Thursday, 23 July 2015

TRUST & RECIPROCITY

Greater trust makes a more inclusive and efficient society by reducing hoarding, biased and dis-satisfying maneuvers.
In the business of Shipping, how often, have have we ever considered the primary aim to be “Customer Satisfaction”, instead of immediate profits? No one would actually like to answer it, because reality is the trust deficit has never been worked upon.
On the other hand, in practice, trust between two entities, part of a contract can be a great motivation and a catalyst to efficient and harmonious growth, economically and emotionally.

There are two experimental games that are often used to represent important features of markets. First is the trust game. A buyer makes an offer for a good of unknown quality and, after receiving the offer, the seller can decide how much of the costly quality to supply. Many such transactions do not take place, due to lack of trust, or a belief that the lowest possible quality will be provided. Second is the ultimatum game. A seller posts a price which the buyer can take or leave. It is assumed that the seller has offered the “break even” price to the buyer. Thus, all efficient trades are made while the full profit (or nearly so) accrues to the seller.
However, in essence both games show that behavior is not as predicted. In trust game, people do in fact place trust in the sellers and this trust is (sometimes) rewarded with high quality. In the ultimatum game, sellers who grab too much of the profit are likely to have offers rejected. In both games concerns for quality (equity, if you like) are believed to be interacting with the natural market forces to increase efficiency in the trust game and to reduce efficiency in the ultimatum game.

In signing along the dotted lines, mostly, everyone signs a document which was written in advance, or refers to a general practice of the trade, forces every transaction to be reviewed under the same set of rules, and paid at the end without exchanging one word.

When the later does not happen, trust is compensated by litigation, arbitration or facilitation.

And, in interpreting the terms of such contract, more often than not, the judges and jurists would consider only the words, only some exceptional cases end up seeing Judicial adventurism, that would go deeper into the essence of the binding terms, what led to them, and if the general terms would be applicable under the precise lines of fault in the existing case in question. So, more often than not, the jurisprudence is guided by knowledge of English language (or the other such language that may be used for such a contract) and not the knowledge of the trade or logic. So, as a necessary solution, our more learned lawyer friends have come out with Tort, which I’d call “Tacit Over-ruling of Trust”.

Imagine, in essence, what is a contract? In the simplest way to put it, a contract was trust binded with individualistic social promise, which apart from everything else, was based on Reciprocity, the primary doctrine behind “Consideration”. Now, every contract is enforced with “minimum” contractual obligations under a given set of conditions. The best example is the “Warrantee” on goods available in the market. Contracts are not signed with confidence anymore, but with a prayer, born out of the minimum obligatory requirements. And top it with abstractions.

A contract needs to be understood as a consensus and not as a one way affair. You do not buy apples or tomatoes if they do not provide you the nutrients you seek, you should have the liberty of choice, and that should be the primary function of the principle of reciprocity. If a contract is signed that puts the entire onus to prove the wrong-doing or provide little scope of remedy to you, in comparison to the other party, then it is not reciprocal. So, if you meet a disclaimer in a signature “AS AGENTS ONLY” or anything that attempts to limit or over-rule any liability, please rest assured that you’ve met a specific and implied, but unwritten company policy that doesn’t aim at customer satisfaction. J
But then, many employees would not think twice, why they’ve been asked to sign off in such fashion.

The Law of Reciprocity means to give and take mutually; to return in kind or even in another kind or degree. You may have heard the Law of Reciprocity expressed as: "I'll scratch your back if you scratch mine." The law of reciprocity, (which applies in EVERY culture on the face of the earth), simply explains that that when someone gives you something you feel an obligation to give back.

Giving and receiving favors is a common exchange and is an implicit assumption in most of our relationships. When someone does something for you, they implicitly expect that when the circumstance is right, you will do something of approximately equal value for them. The expectation may never be discussed openly but nonetheless it exists and affects negotiations and relationships.

All parties must benefit from the relationship and invest in the relationship and acts must be mutually beneficial otherwise it would create an imbalance. When someone is the primary giver, they often expect they will receive in kind from the receiver or eventually from someone else in the world at another time.

