Ship Management: Theory and Practice [1 ed.] 0367532786, 9780367532789

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Ship Management

Ship Management: Theory and Practice unpacks the complexity of this crucial maritime activity by spelling out its key elements and the connections and linkages between them. Opening with an introduction and an overview of the special characteristics of ship management, the text then focuses on different strands of management. It offers dedicated chapters on strategic management, commercial management, operations management, technical management, human resource management and compliance management, weaving in numerous international examples throughout.The final chapter looks to the future, exploring the challenges facing ship management and the impact of digitalisation. Ship Management: Theory and Practice is a valuable resource for upper-level students of shipping management and maritime operations and can also serve as a one-stop reference for researchers and industry practitioners. Pengfei Zhang previously worked as a master mariner, maritime lawyer (dually qualified in England and Wales and China), ship manager and legal director of a shipyard. He has teaching experience at Jimei University, Shanghai Maritime University, Dalian Maritime University and Solent University. His research interests include maritime law and business, commercial arbitration, shipbuilding, ship management, international trade, seafarers and maritime safety and security. Lijun Tang is Lecturer in International Shipping and Port Management at the University of Plymouth. He has been involved in a number of maritime research projects and has rich experience in maritime HRM-related research. His research interests and publications are in the areas of employment relations, seafarer training, maritime health and safety, CSR and sustainability and the seafarer labour market.

Routledge Maritime Masters Port Economics Wayne K.Talley Port Economics Second edition Wayne K.Talley Management of Shipping Companies Ioannis Theotokas Managing Human Resources in the Shipping Industry Edited by Jiangang Fei Shipping Business Unwrapped Illusion, Bias and Fallacy in the Shipping Business Okan Duru Maritime Business and Economics Asian Perspectives Edited by Okan Duru Economics of Maritime Business Shuo Ma Business and Economics of Port Management An Insider’s Perspective Wei Yim Yap Derivatives and Risk Management in Shipping Manolis G. Kavussanos, Dimitris A.Tsouknidis and Ilias D.Visvikis Ship Management Theory and Practice Pengfei Zhang and Lijun Tang

For more information about this series, please visit: www.routledge.com/Routledge-Maritime-Masters/ book-series/RMM

Ship Management

Theory and Practice

Pengfei Zhang and Lijun Tang

First published 2022 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2022 Pengfei Zhang and Lijun Tang The right of Pengfei Zhang and Lijun Tang to be identified as authors of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Zhang, Pengfei, author. | Tang, Lijun (Lecturer on shipping), author. Title: Ship management : theory and practice / Pengfei Zhang & Lijun Tang. Description: New York : Routledge, [2022] | Series: Routledge maritime masters | Includes bibliographical references and index. Identifiers: LCCN 2021012819 (print) | LCCN 2021012820 (ebook) | ISBN 9780367532789 (hbk) | ISBN 9780367532772 (pbk) | ISBN 9781003081241 (ebk) Subjects: LCSH: Shipping—Management. | Personnel management. Classification: LCC HE571 .Z48 2022 (print) | LCC HE571 (ebook) | DDC 387.2068—dc23 LC record available at https://lccn.loc.gov/2021012819 LC ebook record available at https://lccn.loc.gov/2021012820 ISBN: 978-0-367-53278-9 (hbk) ISBN: 978-0-367-53277-2 (pbk) ISBN: 978-1-003-08124-1 (ebk) DOI: 10.4324/9781003081241 Typeset in Gill Sans by Apex CoVantage, LLC

Contents

List of tables List of figures List of abbreviations

vii

ix

xi

1

Introduction Maritime shipping and world fleet Evolution of ship owning and management Choice of outsourcing ship management Structure of the book

1

2

4

7

9

2

Special characteristics of ship management The concept of ship management The main types of ships Bulk carriers Tankers Container ships General cargo ships Special nature and characteristics of the ship Special nature and characteristics of the seafaring profession Special nature and characteristics of the shipping business Special nature and characteristics of maritime governance

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3

Strategic management The concept of strategic management Business policies of shipping companies Organisational structure Merger and acquisition as growth strategies Choice of flag Strategic shipping market and positioning strategy Response to emerging technologies

24

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29

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35

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4

Commercial management The concept of commercial management The role of the ship manager The ship manager’s contractual obligations The ship manager’s fiduciary duties Duty to act for the best interest of the ship owner Duty to act within the scope of authority Duty to act with reasonable care, skill and diligence Duty to avoid and disclose conflicts of interest Other duties Management of risk and insurance

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vi

CONTENTS

5

Operations management The concept of operations management The ‘sea voyage cycle’ Operations in each phase of the sea voyage cycle Pre-arrival operations phase Arrival operations phase Port stay operations phase Departure operations phase Pre-departure operations phase Post-departure operations phase

59

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62

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Technical management The concept of technical management The concept of seaworthiness Ship maintenance management Performance management Quality and safety management Information system management Emergency management

76

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7

Human resource management The concept of human resource management The human element in the maritime industry The maritime labour market Industrial relations in the maritime industry Sustainable workforce development The management of a multicultural crew The multicultural crew in the maritime industry Benefits of a multicultural crew Challenges of a multicultural crew Integrating intercultural competence

96

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100

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103

104

107

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8

Compliance management The concept of compliance management Compliance with maritime governance The UN framework Port state control Compliance with international sanctions Challenges with compliance management

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9

Looking forward Drivers for improvement in ship management The main challenges of ship management in the future The impact of digitalisation on ship management in the future Benefits of digitalisation Obstacles of digitalisation

126

126

128

129

130

131

Bibliography Index

135

163

Tables

2.1 5.1 5.2 6.1 7.1

Multitiered structure of laws governing maritime jurisdictions and governance:

polycentric governance model Master–agent information exchange Key milestones/timings during the ship’s departure operations phase Key elements to which seaworthiness extends Estimated five largest seafarer supply countries

22

67

71

81

102

Figures

1.1 2.1 3.1 3.2 3.3 3.4 3.5 5.1 5.2 6.1

World fleet by principal vessel type, 2018–2019 Shipboard hierarchy Hierarchy of organisational strategies Stages of strategic management Three categories of policies Company policies The role of designated person ashore The sea voyage cycle Task categories in pre-departure port operations phase Overview of the BIMCO Shipping KPIs Standard V4.0

3

18

25

26

27

28

32

63

72

85

Abbreviations

AIS BDA BIMCO BWTS CBA CoC CSR DMS DPA DOC DSS dwt ECDIS EEDI EEOI ERT ETA EU FOC GRT HR IBF ICS ICT ILO IMEC IMO INTERCARGO INTERTANKO ISM ISMA ISO ISPS ITF KPI LNG LPG MARPOL MET

Automatic identification system Big data analytics Baltic and International Maritime Council Ballast water treatment system Collective bargaining agreement Certificate of competency Corporate social responsibility Data management system Designated person ashore Document of compliance Decision support system Deadweight tonnage Electronic chart display and information system Energy Efficiency Design Index Energy Efficiency Operational Indicator Emergency response team Estimated time of arrival European Union Flag of convenience Gross register tonnage Human resources International Bargaining Forum International Chamber of Shipping Information and communication technology International Labour Organization International Maritime Employers’ Council International Maritime Organization International Association of Dry Cargo Shipowners International Association of Independent Tanker Owners International Safety Management International Ship Managers’ Association International Organization for Standardization International Ship and Port Facility Security International Transport Workers Federation Key performance indicator Liquefied natural gas Liquefied petroleum gas International Convention for the Prevention of Pollution from Ships Maritime education and training

xii

ABBREVIATIONS

MLC, 2006 MoU NC NGO NOR OECD OFAC OR P&I club PCC PMS POB PSC QMS SEA SDG SEEMP SIRC SIRE SMC SMPEP SMS SOF SOLAS SOPEP STCW TEU TMN UNCLOS UNCTAD VLCC

Maritime Labour Convention, 2006 Memorandum of understanding Non-conformities Non-governmental organisation Notice of readiness Organisation for Economic Co-operation and Development US Treasury’s Office of Foreign Assets Control Open registry Protection and indemnity club Port Clearance Certificate Planned maintenance system Pilot on board Port state control Quality management system Seafarer employment agreement Sustainable Development Goal Ship Energy Efficiency Management Plan Seafarers International Research Centre Ship Inspection Report Program Safety management certificate Shipboard Marine Pollution Emergency Plan Safety management system Statement of facts International Convention for the Safety of Life at Sea Shipboard Oil Pollution Emergency Plan Standards of Training Certification and Watchkeeping Twenty-foot-equivalent unit Traditional maritime nation United Nations Convention on the Law of the Sea United Nations Conference on Trade and Development Very large crude carrier

Chapter 1

Introduction

With an estimated over 80 per cent of the volume of global trade carried by sea, maritime shipping is fundamental to sustaining economic growth and spreading prosperity throughout the world (IMO, 2021). It is a business activity exposed to a wide variety of risks and accidents, some of which result in serious consequence of loss of lives and property and marine pollutions.The quality and safety of ship management are key factors in maintaining the sustainable development of the mari­ time industry and the stability of global trade. Ship management is a fundamental activity for ship owning and operating and represents an area where shipping companies invariably assign and delegate responsibilities to qualified and expe­ rienced personnel.There are many reasons why ship owners delegate ship management responsi­ bilities and functions to professional and sometimes independent ship managers, and these will be discussed in detail later in this chapter, but the crucial one is that ship management is complex and requires integrative knowledge that spans across multiple disciplines and needs varied skills and expertise.As such, it is more cost-effective to leave it to professional managers. The complexity of ship management relates to the unique features of maritime business and the ever-changing environments that ship managers have to respond and adapt to. Maritime ship­ ping is a fluid, mobile and global industry, and ship managers routinely optimise their operations by spreading and shifting management activities, such as crewing, ship registration, ship repair and ship employment, across the world. This has led to a global seafarer labour market and a global regulatory regime. Ship management not only has to adjust to the vicissitudes of the global econ­ omy, international trade and the shipping market but also needs to be fine-tuned to the constant changes in regulation, law, labour market, technology, customer requirements and even public attitude. Ship management involves strategic management, commercial management, operations man­ agement, technical management, human resource management, compliance management and so on. Ship managers need to not only align and streamline these management responsibilities and activities in a cost-effective and strategic manner but also attune them to the business environment. For this reason, ship management requires a wide range of knowledge and skills. The book aims to unpack the complexity of ship management by spelling out its key ele­ ments as well as the connections and linkages between them. It comes as a response to the market need to set out a comprehensive coverage of all aspects of ship management.The book will address the relevant issues from both theoretical and practical perspectives. It serves as a one-stop read for all interested parties from the maritime industry. This book also provides students, both undergraduate and post-graduate, systematic knowledge of ship management and offers researchers a valuable reference source and a solid foundation on which further develop­ ment can be built.

DOI: 10.4324/9781003081241-1

2

INTRODUCTION

Maritime shipping and world fleet International trade is the driving force of human activity. It allows countries to expand their markets and access goods and services that otherwise may not have been available domestically.As a result, international trade plays a crucial role in promoting national prosperity, raising living standards, providing employment and reducing domestic poverty. International trade relies on transportation and logistics, which facilitate the growth and development of the local and global economy. Poor logistics infrastructure and services can cause a significant hindrance to international trade. In the meantime, the continuing rise of world trade and the desire by countries to speed up the pace of integration within the global trading system improve the quantity and efficiency of the support structures such as the logistics services (Gani, 2017). The earliest maritime transportation routes were formed about 5,000 years ago (Lavery, 2017; Stopford, 2009). The oldest known ship can be traced back as early as 2650 BC, to the Fourth Dynasty of the Old Kingdom of Egypt (Belov, 2015). However, it was not until the advent of steamships in the 19th century that maritime shipping started to overcome the adverse impact of weather and ocean conditions. The expansion of global trade prompted the process of mod­ ernisation and industrialisation in many parts of the world. In the meantime, sustained economic prosperity in that era further promoted an increased demand for maritime tonnage (Grammenos, 2013). For example, between 1850 and 1910, the total value of world trade grew about seven times (Ortiz-Ospina & Beltekian, 2018). This growth mirrored the increase in the world fleet, which, measured by total net tonnage during the same period, increased from about 9 million to about 34 million (Hattendorf, 2007). Benefiting from the enhancement of nautical and shipbuilding technologies, the world fleet continued to accrue remarkably in the 20th century. In addition, unprecedented technical, practical and legal revolutions restructured the modern maritime industry. After World War II, the size of seagoing ships grew tremendously to achieve the optimal effect of scale economy (Wijnolst & Wergeland, 2009). Highly specialised ships were constructed to meet diversified market demands, such as ro-ro (roll on, roll off) ships, liquid bulk carriers and so on. However, the dramatic growth in global trade resulted in port congestion, and ship owners anxiously sought more efficient car­ go-handling methods.At the same time, high wages also provoked the introduction of labour-saving equipment. One significant breakthrough came with the introduction of the container in the late 1950s in the United States (Hattendorf, 2007).The earliest container ships were converted cargo vessels, but within the 1960s specifically built ships started to enter into service (Klose, 2015). Containerisation maximised operational efficiency and made door-to-door service possible. Mean­ while, new navigational technologies and equipment such as the global positioning system (GPS), energy-efficient engines and satellite communication and the electronic chart display and informa­ tion system (ECDIS) made ocean transport quicker, safer and easier. Together with the evolution of physical facilities, the hardware, was the adoption of a wide range of standards and treaties by the maritime community to rationalise the governance of merchant shipping, whereby conventional ships were replaced with more advanced counterparts (Liao, 2020). The world fleet provides critical linkages in global supply chains and is crucial to enable all nations, including those that are landlocked, to access international markets (UNCTAD, 2019). In the era of global exchange, all raw materials and products crucial for our living and development are conveyed through the worldwide logistics networks weaved by a growing world fleet (Liao, 2020). Relocation of industry in the 21st century from the developed to the developing countries is no longer considered a business adventure, but rather has become a normal activity by the glo­ balised division of labour force (Wen, 2004). As a result, the pattern, structure and size of global trade have changed to the effect that ‘shipping and trade are inextricably linked as never before’ (Branch, 2007).The modern world is not a self-sufficient society, and people are not economically

INTRODUCTION

3

independent. In the global market, the necessities of consumers’ daily life, from clothing, foods, transportation to housekeeping, relies on ships to convey raw materials to places of manufacture, then semi-products to places of assembly or further processing and then final products to distri­ bution centres before they are despatched to the ultimate consumers (Liao, 2020). Due to the continuing effects of the financial crisis at the end of 2008, the growth of global seaborne trade slowed down. The total amount hit 11 billion metric tonnes in 2018 at a growth rate of 2.7 per cent. Fuelled by increasing demand, the total tonnage of the world merchant fleet has continued to grow despite the financial recession.At the beginning of 2019, there were 95,402 propelled seago­ ing merchant ships of 100 GRT1 and above, accounting for 1.97 billion dead-weight tonnes (dwt) of capacity (UNCTAD, 2019). It represented an annual growth of 2.6 per cent, which remarkably matched the growth of seaborne trade in the same year. Figure 1.1. shows the comparison of world fleet tonnage by principal vessel type between 2018 and 2019. Whilst there is a variety of vessel types, bulk carriers, oil tankers and container ships continue to take the lead in the world fleet.They were also the main force in shipbuilding in 2018, represent­ ing over 75 per cent of the total new-building deliveries (Clarksons Research, 2019). Developments in the world fleet revealed a background of continued oversupply of tonnage. Overcapacity has remained a structural feature in most shipping segments, leading to downward pressure on freight rates in recent years. The maritime industry is currently experiencing a tough time. The trade conflict between the United States and China prompted major shifts in goods flows, significantly affecting maritime transportation (Ashmore, 2019). At the same time, the entry into force of the International Maritime Organization (IMO) 2020 regulation is expected to pose huge financial pressure and compliance challenges for the ship owners, ship managers and operators (Joswick, 2020).To make the situation worse, the COVID-19 pandemic, which broke out at the end of 2019, severely hit the already struggling industry (Berti, 2020). Facing a sluggish market situation and increasingly strict regulatory regime, leadership in costs, safety and efficiency is a critical strategy for ship owners to survive in a competitive environment (McCammon, 2020).The delicate situation of many shipping companies has generated significant interest focused on finding innovative solu­ tions in ship operation and management.

