The ship manager is responsible for and accountable for the work of others who performs the tasks of ship management. In the shipping business, the basic role of the ship manager is to anticipate and solve any problems that may arise during the operation of the ship. The process of ship management is not a separate function within the shipping organization. Notwithstanding, ship management’s functions relate to all the activities of the shipping organization. The ultimate purpose of ship management is to achieve the objectives of the shipping organization. Ship managers should be aware of their immediate contacts in the shipping organization. Ship managers also should have a basic knowledge of what other people do in a shipping organization and how other people can assist in different cases.
Ship Management Activities has 5 basic elements:
Types of Ship Management:
- Traditional ship management system: shipowner organized an in-house ship management system. The shipowner has full responsibility for operating, crewing personnel to ships directly. Shipowner in-house ship management meets the requirements of the ISM Code Certification for the office and each ship.
- Outsourcing ship management system: Shipmanagement is contracted out to a 3rd party company like V-Ships, Bernhard Schulte, Unicom Management. All day-to-day operations of the ships like technical, crewing, operations, commercial, accounting, and financing carried out by 3rd party. The Ship management company reports to the shipowner and the shipowner will be responsible for funding the operation of the ship and supplying the management company with a monthly fee.
- Hybrid ship management system: Partial outsourcing of the functions from the shipowner to the ship management company. This will be agreed in advance and a fee structure set for the services provided. Many shipowners still only outsource crewing.
Why shipowners outsource ship management?. The reasons shipowners outsource ship management:
- Cost savings (decreased head-overs)
- Cost-effectively the ship is operated
- Reducing the problems of legislative demands
- No in-house expertise to operate
Shipowners changed in recent years. A few decades ago, shipowners were real people who had paid for the ship. Shipowners order ships to carry charterers’ cargoes to specific geographical areas. If shipowners are successful, they would order to construct more ships. Eventually, shipowners would have a fleet of ships. Shipowners would have the crews which are employed directly by the company and crews would be a career path for those that remained with the shipping company. However, these days, a shipowner may be a bank, a hedge fund manager, or another type of investor in the shipping business. This type of shipowner might have no shipping knowledge or experience. In many cases, these investors who own the ships have no expertise in shipping. In such cases, these investors need to find a good ship management company and it is extremely important to ensure that there is a return on their investment. A shipowner may manage and operate the entire company or sub-contract parts of the organization to a third-party ship management company. In some cases, a shipowner may be a financial institution that may sub-contract the ownership of the ship by bareboat charter.
Economies of Scale in Ship Management:
In the shipping business, it has been extremely difficult for ship-management companies with a small number of ships to survive. This is not because these ship-management companies are not good at what they do, but because the number of employees required to meet all of the legal demands is raised. A number of people required to operate the ship-management office divided by the number of ships operated or under the control of the ship-management company. Therefore, the higher the number, the greater the costs involved. Consequently, today we see the rise of a few ship-management companies with a large number of ships under their management due to economies of scale in ship management. Now, giant ship-management companies are managing hundreds of ships. Ship-management companies are providing service to shipowners with a diverse set of options at a competitive price such as V-Ships, Bernhard Schulte Shipmanagement, C Transport Maritime SAM, Unicom Management Services.
Buying and Selling Ships at the Right Time:
Spot charter rates should be a factor of minor importance in the decision of buying or selling a ship. Buying a ship is a long term investment and implies a long term engagement to the project horizon of 5 to 15 years. An investor who is financially ready to support a long term shipping project should not pay too much attention to current freight levels. Traditional Japanese shipowners, who usually commit ships on remarkably long time charter contracts, make use of hedging instruments for bunker pricing and future payments and follow a strict strategy with regard to their fleet utilization and renewals. On the other hand, Greek shipowners like to keep their options open and love the spot market. In recent decades, Greek shipowners have mastered the concept of tramp shipping in most segments. Most Greek shipowners do not set a specific, predetermined horizon on the lifetime of their projects but instead react to the spot market levels and follow their intuition. Ship owning is an extremely risky business due to the volatile market. Moreover, in the shipping industry, it is crucial to invest at the right time. It is not a smart move to buy a modern capesize bulk carrier at the peak levels of the shipping market. But, it would be smarter to invest in shipping at the bottom of the market.