If economic policies were to be based on this law or Principle of Reciprocity, there would be no imbalance. But then who wants a perfect World. Cola would not be selling, if they were to really bother about this principle.

I’d invite comments on how we interpret competence and quality today in view of these above arguments. In essence, you have to have self-pride and drive to do better in order to understand, that reciprocity comes, when you own your work, feel hurt, when you are unable to perform, feel anguished , when you loose and under any circumstances you do not compromise with the standards that you've set for yourself, know what I mean? To be better than yesterday, to do better than yesterday, to recognize that the only competition that you have is from yourself and none other.

Rajesh


Tuesday, 12 August 2014

Deciphering the Technical (Ship Management) Code

THE TECHNICAL CODE

Blogging, sometimes is tiresome, but having written / compiled couple of them, am driven to write another one, something that I had worked on during my stint at being a Technical Superintendent. I refrained from posting it for this period to avoid any contractual bars put-up, either directly or in-directly.
To start with, while the major part of the Blog is written, before posting it, had to put out a subject / heading and what eventually came to the mind “Deciphering the Technical (Ship Management) Code” gave a refreshing feeling.
But, importantly, the necessary disclaimer, the views expressed / data so shared in this is completely mine, doesn’t necessarily represent any of my past / present or future(!) companies, and I may be wrong, so those who disagree may do so, I won’t mind adverse comments, but please keep them strictly professional. It is my humble understanding and an attempt of how technical budgets are made and what lacks in terms of transparency in them. I am of the firm belief, that the owners are the best people to manage their ships. Why? Simplest answer I can give is, because you own them, everyone else, only manages them for you. But, then do you seriously own them?

I also believe, the ISM code came into existence, because of proliferation of 3rd Party Management Companies. The serious need to have ethics, principles and base policies was the root to bring out an ISM Code.

Before I get into, the details of the budget, can’t impress more on the need for as much information that you can have about the vessel, before you draft and present the budget. I would consider, as a minimum, the following is of utmost importance (together with your own research of the market, which will help you in projections).
Following is a list that comes to my mind, of the minimum data that you’d need to best accomplish a project.

1
VESSEL NAME
Not very relevant, but good to have for identity purposes for past history research.
2
IMO NUMBER
3
OWNER NAME (BENEFICIAL)
Very relevant to check on the standing of the owners
4
TYPE OF VESSEL
Every type of vessel has its own requirments, from statutory to trading, including crew requirements.
5
FLAG
What legislative authorities are you dealing with?
6
CLASS
Maintaining some Class is more expensive then another
7
VESSEL GROSS TONNAGE
A lot of Port calls and costs are based on Gross Tonnage or Net Tonnage.
8
VESSEL NET TONNAGE
9
VESSEL DEADWEIGHT
Will give you an idea of the requirements of the vessel, in terms of trading and commercial possibilities.
10
NORMAL TRADING AREA
11
YEAR BUILT / DELIVERED
Will give you a serious update on what the vessel needs would be, based on her age, class status etc.
12
BUILT AT
Though no longer a good indicator of quality of built, because, in the end, you can get only peanuts, if you pay for them. For cashew nuts, you need to pay more, and every yard in the World would provide that. But coupled together with the Vessel class under which she was built, it will give you a good idea of maintenance requirements.
13
LIFEBOAT CAPACITY
Manpower requirements and tolerance
14
COPY OF MINIMUM SAFE MANNING
Minimum requirement, though more often then not, if these were to be complied, its best to adopt a policy of employing riding gangs for periodic maintenance.
15
PRESENT & EXPECTED COMPLEMENT
Owners wish and reasoning, and your ideas
16
CREW NATIONALITY EXPECTED
Owners wish, if any

