and
                  an oil major or a major global containership line.

                  Arguably, costs in the administration ‘category’ can be sub-divided between
                  unavoidable and ‘optional’ – although the dividing line will vary from company-to-
                  company.

                  The former will include:

                  •   The company base – i.e. its office and all the costs concerned with purchase/rent,
                      local taxes, power, heating/lighting/air conditioning, cleaning, maintenance, office
                      fixtures and fittings, information and databases, stationery, mail and other
                      communication costs, staff costs, fringe benefits, etc.

                  •   Banking costs.

                  •   Insurance costs – buildings, office personnel, professional indemnities, etc.

                  •   Accountancy and audit costs.

                  •   Taxation costs.


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                 •   Legal services costs.

                     (There will be some in-house resources dealing with book keeping and accounts
                     preparation but the services of auditors and lawyers routinely will draw on third party
                     specialists. Effectively, this is outsourced).

                 •   Other professional fees and professional/industry body membership costs.
                     (Some aspects of this might be optional).

                 •   Data and information costs. (Some aspects of this might be optional).

                 •   Shareholder dividends.

                 The latter will include such elements as:

                 •   Advertising and marketing.

                 •   Use of agents, brokers and other ‘third parties’.

                 •   Research and development.

                     Advertising and marketing

                 Advertising and marketing is an issue for a ship owner in the context of image and
                 public profile. For a substantial number of ship owners, a paramount aim appears
                 to be to minimise their public persona and maximise the secrecy surrounding their
                 activities and operations.

                 Creating corporate veils, ‘keeping things within the family’ and utilising one ship companies
                 as a ‘ring fencing’ measure can be legitimate strategic policies. If everything involved with
                 the ship passes without incident then few will get overly worked up about this. When
                 things go wrong, however, it looks less good to the outside world if there is an array of
                 confusing ‘audit trails’ and an appearance of a ‘not me’ culture when it comes to taking
                 responsibility.

                 The public and general broadcasting media has become used to leading with stories of oil
                 covered seabirds and shorelines supported by vocal comment from environmentalists and
                 politicians in affected regions.    The shipping industry is almost invariably silent.
                 Consequently, issues such as ports of refuge (or the lack of) are dismissed to a footnote at
                 most while ship’s master get arrested and, effectively, ‘hung out to dry’.

                 In contrast, ship managers need to have a visible profile. They are competing for
                 business and so need a profile to emphasise their advantages.

                 There is a sector of shipping where there is an obligation to market and advertise.
                 This is the liner sector. The ships’ timetables and port rotations have to be made known
                 to the array of shippers from whom cargo is being sought. Indeed, the pre-published
                 timetable is part of the defining characteristics of liner shipping. Furthermore, liner vessel
                 liftings may well be higher value cargoes – where the operator responsible for carriage
                 assumes a greater prominence than with tramp business.

                 This said, all of shipping is facing pressure to open itself up – even if at present this
                 pressure is slight and slow to gain momentum. The pressure is coming from the


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                  ultimate users of shipping services – a sector of the industry that many ship owners and
                  operators still find difficult to visualise as the ‘customer’. In the end, the customer is likely
                  to get what the customer wants. Many of these emerging ‘powers’ are in control of supply
                  chains and logistics functions. They crave transparency. They want to “shine lights into
                  dark places”. They do not want to become embroiled in ‘arcane practices’. They expect
                  their service providers to meet key performance indicators that they will set. At the end of
                  this could be a whole new administrative tier or tiers. It could see some in shipping
                  working in conjunction with third or fourth party logistics providers.

                  This may well be some way off for much of the shipping industry. However,
                  changes will arrive – or be forced on shipping companies – and managing change
                  may be a new administrative requirement.

                       Research and development

                  Research and development (R&D) can be a thorny subject in any business. Always, it is a
                  balance between seeking improvement versus the cost of achieving this. Also, R&D is a
                  topic open to a wide range of interpretation. Ever cost conscious shipping companies
                  tend to be wary of R&D spending.

                  In contrast, a number of ship managers have seen R&D as a path to improve their
                  market advantage – for example through the development of software modules. Training
                  is another area where ship managers can take the lead.

                  R&D considerations are likely to fall into one of four areas, namely:

                           Ships
                           Trading opportunities
                           Systems
                           People

                  R&D on the “hardware” – i.e. ships – is a factor at the newbuilding design stage or at
                  the time of a major re-fit or conversion and not normally within an owner’s remit. The
                  probability is that most ‘ship’ developments will arise from shipbuilders and equipment
                  makers with some input from safety focused groups including classification societies.

                  Research – possibly commissioned through third party experts* – into new or varied
                  trading opportunities may not be undertaken in shipping to the extent that some outside
                  the business might anticipate. Clearly, it is going to be critical in liner shipping sectors
                  where complex decisions are needed on fleet deployment, hub port choices, feeder
                  service patterns, ‘loops’ and ‘pendulums’, etc. Furthermore, it is an area of growing
                  importance for those ship operators who are looking to rebrand themselves not as
                  shipowners but as logistics companies.

                  System developments nowadays tend to suggest a requirement for I.T. budgets, etc.
                  Only a few major shipping companies are likely to be backers/sponsors of these projects.

                  R&D in the ‘people category’ concerns education and training – or, as it is known
                  increasingly, continuing professional development.


                  *   Though some shipping companies – mainly in the liner sector or in ‘major’ tramp sector companies –
                      will feel it worthwhile to operate an in-house research and planning team.


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180
                                    Figure 5.1
                                    Typical structure of a technical ship management company
                                                                                                                                                                                                                             Administration




                                                                                                                       Managing Director



                                     Fleet Technical Director        Fleet Personnel Director                 Fleet Safety & Insurance Director


                                        Tech           Tech                  Personnel                Safety & Security                Insurance                        Accounts                        IT
                                        Mgr A          Mgr B                  Manager                      Officer                    Administrator                     Manager                       Manager


                                      Monitor technical reports.     Selection of Officers         Communication with PSO         Review and negotiate          Maintain complete             Maintain company's IT
                                      Schedule R&M.                  and Ratings.                  internationally.               insurance policy.             auditable accounts for        system protecting it against
                                      Schedule surveys.              Setting selection criteria    Arranging and maintaining      Maintain record of all        individual ships.             spam and unauthorised
                                                                     and meeting STCW.             security training              casualties.                   Prepare and despatch          access.
                                      Certifications.                                              requirements.
                                                                     Verification of documents                                    Appoint adjusters/            monthly accounts to           Conduct onboard audit of
                                      Schedule external                                            Maintaining record of near     specialist investigators.     owners or update accounts     system.
                                      inspections.                   and certificates.
                                                                                                   misses.                        Appoint towage/salvors.       if accessible through IT.     Set policy for use of
                                      Schedule internal audits.      Scheduling relief                                                                                                        company system.
                                                                     repatriation.                 Analysing and determining      Maintain all records for at   Maintain all vouchers as
                                      Plan dry dockings and                                        trends.                        least seven years.            required by regulation.       Review/upgrade system
                                      repairs.                       Arranging transportation                                                                                                 and documents required
                                                                     and attendance.               Preparing and updating                                       Arrange annual audit and
                                      Inspect vessels.                                             safety quality and security                                  returns.                      for ship operation.
                                      Prepare budgets.               Maintenance of records        manuals.
                                                                     and details of next of kin.                                                                Arrange timely payments to
                                      Schedule dry dockings and                                    Maintaining records of all                                   creditors/suppliers/service
                                      repairs.                       Arranging medical             casualties.                                                  providers.
                                      Arrange supplies of stores     examinations and              Investigating root causes.
                                                                     treatment.                                                                                 Verify invoices against
                                      and spare parts.                                             Arranging safety seminars.                                   delivery and quotations.
                                      Arrange technicians and        Negotiating with unions                                                                    Analyse budget/actuals.
                                                                     and welfare bodies.           Inspecting fleet for breach
                                      servicing.                                                   of company
                                      Attend repairs and             Setting social and welfare    policy/procedures.
                                      dockings.                      provisions.
                                                                     Arranging payments of         Arranging safe working
                                      Instruct/guide on                                            environments.
                                      breakdowns and failures.       allotments and wages.
                                                                                                   Upgrading awareness on
                                      Communicate with owner's       Monitoring well being.        safety and security.
                                      office.                        Arranging training.           Arranging un-announced
                                      Attend drills and exercises.   Monitoring and facilitating   drills on safety/security.
                                                                     cadet training and            Arranging additional safety
                                                                     progress.                     training.
                                      Member of company's
                                      emergency response             Appoint crewing agents.       Exercising drills with
                                      team and safety                                              NRC (OPA requirement).
                                      committee                      Member of company's           Liasing with media.
                                                                     emergency response
                                                                     team and safety
                                                                     committee                     Member of company's
                                                                                                   emergency response
                                                                                                   team and safety
                                                                                                   committee

                                    Source: Drewry Technical Services
                                                                                                                                                                                                                             Ship Management




© Drewry Shipping Consultants Ltd
Ship Management                                                                                   Administration


                  The merits of spending in this area are two pronged – first, it improves the skill base and
                  decision making capability of the company but, second, it send signals to others. This
                  appears to be an issue with some financiers and others where, while content with the
                  existing set up for now, there is a wish to feel comfortable about the ‘next generation
                  of management’. Some see a need for the future management within shipping to be
                  ‘more corporate than intuitive’. The last point indicates that continuing development is a
                  matter for the shore side office as well as seagoing personnel.


5.2     Ship manager’s administrative activities

                  The administrative cost burden that a ship manager has to recover will be determined by
                  the scale of the manager’s operations and its location or locations. Clearly, it is not
                  possible to start generalising on this is in a quantitative manner.


                  However, by way of offering insight, the following picture – illustrated via Figure 5.1 –
                  represents the likely structural set up of a third party technical ship management operation.
                  Figure 5.1 sets out the key components around which the operation will be staffed.
                  Clearly, the actual number of staff required will depend on how many ships the operation
                  has to provide services for. Figure 5.1, therefore, might be taken to be illustrative of the
                  areas of expertise an owner might ‘tap into’ if the choice is made to outsource technical
                  management.


5.2.1 Illustrative technical management staffing structure

                  The managing director (Head Office) is in overall charge of setting company policy and
                  procedures with other directors, acting as heads of a group or department, responsible for
                  the implementation of these policies. Regional offices with their own managing directors
                  report to the managing director at the head office. Whilst the regional office may be a
                  specific profit centre, it functions under the directives of the head office, using common
                  sourcing for crewing, accounting procedures (allowing for any local regulations), safety and
                  IT policies.


                  Regional offices maintain contact with their own client base and have some areas of
                  autonomy (e.g. being permitted to conduct specific OPA drills in respect of vessels under
                  their control).


                  Usually, officers and crew serving onboard vessels controlled from the regional
                  office remain exclusive to it. The regional office will then take control of any
                  specific training requirements for its crew in order to enhance its effectiveness.
                  However, source of supply remains common and is controlled from the main office. All
                  regional offices use main office travel arrangements and liase with the head office for crew
                  relief/repatriation etc .


                  Procurements are conducted through a common resource (i.e. the purchasing
                  department) head quartered at the main office. All invoices are approved by the regional
                  office and sent back for entry and disbursement. Any urgent requirements of the vessel(s)
                  generally are handled directly, with suitable entry in the system.


                  Local employees are governed by local rules as is the accounting system, which will
                  be subject to local regulation and rules on audited accounts and submission of returns.


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                 R&M policies for vessels under the control of regional offices remain independent,
                 all planning and executions being dealt with locally, although most head offices require
                 information on certification status, accidents, casualties, incidences and near
                 misses to be entered into the common database of the company. Any incidence
                 which may impact upon the main group and/or which may require media control is reported
                 to the head office managing director, who will control media response suitably.

                 Annual/biannual meetings and safety meetings are held, where all department heads
                 gather to formulate future policies and review past performance.




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6. Training
                  With seafaring being an inherently perilous occupation, it is vital for the safety of crew, ship
                  and cargo that all involved are fully conversant with – and able to perform competently – all
                  their required seagoing operational and management tasks. Consequently, training is a
                  vital component. Furthermore, with talk of – rightly or wrongly – a looming officer shortage
                  and problems of seafarer retention, the ability to develop a cadre of well trained personnel
                  – operating within a socially acceptable employment environment – is going to be an
                  advantage to an owner or manager. A good training regime offers those involved scope
                  for advancement – which should be an attractive proposition for the more able personnel.

6.1     Introduction

                  Training within the seafaring industry is piecemeal and attitudes can be
                  inconsistent. For example, there are numerous ship owners who will expect their ships to
                  be manned by fully qualified and experienced staff but will baulk at the ‘cost’ of employing
                  and training cadets. (Cadets have to gain their experience somewhere).

                  Unfortunately, the issue of ‘who pays’ tends to be the biggest problem in terms of
                  training. Moreover, variations occur from country-to-country.

6.2     Sample approach – India

                  Following the STCW requirement, the Government of India – through the office of the
                  Director General of Shipping – promulgated M.S Notice No 24/2002 which sets out the
                  ‘Criteria for Selection of Candidates for Various Pre-Sea Training Courses’ as listed in
                  Table 6.1. The requirements specified in Table 6.1 with regard to academic qualifications
                  are the basic minimum and the training institutes/workshops are to select candidates on
                  merit.

                  The selection procedures should be absolutely transparent and published in detail in
                  advertisements as well as in admission brochures. The institutes/workshops are to ensure
                  candidates are physically fit and medically examined as per medical examination rules.

                  Following service on board ships, both the navigating and engineering officers are required
                  to undertake prescribed examinations for the next position of responsibility. For those that
                  have achieved the highest ranks of Master and Chief Engineer, their Certificate of
                  Competency is required to be revalidated at regular intervals and, as part of this
                  revalidation process, they will undertake further training as required.

                  Crew members serving onboard tankers will need to have requisite type specific
                  endorsements along with basic/advanced fire fighting, first aid and lifeboat handling
                  endorsements.

6.3     Selected other examples

                  Table 6.2 notes some background on the nature of training regimes in a number of other
                  key seafarer source locations. From this, it will be apparent there are important
                  differences – not least in terms of who is responsible for training costs. This may be an
                  issue that the shipping industry has to address in future years if it is ensure progress is
                  driven purely by merit.


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Table 6.1
Criteria for selection of candidates for various pre-sea training courses in India

Details of Course                                   Minimum Academic                          Maximum Age at
                                                       Qualifications                    Commencement of Course

4-month Pre-sea course for general      Passed 2 year ITI course approved by the                  21 Years
purpose ratings or for fitters/petty    Government.
officers

4 month Pre-sea course for GP           Formal schooling to O level, with Maths,                  21 Years
ratings                                 Science and English as subjects.

4 month Pre-sea course for saloon       (1) Formal schooling to O level, with                     21 Years
ratings                                     English as a subject.


                                        (2) Pass 2 year degree/diploma in hotel                   21 Years
                                            management & catering technology
                                            course of no less than 2 years of
                                            attendance

3.5 months Pre-sea Deck Cadet           (1) Formal schooling to A level with Maths,               20 years
course                                      Physics, Chemistry and English as
                                            separate subjects.


                                        (2) B.Sc. in Physics, Mathematics,                        22 years
                                            Chemistry or Electronics.

3 Year course leading to B.Sc. degree   Formal schooling to A level with Physics,                 20 Years
in Nautical Science                     Chemistry Mathematics and English as
                                        separate subjects.

4 Year degree course in Marine          (1) Formal schooling to A level with                      20 Years
Engineering                                 Physics, Chemistry, Mathematics and
                                            English as separate subjects.


                                        (2) or candidate may join 2nd year of he                  22 Years
                                            above 4year course, subject to having
                                            passed 1st year training from an
                                            alternate training scheme approved by
                                            the DG Shipping.

1 Year Trainee Marine Engineering       Graduate in Bachelor of Engineering /Naval                24 Years
course                                  Architecture

4 Year Workshop training                Formal schooling to A level with Physics,                 20 Years
                                        Chemistry, Mathematics and English as
                                        separate subjects.

2 Year Trainee Marine Engineering       Diploma in Mechanical/Marine/                             22 years
course                                  Shipbuilding/Naval Architecture/Electrical
                                        Engineering.


Source: DG Shipping, Government of India



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Table 6.2
Selected indicators on training regimes

                Nautical    Training Periods                 Cost Implications
               Colleges

China              6        Cadet to officer: 4-5 years.     Officer training costs shared by officer and employer.
                                                             No wages paid during short training course.
                                                             Basic pay for Certificate of Competency study time.

Croatia            5        Cadet to officer: 12 months      Cadet/officer normally pay own training costs.
                            sea time plus around 2           Bridge Team courses normally paid for by the owner or
                            years college time.              manager.
                                                             No wages paid during short training course.
                                                             Normally, no wages during Certificate of Competency
                                                             study time.

Denmark            10       Cadet to officer: 4-4.5 years.   Course costs normally paid by the cadet.
                                                             Short course costs normally paid by the company.
                                                             Officers may take 7 training days per year with these
                                                             being treated for time/pay purposes as leave.
                                                             Full wages during Certificate of Competency study.

Philippines        *        Cadet to officer: 4 years        Cadet/officer normally pay own training costs but there
                            including 3 years at college.    might be employer or government subsidy.
                                                             No wages paid during short training course.
                                                             Normally, no wages during Certificate of Competency
                                                             study time.

Poland             3        Cadet to officer: 3-5 years      Cadet training subsidised at public school but not at
                            depending on school.             private school. Officer sometimes may get funding
                                                             from employer.
                                                             No wages paid during short training course.
                                                             Normally, no wages during Certificate of Competency
                                                             study time.

Russia             7        Cadet to officer: 4 years        Cadet training costs paid by the government. Officer
                            including 3 years at college.    costs paid by the officer.
                                                             No wages paid during short training course.
                                                             Normally, no wages during Certificate of Competency
                                                             study time.

UK                 5        Cadet to officer: 3-4 years.     Cadet training costs shared by government and
                                                             employer. Officer training costs paid by the company.
                                                             Full wages paid during short training course.
                                                             Some level of wage payment during Certificate of
                                                             Competency study time.

* Not all establishments have achieved STCW standard accreditation.

Note: In some cases, employers may meet some or all Certificate of Competency study costs indirectly via some
      form of subsequent payment conditional upon examination success and a return to company service.
Sources: Precious Associates Ltd., Drewry Shipping Consultants Ltd.




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6.4        Ship manager approaches

                It has been noted elsewhere that manning can turn out to be the key to securing
                wider technical management contracts. Hence, training has become an issue that
                ship managers also have to address.

                Pursuant to coming into force of the ISM code, many of the ship management
                companies have set up their own training centres, generally located at points of
                major recruitment. These provide additional training in such areas as:

                        Bridge resource management.

                        Engine room resource management.

                        Oil/Chemical tanker familiarisation.
                        Quality (IS0 9000), ISM familiarisation, Total Quality Management.

                        Environment Protection (IS0 14001), Safety, Hazardous Materials, Crisis
                        management and OPA familiarisation.

                        Ship handling, by simulation and/or attendance at one of the recognised centres,
                        particularly for officers serving onboard VLCCs and gas carriers.

                For cadets serving onboard vessels, generally they are enrolled at a recognised
                maritime technical school (e.g. in the UK at Warsash College) which will create course
                work designed to assist the cadets in their understanding of their work onboard and
                also to progress their studies in line with examination requirements on completion
                of training.

                Interactive or video training, an area in which Videotel has become almost a standard
                tool, is of increasing importance in raising the awareness level of the crew in matters of
                personal safety as well as shipboard safety.

