THE SHIP MANAGER

There is much more to ship owning than simply buying a ship, finding the right cargoes and
carrying them as many have found to their cost over time. Historically a shipowner would
undertake all the functions required in owning and operating a ship in-house although in times
before intermational communications were possible,the ship's Master would have full power to
act on the owner's behalf.

Today traditional shipowners may still carry out all the functions of ownership and operation
themselves but there also exists a whole sector of organisations offering their services as ship
managers. This practice can be traced back to the 1960s when the major oil companies
discovered tax incentives available to them if they owned the ships that carried their cargoes.
Later, in the crises provoked by the rapid rise in oil prices of the folowing decade, many
shipowners found it economically impossible to operate profitably.As a result, hundreds if not
thousands of vessels were abandoned to the owners' creditors, usully banks or finance houses.
The resultant increase in the number of organisations that owned ships but did not have the
know-how or experience to operate them, led to a business model that delegated the
management of day-to-day operations to independent ship managers. Ship management is a
complex business involving registration with a country or lag of choice, manning, insuring.
mainta1ning and operating in an international arena with several laws, rules and conventions to
comply wth.

The first decision that a shipowner has to make, therefore, is who to use for this work. The first
thought would be to hire the necessary personnel and create allthe requisite departments.This
in-house' approach has much to commend it. The obvious one is ciose control by owners of ail
aspects of the marnagement activity. The amount of money tied up in owning a ship makes the
idea of having day-to-day contact with all those ivoved in its care appear such an advartage
that the decision seems obvious.

That was often the view unti the question of cost was considered. Skiled marnagers and support
staff quite rightly command high salaries. If an owner has very few ships, the cost to be alocated
against each to cover the management function becomes uneconomicai. This is not a probiem
for theowners of large fleets where the management costs are spread over more units and thus
willbe at an acceptable level. Moreover, the higher income wil pernit the engagement of top
class managers and support staff, all of whom are likely to be fuly employed.
For small scale owners or organisations that do not see ship operating as a core business, the
Common response was to employ the services of an independent ship management compary.
There are now many such companies based in different parts of the wortd.These contain all the
different departments needed to provide an efficient service for which they charge a fee or they
can sub-contract the services of specialists for certain aspects of the operation. Due to their size,
they are usually able to attract top-class executives and the large numbers of ships under their
managenment enable them to enjoy economies of scale.

There is, of course a dilernma for the medium sized shipowner who will have to consider the
benefits of using its own staff over which it has direct control and balance this against the
economies in using third party to manage its ships. Sometimes that problem is solved by
subcontracting only a part of the management function, which is possible in view of the clear
demarcation between the different activities in ship management. Crewing is a prime example of
this partiúal subcotracting and will be covered later.
Another device that has successfuly overcome the lack of economies of scale for the medium
sized shipowner has been contracting to manage other Owners ships by the same personnel as
 are employed in caring for the owner's own vessels. This is different from the pooling
arrangement that many owners adopt for Commerial employment of their vessels, since under
that type of arrangement the real management of the ship remains with the owner:

I.LI The management agreement

In view of the large amounts of money and capital assets involved. a very clear written
agreement is essential if disputes and misunderstandings are to be avoided. Each management
agreement is probably unique, but the Baltic &International Maritime Council (BIMCO) has
compiled a printed Sandard Ship Management Agreement (knovwn as 'SHIPMAN) and Crew
Management Agreement (CREWMAN)which, even if not used in their entirety provide a first
class check-list of all the matters that should be considered in making such a cotract (see
Appendix ).
The SHIPMAN agreement has evolved over time and it is probably true to say that the 1998
version is the most popular although a new version of the agreement was developed in 2008
and released as SHIPMAN 2009. This newversion reflects changes in the shipping industry in
general and to international conventions and codes. In that respect it may be considered more
relevant, but many mangers would have been making their own unique amendments to the
earlier contract and may prefer to work using that version rather than the new agreement.