ITF STATUS
Important, since affiliations to trade unions will also affect the individual salaries of men onboard
17
OFFICERS NATIONALITY EXPECTED
Owners wish, if any
18
PREVIOUS MANAGEMENT COMPANY NAME
Relevant to know, to find out, why the owners may be looking for a change?
19
HAS VESSEL CHANGED CLASS, IF YES, PREVIOUS CLASS
Self-Explanatory
20
VESSEL BUILT BY THE PRESENT OWNER?
Self-Explanatory
21
WAS THE VESSEL ORDERED BY ANOTHER PARTY, AND BOUGHT IN THE YARD BY THE PRESENT OWNER?
Self-Explanatory. If you did not order it, you don’t really emotionally “own” it.
22
LAST SPECIAL SURVEY
Future survey requirements
23
LAST DRYDOCK
Current status, hull condition assessment etc and when to expect drydocking
24
LAST ANNUALS
Future and current survey requirements
25
LAST INTERMEDIATE
26
COPY OF CLASS SURVEY STATUS REPORT
27
P& I CLUB
To check on deductibles, class rules and work on contractual associations for relevant
28a
WHO WILL TAKE CARE OF VESSEL'S INSURANCE (P&I OR H&M)
More often then not, its done by the owners. However, if owners want you to take care, you need to get quotes from your insurance brokers.
28b
Deductibles in P&I and H&M
Crew Medical requirements is the least. In the event of a minor / major incident what cost could be expected to be on your head.
29
MORTGAGES HELD
Who owns the ship. How are the lien placed?
30
NUMBER OF VESSELS WITH THE PRESENT OWNER
Self-Explanatory. After all, you need more business always, correct?
31
CHARTERER OR COMMERCIAL OPERATOR INFO
If you know your industry, you’ll know what to expect in terms of trading, and until when. It is but obvious that they won’t let you have the commercial agreements or C/P at this stage.
32
CARGOES NORMALLY CARRIED
Demands of the trade, equipment functional requirements.
33
TYPE AND POWER OF MAIN ENGINE (MAKE / MODEL/TYPE)
Industry has written off some Engines, some were sold cheap as retrofit. Find out, if this is one of them. Further, how are the spares placed, availability, service availability etc.
34
TYPE AND POWER OF AUXILIARY ENGINE
35
CARGO TANK COATED OR STAINLESS STEEL
Type of Paint, paints requirements. Cargo flexibility.
36
TYPE OF COATING, IF COATED
37
TYPE OF CARGO & BALLAST PUMPS
If submersible, Framo are considered the best. But then there are many others in the market, and they’ve their own hiccups. Knowledge is the key.
For pump-room ships, the type of pumping systems is very relevant.
38
NUMBER OF TANKS AND PUMPS
39
VESSEL EXPECTED TO GO TO US /CANADA OR NOT
View this question from the OPA perspective. Contractual and regulatory requirements.
40
VESSEL EXPECTED TO GO TO CHINA OR NOT
View this question from Chinese SPRO requirements.
41
VESSEL EXPECTED TO CALL SECA AREAS
Fuel requirements.
42
VESSEL HAS INCINERATOR ON BOARD, YES / NO
Sludge and garbage management
43
VESSEL HAS FRESH WATER GENERATOR, YES OR NO.
Fresh water requirements, to be supplied. Type and capacity will also guide this, and together with trading areas, this
44
IF YES, FWG CAPACITY
45
VESSEL HAS RO FILTERS FOR DRINKING WATER, YES / NO
If yes, condition? Otherwise, you’ll end up supplying mineral water to crew.
46
VESSEL HAS GARBAGE COMPACTOR
Garbage management, though personally, I think, no one uses it proficiently, except for on FPSOs or oil platforms.
47
VESSEL'S PAST PSC, FSC HISTORY
What are you taking on?
48
ACCOUNTS VARIANCE REPORTS - DATE OF REPORTING
That’s something you need to agree with the owners, what kind of variance / accounts
49
DETAILS OF MAIN & AUXILIARY EQUIPMENT & MACHINERY ON BOARD
Cost and availability of Spares and Service Network
50
HYDRAULIC EQUIPMENT
Type of Oil to be used, replenishment needs.
51
ME LO Conusmption - Cylinder Oil - average specific consumption
g/kW h
(Lubes Requirement)
52
ME LO Consumption - System Oil - average specific consumption
g/kW h
(Lubes Requirement)
53
AE LO Consumtion - System Oil - average specific cosumption
g/kW h
(Lubes Requirement)

Then you check with the owners, if they’ve any specific needs, or requirements.