                July 2004 brings with it the introduction and coming into force of the ISPS rules, which will
                require every company to undertake the training of a Company Safety Officer (CSO) and a
                Ship Safety Officer (SSO). As yet this area remains unexplored but there are several
                companies offering to provide training.




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7. Management agreements and
   documentation
                  Engaging the services of a third party ship manager – whether covering the whole gamut
                  of technical and commercial activities or a selected speciality such as crewing – involves
                  the owner entering into contractual arrangements. Owners and managers will have their
                  own preferences on how this is settled, however, by way of illustration, comment is noted
                  below on current documentation issued via Bimco (detailed further in Appendices 3A, 3B
                  and 3C).


7.1     Introduction

                  As with any documentation, it is perfectly possible for the parties involved to draw
                  up whatever form of agreement suits them. However, as with documents such as
                  charterparties or saleforms, there is a trade off between some form of standardised
                  document – which may well have been fully tested within the court/arbitration
                  system – and a ‘home made’ product.


7.2     “SHIPMAN 98”

                  The prime example of a standardised contribution comes from the Baltic and
                  International Maritime Council (Bimco), which is responsible for the standard ship
                  management agreement codenamed “SHIPMAN 98”.


                  “SHIPMAN 98” is a ‘full services’ or ‘selected services’ document as the parties
                  have to indicate ‘yes’ or ‘no’ to the inclusion of the following:


                  •   Crew management.

                  •   Technical management.

                  •   Commercial management (a subsequent item specifies the chartering
                      services period).

                  •   Insurance arrangements.

                  •   Accounting systems.

                  •   Vessel sale or purchase.

                  •   Provisions.

                  •   Bunkering.


                  Other details spelt out will relate to owners’ insurance, the annual management fee,
                  severance costs, law and arbitration. The agreement also authorises the managers “to
                  take such actions as they may from time-to-time in their absolute discretion consider to be
                  necessary to enable them to perform (the agreement) in accordance with sound ship
                  management practice”.



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                Some of the specific requirements* set out in the clauses of “SHIPMAN 98” include:

                •    Crew management:

                          Provision of suitably qualified crew for the vessel as required by the owners in
                          accordance with STCW 95 requirements.

                          Selecting and engaging the crew – including payroll arrangements, pension
                          administration and insurances for the crew.

                          Ensuring legal compliance with the requirements set by the flag state with regard
                          to manning levels, rank, qualification and certification of the crew and with
                          requirements covering employment regulations (including crew’s tax, social
                          insurance, discipline and other requirements).

                          Ensuring crew members have passed necessary medical examinations and
                          possess relevant medical certificates in line with flag state stipulations.

                          Ensuring the crew have an adequate command of English.

                          Arranging crew transportation, including repatriation.

                          Providing crew training.

                          Negotiating with unions.

                          Operating a drug and alcohol policy.

                •    Technical management:

                          Provision of competent personnel to supervise the maintenance and general
                          efficiency of the ship.

                          Arranging and supervising drydockings, repairs, alterations and upkeep of the ship
                          to standards required by the owner – provided that the managers are entitled to
                          incur the necessary expenditure to ensure that the vessel complies with the laws
                          of its flag state, the laws of countries to which the vessel trades and the
                          recommendations of the ship’s classification society.

                          Arranging the supply of stores, spares and lubricating oils.

                          Appointing, as necessary, surveyors and technical consultants.

                          Developing, implementing and maintaining a safety management system (SMS) in
                          accordance with the ISM Code.

                •    Commercial management:

                          Provision of chartering services in line with owner’s instructions – including
                          seeking and negotiating employment for the ship and concluding and executing
                          charterparties or other vessel employment contracts.

                          Arranging the payment of hire/freight revenues to the owner.

                          Provision of voyage estimates and accounts and calculations of hire/freights,
                          demurrage/despatch and other monies due to or from charterers.



                *   The requirements are not limited necessarily to the points mentioned in this report.


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                          Issuing voyage instructions.

                          Appointing agents.

                          Appointing stevedores (where applicable).

                          Arranging surveys associated with the commercial operation of the ship.

                  •   Insurance arrangements:

                          Arrange insurance in accordance with owner’s instructions – particularly focusing
                          on conditions, insured values, deductibles, etc.

                          The owners – whether via instructions to the manager or independently – are
                          obliged at owner’s expense to ensure that:

                              the ship is insured for not less than its sound market value.

                              the ship is entered for its full gross tonnage for usual H&M risks (including
                              crew negligence) and excess liabilities, P&I risks (including pollution risks and
                              crew insurances) and War Risks (including P&I and crew risks). Insurance
                              cover is to be in accordance with “the best practice of prudent owners of a
                              similar type to the vessel, with first class insurance companies, underwriters
                              or associations”.

                  •   Accounting services:

                          Establish an accounting system that satisfies owner’s requirements.

                          Provide regular accounting services, reports and records.

                          Maintain all records of costs/expenditures and data necessary for the settlement
                          of accounts between the parties.

                  “SHIPMAN 98” then indicates manager and owner obligations, rights to sub-contract, the
                  provision for the annual management fee to be subject to annual review, issues relating to
                  documentation, general administration, auditing, termination and legal resolution of
                  disputes.


7.2     “CREWMAN”

                  Crew management can feature as a separate and distinct management item. Bimco
                  has sought to provide assistance in this field via its Standard Crew Management
                  Agreement (“CREWMAN”).

                  There are two versions of the documentation – “CREWMAN A – Cost Plus Fee” and
                  “CREWMAN B – Lumpsum”.

                  The basic definitions of the role of crew management are the same as specified
                  within “SHIPMAN 98”.

                  As would be expected, much of the essence of these two forms is the same. However, the
                  initial ‘box form’ does have variations. Both begin with agreement date, owner’s details,
                  manager’s details, date of agreement commencement and termination and vessel flag
                  details. The variations that follow are:


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                         "Box" No.*       CREWMAN A                       CREWMAN B

                             6            Accounting services             Crew insurance arrangements
                             8            Insurance arrangements          Insurance arrangements
                             9            Crew management fee**           Crew management lumpsum**
                            10            Lay-up/extensive repair         Vessel's regular trading area
                            11            Termination                     Crew overtime expenses
                            12            Law and arbitration             Initial crew transportation costs
                            13            Notices                         Lay-up/extensive repair
                            14            Notices                         Termination
                            15                                            Law and arbitration
                            16                                            Notices
                            17                                            Notices

                        * In both cases, "Box" No. 7 relates to the flag of the vessel.
                        ** In both cases, a monthly amount is to be stated.


                Touching upon some of the ‘boxes’, the added standard clauses allow for:

                •    Accounting services/insurance arrangements:

                         The wording is effectively identical to that used in “SHIPMAN 98”.


                •    Crew insurance arrangements:

                         This requires the owners to insure the crew and “any connected parties
                         proceeding to sea” for crew risks – which can include death, sickness,
                         repatriation, injury, shipwreck unemployment indemnity and loss of personal
                         effects, etc.

                         It requires the owners to ensure all crew insurance premiums and calls are paid
                         promptly and by their due date.

                         It requires that the crew insurances name the crew managers as co-assured.


                •    Lay up/extensive repair:

                         Box 10 or Box 13, depending on the form used, specifies the number of months
                         which has to be exceeded before there is a fee revision and re-manning (down
                         manning level) agreement needed.

                         The reduced fee/down manning term runs until one month before the vessel is
                         returned to service.

                         Consequential costs of reduction and reinstatement of the crew are for the
                         owner’s account.


                •    Vessel’s regular trading area:

                         This applies under the lumpsum arrangement and relates to a particular clause
                         wherein the lumpsum is required to cover “port disbursements and fees in respect
                         of crew matters”.



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                  •   Crew overtime expenses:

                          The ‘box’ requires the amount of crew overtime covered by the lumpsum to be
                          spelt out – with any overtime in excess of this being payable by the owner to the
                          manager at an agreed rate.


                  •   Initial crew transportation costs:

                          Unless stated otherwise in the ‘box’, costs from point of departure in country of
                          domicile are for the owner’s account.


                  Within the lumpsum form version, specific items to be covered within the lumpsum include:

                          Payments to the crew in accordance with their contracts of employment.

                          Costs in providing insurance cover (including deductibles).

                          Costs of crew documentation – including medical and vaccination certificates,
                          passports, visas, seaman’s books, licenses, crew lists, etc.

                          Crew travel costs other than initial transportation costs, including hotel expenses
                          and food. (Owners will be liable for added costs if these expenses arise due to
                          the vessel operating outside its designated trading area/region).

                          Port disbursements and fees relating to crew matters.

                          The cost of crew mail and crew communication from the vessel.

                          The cost of food for the crew.

                          Working clothes.

                          Other costs “necessarily incurred by the crew managers in providing the crew
                          management services”.




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Appendices

     Appendix 1      Key cargo manifest information required by US Customs from 2 December 2002            195


     Appendix 2      Port state control target lists                                                       197

            A2.1     Paris MOU                                                                             197

                     Table A2.1      Black to Grey list                                               197-198

                     Table A2.2      White List                                                            199

                     Table A2.3      Explanatory note: Paris MOU                                           200

            A2.2     Tokyo MOU                                                                             201

                     Table A2.4      Black to Grey List                                                    201

                     Table A2.5      Classification Societies with detention percentages exceeding

                                     3 year rolling average                                                202

            A2.3     US Coast Guard                                                                        203


     Appendix 3A     Standard ship management agreement – SHIPMAN 98                                  205-214

     Appendix 3B     Standard ship management agreement – CREWMAN A                                   215-222

     Appendix 3C     Standard ship management agreement – CREWMAN B                                   223-230




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                  Appendix 1
                  Key cargo manifest information required by US Customs from
                  2 December 2002

                       1.      Foreign port of departure.

                       2.      Standard Carrier Alpha Code (SCAC) – to be assigned by US Customs.

                       3.      Vessel's voyage number.

                       4.      Date of scheduled arrival at first US port.

                       5.      Number and quantities and packages from the bill of lading (i.e. the number of
                               the lowest external packaging units).

                       6.      First port of receipt by the vessel ocean carrier.

                       7.      Precise description (or Harmonised Tariff Schedule numbers) and weight of the
                               goods or, for a sealed container, the shipper's declared description and weight of
                               the cargo. Generic descriptions, specifically FAK (freight of all kinds), general
                               cargo and STC (said to contain) are not acceptable.

                       8.      Shipper's name and address or identification number – from all bills of lading.

                       9.      Consignee's name and address or identification number – from all bills of lading.

                      10.      Name of the vessel, national flag and vessel number.

                      11.      Foreign port where the cargo is taken on board.

                      12.      International hazardous goods code when such material is shipped.

                      13.      Container number.

                      14.      Numbers of all seals affixed to the container.

                  Source: US Customs


                  •         Examples of areas where existing working practices are likely to need changing
                            are:

                               One major line has indicated its belief that to meet the 24 hour deadline at least
                               12 hours will be needed for proper data processing.

                               A key terminal in Hong Kong has indicated that it had been accepting cargo up to
                               12 hours before sailing and used special ‘late gates’ for cargo at 6-8 hours before
                               sailing. The changes will mean boxes sitting for longer in the yard and require
                               more space – which many terminals will not have.

                               There are serious ramifications for consolidators and forwarders – who appear to
                               have been the most vocal complainants – especially if their modus operandi


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                       features less than container loads (LCL) which in turn seek to be boosted by last
                       minute “blitzes” to collect bits of cargo. These “bits” tend to be declared as FAK,
                       general cargo or STC.

             •    Clearly, the US Customs are going to use this information for inspection
                  targeting. One concern ship operators face is that the box selected could be bound
                  for a different port to that where the inspection takes place – and so it may have to be
                  ‘dug out’ from the bottom of the ship, which in turn will cause delays*.

             •    It is hoped that two factors will alleviate concerns. First, the aim appears to be for
                  the development of an electronic “load” or “no load” message response
                  system. However, this is not in place yet. Second, the US wants to have a system of
                  US inspectors based in foreign ports – the Container Security Initiative (CSI). The
                  belief is that CSI cleared shipments ought to secure more rapid clearance on arrival in
                  the USA.

             •    However, the CSI is creating its own controversies.                          These include cost
                  questions such as:

                       Who pays for the extra screening?

                       Who is liable if goods are damaged during the screening process?

                  Legal questions such as:

                       What are the legal ramifications of US legislation being carried in an area not
                       subject to US jurisdiction?

                       What are the potential legal conflicts – one source, for example, has raised
                       subject areas such as data protection legislation.

                  Political issues such as:

                       A number of countries/ports have struck bilateral deals with the USA to accept
                       CSI. The EU has threatened “infringement procedures” against member states
                       striking such deals and demanding an EU-wide agreement. Part of the concern
                       with this is a potential to distort the competitive position between ports and,
                       perhaps, create undue congestion through cargo gravitating to a CSI supporting
                       port.




             *   An added issue will be who has to pay for these extra costs. Should it fall solely on the shipper whose
                 box is ordered off? Or, should it be shared by every customer? Also, what is the ‘true cost’ if the delay
                 throws schedules out of line for several weeks?


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Appendix 2
Port state control target lists




A2.1 Paris MOU



Table A2.1
Black to Grey list

  Risk Factor     Excess     Flag State      Ranking on 2002 List       Ranking on 2001 List       Ranking on 2000 List
  (2003 list)     Factor                    ____________________       ____________________       ____________________
(Grey to White    (2003
                                            Risk             Excess    Risk             Excess    Risk              Excess
    Limit)         List)


Black List

Very High         14.35    Albania         Black/Very High   12.79    Black/Very High   12.23    Black/Very High     10.50
                  12.88    Bolivia         Black/Very High   12.46    Black/Very High   13.16
                  11.59    Sao Tome &      Black/Very High   11.45    Black/Very High    9.82
                           Principe
                   9.26    Tonga           Black/Very High    5.24
                   7.84    Lebanon         Black/Very High    8.07    Black/Very High    7.64    Black/Very High      7.50
                   7.07    Algeria         Black/Very High    8.12    Black/Very High    6.53    Black/Very High      4.47
                   7.05    Dem. Rep.
                           Korea
                   7.04    Honduras        Black/Very High    9.00    Black/Very High    9.63    Black/Very High      9.25
                   6.30    Cambodia        Black/Very High    7.10    Black/Very High    7.19    Black/Very High      5.57
                   5.85    Georgia         Black/Very High    7.11    Black/Very High    4.81    Black/Very High      4.61
                   5.65    Turkey          Black/Very High    6.28    Black/Very High    5.49    Black/Very High      5.48
                   5.07    Syria           Black/Very High    6.33    Black/Very High    7.20    Black/Very High      7.47
                   4.90    Libya           Black/Very High    5.32    Black/Very High    5.54    Black/Very High      4.42
                   4.25    Romania         Black/Very High    5.22    Black/Very High    4.92    Black/Very High      5.83
                   4.16    Belize          Black/Very High    5.57    Black/Very High    7.09    Black/Very High      7.99



High               3.93    St. Vincent &   Black/High         3.93    Black/High         3.86    Black/Very High      4.00
                           Grenadines
                   3.67    Morocco         Black/Very High    4.48    Black/High         3.07    Black/High           3.88



Medium to          2.47    Ukraine         Black/Med-High     2.89    Black/Med-High     2.57    Black/Med-High       2.34
High               2.21    Egypt           Black/High         3.20    Black/Med-High     2.97    Black/High           3.93



Medium             1.90    Panama          Black/Medium       1.94    Black/Medium       1.91    Black/Medium         1.88
                   1.65    Malta           Black/Medium       1.99    Black/Med-High     2.10    Black/Med-High       2.09
                   1.38    India           Black/Medium       1.88    Grey               0.77    Grey                 0.64
                   1.38    Bulgaria        Black/Medium       1.23    Grey               0.95    Black/Medium         1.46
                   1.35    Tunisia         Grey               0.54    Grey               0.55    Grey                 0.55
                   1.33    Cyprus          Black/Medium       1.60    Black/Medium       1.82    Black/Med-High       2.02




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Table A2.1 (cont’d)

  Risk Factor     Excess      Flag State        Ranking on 2002 List     Ranking on 2001 List     Ranking on 2000 List
   (2003 list)    Factor                       ____________________     ____________________     ____________________
 (Grey to White   (2003
                                               Risk           Excess    Risk           Excess    Risk            Excess
      Limit)        List)


Grey List

                    0.96    Croatia           Grey              0.89   Black/Medium      1.13   Black/Medium      1.34
                    0.83    Iran              Grey              0.70   Grey              0.49   Grey              0.75
                    0.74    Kuwait            Grey              0.95   Grey              0.76   Grey              0.78
                    0.74    Tuvalu            Grey              0.53   Grey              0.50   Grey              0.34
                    0.69    Cayman            Grey              0.79   Grey              0.81   Grey              0.56
                            Islands
                    0.67    Russia            Black/Medium      1.04   Black/Medium      1.37   Black/Medium      1.65
                    0.67    Azerbaijan        Black/Medium      1.25   Grey              0.94   Black/Medium      1.16
                    0.62    Portugal          Grey              0.93   Grey              0.99   Grey              0.53
                    0.61    Brazil            Grey              0.70   Grey              0.53   Grey              0.47
                    0.61    Qatar             Grey              0.79   Grey              0.75   Grey              0.45
                    0.58    Taiwan            Grey              0.46   Grey              0.38   Grey              0.16
                    0.57    Lithuania         Grey              0.82   Black/Medium      1.14   Grey              0.97
                    0.56    Gibraltar         Grey              0.42   Grey              0.73
                    0.53    Faroe Islands     Grey              0.76   Black/Medium      1.16   Grey              0.96
                    0.51    Estonia           Grey              0.44   Grey              0.53   Grey              0.58
                    0.46    Thailand          Grey              0.89   Black/Medium      1.89   Black/Medium      1.45
                    0.46    Latvia            Grey              0.83   Black/Medium      1.32   Black/Medium      1.40
                    0.44    Ethiopia          Grey              0.44   Grey              0.41   Grey              0.25
                    0.37    Malaysia          Grey              0.77   Grey              0.78   Black/Medium      1.79
                    0.24    Myanmar                                                             Grey              0.28
                    0.23    Rep. Korea        Grey              0.21
                    0.21    UAE               Grey              0.59   Grey              0.65
                    0.18    Vanuatu           Grey              0.17   Grey              0.26   Grey              0.28
                    0.18    Philippines       Grey              0.11   Grey              0.49   Grey              0.64
                    0.09    Spain             Grey              0.10   Grey              0.16   Grey              0.14
                    0.06    Poland                                     Grey              0.22
                    0.06    Austria
                    0.05    Barbados
                    0.03    Saudi Arabia      Grey              0.30   Grey              0.30   Grey              0.32



                            Others - 2002, 2001 and 2000 lists
                            Cuba                                       Grey              0.79   Black/Medium      1.76
                            Italy             Grey              0.43   Grey              0.73   Grey              0.70
                            Neths. Antilles   Grey              0.22   Grey              0.44   Grey              0.62
                            Greece                                     Grey              0.14   Grey              0.31
                            Switzerland                                Grey              0.10   Grey              0.05
                            Hong Kong                                  Grey              0.03   Grey              0.11
                            Bahamas                                    Grey              0.02
                            Israel                                     Grey              0.01   Grey              0.29
                            USA               Grey              0.06
                            Mauritius                                                           Black/High        3.03
                            Bangladesh                                                          Black/High        3.03
                            Pakistan                                                            Black/Med-High    2.06
                            Isle of Man                                                         Grey              0.12
                            Luxembourg                                                          Grey              0.08
                            PR China                                                            Grey              0.02

Source: Paris MOU



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                  Table A2.2
                  White List

                  2003 List                                 2002 list   2001 list   2000 list



                  White List

                  Switzerland
                  Japan                                       Yes         Yes         Yes
                  Italy
                  Marshall Islands                            Yes         Yes         Yes
                  Antigua & Barbuda                           Yes         Yes         Yes
                  France                                      Yes         Yes         Yes
                  Greece
                  Bahamas
                  Neths. Antilles
                  USA                                                     Yes         Yes
                  Israel
                  Bermuda                                     Yes         Yes
                  Singapore                                   Yes         Yes         Yes
                  PR China                                    Yes         Yes
                  Hong Kong                                   Yes
                  Luxembourg                                  Yes         Yes
                  Denmark                                     Yes         Yes         Yes
                  Liberia                                     Yes         Yes         Yes
                  Norway                                      Yes         Yes         Yes
                  Netherlands                                 Yes         Yes         Yes
                  Ireland                                     Yes         Yes         Yes
                  Germany                                     Yes         Yes         Yes
                  Isle of Man                                             YES
                  Finland                                     Yes         Yes         Yes
                  Sweden                                      Yes         Yes         Yes
                  UK                                          Yes         Yes         Yes



                  Others on White List in previous years:

                  Rep. Korea                                              YES         YES
                  Barbados                                    Yes         Yes         Yes
                  Austria                                     Yes         Yes         Yes
                  Poland                                      Yes


                  Source: Paris MOU




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Table A2.3
Explanatory note: Paris MOU

Explanatory note: Paris MOU – Black, Grey and White Lists*


      •   The performance of each flag state is calculated using a standard formula for statistical calculations in which
          certain values have been fixed in accordance with agreed Paris MOU policy.