The original name of Ship Manager is by no means new although the even older name of Ship’s Husband is the one that emerged in the Merchant Shipping Act 1894. The requirement for a Ship Manager dates back to the custom ships were owned in the very early days when a voyage to the other side of the world was an extremely risky venture and it was common for a ship to be acquired for one specific round trip. The investment for the trip would be divided amongst several traders who customarily accepted to give the management of the ship to one of their colleagues. The amount of capital needed to acquire a ship is still such that the ownership was often spread amongst various people. Today, there is a reminder of this practice because a British Bill of Sale for a merchant ship not only provides for more than one name under buyer but still refers to how many sixty-fourths (64ths) each part-shipowner is subscribing to the total. At that time, they never expected more than sixty-four (64) people to become involved. The dilemma caused by this range of ownership was that of identifying who to accept responsibility. Furthermore, Merchant Shipping Act (Section 59) dictates that when a ship is registered under the British Flag the name and address of the Managing Shipowner shall be presented and if there is not a Managing Shipowner, there shall be so designated the name of the Ship’s Husband to whom the management of the ship is entrusted, similar regulations apply in other maritime countries.
The ship management business is the result of the economies of scale in which ship management professionals can offer services to shipowners that have a small fleet. Besides, flagging out by shipowners increased the demand for the ship management business. The appointment as Ship’s Husband or Ship Manager should be taken seriously particularly in the light of some of the more recent legal moves taken against those involved in shipping casualties. Great responsibility is resting on the shoulders of a Ship Manager. A Ship Manager should take out suitable insurance to cover its errors and omissions and those of its sub-contractors.
Ship Management Agreement
Depending upon the requirements of the shipowners, the Ship Manager’s Duties may differ broadly. Ship Manager’s Duties may range from only one function such as Crewing or Technical Management to Total Ship Management. BIMCO Standard Ship Management Agreement (SHIPMAN)(Boxes 5 to 14 of Part 1) divides Ship Management into ten separate management functions. Nevertheless, there are many more clauses and sub-clauses in the BIMCO Standard Ship Management Agreement (SHIPMAN) that specify how those duties will be managed.
Essentially, BIMCO Standard Ship Management Agreement (SHIPMAN) is an agency agreement. BIMCO Standard Ship Management Agreement (SHIPMAN) introduces specific problems unique to ship management. The first issue to be decided is who will be designated as the Ship’s Husband (Ship Manager). If the Ship Management Agreement is for a somewhat limited range of duties then the shipowners themselves may nominate their manager as a Ship’s Husband (Ship Manager), however, if the Ship Management Agreement covers almost all the functions, the shipowner has to nominate someone to perform all these functions. The ship managers are agents but have placed themselves in the position of a principal in the eyes of the law with prominent responsibilities involved.
BIMCO Standard Ship Management Agreement (SHIPMAN) Clause 11 tries to ensure that the shipowners are no better but no worse off than if they managed the ship themselves. After receiving such indemnification from the shipowners, it is important that the ship managers then insure against claims resulting from their Negligent Acts or Omissions and also those of sub-contractors that the ship managers may have accurately contracted in the accomplishment of their obligations under the contract. The protection and indemnity insurance in favor of the ship manager covers any liabilities to the shipowner or other parties arising under the second part of BIMCO Standard Ship Management Agreement (SHIPMAN) Clause 11. This should not be confused with the numerous procedures relating to the ship which are expressed in favor of both the shipowners and the ship managers as set out in BIMCO Standard Ship Management Agreement (SHIPMAN) Clause 6. Even though Ship Managers may be given quite extensive discretion in the ordering of supplies and services and enjoy encouraging reassurances in their deals with suppliers, Ship Managers are still only Agents.