Whichever version is used, the agreement identifies (in the boxes in Part of the form) ail the
different duties that may be subcontracted by the shipowner to a shipmanager and these
headings are a useful index to the duties that must be carried out if the managemernt is handied
in-house. Each actual management agreement will be individual because the shipowner may
choose to handle some of the activities itself or use a different manager, for exanple to handle
crewing
The clauses in part llthe agreement relate to the way in which the managemernt contract itself
will be carried out For exampie, Clause 6.3 in the 98 version and 10() of the 2009 form is most
importat as it provides that all insurance policies will be in the names of both owners and
managers.This means that both parties have the benefit of the protection, and in the chapter on
insurance it will become clear how important this is.

I.2 STRUCTURE OF SHIPOWNING AND MANAGEMENT

ORGANISATIONS

A number of issues dealt with in this introductory chapter wil! be dealt with later in much
greater depth. The purpose at this stage is to give a general overview of all those matters that fall
within the overallresponsibility of the ship operator whether as an owner or as a manager.
At the top of any shipowning or operating corporate structure will be a board of directors
headed byy a chairman or president and a managing director. It is their task to determine the
Overallpolicy of the business and future direction that the compary will take.
Policy areas which willbe decided the by top management might include:
" The philosophy of the company's strategy

" The type and size of vessels used

Fleet repiacement policy such as owning and chartering options

 " Flag policy

The trades or routes that the company will serve

In-house ship management or contracted out

Financial performance.

Having established the policies, the board will delegate the management of these functions to
various in-house departments or contract them out as appropriate. However. as ultimate
Owners of the ship, the board (or very occasionally an individual owner) wil be held responsible
and liable for the proper management of the ship under most intermational conventions.

1.2.I The structure of ship nanagement

The way in which these practical services are dealt with and especially how the various functions
are grouped together will vary according to the company concerned. However all these
different activities will need to be provided either from within the company or by contracting
Out to independent ship management or crewing companies.

Acquisition of vessels
Before the company can operate it must have sonme vessels under its control.

I.Outright purchase
The traditional way of procuring ships is to buy them outright. The company will either use its
Own cash resources to buy the vessel or more likely obtain a loan or mortgage secured on the
vessel. In times when finance is scarce, such as has been the case for the past fevw years, cash rich
Owners are in the best position to obtain tonnage on favourable terms. For instance, between
2010and the current time many such owners have been able to purchase new vessels from
shipyards at prices almost half that at which they were initially contracted, due to the original
oWners defaulting on contracts.

The very largest companies may employ their own naval architects and design staff to create the
type and size of new builds they want for the future. or this function may be delegated to
independent naval architects. More commonly,companies may buy vessels buit to a pre-existing
shipyard design that may be tailored to its needs.

Other companies may concentrate on building up their fleet by buying second hand tonnage
and for this purpose willuse the services ofa Sale and Purchase broker.
2. Finance based long term chartered
Increasingy shipowning companies are using more 'innovative' ways to procure new ships
through intermediaries. This is because either the company does not have sufficient borrowing
capability to purchase all the ships it wants to operate, or an intermediary is in a better position
to obtain tax benefits from purchasing ships than the operating company.The shipOwner may still
be heavily involved in the design of the ship and may indeed have the lifetime use of the vessel.
sometimes with an option to purchase after a specified period for a nominal sum.
A typical tax driven approach is the German KG scheme where German individuals or
companies who own vessels can secure favourable tax treatment. part of the benefit of which
they can pass on through competitive charter rates to operating companies. Ships under these
arangements can be bareboat chartered. where the charterer is responsible for crewing,
maintenance etc., or time chartered where the actual owner performs these functions.
 collapse in
The popularity of the KG model has declined quite severely since 2009 due to a have
operating income as both freight for liner services and hire rates for time charter vessels
fallen from the record levels set just before the economic crash of 2008 and soaring fuel costs in
the same period. Far from receiving income from ther investments, the KG fund investors are
now frequently being called upon to provide additional income to keep the ships operating at or
below breakeven levels.