900000 800000 700000 600000 500000 400000 300000 200000 100000 0

2019

Figure 1.1 World fleet by principal vessel type, 2018–2019 (thousand dwt) Source: Authors created based on data from Clarksons Research (2019)

other types

Ferries/passenger ship ps

Offshore vessels

Chemical tankers

Gas carriers

Container ships

General cargo ships

Bulk carriers

Oil tankers

2018

4

INTRODUCTION

Evolution of ship owning and management The evolution of ship owning and management came along with the advancement in the spe­ cialisation of commercial ships and maritime professionalism. The specialisation of commercial ships is an ongoing process driven by global trade and maritime economics (Davidson et al., 2018; Rodrigue et al., 2016; Stopford, 2009). However, before the 1910s, the differences between powered ships, other than that obvious one between cargo and passenger vessels, hardly existed. Ship owners settled for optimal vessels deployable on as many prospect routes as possible. Nor­ mally, there was no special deck gear for any particular type of cargo.Therefore, most cargo ships looked quite alike, except the tanker and the refrigerated cargo ship that appeared shortly before World War I (Hattendorf, 2007). There was significant demand for cargo space and increased freight rates after World War I due to loss of tonnage and interruption of trade caused by the war. Fleet expansion and substitu­ tion of wartime misfortunes prompted a worldwide shipbuilding flourish between 1918 and 1920 (Sturmey, 2017). However, with the enhancement of shipbuilding technology, the world trade grew more slowly than world tonnage. This put pressure on the economic performance of shipping companies (Kim et al., 2016; Sletmo, 1989). In this context, specialisation helped improve the ability of shipping companies to utilise economies of scope and scale. Many different types of ships appeared to meet the demand of specific markets. For example, Lloyd’s Register of Shipping listed hundreds of different ship types, which can be grouped into six large categories. These include dry bulk carriers and miscellaneous bulk carriers, container ships, general cargo ships, liquid bulk carriers, ferries and passenger ships and all others (Hattendorf, 2007). For each large category, they can be further divided into smaller groups. As a result, the international shipping market was sectioned into sub-markets with certain different features (Wox­ enius, 2010). Many shipping companies choose a “specialisation strategy” by operating only one type of ship in a niche market. Some other companies might diversify their portfolio by investing in ships for several segments (Tenold, 2010).The complexity and specialisation of the maritime indus­ try pose challenges to ship operation and management. Maritime professionals need to have special knowledge, skills and experiences to ensure safe and efficient operation of ships. Normally, ship owners are responsible for operating and managing their ships. However, the concept of ship owner has changed throughout maritime history. In ancient times, ship operation was very simple. Ship owners were people who had built or bought the ship to carry cargoes chosen by them on trades determined by them (Dickie, 2014). The ship owner’s profits were made through the exchange of goods, rather than from their maritime services. Therefore, the operation of a ship was a means to an end rather than a venture in its own right. In most cases, the ship owner was a skilful seaman or master with the nautical control. Only in the 12th century did the responsibilities separate, since ship owners needed to manage their businesses on land to improve commercial efficiency. From the 14th century, being a seaman started to become a separate profession, and a special career pattern based on nautical expertise developed (Hat­ tendorf, 2007). With the expansion of maritime trade, the shipping business became more complex. The old-fashioned merchant organisation of ship owning was not able to cope with the huge increase in demand for services from the maritime trade growth. Ship owning as an independent occupa­ tion thus emerged as a crucial organisational advance to increase the provision of shipping space (Ville, 1987). Specialist ship owning appeared at different times in different areas. Ship owners, as an independent party, operated vessels to carry other parties’ goods and made an income by charging fees or freights (Ville, 1993). For example, Dutch merchants were considered the first to engage on a major scale in the provision of shipping tonnage. In the 18th century, Britain became the dominant shipping country. The profession of “ship owner” evolved as merchanting

INTRODUCTION

disintegrated into its special functional components (Hattendorf, 2007). In the later 18th and early 19th centuries, with the advent of industrialisation, the increasing demand for tonnage further stimulated this evolution (Acheson, 1972). In line with the rapid development, the ownership of vessels concentrated into the hands of fewer, specialist ship owners to obviate the potentially damaging ramifications of price competition and overcapacity. Cartels, takeovers and mergers were a prominent feature of the maritime industry (Hattendorf, 2007).The consolidation of ship­ ping firms into larger commercial organisations continued apace in the 20th century, particularly during the 1980s and 1990s. For example, P&O Nedlloyd and Maersk emerged as multinational companies dominating the container sector in the late 20th century.At the same time, benefitting from family capitalism, Greece became the world’s single most important shipping nation and played an important role in developing the business of shipping (Syriopoulos & Tsatsaronis, 2011; Theotokas & Harlaftis, 2009). The rapid development of the shipping industry posed challenges to the supply chain of mar­ itime labour. Traditionally, the labour market may be thought of in terms of geographical areas, occupational and industrial groups (Kalleberg & Sorensen, 1979; Leong, 2012). For many years, ship owners mainly relied on the internal labour market for seafarers. As a result of the oil cri­ ses in 1973 and 1978 and the consequent global recession in the 1980s, the maritime industry inevitably found itself with more tonnage and fewer cargoes (Hattendorf, 2007). The shipowners were plagued with high bunker prices and low freight rates, so they looked for ways to lower their operational costs. Labour was the only immediately variable element of operational costs. The so-called ‘open registries’ (ORs), which first occurred in the 1920s, provided a means of avoiding labour regulations in the country of ownership (Kasoulides, 1993; Özçayir, 2018). Ships under open registries might be owned and manned by non-nationals, so ship owners were able to achieve huge cost savings by re-flagging the ship and hiring cheaper seafarers from other countries (Zhang & Drumm, 2020). Between the mid-1970s and mid-1990s,‘flagging-out’ was employed as a key strategy to avoid labour regulations, and the use of open registries began to gain widespread popularity (Leong, 2012;Tang & Zhang, 2021).The main aim of the creation of open registries was to provide ship owners with convenient laws or policies. Some states were not keen on fulfilling their obligations with respect to international obligations. Sub-standard ship owners were able to shift their ships to the flags of those states which ignored their international obligations (Özçayir, 2001). These registries were identified and labelled flag of convenience (FOC) countries, such as Liberia and Panama (Gekara et al., 2013).Throughout the 1980s, there was an exodus from national flags to the growing number of FOCs, which had attracted over 36 per cent of the world fleet by 1990 (Hattendorf, 2007). The very process of flagging-out promoted the formation of a single global labour market (Alderton & Winchester, 2002). It enabled ship owners and operators to ‘shop’ their crews inter­ nationally, where previously they had faced restrictions in the nationality of the seafarers that could handle their ships. As a result, there was an inclination towards the replacement of the national crew (usually from ‘traditional’ maritime nations) with ‘crews of convenience’ who were recruited from the less developed countries of the world (Leong, 2012), such as the Philippines, China, India and Eastern European countries. This trend nevertheless is associated with many issues, such as questionable labour standards and low training qualities in some cheap labour supply countries, a corollary of poor union memberships and recognition (Alderton et al., 2004; Alderton & Win­ chester, 2002;Tang & Zhang, 2021). Another significant development in the history of the maritime industry is the birth of profes­ sional third-party ship management. Its history can be traced back to the 18th century, and since then this specialised sector has passed through a number of phases of development (Willingale, 1998). In the period after World War II, the modern era of this business commenced with the old family-owned ship management companies (Underwood, 1989). Those companies first sprang up

5

6

INTRODUCTION

to meet ship owners’ demand for seafarer recruitment and placement. Many of the earliest ones spun off from diversifying ship owners; others were created anew by redundant former seafarer management (Hattendorf, 2007). The business grew rapidly in the 1980s, when many banks and financial institutions entered the business and became the real proprietor of the vessels. However, they usually did not have the expertise to manage or operate ships, but relied on professional third-parties’ services to protect their investment. In the beginning, ship management companies mostly offered three levels of service to ship owners looking to economise their operations: crew management – that is, hiring, transporting and paying the crew; technical management – that is, tak­ ing responsibility for all aspects of ship maintenance, including periodic class survey; and commer­ cial management – that is, placing ships in freight markets (Hattendorf, 2007). Crew management, often in conjunction with technical management, became the biggest activity, whereas commercial management was usually retained by ship owners. The choice of the business model that a ship owner may choose depends on what is required from the ship management company. The main options are traditional management, outsourcing or a hybrid management system (Branch & Robarts, 2014; Dickie, 2014). Traditional management is a fully integrated management system, where the owner develops an in-house ship management system. The owner is wholly responsible for the service of the ships and employs staff to work for them directly. This normally needs a separate department and an organisational structure to deal with different aspects of the ships’ operation. Outsourcing management is where the man­ agement of the ship is contracted out to a third-party specialist company, which means that daily operations of the ships are carried out by an independent company.This may include all or part of the following functions: crewing, legal, operations, technical, commercial, financing and accounting. In effect, the ship management company takes control of the ship and reports to the owner as required on how everything is progressing.According to the ship management contract, the owner usually still has the final say and is responsible for funding the operation of the ship and paying the management company with relevant fees for their services.Today, a significant portion of the world fleet is served by third-party ship management companies, such as V. Ships,Anglo-Eastern and Columbia Shipmanagement (GL, 2013). Hybrid management is where there is partial outsourcing of the functions from the owner to the management company.This will be agreed in advance and a fee structure set for the services provided (Dickie, 2014). Most ship owners tend to retain some activities which they have the strength to handle but leave the areas in which they lack the exper­ tise to third-party companies. As the complexity of shipping continues to evolve, both ship owning and management com­ panies have had to change their roles to meet new challenges. Most of this was instigated by regulatory reforms and the pressures this placed on companies and ships to be able to operate (Mitroussi, 2013).This can be broken down into new legislation that has made new demands and current legislation that has been updated and evolved over the years as its remit and contents expanded (Dickie, 2014). To gain competitiveness in the market, there has been a move to ship management companies with multiple ships under their control to meet this task, which can offer cost-effective management fees compared to small firms. Companies managing large fleets tend to have greater bargaining power, especially with respect to the supplies of main services and products consumed by the ship on a daily basis as part of the operating costs (Panayides, 2017). For example, Mark O’Neil, president of Columbia and Marlow Shipmanagement, noted that big is good and relevant if economies of scale are achieved due to the large fleets that they manage (SMI, 2017). In the meantime, modern information technologies have also changed the way ships are operated, such as big data analytics (BDA), 3-D printing, autonomous ships, blockchain technologies and so on. It is important to understand how they can be used efficiently but also to manage their cost effects and the impact this has on the daily operation costs (Rødseth et al., 2016).

INTRODUCTION

Choice of outsourcing ship management Outsourcing is the business practice of employing a party outside an organisation to provide services, perform tasks, produce goods or handle operations that traditionally were conducted in-house by the organisation’s own employees and staff. It is a strategic decision usually adopted by organisations to reduce operational costs, including salaries for its personnel, technology, equip­ ment and overhead (CFI, 2019). It is also used by organisations to dial down and focus on the core aspects of the business, spinning off the less critical operations to outside service providers. By contracting out non-core activities, a company can improve its efficiency and productivity because another party can perform these tasks better than the company itself. This approach can bring faster turnaround times, increased competitiveness within an industry and the cutting of overall operational costs (Twin, 2020).Therefore, as a managerial decision, outsourcing has become prev­ alent in almost every business sector (Durgut & Çetin, 2018). Over the years outsourcing ship management has become a predominant strategic choice for ship owning companies (Cariou & Wolff, 2011b).Among a wide range of reasons why ship owning companies choose to outsource ship management, cost reduction is widely recognised as a major one (Cariou & Wolff, 2011b; Panayides, 2017; Panayides, 2001;Willingale, 1998). Shipowners’ costs include crew wages, stores, insurance costs, maintenance and repairs, general overheads and so on. Cost reduction is crucial for shipowners, as they normally have no power to control freight rates, which are determined by the shipping market (Mitroussi, 2013).This can be realised by ship man­ agers who can achieve low operating costs by taking advantage of scale economies and bargaining power by virtue of the number of vessels under their management (Panayides, 2001). For example, large discounts or other favourable terms can be obtained in the regular purchase of suppliers for a large number of vessels. Other common reasons for outsourcing ship management include improvement in flexibility, efficiency and professionalism. One of the major skills of professional ship managers, lacking in most shipowners, is the experienced management of turnover (Spruyt, 1994). Outsourcing ship manage­ ment helps shipowners concentrate on the ability to operate a big fleet and have a big turn-over while maintaining a small staff. Flexibility is also related to the capacity of the owners to enter or leave a specific shipping market (Mitroussi, 2004). Furthermore, shipowners have to take advantage of all opportunities to maintain their competitiveness, including increasingly specialised vessels and emerging markets. For many traditional shipowners, they may just focus on certain areas but lack specific knowledge and expertise required to enter into a new market (Seo et al., 2018). For other emerging shipowners, like oil giants, major miners or banks, they may not have any ship manage­ ment capability at all. The expertise and professionalism of ship management companies can be valuable for ship owners in pursuing their objectives. The global presence of ship management firms is another essential consideration for ship own­ ers planning to achieve a competitive advantage on the global stage. Maritime shipping is a global business and relies on a global network. Most large ship management companies have established a network of offices, crewing agencies and training centres in strategic locations which ship owners are unable to build. The networks play a crucial role in providing local solutions. For example, in the increasingly tighter labour market, particularly for qualified and experienced seafarers, ship management firms can source crew from any of the various low-cost supply centres throughout the world. In the meantime, if an owner needs to expand its fleet, the ship management company can provide crews at short notice, thus contributing to efficiency through operational flexibility (Panayides, 2001). Furthermore, emerging technology and the versatility of service providers are also essential drivers of outsourcing (Trunick, 1989). In the recent years, the rapid growth of new technologies has been significantly changing the practices in the maritime world, such as BDA, 3-D printing,