      •   Two limits are included in the system - the "black to grey limit" and the "grey to white limit" - each with its own
          specific formula.

      •   In essence, the formulae determine the allowable number of detentions for either the black or the white list
          based on the number of inspections, the yardstick allowable detention limit (set at 7% by the Paris MOU) and the
          statistical significance level requsted (understood to be 95%).

      •   This leads to further calculations to determine the Excess Factor (EF). The implications for EF levels are:

                         EF = 4 and above             Very High Risk
                         EF = 3-4                     High Risk
                         EF = 2-3                     Medium-to-High Risk
                         EF = 1-2                     Medium Risk



Source: Derived from Paris MOU Annual Report.




Explanatory note: Paris MOU – Target Factors


Inspection targets for individual ships are set by:


      •   The Generic Factor - Graduated target levels apply according to:
          Flag:          Medium Risk (TF+4), Medium-to-High Risk (TF+8), High Risk (TF+14), Very High Risk (TF+20)
          Type:          Bulk Carrier >12 yrs, Gas Carrier >10yrs, Chemical Tanker >10yrs, Oil Tanker >20 yrs,
                         Passenger/Ro-Ro Ferry*
                         Non-EU recognised classification society: (TF+5)
          Age:           >25 yrs (TF+3), 21-24yrs (TF+2), 13-20 yrs (TF+1)
          Flag state:    Not ratified all main conventions (TF+1)
          Class:         Deficiency ratio above average (TF+1)

      •   The History Factor
          Entering region port for first time in 12 months (no inspection recorded in last 12 months): (TF+20)
          Not inspected in last 6 months (no inspection recorded in the last 6 months): (TF+10)
          Detained: (TF+15)
          No. of deficiencies: 0 (TF-15), 1-5 (TF 0), 6-10 (TF+5), 11-20 (TF+10), >21 (TF+15)
          Outstanding deficiencies from last inspection: Applied only in respect of latest inspection - for each listed action
          'rectify deficiency at next port' or 'Master instructed to rectify deficiency before departure' (TF+1) if 'all
          deficiencies rectified' is noted in the report (TF-2)

      •   The Overall Target Factor is calculated by adding the Generic and the History Factors but cannot be less
          than the Generic Factor.

Source: Paris MOU




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A2.2 Tokyo MOU


Table A2.4 – Black to Grey List

  Risk Factor     Excess        Flag State      Ranking on 2002 List    Ranking on 2001 List    Ranking on 2000 List
  (2003 list)     Factor                        __________________      __________________      __________________
(Grey to White    (2003
                                                Risk         Excess     Risk         Excess     Risk         Excess
    Limit)         List)


Black List

                  13.51    Dem. PR Korea       Black          33.54    Black          28.81    Black          23.70
                   8.99    Bolivia
                   7.48    Indonesia           Black          21.22    Black          15.45    Black           9.54
                   6.77    Cambodia            Black          20.48    Black          18.59    Black          23.06
                   5.41    Belize              Black          17.11    Black          17.34    Black          17.75
                   4.64    Vietnam             Black          16.14    Black          11.58    Black          14.07
                   3.30    Honduras            Black           5.70    Black           5.19    Black           4.73
                   3.10    Bangladesh
                   1.76    Malaysia            Black           3.14    Black           3.45    Black           1.03
                   1.72    Russia              Black           5.23    Black           3.85    Black           1.66
                   1.30    Thailand            Black           2.64    Black           2.73    Black           2.83
                   1.16    St. Vincent & the   Black           1.97    Black           5.29    Black           7.93
                           Grenadines
                   1.09    Papua New Guinea




Grey List

                   0.94    Turkey              Black           4.23    Black           6.41    Black           8.00
                   0.93    Taiwan              Black           1.96    Black           1.75    Grey            0.29
                   0.68    Egypt                                                               Black           2.61
                   0.66    Kuwait
                   0.66    India                                       Grey            0.17
                   0.61    Tonga
                   0.50    Iran                Grey            0.28    Grey            0.08    Black           1.48
                   0.47    Malta               Grey            0.07    Black           2.51    Black           3.35
                   0.46    Pakistan
                   0.43    Cayman Islands                              Grey            0.12    Black           1.02
                   0.31    Myanmar             Black           1.29
                   0.27    Italy
                   0.27    Neths. Antilles
                   0.18    Saudi Arabia
                   0.09    Sweden
                   0.04    USA
                   0.03    Croatia
                   0.03    Israel

                           Others - 2002 and
                           2001 lists
                           Rep. Korea          Grey            0.61    Black           2.16    Grey            0.56
                           Antigua & Barbuda                                                   Black           1.08
                           PR China                                                            Grey            0.89


Source: Tokyo MOU




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Table A2.5
Classification Societies with detention percentages exceeding
3 year rolling average

   Detention %       Classification Society                               2002 List         2001 List      2000 List
      (2003 List)                                                        Detention %      Detention %    Detention %

       74.39         Register of Shipping (DPR Korea)                       32.22             33.87              >30
       50.00         Turkish Lloyd                                          25.00             20.00
       33.33         R.J. Del Pan                                           30.00
       32.00         International Register of Shipping
       28.35         Isthmus Bureau of Shipping                             40.54
       22.22         International Naval Surveys Bureau                     33.33
       18.18         Panama Bureau of Shipping                              10.00                            10-15
       16.67         Panama Register Corporation                            14.81             45.83          25-30
       13.54         Biro Klasifikasi Indonesia                             30.49             50.00          10-15
       12.50         Polski Rejestr Statkow                                                    9.38
       12.15         Vietnam Register of Shipping                           38.03             38.89          25-30
       11.76         China Corporation Register of Shipping (Taiwan)        13.92                            10-15
       11.27         Honduras Int. Surveying & Inspection Bureau            15.63             25.00         7.5-10
         8.92        Russian Maritime Register of Shipping                  12.38             11.73          10-15
         7.89        INCLAMAR                                               28.57
         6.67        Average                                                 7.76              6.87           7.50


                     Hellenic Register of Shipping                          33.33             20.00         7.5-10
                     Bulgarski Koraben Registar                             25.00
                     Registro Italiano Navale                                7.95              7.83
                     Panama Marine Surveyors Bureau                                           11.76          10-15
                     Indian Register of Shipping                                              10.53         7.5-10
                     Croatian Register of Shipping                                                           10-15
                     China Classification Society                                                           7.5-10
                     Bureau Veritas                                                                         7.5-10


Notes:
These figures need to be interpreted with a degree of caution. In 2003 Turkish Lloyd ships accounted for 2 detentions
from 4 inspections. The most detentions (247) were ClassNK but this was only 3.92%.
Next highest (74) was Lloyd's Register - but only 4.46%. Third equal (60 detentions) were Register of Shipping
(DPR Korea) and American Bureau of Shipping - the latter however being at only 4.48%.
Likewise for the 2002 list, Bulgarski Koraben, Hellenic Register, Panama Bureau of Shipping and Turkish Lloyd
only generated one detention.

Source: Tokyo MOU




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A2.3 US Coast Guard


Table A2.6
US Coast Guard annual flag list

          2003                                                             2002                      2001
   Detention Ratio (%)      Flag State                             Detention Ratio (%)        Detention Ratio (%)

         46.15              Cambodia                                       30.77                     42.86
         37.50              Bolivia                                        42.86                    100.00
         21.74              Algeria                                        18.52
         16.67              Belize                                         23.08                     38.20
         16.22              Brazil                                         12.50
         13.79              Mexico                                         12.50
         12.90              Venezuela                                      14.29
         10.39              Honduras                                       18.18                     39.06
           8.82             Lithuania                                       6.25
           8.38             St. Vincent & the Grenadines                    6.11                     11.43
           7.41             Bulgaria                                        5.88
           7.20             Turkey                                          6.77                     11.41
           5.56             India                                           7.58                      8.94
           5.26             Croatia                                         5.77
           3.95             Cayman Islands                                  3.03
           3.85             Malta                                           3.63                      6.70
           3.30             Panama                                          3.78                      6.92
           3.27             Neths. Antilles
           2.99             Rep. Korea                                      3.43
           2.97             Cyprus                                          3.21                      8.19
           2.81             Antigua & Barbuda                               3.05                      5.56




           2.41             Average                                         2.69                      3.55


                            Others on previous lists:
                            Latvia                                         11.11
                            Portugal                                        6.67
                            Russia                                          3.27                      5.83
                            Thailand                                        4.69
                            Philippines                                                               5.14


Notes:
In 2003, Latvia (7.14%) and Portugal (4.17%) were removed as they had only one detention in the previous 3 years.
Russia (1.10%) and Thailand (1.89%) had moved to a below average figure.
Source: US Coast Guard




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Table A2.7
US Coast Guard Class targeting priorities

Category              2003 List                                                   2002 List             2001 List


Priority 1            China Corporation Register of Shipping                      5 Points               5 Points
                      Hellenic Register of Shipping                               Priority 1             Priority 1
                      Honduras Int. Naval Surveying & Insp. Bureau                Priority 1             Priority 1
                      INCLAMAR                                                    Priority 1             Priority 1
                      International Register of Shipping                          Priority 1             Priority 1
                      Isthmus Bureau of Shipping                                  Priority 1             Priority 1
                      Panama Maritime Documentation Services                      Priority 1             Priority 1
                      Panama Maritime Surveyors Bureau                            Priority 1             Priority 1
                      Panama Register Corporation                                 Priority 1
                      Panama Shipping Register                                    Priority 1             Priority 1
                      Phoenix Register of Shipping




5 Points              Polski Rejestr Statkow                                      5 Points               5 Points
                      Russian Maritime Register of Shipping                       Priority 1             Priority 1




3 Points              Korean Register of Shipping                                 5 Points               3 Points




                      Earlier year listings:
                      Registrul Naval Roman                                       Priority 1             Priority 1
                      China Classification Society                                3 Points               3 Points
                      Honduras Bureau of Shipping                                                        Priority 1
                      International Naval Surveys Bureau                                                 Priority 1



The 2003 category of 0 points included American Bureau of Shipping, Bulgarski Koraben Registrar, Bureau Veritas,
China Classification Society, Croatian Register of Shipping, Det Norske Veritas, Germanischer Lloyd, Honduras
Bureau of Shipping, Indian Register of Shipping, Int. Naval Surveys Bureau, Lloyd's Register, Nippon Kaiji Kyokai,
Panama Bureau of Shipping, Registro Italiano Navale, Romanian Naval Authority and Turku Lloyd Vafki.

A detention ratio of <0.5% = 0 points. 0.5%-1% = 3 points. 1%-2% = 5 points. >2% = Priority 1.

Source: US Coast Guard




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Appendix 3A
Standard ship management agreement – SHIPMAN 98
SHIPMAN and CREWMAN are reproduced by kind permission of BIMCO




           1. Date of Agreement
                                                                                                         THE BALTIC AND INTERNATIONAL MARITIME COUNCIL (BIMCO)
                                                                                                         STANDARD SHIP MANAGEMENT AGREEMENT
                                                                                                         CODE NAME: "SHIPMAN 98"
                                                                                                                                                           Part I
           2. Owners (name, place of registered office and law of registry) (Cl. 1)                      3. Managers (name, place of registered office and law of registry) (Cl. 1)

                Name                                                                                          Name

                 Place of registered office                                                                   Place of registered office

                Law of registry                                                                               Law of registry


           4. Day and year of comencement of Agreement (Cl. 2)



                                               Draft Copy
           5. Crew Management (state "yes" or "no" as agreed) (Cl. 3.1)                                  6. Technical Management (state "yes" or "no" as agreed) (Cl. 3.2)




           7. Commercial Management (state "yes" or "no" as agreed) (Cl. 3.3)                            8. Insurance Arrangements (state "yes" or "no" as agreed) (Cl. 3.4)




           9. Accounting Services (state "yes" or "no" as agreed) (Cl. 3.5)                              10. Sale or purchase of the Vessel (state "yes" or "no" as agreed) (Cl. 3.6)




           11. Provisions (state "yes" or "no" as agreed) (Cl. 3.7)                                      12. Bunkering (state "yes" or "no" as agreed) (Cl. 3.8)




           13. Chartering Services Period (only to be filled in if "yes" stated in Box 7) (Cl. 3.3(i))   14. Owners' Insurance (state alternative (i), (ii) or (iii) of Cl. 6.3)




           15. Annual Management Fee (state annual amount) (Cl. 8.1)                                     16. Severance Costs (state maximum amount) (Cl. 8.4(ii))




           17. Day and year of termination of Agreement (Cl. 17)                                         18. Law and Arbitration (state alternative 19.1, 19.2 or 19.3; if 19.3 place of
                                                                                                                                                           arbitration must be stated) (Cl. 19)




                                                              Draft Copy
           19. Notices (state postal and cable address, telex and telefax number for serving 20. Notices (state postal and cable address, telex and telefax number for serving
                                           notice and communication to the Owners) (Cl. 20)                                notice and communication to the Managers) (Cl. 20)




           It is mutually agreed between the party stated in Box 2 and the party stated in Box 3 that this Agreement consisting of PART I and PART II as well as Annexes "A"
           (Details of Vessel), "B" (Details of Crew), "C" (Budget) and "D" (Associated vessels) attached hereto, shall be performed subject to the conditions contained herein. In
           the event of a conflict of conditions, the provisions of PART I and Annexes "A", "B", "C" and "D" shall prevail over those of PART II to the extent of such conflict but no
            further.

           Signature(s) (Owners)                                                                         Signature(s) (Managers)




                                                                      Printed by The BIMCO Charter Party Editor




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Appendix 3A (cont’d)




                                                                                        PART II
                                                                     "Shipman 98" Standard Ship Management Agreement
      1. Definitions                                                                                             1          (iii) ensuring that all members of the Crew have passed a medical                                   64
         In this Agreement save where the context otherwise requires,                                            2                 examination with a qualified doctor certifying that they are fit                             65
         the following words and expressions shall have the meanings                                             3                 for the duties for which they are engaged and are in possession                              66
         hereby assigned to them.                                                                                4                 of valid medical certificates issued in accordance with                                      67
                                                                                                                                   appropriate flag State requirements. In the absence of                                       68
          "Owners" means the party identified in Box 2.                                                          5                 applicable flag State requirements the medical certificate shall                             69
          "Managers" means the party identified in Box 3.                                                        6                 be dated not more than three months prior to the respective                                  70
          "Vessel" means the vessel or vessels details of which are set                                          7                 Crew members leaving their country of domicile and                                           71
          out in Annex "A" attached hereto.                                                                      8                 maintained for the duration of their service on board the Vessel;                            72
          "Crew" means the Master, officers and ratings of the numbers,                                          9          (iv) ensuring that the Crew shall have a command of the English                                     73
          rank and nationality specified in Annex "B" attached hereto.                                          10                 language of a sufficient standard to enable them to perform                                  74
          "Crew Support Costs" means all expenses of a general nature                                           11                 their duties safely;                                                                         75


                                                                    Draft Copy
          which are not particularly referable to any individual vessel for                                     12          (v) arranging transportation of the Crew, including repatriation;                                   76
          the time being managed by the Managers and which are incurred                                         13          (vi) training of the Crew and supervising their efficiency;                                         77
          by the Managers for the purpose of providing an efficient and                                         14          (vii) conducting union negotiations;                                                                78
          economic management service and, without prejudice to the                                             15          (viii) operating the Managers' drug and alcohol policy unless                                       79
          generality of the foregoing, shall include the cost of crew standby                                   16                 otherwise agreed.                                                                            80
          pay, training schemes for officers and ratings, cadet training                                        17
          schemes, sick pay, study pay, recruitment and interviews.                                             18          3.2 Technical Management                                            81
          "Severance Costs" means the costs which the employers are                                             19          (only applicable if agreed according to Box 6)                      82
          legally obliged to pay to or in respect of the Crew as a result of                                    20          The Managers shall provide technical management which               83
          the early termination of any employment contract for service on                                       21          includes, but is not limited to, the following functions:           84
          the Vessel.                                                                                           22          (i) provision of competent personnel to supervise the               85
          "Crew Insurances" means insurances against crew risks which                                           23                 maintenance and general efficiency of the Vessel;            86
          shall include but not be limited to death, sickness, repatriation,                                    24          (ii) arrangement and supervision of dry dockings, repairs,          87
          injury, shipwreck unemployment indemnity and loss of personal                                         25                 alterations and the upkeep of the Vessel to the standards 88
          effects.                                                                                              26                 required by the Owners provided that the Managers shall 89
          "Management Services" means the services specified in sub-                                            27                 be entitled to incur the necessary expenditure to ensure 90
          clauses 3.1 to 3.8 as indicated affirmatively in Boxes 5 to 12.                                       28                 that the Vessel will comply with the law of the flag of the 91
          "ISM Code" means the International Management Code for the                                            29                 Vessel and of the places where she trades, and all           92
          Safe Operation of Ships and for Pollution Prevention as adopted                                       30                 requirements and recommendations of the classification       93
          by the International Maritime Organization (IMO) by resolution                                        31                 society;                                                     94
          A.741(18) or any subsequent amendment thereto.                                                        32          (iii) arrangement of the supply of necessary stores, spares and 95
          "STCW 95" means the International Convention on Standards                                             33                 lubricating oil;                                             96
          of Training, Certification and Watchkeeping for Seafarers, 1978,                                      34          (iv) appointment of surveyors and technical consultants as the 97
          as amended in 1995 or any subsequent amendment thereto.                                               35                 Managers may consider from time to time to be necessary;     98
                                                                                                                            (v) development, implementation and maintenance of a Safety 99
      2. Appointment of Managers                                                                                36                 Management System (SMS) in accordance with the ISM 100
         With effect from the day and year stated in Box 4 and continuing                                       37                 Code (see sub-clauses 4.2 and 5.3).                         101
         unless and until terminated as provided herein, the Owners                                             38
         hereby appoint the Managers and the Managers hereby agree                                              39          3.3 Commercial Management                                                                           102
         to act as the Managers of the Vessel.                                                                  40          (only applicable if agreed according to Box 7)                                                      103
                                                                                                                            The Managers shall provide the commercial operation of the                                          104


                                                                       Draft Copy
      3. Basis of Agreement                                                                                     41          Vessel, as required by the Owners, which includes, but is not                                       105
         Subject to the terms and conditions herein provided, during the                                        42          limited to, the following functions:                                                                106
         period of this Agreement, the Managers shall carry out                                                 43          (i) providing chartering services in accordance with the Owners'                                    107
         Management Services in respect of the Vessel as agents for                                             44                 instructions which include, but are not limited to, seeking                                  108
         and on behalf of the Owners. The Managers shall have authority                                         45                 and negotiating employment for the Vessel and the conclusion                                 109
         to take such actions as they may from time to time in their absolute                                   46                 (including the execution thereof) of charter parties or other                                110
         discretion consider to be necessary to enable them to perform                                          47                 contracts relating to the employment of the Vessel. If such a                                111
         this Agreement in accordance with sound ship management                                                48                 contract exceeds the period stated in Box 13, consent thereto                                112
         practice.                                                                                              49                 in writing shall first be obtained from the Owners.                                          113
                                                                                                                            (ii) arranging of the proper payment to Owners or their nominees                                    114
          3.1 Crew Management                                                                                   50                 of all hire and/or freight revenues or other moneys of                                       115
          (only applicable if agreed according to Box 5)                                                        51                 whatsoever nature to which Owners may be entitled arising                                    116
          The Managers shall provide suitably qualified Crew for the Vessel                                     52                 out of the employment of or otherwise in connection with the                                 117
          as required by the Owners in accordance with the STCW 95                                              53                 Vessel.                                                                                      118
          requirements, provision of which includes but is not limited to                                       54          (iii) providing voyage estimates and accounts and calculating of                                    119
          the following functions:                                                                              55                 hire, freights, demurrage and/or despatch moneys due from                                    120
          (i) selecting and engaging the Vessel's Crew, including payroll                                       56                 or due to the charterers of the Vessel;                                                      121
                 arrangements, pension administration, and insurances for                                       57          (iv) issuing of voyage instructions;                                                                122
                 the Crew other than those mentioned in Clause 6;                                               58          (v) appointing agents;                                                                              123
          (ii) ensuring that the applicable requirements of the law of the                                      59          (vi) appointing stevedores;                                                                         124
                 flag of the Vessel are satisfied in respect of manning levels,                                 60          (vii) arranging surveys associated with the commercial operation                                    125
                 rank, qualification and certification of the Crew and                                          61                 of the Vessel.                                                                               126
                 employment regulations including Crew's tax, social                                            62
                 insurance, discipline and other requirements;                                                  63          3.4 Insurance Arrangements                                                                          127

      This computer generated form is printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In event of any modification being made to the preprinted text of this document, which is
      not clearly visible, the original BIMCO approved document shall apply. BIMCO assume no responsibility for any loss or damage caused as a result of discrepancies between the original BIMCO document and this
      document.