3.Time charters
Other companies will time-charter suitable tonnage from other shipowning companies. Time
charters are also used to acquire tonnage to meet short-term commitments or fluctuations in
the fleet, perhaps to replace tonnage during a dry-dock programme or to meet a seasonal spike
indemand.The fal in the hire rate for time-charter vessels since 2008 (refered to above) has
caused some operators to rethink even this long-established form of securing tonnage.
The time charter contract locks the charterer in for the duration of the contract to paying a
fixed daily sum which may have been economic at the time it was entered into but has become
less so as freight rates in general have fallen.

I.2.2 The technical departments

A ship requires constant Supervision of its structure and its machinery much of which needs a
regular programme of maintenance. A merchant ship which is not kept in a seaworthy condition
willbe unemployable and subject to oficial sanctions.
Seaworthiness does not just mean that there is no danger of aship sinking (although that is
obviously a vital element): the tem can alsobe considered to cover its cargo-worthiness. No
matter how sound the hullof the ship is against springing a leak, and howgood the engine isto
propel the ship to its destination, if the hatches let water into the holds, or the ventilation is
inadequate so that cargo becomes damaged, then a merchant ship is considered unseaworthy
Looking after the physical structure of the ship falls neatly into two distinct sections which are
USually referred to as 'deck' and 'engine-room'.The term engine-room is easily understood as
there is no dificutty in visualising the compartment of the ship which contains the main engine
plus auxáliary machinery such as electricity generators, pumps etc. It does, of course. extend a
litle further than the actual engine room as the term naturally includes the propeller shaft and
the propeller at the end ofit.

It is perhaps better to think in terms of 'deck' as meaning all the rest of the ship which is not
covered by the expression engine-room' because that is the responsibility of the deck
department

The engine-room department will usully employy shore-based marine engineers, customarity
refered to as engineering superintendents. They have to oversee the routine operation of the
ships main and auxiliary machinery, keeping a close watch on routine servicing, maintenance and
replacement of those parts which wear out and need regular renewal. A small but vital element
of their job is to ensure that the corect grade and quality of bunker fuels and lubricants are
suppied to the ships.

Supeintendents have to be ready to react without delay with advice or physical presernce in the
event of a breakdown and to oversee major repairs. inspections and overthauls.

The deck department is also often staffed by ship's officers who have decded to work ashore
and they USually are referred to as marine superintendents. Their duties, like their engineering
 maintaining the structure of the ship from overseeing major
colleagues, are concerned with
paintwork is kept in good condition.
surveys and repairs to ensuring the
in
efficiency in the technical departments will quickly result in the ships being
Failure to ensure temporarily withdrawn pending seaworthiness
can vary from classification being
trouble, which
extreme of a major catast ro phe with human lives as well as goods being
being restored to the conventions initiated by the lnternational
Maritime
As a result of international
placed at risk.
which is a division of the United Nations, most of the world's maritime
Organization (IMO), erables a ship to
have enacted laws which permit Port State Control, a device which
countries
put right. Such detention is one of the risks owners run
be detained until sub-standard iterms are
inadequate.
if their technical departments are
the Safety of
The two most important conventions are Pollution
Life at Sea (SOLAS) and the Prevention of
have
from ships (MARPOL). These conventions and
spawned a number of subsidiary Conventions
laws
Codes which have also been enacted into national
albeit with varying degrees of acceptance by signatory
countries so that not all codes and conventions apply
to every ship afloat.