7

8

INTRODUCTION

artificial intelligence (AI) and blockchain technology (Zhang et al., 2020b). With the continuing increase of awareness of the new technologies, the maritime industry is expected to enter into a more digitalised environment. However, traditional mind-set, limited knowledge, mass investment, lack of skilled manpower and uncertain yields of new technologies have been identified as the major challenges. Ship owners’ main interest is in ships. It would be time-consuming and costly to invest in specialised equipment and training staff on unfamiliar technologies. In contrast, most ship management firms, particularly large ones, are more responsive to the application of new technologies. They have more motivation to build up corporate infrastructure and execute new technologies aiming to improve their competitive advantage. Ship owners can simply make use of those services available from ship management companies. In addition, outsourcing ship management is related to compliance with maritime regulations that are becoming increasingly stringent. One special feature of the maritime business is that it is positioned in a multitiered and polycentric regulatory framework.2 It is a place that international, regional and local authorities are involved, with simultaneous cooperation between public and pri­ vate sectors (Leeuwen, 2015). Recently, this framework is becoming increasingly complex, and ship owners are facing more intensified challenges and risks than before. Implementing and adhering to the maritime regulations necessitate additional personnel that are both technically and legally experienced (Asuquo et al., 2014). Most ship owners’ in-house legal departments are unable to deal with these issues effectively. Employing a ship management firm to cope with the burden of the vast amount and increasingly strict stipulations could let ship owners focus on their core activities (Shuang, 2006).Also, most ship management firms provide services for a large number of ship own­ ers and they can share actionable solutions for clients. In case of disastrous marine accidents and pollution, professional ship management can potentially free the owner from legal liabilities, save its money and public image and thus protect its other assets or even its viability (Mitroussi, 2004). In making the choice of outsourcing, the main factors to consider include the company’s size, type, age and environment in which it operates (Mitroussi, 2003). Running a large number of ships is a highly complex and professional venture, as each one of the ships needs its own planning, coor­ dinating, organising and managing, and so it is common that large ship owning companies employ an independent and professional ship management firm to deal with the complex and cumbersome processes. Cariou & Wolff (2011a) consider that ship owners tend to outsource ship management when the fleet consists of more than ten vessels so that they can focus on their core activities. However, Durgut & Çetin (2018) comment that outsourcing can enable an owner of just several ships to operate them without the need for a large in-house department. Placing this small fleet with a large ship management firm will generate the benefits of being with a large fleet, such as strong bargaining power in purchasing stores, repair services and other matters which only large firms can obtain. The organisation’s type also makes a difference in the choice of outsourcing ship management. An organisation can be a partnership, private or family company, public company or joint venture company.According to Mitroussi (2003), organisations with many scattered shareholders resulting in a wide dispersion of ownership, especially those listed in the capital markets, more likely out­ source third-party professional ship management services. In contrast, private personal enterprises, especially family companies, tend to maintain the traditional owner-management because they are normally very wary of outside managers and sensitive about losing control of their organisations (Daily & Dollinger, 1992). The organisation’s age plays another important role in choosing strategic decisions to out­ source ship management, especially for most family firms.According to Mitroussi (2003), the term ‘organisation’s age’ is used to refer mostly to the life cycle of the organisation and, especially, to the generation of a family in charge of the organisation.There are normally five stages in the family firm’s life cycle: the creation of the business, growth and development, succession, public ownership

INTRODUCTION

and professional management (Dyer, 2009). Mitroussi (2003) indicated that the age of a shipping firm can affect the choice of outsourcing ship management services.The older a company becomes, the more likely it is open to the option of outsourcing. Another characteristic of an organisation considered as having an effect on the choice of outsourcing is the environment in which the firm operates. Strategic decisions of the organisation should be based on insight from environmental evaluations. For effective decision-making, it is necessary to analyse the internal and external environments the organisation operates in (Lynch, 2018). Ship owning companies always operate in a fast-changing environment and face special risks. It is crucial to perceive high environment uncertainty, develop sustainable exploration capability and swiftly respond to a wide range of unforeseen factors (Yuen et al., 2019). Ship owning com­ panies tend to employ third-party ship management under the impact of uncertain factors, such as emerging technologies, shortage of qualified manpower, social and political uncertainties, a new regulatory framework and increased liability (Mitroussi, 2003). In addition, there are studies suggesting that the ship owner’s country of domicile is a signifi­ cant factor. For example, ship owners registered in Denmark, Japan and the UK tend to choose to outsource third-party ship management, while Greek and Indonesian ship owners are less likely to do so. Furthermore, US and Norwegian ship owners are more likely to employ a mixed strategy through which only part of ship management functions are outsourced (Cariou & Wolff, 2011a). However, although outsourcing is a strategic choice of great importance, the extent of out­ sourcing and the rationales behind the adoption of different outsourcing approaches can vary sig­ nificantly (Cariou & Wolff, 2011b). For example, most ship owners tend to contract out the crewing and technical management of their fleet, but appear to be unwilling to contract out the aspects of ship operations that are directly connected with the basic income of the company, such as the char­ tering of the vessel. Studies also suggested that most ship owners are less likely to employ outside managers to deal with the ultimate disposal of a substantial asset, such as the sale or purchase of ships (Durgut & Çetin, 2018; Mitroussi, 2004; Seo et al., 2018).

Structure of the book Ship management is a fundamental activity for ship owning and operating and represents an area where shipping companies invariably assign and delegate responsibilities to qualified and expe­ rienced personnel. Considering the unique features of the maritime business, ship management requires integrative knowledge that spans across multiple disciplines and needs varied skills and expertise.This book comes as a response to the market need to set out a comprehensive cover­ age of all aspects of ship management. It aims to be a one-stop read for all interested parties from the maritime industry. This book also provides students, both undergraduate and post-graduate, systematic knowledge of ship management and offers researchers a valuable reference source and a solid foundation on which further development can be built. Chapter 2 provides a high-level overview of the special nature and characteristics of ship management.This chapter begins with an examination of the concept of ship management and the main types of ships. It further discusses the special nature and characteristics related to the ship, the seafaring profession, the shipping business and maritime governance. This chapter provides a background context for further discussions of specific issues in the following chapters.The authors argue that good practices of ship management are associated with the understanding of the special features of its business and the internal and external environments, including the ship, the seafarer, the shipping company and the market it is positioned in. Chapter 3 focuses on strategic management.This chapter begins with an introduction to the basic concept of strategic management, its functions and major processes. It further discusses the

9

10

INTRODUCTION

role of business policy and organisational structure that support the implementation of business strategies. This chapter also covers issues related to merger and acquisition and choice of flags which have been frequently used by shipping organisations in strategic management.The final sec­ tion in this chapter discusses the impact of emerging technologies and the response of ship man­ agement firms, which constitute important aspects of their strategic management. Chapter 4 moves on to discuss commercial management.This chapter begins with a discussion of the meaning and use of the concept. It is followed by an analysis of the role of the ship manager, which is established under the SHIPMAN 2009 as the agent of the ship owner.The content focuses on the ship manager’s contractual obligations and fiduciary duties.The final section in this chapter discusses the management of commercial risks and the use of insurance to achieve this purpose. Chapter 5 moves on to discuss operations management, which plays a central role in ensuring the success of commercial activities.This chapter begins with a discussion of the meaning and use of the concept. It is followed by a discussion of the sea voyage cycle, which include five distinct phases: pre-arrival phase, arriving phase, port stay phase, departing phase and post-departure phase. The following content centres on the major operational activities of these phases. Chapter 6 moves on to discuss technical management.This chapter begins with a discussion of the meaning of technical management and its key aspects. It is followed by examining the concept of seaworthiness, which is the most important element of a ship’s technical management.The con­ tent focuses on a variety of issues related to maintenance management, performance management, quality and safety management, information management and emergency management. Chapter 7 moves on to discuss human resource management. This chapter begins with a discussion of the meaning of the term and its key aspects, including the dimension of crew manage­ ment. It is followed by examining a number of key issues relating to human resource management in the maritime industry.These issues include the human element, industrial relations and sustainable workforce development in the maritime industry. The content focuses on the management of a multicultural crew, including the benefit and challenges of the multicultural crew and its impact on performance and safety. Chapter 8 moves on to discuss compliance management.This chapter begins with a discussion of the meaning of compliance management and its key aspects. It further discusses compliance with maritime governance, which can be divided into several aspects at different levels. It is followed by a critical examination of the compliance with international economic sanctions.The content focuses on the challenges of compliance management. Chapter 9 draws together the issues and challenges in ship management, such as the concept of best practices in ship management, divers for continuous improvement and the main challenges of ship management. The chapter also considers an important question as to the impact of digi­ talisation on future ship management, including the benefit and obstacles of digitalisation and the issues related to cybersecurity.

Notes 1

2

Gross register tonnage (GRT) is a measure of the total internal capacity of the ship consisting of the underdeck volume excluding double-bottoms, volume of tween deck spaces, volume of superstructures, volume of deck-houses, etc. Exemptions include navigational spaces, galleys, stairways and light and air spaces (Steam­ ship, 2000). This will be further discussed in Chapter 2.

Chapter 2

Special characteristics of ship management

As explained in Chapter 1, today’s shipping companies operate in a very dynamic and turbulent environment.They are forced to continuously monitor trends on the global market and adapt to market requirements to gain a better position compared with their competitors (Novaselic´ et al., 2018).To adopt best practices in ship management is a strategic response to a variety of interre­ lated challenges, including economic pressures, the regulatory environment, the human element, new technologies and so on. Good practices of ship management are associated with the understanding of the special features of its business and the internal and external environments, including the ship, the seafarer, the shipping company and the market it is positioned in.The 21st-century ship is among the largest and most expensive moving objects, and modern container ships, supertankers and cruise liners continually push the boundaries of marine technology to their current limits (Votolato, 2011).The unique features of maritime labour relate to the differences between shipboard and onshore per­ sonnel in the companies.Also, shipping is regarded to be the epitome of a globalised industry (ILO, 2001).This chapter provides an overview of the special nature and characteristics of the shipping industry and ship management.

The concept of ship management Management is the coordination and administration of tasks to achieve a goal. In a business context, it involves setting the strategy of the organisation and coordinating people’s activities to achieve the goal through the application of available resources, such as financial, technological, natural and human resources (Indeed, 2020a). It can be defined as ‘the process of administering and controlling the affairs of the organisation, irrespective of its nature, type and size’ (Onyekwere et al., 2019). In practice, management is a discipline that comprises a set of five general functions: planning, staffing, leading, orga­ nizing and controlling (Davis, 2019). According to Panayides (2019), management includes allocating resources and coordinating activities of the business entities in order to accomplish defined objectives. It is crucial to gain competitive advantage, whereas managerial capacity is essential to formulating and executing company strategies, policy and guidelines that influence long-term commercial viability. Ship management is a fundamental activity for shipping companies.There are a variety of defi­ nitions in the existing literature subject to different choices of business models. As explained in Chapter 1, the main options include traditional in-house management, outsourcing third-party management and hybrid management systems. The exact contents each model can be further defined. However, it is not possible to describe all the various types of ship management in one phrase. For example, Frankel (1982) defined ship management as ‘the complex array of decisions required to assure effective operation and performance of a ship as a unit, as part of a fleet of ships, or as part of a transportation system’. DOI: 10.4324/9781003081241-2

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SPECIAL CHARACTERISTICS OF SHIP MANAGEMENT

This definition suggests a range of managing activities, such as crewing, repair, maintenance, ship navigation, procurement, inventory control, ship condition control, accounting and others which are generally performed on the daily basis. It applies equally to ship operations as well as performance management. However, the rapid development of ship management methods and approaches in the 1980s made this definition seemingly obsolete. Downard (1987) provided a similar definition several years later, as follows, which suggested different functions between ship operators and ship managers: The functions of taking care of a ship, i.e. responsibility for manning, maintaining, supplying and insuring the ship, and ensuring that the ship is available to the operators for the maximum amount of time possible. In other words, all the activities not carried out by the operators. As explained in Chapter 1, professional ship management is a response to the restructuring of the maritime industry and the enhancement of professionalism. Sletmo (1989) refers to it as constitut­ ing ‘an efficient organisational adjustment to the conditions of a global shipping market’.With the rise of professional ship management companies in the late 20th century, the usage of the term has changed to specially refer to services provided by the third party. For example, Rodger (1993) stated that ship management was ‘the management and sustenance of the ship itself rather than of the trade in which it is engaged’. More specifically, it was defined by Spruyt (1994) in his book Ship Management as follows: The contracted and professional supply of all on-board services, together with their shore supervision, which would normally enhance a vessel from a bareboat into a time charter description, by a management company usually separate from the vessel’s ownership. This definition could be narrowed down to the supply of just one service, but it could also be broadened to include the provision of everything needed to make a ship profitable (Spruyt, 1994). According to this definition, the management company is usually a separate company having no shareholding ties with the ship owner. In practice, a managing company needs to maintain a certain level of independence and not to be affected by any conflicts of interest. For example, a ship manager’s judgement on safety requirements can be compromised by personal, financial or other commercial considerations.This was later affirmed by Mitroussi (2003), who defined ship management as ‘profes­ sional, independent organizations which for a negotiated fee and with no shareholding ties with their clients undertake responsibility for the management of vessels in which they have no financial stake’. ‘Contracted’ suggests that it is necessary to have a ship management contract setting out the legal obligations of the relevant parties.‘Professional’ signifies that ship managers operate the vessel as agents and the consequence of their activities, with respect to a third party, flows straight back to the owners as the principal.The term ‘all on-board services, together with their shore supervi­ sion’ implies an unlimited range of activities to be carried out by ship managers.The word ‘usually’ indicates a certain degree of uncertainty regarding the relationship between the ship owner and ship management company. It was criticised by Panayides & Gray (1997) that the definition ‘seems to be vague and does not seem either simple or complete’. In an attempt to close the gap, they hence gave a more generalised definition as ‘the rendering of services under contract related to the systematic organization of the economic resources and transactions required for the sustenance of a ship as a revenue earning entity’. In the revised edition of the book Ship Management, Willingale (1998) revised the definition and added one further aspect, which defined ship management as: The professional supply of a single or range of services by a management company separate from the vessel’s ownership in support of the primary objectives of the shipowner.

SPECIAL CHARACTERISTICS OF SHIP MANAGEMENT

This change implied that the ship manager’s and the ship owner’s main objectives are different. In practice, the ship manager is employed by the ship owner and receives payment for their services (Panayides, 2001). Where there are conflicting objectives, they shall work for the best interest of the owner.Traditionally, the ship owner’s main objective was to make a profit by earning freight.This could be achieved by taking some specific measures, such as making the best use of cargo spaces, minimizing bunker consumption and labour cost, fully engaging the ship and so on. In contrast, ship management means ‘the rendering of services for ship operation and associated services’ (ISMA, 1992), or ‘professional provision of a service or of a range of services by a management company unrelated to the ownership of the vessel’ (Theotokas, 2018). Today, the ship owner’s background and interest become increasingly complicated, such as the participation of banks, cargo owners and other investors in the ship owning business. The primary objectives are becoming less straightforward than before. For example, some oil and iron ore compa­ nies enter the ship owning business, but their main objective is to counteract the fluctuations of the shipping market instead of earning freight (Haldemann, 2015).This might be more complicated in a case where some owners have different considerations between their long-term and short-term objectives. Having attempted to examine the literal meaning of the term ship management, it is important to note that there is no definition suitable for all different scenarios. In this book, ship management is defined as: The process of planning, staffing, leading, organising and controlling in administering ship oper­ ations through allocating resources and coordinating activities of the shipping company in order to accomplish the shipowner’s main objectives. It is noteworthy that this definition does not distinguish third-party and in-house ship manage­ ment, but follows the literal meaning of these two words. Furthermore, the understanding of ship management and its contents depends on the business model and the relationship and contract between the ship owner and the ship manager. In practice, ship management is often referred to as an umbrella term which includes various types of management services covering all aspects of ship operations on a daily basis (Willingale, 1998).

The main types of ships There is a wide range of different types of ships. As mentioned in Chapter 1, people started to build and use wooden boats for trade about 5,000 years ago.Today many ships are among the most expensive assets specially designed and built for ship owners.The type of ship employed on a trade route is mainly determined by the traffic and cargo carried (Branch, 2007). In recent years, there is a race to build the most efficient ships, producing some of the world’s largest container ships and pushing the boundaries of physics. For example, the largest container ship in 2019, OOCL Hong Kong, is almost 400 metres long with a carrying capacity of 21,413 TEU (MINN, 2020). In early 2019, there were 95,402 propelled seagoing merchant vessels of 100 tonnes and above. Among them, there were 16,945 general cargo ships ranked as the most common type of ship in the global merchant fleet (Statista, 2020). However, by dead-weight tonnes1 (dwt), they only rep­ resented 3.7 per cent of the world fleet at the beginning of 2019. In contrast, some 11,000 ships were bulk carriers but represented 42.6 per cent of the total dwt.This was followed by oil tankers and container ships, representing 28.7 and 13.4 per cent of the total dwt, respectively (UNCTAD, 2019). Bulk carriers, oil tankers and container ships are the three main types of ships, accounting for nearly 85 per cent of the total tonnage of the world fleet.Also, they take the lead in shipbuilding in 2018, which represented over 75 per cent of ships delivered in gross register tonnes2 (GRT).

