What is Ship Management?

Ship Management Activities

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:

  1. Co-ordination
  2. Organization
  3. Planning
  4. Command
  5. Control

 

There are 3 types of ship management:

  1. 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.
  2. 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.
  3. 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:

  1. Cost savings (decreased head-overs)
  2. Flexibility
  3. Cost-effectively the ship is operated
  4. Reducing the problems of legislative demands
  5. 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. Shipowning 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.