To start with, the first hype, that Crewing costs are in effect nearly 50% of the total ship management budget, howsoever arrogant it may appear, is mostly true. But besides the grand-standing that all the Ship Management Companies take in this, trying to push down their ranks and files onboard in terms of wages, the same ranks and files are made the guinea pigs for 100% of the accidents, incidents and 99% blamed completely on human error. So, while a machinery may have erred and the technical budget may have been used up or unplanned, be the actual reason behind the issue, the blame games will be on the Ship’s officers, that they did not register the warning signs. But, as we go ahead deciphering this code, you’ll see, how it works and contributes to this nearly “50%” cost.
To begin with, the minimum wages, as set even by the unions (ITF) are only with respect to a person’s certificates, not abilities or responsibilities. Sadly, our unions hardly acknowledge that some onboard need to work longer hours than most, have greater responsibilities, despite the Work and Rest hour schedules, they do.

So, for the manpower, the minimum wages are set-up by ITF or other national / international unions, including ILO. The following link would give you a glimpse.

Keeping the “Basic wages” low is a gimmick to ensure that any compensations from insurance or against contractual liabilities the company takes for you are calculated / pro-rated on this and not your full wages. So If you were to get 3 days extra wages for transiting the Gulf Of Aden, well this is 3 days extra basic wages only. An employee friendly outfit will ensure to go above the minimum wages and strike a balance with the other elements of the wages.
It is my opinion that keeping fixed overtime payment for all ranks is today possible and must be done. Reasons –
1)    Work and Rest hours (especially the rest hours) are highly regulated.
2)    Most seafarers with variable payment end up keeping work and rest hours record as an overtime record. It can be exaggerated as well as can be kept low to meet the regulations.
3)    Two records that do not mirror each other will only create doubt. Remove the need for duplication.
4)    It may be a good idea to leave an item for the Master to award his crew as a morale booster, on his own prerogative, that need to be justifiable too, but that is something that will leave on individual ship managements to decipher (I mean the need).

Then on the crew head you’ve miscellaneous costs. Some can be very transparent, some can be manipulated to get the owners to fork out extra outside the budget.
The transparent and fixed budget items could be :
1)    CERTIFICATION
2)    CLOTHING / UNIFORM
3)    MEDICALS
4)    SOCIAL COSTS / WLEFARE FUNDS / ITF OR UNION DUES / PROVIDENT FUND

The manipulative ones are expenses on Travel and indirect Manning costs, such as manning agency charges, bank charges and sometimes the training costs.
So Travel : Ship managements make a lot by using in-house, said to be “third party” travel agencies. While these do provide an efficient and bankable flexibility of travel, they also charge premiums for keeping that status. In lot of cases, you could possibly get a cheaper air ticket on the same terms, booking directly on the airlines website or travel portals then using them.
So, on one hand the management fee is charged, then manning agency is charged and then the owners may be shelling out for advertising, as well.

Joining and Leaving Fares (Per movement)
Joining and Leaving Hotels  (Per movement)
Sea Transport (Per movement)
Port Agency Disbursement: (Per movement)
Travel Subsistance (Per Contract – what you receive as joining and signing off dues)
Manning Agency Charges (Lumpsum – per man per month)
Bank Charges & sundries (per month)
Communications (per month)
Owners contribution to Ship Recreation fund (per month)
HSSE Training and In-House Courses (per month)
Onboard CBT (per vessel per year)
Engagement Fees for Officers (per man / per contract)
Engagement Fees for Cadets (per man / contract)
Engagement Fees for Ratings (per man / contract)
Working Clothes (per man / contract)
Retention Strategy (lumpsum, charge anyways, you’ll be paying it again as seniority)
Seafarers Family Health Insurance Plan (per man / per month)
Hatch/Tank Cleaning Allowance (per month or actuals)
Scavenge Space / Boiler Cleaning Allowance (per month or actuals)
Drug and Alcohol  Testing (per man/contract)
Medical Surveilance (Chemical Vessels) Post employment (per man / contract)