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SPECIAL CHARACTERISTICS OF SHIP MANAGEMENT

Bulk carriers Bulk carriers are a type of single-deck vessel specially designed to transport unpackaged bulk cargo, such as iron ore, coal, grains, sugar, cement and steel coils in its cargo holds.The earliest steam bulk carriers can be traced back to the middle of the 19th century, which were built to gain an advan­ tage in the competitive British coal market.Today, the largest bulk carriers,Valemaxes vessels, are up to 400,000 dwt.They were specially designed and ordered by Vale, the Brazilian mining giant, to transport its iron ore from Brazil to China (Papadionysiou, 2014). Most bulk carriers are designed for cheapness and simplicity (Stopford, 2009). Smaller vessels may have their own cargo gears on deck, so they do not rely on shore-based facilities for loading and discharging. However, most larger bulk carriers do not have their own cranes for cargo operation purposes. Bulk carriers transport a wide spectrum of bulk cargoes with a premium on flexibility and econ­ omy. Most bulk carriers focus on low-cost transport, such as coal, sand and rock. The world bulk carrier fleet falls into four major categories corresponding to different markets.These are Handysize bulk carriers ranging between 10,000 and 39,999 dwt, Handymax bulk carriers between 40,000 and 59,999 dwt, Panamax between 60,000 and 99,999 dwt and Capesize being over 100,000 dwt. On both ends of the spectrum are mini-bulk and very large bulk carriers, but they represent only a small portion of the market. Handy and Handymax ships are general-purpose in nature so they have more flexibility in choosing cargo. In contrast, Capesize vessels specialise in iron ore and coal, which account for over 93 per cent of the cargo they carried (Lamb, 2003).Accordingly, the bulk carrier market has evolved into several different size bands, each specialising in a different sector of the trade (Stopford, 2009).

Tankers Tankers are ships specifically designed for the bulk carriage of oil or its products (Hayler & Keever, 2003).The history of using tankers to transport oil can be traced back to the middle of the 19th century when oil began to be exported from Upper Burma to Britain (Woodman, 1997). Today’s tankers have developed a variety of types, including crude tankers, product tankers, chemical tank­ ers and liquefied petroleum gas (LPG) and liquefied natural gas (LNG). Each type can be further divided into different categories according to its size or trading features. For example, the fleet of crude oil tankers can be subdivided into six segments according to vessel size.These include small tankers (under 10,000 dwt), Handy tankers (10,000–59,999 dwt), Panamax tankers (60,000–79,999 dwt), Aframax (80,000–119,999 dwt), Suezmax tankers (120,000–199,999 dwt) and very large crude carriers (VLCCs) over 200,000 dwt (UNCTAD, 2011). Each of these categories operates as a separate market, which is affected by a wide variety of variables such as the supply and demand of oil and oil tankers. Some other variables include excess tanker tonnage, winter temperatures, interruptions in refinery services and the supply fluctuations in the global oil market, such as the Persian Gulf (UNCTAD, 2007). Furthermore, one tricky issue is that developments in the tanker market, to a certain extent, are dominated by geopolitics. Geopo­ litical tensions, sanctions and the tanker market are closely linked because there is typically a close relationship between oil prices and geopolitical events (Parker, 2019). In reality, many of the global leading oil-producing countries are politically unstable, and some are at odds with the United States and subject to sanctions (Broekhuizen, 2020). In the past decade, crude oil and product tanker markets have faced high volatility, largely due to geopolitics and the constantly evolving situation in the global oil markets (Wylezich & Stock, 2020).

Container ships Container ships are cargo ships that are specially designed or equipped for carrying their load in truck-size intermodal containers.These containers are of a standardised size so that they can be easily transferred to various modes of transport (Jha, 2020).The process of sending cargo in special

SPECIAL CHARACTERISTICS OF SHIP MANAGEMENT

containers is known as containerisation, the history of which can be traced back to the middle of the 1950s. Over the years container ships undertook several changes, mainly in terms of size driven by economies of scale (Neise, 2018). Modern container ships are distinguished into seven major size categories: small feeder with a capacity below 1,000 TEU,3 feeder (1,001–2,000 TEU), feedermax (2,001–3,000 TEU), Panamax (3,001–5,100 TEU), Post-Panamax (5,101–10,000 TEU), New Panamax (10,001–14,500 TEU) and ultra-large container vessel (ULCV) with a capacity of 14,501 and higher (Man, 2012). In today’s world, container vessels carry around 90 per cent of the world’s non-bulk cargo trades.The industry firmly believes that the larger the number of containers being carried, the lower the costs per TEU.As mentioned earlier, there is a race to build more efficient and larger container ships among the ship owners. Technological advancement has made the competition fiercer and is continually pushing the boundaries of physics and redefining the technical potential of the con­ tainer ship (BMRC, 2019). However, the bigger the ships become, the more challenging it is for the corresponding port infrastructure and cargo handling.Today, most large container ports have been increasingly built in more remote areas, typically far away from urban centres.This also causes social impact on seafarers, who become less likely to get access to port welfare needs (Zhao et al., 2020).

General cargo ships Most general cargo can be carried by container ships. However, a large proportion of them are awkwardly shaped and bulky and do not fit into standard containers (STSA, 2020). They are nor­ mally loaded individually and not in intermodal containers, nor in bulk as with coal or grain. General cargo ships are designed for flexibility and can carry a huge variety of commodities in many forms. To make the best use of the space of the cargo hold, most general cargo ships have more than one deck, so they are adaptable and can be used to transport virtually every form of dry non-bulk cargo, such as boxed, palletized and refrigerated, and with the possibility to accommodate bulk materials such as grain. A distinct feature of general cargo ships is that they typically have their cargo han­ dling gears. Efficient and flexible cargo handling systems enable them to carry a variety of different cargoes and to complete cargo work within the shortest time possible.They are also able to trade to smaller ports and terminals that do not have shoreside cargo handling equipment (MIKC, 2013). Traditionally, general cargo ships have been the backbone of the global merchant fleet.They are often able to take on abnormal loads that other ships cannot accommodate. In lean times they can easily turn their hand to carrying containers and bulk or bagged cargo, so many of these ships are often referred to as multipurpose (MPP) vessels (MIKC, 2013). In addition to MPP vessels, roll-on roll-off (RORO) vessels, heavy lift vessels, barge carriers and refrigerated vessels also fall into the category of general cargo ships.While many obsolete vessels are being replaced by container ships, those ships focusing on ‘uncontainerisable’ cargo will continue to grow because there will always be a significant part of cargos which do not conveniently fit in a standard container (Stopford, 2009). In reality, general cargo ships do not account for a large share of seaborne trade, but they do represent a significant share of the world fleet in terms of the number of vessels and port calls (UNCTAD, 2019).Therefore, general cargo ships employ a large share of global seafarers, and they also tend to require many resources at the wharf at both ends of the voyage.

Special nature and characteristics of the ship To understand ship management, it is first crucial to understand the special nature and character­ istics of the ship. First, the ship is a special type of transportation conveyance. Every ship must be registered in a specific state and be granted the state’s nationality under which they fly the flag.

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Ship registration is the administrative mechanism by which a state confers its nationality upon a ship. It is an act in both a public law sense and a private law sense.The former means the registra­ tion of a ship’s nationality, while the latter refers to the registration of a ship’s ownership, lease or mortgage (Li & Chen, 2009).The ship’s flag and nationality play a key role in its daily operation and management, including jurisdiction, certification, duty and tax, labour issues, onboard administration and compliance. For example, according to Art.217(1) of UNCLOS 1982, flag states shall ‘ensure compliance by vessels flying their flag or of their registry with applicable rules and standards’. One special feature associated with the ship’s nationality is the practice of open registry (OR). The word ‘open’ means that the registry is open to anyone of any nationality, as opposed to a closed registry, which provides ship registration services to those who are domiciled in the coun­ try. ORs offer ship owners a commercial alternative to registering under their national flags, and they charge a fee for this service (Stopford, 2009). Ship owners can flag their vessels in whichever country they choose and select the tax structure and regulatory framework most conducive to the business strategy they pursue (Lillie, 2013). However, despite the express reference to flag state responsibilities in international law, many states are not very keen on fulfilling their obligations with respect to international obligations.This encourages sub-standard ship owners to shift their ships to the flags of those states which ignore their international obligations (Özçayir, 2001).This often creates a complexity in that the nationality of the crew and the nationality of the ship owner or the company are often different from that of the ship (Kasoulides, 1993). An OR is often referred to as a flag of convenience (FOC), which has been used in the mari­ time industry for approximately 100 years (Boczek, 2005).Throughout their long and controversial history, the popularity of ‘flagging-out’ has only increased, with over two-thirds of the world’s merchant fleet now flying an FOC (UNCTAD, 2019).An FOC is chosen for predominantly financial reasons, with safety, environmental and labour condition concerns being ignored (Ademun-Odeke, 2005). By now, international organisations (IOs), nation-states and non-governmental organisations (NGOs) have made considerable effort in dealing with the practice of FOCs and their negative consequences. In recent years, standards on board most FOC vessels have generally improved (Alexopoulos & Sambracos, 2018). However, there are still various issues surrounding the practice which need to be addressed as the maritime industry continues to face challenges caused by using FOCs in the modern day (Boczek, 2013). Furthermore, the ship is a special type of asset. It has the features of most moveable assets, such as the machinery, vehicles and other equipment. However, the administration and regulation on the ship follow the rules applicable to immovable real estate; for example, the relevant issues relating to the ship’s personality, construction, registration and certification. Once a shipbuilding contract is signed, a ship will be given a hull number as its initial identification. Since 1 January 1996, the ship’s certificates must also bear the International Maritime Organization (IMO) number, which is a unique identifier for ships, registered ship owners and management companies.The IMO number scheme was introduced to improve maritime safety and security and to reduce maritime fraud. Every seagoing ship has a unique permanent identification number that remains linked to the hull of a ship for its lifetime, regardless of changes of names, flags or owners (IMO, 1987). In addi­ tion, the theory of action in rem, also referred to as personification, recognises the fact that a ship has separate statutory rights and obligations different from the owner (Teacher, 2013). It follows the principle that a ship ‘can be sued, arrested, defaulted or found at fault, and sold at a marshal’s auction, all without the shipowner being involved’ (Sakellis, 1987). Due to the unique features, the industry has developed a range of special practices, rules and regulations, such as ship’s personality, the law of bill of lading, mortgage-backed finance, sale and leaseback finance, general average, mar­ itime lien and so on.4 A further special feature which lies with the ship is that it is one of the most important and complicated parts of the maritime economy. It is a special element in the means of production,

SPECIAL CHARACTERISTICS OF SHIP MANAGEMENT

which can be defined as anything utilised to produce goods and services to satisfy human mate­ rial needs and maintain existence (Morrison, 2006). In most industries, when investors put their resources in a business, such as materials, tools, facilities and machinery, they normally have a method to monitor the production process, such as physical inspection. However, today’s ship owners have to completely rely on the seafarer in terms of operating and preserving the ship asset. Thus, a special relationship has been developed between the ship owner and the crew.The master of a ship, as the head of the crew, has to perform a range of special duties, including a fiduciary duty to work for the best interest of the ship owner.These duties can be extended to the ship manage­ ment company, which is often the direct employer of the crew. In addition, the ship is not only a means by which the crew interposes between themselves and the subject of their labour but also the place where they sleep, live and socialise.After the working day is over, seafarers cannot go home or even leave the workplace, but continue to stay on board (Zhao et al., 2020).The ship’s safety and living conditions can easily be affected by cargo stowage, ship and weather conditions, the performance and behaviour of crew members and many other factors. Seafarers have no freedom of choice to stay or leave, especially when the ship is sailing. If an emergency happens at sea, such as fire, bad weather, piracy or failure of the engine, the crew have no access to external assistance but can only rely on themselves.The ship is the only ‘sanctuary’ at sea for the crew, so they must all try their best to preserve and rescue the ship in an emergency.All these features create a special human–machine–environment system onboard (Scott & Calhoun, 2006).

Special nature and characteristics of the seafaring profession Merchant seafaring has been considered one of the most special occupations in the world. In the 20th century, the shipping industry underwent considerable technological, structural and financial changes, which have increased the complexity and transnational nature of the shipping sector (Starkey & Harlaftis, 2017). Today’s seafaring profession is associated with a special nature and characteristics. First, seafaring is a tradition that encompasses a range of professions and ranks following a unique shipboard hierarchy.As shown in Figure 2.1, each of these roles carries special duties that are integral to the efficient operation of a ship. Seafarers can generally be divided into three main categories: the deck department, the engineering department and the catering department. The reasoning behind this is that different departments require different skills and expertise.The ship needs to maintain a high level of efficiency with the minimum crew members.This ranking system ensures proper coordination of onboard operations and promotes optimal management strate­ gies. Ship operation is a line of work in need of a very high level of professionalism. Because lax performance can lead to disastrous consequences, it is essential to maintain the shipboard hier­ archy in an economically viable model with an effective shore-based support framework (Bhat­ tacharjee, 2020). The shipboard hierarchy and ranking system are universally understood and accepted by ship­ ping companies and merchant ships around the world. The ranks and responsibilities that come with it are almost all the same across the whole industry, though there are some minor changes in names and duties assigned to specific positions varying among maritime organisations and the system of the nomenclature they adopt (Bhattacharjee, 2020). In practice, many seafarers prefer to call their colleagues by rank rather than by name. The onboard organisation needs to maintain a highly stable structure and simplicity.The stable organisational structure is designed to ensure that frequent crew changes will not cause discontinuity of responsibilities on board, and simplicity is

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Figure 2.1 Shipboard hierarchy designed to ensure accurate and efficient performance of duties.To achieve this purpose, the peo­ ple involved need to find common ground for mutual understanding and communication.According to Ryle (2009),‘understanding is a part of knowing how’. It is to acknowledge how the matter to be understood fits into (or perhaps deviates from) the preconceptions (Hantho et al., 2002). In reality, differences always exist between hearing what a person is saying and understanding it, in particular in a multiculture working environment like the maritime industry (Ladegaard & Jenks, 2018). Seafarers face unique working conditions which can put them under tremendous stress and risks, with fewer opportunities for support than they would be likely to find on land (NI, 2018). Onboard ship, the seafarer’s work is lengthy, complex and highly stressful. A merchant ship is an isolated place, and the seafarers on board have to be self-sufficient and able to improvise (Zhang & Zhao, 2017). While there is a scheduled work and rest arrangement on board, when the ship departs or arrives at a port, or if the ship is involved in an emergency, all the crew will be called upon and rest periods will be interrupted (Exarchopoulos et al., 2018). Furthermore, seafarers must deal with hazardous cargoes and severe weather (Oldenburg et al., 2010). It is also believed that job demands for seafarers have direct and indirect effects on fatigue and the working climate on board (Pauksztat, 2017). These special factors impose a particularly difficult workload on sea­ farers, and the quality of seafarers’ labour may be compromised by the need to be available all the time (Xu & Zhang, 2016).