206                                                                                                                                                                     © Drewry Shipping Consultants Ltd
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Appendix 3A (cont’d)




                                                                                       PART II
                                                                    "Shipman 98" Standard Ship Management Agreement
         (only applicable if agreed according to Box 8)                                                      128           and identified to the Managers, shall be deemed to be the                                            189
         The Managers shall arrange insurances in accordance with                                            129           "Company" as defined by the ISM Code assuming the responsibility                                     190
         Clause 6, on such terms and conditions as the Owners shall                                          130           for the operation of the Vessel and taking over the duties and                                       191
         have instructed or agreed, in particular regarding conditions,                                      131           responsibilities imposed by the ISM Code when applicable.                                            192
         insured values, deductibles and franchises.                                                         132
                                                                                                                      6. Insurance Policies                                                                                     193
         3.5 Accounting Services                                                                             133         The Owners shall procure, whether by instructing the Managers                                          194
         (only applicable if agreed according to Box 9)                                                      134         under sub-clause 3.4 or otherwise, that throughout the period of                                       195
         The Managers shall:                                                                                 135         this Agreement:                                                                                        196
         (i) establish an accounting system which meets the                                                  136         6.1 at the Owners' expense, the Vessel is insured for not less                                         197
                requirements of the Owners and provide regular accounting                                    137         than her sound market value or entered for her full gross tonnage,                                     198
                services, supply regular reports and records,                                                138         as the case may be for:                                                                                199



                                                                     Draft Copy
         (ii) maintain the records of all costs and expenditure incurred                                     139         (i) usual hull and machinery marine risks (including crew                                              200
                as well as data necessary or proper for the settlement of                                    140               negligence) and excess liabilities;                                                              201
                accounts between the parties.                                                                141         (ii) protection and indemnity risks (including pollution risks and                                     202
                                                                                                                               Crew Insurances); and                                                                            203
         3.6 Sale or Purchase of the Vessel                                                                  142         (iii) war risks (including protection and indemnity and crew risks)                                    204
         (only applicable if agreed according to Box 10)                                                     143               in accordance with the best practice of prudent owners of                                        205
         The Managers shall, in accordance with the Owners' instructions,                                    144               vessels of a similar type to the Vessel, with first class insurance                              206
         supervise the sale or purchase of the Vessel, including the                                         145               companies, underwriters or associations ("the Owners'                                            207
         performance of any sale or purchase agreement, but not                                              146               Insurances");                                                                                    208
         negotiation of the same.                                                                            147         6.2 all premiums and calls on the Owners' Insurances are paid                                          209
                                                                                                                         promptly by their due date,                                                                            210
         3.7 Provisions (only applicable if agreed according to Box 11) 148                                              6.3 the Owners' Insurances name the Managers and, subject                                              211
         The Managers shall arrange for the supply of provisions.       149                                              to underwriters' agreement, any third party designated by the                                          212
                                                                                                                         Managers as a joint assured, with full cover, with the Owners                                          213
         3.8 Bunkering (only applicable if agreed according to Box 12) 150                                               obtaining cover in respect of each of the insurances specified in                                      214
         The Managers shall arrange for the provision of bunker fuel of the 151                                          sub-clause 6.1:                                                                                        215
         quality specified by the Owners as required for the Vessel's trade. 152                                         (i) on terms whereby the Managers and any such third party                                             216
                                                                                                                               are liable in respect of premiums or calls arising in connection                                 217
    4. Managers' Obligations                                                                                 153               with the Owners' Insurances; or                                                                  218
       4.1 The Managers undertake to use their best endeavours to                                            154         (ii) if reasonably obtainable, on terms such that neither the                                          219
       provide the agreed Management Services as agents for and on                                           155               Managers nor any such third party shall be under any                                             220
       behalf of the Owners in accordance with sound ship management                                         156               liability in respect of premiums or calls arising in connection                                  221
       practice and to protect and promote the interests of the Owners in                                    157               with the Owners' Insurances; or                                                                  222
       all matters relating to the provision of services hereunder.                                          158         (iii) on such other terms as may be agreed in writing.                                                 223
       Provided, however, that the Managers in the performance of their                                      159         Indicate alternative (i), (ii) or (iii) in Box 14. If Box 14 is left                                   224
       management responsibilities under this Agreement shall be entitled                                    160         blank then (i) applies.                                                                                225
       to have regard to their overall responsibility in relation to all vessels                             161         6.4 written evidence is provided, to the reasonable satisfaction                                       226
       as may from time to time be entrusted to their management and                                         162         of the Managers, of their compliance with their obligations under                                      227
       in particular, but without prejudice to the generality of the foregoing,                              163         Clause 6 within a reasonable time of the commencement of                                               228
       the Managers shall be entitled to allocate available supplies,                                        164         the Agreement, and of each renewal date and, if specifically                                           229
       manpower and services in such manner as in the prevailing                                             165         requested, of each payment date of the Owners' Insurances.                                             230
       circumstances the Managers in their absolute discretion consider                                      166


                                                                   Draft Copy
       to be fair and reasonable.                                                                            167 7. Income Collected and Expenses Paid on Behalf of Owners                                                      231
       4.2 Where the Managers are providing Technical Management                                             168    7.1 All moneys collected by the Managers under the terms of                                                 232
       in accordance with sub-clause 3.2, they shall procure that the                                        169    this Agreement (other than moneys payable by the Owners to                                                  233
       requirements of the law of the flag of the Vessel are satisfied and                                   170    the Managers) and any interest thereon shall be held to the                                                 234
       they shall in particular be deemed to be the "Company" as defined                                     171    credit of the Owners in a separate bank account.                                                            235
       by the ISM Code, assuming the responsibility for the operation of                                     172    7.2 All expenses incurred by the Managers under the terms                                                   236
       the Vessel and taking over the duties and responsibilities imposed                                    173    of this Agreement on behalf of the Owners (including expenses                                               237
       by the ISM Code when applicable.                                                                      174    as provided in Clause 8) may be debited against the Owners                                                  238
                                                                                                                    in the account referred to under sub-clause 7.1 but shall in any                                            239
    5. Owners' Obligations                                                                                   175    event remain payable by the Owners to the Managers on                                                       240
       5.1 The Owners shall pay all sums due to the Managers punctually                                      176    demand.                                                                                                     241
       in accordance with the terms of this Agreement.                                                       177
       5.2 Where the Managers are providing Technical Management                                             178 8. Management Fee                                                                                              242
       in accordance with sub-clause 3.2, the Owners shall:                                                  179    8.1 The Owners shall pay to the Managers for their services                                                 243
       (i) procure that all officers and ratings supplied by them or on                                      180    as Managers under this Agreement an annual management                                                       244
             their behalf comply with the requirements of STCW 95;                                           181    fee as stated in Box 15 which shall be payable by equal                                                     245
       (ii) instruct such officers and ratings to obey all reasonable orders                                 182    monthly instalments in advance, the first instalment being                                                  246
             of the Managers in connection with the operation of the                                         183    payable on the commencement of this Agreement (see Clause                                                   247
             Managers' safety management system.                                                             184    2 and Box 4) and subsequent instalments being payable every                                                 248
       5.3 Where the Managers are not providing Technical Management                                         185    month.                                                                                                      249
       in accordance with sub-clause 3.2, the Owners shall procure that                                      186    8.2 The management fee shall be subject to an annual review                                                 250
       the requirements of the law of the flag of the Vessel are satisfied                                   187    on the anniversary date of the Agreement and the proposed                                                   251
       and that they, or such other entity as may be appointed by them                                       188    fee shall be presented in the annual budget referred to in sub-                                             252

     This computer generated form is printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In event of any modification being made to the preprinted text of this document, which is
     not clearly visible, the original BIMCO approved document shall apply. BIMCO assume no responsibility for any loss or damage caused as a result of discrepancies between the original BIMCO document and this
     document.




© Drewry Shipping Consultants Ltd                                                                                                                                                                                                     207
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Appendix 3A (cont’d)




                                                                                        PART II
                                                                     "Shipman 98" Standard Ship Management Agreement
          clause 9.1.                                                                                         253 10. Managers' Right to Sub-Contract                                                                           318
          8.3 The Managers shall, at no extra cost to the Owners, provide                                     254     The Managers shall not have the right to sub-contract any of                                              319
          their own office accommodation, office staff, facilities and                                        255     their obligations hereunder, including those mentioned in sub-                                            320
          stationery. Without limiting the generality of Clause 7 the Owners                                  256     clause 3.1, without the prior written consent of the Owners which                                         321
          shall reimburse the Managers for postage and communication                                          257     shall not be unreasonably withheld. In the event of such a sub-                                           322
          expenses, travelling expenses, and other out of pocket                                              258     contract the Managers shall remain fully liable for the due                                               323
          expenses properly incurred by the Managers in pursuance of                                          259     performance of their obligations under this Agreement.                                                    324
          the Management Services.                                                                            260
          8.4 In the event of the appointment of the Managers being                                           261 11. Responsibilities                                                                                          325
          terminated by the Owners or the Managers in accordance with                                         262     11.1 Force Majeure - Neither the Owners nor the Managers                                                  326
          the provisions of Clauses 17 and 18 other than by reason of                                         263     shall be under any liability for any failure to perform any of their                                      327
          default by the Managers, or if the Vessel is lost, sold or otherwise                                264     obligations hereunder by reason of any cause whatsoever of                                                328
          disposed of, the "management fee" payable to the Managers                                           265     any nature or kind beyond their reasonable control.                                                       329


          from the termination date. In addition, provided that theDraft Copy
          according to the provisions of sub-clause 8.1, shall continue to
          be payable for a further period of three calendar months as

          Managers provide Crew for the Vessel in accordance with sub-
                                                                                                              266
                                                                                                              267
                                                                                                              268
                                                                                                              269
                                                                                                                      11.2 Liability to Owners - (i) Without prejudice to sub-clause
                                                                                                                      11.1, the Managers shall be under no liability whatsoever to the
                                                                                                                      Owners for any loss, damage, delay or expense of whatsoever
                                                                                                                      nature, whether direct or indirect, (including but not limited to
                                                                                                                                                                                                                                330
                                                                                                                                                                                                                                331
                                                                                                                                                                                                                                332
                                                                                                                                                                                                                                333
          clause 3.1:                                                                                         270     loss of profit arising out of or in connection with detention of or                                       334
          (i) the Owners shall continue to pay Crew Support Costs during                                      271     delay to the Vessel) and howsoever arising in the course of                                               335
                 the said further period of three calendar months and                                         272     performance of the Management Services UNLESS same is                                                     336
          (ii) the Owners shall pay an equitable proportion of any                                            273     proved to have resulted solely from the negligence, gross                                                 337
                 Severance Costs which may materialize, not exceeding                                         274     negligence or wilful default of the Managers or their employees,                                          338
                 the amount stated in Box 16.                                                                 275     or agents or sub-contractors employed by them in connection                                               339
          8.5 If the Owners decide to lay-up the Vessel whilst this                                           276     with the Vessel, in which case (save where loss, damage, delay                                            340
          Agreement remains in force and such lay-up lasts for more                                           277     or expense has resulted from the Managers' personal act or                                                341
          than three months, an appropriate reduction of the management                                       278     omission committed with the intent to cause same or recklessly                                            342
          fee for the period exceeding three months until one month                                           279     and with knowledge that such loss, damage, delay or expense                                               343
          before the Vessel is again put into service shall be mutually                                       280     would probably result) the Managers' liability for each incident                                          344
          agreed between the parties.                                                                         281     or series of incidents giving rise to a claim or claims shall never                                       345
          8.6 Unless otherwise agreed in writing all discounts and                                            282     exceed a total of ten times the annual management fee payable                                             346
          commissions obtained by the Managers in the course of the                                           283     hereunder.                                                                                                347
          management of the Vessel shall be credited to the Owners.                                           284     (ii) Notwithstanding anything that may appear to the contrary in                                          348
                                                                                                                      this Agreement, the Managers shall not be liable for any of the                                           349
      9. Budgets and Management of Funds                                                                      285     actions of the Crew, even if such actions are negligent, grossly                                          350
         9.1 The Managers shall present to the Owners annually a                                              286     negligent or wilful, except only to the extent that they are shown                                        351
         budget for the following twelve months in such form as the                                           287     to have resulted from a failure by the Managers to discharge                                              352
         Owners require. The budget for the first year hereof is set out                                      288     their obligations under sub-clause 3.1, in which case their liability                                     353
         in Annex "C" hereto. Subsequent annual budgets shall be                                              289     shall be limited in accordance with the terms of this Clause 11.                                          354
         prepared by the Managers and submitted to the Owners not                                             290     11.3 Indemnity - Except to the extent and solely for the amount                                           355
         less than three months before the anniversary date of the                                            291     therein set out that the Managers would be liable under sub-                                              356
         commencement of this Agreement (see Clause 2 and Box 4).                                             292     clause 11.2, the Owners hereby undertake to keep the Managers                                             357


                                                                     Draft Copy
         9.2 The Owners shall indicate to the Managers their acceptance                                       293     and their employees, agents and sub-contractors indemnified                                               358
         and approval of the annual budget within one month of                                                294     and to hold them harmless against all actions, proceedings,                                               359
         presentation and in the absence of any such indication the                                           295     claims, demands or liabilities whatsoever or howsoever arising                                            360
         Managers shall be entitled to assume that the Owners have                                            296     which may be brought against them or incurred or suffered by                                              361
         accepted the proposed budget.                                                                        297     them arising out of or in connection with the performance of the                                          362
         9.3 Following the agreement of the budget, the Managers shall                                        298     Agreement, and against and in respect of all costs, losses,                                               363
         prepare and present to the Owners their estimate of the working                                      299     damages and expenses (including legal costs and expenses on                                               364
         capital requirement of the Vessel and the Managers shall each                                        300     a full indemnity basis) which the Managers may suffer or incur                                            365
         month up-date this estimate. Based thereon, the Managers shall                                       301     (either directly or indirectly) in the course of the performance of                                       366
         each month request the Owners in writing for the funds required                                      302     this Agreement.                                                                                           367
         to run the Vessel for the ensuing month, including the payment                                       303     11.4 "Himalaya" - It is hereby expressly agreed that no                                                   368
         of any occasional or extraordinary item of expenditure, such as                                      304     employee or agent of the Managers (including every sub-                                                   369
         emergency repair costs, additional insurance premiums, bunkers                                       305     contractor from time to time employed by the Managers) shall in                                           370
         or provisions. Such funds shall be received by the Managers                                          306     any circumstances whatsoever be under any liability whatsoever                                            371
         within ten running days after the receipt by the Owners of the                                       307     to the Owners for any loss, damage or delay of whatsoever kind                                            372
         Managers' written request and shall be held to the credit of the                                     308     arising or resulting directly or indirectly from any act, neglect or                                      373
         Owners in a separate bank account.                                                                   309     default on his part while acting in the course of or in connection                                        374
         9.4 The Managers shall produce a comparison between                                                  310     with his employment and, without prejudice to the generality of                                           375
         budgeted and actual income and expenditure of the Vessel in                                          311     the foregoing provisions in this Clause 11, every exemption,                                              376
         such form as required by the Owners monthly or at such other                                         312     limitation, condition and liberty herein contained and every right,                                       377
         intervals as mutually agreed.                                                                        313     exemption from liability, defence and immunity of whatsoever                                              378
         9.5 Notwithstanding anything contained herein to the contrary,                                       314     nature applicable to the Managers or to which the Managers are                                            379
         the Managers shall in no circumstances be required to use or                                         315     entitled hereunder shall also be available and shall extend to                                            380
         commit their own funds to finance the provision of the                                               316     protect every such employee or agent of the Managers acting                                               381
         Management Services.                                                                                 317     as aforesaid and for the purpose of all the foregoing provisions                                          382
                                                                                                                      of this Clause 11 the Managers are or shall be deemed to be                                               383

      This computer generated form is printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In event of any modification being made to the preprinted text of this document, which is
      not clearly visible, the original BIMCO approved document shall apply. BIMCO assume no responsibility for any loss or damage caused as a result of discrepancies between the original BIMCO document and this
      document.