Ensuring that ships are properly maintained is one of

the aims of the International Safety Management (|SM)
Code, or to give it its full title, the International
Management Code for the Safe Operation of Ships and
for Pollution Prevention. Like other IMO Codes such as
Saving
FSS Code (Fire Safety Systems) and LSA (LifeSOLAS
Appliances) Code, the ISM code is part of the
Convention (chapter XI).
M:ntenance s a high prinry
The operators' safety management systems (SMS)
and
should ensure compliance with mandatory rules
regulaions taking into account applicable codes,
IM0,
guidelines and standards recommended by the
organisations.
Flag countries,Classification Societies and maritime industry
usually one of the
Although the ISM Code is not confined to technical management, it is(DPA), the only role
Superintendents that takes on the role of Designated Person Ashore the shore
personnel and
actually described in the Code, and becomes the link between ships
management and directors.
technical department and
The MARPOL Convention was probably once only of concern to the
years this position has
did not really impinge on commercial aspects of ship operation. In recent
constant consideration when deciding
changed and there are aspects relating to it that require
aspect but there
on the employment of ships. The phasing out of single hull tankers is one such
are many more.

Emission Control
Perhaps the most important at theé present moment is the establ1shment of
MARPOL. In
7 Areas (ECAs) and Sulphur Emission Control Areas (SECAs) under Annex VI of
these areas, only fuel with a lowsulphur content can be used, meaning the ship has to carry
different grades of fuel and switch between them as appropriate. LoW-sulphur fuel is very
expensive and currently has a 50% premium over normal tuel oil. The pice is such that many
from
owners are considering fitting systems known as'scrubbers' that remove the sulphur oxides
the ship's exhaust emissions.
 Also under Annex VI, emissions of nitrogen oxides are controlled at various levels depending
upon the date a ship was buit. Complying with the requirements of the NOx Code, which
governs this aspect, can be achieved in anumber of ways. The most simple of these involves
running the engine only within paranmeters laid down by the engine maker. That is reasonably
simple but does involve the ship only being permitted to use Original Equipment Manufacturer
(OEM) spare parts which may not always be readily available.
In 2004 IMO adopted another convention which is aimed at controlling the managerment of
ballast water So far the convention has not received sufficient signatures for it to be ratified on a
global scale. However, the USA has proceeded with itsown similar regulation which is now in
force, meaning that ships trading to US waters will be required to fit a ballast water treatrnent
system according to a oling programme, based on the age of the ship and its ballast water
capacity

1.2.3 Storing
In addition to the purchasing needs of the technicai departments there are other requirements
for equipment, maintenance materials and spares. The officers andcrew have to be housed and
fed and world-wide purchasing requires specialist skills especialy in order to achieve maximurm
economy without skimping. Food can be a particular problem because different nationalities
have diferent eating habits, some of which have to be strictly adhered to. Stores department
personnel have to be aware of this and to be sure that adequate supplies of the appropriate
foods
obtain.
are bought particularty if the ship is trading to an area where such items are difficult to

I.2,4 Insurance
Perhaps surprisingly, insurance is a shipowner's second biggest item of cost, meaning that the
efficient administration of it is very important. This includes war risk insurance, although these
premiums are low.

Insurance for ships falls into two distinct categories and the most obvious is the insurance against
loss or damage to the ship tself- referred to as hull and machinery insurance.The most famous
provider of this type of insurance is LIloyd's of London, an organisation which started in the City
of London as long ago as the year l687. Insurance with Lloyd's is provided by individuals known
as underwriters who get their name from the way each person accepted a part of the risk by
writing his name, one under the other: This system of personal risk exists to this day but the
individuals tend to join together into syndicates. Access to the underwriters is only possible
through a Lloyd's broker who acts on behalf of the shipowner in seeking the best cover possible
at the lOwest premium (which is the money paid by the shipowner to secure the insurance
cover).When the broker has obtained suficient cover, it is possible for the contract to be drawn
up (although this is referred to as the insurance policy).The insurance broker's income is a small
percentage of this premium, while the rest is shared among the underwrniters in proportion to
the amount of the risk each one has accepted.