SPECIAL CHARACTERISTICS OF SHIP MANAGEMENT

The special nature and characteristics are also associated with the maritime labour market.As explained earlier, the open registry system creates flexibility and makes it possible for ship owners to choose seafarers from anywhere in the world.The maritime labour market can be regarded as the entire population of seafarers, including every individual who has an occupation at sea (Leong, 2012). In theory, seafarers in any given country may freely move around in the global labour market and are thus available to the world fleet. However, in reality, the seafaring labour market is not simple or unified, but ‘a diversity of markets cutting across and interacting on one another in an international environment’ (McLaughlin & McConville, 2002). It is therefore segmented by ‘national boundaries with a multiplicity of barriers both direct and indirect’ to the free movement of labour across the industry (McLaughlin & McConville, 2002). Although the maritime labour market is perceived as a shared and interconnected space, it is not perfectly unified or homogeneous, but segmented (Leong, 2012). The maritime labour market today faces a paradox of both a shortage and surplus of seafarers. In recent years, the industry has seen a rapid expansion of the world fleet and, in the meantime, a declining of seafaring expertise (Kantharia, 2019). It was estimated in 2018 that there was a global shortage of about 16,500 officers (2.1 per cent), but an oversupply of about 119,000 ratings (15.8 per cent) (ICS, 2018). On the one hand, the current maritime industry is facing a significant shortage of officers, highly skilled seafarers and seafarers qualified for specialist ships, such as LNG ships, high-technology vessels and special project vessels. On the other hand, the oversupply of ratings and ordinary seafarers is still a major challenge for the industry, especially in the offshore sector (Szymanski, 2015). In recent years, the number of maritime education and training (MET) institutions has increased considerably, especially in some developing countries, such as China,Viet­ nam and the Philippines. A large number of poorly trained graduates and inexperienced seafarers are pushed to the labour market (Nguyen et al., 2014). The situation is worsened by low freight rates associated with the dark clouds of protectionism and slowing growth in key economies. Moreover, the seafaring profession has some other unique features. For example, it takes quite a long time for a graduate to gain enough experience for his or her job and over ten years to be qualified as a master mariner or chief engineer.This is one of the reasons that senior officers are always in serious shortage.Another important feature is that crew agencies and transnational thirdparty ship management companies drive the development of the global labour supply chain in the shipping industry. However, most crew agencies are local.They act as employers in the countries of seafarers but have no control of the workplaces overseas. Also, the role and liabilities of the ship management company are still ambiguous in the context of the global human resource supply chain (Shan & Zhang, 2020). In a cost-driven, transnational business, it is not surprising to see a ‘race to the bottom’ with respect to the compliance of international maritime labour standards (Ruggunan, 2011). In the meantime, trade unions play an important role in protecting workers. However, most of the time, seafarers are working onboard, and they do not have working relationships in the same way as people on land.When they sign off from their ships, seafarers tend to scatter into different regions and places. It is difficult for them to get access to union protection and to take collective action to bargain with their employers for better employment conditions (Zhang, 2016).

Special nature and characteristics of the shipping business Maritime shipping has always been connected with international trade.This relationship goes back thousands of years (Song & Panayides, 2015). International trade is made up of commercial transac­ tions between sellers and buyers. Maritime shipping can provide cheap and efficient transportation, and its effective use is important to the economic progress of all nations and areas in terms of

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the economic contribution and growth of their foreign trade and their domestic consumption and production (Frankel, 1989). Growth in global trade positively affects the growth in maritime ship­ ping services because of the movement and carriage of goods from sellers to buyers.The maritime shipping business is directly driven by global economic growth; in the meantime, it promotes the latter by carrying over 80 per cent of international trade (Song & Panayides, 2015). One special feature associated with the maritime business is shipping market cycles. Stopford (2009) classified three shipping cycles according to the time interval in which the alternating movements of freight rates are observed.These are seasonal cycles (fluctuations occurring within 1 year), short cycles (ranging from 3 to 12 years) and long cycles or the ‘secular trends’ (approx­ imately 50 years). Shipping cycles lie at the heart of shipping risk, which can be defined as ‘mea­ surable liability for any financial loss arising from unforeseen imbalances between the supply and demand for sea transport’ (Downes & Goodman, 1991; Stopford, 2009). They create an arena in which weak shipping companies are expelled, leaving the strong to survive and flourish, fostering a lean, sustainable and efficient shipping business. However, the shipping market is extremely volatile and risky, since it is subject to various uncertainties, ranging from the ever-changing world economy and geopolitical shocks to fleet changes and the sensitive market sentiment (Chen, 2011). It is thus extremely difficult to accurately predict shipping cycles and the timing of changes. The other special feature is the complexity of the external and internal environments a ship­ ping company faces in the course of conducting its daily business activities and procedures. The­ otokas (2018) classified three levels of external environment: the larger macro-environment, the environment shaped by shipping markets and the immediate external environment of shipping firms. The broader macro-environment includes the economic, socio-cultural, technological and politico-economic forces that a company has to deal with in the daily operation of ships.The exter­ nal environment is dynamic, complex and continuously changing.The world’s economic and political situation, national policies, bilateral relations between different countries and areas and the level of technology are factors that play an important role in shaping the external environment of the shipping business. Shipping companies need to perceive high environmental uncertainty, develop sustainable exploration capability and respond to a wide range of unforeseen factors (Yuen et al., 2019). Shipping companies also face a complex internal environment which includes a wide range of factors, such as company strategy, human resources, organisational structure, managerial effective­ ness and so on. Most shipping companies are organised into different departments according to the division of labour (Theotokas, 2018). For the realisation of any objectives, it is necessary to engage many people and the coordination of the individual tasks. However, in a shipping company, there are always conflicting objectives and proprieties (Novaselic´ et al., 2018). For example, the commer­ cial department’s main objective and priority are to gain more business opportunities. Sometimes they tend to compromise safety requirements by taking a risky course of action.This will conflict with the priorities of the department responsible for safety and compliance. The complexity of transnational shipping companies will be further enhanced after mergers and acquisitions, which have taken place quite frequently in the past decade (Alexandrou et al., 2014). The coordination of conflicting objectives will depend on the strategic aim and the decision-making process in the hierarchy of the company and the alignment of both internal and external environments. The special nature and characteristics of shipping business also lie in the special customs and practices at sea which have been developed over the years. In the maritime commercial world, the most important thing is to build trust, in particular between business partners who have never met face to face.Very often, this trust is developed and shaped on the mutual understanding of the special features of the maritime profession and culture. Customs at sea are a set of norms which have been practised with respect to seafarers for centuries, a distinct and coherent body of rules which governs maritime issues.As a distinct group of workers, seafarers have practised these sets

SPECIAL CHARACTERISTICS OF SHIP MANAGEMENT

of customs in response to the particular nature of shipboard life. From time to time, these customs were acknowledged in cases brought to courts of law and thereby have acquired the status of cus­ tomary law. However, it is noteworthy that despite advances in ship design, maritime technology and developments in international law, some of the customs continue to be followed at sea even if they are too archaic to be followed in modern society (Hattendorf, 2007). One example is that a ship’s dining room is traditionally separated into two parts. One is for officers, including a deck apartment for the captain to the third officer and the engine department for the chief engineer to the fourth engineer.The other is for ratings, including the bosun, able-bodied seafarer, ordinary seafarer, wiper, cook and others. Generally, the officers’ mess room has better decorative and san­ itary conditions than the ratings’ mess room. It is also normal practice for a cook to serve food and cater with higher priority to the officers’ mess room. Other customs, such as ‘general average’, ‘masters’ authority’,‘actions in case of distress at sea’, etc., have acquired the status of legislation in various jurisdictions, including international conventions, such as SOLAS.

Special nature and characteristics of maritime governance Governance is a concept with many properties and many varieties in terms of definition and explanation. It is defined by McGinnis (2011) as a ‘process by which the repertoire of rules, norms, and strategies that guide behaviour within a given realm of policy where interactions are formed, applied, interpreted, and reformed’. According to Rotberg (2014), it generally equates to the ‘per­ formance of governments’, which sets out criteria by which performance should be evaluated and indicates the kinds of data that should be gathered to do the necessary assessment. In a global context, governance means ‘any purposeful activity intended to control or influence someone else that either occurs in the arena occupied by nations or, occurring at other levels, projects influence into that arena’ (Finkelstein, 1995).As a result, the terms ‘global governance’ and ‘re-regulation’ (of the world economy) are often used synonymously (Brand, 2006).They are both especially associated with the changing role of the state and of institutions in international politics and economy. Maritime governance5 derives from ‘an institutional framework with jurisdictions at [the] inter­ national, national, regional and local level’ (McLaughlin, 2010). This theory emphasises the special role of institutions making the maritime regulations, such as the United Nations (UN), the IMO and International Labour Organisation (ILO) as special agencies of the UN and maritime nations. However, Roe (2009) criticised the inertia and rigidity of the existing institutions, and he argued that ‘the need for a dynamic, process-based governance that accommodates changes’ has to be rec­ ognised.As a result, he thinks that maritime governance should have a dynamic framework to adapt to globalisation and reflect the corporate style of industry management which adapts to constant changes and adjusts to market needs (Roe, 2015). Maritime shipping is a highly globalised industry in terms of both operation and ownership (Rodrigue, 2010).The business is international and cheap, but complex, because of the involvement of players from various countries and areas. In order to seek the lowest cost and highest gain, capi­ tal, labour and other factors of production move freely between countries of origin and destination. Distinct from the traditional maritime hierarchy, today’s modern globalised maritime society is net­ work-bound and cross-functional (Roe, 2013). Due to its complexity and multidisciplinary feature, maritime governance has been described, named and defined in different ways.The term ‘maritime governance’ implies cooperation of the interdependent states. In contrast to the land, it is impossi­ ble to set physical borders on seas, to limit positive or negative phenomena in the environment or security, such as marine pollution, piracy, hijacking and terrorism (Łukaszuk, 2018).

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Table 2.1 Multitiered structure of laws governing maritime jurisdictions and governance: polycentric governance model Jurisdiction Institution International tier

Examples

• The United Nations (UN); • Organisation for Economic Co-operation and Development (OECD)

Supranational • tier • •

National tier

• •

Local tier

• •

• International Maritime Organization (IMO); • International Labour Organisation (ILO); • United Nations Conference on Trade and Development (UNCTAD); • OECD The European Union (EU); • Directorate-General for Mobility and Association of Southeast Asian Nations (ASEAN); Transport (DG-TREN); The United States-Mexico-Canada Agreement • Directorate-General for Competition (USMCA), which will replace the North American (DG-COMP) Free Trade Agreement (NAFTA) IMO member states; • UK; EU member states • Greece; • USA; • China City; • Shanghai; Port • Rotterdam; • Pusan

Source: Compiled by the authors and adapted from Roe (2007)

Maritime activities are governed by a multitiered and polycentric governance (or jurispru­ dence) system. Multitiered governance means (see Table 2.1) ‘a system of continuous negotiation among nested governments at several territorial tiers- supranational, national, regional, and local, as the result of a broad process of institutional creation and decisional reallocation’ (Marks, 1993). Polycentric governance is a system in which ‘authorities from overlapping jurisdictions (or centres of authority) interact to determine the conditions under which these authorities, as well as the citizens subject to these jurisdictional units, are authorized to act as well as the constraints put upon their activities for public purposes’ (McGinnis, 2011). Typically, a polycentric system of governance is associated with a multitiered characteristic (Gritsenko & Roe, 2019). Each tier of jurisdiction is responsible not only for the policymaking cor­ responding to its tier but also for implementing and enforcing it.Though sovereign states continue playing a significant role, today’s maritime industry is governed by a multitiered governance with various centres (Adolf, 2012). It is a place where international, regional and local authorities are involved, with simultaneous cooperation between public and private sectors. Namely, the multitiered structure of the maritime jurisdiction and governance is polycentric (Leeuwen, 2015). Looking forward, there is a continuing trend towards a multilevel and polycentric governance system for sustainable shipping. However, multilevel governance is not a panacea, and polycentric governance systems may involve various complications.The special systems do offer a mechanism to reflect the practical activities within the maritime business and the priorities of the parties involved. However, they are too complicated in their recognition of many policy influences and regimes, their incorporation of networking and their interpretation of limited boundary and rela­ tional integrity (Roe, 2009).The clashing of jurisdictions between international, supranational and national levels has been identified as an unceasing problem in many aspects. Safety, security and the environment continue to be the most fundamental issues that charac­ terise the maritime regulatory regime.While the use of new technologies, in particular the inno­ vation in digital shipping, increases the efficiency of ship operations, it is also associated with new types of challenges and risks, especially in relation to the emergence of autonomous ships. For

SPECIAL CHARACTERISTICS OF SHIP MANAGEMENT

example, one important development in maritime policymaking is a regulatory scoping exercise at the IMO for the review of relevant legal instruments to guarantee the safe design, construction and operation of autonomous ships and to ensure that the legal framework provides the same levels of protection in ship operation to autonomous ships as those afforded to traditional ships (UNC­ TAD, 2019).At the same time, cybersecurity incidents against shipboard systems and port facilities continue to happen and have significantly affected the maritime industry. The situation highlights the importance of regulating cybersecurity and cyber-risk management (UNCTAD, 2018). Further­ more, United Nations Sustainable Development Goal 14 requires more strict ship-source pollution control, such as marine litter, ballast water management, air pollution, oceans and climate change mitigation and adaptation, the protection of biodiversity in areas beyond national jurisdiction and the shipment of hazardous and noxious substances. It is expected to see policymakers’ continue to reduce greenhouse gas emissions from maritime shipping and other ship-source pollution con­ trol and environmental protection measures (Gritsenko, 2017; Gritsenko & Roe, 2019; UNCTAD, 2019). In addition, some other issues, such as gender equality, fraudulent registration of ships and piracy attacks, will continue to bring about new developments in the maritime regulatory regime in the new future.

Notes 1 Dead weight ton (dwt) is the weight a ship can carry when loaded to its marks, including crew, cargo, fuel, fresh water, provisions, stores and crew’s personal effects. 2 Gross ton (gt) is an international measurement of the ship’s open spaces, which is calculated through a formula set out in the International Convention on Tonnage Measurement of Ships adopted by International Maritime Organization (IMO) in 1969. 3 TEU refers to 20-foot-equivalent unit, a measure used for capacity in container transportation. It is based on the volume of a 20-foot-long (6.1-m) intermodal container, a standard-sized metal box which can be eas­ ily transferred between different modes of transportation, such as ships, trains and trucks. 4 All these issues will be further explained in different chapters. 5 The issues with regard to compliance with maritime governance will be further explained in more detail in Chapter 8.

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Chapter 3

Strategic management

The previous chapter examines the special nature and characteristics of some key aspects of ship management. It generates an understanding of the unique features of its business and the internal and external environments, including the main types of ships and the seafaring profession, including the ship, the seafarer, the shipping business and the maritime governance regime. The dynamic nature of the shipping market necessitates strategic responses to make the business competitive. This chapter focuses on strategic management. The first section discusses the basic concept of strategic management, its functions and major processes.The second section discusses the role of business policy in strategic management. The third section focuses on the organisational structure that supports the implementation of business strategies.The special nature and characteristics of shipping dictate that the organisational structure of the ship management company has some special features. The fourth section focuses on mergers and acquisitions. In recent years, mergers and acquisitions have been frequently used by a long list of ship management firms as a growth strategy. The fifth section discusses the issues related to choosing the flag. It is one of the main strategic decisions for shipping companies that have a close nexus with many aspects of ship operation and management.The final section in this chapter discusses the impact of emerging technologies and the response of ship management firms, which constitute an important aspect of their strategic management.

The concept of strategic management Strategy means choice and to be prepared (Lorange, 2018) in the context of competition (Sengupta & Chandan, 2011). In the Oxford Dictionary, it is defined as a plan of action ‘designed to achieve a long-term or overall aim’. In the commercial world, the strategy can be described as ‘the actions and decisions that a company takes to reach its business goals and be competitive in its industry’ or ‘the determination of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals’(Stephens & Martin, 2019).A strategy normally includes six key components: vision and business objectives; core values; strengths, weaknesses, opportunities and threats (SWOT) analysis; tactics; resource allocation plan; and measurement (Indeed, 2020b). It defines what the business needs to do to achieve its overall aim. An effective business strategy can guide efficient resource allocation in the decision-making process. At the same time, it helps different departments work together and ensure decisions of different levels support the company’s overall direction (Nag et al., 2007). In practice, most organisations deploy a hierarchy of interrelated strategies which can be subdivided into three main categories: corporate strategy, business strategy and functional strat­ egy (Lun et al., 2010).As shown in Figure 3.1, the corporate strategy is on the highest level of the hierarchy of strategies. It determines what business the organisation is in, or should be in, and how DOI: 10.4324/9781003081241-3

STRATEGIC MANAGEMENT

Corporate strategies Responsibility of corporate-level senior managers, such as the business a corporation should be in.