208                                                                                                                                                                     © Drewry Shipping Consultants Ltd
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Appendix 3A (cont’d)




                                                                                       PART II
                                                                    "Shipman 98" Standard Ship Management Agreement
         acting as agent or trustee on behalf of and for the benefit of all                                  384                  payable by the Owners under this Agreement and/or the                                         444
         persons who are or might be their servants or agents from time                                      385                  owners of any associated vessel, details of which are listed                                  445
         to time (including sub-contractors as aforesaid) and all such                                       386                  in Annex "D", shall not have been received in the Managers'                                   446
         persons shall to this extent be or be deemed to be parties to this                                  387                  nominated account within ten running days of receipt by                                       447
         Agreement.                                                                                          388                  the Owners of the Managers written request or if the Vessel                                   448
                                                                                                                                  is repossessed by the Mortgagees.                                                             449
    12. Documentation                                                                                        389           (ii) If the Owners:                                                                                  450
        Where the Managers are providing Technical Management in                                             390                  (a) fail to meet their obligations under sub-clauses 5.2                                      451
        accordance with sub-clause 3.2 and/or Crew Management in                                             391                         and 5.3 of this Agreement for any reason within their                                  452
        accordance with sub-clause 3.1, they shall make available,                                           392                         control, or                                                                            453
        upon Owners' request, all documentation and records related                                          393                  (b) proceed with the employment of or continue to employ                                      454
        to the Safety Management System (SMS) and/or the Crew                                                394                         the Vessel in the carriage of contraband, blockade                                     455


                                                                   Draft Copy
        which the Owners need in order to demonstrate compliance                                             395                         running, or in an unlawful trade, or on a voyage which                                 456
        with the ISM Code and STCW 95 or to defend a claim against                                           396                         in the reasonable opinion of the Managers is unduly                                    457
        a third party.                                                                                       397                         hazardous or improper,                                                                 458
                                                                                                                                  the Managers may give notice of the default to the Owners,                                    459
    13. General Administration                                                                               398                  requiring them to remedy it as soon as practically possible.                                  460
        13.1 The Managers shall handle and settle all claims arising                                         399                  In the event that the Owners fail to remedy it within a                                       461
        out of the Management Services hereunder and keep the Owners                                         400                  reasonable time to the satisfaction of the Managers, the                                      462
        informed regarding any incident of which the Managers become                                         401                  Managers shall be entitled to terminate the Agreement                                         463
        aware which gives or may give rise to claims or disputes involving                                   402                  with immediate effect by notice in writing.                                                   464
        third parties.                                                                                       403           18.2 Managers' Default                                                                               465
        13.2 The Managers shall, as instructed by the Owners, bring                                          404           If the Managers fail to meet their obligations under Clauses 3                                       466
        or defend actions, suits or proceedings in connection with matters                                   405           and 4 of this Agreement for any reason within the control of the                                     467
        entrusted to the Managers according to this Agreement.                                               406           Managers, the Owners may give notice to the Managers of the                                          468
        13.3 The Managers shall also have power to obtain legal or                                           407           default, requiring them to remedy it as soon as practically                                          469
        technical or other outside expert advice in relation to the handling                                 408           possible. In the event that the Managers fail to remedy it within a                                  470
        and settlement of claims and disputes or all other matters                                           409           reasonable time to the satisfaction of the Owners, the Owners                                        471
        affecting the interests of the Owners in respect of the Vessel.                                      410           shall be entitled to terminate the Agreement with immediate effect                                   472
        13.4 The Owners shall arrange for the provision of any                                               411           by notice in writing.                                                                                473
        necessary guarantee bond or other security.                                                          412           18.3 Extraordinary Termination                                                                       474
        13.5 Any costs reasonably incurred by the Managers in                                                413           This Agreement shall be deemed to be terminated in the case of                                       475
        carrying out their obligations according to Clause 13 shall be                                       414           the sale of the Vessel or if the Vessel becomes a total loss or is                                   476
        reimbursed by the Owners.                                                                            415           declared as a constructive or compromised or arranged total                                          477
                                                                                                                           loss or is requisitioned.                                                                            478
    14. Auditing                                                                                             416           18.4 For the purpose of sub-clause 18.3 hereof                                                       479
        The Managers shall at all times maintain and keep true and                                           417           (i) the date upon which the Vessel is to be treated as having                                        480
        correct accounts and shall make the same available for inspection                                    418                  been sold or otherwise disposed of shall be the date on                                       481
        and auditing by the Owners at such times as may be mutually                                          419                  which the Owners cease to be registered as Owners of                                          482
        agreed. On the termination, for whatever reasons, of this                                            420                  the Vessel;                                                                                   483
        Agreement, the Managers shall release to the Owners, if so                                           421           (ii) the Vessel shall not be deemed to be lost unless either                                         484
        requested, the originals where possible, or otherwise certified                                      422                  she has become an actual total loss or agreement has                                          485
        copies, of all such accounts and all documents specifically relating                                 423                  been reached with her underwriters in respect of her                                          486


                                                                     Draft Copy
        to the Vessel and her operation.                                                                     424                  constructive, compromised or arranged total loss or if such                                   487
                                                                                                                                  agreement with her underwriters is not reached it is                                          488
    15. Inspection of Vessel                                                                                 425                  adjudged by a competent tribunal that a constructive loss                                     489
        The Owners shall have the right at any time after giving                                             426                  of the Vessel has occurred.                                                                   490
        reasonable notice to the Managers to inspect the Vessel for any                                      427           18.5 This Agreement shall terminate forthwith in the event of                                        491
        reason they consider necessary.                                                                      428           an order being made or resolution passed for the winding up,                                         492
                                                                                                                           dissolution, liquidation or bankruptcy of either party (otherwise                                    493
    16. Compliance with Laws and Regulations                                                                 429           than for the purpose of reconstruction or amalgamation) or if a                                      494
        The Managers will not do or permit to be done anything which                                         430           receiver is appointed, or if it suspends payment, ceases to carry                                    495
        might cause any breach or infringement of the laws and                                               431           on business or makes any special arrangement or composition                                          496
        regulations of the Vessel's flag, or of the places where she trades.                                 432           with its creditors.                                                                                  497
                                                                                                                           18.6 The termination of this Agreement shall be without                                              498
    17. Duration of the Agreement                                      433                                                 prejudice to all rights accrued due between the parties prior to                                     499
                                                                       434
        This Agreement shall come into effect on the day and year stated                                                   the date of termination.                                                                             500
        in Box 4 and shall continue until the date stated in Box 17.   435
                                                                       436 19. Law and Arbitration
        Thereafter it shall continue until terminated by either party giving                                                                                                                                                    501
        to the other notice in writing, in which event the Agreement shall
                                                                       437     19.1 This Agreement shall be governed by and construed in                                                                                        502
                                                                       438
        terminate upon the expiration of a period of two months from the       accordance with English law and any dispute arising out of or                                                                                    503
        date upon which such notice was given.                         439     in connection with this Agreement shall be referred to arbitration                                                                               504
                                                                               in London in accordance with the Arbitration Act 1996 or                                                                                         505
    18. Termination                                                    440     any statutory modification or re-enactment thereof save to                                                                                       506
        18.1 Owners' default                                           441     the extent necessary to give effect to the provisions of this                                                                                    507
        (i) The Managers shall be entitled to terminate the Agreement 442      Clause.                                                                                                                                          508
              with immediate effect by notice in writing if any moneys 443     The arbitration shall be conducted in accordance with the                                                                                        509

     This computer generated form is printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In event of any modification being made to the preprinted text of this document, which is
     not clearly visible, the original BIMCO approved document shall apply. BIMCO assume no responsibility for any loss or damage caused as a result of discrepancies between the original BIMCO document and this
     document.




© Drewry Shipping Consultants Ltd                                                                                                                                                                                                     209
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Appendix 3A (cont’d)




                                                                                  PART II
                                                               "Shipman 98" Standard Ship Management Agreement
    London Maritime Arbitrators Association (LMAA) Terms                                                510
    current at the time when the arbitration proceedings are                                            511
    commenced.                                                                                          512
    The reference shall be to three arbitrators. A party wishing                                        513
    to refer a dispute to arbitration shall appoint its arbitrator                                      514
    and send notice of such appointment in writing to the other                                         515
    party requiring the other party to appoint its own arbitrator                                       516
    within 14 calendar days of that notice and stating that it will                                     517
    appoint its arbitrator as sole arbitrator unless the other party                                    518
    appoints its own arbitrator and gives notice that it has done                                       519
    so within the 14 days specified. If the other party does not                                        520
    appoint its own arbitrator and give notice that it has done so                                      521


                                                               Draft Copy
    within the 14 days specified, the party referring a dispute to                                      522
    arbitration may, without the requirement of any further prior                                       523
    notice to the other party, appoint its arbitrator as sole                                           524
    arbitrator and shall advise the other party accordingly. The                                        525
    award of a sole arbitrator shall be binding on both parties                                         526
    as if he had been appointed by agreement.                                                           527
    Nothing herein shall prevent the parties agreeing in writing                                        528
    to vary these provisions to provide for the appointment of a                                        529
    sole arbitrator.                                                                                    530
    In cases where neither the claim nor any counterclaim                                               531
    exceeds the sum of USD50,000 (or such other sum as the                                              532
    parties may agree) the arbitration shall be conducted in                                            533
    accordance with the LMAA Small Claims Procedure current                                             534
    at the time when the arbitration proceedings are commenced.                                         535
    19.2 This Agreement shall be governed by and construed                                              536
    in accordance with Title 9 of the United States Code and                                            537
    the Maritime Law of the United States and any dispute                                               538
    arising out of or in connection with this Agreement shall be                                        539
    referred to three persons at New York, one to be appointed                                          540
    by each of the parties hereto, and the third by the two so                                          541
    chosen; their decision or that of any two of them shall be                                          542
    final, and for the purposes of enforcing any award,                                                 543
    judgement may be entered on an award by any court of                                                544
    competent jurisdiction. The proceedings shall be conducted                                          545
    in accordance with the rules of the Society of Maritime                                             546
    Arbitrators, Inc.                                                                                   547
    In cases where neither the claim nor any counterclaim                                               548
    exceeds the sum of USD50,000 (or such other sum as the                                              549
    parties may agree) the arbitration shall be conducted in                                            550
    accordance with the Shortened Arbitration Procedure of the                                          551



                                                                Draft Copy
    Society of Maritime Arbitrators, Inc. current at the time when                                      552
    the arbitration proceedings are commenced.                                                          553
    19.3 This Agreement shall be governed by and construed                                              554
    in accordance with the laws of the place mutually agreed by                                         555
    the parties and any dispute arising out of or in connection                                         556
    with this Agreement shall be referred to arbitration at a                                           557
    mutually agreed place, subject to the procedures applicable                                         558
    there.                                                                                              559
    19.4 If Box 18 in Part I is not appropriately filled in, sub-                                       560
    clause 19.1 of this Clause shall apply.                                                             561

    Note: 19.1, 19.2 and 19.3                            are       alternatives;        indicate        562
    alternative agreed in Box 18.                                                                       563

20. Notices                                                                                             564
    20.1 Any notice to be given by either party to the other                                            565
    party shall be in writing and may be sent by fax, telex,                                            566
    registered or recorded mail or by personal service.                                                 567
    20.2 The address of the Parties for service of such                                                 568
    communication shall be as stated in Boxes 19 and 20,                                                569
    respectively.                                                                                       570




This computer generated form is printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In event of any modification being made to the preprinted text of this document, which is
not clearly visible, the original BIMCO approved document shall apply. BIMCO assume no responsibility for any loss or damage caused as a result of discrepancies between the original BIMCO document and this
document.




210                                                                                                                                                                         © Drewry Shipping Consultants Ltd
Ship Management                                                                    Appendices


Appendix 3A (cont’d)



           ANNEX "A" (DETAILS OF VESSEL OR VESSELS) TO
           THE BALTIC AND INTERNATIONAL MARITIME COUNCIL (BIMCO)
           STANDARD SHIP MANAGEMENT AGREEMENT - CODE NAME: "SHIPMAN 98"



           Date of Agreement:




                                       Draft Copy
           Name of Vessel(s):




           Particulars of Vessel(s):




                                       Draft Copy




                                       Printed by The BIMCO Charter Party Editor




© Drewry Shipping Consultants Ltd                                                        211
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Appendix 3A (cont’d)



             ANNEX "B" (DETAILS OF CREW) TO
             THE BALTIC AND INTERNATIONAL MARITIME COUNCIL (BIMCO)
             STANDARD SHIP MANAGEMENT AGREEMENT - CODE NAME: "SHIPMAN 98"



             Date of Agreement:




             Details of Crew:
                                   Draft Copy

             Numbers                        Rank                                Nationality




                                  Draft Copy




                                    Printed by The BIMCO Charter Party Editor




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Appendix 3A (cont’d)




            ANNEX "C" (BUDGET) TO
            THE BALTIC AND INTERNATIONAL MARITIME COUNCIL (BIMCO)
            STANDARD SHIP MANAGEMENT AGREEMENT - CODE NAME: "SHIPMAN 98"



            Date of Agreement:




                                     Draft Copy
            Managers' Budget for the first year with effect from the Commencement Date of this
            Agreement:




                                         Draft Copy




                                            Printed by The BIMCO Charter Party Editor




© Drewry Shipping Consultants Ltd                                                                      213
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Appendix 3A (cont’d)



             ANNEX "D" (ASSOCIATED VESSELS) TO
             THE BALTIC AND INTERNATIONAL MARITIME COUNCIL (BIMCO)
             STANDARD SHIP MANAGEMENT AGREEMENT - CODE NAME: "SHIPMAN 98"



             NOTE: PARTIES SHOULD BE AWARE THAT BY COMPLETING THIS ANNEX "D"
             THEY WILL BE SUBJECT TO THE PROVISIONS OF SUB-CLAUSE 18.1(i) OF THIS
             AGREEMENT.


             Date of Agreement:



                                              Draft Copy
             Details of Associated Vessels:




                                               Draft Copy




                                              Printed by The BIMCO Charter Party Editor




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Appendix 3B
Standard ship management agreement – CREWMAN A
SHIPMAN and CREWMAN are reproduced by kind permission of BIMCO


         1. Date of Agreement                                                                THE BALTIC AND INTERNATIONAL MARITIME COUNCIL (BIMCO)
                                                                                             STANDARD CREW MANAGEMENT AGREEMENT (COST PLUS FEE)
                                                                                             CODE NAME:"CREWMAN A - COST PLUS FEE"
                                                                                                                                                                            PART I
         2. Owners (state name, place of registered office and law of registry) (Cl. 1)      3. Crew Managers (state name, place of registered office and law of registry) (Cl. 1)



               Name                                                                            Name


               Place of registered office                                                      Place of registered office




                                                              Draft Copy
                Law of registry                                                                Law of registry


         4. Day and year of commencement of Agreement (Cl. 2, 7.2(i), 8.1 and 17)            5. Day and year of termination of Agreement (Cl. 17)



        6. Accounting Services (state "yes" or "no" as agreed) (Cl. 3.2)                     7. Flag of the Vessel (Cl. 3.1(ii) and 6.5)




        8. Insurance arangements (state alternative (a), (b) or (c) of Cl. 6.8(iii))




         9. Crew management fee (state monthly fee) (Cl. 7.1)                                10. Lay up or extensive repairs (Cl. 7.4)



                                                                                                Number of months lay up or extensive repairs in excess of which revision of fee
                                                                                                and re-manning to be agreed

        11. Termination (state number of months fee/Crew Support Costs payable)(Cl. 18.6) 12. Law and Arbitration (state 19.1, 19.2 or 19.3 of Cl. 19, as agreed; if 19.3
                                                                                             agreed place of arbitration must be stated)(Cl. 19)




        13. Notices (state postal and cable address, telex and fax number for service of     14. Notices (state postal and cable address, telex and fax number for service of
           notice and communication to the Owners) (Cl. 20)                                     notice and communication to the Crew Managers) (Cl. 20)




                                                             Draft Copy

        It is mutually agreed between the party mentioned in Box 2 (hereinafter called "the Owners") and the party mentioned in Box 3 (hereinafter called "the Crew Managers") that
        this Agreement consisting of PART I and PART II as well as ANNEX "A", ANNEX "B" and ANNEX "C" attached hereto, shall be performed subject to the conditions contained
        herein. In the event of a conflict of conditions, the provisions of PART I shall prevail over those of PART II and ANNEX "A", ANNEX "B" and ANNEX "C" to the extent of such
        conflict but no further.



        Signature(s) (Owners)                                                                 Signature(s) (Crew Managers)




                                                                  Printed by the BIMCO Charter Party Editor




© Drewry Shipping Consultants Ltd                                                                                                                                                     215
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Appendix 3B (cont’d)



                                                                     PART II
                                          "CREWMAN A - COST PLUS FEE" Standard Crew Management Agreement

      1. Definitions                                                                                         1           requirements;                                                                                    70
         In this Agreement, save where the context otherwise requires,                                       2           (iii) ensuring that all members of the Crew have passed a                                        71
         the following words and expressions shall have the meanings                                         3           medical examination with a qualified doctor certifying that they                                 72
         hereby assigned to them.                                                                            4           are fit for the duties for which they are engaged and are in                                     73
         "Owners" means the party identified in Box 2.                                                       5           possession of valid medical certificates issued in accordance                                    74
         "Crew Managers" means the party identified in Box 3.                                                6           with appropriate flag State requirements. In the absence of                                      75
         "Vessel" means the vessel or vessels, details of which are set                                      7           applicable flag State requirements the medical certificate shall                                 76
         out in Annex "A" attached hereto.                                                                   8           be dated not more than three months prior to the respective                                      77
         "Crew" means the Master, officers and ratings of the numbers,                                       9           Crew members leaving their country of domicile and maintained                                    78
         rank and nationality specified in Annex "B" attached hereto.                                       10           for the duration of their service on board the Vessel;                                           79
         "Connected Person" means any person connected with the                                             11           (iv) ensuring that the Crew shall have a command of the English                                  80
         provision and the performance of the Crew Management                                               12           language of a sufficient standard to enable them to perform their                                81
         Services.                                                                                          13           duties safely;                                                                                   82




                                                                 Draft Copy
         "Crew Management Services" means the services agreed to                                            14           (v) instructing the Crew to obey all reasonable orders of the                                    83
         be carried out by the Crew Managers in accordance with sub-                                        15           Owners and/or the Company, including, but not limited to orders                                  84
         clause 3.1 and, where indicated affirmatively in Box 6, sub-clause                                 16           in connection with safety and navigation, avoidance of pollution                                 85
         3.2.                                                                                               17           and protection of the environment;                                                               86
         "Severance Costs" means the costs which the Crew Managers                                          18           (vi) ensuring that no Connected Person shall proceed to sea                                      87
         are legally obliged to pay to the Crew as a result of the early                                    19           on board the Vessel without the prior consent of the Owners                                      88
         termination of a fixed term employment contract for service on                                     20           (such consent not to be unreasonably withheld);                                                  89
         the Vessel.                                                                                        21           (vii) arranging transportation of the Crew, including repatriation;                              90
         "Crew Support Costs" means all expenses of a general nature                                        22           (viii) training the Crew and supervising their efficiency;                                       91
         which are not particularly referable to any individual vessel for                                  23           (ix) conducting union negotiations; and                                                          92
         the time being managed by the Crew Managers and which are                                          24           (x) operating the Owners' drug and alcohol policy, unless                                        93
         incurred by the Crew Managers for the purpose of providing an                                      25           otherwise agreed.                                                                                94
         efficient and economic Crew Management Service and, without                                        26
         prejudice to the generality of the foregoing, shall include the                                    27     3.2 Accounting Services                                                                                95
         cost of crew standby pay, training schemes for officers and                                        28         (Only applicable if agreed according to Box 6)                                                     96
         ratings, cadet training schemes, sick pay, study pay, recruitment                                  29         The Crew Managers shall:                                                                           97
         and interviews.                                                                                    30         (i) establish an accounting system which meets the                                                 98
         "ISM Code" means the International Management Code for the                                         31         requirements of the Owners and provide regular accounting                                          99
         Safe Operation of Ships and for Pollution Prevention as adopted                                    32         services, supply regular reports and records; and                                                 100
         by the International Maritime Organization (IMO) by resolution                                     33         (ii) maintain the records of all costs and expenditure incurred                                   101
         A.741(18) or any subsequent amendment thereto.                                                     34         as well as data necessary or proper for the settlement of accounts                                102
         "Company" means the Owner of the Vessel or any other                                               35         between the parties.                                                                              103
         organisation or person who has assumed the responsibility for                                      36
         the operation of the Vessel from the Owner and who, on assuming                                    37     4. Crew Insurance Arrangements                                                                        104
         such responsibility, has agreed to take over all duties and                                        38        Subject to the terms and conditions herein provided, the Owners                                    105
         responsibilities imposed by the ISM Code.                                                          39        shall, unless otherwise agreed:                                                                    106
         "STCW 95" means the International Convention on Standards                                          40        4.1 insure the Crew and any Connected Persons proceeding                                           107
         of Training, Certification and Watchkeeping for Seafarers, 1978,                                   41        to sea on board for crew risks, which shall include but not be                                     108
         as amended in 1995 or any subsequent amendment thereto.                                            42        limited to death, sickness, repatriation, injury, shipwreck                                        109
                                                                                                                      unemployment indemnity and loss of personal effects, with a                                        110
      2. Appointment of Crew Managers                                                                       43        first class insurance company, underwriter or protection and                                       111
         With effect from the day and year stated in Box 4 and continuing                                   44        indemnity association ('the Crew Insurances');                                                     112
         unless and until terminated as provided herein, the Owners                                         45        4.2 ensure that all premiums or calls in respect of the Crew                                       113
         hereby appoint the Crew Managers and the Crew Managers                                             46        Insurances are paid promptly by their due date;                                                    114
         hereby agree to act as the crew managers of the Vessel.                                            47        4.3 ensure that Crew Insurances shall name the Crew                                                115