Marine insurance is by no means the monopoly of Lloyd's, and many of the bigger insurance
companies now include this type of cover among their activities. Such companies may cover the
entire risk, although it is by no means unusual for marine insurance brokers to arrange a policy
which is partly covered by Lloyd's underwriters and partly by companies. The London insurance
market is internatíonal in its scope but there are many insurers based arOund the world catering
to international and domestic needs.
Should there be a casuaty (which could range from a smallscrape against a rock to total loss of
the ship), a claim willbe made against the underwriters who, once again, have to be approached
via the insurance broker through whom the cover was arranged.
The other sort of insurance can best be summed up under the heading of third party insurance.
This includes such things as claims against the ship by a port authority for damage done by the
ship hitting the jetty claims by crew members for personal injury when negligence is alleged
against the shipowner and claims by cargo owners when their cargo is not delivered in the same
apparent good order and condition as it was when it was loaded. In other words., ary claim made
against the ship by another person or company.
For reasorns which go a long way back into history. the London underwriters were reluctant to
offer this sort of cover. As a result, the shipowners joined together into groups and formed
associations formally titled 'Protection and Indemnity Associations' but which to this day are
still referred to as P&l Clubs'. Protection involves the legal help that the clubs give to fight against
unfair claims, while indemnity covers the repayment to the owners for any third party claims that
have been legitimately made arndsettled.
Outside the UK it is not unusual for insurers to provide both hull and machinery and P&l cover.

Both these types of insurance need constant attention as most shipowners inevitably have
several third-party clains outstanding orin the pipeline. This means there isalways work to be
carried out by the shipmanager's insurance department. Union)

Salvage

(internatio

Credit:

Such ncidents are coesed by hul and massse y isurance and PSI ctub cover
1.2.5 Operations
Having covered the essential tasks of maintaining the ship in a seaworthy and commercially
sOund condition, the ship managers need to have adepartment which can provide the
organisation to ensure the ship carries out the tasks to which it has been committed by the
commercial staff who arranged its employment. Employment can involve carrying in-house
cargoes, operating in the spot market or may even involve operating on a liner service.
The operations department will know from the technical departments that the ship is ready to
carry out revenue-earning work and the commercial staff will have explained what the
commitment is. It is then up to the operations staff to carry out all the many tasks needed to
fulfil this commitment. For example an essential job is to ensure that the ship is sent to the right
place at the right time and then told where to go next. Decisions have to be made as to how
much bunker fuel will be the ideal quantity and where this should be taken on board. Similarty.
ensuring that the agents at all ports of call are advised and their responses acted upon is
essential. Crew changes have to be organised at the appropriate intervals and dry-docking is
another major activity which has to be harmonised with commercial commitments. VWhile many
specialist tasks can be passed to the appropriate departments, theoperations staff have to co
ordinate it al.

I.2.6 Commercial
Many shipowners sub-contract all the managemernt of their ships with the exception of the
actual arrarnging of the ships' commercial activities. Thus the contact with brokers and the fxing
of the charters, or in the case of liners the marketing and documentation, are under the OWners
total control.

There has to be very close iaison between staff in the commerçial and the operations
departments to ensure such things as having the right amounts of bunkers availabie at suitable
times and places. Crew changes have to be organised at the appropriate intervals and careful
planning can avoid expensive air travel for crew members leaving or joining the ship. Routine
dry-docking is another major activity which has to be harmonised with commercial
commitments.