Ship Agent may deny liability for debts incurred on behalf of the principal if the shipowner cannot or will not pay the debts. In some cases, this situation has provoked big concern to Ship Agents who have taken instructions in good faith from a Ship Manager whose principal has subsequently become insolvent. In some cases like this where it has been proved that the Ship Managers never made their role clear and allowed the Ship Agent to believe they were the Actual Principals. Therefore, Ship Managers should reveal their agency status unless Ship Managers are prepared to risk the consequences.
Similarly, an unpaid debt of the shipowner affects the shipowner’s P&I Club (Protection and Indemnity Club). If the Ship Manager is not liable for P&I Club (Protection and Indemnity Club) Calls then the P&I Club (Protection and Indemnity Club) will limit the extent to which they include the Ship Manager in the P&I (Protection and Indemnity Club) Cover. The Ship Managers need to be co-insured in all other insurances relating to the ship whether the insurance is arranged by the Ship Managers or the Shipowners themselves. BIMCO Standard Ship Management Agreement (SHIPMAN) Clause 6. Whilst there is no certainty that the Ship Management Agreement between the Shipowners and the Ship Managers will be on the BIMCO (Baltic and International Maritime Council) Form such as BIMCO Standard Ship Management Agreement (SHIPMAN). BIMCO Standard Ship Management Agreement (SHIPMAN) was compiled after extensive analysis and SHIPMAN provides an outstanding way of understanding the duties and responsibilities of both the Shipowners and the Ship Managers to a Ship Management Agreement.
Ship Management Agreement and Legal Problems
BIMCO Standard Ship Management Agreement (SHIPMAN) Clause 13 obliges the Ship Manager to deal with any legal obstacles which may arise. Dealing with various legal obstacles will eventually be handled by the P&I (Protection and Indemnity Club) but negligence or the erroneous initial response to a legal obstacle by the Ship Manager may make a bad condition worse and may result in losses against which there is no insurance.
In the dry cargo shipping business, a common problem may be a claim for Cargo Shortage or Cargo Damage. Usually, charterers’, shippers’, receivers’ insurance companies start a claim against shipowners. The charterers know that their claim will be time-barred under the Hague or Hague-Visby Rules within a year. The charterers’ recourse in the absence of a satisfactory reaction to the claim is to bring suit which in most jurisdictions means obtaining a writ that can be used to arrest the ship if necessary.
In Latin, In Rem means Against a Thing to distinguish it from In Personam means Against a Person. The prominent advantage of proceeding Against a Ship (In Rem) is that it is not necessary to track all over the globe looking for the shipowner and then realizing that the shipowner lives in a country where taking legal action against the shipowner would be expensive and challenging. By taking action Against a Ship (In Rem) it is not necessary even to name the shipowners however the conditions which allow action in rem are limited and the most reliable method to envisage these is to see it limited to debts owed by the ship. Taking action Against a Ship (In Rem) differs from nation to nation however the procedure for arrest is similar in most nations although the courts and officials concerned may differ. There are some maritime nations where the procedures for arresting a ship are especially straightforward including The Netherlands and South Africa for instance.
In the United Kingdom, taking action Against a Ship (In Rem) is regulated by the Admiralty Marshall. In the old days, the Admiralty Marshall himself nailed a writ to the ship’s mast. Today, these procedures are more civilized but the effect is quite the same. Customs officers who act as agents for the Admiralty Marshall, board the ship and attach a notice to a noticeable place inside the ship’s bridge. When the Admiralty Marshall attaches a writ, no one can move the ship at all without risking a charge of Contempt of Court for which the penalties still include imprisonment. Furthermore, it is extremely challenging simply to move the ship off the berth to allow the terminal operator to use the pier for other ships. The Admiralty Marshall has the liberty to remove some important part of the ship’s machinery to ensure its immobility if there is any risk of the ship leaving despite the risk of penalties. The writ can only be removed on the order of the Admiralty Marshall.