                                                                   Draft Copy
                                                                                                                      Managers as co-assured (unless advised by the Crew Managers                                        116
      3. Basis of Agreement                                                                                 48        to the contrary); and                                                                              117
         Subject to the terms and conditions herein provided, during the                                    49        4.4 provide evidence that they have complied with their                                            118
         period of this Agreement, the Crew Managers shall carry out                                        50        obligations under sub-clauses 4.1, 4.2 and 4.3 within a                                            119
         Crew Management Services in respect of the Vessel as agents                                        51        reasonable time following the commencement of this Agreement                                       120
         for and on behalf of the Owners. The Crew Managers shall have                                      52        and after each renewal date or payment date of the Crew                                            121
         authority to take such actions as they may from time to time in                                    53        Insurances, to the reasonable satisfaction of the Crew Managers.                                   122
         their absolute discretion consider to be necessary to enable them                                  54
         to perform this Agreement in accordance with sound crew                                            55     5. Crew Managers' Obligations                                                                         123
         management practice.                                                                               56        The Crew Managers undertake to use their best endeavours to                                        124
                                                                                                                      provide the agreed Crew Management Services specified in this                                      125
      3.1 Crew Management                                                                                   57        Agreement to the Owners in accordance with sound crew                                              126
          The Crew Managers shall provide suitably qualified Crew for the                                   58        management practice, and to protect and promote the interests                                      127
          Vessel as required by the Owners in accordance with the STCW                                      59        of the Owners in all matters relating to the provision of services                                 128
          95 requirements, provision of which includes but is not limited to                                60        hereunder.                                                                                         129
          the following functions:                                                                          61        Provided, however, that the Crew Managers in the performance                                       130
          (i) selecting and engaging the Vessel's Crew, including payroll                                   62        of their management responsibilities under this Agreement shall                                    131
          arrangements, pension administration, Crew's tax, social security                                 63        be entitled to have regard to their overall responsibility in relation                             132
          contributions and other dues payable in the seafarer's country                                    64        to all vessels as may from time to time be entrusted to their                                      133
          of domicile;                                                                                      65        management and in particular, but without prejudice to the                                         134
          (ii) ensuring that the applicable requirements of the law of the                                  66        generality of the foregoing, the Crew Managers shall be entitled                                   135
          flag of the Vessel stated in Box 7 are satisfied in respect of                                    67        to allocate available manpower in such manner as in the                                            136
          manning levels, rank, qualification and certification of the Crew                                 68        prevailing circumstances the Crew Managers in their absolute                                       137
          and employment regulations including disciplinary and other                                       69        discretion consider to be fair and reasonable.                                                     138




       This computer generated form is printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In event of any modification being made to the preprinted text of this document, which is
       not clearly visible, the original BIMCO approved document shall apply. BIMCO assume no responsibility for any loss or damage caused as a result of discrepancies between the original BIMCO document and this
       document.




216                                                                                                                                                              © Drewry Shipping Consultants Ltd
Ship Management                                                                                                                                                                                                      Appendices


Appendix 3B (cont’d)



                                                                     PART II
                                          "CREWMAN A - COST PLUS FEE" Standard Crew Management Agreement

                                                                                                                         7.1 The Owners shall pay the Crew Managers for their services                                   209
      6. Owners' Obligations                                                                               139           as crew managers under this Agreement a monthly fee in the                                      210
         The Owners shall:                                                                                 140           amount stated in Box 9 which shall be payable in advance, the                                   211
         6.1 pay all sums due to the Crew Managers punctually in                                           141           first monthly fee being payable on the commencement of this                                     212
         accordance with the terms of this Agreement;                                                      142           Agreement.                                                                                      213
         6.2 procure that the requirements of the law of the Vessel's                                      143           7.2 (i)      The fee shall be renegotiated annually. Not less than                              214
         flag State are satisfied and that they, or such other entity as                                   144           three (3) months before the anniversary date of the commence-                                   215
         may be appointed by them, are identified to the Crew Managers                                     145           ment of this Agreement specified in Box 4, the Crew Managers                                    216
         as the Company;                                                                                   146           shall submit to the Owners a proposed fee figure to be applicable                               217
         6.3 inform the Crew Managers prior to ordering the Vessel to                                      147           for the forthcoming year.                                                                       218
         any area excluded by war risks underwriters by virtue of the current                              148           (ii) The Owners shall indicate to the Crew Managers their                                       219
         London market war risks trading warranties and pay whatever                                       149           acceptance or rejection of the proposed revised fee within one                                  220
         additional costs may properly be incurred by the Crew Managers                                    150           month of presentation, failing which the Crew Managers shall be                                 221
         as a consequence of such orders including, if necessary, the costs                                151           entitled to assume that the Owners have accepted the said fee.                                  222
         of replacing the Crew. Any delays resulting from the negotiation                                  152           7.3 The Crew Managers shall, at no extra costs to the Owners,                                   223
         with or replacement of the Crew as a result of the Vessel being                                   153           provide their own office accommodation, office staff, facilities                                224



                                                                Draft Copy
         ordered to a war zone shall be for the Owners' account;                                           154           and stationery. The Owners shall reimburse the Crew Managers                                    225
         6.4 agree with the Crew Managers prior to any change of flag of                                   155           for postage and communication expenses, travelling expenses,                                    226
         the Vessel and pay whatever additional costs may properly be                                      156           and other out of pocket expenses properly incurred by the Crew                                  227
         incurred by the Crew Managers as a consequence of such change;                                    157           Managers in the pursuance of the Crew Management Services.                                      228
         6.5 provide, at no cost to the Crew Managers, in accordance                                       158           7.4 In the event of lay up or extensive repairs to the Vessel                                   229
         with the requirements of the law of the flag of the Vessel stated in                              159           that last for more than the number of months stated in Box 10,                                  230
         Box 7, or higher standard, as mutually agreed, adequate Crew                                      160           the parties shall mutually agree the extent of down-manning                                     231
         accommodation and living standards;                                                               161           required, together with the revision of the fee and re-manning                                  232
         6.6 unless otherwise agreed, arrange for the supply of provisions,                                162           arrangements for the period exceeding the number of months                                      233
         at their own expense;                                                                             163           stated in Box 10 until one month before the Vessel is again put                                 234
         6.7 where the Crew Managers provide provisions, reimburse the                                     164           into service. Consequential costs of reduction and reinstate-                                   235
         Crew Managers for any food consumed on board other than by                                        165           ment of the Crew shall be for the Owners' account. In the event                                 236
         the Crew or any Connected Person and compensate the Crew                                          166           that the parties cannot agree, the Agreement shall be terminated                                237
         Managers or provide replacement for any losses of foodstuffs                                      167           in accordance with Clause 17.                                                                   238
         caused exclusively by the breakdown of the refrigeration plant                                    168
         and machinery; and                                                                                169     8. Budgets and Management of Funds                                                                    239
         6.8 procure that throughout the period of this Agreement:                                         170        8.1 The Crew Managers shall present to the Owners annually                                         240
         (i) at the Owners' expense, the Vessel is insured for not less                                    171        a budget for the following twelve months in such form as the                                       241
         than her sound market value or entered for her full gross tonnage,                                172        Owners require. The budget for the first year hereof is set out                                    242
         as the case may be, for:                                                                          173        in Annex "C" hereto. Subsequent annual budgets shall be                                            243
               (a) usual hull and machinery marine risks (including crew                                   174        prepared by the Crew Managers and submitted to the Owners                                          244
               negligence) and excess liabilities;                                                         175        not less than three months before the anniversary date of the                                      245
               (b) protection and indemnity risks, including pollution risks,                              176        commencement of this Agreement (see Clause 2 and Box 4).                                           246
               diversion expenses and also including crew risks in accordance                              177        8.2 The Owners shall indicate to the Crew Managers their                                           247
               with sub-clause 4.1, unless separately insured by the Crew                                  178        acceptance and approval of the annual budget within one month                                      248
               Managers; and                                                                               179        of presentation and in the absence of any such indication the                                      249
               (c) war risks (including protection and indemnity and crew                                  180        Crew Managers shall be entitled to assume that the Owners                                          250
               risks);                                                                                     181        have accepted the proposed budget.                                                                 251
               in accordance with the best practice of prudent owners of                                   182        8.3 Following the agreement of the budget, the Crew                                                252
               vessels of a similar type to the Vessel, with first class insurance                         183        Managers shall prepare and present to the Owners their                                             253
               companies, underwriters or associations ('the Owners'                                       184        estimate of the Crew Costs and the Crew Managers shall each                                        254
               Insurances');                                                                               185        month update this estimate. Based thereon, the Crew Managers                                       255



                                                                  Draft Copy
         (ii) all premiums and calls on the Owners' Insurances are paid                                    186        shall each month request the Owners in writing for the funds                                       256
         promptly by their due date;                                                                       187        required to crew the Vessel for the ensuing month. Such funds                                      257
         (iii) the Owners' Insurances name the Crew Managers and,                                          188        shall be received by the Crew Managers within ten running                                          258
         subject to underwriters' agreement, any third party designated by                                 189        days after the receipt by the Owners of the Crew Managers'                                         259
         the Crew Managers as a joint assured, with full cover, with the                                   190        written request and shall be held to the credit of the Owners in                                   260
         Owners obtaining cover in respect of each of the insurances                                       191        a separate bank account.                                                                           261
         specified in sub-clause 6.8(i) above:                                                             192        8.4 The Crew Managers shall produce a monthly comparison                                           262
               (a) on terms whereby the Crew Managers and any such third                                   193        between budgeted and actual income and expenditure of the                                          263
               party are liable in respect of premiums or calls arising in                                 194        Vessel in such form as required by the Owners.                                                     264
               connection with the Owners' Insurances; or                                                  195        8.5 Unless otherwise agreed, all discounts and commissions                                         265
               (b) if reasonably obtainable, on terms such that neither the                                196        obtained by the Crew Managers in the course of the Crew                                            266
               Crew Managers nor any such third party shall be under any                                   197        Management of the Vessel shall be credited to the Owners.                                          267
               liability in respect of premiums or calls arising in connection                             198        8.6 Notwithstanding anything contained herein, the Crew                                            268
               with the Owners' Insurances; or                                                             199        Managers shall in no circumstances be required to use or                                           269
               (c) on such terms as may be agreed in writing.                                              200        commit their own funds to finance the provision of the Crew                                        270
               Note: indicate alternative (a), (b) or (c) of sub-clause 6.8(iii) in                        201        Management Services.                                                                               271
               Box 8. If Box 8 is left blank then (a) applies.                                             202
         (iv) written evidence is provided, to the reasonable satisfaction                                 203     9. Trading Restrictions                                                                               272
         of the Crew Managers, of their compliance with their obligations                                  204        The Owners and the Crew Managers will, prior to the                                                273
         under this Clause within a reasonable time of the commencement                                    205        commencement of this Agreement, agree on any trading                                               274
         of the Agreement, and of each renewal date and, if specifically                                   206        restrictions to the Vessel that may result from the terms and                                      275
         requested, of each payment date of the Owners' Insurances.                                        207        conditions of the Crew's employment.                                                               276

      7. Crew Management Fee                                                                               208     10. Replacement                                                                                       277




       This computer generated form is printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In event of any modification being made to the preprinted text of this document, which is
       not clearly visible, the original BIMCO approved document shall apply. BIMCO assume no responsibility for any loss or damage caused as a result of discrepancies between the original BIMCO document and this
       document.




© Drewry Shipping Consultants Ltd                                                                                                                                                                                                217
Appendices                                                                                                                                                                                              Ship Management


Appendix 3B (cont’d)



                                                                     PART II
                                          "CREWMAN A - COST PLUS FEE" Standard Crew Management Agreement

          The Owners shall have the right to require the replacement, at                                   278           Managers are entitled hereunder shall also be available and shall                               348
          their own expense, at the next reasonable opportunity, of any                                    279           extend to protect every such employee or agent of the Crew                                      349
          member of the Crew found on reasonable grounds to be                                             280           Managers acting as aforesaid and for the purpose of all the                                     350
          unsuitable for service. If the Crew Managers have failed to                                      281           foregoing provisions of this Clause the Crew Managers are or                                    351
          fulfil their obligations in providing suitably qualified Crew within                             282           shall be deemed to be acting as agent or trustee on behalf of                                   352
          the meaning of sub-clause 3.1, then such replacement shall                                       283           and for the benefit of all persons who are or might be his servants                             353
          be at the Crew Managers' expense.                                                                284           or agents from time to time (including sub-contractors as                                       354
                                                                                                                         aforesaid) and all such persons shall to this extent be or be                                   355
      11. Crew Managers' Right to Sub-contract                                                             285           deemed to be parties to this Agreement.                                                         356
          The Crew Managers shall not have the right to sub-contract                                       286
          any of their obligations hereunder without the prior written                                     287     13. Documentation                                                                                     357
          consent of the Owners, which shall not be unreasonably                                           288         For the purpose of demonstrating compliance with the                                              358
          withheld. In the event of such a sub-contract, the Crew                                          289         requirements of STCW 95 to the Flag State Administration and                                      359
          Managers shall remain fully liable for the due performance of                                    290         other third parties, the Crew Managers shall provide the Owners                                   360
          their obligations under this Agreement.                                                          291         with full and ready access to documentation and data relevant                                     361




                                                               Draft Copy
                                                                                                                       to the Crew. Such information shall be maintained and be readily                                  362
      12. Responsibilities                                                                                 292         accessible and include, without being limited to, documentation                                   363
          12.1 Force Majeure. Neither the Owners nor the Crew                                              293         and data on Crew experience, training, medical fitness and                                        364
          Managers shall be under any liability for any failure to perform                                 294         competence in assigned duties.                                                                    365
          any of their obligations hereunder by reason of any cause                                        295
          whatsoever of any nature or kind beyond their reasonable control.                                296     14. General Administration                                                                            366
          12.2 Crew Managers' liability to Owners. Without prejudice to                                    297         14.1 The Crew Managers shall handle and settle all claims                                         367
          sub-clause 12.1 the Crew Managers shall be under no liability                                    298         arising out of the Crew Management Services hereunder and                                         368
          whatsoever to the Owners for any loss, damage, delay or expense                                  299         keep the Owners informed regarding any incident of which the                                      369
          of whatsoever nature, whether direct or indirect (including but                                  300         Crew Managers become aware, which gives or may give rise to                                       370
          not limited to loss of profit arising out of or in connection with                               301         claims or disputes involving third parties.                                                       371
          detention of or delay to the Vessel) and howsoever arising in the                                302         14.2 The Crew Managers shall, as instructed by the Owners,                                        372
          course of performance of the Crew Management Services                                            303         bring or defend actions, suits or proceedings, in connection with                                 373
          UNLESS same is proved to have resulted solely from the                                           304         matters entrusted to the Crew Managers according to this                                          374
          negligence, gross negligence or wilful default of the Crew                                       305         Agreement.                                                                                        375
          Managers or any of their employees or agents, or sub-contractors                                 306         14.3 The Crew Managers shall also have power to obtain legal                                      376
          employed by them in connection with the Vessel, in which case                                    307         or technical or other outside expert advice in relation to the                                    377
          (save where loss, damage, delay or expense has resulted from                                     308         handling and settlement of claims and disputes.                                                   378
          the Crew Managers' personal act or omission committed with                                       309         14.4 The Owners shall arrange for the provision of any                                            379
          the intent to cause same or recklessly and with knowledge that                                   310         necessary guarantee bond or other security, in the first instance.                                380
          such loss, damage, delay or expense would probably result) the                                   311         14.5 Any costs incurred by the Crew Managers in carrying out                                      381
          Crew Managers' liability for each incident or series of incidents                                312         their obligations according to Clause 14 shall be reimbursed by                                   382
          giving rise to a claim or claims shall never exceed a total of ten                               313         the Owners.                                                                                       383
          (10) times the equivalent annual fee payable hereunder.                                          314
          12.3 Acts or omissions of the Crew. Notwithstanding anything                                     315     15. Auditing                                                                                          384
          that may appear to the contrary in this Agreement, the Crew                                      316         The Crew Managers shall at all times maintain and keep true                                       385
          Managers shall not be liable for any act or omission of the Crew,                                317         and correct accounts and shall make the same available for                                        386
          even if such acts or omissions are negligent, grossly negligent                                  318         inspection and auditing by the Owners at such times as may be                                     387
          or wilful, except only to the extent that they are shown to have                                 319         mutually agreed. On the termination, for whatever reasons, of                                     388
          resulted from a failure by the Crew Managers to discharge their                                  320         this Agreement, the Crew Managers shall release to the Owners,                                    389
          obligations under Clause 5, in which case their liability shall be                               321         if so requested, the originals where possible, or otherwise                                       390
          limited in accordance with the terms of this Clause 12.                                          322         certified copies, of all such accounts.                                                           391
          12.4 Indemnity. Except to the extent and solely for the amount                                   323



                                                                 Draft Copy
          therein set out that the Crew Managers would be liable under                                     324     16. Compliance with Laws and Regulations                                                              392
          sub-clause 12.2 the Owners hereby undertake to keep the Crew                                     325         The Crew Managers will not do, or permit to be done, anything                                     393
          Managers and their employees, agents and sub-contractors                                         326         that might cause any breach or infringement of the laws and                                       394
          indemnified and to hold them harmless against all actions,                                       327         regulations of the Vessel's flag, or of the places where she trades.                              395
          proceedings, claims, demands or liabilities whatsoever or                                        328
          howsoever arising which may be brought against them or incurred                                  329     17. Duration of the Agreement                                                                         396
          or suffered by them arising out of or in connection with the                                     330         This Agreement shall come into effect on the day and year stated                                  397
          performance of the Agreement, and against and in respect of all                                  331         in Box 4 and shall continue until the date stated in Box 5.                                       398
          costs, loss, damages and expenses (including legal costs and                                     332         Thereafter, unless notice of termination is given two (2) months                                  399
          expenses on a full indemnity basis) which the Crew Managers                                      333         prior to the date stated in Box 5, the Agreement shall continue                                   400
          may suffer or incur (either directly or indirectly) in the course of                             334         until terminated by either party giving to the other notice in writing,                           401
          the performance of this Agreement.                                                               335         in which event it shall terminate upon expiration of a period of                                  402
          12.5 "Himalaya". It is hereby expressly agreed that no employee                                  336         two (2) months from the date upon which such notice was given.                                    403
          or agent of the Crew Managers (including every sub-contractor                                    337
          from time to time employed by the Crew Managers) shall in any                                    338     18. Termination                                                                                       404
          circumstances whatsoever be under any liability whatsoever to                                    339         18.1 Owners' Default                                                                              405
          the Owners for any loss, damage or delay of whatsoever kind                                      340         (i) The Crew Managers shall be entitled to terminate the                                          406
          arising or resulting directly or indirectly from any act, neglect or                             341         Agreement with immediate effect by notice in writing if any sum                                   407
          default on his part while acting in the course of or in connection                               342         payable by the Owners under this Agreement shall not have                                         408
          with his employment and, without prejudice to the generality of                                  343         been received in the Crew Managers' nominated account within                                      409
          the foregoing provisions in this Clause, every exemption,                                        344         ten running days of receipt by the Owners of the Crew Managers'                                   410
          limitation, condition and liberty herein contained and every right,                              345         written request in accordance with Clause 7 or if the Vessel is                                   411
          exemption from liability, defence and immunity of whatsoever                                     346         repossessed by the Mortgagees.                                                                    412
          nature applicable to the Crew Managers or to which the Crew                                      347         (ii) If the Owners:                                                                               413




       This computer generated form is printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In event of any modification being made to the preprinted text of this document, which is
       not clearly visible, the original BIMCO approved document shall apply. BIMCO assume no responsibility for any loss or damage caused as a result of discrepancies between the original BIMCO document and this
       document.