When the management indudes the commerciai work as well, or in the case of the management
being carried out by the owners themselves, this close iaison between the operations staff and
the commercial department is far simpler. Indeed in some companies this has developed into
SUch a close tie that it is difficult to see where the precise divisions lie. t is the commercial
department's job to decide what business to go for and to authorise the brokers accordingly, but
such decisions cannot be made without the certainty that what is proposed is physically and
conveniently possitble.
Given that a particular piece of business is workatble, the commercial staff are tasked with
ensuring that it is as profitable as possible. Hence an understanding of the market conditions,
much of this learnt from the brokers, is an essential elenment of this decision-making process. Skill
at producing voyage estimates to enable viability and comparison with other business to be
checked is an important part of this process.
Each voyage cannot be looked at in isolation, and an eye must be kept on where the ship
will
become empty and what sort of following business may be available. For example, it could be
worth ignoring a cargo nearby and sailing in ballast to a further port if the business there takes
the ship. in turn, to an area where there is the prospect of goodfottow-up
business.
 While all the departments in a
success of the venture rests withshipmanager's office are vital, the responsibility for the eventual
the commercial department.

I.3 SHIP'S PERSONNEL

Even with first class departments in the
shipmanager's office and despite all the technological
advances made in this century, aship's eventual success or failure will depend upon its officers
and crew. This in tum makes it imperative for the
ship managers to have a well-run crewing
department.
Many different (and sometimes opposing) factors have an
first of which, regardless of any extemal pressures, is one of influence upon crewing matters, the
safety. Safety, first of all, in its obvious
humanitarian sense of rot risking the lives of the people in the ship or in any other ship with
which it might colide. Safety also in the material sense of not risking an
in the hands of incompetent workers. enormous financial outlay

Safety will also be dictated from external sources which, in the case of
responsible maritime
countries, will be in the form of statutory manning levels where the precise number and
competency of the officers and crew will be laid down according to the size and type of ship and
will be enforced by the law of the country of registration. The precise number and rank of
seafarers for a specific ship may well be fixed but is more likely to vary depending upon the area
of operation and possibiy even the cargo.

The flag of registration of the vessel is important because minimum safe manning leveis willbe
set and enforced by the law of the country of registraticon, as indeed may be the nationality of
the crew. Crews from some countries are very much cheaper to employ than others. For
example, the wage levels in Norway are two and a half times higher than those in the Philippines.
Some maritime countries insist on the employment of nationals of the flag of registry Others,
while retaining many of the safety aspects of ship manning, are more relaxed about the
nationality of the crew. This has given rise to companies which undertake to provide entire
crews. Many such crewing contractors directiy supervise the training of the required personnel
and ensure that they are replaced at the appropriate times.
Manning levels willalso form part of any labour agreements in countries where trades unions
are able to negotiate minimum standards. These standards are principally focussed on the safety
of the union's members although they have on occasion also had an impact on manning levels
and wider employment rights for their members. In the case of the traditional maritime nations.
agreement is usually negotiated between the national union and either the individual owners or
with an association representing all the owners in that country.
Where there is no tradition of shipowning, one may encounter agreements negotiated by the
International Transport Workers Federation (|TF) which is a body to which many of the
ensuring that
world's transport unions are sometimes affiliated. The ITF is dedicated to
low
shipowners do not, in its opinion, exploit seamen from poorer nations by paying themships
boycotts against
wages and placing them in sub-standard ships. In the main this has involved the ITF's
legal action to prevent
belonging to targeted owners, some of whom in turm have taken
actions from impacting on their shipping operations.

In early 2008 a long running dispute involving Viking Line (a Finnish ferry operator) and the
Finnish Seamen's Union came to an end in an out of court settlement. The dispute concerned
ship operator's intention to re-flag the vessel and alter the conditions of crew employment.
the
actions took place in the UK and the European
The ITF became involved in the dispute and legal
unions were likely to lose the case because
Court of Justice. It is generally accepted that the
 under European Union law, companies and organisations have a
The out of court settlement probably saved the union side fromright of freedom of movement.
being forced to pay damages
and legal costs. As a result of the legal dispute, the power of the ITF to disrupt work on vessels
in Europe has been diminished.