Then comes Victualling, oh I love this one. Owners fall for the companies that claim that their victualing rate is only say USD 5 per man per day or USD 7.5 or whatever. The budget when proposed keeps this low, and hence you see a lower quotation for managing your vessel. But in practice, you’ll always find actuals to be higher, because they are actually higher and every month a variance is shown with a variety of reasons, provided by the Master. This despite the fact that there are often other budget items covering agency, transportation etc. So, does the low prescribed rates, help anyone? I guess “no” is the best answer.
So following could be the potential victualing heads :

Agents charges
Cleaning
Freight & Handling (Requirement of sea-transportation)
Fresh Water (especially for vessels without FW Generator and a drinking water filter)
Galley
Laundry Onboard
Laundry Sent Ashore
Slop Chest / Bond
Victualling
Allowance for additional Meals

Following are the sample heads that could be considered in a Deck stores (consumables) list for budgeting. You may consider grouping them together, or you may consider keeping them separate.
DECK ITEMS
Anodes
Charts & Publications
Communications
Crane & Derricks Wires
Deck Machinery & Fittings
Fire & Safety
IT
Log & Record  Keeping Books
LSA & Equipment
Maintenance Equipment / Repair Equipment
Medical Supplies
Mooring Ropes (I’d assume 1/4th of the total ropes are replaced every year as a minimum). Please specify the ropes taken into account are normal Mooring Ropes and not HMPE.
Navigation Equipment
Paints
Rentals
Deck Stores
Stationary
Transport, Handling & Agency Costs
Lashing Gears/Hatch Ceiling Tapes
Clothing
Divers - Underwater Cleaning

Following are a list of Engine Stores and Consumables :
Workshop Consumables (Adhesives, abrasives, rags, lubricants, dyes)
Chemicals
Cleaning Materials
Electrical Consumables
Fastenings
Fire & Safety
Fuel Testing
Gases
Gaskets, Packing & Seals
Greases
IT
Paint
Rentals
Stationary
Transport, Handling & Agency Costs
Wires & Ropes
Workshop Supplies (tools & instruments)
Lubes

Estimate the lubes requirement :
For M/E :

Cylinder Oil Consumption Calculations









(i)
Average Specific Consumption

1.8
g/kWh
(ii)
Engine Max Power (MCR)

         7,980
kW
(iii)
Engine Running Power
85%

         6,783
kW
(iv)
Oil Quantity
(i)*(iii)*24

            293
kg



1,000



(v)
Cylinder Oil Specific gravity

0.920
kg / Litre
(vi)
Daily Consumption
(iv)/(v)

            319
Litres


System (Sump) Oil Consumption Calculations

(i)
Average Consumption

4.5
kg/cyl/24hr
(ii)
Number of Main Engine Cylinders
                  6
Units
(iii)
Oil Quantity per 24 hours
(i)*(ii)
                27
kg
(iv)
System Oil Specific gravity

0.910
kg / Litre
(vi)
Daily Consumption
(iii)/(iv)
29.67
Litres
For A/E :

Auxiliary Engines


Power



         1,000
kW

System Oil Specific gravity

0.920
kg / Litre

Average Specific Consumption

0.8
g/kWh

Daily Consumption


              19





AE1
AE2
AE3

A/E Sump Capacity:





m/e Sump Capacity:





M/E Lub Oil Storage Capacity:




M/E Cyl Oil Capacity: Hi- Sulphur




M/E Cyl Oil Capacity: Low- Sulphur



Estimate the number of running hours, basis trading patterns, type of vessel
No. 1
Running for


180
Days

Lube Oil Consumption per year
           3,420
Litres
No. 2
Running for


180
Days

Lube Oil Consumption per year
           3,420
Litres
No. 3
Running for


180
Days

Lube Oil Consumption per year
           3,420
Litres

The lubes rate is crucial. In today’s competitive world and dependent on the size of your fleet, every lubes supplier is more than happy to offer you (as a company) preferential rates, discounts etc. It is also imperative to know that the lubes rates are not the same across the World, so what might be available at a cheaper rate in Singapore or Rotterdam may not be so in Shanghai or Genoa.
And the only plus point of a ship management is its said capabilities of attracting discounts on the size of its fleet. The bigger it is, the better you get, and thrown in together with the lubes supply contract is the lubes analysis. Its not rocket science to understand that profits can be made by higher pricing and/or by volumes of sail, keeping the profits low, so a supplier is not doing any favours by providing you lower pricing.