218                                                                                                                                                              © Drewry Shipping Consultants Ltd
Ship Management                                                                                                                                                                                                      Appendices


Appendix 3B (cont’d)



                                                                     PART II
                                          "CREWMAN A - COST PLUS FEE" Standard Crew Management Agreement

                (a) fail to meet their obligations under Clause 6 of this                                  414           Maritime Arbitrators Association (LMAA) Terms current at the                                    485
                Agreement for any reason within their control, or                                          415           time when the arbitration proceedings are commenced.                                            486
                (b) proceed with the employment of or continue to employ                                   416           The reference shall be to three arbitrators. A party wishing to                                 487
                the Vessel in the carriage of contraband, blockade running,                                417           refer a dispute to arbitration shall appoint its arbitrator and send                            488
                or in an unlawful trade, or on a voyage which in the reasonable                            418           notice of such appointment in writing to the other party requiring                              489
                opinion of the Crew Managers, is unduly hazardous or                                       419           the other party to appoint its own arbitrator within 14 calendar                                490
                improper,                                                                                  420           days of that notice and stating that it will appoint its arbitrator as                          491
          the Crew Managers may give notice in writing of the default to                                   421           sole arbitrator unless the other party appoints its own arbitrator                              492
          the Owners, requiring them to remedy it as soon as practically                                   422           and gives notice that it has done so within the 14 days specified.                              493
          possible. In the event that the Owners fail to remedy it within a                                423           If the other party does not appoint its own arbitrator and give                                 494
          reasonable time to the satisfaction of the Crew Managers, the                                    424           notice that it has done so within the 14 days specified, the                                    495
          Crew Managers shall be entitled to terminate the Agreement                                       425           party referring a dispute to arbitration may, without the                                       496
          with immediate effect by notice in writing.                                                      426           requirement of any further prior notice to the other party,                                     497
          18.2 Crew Managers' Default. If the Crew Managers fail to meet                                   427           appoint its arbitrator as sole arbitrator and shall advise the                                  498
          their obligations under Clause 5 of this Agreement for any reason                                428           other party accordingly. The award of a sole arbitrator shall                                   499




                                                                 Draft Copy
          within the control of the Crew Managers, the Owners may give                                     429           be binding on both parties as if he had been appointed by                                       500
          notice in writing to the Crew Managers of the default requiring                                  430           agreement.                                                                                      501
          them to remedy it as soon as practically possible. In the event                                  431           Nothing herein shall prevent the parties agreeing in writing to                                 502
          that the Crew Managers fail to remedy it within a reasonable                                     432           vary these provisions to provide for the appointment of a sole                                  503
          time to the satisfaction of the Owners, the Owners shall be                                      433           arbitrator.                                                                                     504
          entitled to terminate the Agreement with immediate effect by                                     434           In cases where neither the claim nor any counterclaim                                           505
          notice in writing.                                                                               435           exceeds the sum of USD50,000 (or such other sum as the                                          506
          18.3 Extraordinary Termination. This Agreement shall be                                          436           parties may agree) the arbitration shall be conducted in                                        507
          deemed to be terminated in the case of the sale of the Vessel or                                 437           accordance with the LMAA Small Claims Procedure current                                         508
          if the Vessel becomes a total loss or is declared as a constructive                              438           at the time when the arbitration proceedings are commenced.                                     509
          or compromised or arranged total loss or is requisitioned or has                                 439           19.2 This Agreement shall be governed by and construed in                                       510
          been declared missing.                                                                           440           accordance with Title 9 of the United States Code and the                                       511
          18.4 For the purpose of sub-clause 18.3 hereof:                                                  441           Maritime Law of the United States and any dispute arising                                       512
          (i) the date upon which the Vessel is to be treated as having                                    442           out of or in connection with this Agreement shall be referred                                   513
          been sold or otherwise disposed of shall be the date on which                                    443           to three persons at New York, one to be appointed by each of                                    514
          the Owners cease to be registered as Owners of the Vessel;                                       444           the parties hereto, and the third by the two so chosen; their                                   515
          (ii) the Vessel shall not be deemed to be lost unless either                                     445           decision or that of any two of them shall be final, and for the                                 516
          she has become an actual total loss or agreement has been                                        446           purposes of enforcing any award, judgement may be entered                                       517
          reached with her Underwriters in respect of her constructive,                                    447           on an award by any court of competent jurisdiction. The                                         518
          compromised or arranged total loss or if such agreement with                                     448           proceedings shall be conducted in accordance with the rules                                     519
          her Underwriters is not reached it is adjudged by a competent                                    449           of the Society of Maritime Arbitrators, Inc.                                                    520
          tribunal that a constructive loss of the Vessel has occurred; and                                450           In cases where neither the claim nor any counterclaim                                           521
          (iii) the date upon which the Vessel is to be treated as missing                                 451           exceeds the sum of USD50,000 (or such other sum as the                                          522
          shall be ten (10) days after the Vessel was last reported or when                                452           parties may agree) the arbitration shall be conducted in                                        523
          the Vessel is posted as missing by Lloyd's. A missing vessel                                     453           accordance with the Shortened Arbitration Procedure of the                                      524
          shall be deemed lost in accordance with the provisions of sub-                                   454           Society of Maritime Arbitrators, Inc., current at the time when                                 525
          clause 18.4(ii).                                                                                 455           the arbitration proceedings are commenced.                                                      526
          18.5 This Agreement shall terminate forthwith in the event of an                                 456           19.3 This Agreement shall be governed by and construed in                                       527
          order being made or resolution passed for the winding up,                                        457           accordance with the laws of the place mutually agreed by                                        528
          dissolution, liquidation or bankruptcy of either party (otherwise                                458           the parties and any dispute arising out of or in connection                                     529
          than for the purpose of reconstruction or amalgamation) or if a                                  459           with this Agreement shall be referred to arbitration at a                                       530
          receiver is appointed, or if it suspends payment, ceases to carry                                460           mutually agreed place, subject to the procedures applicable                                     531




                                                                  Draft Copy
          on business or makes any special arrangement or composition                                      461           there.                                                                                          532
          with its creditors.                                                                              462           19.4 If Box 12 in Part I is not appropriately filled in, sub-clause                             533
          18.6 In the event of this Agreement being terminated by either                                   463           19.1 of this Clause shall apply.                                                                534
          party in accordance with sub-clauses 18.1 or 18.3, the fee and                                   464           Note: 19.1, 19.2 and 19.3 are alternatives; indicate alternative                                535
          the Crew Support Costs shall continue to be payable from the                                     465           agreed in Box 12.                                                                               536
          date on which the Crew leave the Vessel for the number of months                                 466
          stated in Box 11. The Owners shall also pay an equitable                                         467     20. Notices                                                                                           537
          proportion of such reasonable Severance Costs as the Crew                                        468         20.1 Any notices to be given by either party to the other party                                   538
          Managers can prove that they have incurred. The Crew Managers                                    469         shall be in writing and may be sent by fax, telex, registered                                     539
          shall use their best endeavours to minimise such Severance                                       470         or recorded mail or by personal service.                                                          540
          Costs which, in any event, shall not exceed a maximum sum                                        471         20.2 The address of the Parties for service of such                                               541
          equivalent to the Crew's basic wages for the number of months                                    472         communication shall be as stated in Boxes 13 and 14                                               542
          stated in Box 11.                                                                                473         respectively.                                                                                     543
          18.7 The termination of this Agreement shall be without prejudice                                474
          to all rights accrued due between the parties prior to the date of                               475
          termination.                                                                                     476

      19. Law and Arbitration                                                                              477
          19.1 This Agreement shall be governed by and construed in                                        478
          accordance with English law and any dispute arising out of or in                                 479
          connection with this Agreement shall be referred to arbitration                                  480
          in London in accordance with the Arbitration Act 1996 or any                                     481
          statutory modification or re-enactment thereof save to the extent                                482
          necessary to give effect to the provisions of this Clause.                                       483
          The arbitration shall be conducted in accordance with the London                                 484




       This computer generated form is printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In event of any modification being made to the preprinted text of this document, which is
       not clearly visible, the original BIMCO approved document shall apply. BIMCO assume no responsibility for any loss or damage caused as a result of discrepancies between the original BIMCO document and this
       document.




© Drewry Shipping Consultants Ltd                                                                                                                                                                                                219
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Appendix 3B (cont’d)




            ANNEX "A" (DETAILS OF VESSEL OR VESSELS) TO
            THE BALTIC AND INTERNATIONAL MARITIME COUNCIL (BIMCO)
            STANDARD CREW MANAGEMENT AGREEMENT (COST PLUS FEE)
            CODE NAME:"CREWMAN A - COST PLUS FEE"




             Date of Agreement:


                                                                   Draft Copy
             Name of Vessel(s):




              Particulars of Vessel(s):




                                                                      Draft Copy



      This computer generated form is printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In event of any modification being made to the preprinted text of this document, which is
      not clearly visible, the original BIMCO approved document shall apply. BIMCO assume no responsibility for any loss or damage caused as a result of discrepancies between the original BIMCO document and this
      document.




220                                                                                                                                                                © Drewry Shipping Consultants Ltd
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Appendix 3B (cont’d)




           ANNEX "B" (CREW DETAILS) TO
           THE BALTIC AND INTERNATIONAL MARITIME COUNCIL (BIMCO)
           STANDARD CREW MANAGEMENT AGREEMENT (COST PLUS FEE)
           CODE NAME:"CREWMAN A - COST PLUS FEE"




            Date of Agreement:



                                                               Draft Copy
            Name of Vessel:




            Details of Crew:




             Number                                                        Rank                                                                Nationality




                                                                         Draft Copy



        This computer generated form is printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In event of any modification being made to the preprinted text of this document, which is
        not clearly visible, the original BIMCO approved document shall apply. BIMCO assume no responsibility for any loss or damage caused as a result of discrepancies between the original BIMCO document and this
        document.




© Drewry Shipping Consultants Ltd                                                                                                                                                                                                 221
Appendices                                                                                                                                                                                                 Ship Management


Appendix 3B (cont’d)




                 ANNEX "C" (BUDGET FOR THE FIRST YEAR) TO
                 THE BALTIC AND INTERNATIONAL MARITIME COUNCIL (BIMCO)
                 STANDARD CREW MANAGEMENT AGREEMENT (COST PLUS FEE)
                 CODE NAME:"CREWMAN A - COST PLUS FEE"




                 Date of Agreement:


                                                                       Draft Copy
                  Name of Vessel:




                 Budget Details:




                                                                            Draft Copy




      This computer generated form is printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In event of any modification being made to the preprinted text of this document, which is
      not clearly visible, the original BIMCO approved document shall apply. BIMCO assume no responsibility for any loss or damage caused as a result of discrepancies between the original BIMCO document and this
      document.




222                                                                                                                                                                 © Drewry Shipping Consultants Ltd
Ship Management                                                                                                                                                                        Appendices


Appendix 3C
Standard ship management agreement – CREWMAN B
SHIPMAN and CREWMAN are reproduced by kind permission of BIMCO

         1. Date of Agreement                                                                  THE BALTIC AND INTERNATIONAL MARITIME COUNCIL (BIMCO)
                                                                                               STANDARD CREW MANAGEMENT AGREEMENT (LUMP SUM)
                                                                                               CODE NAME:"CREWMAN B - LUMP SUM"

                                                                                                                                                                                  PART I
         2. Owners (state name, place of registered office and law of registry) (Cl. 1)        3. Crew Managers (state name, place of registered office and law of registry) (Cl. 1)



             Name                                                                                  Name



             Place of registered office                                                             Place of registered office



             Law of registry                                                                        Law of registry



                                                              Draft Copy
         4. Day and year of commencement of Agreement (Cl. 2, 6.6(i) and 14)                   5. Day and year of termination of Agreement (Cl. 14)




         6. Crew insurance arrangements (state "yes" or "no" as agreed) (Cl.3.2)               7. Flag of the Vessel (Cl. 3.1(ii) and 5.5)




         8. Insurance arrangements (state alternative (a), (b) or (c) of Cl. 5.7(iii))         9. Crew management lump sum (state monthly amount) (Cl. 6.1)




         10. Vessel´s regular trading area (state port or area)(Cl. 6.2(iv))                   11. Crew overtime expenses (state amount covered by the lump sum) (Cl. 6.3)




         12.Initial crew transportation costs (state if for Crew Managers´ account) (Cl.6.4)   13. Lay up or extensive repairs (Cl. 6.7)



                                                                                                  Number of months lay up or extensive repairs in excess of which revision of the
                                                                                                  lump sum and re-manning to be agreed

         14. Termination (state number of months lump sum payable) (Cl. 15.6)                  15. Law and Arbitration (state 16.1, 16.2 or 16.3 of Cl. 16 as agreed; if 16.3
                                                                                                  agreed place of arbitration must be stated) (Cl. 16)




            notice and communication to the Owners) (Cl. 17)
                                                             Draft Copy
         16. Notices (state postal and cable address, telex and fax number for service of      17. Notices (state postal and cable address, telex and fax number for service of
                                                                                                  notice and communication to the Crew Managers) (Cl. 17)




         It is mutually agreed between the party mentioned in Box 2 (hereinafter called "the Owners") and the party mentioned in Box 3 (hereinafter called "the Crew Managers") that
         this Agreement consisting of PART I and PART II as well as ANNEX "A" and ANNEX "B" attached hereto, shall be performed subject to the conditions contained herein. In the
         event of a conflict of conditions, the provisions of PART I shall prevail over those of PART II and ANNEX "A" and ANNEX "B" to the extent of such conflict but no further.



         Signature(s) (Owners)                                                                 Signature(s) (Crew Managers)




                                                                     Printed by The BIMCO Charter Party Editor




© Drewry Shipping Consultants Ltd                                                                                                                                                            223
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Appendix 3C (cont’d)



                                                                                           PART II
                                                                  "CREWMAN B - LUMP SUM" Standard Crew Management Agreement
                   1. Definitions                                                                                 1           more than three months prior to the respective Crew members                              63
                      In this Agreement, save where the context otherwise requires,                               2           leaving their country of domicile and maintained for the duration                        64
                      the following words and expressions shall have the meanings                                 3           of their service on board the Vessel;                                                    65
                      hereby assigned to them.                                                                    4           (iv) ensuring that the Crew shall have a command of the English                          66
                      "Owners" means the party identified in Box 2.                                               5           language of a sufficient standard to enable them to perform their                        67
                      "Crew Managers" means the party identified in Box 3.                                        6           duties safely;                                                                           68
                      "Vessel" means the vessel or vessels, details of which are set                              7           (v) instructing the Crew to obey all reasonable orders of the                            69
                      out in Annex "A" attached hereto.                                                           8           Owners and/or the Company, including, but not limited to orders                          70
                      "Crew" means the Master, officers and ratings of the numbers,                               9           in connection with safety and navigation, avoidance of pollution                         71
                      rank and nationality specified in Annex "B" attached hereto.                               10           and protection of the environment;                                                       72
                      "Connected Person" means any person connected with the                                     11           (vi) ensuring that no Connected Person shall proceed to sea on                           73
                      provision and the performance of the Crew Management Services.                             12           board the Vessel without the prior consent of the Owners (such                           74
                      "Crew Management Services" means the services agreed to                                    13           consent not to be unreasonably withheld);                                                75



                                                                        Draft Copy
                      be carried out by the Crew Managers in accordance with sub-                                14           (vii) arranging transportation of the Crew, including repatriation;                      76
                      clause 3.1 and, where indicated affirmatively in Box 6, sub-clause                         15           (viii) arranging for the supply of provisions, at the Crew Managers'                     77
                      3.2.                                                                                       16           expense, unless otherwise agreed.                                                        78
                      "Severance Costs" means the costs which the Crew Managers                                  17           (ix) training the Crew and supervising their efficiency;                                 79
                      are legally obliged to pay to the Crew as a result of the early                            18           (x) conducting union negotiations; and                                                   80
                      termination of a fixed term employment contract for service on                             19           (xi) operating the Owners' drug and alcohol policy, unless                               81
                      the Vessel.                                                                                20           otherwise agreed.                                                                        82
                      "ISM Code" means the International Management Code for the                                 21
                      Safe Operation of Ships and for Pollution Prevention as adopted                            22           3.2 Crew Insurance Arrangements                                           83
                      by the International Maritime Organization (IMO) by resolution                             23           (Only applicable if agreed according to Box 6)                            84
                      A.741(18) or any subsequent amendment thereto.                                             24           Subject to the terms and conditions herein provided, the Crew             85
                      "Company" means the Owner of the Vessel or any other                                       25           Managers shall:                                                           86
                      organisation or person who has assumed the responsibility for                              26           (i)    insure the Crew and any Connected Persons proceeding to            87
                      the operation of the Vessel from the Owner and who, on assuming                            27           sea on board for crew risks, which shall include but not be limited       88
                      such responsibility, has agreed to take over all duties and                                28           to death, sickness, repatriation, injury, shipwreck unemployment          89
                      responsibilities imposed by the ISM Code.                                                  29           indemnity and loss of personal effects, with a first class insurance      90
                      "STCW 95" means the International Convention on Standards of                               30           company, underwriter or protection and indemnity association ('the        91
                      Training, Certification and Watchkeeping for Seafarers, 1978, as                           31           Crew Insurances');                                                        92
                      amended in 1995, or any subsequent amendment thereto.                                      32           (ii) ensure that all premiums or calls in respect of the Crew             93
                                                                                                                              Insurances are paid promptly by their due date;                           94
                   2. Appointment of Crew Managers                                                               33           (iii) ensure that Crew Insurances shall name the Owners as co- 95
                      With effect from the day and year stated in Box 4 and continuing                           34           assured (unless advised by the Owners to the contrary); and 96
                      unless and until terminated as provided herein, the Owners hereby                          35           (iv) provide evidence that they have complied with their                  97
                      appoint the Crew Managers and the Crew Managers hereby agree                               36           obligations under sub-clauses 3.2(i), (ii) and (iii) within a reasonable  98
                      to act as the crew managers of the Vessel.                                                 37           time following the commencement of this Agreement and after               99
                                                                                                                              each renewal date or payment date of the Crew Insurances, to             100
                   3. Basis of Agreement                                                                         38           the reasonable satisfaction of the Owners.                               101
                      Subject to the terms and conditions herein provided, during the                            39
                      period of this Agreement the Crew Managers shall be the                                    40      4. Crew Managers' Obligations                                                                102
                      employers of the Crew and shall carry out Crew Management                                  41         The Crew Managers undertake to use their best endeavours to                               103
                      Services in respect of the Vessel in their own name.                                       42         provide the agreed Crew Management Services specified in this                             104
                                                                                                                            Agreement to the Owners in accordance with sound crew                                     105
                        3.1 Crew Management                                                                      43         management practice, and to protect and promote the interests                             106
                        The Crew Managers shall provide suitably qualified Crew for the                          44         of the Owners in all matters relating to the provision of services                        107
                        Vessel as required by the Owners in accordance with the STCW                             45         hereunder.                                                                                108
                        95 requirements, provision of which includes but is not limited to                       46         Provided, however, that the Crew Managers in the performance                              109



                                                                       Draft Copy
                        the following functions:                                                                 47         of their management responsibilities under this Agreement shall                           110
                        (i)    selecting and engaging the Vessel's Crew, including payroll                       48         be entitled to have regard to their overall responsibility in relation                    111
                        arrangements, pension administration, Crew's tax, social security                        49         to all vessels as may from time to time be entrusted to their                             112
                        contributions and other dues payable in the seafarer's country of                        50         management and in particular, but without prejudice to the                                113
                        domicile;                                                                                51         generality of the foregoing, the Crew Managers shall be entitled                          114
                        (ii) ensuring that the applicable requirements of the law of the                         52         to allocate available manpower in such manner as in the prevailing                        115
                        flag of the Vessel stated in Box 7 are satisfied in respect of manning                   53         circumstances the Crew Managers in their absolute discretion                              116
                        levels, rank, qualification and certification of the Crew and                            54         consider to be fair and reasonable.                                                       117
                        employment regulations including disciplinary and other                                  55
                        requirements;                                                                            56      5. Owners' Obligations                                                                       118
                        (iii) ensuring that all members of the Crew have passed a                                57         The Owners shall:                                                                         119
                        medical examination with a qualified doctor certifying that they                         58         5.1 pay all sums due to the Crew Managers punctually in                                   120
                        are fit for the duties for which they are engaged and are in                             59         accordance with the terms of this Agreement;                                              121
                        possession of valid medical certificates issued in accordance with                       60         5.2 procure that the requirements of the law of the Vessel's flag                         122
                        appropriate flag State requirements. In the absence of applicable                        61         State are satisfied and that they, or such other entity as may be                         123
                        flag State requirements the medical certificate shall be dated not                       62         appointed by them, are identified to the Crew Managers as                                 124


      This computer generated form is printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In event of any modification being made to the preprinted text of this document, which is
      not clearly visible, the original BIMCO approved document shall apply. BIMCO assume no responsibility for any loss or damage caused as a result of discrepancies between the original BIMCO document and this
      document.