To release the arrested ship, the shipowner’s P&I Club (Protection and Indemnity Club) provides a guarantee to pay whatever is found to be legally due under the claim. P&I Club’s (Protection and Indemnity Club) guarantee will satisfy the plaintiff who is obliged then to instruct the Admiralty Marshall to release the ship from arrest.
In most cases, the claimant informs the shipowner that he has the writ and threatens the ship arrest unless the guarantee is forthcoming but the shipowner still has to move immediately to avoid the threat being turned into action.
Mareva Injunction (Freezing Order)
Mareva Injunction (Freezing Order) is another legal device that gets its name from the title of one of the defendants Mareva Compania Naviera SA which was involved when the procedure was first summoned by Lord Denning in London in 1975. In reality, the procedure stops the defendant in a legal dispute from moving assets out of the court’s jurisdiction. For example, a defendant is not a United Kingdom resident but has funds in the United Kingdom. The plaintiff may worry that while the action is continuing, the defendant might transfer funds to another country. Therefore, even if the plaintiff wins the case there might be no funds to settle. To circumvent such an injunction paralyzing the defendant’s operations is for an arrangement to be made to allocate sufficient funds in some form of a joint account or to provide a bank guarantee or some such irrevocable undertaking. This allows the injunction to be lifted and the remainder of the defendant’s funds can be freed. The defendant may let funds come into the country without the risk of that being frozen.
Immobilizing of assets or funds may be the case of such an injunction. For example, a Ship Agent with disbursement outstanding against a Time Charterer. It is difficult to arrest the ship as the debts were not due by the shipowner but the ship is still on hire to the Time Charterer and so some of the bunkers in her were the Time Charterer’s property and it was that bunkers that matched the subject of a Mareva Injunction (Freezing Order). There is no way for the immobilized ship to be moved away without taking the bunkers outside the jurisdiction. Judges are very cautious in such cases because innocent third parties should not be adversely affected.
Unpaid Freight Vs Unpaid Hire
All Voyage Charter Parties stipulate when freight has to be paid. If a Voyage Charter Party stipulates that freight is payable Before Breaking Bulk (BBB), there is a troublesome choice to be made if the ship is at discharging port but there is no sign of the payment. If cargo discharging is permitted to proceed, shipowners start losing hold on the means to enforce payment (lien on cargo) as there is no obligation to deliver the cargo until freight is paid. While the cargo is in the ship, shipowners do not have to resort to any legal proceedings, shipowners merely refuse to discharge the cargo. The ship is not earning income when solely sitting idle at the berth. Therefore, the shipowner may ask for help via an agent from a local maritime lawyer. Another method could be discharging the cargo ashore but placing a lien on the cargo so that the receiver cannot take possession of the cargo until the freight is paid. However, this is not an easy method in many ports. In every chartering fixture, the shipowner is taking an estimated risk. The shipowner is using the judgment as to whether the charterer will comply with his side of the bargain and, if the charterer does not, whether recourse to legal action will be effective.