CABIN / GALLEY ITEMS :
Cleaning & Housekeeping
Cooking & Serving Utensils
Crockery & Cutlery
Electrical Supplies
Fire & Safety
Domestic Usage Fresh Water
Soft  Furnishings & Linen
Waste Disposal Costs
General Cabin Stores

SERVICES - REPAIRS & MAINTENANCE - 3RD PARTIES
Auxilliary Machinery
Waste Disposal Machinery
Cargo Pumps
Crew Accommodation & Hotel Services
Deck & Cargo Machinery
Cargo Handling Equipment
Access Equipment
Hatches & Tank Covers
Electrical Equipment
Fire & Safety
Generators & control systems
IGS
IT Equipment
Lifeboats,  Liferafts & LSA
Main Engine - cyl head, fittings, valves & fuel inj sys
Main Engine - pistons, liners, rods & casing
Main Engine - shafting,gears,thrust blocks & other
Main Engine - exhaust, scavenging & start systems
Main Engine - controls & auxiliary equipment
Navigation Equipment & Communications
Steam Plant
Coal System
Ash System
Steering System
Structural - Accommodation
Structural - Deck
Structural - Hull
Oil Testing & Analysis
Waste Disposal
General Repairs
Radars
Gyros
GMDSS
Other Navigation

DECK SPARE PARTS :
Dozer / Grab spares
Platform & Traction Winch Hyd Motors
Platform & Traction Winch Sys & Controls
Platform & Traction Winch G/box & Drums
Handling Cranes & Monorails Winches
Tanks/Cargo Hold Cleaning & Maintenance
Control Room & Nav Equipment
(Recording Papers, sensors, PCBs, fuses)
Radio & Communication Equipment
Control & Navigation Equipment
Cooling Water / Ballast & Bilge System
Machine Control Centre
Remote Sounding System (UTI's)
Sampling Equipment (Samplers)
SUL Field devices, PLC & drivecards
SUL Hardware For Transfer & Boom Conveyer
Hydraulic Control System & Valves
Hydraulic Pumps Station
Hydraulic Motors & Winch
Dozer Winch Drives & Controls
Unloader System
Dozers Maintenance Contract
Buoy Maintenance
SUL Hardware for Marine Leg

ENGINE SPARE PARTS
Auxilliary Machinery (SW, FW, HFO,MGO,Air sytems)
Shaft Generator
Cargo Pumps (Agregates, control systems, pumping systems)
Cathodic Protection
Cranes & Derricks(Lifting Gear)
Cargo Handling Equipment (Tk Clng, Tk Calibration, Control equipment)
Access Equipment
Deck/Cargo Machinery (winch, windlass, cargo pipelines, heating coils, valves & fittings)
Electrical
Fire & Safety
Gangways & Pilot Ladders
Diesel Generators (Prime Mover)
Hatches & Tank Covers
Hotel Services
IGS & Nitrogen Generators, Vapor Return & Gas Freeing Systems
Lifeboats & Liferafts
(Winches, davits & Engines)
Main Engine - cyl head,fittings,valves & fuel inj sys
Main Engine - pistons, liners, rods & casing
Main Engine - shafting, gears & thrust blocks
Main Engine - exhaust, scavenging & start systems
Main Engine - controls & auxiliary equipment
Navigation & Communications
Piping (Sea Water, Fresh Water, Air, LO, HFO, MGO)
Pollution Control (Incinerator, ODME, OWS, Sewage)
Refrigeration Equipment
Steam Plant (Boilers)
Steering Gear Equipment
Bow Thruster
Waste Disposal Machinery (Compactors, Communitor & Shredders)
Water Maker (Fresh Water Generator, RO Systems)
Logistics (Freight, Warehouse and Packing)
Structural (Hull & Deck)
Transport/Freight for Maintenance Spares