The ITF focuses its campaigns mainly against those ships which are
COuntries which have no real maritime tradition and exert very looseregistered
control,
under flags of
if any, upon the
manning levels or other matters of crew competency These are the ships operating under so
called 'Aags of convenience'. The attraction for shipowners to register under such
Combination of this lack of regulation of personnel, lower crewing costs and lIittle or noflags is a
taxation
demands on earmings. These attractions have to be balanced against the risk of attracting the
disapproval of such bodies as the ITF which, through its affliated national Trades Unions is atble
to immobilise a ship by the withdrawal of all shore labou.
As well as actual flags of convenience, some of which have earned a poor
reputation, some
cOuntries have recognised that the strictness of their maritime laws might tempt local owners to
register ships abroad. These countries have, therefore, agreed to the formation of second
registries, sometimes referred to as 'open registries'.

Belgium, Denmark, France, Germany, Norway. Spain and the United Kingdom all have second
registries, many of them specifically formed for political reasons. In the case of the UK, the lsle of
Man register developed as a result of the peculiar semi-independence of certain of-shore
islands around the British lsles. Several UK owned ships have re-registered in the lsle of Man
because, according to the owners, simply avoiding the requirernent to deduct and collect income
tax and social security contributions on behalf of the government has reduced staff in the
crewing departmernt such that it represents the difference between profit and loss.The
shipowner's decision as to where to register its ships will.therefore, have a significant effect upon
the work of the crewing department.

While retaining many of the safety aspects of ship manning. open registers are more relaxed
about the nationality of the crew. This has given rise to companies which undertake to provide
entire crews. Such crewing contractors will nomally offer to directly supervise the training of
the required personnel and ensure that they are replaced at the appropriate times.

The Standards of Training, Certification and Watchkeeping (STCW) Convention is an

intemational convention established by the International Maritime Organization (IMO). It sets
out the minimum levels of training and administration and which has been adopted by the
majority of the maritime countries of the world.The original convention came into being in 1978
but was updated in 1995 and again in 2010 when the so-called 'Manila Amendments' were
adopted by adiplomatic meeting in the Philippines. The latest version is referred to as STCW
2011.Allcountries with sea ports have the power to check that seamen on visiting vessels have
the appropriate certificates and training required under the convention. This is enforceable
under Port State Control.

1.4 ACCOUNTING
There are two good reasons why a clearly defined agreement on accOunting procedures is
reached between the owners and the managers.The first is the obvious fact that the owners are
not only entrusting to someone else the management of capital assets probably worth tens of
milions of dollars but also allowing that third party to commit signiicant sums of money daily in
the running of the ships.
 The second is that shipowners need to know whether or not the sort of business in which the
ships are ergaging is covering costs, and preferably making a proft. Whenever a new piece of
business is being contemplated the commercial department makes a voyage estimate. As tne
name implies, this is an estimate of the financial outcome of the voyages or periOd being
considered. To make this estimate, three cost areas have to be combined.The first are the fixed
costs which are those that occur whatever the ship is doing, whether it is sailing on a voyage.
working in port or simply laying idle waiting for business. A major item here would be
amortisation or depreciation, which is the term used to cover the need during the working life
of the ship gradually to write off the initial cost of the ship. Frequently a ship is paid for with
money borowed from a barnk or other financial institution and the cost of the instalments
repaying the loan plusthe interest charged by the lender is also treated as a fixed cost.
Then there are operating costs which are only incurred if the ship is active, but have to be paid
whether the ship is earning money or not (i.e. crews' wages).

Fixed costs and operating costs are provided tothe commercial staff by the managers and it is
essential that they have accurate budgets of all anticipated expenses which they, or the owners
themseves,break down toa cost per day.