All Time Charter Parties stipulate when hire has to be paid. It is important to be sure that the Time Charterer is able and willing to meet his obligations. The immediate recourse if a hire payment is late and any time allowed for Technical Delay (Anti-Technicality Clause is designed to moderate the severity of the Withdrawal Clause) has expired is to withdraw the ship from the service of the Time Charterer. Withdrawal of the ship from the service of the Time Charterer is not easy as it sounds because the ship may be full of cargo that unquestionably belongs to an innocent third party. If the charterer has not yet paid the freight then it should be possible to ensure that the charterer pays the freight direct to the shipowner and in the unlikely event of this being more than is necessary to settle what is due then the balance can be handed over to the charterer. Unfortunately, when the Time Charterer defaults, one usually finds that the cargo in the ship is the subject of the Freight Paid Bill of Lading. In this case, the maritime law explicitly states that the ship has to deliver that cargo to the consignees named in the Bill of Lading without in any way being able to demand any payment from the consignees. Freight Paid Bill of Lading grants the holder of that Bill of Lading (B/L) a clear title to the goods and the shipowner’s failure to hand the cargo over to the consignee would be an offense under maritime law. Therefore, it is important to identify the background of a Time Charterer. The fraud of taking a ship on time charter, paying the first hire with excellent promptness, loading the ship with cargo, issuing Freight Paid Bill of Lading, pocketing the freight, and disappearing is by no means an unusual situation. Ship Managers and Shipowners must be careful when checking the background of a Time Charterer.
Ship Manager and Port Agents
Ships require Port Agents at every port of call. Port Agent is appointed by the Shipowners or Time Charterer. The charterer may secure the right to nominate the Port Agent as a clause in the charter party. There are various reasons why a charterer may demand to nominate the Port Agent:
- Efficiency: some major charterers operate extremely sophisticated terminals which necessitate solid information from and communication with Port Agents to perform efficiently. These major charterers insist upon one Port Agent with expert skills for harmonious service.
- Secrecy: the concern a charterer may have of his cargo being handled by, and his trading secrets being disclosed to, a local rival and charterer may avoid this by insisting on the nomination of Port Agent.
- Money: some charterers try to insist on nominating the Port Agent to enable them to sell the agency to whichever agent will offer the charterers the highest share of the Agency Fee.
No matter who nominates the Port Agent, the Port Agent is legally the servant of the Shipowner or Time Charterer. In some Charter Parties, Charterer’s Agent Clause grants the charterer the right to nominate the Port Agent who will act on behalf of and be paid by the shipowner.
Generally, the Port Agent provides just as good a service to the shipowner as if the Port Agent has been a shipowner’s appointment. Sometimes, the Port Agent nominated by the charterer is simply not providing a good enough service. Therefore, the shipowner may appoint a Supervisory Agent to keep an eye on things with only the shipowner’s interests in mind.
The shipowner should contact and give adequate instructions to the Port Agent. The shipowner needs an estimate of how much the call at that port will cost. The Port Agent provides a Pro Forma Disbursement Account (Pro Forma D/A) according to the ship’s Net Tonnage (NT) and Gross Tonnage (GT). The Port Agent must be informed about loading or discharging operations, the shipper or consignee name, cargo details so that the Port Agent can estimate the length of time the ship will be at the port. Generally, important information such as who pays for the stevedoring has to be declared.
The Port Agent’s Pro Forma Disbursement Account (Pro Forma D/A) is divided into three (3) main sections:
- Port Charges
- Cargo Charges
- Ship’s Items
1- Port Charges:
Dock Dues: charges made by the operator of the actual berth being used. Dock Dues are based on the length of the ship (LOA), Net Tonnage (NT), Gross Tonnage (GT), the time likely to be alongside.
Conservancy Dues: charges made by the authority who controls the river or total port area. Conservancy Dues are based on the ship’s Net Tonnage (NT) and Gross Tonnage (GT).
Pilotage: compulsory in many places but if the ship is a regular caller at that port the Ship Master may have an exemption certificate. Pilotage is often levied on the ship’s draft.
Towage: tug company may have a direct contract with the shipowners so advise the agent if this is so.
Boatmen: are employed for handling the lines for mooring and unmooring of the ship but boatmen are employed broadly if the ship is not alongside a jetty all the time she is in port.
2- Cargo Charges: Port Agent should inform an estimate of the stevedoring costs if stevedoring costs are for the shipowner’s account.