Business strategies Responsibility of business-level general managers, such as tactics to beat the competition.

Functional strategies Responsibility of functional-level divisional managers, such as operational methods to implement the tactics.

Figure 3.1 Hierarchy of organisational strategies the organisation intends for its business to be carried out (Robbins & Coulter, 2003). There are two major aspects of corporate strategy.The first aspect is for the executive management to deal with the scope, mix and emphasis among the various activities.The second aspect is to prioritise resource allocation across various corporate activities (Kovacˇicˇ, 1996). The middle level of the hierarchy is the business strategy. It includes management plans at different levels which direct and monitor different business units of the organisation.The primary focus of the business strategy is to evaluate the strategic advantages of the individual unit.The functional strategy is on the lowest level of the hierarchy. It supports business strategy by managing each principal activity within the business.The functional strategy involves planning for maximum resource utilisation in a range of areas: marketing, human resources, operations, finance, client relations and so on (Alkhafaji, 2003). Strategic management is about making fundamental decisions about the future direction of an organisation, including its goals, resources, challenges, activities and how it interacts with the exter­ nal world (Lynch, 2018). It focuses on the total enterprise, and every part of the organisation plays a role in its strategies. Also, strategic management is an ongoing process, including the planning, monitoring, analysis and evaluation of all issues an organisation is involved in to achieve its aims and objectives (Schmidt, 2009). The process of strategic management includes the identification of the purpose of the organisation, the implementation of plans and the evaluation of actions to achieve that purpose (Lynch, 2018). It involves the formulation and fulfilment of the main objectives and initiatives taken by the top management of an organisation on behalf of owners, based on consideration of resources and evaluation of the internal and external environments in which the organisation operates (Stephens & Martin, 2019). Accordingly, there are three major processes in strategic management: formulation, implemen­ tation and evaluation of strategy.The purpose of the formulation is to identify and set out the overall aim and major objectives for the organisation to pursue. For this purpose, it is necessary to analyse the internal and external environments the organisation operates and then produce strategic deci­ sions which are based on insight from the environmental evaluations (Lynch, 2018).The second stage is the implementation of strategic decisions. Even the best strategy can be rendered useless unless it is supported by all members and implemented accurately, effectively and successfully (Orcullo,

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STRATEGIC MANAGEMENT

Strategy formulation

Strategy implemention

Strategy evaluation

Figure 3.2 Stages of strategic management

2007). Implementation is the process of putting the organisation’s strategies into action. It involves decisions with respect to how the organisation’s business policies and resources are aligned and mobilised towards the overall aim (Stephens & Martin, 2019).The evaluation process determines if the organisation’s desired outcomes are being achieved and, if not, why not.As shown in Figure 3.2, successful strategies should be strengthened and continuously implemented, whereas unsuccessful ones should be cancelled or revised and be evaluated again. The process involves monitoring the implementation of various strategies and evaluating their performance and assessing the level of impact (Azhar, 2002). Monitoring methods include establishing control systems so that feedback from the actual implementation at each stage can be investigated and assessed.The monitoring sys­ tem should identify and highlight deviations from desired results so that causes for deviations can be analysed and necessary measures to rectify them can be put into action (Sengupta & Chandan, 2011).

Business policies of shipping companies Policies are a set of rules or principles to guide decisions or actions to achieve desired outcomes. Business is a long-term journey to making a profit for the owners. It is crucial to have a set of busi­ ness policies which comprise the guidelines, rules, principles and procedures in the conduct of the business and how managers and employees of the organisation should carry out routine activities. Business policies define the scope or limits within which decisions can be taken by the subordi­ nates in an organisation. In practice, the lower-level management can deal with the problems and issues according to the scope or limits without consulting top management every time for actions (Stephens & Martin, 2019). Business policies are rooted in the practice of strategic management (Rao et al., 2009).They are the guidelines or rules created by an organisation to govern its activities and to assist managers in ascertaining organisation objectives and to support and enhance corporate strategies (Alkhafaji, 2003). According to Christensen (1982), a business policy is defined as ‘the study of the function and responsibilities of senior management, the crucial problems that affect success in the total enterprise, and the decisions that determine the direction of the organisation and shape its future’. This definition has been widely accepted in business management (Azhar, 2002; Hiriyappa, 2013; Rao et al., 2009; Sekar, 2019; Senthilkumar et al., 2014). According to this comprehensive definition by Christensen, a business policy is interpreted as the study of functions and responsibilities of the top management related to the problems of the organisation which affect the prospect of the whole business. Moreover, it deals with the decisions and procedures of the future course of action by the organisation. At the same time, it involves a choice of purpose and defining what needs to be done to shape the character and identity of the organisation.Also, it is associated with the mobilisation and allocation of resources, which will help the organisation achieve its objectives (Azhar, 2002; Senthilkumar et al., 2014).

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Basic policies

Corporate strategies

General policies

Business strategies

Specific policies

Functional strategies

Figure 3.3 Three categories of policies

In practice, there are three main categories of policies: basic policies, general policies and specific policies, as shown in Figure 3.3. These three categories of policies correspond with the three levels of organisational strategies: corporate strategy, business strategy and functional strat­ egy, as shown in Figure 3.1. Basic policies are defined by the top management and describe the basic approach of an organisation to its activities and environment. For example, an ethics policy addresses issues such as honesty, fairness, integrity and respect (Stephens & Martin, 2019). General policies are framed by middle-level management and apply to large departments of the organisa­ tion, so they are more specific. In contrast, specific policies are spelled out by the foremen and supervisors and apply directly to routine activities. As a result, they are most specific in nature (Pandey, 2014). Business policies deal with decisions affecting the organisation in the long run and key issues affecting the business’s success. According to Stephens & Martin (2019), Senthilkumar (2014) and others, effective business policies must have a set of features: 1 2 3 4 5 6 7

8

Specific:The policy should be specific and definite. If it is uncertain or vague, then the imple­ mentation will become difficult. Clear: The policy must be unambiguous. It should avoid the use of jargon and connotation. There should be no misunderstandings in following the policy. Reliable and uniform:The policy must be uniform enough so that it can be efficiently followed by the subordinates. Appropriate:The policy should be appropriate to the present organisational goal. Simple:A policy should be simple and easily understood by all in the organisation. Inclusive and comprehensive:To have a wide scope, a policy must be comprehensive. Flexible: The policy should be flexible in terms of operation and application. This does not imply that a policy should be altered always, but it should be wide enough in scope to ensure that the line managers use them in repetitive and routine scenarios. Stable:The policy should be stable; otherwise, it will lead to indecisiveness and uncertainty in the minds of those who look to it for guidance.

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Top-level Policies Safety & Quality Policy

Environmental & Conservation of Energy Policy

Drug & Alcohol Policy

Ethical Policy

Policies are to be signed by the Office’s Managing Director and displayed onboard and in office

Mission Statement & Shared Values To be posted on bulkhead

Core Policies Security Policy

Business Conduct & Media Policy

Whistleblowing Policy

Just Culture Policy

Whistleblowing Policy is to be signed and posted on Bridge, Engine Control Room (ECR), Cargo Control Room (CCR) and all messrooms

Declaration of Compliance

Signed by all sea staff

Functional Policies Social Media Policy

Insurance Policy

Human Resources & Crewing Policy

Financial Policy

Local Targets and Objectives

Local Mission & Vision Statemen t

Figure 3.4 Company policies Business policies play an important role in ship management and operations. Most shipping com­ panies have a long list of policies covering a wide range of issues.The exact contents and titles of policies are normally determined by the organisational structure of the company.The most com­ mon policies of a shipping company include quality policy, health and safety policy, environmental policy, drug and alcohol policy, security policy, ethics policy, financial policy, data protection policy and so on.These policies are maintained and implemented at different levels of the organisation. In this book, the authors investigated the business policies of several shipping companies. For example, Figure 3.4 describes the company policies implemented by one leading ship management company (coded as Company V). As shown in the figure, there are three categories of polices.The top-level policies are aligned with the company’s mission statement and shared values.They set out some general principles and objectives the company aims to achieve.The core policies are framed by middle-level management and apply to different large departments. In contrast, the functional policies are the most specific and guide the daily activities of all employees, especially the actions of supporting teams. For example, the safety and quality policy, as a fundamental policy of Company V, includes one provision as noted here: The Company is committed to identifying all risks associated with its operations. Controls and safeguards must be put in place to minimise these risks in order to provide safe working conditions for all employees and third parties. Company policy requires a safe, healthy and productive workplace for all employees. The workplace, whether at sea or ashore, must be kept in a condition which will ensure those good standards of health and hygiene are main­ tained at all times. This policy, falling within the category of basic policies, does not specify how to achieve this pur­ pose.The relevant departments, foremen or supervisors need to take further action to ensure the implementation of this policy. In contrast, the social media policy of Company V, falling within the category of specific policies, sets out clear steps for all employees to follow: Never publish inaccurate information regarding the Company online. If you are unsure of the accuracy of your comments, do not publish them. If in doubt, check with Corporate

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Communications or your immediate manager. Always ensure that if you are talking about your workplace online that you have made it clear any statements are your own and do not represent the views or values of the Company. Avoid violating the privacy of your co-work­ ers, clients and competitors etc. Only post online what you would be comfortable saying to people in person or in public. Would you be happy for your children, your parents or your boss to read your comments? Never use social media as a platform to harm, intimidate, insult, threaten, defame or embarrass others. If you find hurtful or defamatory commentary about the Company on social media forums, help us combat such negativity by informing Corporate Communications or your immediate manager. It is noteworthy that the shipping companies’ policies are closely linked to the requirements of international standards. As shown in Figure 3.4, Company V’s safety, quality and environment pol­ icies are related to the requirements of the International Management Code (ISM Code, 2015), under Safety of Life at Sea Convention (SOLAS) chapter XI-2.The purpose of the ISM Code is to provide an international standard for the safe management and operation of ships and pollution prevention. Clause 2.1 requires that every company should ‘establish a safety and environmen­ tal-protection policy’ which describes how the objectives of the code will be achieved. Clause 2.2 further requires that the company should ‘ensure that the policy is implemented and maintained at all levels of the organization both, ship-based and shore-based’. Similarly, the security policy is related to the International Ship and Port Facility Security Code, under SOLAS chapter IX. The social media policy is relevant to the requirements of data protection rules. The whistleblowing policy and human resources and crewing policy are associated with the requirements of Maritime Labour Convention, 2006. However, while all shipping companies should have their business polices, some problems may prevent them from effectively implementing these policies.The first issue is the lack of consensus building in the company regarding the objectives and contents of the policies they adopted. Some shipping companies just copy the provisions of business policies from other companies, especially some big firms, without considering whether these provisions are suitable for their situations or not.As a result, most employees, especially seafarers on board, have no motivation to observe the policy because they cannot recognise the value in it. At the same time, the provisions of policies are not aligned with the overall aim and objectives of the company. This will cause confusion in the implementation of business policies and strategies. Furthermore, effective business policies should be systematic and suitably positioned at different levels of management according to the organisational structure of the company. For example, some policies need to be prioritised over others because they are related to the fundamental issues of the company strategies. Otherwise, if all policies are crammed into one document, then the implementation will be chaos without any focus. In addition, it is crucial to have an effective procedure of evaluation, reflection and revision in order to keep business policies organic and alive.

Organisational structure No matter how great a strategy appears to be, it is useless unless there is a matching organisa­ tional structure to support its implementation and all levels of the structure are committed to it. A good structure is a design that will create the best environment for an organisation’s intended outcome (Sandermoen, 2017). According to Mintzberg (1972), an organisational structure is the framework of the relations on systems, jobs, operating process, groups and people making efforts to achieve the business aims. It involves ‘a set of methods dividing the task to determined duties and coordinates them’ (Child, 1972).As a result, the organisational structure can be described as a

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system designed to define the management hierarchy within an organisation, including each post, its function, responsibility and authority.The structure is developed to establish how an organisation operates and assists it in achieving its goals (Friend, 2019). Organisational structure plays a critical role in the implementation of business strategies.The management directs, controls and coordinates different tasks through the structure.A good organ­ isational structure can improve management efficiency, enhance job satisfaction, stimulate creativity and thus maximise the output of services from a limited supply of resources (Dugdale & Lyne, 2010). There are various features of a good organisational structure. For example, the structure should always remain simple and with a minimum of managerial levels. Also, the structure should remain flexible to changes wherever they are required. In the meantime, there should be a clear line of authority which runs from top to bottom in a horizontal way (Datt, 2006). On the other hand, a poorly designed structure will cause serious problems, including inefficiency, confusion, chaos, increased cost, waste of resources and even dysfunction. Normally, there are six key elements to building an organisational structure: chain of command, the span of control, the extent of centralisation, specialisation, formalisation and departmentalisa­ tion. Chain of command is about how tasks are delegated and work is approved in a particular department or business line.The span of control is the number of people reporting to a manager, which defines the size of the organisation’s workgroups (Devaney, 2019). The extent of centrali­ sation describes where decisions are ultimately made. If the power of decision-making is spread out, the structure is decentralised (Griffin & Moorhead, 2011).While a decentralised structure can make the decision-making process more democratic, it can also slow down the process, making it more difficult for organisations to work efficiently. Specialisation is the extent to which jobs or activities in an organization are broken down and divided into individual tasks. High specialisation allows employees to be ‘master’ in their specialised areas and increases their productivity as a result. However, low specialisation helps employees more easily tackle a broader array of tasks because it offers more flexibility. Formalisation deals with how jobs are structured within an organisation. It relates to the extent to which an employee’s tasks and activities are governed by procedures, rules and other mechanisms. Departmentalisation involves the process of ‘grouping jobs together’ in order to collaborate the activities and tasks into similar categories. If the departmentalisation of an organisation is very rigid, each section tends to be highly autonomous, and there is little inter­ action between different teams. In contrast, loose departmentalisation grants teams more freedom to interact and collaborate (Devaney, 2014) There is a wide range of options a company can choose to structure its organisation. Different options use functions, products, markets, processes or geographies as their guide and cater to businesses of different natures, sizes and industries. One of the most common types of structures is the functional structure. It departmentalises an organisation based on common job functions and allows for a high degree of specialisation for employees (Devaney, 2019).The activities of a business can also be organised around the geographical location, market, process or product under a divi­ sional organisational structure.This gives a larger business enterprise the ability to segregate large sections of the organisation’s business into semi-autonomous groups. Compared with departments, divisions are more autonomous.They allow a team to focus upon a single product or service, with a leadership structure that supports its major strategic objectives (Gillikin, 2019). In order to have both flexibility and more balanced decision-making, some organisations employ a matrix structure. It does not follow the traditional hierarchical model. Instead, this structure organises employees across different divisions, superiors or departments (Sun, 2016).While the structure of most tra­ ditional organisations looks more like a pyramid, many start-ups tend to choose a flat structure (also known as an ‘organic structure’). As the name suggests, it flattens the hierarchy and chain of command by giving its employees a lot of autonomy. Organisations that adopt this type of structure tend to have high-speed implementation (Kenton, 2021).