CLASSIFICATION / FLAG / 3RD PARTY SURVEYS & INSPECTIONS
Classification (Block Agreement & Surveyor Attendance)
Insurance
Port State
Registry
Vetting
Special Survey
Annual Survey
Periodical / Intermediate Survey

COMMUNICATION COSTS (LEASE, LICENSES & CHARGES)
Communication Equipment
Fax - Phone - Email (Ship communication costs - Voice & Data, Equipment Lease)
Licences - Software / IT
Office Communications costs (Voice charges, related to vessel from shore personnel)
Satcom Charges
Support & Service charges (Repairs, upgrades to the equipment)

AGENCY APPOINTMENT & PORT CHARGES (NON MANNING RELATED)
Agents Attendance Fees
Port Charges
Pratique Costs
Security & Watchmen
Waste Disposal (Solid garbage, sludge, sewage, special waste - cargo samples, medical, batteries, pyrotechnics, plastics)
Crew boat service
Custom clearance, duties & taxes
Postage & Courier
Fumigation

SHIP MANAGEMENT & CONSULTING FEES
Ship Management Contract
Accounting
Legal
Attendance
Professional Advisors & Consultancy

ADMINISTRATION CHARGES – COMMUNICATION
3rd Party Accounting Charges
Legal Charges
Flag State / Registration / Licenses Fees (non-manning related)
Registry Tax
Licenses
ASA Calls
Finance Audit

EXPERT & LEGAL RETAINERS
Annual Fee
Exceptional & Damage Surveys

GENERAL ADMINISTRATION (Non-Crew)
Airfare / Travel / Visa
Hotel / meals
Communications
Postage & Courier
Sundry Expenses
Owners Rep Expenses
Foreign Exchange
Bank Charges

INSURANCE & OCCASIONAL CALLS & CLAIMS
Premium
Supplementary Calls
Claims

While the above fields would give a good description of broad sections that could be used to work on a budget, it could further be split into individual items, but an initial budget proposal to owners is never given with much of details and most of the owners hardly compare them item to item. They’d look at broad sums and compare between two ship managements and decide.

In order to understand the ship manager’s budget or if I may call it OPEX Variance report, it is important to understand how the ship manager is compensated and where he can make his sustainable profits and also assist you in reducing your costs. This brings to light what the ship manager can legally charge and the areas that an owner must be vigilant to avoid overcharging.

Ship managers in effect have their time and expertise in ship management services on offer and accordingly are entitled to charge an annual fee plus extraordinary costs basis a standard contract such as the BIMCO Ship Management form. It is important to understand that he has limited liability even in cases of gross negligence.

Ship operating costs and costs associated with managing the vessel above the ship manager’s standard services are usually charged to the Ship owner. The ship managers are competing against other ship managers for quality of service. The operating costs of the vessel are of little consequence because they are paid with the owner’s funds. In essence the operating costs would make a difference based on how planned execution of vessels maintenance and repair functions are, as well as the how productive the crew is and what is their retention levels with the ship managers.

Ship managers control or influence a large part of shipping expenses. The Ship Management team also affects the quality of charters, the quality of crew, the quality of suppliers and the owner’s reputation which in turn affects the potential earnings of the ship. So in essence if the Ship Management fee and other quoted fixed fees are low by one ship management it doesn’t necessarily mean that the overall costs would be low as well.

Maintenance and Repair is one area where good ship managers actually separate themselves from the bad ones. This area gains excellence by keeping the ship’s crew productive and not performing repetitive or unnecessary work. The technical department can keep the costs to a minimum by adequate scheduling of periodical surveys and repair jobs, planning ahead in time time to order spares and delivering to low cost ports. add value to the vessel by improving its hull condition (coatings, corrosion control or addressing known structural problems) and the machineries by retrofitting or replacing poor equipment to standard ones.