If the ship has to discharge part of the cargo into barges to decrease the draft (lightering) sufficiently to come alongside, lightering costs should also be detailed. The Shipowner or Ship Manager must inform Port Agent about the use of shore cranes and who pays for them. Alternatively, if the ship is going to load or discharge with its gear, the Port Agent should clarify whether the labor regulations in the port permit these to be operated by the ship’s crew or whether shore labor has to be employed.
In various ports, if tallying is required, the labor regulations insist that tallying is performed by shore workers which once again may be an item for the agent to include in the Pro Forma Disbursement Account (Pro Forma D/A).
3- Ship’s Items: cover all the charges which relate to the domestic requirements of the ship such as Cash to Master (CTM). The other ship’s items are freshwater, stores, provisions, medical and dental treatments. Minor Repairs and servicing of ship’s equipment may also be included here but it is unusual for the Port Agent to become involved in Major Repairs.
Pro Forma Disbursement Account Invoice (Pro Forma D/A Invoice) should also clearly present the Port Agent Fee that is going to be charged for his services. If the Port Agent is one that Shipowners and Ship Managers regularly use, Port Agent Fee probably has been agreed well in advance. Most Port Agent Associations announce a scale of Agency Fees for their members and the Ship Manager should be familiar with maritime nations where the scale of Agency Fee is mandatory and that scale is utilized for negotiations. On the other hand, in some maritime nations, the publication of the Agency Fee scale is illegal under anti-trust or fair competition rules. It is vital to have the Agency Fee agreed in advance. The Ship Manager should not drive an extremely hard bargain with a Port Agent for Agency Fee. The Shipowner and Ship Manager should remember that “you get what you pay for” and the difference between an enthusiastic service and something just barely enough to get by may be difficult to define but can make a great deal of difference. An enthusiastic Port Agent could fight tooth and nail to get the ship completed and sailed tonight, a disappointed Port Agent may assure the Shipowner and Ship Manager that he has done all possible but the ship has lost half day which can cost far more than was saved in hard bargaining.
The Port Agent asks for funds in advance from the Shipowner and Ship Manager according to Pro Forma D/A Invoice. This is accepted as a customary practice because it would be impracticable for any Port Agent to finance all the ships calling to their agency. Many of the costs under the Port Charge title have to be paid in advance otherwise the Port Authorities do not let the ship depart. The Ship Manager should consider the cash flow and interest so that there is a great temptation to delay sending funds to Port Agent until the last plausible minute, however, time should be allotted for the banking system delays. In various maritime nations, there are regulations to protect Port Authorities from bad debts. If the Shipowner and Ship Manager’s funds have not reached the Port Agent, the ship is held by the Port Authority until the funds are received. Port Authority does not have to obtain a writ or effect an arrest, to have the power to immobilize the ship. When the ship is departed, the Port Agent gathers all the accounts that are paid on behalf of the ship and presents them with a Disbursement Account (D/A). This process may take several weeks because some suppliers can be slow to submit their bills. The Shipowner and Ship Manager require that every item in Disbursement Account (D/A) is explained. Especially, miscellaneous expenses such as car mileage, telephone charges, etc. Fairly, any credit balance should be repaid immediately as indeed the Port Agent will expect the Shipowner and Ship Manager to settle any debit balance.
Ship Manager and Shipbrokers
Depending upon the extent of the Ship Management Agreement, the Ship Manager communicates with shipbrokers who are responsible for negotiating employment for the ships. If the Ship Management Agreement covers everything including arranging employment then Chartering Department may take place within the same office of the Ship Manager. The Ship Manager authorizes either the in-house shipbrokers or Ship Manager authorizes panel shipbrokers to give and receive firm offers from the charterers. Even if the commercial issues are dealt with by the Shipowners with shipbrokers or In-House Chartering Department, the Ship Manager will still become involved. When a business is proposed, there will be questions for the Ship Manager’s departments and if the ship is in the process of negotiations, the answers are expected immediately due to fast communication.