There are two (2) type of Ship Management Companies:
- In-house Ship Managers
- Independent Ship Managers
Whether it is a shipowner’s in-house department within the company or a separate/independent/third-party organization, the Ship Managers’ job is the same. In some shipowner’s offices, it may be difficult to see just where the chartering department ends and the operational elements of ship-management begin. In some shipowner’s offices, the ship-management is kept entirely separate which permit.
In some cases, shipowners offer a management service to ships of other shipowners in addition to their own. So, shipowners maximize the output of the different sections.
Tasks which are undertaken by independent ship-management companies can vary widely depending upon what the principal/shipowner requires.
- Total Ship-management
- Sub-contracting Single Part of Ship-management
Most complete service arises where the ship has been bought as an investment and shipowner wishes to have no actual part in running the ship. Such cases are referred as Total Ship Management.
In Total Ship Management services, ship-managers treat the ship as if ships were part of their own fleet, including commercial decisions which determine the trades in which ship will operate and taking all the decisions about what freight rates to accept. On the other hand, some shipowners may simply wish to sub-contract one element of ship-management such as the crewing department or technical department.
Lately, one single part of ship-management most often sub-contracted is that of ship crewing. Ship crewing Shipowners sub-contract ship crewing to third-party ship-management companies due to costs. However, do not immediately jump to the conclusion that handing over the ship crewing to sub-contractors is a device practiced only by shipowners of sub-standard ships with sub-standard crews being paid wages far below the international average. Unfortunately, such crook shipowners still do exist despite the efforts of both governments and trade unions but many thoroughly respectable shipowners sub-contract ship crewing. Such shipowners flag-out their ships, that is to continue to run their ships from their own country but to place them under the flag of another country which enables their ships to be crewed in accordance with the laws of the chosen country (flag country). Even first-class shipowner flag-out ships because shipping is a truly international trade in which the ships of different countries compete in a common market place regardless of the cost and standard of living in the individual countries.
In wealthier countries, ashore wages are much higher than those in a less developed countries. In order to attract crews to work in ships, shipowners have to match the shore wages.
Whilst shipowners in the wealthier country may be able to afford more modern and thus more economical ships, sooner or later the cost of matching shore wages will raise their crew costs to a level which makes shipowners noncompetitive. Furthermore, the situation is exacerbated by powerful labor unions having been successful in not only negotiating high crew wages but also in insisting upon levels of manning/number of crew which are arguably more than safety demands. This situation leaves the shipowner with only two options:
- Quit ship owning altogether
- Flag-out (Place ships under the flag of a country which either has a lower wage structure or no concern with seamen’s wages at all)
Flagged-out shipowner still want to live in his own country and manage ships from there. However, Flagged-out shipowner have to employ a crewing agency to provide crews. For example, Greek shipowner with ships under Panama flag and crews are supplied by crewing agency in the Philippines.
Parts of the United Kingdom (UK) still have a limited degree of autonomy and the Isle of Man is a typical example for flagging-out. Isle of Man registry still means British flag, but Isle of Man laws are not English laws. Flagging out to the Isle of Man is by no means as radical as flying the Liberian flag; but shipowners under the Isle of Man flag are:
- Not obliged to collect or contribute to social security payments
- Not have to collect personal Income Tax from crew on behalf of the Inland Revenue Department
These details sound minor, but the cost of running shore departments to collect the government’s taxes can absorb much of the profit if the shipping market is only moderate.
Historically, shipowners contracting with overseas agencies for crews since the advent of steamships, ships which were trading in the tropics found that lascars recruited in India were:
- less expensive
- able to cope with working in high heat and humidity than their European crews
Supplying ship crews has now become a serious invisible export trade for many developing countries such as Philippines.
In shipping business, there will always be crook shipowners who pays crews little better than slaves. However, there are three (3) forces acting to counter such practices:
- Natural reluctance among most charterers/shippers to entrust their goods to sub-standard ship operators
- Port State Control which allows all maritime nations to immobilize ships in their ports if ships are patently unsafe
- I.T.F. (The International Transport Workers’ Federation) origins date back to the end of 19th century. ITF (The International Transport Workers’ Federation) is dedicated to ensuring that seamen receive adequate wages and conditions. ITF’s (The International Transport Workers’ Federation’s) strength lies in the fact that almost all transport unions throughout the world are affiliated to it. In other words, if the ITF (The International Transport Workers’ Federation) decide that a ship should be immobilized until a suitable pay and conditions agreement is signed between shipowners and crews. ITF (The International Transport Workers’ Federation) can easily ensure that the ship is blacked by all the labor unions in the port.