224                                                                                                                                                                  © Drewry Shipping Consultants Ltd
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Appendix 3C (cont’d)



                                                                                         PART II
                                                                "CREWMAN B - LUMP SUM" Standard Crew Management Agreement
                      the Company;                                                                            125           first monthly lump sum being payable on the commencement of                             189
                      5.3 inform the Crew Managers prior to ordering the Vessel to                            126           this Agreement.                                                                         190
                      any area excluded by war risks underwriters by virtue of the current                    127           6.2 The lump sum shall include:                                                         191
                      London market war risks trading warranties and pay whatever                             128           (i)     all payments which are due to or on behalf of the Crew in                       192
                      additional costs may properly be incurred by the Crew Managers                          129           accordance with their contracts of employment, subject to any                           193
                      as a consequence of such orders including, if necessary, the costs                      130           limitation on overtime hours in accordance with sub-clause 6.3;                         194
                      of replacing the Crew. Any delays resulting from the negotiation                        131           (ii) all costs incurred in providing insurance cover including any                      195
                      with or replacement of the Crew as a result of the Vessel being                         132           deductibles;                                                                            196
                      ordered to a war zone shall be for the Owners' account;                                 133           (iii) the cost of obtaining all documentation necessary for the                         197
                      5.4 agree with the Crew Managers prior to any change of flag of                         134           Crew's employment, including but not limited to medical and                             198
                      the Vessel and pay whatever additional costs may properly be                            135           vaccination certificates, passports, visas, seaman's books, licenses                    199
                      incurred by the Crew Managers as a consequence of such change;                          136           and crew lists;                                                                         200
                      5.5 provide, at no cost to the Crew Managers, in accordance                             137           (iv) the cost of transportation of the Crew to and from the Vessel                      201
                      with the requirements of the law of the flag of the Vessel stated in                    138           including hotel expenses and food while travelling, other than the                      202




                                                                     Draft Copy
                      Box 7, or higher standard, as mutually agreed, adequate Crew                            139           initial Crew transportation costs in accordance with sub-clause 6.4.                    203
                      accommodation and living standards;                                                     140           All travelling expenses are based on the Vessel trading regularly to                    204
                      5.6        reimburse the Crew Managers, where the Crew Managers                         141           the port or area shown in Box 10. Should the Crew Managers have                         205
                      provide provisions, for any food consumed on board other than                           142           to pay any additional travelling expenses by reason of the Vessel                       206
                      by the Crew or any Connected Person and compensate the Crew                             143           not calling regularly at the above port or area, any excess travelling                  207
                      Managers or provide replacement for any losses of foodstuffs                            144           costs/expenses shall be charged to the Owners separately, on terms                      208
                      caused exclusively by the breakdown of the refrigeration plant                          145           to be agreed;                                                                           209
                      and machinery; and                                                                      146           (v) port disbursements and fees in respect of Crew matters;                             210
                      5.7 procure that throughout the period of this Agreement:                               147           (vi) the cost of crew mail and Crew's communications from the                           211
                      (i)      at the Owners' expense, the Vessel is insured for not less                     148           Vessel;                                                                                 212
                      than her sound market value or entered for her full gross tonnage,                      149           (vii) the cost of food for the Crew.                                                    213
                      as the case may be, for:                                                                150           The Crew Managers and the Owners shall, respectively at the                             214
                              (a) usual hull and machinery marine risks (including crew                       151           commencement and termination of this Agreement, take over and                           215
                               negligence) and excess liabilities;                                            152           pay for all unbroached provisions on board the Vessel at a price to                     216
                            (b) protection and indemnity risks, including pollution risks, and                153           be mutually agreed;                                                                     217
                               diversion expenses, but excluding crew risks in accordance                     154           (viii) working clothes; and                                                             218
                               with sub-clause 3.2(i), if separately insured by the Crew                      155           (ix) all other costs and expenses necessarily incurred by the Crew                      219
                               Managers; and                                                                  156           Managers in providing the Crew Management Services.                                     220
                              (c) war risks (including protection and indemnity and crew                      157           6.3 The amount of Crew overtime covered by the lump sum shall                           221
                               risks);                                                                        158           be as stated in Box 11. If overtime exceeds that amount the Owners                      222
                               in accordance with the best practice of prudent owners of                      159           shall pay for the excess at the rates set out in Annex "B".                             223
                               vessels of a similar type to the Vessel, with first class insurance            160           6.4 Unless otherwise agreed and stated in Box 12, the Owners                            224
                               companies, underwriters or associations ('the Owners'                          161           shall bear the initial Crew transportation costs from the point of                      225
                               Insurances');                                                                  162           departure from their country of domicile at the commencement                            226
                      (ii) all premiums and calls on the Owners' Insurances are paid                          163           of this Agreement.                                                                      227
                      promptly by their due date;                                                             164           6.5 Any invoices submitted by the Crew Managers for                                     228
                      (iii) the Owners' Insurances name the Crew Managers and, subject                        165           expenditure properly and reasonably incurred by them in the                             229
                      to underwriters' agreement, any third party designated by the Crew                      166           discharge of their duties under this Agreement and which is not                         230



                                                                     Draft Copy
                      Managers as a joint assured, with full cover, with the Owners                           167           included in the Crew Management Services but which is payable                           231
                      obtaining cover in respect of each of the insurances specified in                       168           by the Owners, including but not limited to consequential costs                         232
                      sub-clause 5.7(i) above:                                                                169           of lay up or repairs (sub-clause 6.7), excess overtime (sub-clause                      233
                            (a) on terms whereby the Crew Managers and any such third                         170           6.3) and the initial Crew transportation costs (sub-clause 6.4)                         234
                               party are liable in respect of premiums or calls arising in                    171           shall be paid by the Owners at the time of the payment of the                           235
                               connection with the Owners' Insurances; or                                     172           next lump sum due under sub-clause 6.1 or, in case of                                   236
                             (b) if reasonably obtainable, on terms such that neither the                     173           termination of the Agreement, before disembarkation of the Crew.                        237
                               Crew Managers nor any such third party shall be under any                      174           6.6 (i) The lump sum shall be renegotiated annually. Not less                           238
                               liability in respect of premiums or calls arising in connection                175           than three (3) months before the anniversary date of the                                239
                               with the Owners' Insurances; or                                                176           commencement of this Agreement specified in Box 4, the Crew                             240
                          (c) on such terms as may be agreed in writing.                                      177           Managers shall submit to the Owners a proposed lump sum                                 241
                               Note: indicate alternative (a), (b) or (c) of sub-clause 5.7(iii) in           178           figure to be applicable for the forthcoming year;                                       242
                               Box 8. If Box 8 is left blank then (a) applies.                                179           (ii) The Owners shall indicate to the Crew Managers their                               243
                      (iv) written evidence is provided, to the reasonable satisfaction of                    180           acceptance or rejection of the proposed revised lump sum within                         244
                      the Crew Managers, of their compliance with their obligations under                     181           one month of presentation, failing which the Crew Managers                              245
                      this Clause within a reasonable time of the commencement of the                         182           shall be entitled to assume that the Owners have accepted the                           246
                      Agreement, and of each renewal date and, if specifically requested,                     183           said lump sum.                                                                          247
                      of each payment date of the Owners' Insurances.                                         184           6.7 In the event of lay up or extensive repairs to the Vessel                           248
                                                                                                                            that last for more than the number of months stated in Box 13,                          249
                 6. Crew Management Lump Sum                                                                  185           the parties shall mutually agree the extent of down-manning                             250
                    6.1 The Owners shall pay the Crew Managers for their services                             186           required, together with the revision of the lump sum and re-                            251
                    as crew managers under this Agreement a monthly lump sum in                               187           manning arrangements for the period exceeding the number of                             252
                    the amount stated in Box 9 which shall be payable in advance, the                         188           months stated in Box 13 until one month before the Vessel is                            253


    This computer generated form is printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In event of any modification being made to the preprinted text of this document, which is
    not clearly visible, the original BIMCO approved document shall apply. BIMCO assume no responsibility for any loss or damage caused as a result of discrepancies between the original BIMCO document and this
    document.




© Drewry Shipping Consultants Ltd                                                                                                                                                                                             225
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Appendix 3C (cont’d)



                                                                                           PART II
                                                                  "CREWMAN B - LUMP SUM" Standard Crew Management Agreement
                        again put into service. Consequential costs of reduction and                            254           howsoever arising which may be brought against them or incurred                         315
                        reinstatement of the Crew shall be for the Owners' account. In                          255           or suffered by them arising out of or in connection with the                            316
                        the event that the parties cannot agree, the Agreement shall be                         256           performance of the Agreement, and against and in respect of all                         317
                        terminated in accordance with Clause 14.                                                257           costs, loss, damages and expenses (including legal costs and                            318
                                                                                                                              expenses on a full indemnity basis) which the Crew Managers                             319
                   7. Trading Restrictions                                                                      258           may suffer or incur (either directly or indirectly) in the course of                    320
                      The Owners and the Crew Managers will, prior to the                                       259           the performance of this Agreement.                                                      321
                      commencement of this Agreement, agree on any trading                                      260           10.5 "Himalaya". It is hereby expressly agreed that no employee                         322
                      restrictions to the Vessel that may result from the terms and                             261           or agent of the Crew Managers (including every sub-contractor                           323
                      conditions of the Crew's employment.                                                      262           from time to time employed by the Crew Managers) shall in any                           324
                                                                                                                              circumstances whatsoever be under any liability whatsoever to                           325
                   8. Replacement                                                                               263           the Owners for any loss, damage or delay of whatsoever kind                             326
                      The Owners shall have the right to require the replacement, at                            264           arising or resulting directly or indirectly from any act, neglect                       327




                                                                     Draft Copy
                      their own expense, at the next reasonable opportunity, of any                             265           or default on his part while acting in the course of or in connection                   328
                      member of the Crew found on reasonable grounds to be                                      266           with his employment and, without prejudice to the generality of                         329
                      unsuitable for service. If the Crew Managers have failed to fulfil                        267           the foregoing provisions in this Clause, every exemption, limitation,                   330
                      their obligations in providing suitably qualified Crew within the                         268           condition and liberty herein contained and every right, exemption                       331
                      meaning of sub-clause 3.1, then such replacement shall be at                              269           from liability, defence and immunity of whatsoever nature                               332
                      the Crew Managers' expense.                                                               270           applicable to the Crew Managers or to which the Crew Managers                           333
                                                                                                                              are entitled hereunder shall also be available and shall extend to                      334
                   9. Crew Managers' Right to Sub-contract                                                      271           protect every such employee or agent of the Crew Managers acting                        335
                      The Crew Managers shall not have the right to sub-contract any                            272           as aforesaid and for the purpose of all the foregoing provisions of                     336
                      of their obligations hereunder without the prior written consent                          273           this Clause the Crew Managers are or shall be deemed to be                              337
                      of the Owners, which shall not be unreasonably withheld. In the                           274           acting as agent or trustee on behalf of and for the benefit of all                      338
                      event of such a sub-contract, the Crew Managers shall remain                              275           persons who are or might be his servants or agents from time to                         339
                      fully liable for the due performance of their obligations under                           276           time (including sub-contractors as aforesaid) and all such persons                      340
                      this Agreement.                                                                           277           shall to this extent be or be deemed to be parties to this Agreement.                   341

                   10. Responsibilities                                                                         278      11. Documentation                                                                            342
                       10.1 Force Majeure. Neither the Owners nor the Crew                                      279          For the purpose of demonstrating compliance with the                                     343
                       Managers shall be under any liability for any failure to perform                         280          requirements of STCW 95 to the Flag State Administration and                             344
                       any of their obligations hereunder by reason of any cause                                281          other third parties, the Crew Managers shall provide the Owners                          345
                       whatsoever of any nature or kind beyond their reasonable control.                        282          with full and ready access to documentation and data relevant to                         346
                       10.2 Crew Managers' liability to Owners. Without prejudice                               283          the Crew. Such information shall be maintained and be readily                            347
                       to sub-clause 10.1 the Crew Managers shall be under no liability                         284          accessible and include, without being limited to, documentation                          348
                       whatsoever to the Owners for any loss, damage, delay or                                  285          and data on Crew experience, training, medical fitness and                               349
                       expense of whatsoever nature, whether direct or indirect                                 286          competence in assigned duties.                                                           350
                       (including but not limited to loss of profit arising out of or in                        287
                       connection with detention of or delay to the Vessel) and                                 288      12. General Administration                                                                   351
                       howsoever arising in the course of performance of the Crew                               289          12.1 The Crew Managers shall handle and settle all claims arising                        352
                       Management Services UNLESS same is proved to have resulted                               290          out of the Crew Management Services hereunder and keep the                               353
                       solely from the negligence, gross negligence or wilful default of                        291          Owners informed regarding any incident of which the Crew                                 354



                                                                       Draft Copy
                       the Crew Managers or any of their employees or agents, or sub-                           292          Managers become aware, which may be material to the operation                            355
                       contractors employed by them in connection with the Vessel, in                           293          of the Vessel.                                                                           356
                       which case (save where loss, damage, delay or expense has                                294          12.2 Any costs incurred by the Crew Managers in carrying out                             357
                       resulted from the Crew Managers' personal act or omission                                295          their obligations according to Clause 12 shall be reimbursed by                          358
                       committed with the intent to cause same or recklessly and with                           296          the Owners.                                                                              359
                       knowledge that such loss, damage, delay or expense would                                 297          12.3 The Owners shall arrange for the provision of any necessary                         360
                       probably result) the Crew Managers' liability for each incident or series                298          guarantee bond or other security, in the first instance.                                 361
                       of incidents giving rise to a claim or claims shall never exceed a total                 299
                       of six (6) times the monthly lump sum payable hereunder.                                 300      13. Compliance with Laws and Regulations                                                     362
                       10.3 Acts or omissions of the Crew. Notwithstanding anything                             301          The Crew Managers will not do, or permit to be done, anything                            363
                       that may appear to the contrary in this Agreement, the Crew                              302          that might cause any breach or infringement of the laws and                              364
                       Managers shall not be liable for any act or omission of the Crew,                        303          regulations of the Vessel's flag, or of the places where she trades.                     365
                       even if such acts or omissions are negligent, grossly negligent or                       304
                       wilful, except only to the extent that they are shown to have resulted                   305      14. Duration of the Agreement                                                                366
                       from a failure by the Crew Managers to discharge their obligations                       306          This Agreement shall come into effect on the day and year stated                         367
                       under Clause 4, in which case their liability shall be limited in                        307          in Box 4 and shall continue until the date stated in Box 5. Thereafter,                  368
                       accordance with the terms of this Clause 10.                                             308          unless notice of termination is given two (2) months prior to the                        369
                       10.4 Indemnity. Except to the extent and solely for the amount                           309          date stated in Box 5, the Agreement shall continue until terminated                      370
                       therein set out that the Crew Managers would be liable under                             310          by either party giving to the other notice in writing, in which event                    371
                       sub-clause 10.2 the Owners hereby undertake to keep the Crew                             311          it shall terminate upon expiration of a period of two (2) months                         372
                       Managers and their employees, agents and sub-contractors                                 312          from the date upon which such notice was given.                                          373
                       indemnified and to hold them harmless against all actions,                               313
                       proceedings, claims, demands or liabilities whatsoever or                                314      15. Termination                                                                              374


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226                                                                                                                                                                  © Drewry Shipping Consultants Ltd
Ship Management                                                                                                                                                                                                       Appendices


Appendix 3C (cont’d)



                                                                                         PART II
                                                                "CREWMAN B - LUMP SUM" Standard Crew Management Agreement
                      15.1 Owners' Default                                                                    375           best endeavours to minimise such Severance Costs.                                       440
                      (i)     The Crew Managers shall be entitled to terminate the                            376           15.7 The termination of this Agreement shall be without prejudice                       441
                      Agreement with immediate effect by notice in writing if any sum                         377           to all rights accrued due between the parties prior to the date                         442
                      payable by the Owners under this Agreement shall not have been                          378           of termination.                                                                         443
                      received in the Crew Managers' nominated account within ten                             379
                      running days of receipt by the Owners of the Crew Managers'                             380      16. Law and Arbitration                                                                      444
                      written request in accordance with Clause 6 or if the Vessel is                         381          16.1 This Agreement shall be governed by and construed in                                445
                      repossessed by the Mortgagees.                                                          382          accordance with English law and any dispute arising out of or in                         446
                      (ii) If the Owners:                                                                     383          connection with this Agreement shall be referred to arbitration in                       447
                              (a) fail to meet their obligations under Clause 5 of this                       384          London in accordance with the Arbitration Act 1996 or any statutory                      448
                              Agreement for any reason within their control, or                               385          modification or re-enactment thereof save to the extent necessary                        449
                              (b) proceed with the employment of or continue to employ                        386          to give effect to the provisions of this Clause.                                         450
                              the Vessel in the carriage of contraband, blockade running,                     387          The arbitration shall be conducted in accordance with the London                         451
                              or in an unlawful trade, or on a voyage which in the