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The organisational performance and reputation of a ship management firm depend on the availability of a well-structured organisation, an effective management style and integration of technology and innovation into the business cycle to gain competitive advantages in the industry (Kandakoglu et al., 2009).As discussed in Chapter 2, ship operations and management have special features and characteristics. It is a highly specialised business that needs integrative knowledge and expertise that spans across multiple disciplines and areas.The special nature and risks of the ship­ ping business require that front-line managers have wide authority in decision-making to ensure efficiency and to respond to an emergency.An organic structure that allows for high flexibility can be extremely helpful to a ship management business that navigates a fast-moving industry. Ship­ ping companies need to perceive high environment uncertainty, develop a sustainable exploration capability and swiftly respond to a wide range of unforeseen factors (Yuen et al., 2019). At the same time, onboard management normally adopts a very traditional, bureaucratic and mechanistic structure. This structure is quite rigid in what specific departments are designed and authorised to do onboard. It is well known for having narrow spans of control, as well as high specialisation, formalisation and centralisation.To a certain extent, the organising structure is built on functional tasks rather than around people. For example, a navigation officer is not expected to deal with the mechanic or electronic tasks in the engine room. The other feature associated with the organisational structure in the shipping industry is the introduction of a safety management system (SMS) under the requirements of the ISM Code. SMS means a structured and documented system enabling shipping company personnel to effectively implement the company’s safety and environmental protection policy. It is a systematic and proac­ tive approach designed to manage safety elements in the workplace. The ISM Code requires that ‘every Company should develop, implement and maintain a safety management systems’ which includes objectives, organisation, policy, plans, procedures, responsibilities and other measures (ISM Code, 2015). One innovation in the ISM Code is the role of designated person ashore (DPA), whose primary aim is to ensure ‘the safe operation of each ship and to provide a link between the Company and those onboard’. The responsibilities of the DPA include ‘monitoring the safety and pollution-pre­ vention aspects of the operation of each ship and ensuring adequate resources and shore-based support are applied, as required’.To achieve this aim, the DPA needs to oversee the operation of the vessel to ensure that the requirements of the SMS are complied with. On the one hand, the DPA needs to be accessible at any time by all staff on board and ashore, so their contact details need to be maintained in the SMS manual and be posted in an easily accessible and public place available to all crew. On the other hand, the DPA has a wide range of authority and delegated power to perform his or her special duties.They can override any hierarchy restrictions and have direct access to the highest level of management in order to obtain needed resources. Figure 3.5 explains the organisational structure of the ship management company and how the DPA’s role provides a link between the management team ashore and those on board. Today’s era is characterised by globalisation and informatisation. Co-workers, located in dif­ ferent countries and places, are connected through the internet (Aquinas, 2009a). Outsourcing, telecommuting and e-commerce have become a new paradigm for organisational functioning. In the past, a ship management company could only monitor a ship by sending superintendents on board or receiving postal parcels through ship agents which included documented reports or forms. Today, benefitting from advanced information and communication technology (ICT), a ship manager can deal with nearly all routine issues from anywhere at any time, including crewing, pay­ roll, procurement, planned maintenance, compliance and verifications.This has significantly changed the approaches on how ship management companies deliver their services.With the advantage of modern technology, most ship management companies can adopt a hybrid structure which typically combines features of different approaches to meet their strategic objectives. A hybrid structure

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Chief Executive Officer

Managing Director

Technical Manager

HR Manager

DPA Marine Superintendent

Captain of Ship 2 Crew of Ship 2

Captain of Ship 2 Crew of Ship 2

Figure 3.5 The role of designated person ashore can allow the use of positive features and the avoidance of the weaknesses of each approach (Theotokas, 2018). It is employed particularly by organisations which are active in rapidly chang­ ing business environments, as the method helps them to strike a balance between flexibility and decision-making. The strategic choices of management shape the organisation’s structure, and the structure constrains strategic choices. The interactions between strategy and structure can be highly com­ plicated. In general, an organisation’s structure tends to be aligned with its strategy, and the two must be properly coordinated for it to be efficient and effective. In the meantime, the organisational structure constraints strategy and, as a result, the organisation is rarely able to deviate far away from its current course without substantial structure-process alteration (Miles & Snow, 2003). To compete in a very dynamic market, a ship management company needs to answer the question of how to structure the organisation to sustain growth. However, a shipping firm may face several problems in practice. The most common one is that organisational structures are often decided upon behind closed doors.Very few people are involved in the decision-making process when a formal structure is finalised. Sometimes external consultants are brought in to give costly advice, but aside from that, there is normally very little input from anyone else outside the most senior management team. In many cases, these decisions are made by the top executive alone. It is rare to see low-level ashore personnel or seafarers involved in company structuring issues. However, it is a misconception that it will be difficult to form a structure if everyone is involved. It will be more difficult to implement the organisational structure if the people who will be impacted have never been consulted or do not comprehend the logic behind the structure. The reality is

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that people tend to support and adapt to the organisational structure if they have a voice in deci­ sion-making when the structure is originally formed (Sandermoen, 2017). Another problem with many companies is that they never change or adjust their structures. As a company grows or the external environment changes, it is crucial to make structural adaptations.As explained in Chapter 2, the maritime governance framework continues to change and evolve and has a significant impact on the strategic management of shipping companies.With the introduction of new requirements, the organisational structure of a company needs to include new functions.The tasks and responsi­ bilities of key personnel need to be adjusted.

Merger and acquisition as growth strategies Growth is a way of life, so all organisations need to grow and expand. In ship management, large organisations have a number of advantages. The first one is flexibility in terms of response. As explained in Chapter 2, seafarers play a crucial role in the safe and efficient operation of ships, and large firms tend to employ more seafarers of different categories.The more seafarers an organisa­ tion employs, the more flexibly they can be deployed over a fleet. In the meantime, high operational quality can be assured from a stable and profuse workforce. Another major advantage is strong bargaining power over supply prices for materials and services. For example, the prices of bunkers, paints, stores, lubricating oils and spare parts are often heavily discounted for large-volume purchase.There are also economic benefits to be gained from planned maintenance dockyard and ship repair services. Furthermore, a large firm is able to build and maintain corporate infrastructure, including the ICT system, to provide clients with fast and accurate progress reports. In addition, a large firm will have a corporate learning curve which will allow adaptability, original thinking and long-term planning in terms of employee recruitment and training.All these advantages taken together provide large ship management firms with a positive opportunity to display to their clients as being highly responsible and reliable (Spruyt, 1994). Business combination, restructuring and reorganisation are critical to the healthy expansion of business firms as they evolve through successive stages of growth and development (Machiraju, 2007). In recent years, mergers and acquisitions (M&A) has proven to be an effective method of fast growth used by shipping organisations (Alexandrou et al., 2014).A merger is a combination of two or more organisations in which one acquires the assets and liabilities of the other in exchange for cash or shares, or both the organisations are dissolved and the assets and liabilities are combined (Hayes, 2020). For the organisation which is acquired, it is a merger. For the organisation which acquires another, it is an acquisition (Azhar, 2002). If both organisations dissolve their identities to create a new organisation, it is consolidation (Senthilkumar et al., 2014). There are several reasons for many shipping organisations to use M&A as a growth strategy. First, most shipping markets tend to be perfectly competitive markets.The alternative options of growing organically are relatively slow due to the need for global scope in shipping operations (Das, 2011). Secondly, M&A helps shipping firms increase economies of scale both in terms of bigger ships and larger fleets. It also expands their economies of scope in terms of fleet composition, diversified market coverage and extended trade routes. In addition, M&A promotes growth oppor­ tunities for shipping firms who are seeking fast expansion through financing support in the equity and capital market (Grammenos & Papapostolou, 2012). Ship management has been characterised by strong competition that prompts structural changes in the industry, with the bigger firms merging or acquiring smaller ones to remain compet­ itive (Panayides, 2003). Over the years, a number of notable M&As happened in the ship manage­ ment industry. For example, a significant one took place in 1998 between Monaco-based V. Ships and Britain-based Celtic Marine, creating the world’s largest ship management company. Before the

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merger,V. Ships provided full ship management services, whereas Celtic Marine was a provider of crews and other specialist services only. The merger enabled V. Ships to overtake a number of its rivals in the 1990s, including Cyprus-based Columbia Shipmanagement, Inc.; Acomarit (U.K.) Ltd. of Geneva; and Barber International of Kuala Lumpur, Malaysia (JOCS, 1998). Recently, the industry witnessed a wave of M&As in the ship management business.These events include the merger of the Christian F. Ahrenkiel Group with the MPC Group in April 2014, the merger of Anglo-Eastern and Univan Group in September 2015 (TME, 2015), the takeover of Bibby Shipmanagement by V. Ships in March 2016, the merger of Columbia Shipmanagement and Marlow Navigation in March 2017 (Jaques, 2017) and the merger of Navig8 Group and Suntech Maritime in May 2019 (Navig8, 2019). For ship management companies, the inclination to M&A is related to the various objectives that may be pursued. One major objective is the achievement of operating synergy. Synergy means the greater effect that two or more organisations can produce by working together than the total effect they can achieve operating independently. Operating synergy refers to the efficiency gains or operating economies that are derived in M&As. It brings cost reduction through the combination of two or more organisations that culminates as a result of economies of scale and scope.Through M&As, ship management firms can acquire tangible and intangible resources that will enhance a greater network by which to globally serve clients at a lower cost per unit.At the same time, econ­ omies of scope result from the ability of an organisation to utilise one set of inputs to provide a wider range of services (Panayides, 2001). It is firmly believed by most practitioners in ship management that ‘big is beautiful’ (InterMan­ ager, 2018; Lin, 2017). Size is a powerful persuader in large organisations’ marketing strategy. For example, Ian El-Mokadem, former CEO of V. Group, claims that ‘our size is a massive advantage in shipping’ (Lloyd’s List, 2018). Mark O’Neil, president of Columbia Shipmanagement, is among those who strongly advocate economies of scale. He commented in a ship management round table debate before the merger of Columbia Shipmanagement and Marlow Navigation in 2017: As an industry sector, in order to survive and prosper, we need to make ourselves and our products compelling to ship owners; to manage vessels as well, if not better, than ship owners can; and to achieve economies of scale, which are essential.The argument behind consolidation and growth of the larger ship management companies, is compelling and we are on that path. (SMI, 2017) However, there is also a persuasive set of arguments against M&As in ship management. Most ship managers, including those who advocate ‘big is beautiful’, insist that the size of the controlled fleet is a natural consequence of good practice and high standards, rather than the goal (Lloyd’s List, 2018). A small organisation is able to be specific and client-facing, but large companies tend to become impersonal. If M&As are not effectively structured and controlled, they can lead to bureaucracy and arrogance. There can also be conflicts of interest if a large organisation has a wide spread of clients. This is particularly true where cargo information is highly important to the success of ship owners’ commercial operation (Spruyt, 1994). In addition, newer organisational structures create behavioural problems for employees, and corporate culture clash can result in disruption of management (Cullinane, 2010). Mr Kishore Rajvanshy, the founding managing director of Fleet Management Ltd., warned of the major challenges associated with big M&As: There is nothing wrong with M&A; each company has a different strategy when it comes to growth, but what tends to happen when you have M&A is that your original ideas, culture, core values and way of running the business get a bit disrupted after a group of new people join your company. Their way of thinking is different, their focus is different, and their driver is different. Now you are trying to tell them: ‘Ok, this is the right way to do something,’ and

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these guys will tell you: ‘No, no . . . we have got a better way to do it.’ An end-user wants his service delivered without the bother of any troubles you have from the merger. That would not enhance customer satisfaction. (Shen & Osler, 2018)

Choice of flag The choice of flag is one of the main strategic decisions for shipping companies and has a close nexus with many aspects of ship operation and management.As explained in Chapter 2, to register a ship under a flag is a primary requirement under international law. In history, traditional maritime nations (TMNs) were able to maintain or even extend their dominance in maritime trade by offer­ ing exclusive protection and thereby gaining exclusive control over ships flying their flags. In return, flag states established very harsh requirements for ship owners to have their ships registered. For example, the ship owners had to be nationals of the flag state, the vessel was constructed in the flag state or the vessel was not to be sold if it would then fly the flag of another state. However, the situation changed when ship owners realised that the obligations imposed by their flag states greatly outweighed the benefits offered by them (Wendel, 2007). As a consequence, many ship owners started to register their ships under the flags of other nations, such as Panama and Liberia, and new types of ship registry systems developed (Saini, 2017). Nowadays, there are three main types of registries: traditional registry, open registry and secondary registry (Yin et al., 2018). The traditional registry is also known as a national registry or closed registry. It is only available to vessels that are owned by companies or persons that are residents of that country.The ship owner is subject to the full range of national legislation cover­ ing employment, financial and company regulations.The open registry is also known as the flag of convenience and has virtually no restrictions on the owner’s nationality or residence.Today, more than 70 per cent of the world’s fleet by tonnage is registered under a foreign flag, such as Panama, Marshal, the Bahamas and Liberia (UNCTAD, 2019).The second registry is also known as the inter­ national registry, offshore registry or hybrid registry (Mishra, 2018).This practice was introduced by some of the traditional maritime countries such as Germany, Denmark and Norway in the 1980s as a response to the open registry (Zhang & Drumm, 2020).The motivation behind early secondary registry was to stop the flow of ships moving from national registries to flags that had more flex­ ible, and therefore less costly, crew arrangements (Bernfeld, 2007).They treat the ship owners in the same way as an open registry, generally charging a fixed tax based on the ship’s tonnage rather than taxing corporate profits (Stopford, 2009). The development of the customary law of registration of ships allows unrestricted global free­ dom of flag of choice states (Mansell, 2009).Today there is a long list of flags available for ship own­ ers under the open registry system. Choice of flag has become a highly important strategic decision for ship owners (Lind-Amundsen & Vablum, 2018). To select the most suitable flag for shipping fleets, it is necessary to thoroughly consider both external and internal environmental factors that affect ship owners’ choice.According to Celik & Topcu (2013), the factors affecting the ship owner’s flag choice behaviour can be categorised as economic factors, political factors and social factors. ●● ●● ●●

Economic factors: These factors are the driving force in the decision-making process and include differences in the expenses for taxes, finance and manning. Political factors:These considerations include the prestige and level of the bureaucracy of the flag state, as well as environmental awareness. Social factors: These factors are linked to the variations of manning requirements, the avail­ ability of qualified crew and the safety standards and requirements.

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More specifically, the economic factors include the initial registration fee, operating costs, taxation on corporate profit, annual taxes, access to the capital market and so on (Ready, 1998). In contrast, the polit­ ical factors include trading activities restrictions, government stability, access to cabotage trade, conflict response time and avoidance of discrimination.The social factors are in terms of safety standards and requirements and labour quality and availability (Celik & Topcu, 2013).The effect of social factors can be extended to vessel eligibility, ownership restrictions, crew nationality restriction, trading limits, labour problems, manning and certification, accessibility and reputation and so on (Watt & Coles, 2013). The highly competitive business environment of the shipping industry compels the companies’ strategies to focus on cost reduction and to produce low-cost services (Bhardwaj, 2013). Most ship owners, if not all, would prefer the cheapest option in a competitive market, so the economic factors are often first considered by ship owners. Shipping companies are assumed to be profit maximisers which strive to realise their objectives by optimising the production input combination, which allows them to minimise costs (Mitroussi & Marlow, 2010). Flagging-out has been widely adopted as a strategy by ship owners to gain financial, employment, fiscal and other advantages. Flagging-out is the practice of switching the vessel’s registration from a national flag, typically the flag of the country in which ship owners are domiciled, to another country under the open registry, typically a flag of convenience. From the perspective of ship owners, the open registries system is designed to significantly reduce operational and labour costs with the following key fea­ tures (DeSombre, 2006): ●● ●● ●● ●● ●● ●● ●● ●●

The registration and deregistration procedures are simple and easy.

It allows foreign nationals to own or control ships registered under its flag.

Registration fees and tonnage tax are low.

Revenues from shipping operations are taxed at minimal or zero rates.

Ships can be manned with seafarers of any nationality.

Its regulations on safety and labour standards are lax.

The host government cannot use the registered tonnage for its own needs.

The flag state has little means or will to conduct inspections on ships flying its flag.