Procurement and logistics is an area where improvements are difficult, but expenses above the budgeted are frequent. Procurement problems stem from areas such as poor ordering practices of the crew and home office, poor interaction with the suppliers, knowledge of markets, poor choice of suppliers and irresponsibly coordinated deliveries. Excellent purchasing is characterized by good ordering practices (clear orders with sufficient lead time), good selection of suppliers with close relations and excellent coordination with others for delivery to the vessel. A good ship management would also train its officers in good practices and empower them to actively participate in budget process as well as procurement. Procurement circulars / alerts would assist to minimize the planning and execution problems.

The insurance, including P&I, reflects the fleet composition, size and claims records. A vessel with no incidents calling for a claim, will have low premium. Furthermore, particularly with P&I, the perceived quality of the ship manager has a significant effect on the premium. Even if as an owner you may wish to deal with insurance directly, for starters, it may be a good idea to take budget quotes for these costs. It would give you a great idea of the P&I perception of the ship manager. After all, they are the people we turn to for legal and claim advises!

A ship owner will get less than expected results without good control over the ship manager. The following is a guidance on what you could require for maintaining the necessary level of control.

Reporting:
Reporting of all happenings with the ship in a well-organized and detailed manner will provide a constant flow of information to frequently evaluate the management and the fleet. Excellent reporting will also allow for the owner to identify problems before they occur and to consistently improve the operation. Poor reporting is indicative of low standards and an indication of poor organization within the ship management.

Owner’s Representative:
The ship owner, especially in cases where third party management is used, must have a representative that understands ship operations on all levels. This representative must also be entrusted and willing to constantly follow up on the manager and directly with the vessel. The owner’s representative must be willing to visit the ships take an active role in inspections, audits and witnessing all manner of operations. A good owner’s representative also provides a morale booster to the crew because it indicates to the crew that the owner cares about ship and all that happens onboard and around.

Up, close and Personal:
The ship owner must maintain close contact at all times with the manager and the vessels. This serves as a constant reminder to the manager and the crew that the owner is aware of the activities. Keep in touch with the Master.

Ability to change management:
Changing ship managers is a difficult and costly exercise for all parties. There are transfers of records, audits/re-audits related to class, ISM, vetting and a whole host of other issues. But a ship manager who senses that an owner is reluctant to change management teams is automatically placed in a position of not having to provide excellent service. An owner must make it abundantly clear that the ship can and will be moved to other managers if the present system provides less than satisfactory results.

Constant References:
Consistently check references from a variety of sources to ensure the manager is providing the expected level of service. If you may and can, don’t put all your eggs in one basket. Consistently cross check the references to ensure validity. The best possible way to get a subjective sense of how the ship manager—internal or external—is to get references from a variety of sources. These include suppliers, shipyards, individual crew members, insurance brokers, P&I clubs, port agents, charterers and other owners. Recheck the references frequently and follow up on why references are good or bad. Don’t forget, you are the owner.


Most importantly, review the decision making process practiced in the ship management. If you observe frequent delays in decisions, frequent off-hires for longer durations then normal, especially due to factors that could have been controlled, its time you move. I’ll give one example. While I was a technical Superintendent, I was temporarily managing a vessel for another tech Suptd in our branch office who was on leave. This vessel underwent a collision with a fishing boat in the early hours of the night, off Chinese coast. Chinese coastguard asked Master to deviate and proceed to the nearest port. During this time, China was on a nearly 7 days holidays. But, before the vessel arrived at anchorage, I had appointed an agent, called out Class (& P&I through the owners), had a repair company standby to check and quote for repairs. The vessel’s hull was breached and required a large plate to be replaced. By early PM hours, the quote was in hand, by evening negotiated the quote to be reduced by about 3K and had the owners approve the same. Repairs started next day early in the morning, while the P&I negotiated settlement with fishing boat owner, coastguard was happy, if the fishing boat owner was happy! On day 4 by noon, the vessel sailed out fully repaired, free of any condition of class.
On the other hand, later, a sister vessel belonging to same owners had a damage caused to her by a tug in Korea. Owners, managers took 4 days to decide what repairs to be done, where to be done and by whom. Thereafter vessel sailed with a CoC, temporary repairs and landed in China, where final repairs were done in another 4 days. Off-hire losses can be counted.



Rajesh Baran