This is taken into the calculation of the voyage estimate which, in turn, will calculate the voyage
costs which will be those expenses directly resulting from undertaking that voyage (such as
bunker fueland port expenses).The voyage estimate will also provide an estimateof how many
days the voyage will occupy, including any distance (and therefore time) which may have to be
covered in ballast in order to reach the first loading place. The distance invotved divided by the
ships average speed will tell how many days at sea are required. while the ship's fuel
consumption willindicate how much fuel will be used at sea. The rates of loading and discharge
proposed during negotiations will providean idea of the number of days in port but experience
of the trade will make this part of the estimate more accurate.
It is common practice for several voyage estimates to be carried out simultaneousiy in order to
compare one piece of business with another before entering into serious negotiations. The
outcome of one particular voyage is not the only factor to be considered, as one always has to
take onto account where the ship will end up (ie in a place where follow-up business is available
or whether along ballast run is necessary to get the next business).
This is not the end of the accounting dialogue between managers and owners. because the
actual financial outcome of each voyage made during the accounting period has to be produced
and compared with the original estimate. It is only in this way that all relevant staff in the
company develop a bank of experience' so that future voyage estimates benefit from lessons
learnt and are thereby mor accurate than mere guesses.

While all managers have to be able to calculate voyage estimates, it ismore usual these days for
the infommation to be fed into a software programme that will produce the final estimate. The
attraction of such software is that it frequently contains a database of distances so that only the
port names need be entered. Such software can also be progranmed to contain details of
ECAs allowing provision to be made for different fuel types needed during the voyage.

1.5 THE MANAGER IS STILL AN AGENT

It is important to remember that under a ship management contract the principal is the
shipowner and that the shipmanager is their agent This may sometimes be difficult for the
outside world to see when the only contact the agent or broker has is with the shipmanager It
is not unUSual for shipowners with several vessels to register each ship in an individual owning
 Company, possibly even in different flag countries.This is for good accounting or legal reasons and
should not necessarily be acause for concern, The shipmanager, who may be part of that
shipowner's organisation or may be independent, will generally look after the whole fleet.
Unfortunately but rarely there are occasions when this can be a problem. Shipmanagers can
plead their agency relationship with the owner to avoid responsibility for the owner's detbts,
when they are actually part of the same business. The test must always be whether or not the
management company has a good reputation anda track recordinthe market place.

1.6 EMPLOYMENT OF PORT AGENTS

Wherever a ship goes in the world it will need an agent at every port of callL to make the
necessary arrangements for it to enter and leave that port. to discharge or load cargo, to comply
with local regulations and to pay for services rendered and taxes or dues payable. In theory it is
possible for the Master to handle all such matters but except for some small coasters trading on
regular routes, this is not practical.
It is usually the shipmanager's responsitbility to choose and appoint the port agent. However, it
has to be recognised that in the case of voyage charters, many charterers will wish to nominate
the agent to be used by the owner in respect of their business. The reason for such nomination
may be that the charterer wants an agent who has particular experience of the cargo or
terminal used or to protect its commercial confidentiality Whatever the reason, it is a negotiated
clause in the charter and it must be remembered that the 'nominated' agent is legally the agent
of the ship, not the charterer.

When a port agent is appointed, it is that agent's responsibility to act at all times in the best
interest of the vessel.The shipowner will need to keep the agent advised as to a ship's
movements and expected time of arrival(ETA). The agents will know from the schedule when
the next vessel is due at their port. The owner and agent will be in constant communication by
telephone, ax or email regarding changesto schedule and all the other anticipated requirements
for the ship.

The ship's Master will also contact the agent in order to advise themof the ship's requirements.
h is obviously necessary togive the agent as much advançe warning as possible, although this is
not always feasible (as with an emergency due to danage or illness, for example).
The agent will contact the ship with any information of which the Master should be aware.
Equaly, agentswill contact their counterpart at the next port of cal, as a ship leaves, to advise
the agent there of any requirements about which there is not the time or the need to contact
the principal.
The following is a list of some of the routine matters that are handled by an agent, before, during
and after a ship calls at their port:
Before arrival

Arranging a berth anddiscussing the cargo handling programme with the terminal
operators/stevedores, and any special cargo matters

Booking a pilot and tugs

Arranging attendance by the Customs and Immigration authorities