However, those who make flagging-out decisions are not homogeneous.They come to the decision with the experience of different environments and regulations and hence will naturally have differ­ ent considerations when deciding to choose a foreign flag. For example,Watt & Coles (2013) stated that the reputation and quality of the flag state are additional critical factors that ship owners may consider.This can have a significant impact on the image of the shipping company and its ability to access the capital market.Also, many flags of convenience are often connected with the ineffective implementation of international maritime standards.According to Spruyt (1994), the main reasons for ineffective implementation were identified by the International Maritime Organization (IMO) as: ●● ●● ●●

●●

Insufficiently trained and experienced technical personnel within an administration; Lack of sufficient infrastructure to properly interpret and support application and enforcement of international conventions; Unclear delegation of authority and regulatory oversight when inspections and surveys are entrusted to surveyors or organisations, or the employment of poorly qualified and inexperi­ enced surveyors; The absence of effective control programmes to ensure that competent maritime safety actions are taken.

Ships flying these flags are more likely to be subject to harsh measures taken by port state con­ trollers, including detention measures (Bernfeld, 2007). Each year a White, Grey and Black (WGB)

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list with flag performance will be published in various MoU1 annual reports.The flags on the Black list will not only face harsh port state inspections but also lose competitiveness in the freight mar­ ket (Mansell, 2009). For example, many large responsible charterers, such as Shell, BP and other oil giants, have their flag preferences when choosing suppliers, and they even set the standards of acceptance for any flag state which wishes to join the ranks of internationally accepted flags (Spruyt, 1994). Furthermore, protectionist measures, insurance rate, the prospect of employing seafarers and the technical requirements of the ship registration process are among other critical considerations from the ship owners’ perspective (Thanopoulou, 1998). Affected by a wide range of factors, the choice of flag has become a highly complex strategic activity for shipping companies. Hartley (1998) proposed a taxonomy of shipping registry selection criteria that includes six main factors such as taxation, fees, control, financing, operation and mari­ time offices.The taxonomy provides maritime organisations with a package solution for construct­ ing flagging-out strategies. Kandakoglu et al. (2009) introduce a multimethodological approach to support the critical decision process in terms of shipping registry selection under multiple criteria. This approach is based on the systematic application of the SWOT2 analysis, the AHP3 and the TOP­ SIS4 methods. In the proposed approach, the SWOT analysis is used to determine the key assess­ ment factors on the shipping registry decision and to structure the decision hierarchy.The AHP is used to measure the relative importance of evaluation criteria in this decision hierarchy, and the TOPSIS is applied to rank the shipping registry alternatives. Similarly, Celik & Topcu (2013) suggest a Multiple Criteria Decision Making (MCDM) approach using a Primarily Strategic Action Plan (PSAP) in a short-run period and a Secondary Strategic Action Plan (SSAP) for a long-term perspective. Furthermore, the ship owners are not always the decision-makers who actually select the flag, particularly in cases where the ship owner is just an investor. Choice of flag is a high-level strate­ gic decision concerning ship operation and management. Traditionally, it is made by ship owners on a vessel-by-vessel basis at the time of vessel acquisition and is generally based on the owner’s past experience (Mitroussi & Marlow, 2010). Today ship managers play a more proactive role in the choice for a number of reasons. First, while most ship owners keep the choice of flag with themselves, a significant portion of them leave this to the ship managers (Mitroussi, 2004). Sec­ ondly, for the ship owners who make their own choice of flag, they tend to seek advice from ship managers regarding the performance of different flags, and this will have a significant impact on the owners’ flag choice (Luo et al., 2013). Furthermore, most ship management firms have strength in certain flags but weakness in others.The charging of management fees is also closely linked to the ship’s flag. Many ship owners may choose to change the flag of registry before they put the vessels in the fleet of the ship management firm to align with the firm’s management strategy.

Strategic shipping market and positioning strategy Shipping companies aim to achieve superior sea transport service performance and add value to their offer. One way companies can gain an advantage over their competitors is to provide better quality service than their competitors concerning freight. Added value can also be achieved by offering entirely new services that competitors do not yet have by modifying existing services or by making them more accessible for customers to gain a competitive advantage.The shipping company can distinguish its offerings from its competitors by the following approaches: ●●

Image/reputation:This is achieved by building and projecting a good reputation of the company to bankers, insurers, suppliers, agents, charters or even investors. For example,Tanker Pacific Management has built an excellent image in the tanker market and is known as a reliable and responsible company.

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●●

●●

●●

Differentiation of personnel and crew: In this case, the company distinguishes itself by employ­ ing adequately trained personnel and crew in the offices and vessels of the company. Clipper Group, for example, achieves this by continuously developing the crew in its training and simulation centres. Geographical differentiation: Geographical differentiation can be achieved by the company’s ability to manage routes that meet the needs of global sea trade.This is a strategy followed by leading liner companies. Qualitative differentiation: The quality of services offered mainly includes reliability, frequency, flexibility and immediate service, as well as the safe transport of goods by sea, according to charterers and shippers.A shipping company can make a qualitative difference by offering unique services to its customers/charterers or shippers compared to the package of benefits offered by its competitors. In the liner market, however, this is more important than in the bulk market.

The more active a company is in distinguishing its shipping services from competitors, the higher its power. The objective of quality, staff, crew, image and geographical differentiation is to reduce competition in freight rates (price differentiation does not apply mainly to shipping companies). A shipping company can realistically aim to be a leader in one of these areas, but not at the same time in all.Therefore, it develops these strengths, which give it a differential performance ben­ efit in one of these areas of benefit.A characteristic of a shipping company’s differentiation strategy is that the high capital cost of vessels makes it difficult to copy a maritime transport service. A shipping company seeking to distinguish service and product delivery should therefore not find its innovative service quickly copied by competitors. Also, the positioning strategy refers to the final selection of the target market segment, which describes the customers (charterers/shippers) that the company intends to serve, as well as the selection of the differential advantage, which defines how the company will compete with its rivals. The target market thus identifies what the company has to do with its competitors. The adequacy and efficiency of the positioning strategy are the primary determinats of busi­ ness growth and profit performance.A shipping company’s positioning process includes the follow­ ing steps: ●● ●●

●●

First, the shipping company must locate the possible differences between its maritime trans­ port services and other competitive undertakings. Second, the shipping company must apply selection criteria to detect the most significant dif­ ferences that lead to a comparative advantage over its competitors. Many people in business prefer to promote only one competitive advantage in the target market – and no more. Finally, the shipping company must demonstrate that it differs from its competitors in its target market.

Response to emerging technologies According to Brown & Eisenhardt (1998), traditional approaches to strategy often fail because they commonly focus on two questions:‘where do you want to go?’ and then ‘how are you going to get there?’ These strategies overemphasise the extent to which it is possible to predict and under­ estimate the importance and challenge of executing the strategy that is created. However, things always change, and the future is unpredictable. As an overused quote from Louis L’Amour states: ‘The only thing that never changes is that everything changes’. Change is happening all the time in every industry, in every geography and in every organisation, and one critical aspect of strategic management is managing the change.

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One striking feature of the change in the business environment is the advent of various new technologies that force industries and firms to find new ways to compete and to survive (Bruton & White, 2011). The integration of new technologies is a new factor of production and a new source of competitive advantage.The development of ICT is radically transforming the competitive dynamics of businesses, markets and industries (Walton & Pyper, 2020). According to Willingale (1998), the rate of development of the technology far outpaces similar improvements in our ability to implement and manage the technology. As a consequence, what can be achieved with modern technologies always lags far behind what is actually being achieved, and the gap is widening. The management of technology and innovation (MTI) is an issue that all firms are facing today. According to Schwab (2017), today the world is at the beginning of the fourth industrial rev­ olution that is fundamentally changing the way people live, work and relate to one another. Unlike the third industrial revolution, which focused on computing and internet, the fourth industrial revolution is associated with a wide range of fields, such as artificial intelligence (AI), big data, robot­ ics, blockchain, the internet of things (IoT), autonomous vehicles, 3-D printing, materials science, energy storage and so on.The third and particularly the fourth industrial revolutions are historic because of the speed and scale with which new ideas and technologies are spreading.All companies across all industries and markets are being compelled to review their business strategies. For exam­ ple, they need to reconsider their traditional ways of doing business to keep pace with a rapidly changing technology environment and increasing customer expectations (Walton & Pyper, 2020). The main task of the ship management company is to provide services to ship owners, so improving service quality and efficiency is crucial in achieving a differential advantage over com­ petitors. The business solutions provided by new technologies can help a ship management firm improve operational productivity, performance and life cycle optimisation of the assets, as seen in other industries (Nikitakos & Lambrou, 2007). For example, many technological advancements and digital solutions were designed to reduce task complexity, to mitigate human errors and to meet regulatory compliance requirements, such as planned maintenance systems (PMS), electronic chart display and information system (ECDIS), and automatic identification systems (AIS). In addition, the integration of advanced information and communication technology (ICT) has become a strategic move that can help an organisation improve business processes and enhance the function of mar­ kets (Bhardwaj, 2013). For example, the integration of big data analytics (BDA) in maritime shipping holds promises of optimisation and improvement on many levels of ship operations and management. BDA inves­ tigates correlations between different parameters to discover hidden patterns and predict trends. It can provide ship managers with readily available, accurate and actionable information to improve decision-making, including the optimum speed for fuel consumption, planned maintenance, voyage operations and so on (Lambrou, 2016).This analysis will have a significant impact on ship monitor­ ing and provide performance prediction, real-time transparency and decision-making support to the ship manager. It will also reduce human error, increase interdependencies of components and optimise the safety environment (Zaman et al., 2017). Also, the development of unmanned ships has been significantly growing over the last decade and made the concept no longer a futurist idea. There are many advantages of implementing unmanned ships, with the main one being the commercial benefit. For ship owners, the savings on crew salaries can be profitable, as it is estimated that crew wages take up to 60 per cent of the ship’s operating costs (Kretschmann et al., 2017). Furthermore, the insurance schemes linked with the risks and hazards of being on the voyage are not needed, as the crew onshore are not likely to face the same issues. In the meantime, areas usually reserved for accommodations will now give more storage space to be utilized for cargo, which in turn will increase the revenue of the ship owner. Furthermore, unmanned ships can solve some long-standing security issues, such as hijacking, piracy and stowaways (Lloyd’s List, 2017). In addition, unmanned ships are more beneficial

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in terms of environmental pollution prevention and compliance with MARPOL regulations. Better and newer engine designs are more efficient in controlling emission of nitrogen oxides (NOx) (IMO, 2017a). In recent years, the application of 3-D additive manufacturing (AM), or 3-D printing, as it is commonly known, has received considerable attention in the maritime industry. It has the potential to offer a faster, economically easier and more environmentally friendly alternative to the conven­ tional marine supply chain (Ellekjaer, 2018).This technology has been used on a daily basis in a wide range of industries such as aviation, automotive, architecture, aerospace, defence, art design, fashion, medical, etc. (Green Ship, 2019). For the maritime industry, it can provide improved product design in terms of customisation and efficiency.As explained in Chapter 2, ships are operating in a unique environment that is far away from ship repair facilities.The type and quantity of the spare parts that must be on board a ship are imposed by the relevant safety standards or suggested by the original equipment manufacturer (OEM) in order to avoid unexpected breakdowns, or sometimes even by experience (Kostidi & Nikitakos, 2017). Most ships are produced as one-of-a-kind and/or for a specific purpose. Sometimes the crew have to wait a long time for spare parts or other items for ship repair or maintenance, and this may cause a significant delay in commercial operation (Sumali et al., 2018).With rapid prototyping, it is possible for a manufacturer to produce and test a product throughout the innovation and development process and, consequently, to speed up the whole process. In the meantime, it also enables a higher degree of co-creation, because an end user (e.g., a ship owner) can participate with the supplier and evaluate a product at any stage (Green Ship, 2019). Blockchain is another emerging technology that has hit the shipping industry in a significant way. Many shipping companies are expecting to make information flow more smoothly across busi­ ness categories and trade-related office procedures swifter and more efficient (MI, 2019). Maritime shipping services involve complex partners and have to deal with a large number of transportation documents that can slow down the transactions in maritime commercial activities (Yang, 2019).The application of blockchain, as a secured, decentralised and encrypted public ledger, could be used in various scenarios in shipping and bring a revolution in terms of how transactions are carried out. It could turn the whole process into a paperless paradise for all related parties, such as the ship owner, sellers and buyers of cargo, charterers, customs, agents, banks, port authorities and so on. With the use of public and private keys, the parties could give and accept instructions, perform physical transactions, exchange and store information in encrypted format and perform other con­ tractual obligations (OpenSea, 2018). With the maritime world changing rapidly under the influence of digitalisation, the data management system (DMS) has become increasingly important for all maritime organisations. It can help ship management firms gain competitive advantages and respond to the dynamic and fast-changing market environment wisely and swiftly.There are many benefits of introducing DMS in ship management (Zhang et al., 2020a). For example, DMS-related technologies can streamline ship operations through advanced decision support systems (DSS), risk management capabilities, improvement in management efficiency and cost benefits. Furthermore, the DMS can help ship managers with vessel maintenance operations by planning and overcoming routine maintenance difficulties, such as ship condition monitoring and hull condition assessment (Lazakis et al., 2016). In addition, it can be developed through a free geographic information system (GIS) to enhance maritime security, safety and meteorological information (Kalyvas et al., 2017). Despite the great potential benefits of using new technologies, integrating these technologies in ship management presents significant risks and challenges. There are too many variables for the right business solutions to be arrived at by chance. Before these new technologies can be integrated and contribute to business activities, a number of issues need to be taken into account. First, all people involved need to understand the role and characteristics of new technologies and

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its potential benefits for the business.At the same time, it is crucial to align the technologies with the business aim and objectives (Willingale, 1998). Furthermore, it is necessary to have a specific technology roadmap to support strategic and long-range planning by matching short-term and long-term goals with specific technology solutions (Pham et al., 2016). In addition, the company needs to establish methods to review the effect, identify potential problems and manage the risks and challenges.

Notes 1 In 1982, 14 European countries agreed on the Paris Memorandum of Understanding on Port State Control (Paris MoU) to establish port state control. Modelled on the Paris MOU, several other regional MOUs have been signed, including the Tokyo MOU (Pacific Ocean),Acuerdo Latino or Acuerdo de Viña del Mar (South and Central America), the Caribbean MOU, the Mediterranean MOU, the Indian Ocean MOU, the Abuja MOU (West and Central Atlantic Africa), the Black Sea MOU and the Riyadh MOU (Persian Gulf). 2 SWOT stands for strengths, weaknesses, opportunities and threats, and so a SWOT analysis is a technique for assessing these four aspects of a business, and a decision-maker can use SWOT analysis to make the most of what they have, to the organisation’s best advantage. 3 AHP stands for analytic hierarchy process. It is a powerful yet simple method for making decisions com­ monly used for project prioritisation and selection.AHP lets people capture their strategic goals as a set of weighted criteria that they then use to score projects. 4 TOPSIS stands for technique for order of preference by similarity to ideal solution. It is a multi-criteria deci­ sion analysis method.The TOPSIS technique is helpful for decision-makers to structure the problems to be solved, conduct analyses, comparisons and ranking of the alternatives.

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Chapter 4

Commercial management

The previous chapter examined some key issues relating to strategic management which deter­ mine the basic long-term goals of an organisation. This chapter moves on to discuss commercial management.The key aim of commercial management is to improve the profitability of the organi­ sation by implementing its strategic plans, so it plays a critical part in promoting the success of any commercial business. In the ship management sector, the meaning and use of the concept of commercial manage­ ment have three dimensions. First of all, as a commercial organisation, a ship management com­ pany needs to carry out commercial activities to improve its profitability and achieve commercial viability and long-term sustainability. To do this, the ship manager needs to perform a wide range of obligations and duties according to the commercial contract and statutory requirements. At the same time, the ship manager needs to comply with the requirements of risk management to minimise their exposure to commercial risks. Furthermore, as a third-party service provider, the ship manager should support ship owners in fulfilling their commercial objectives. One of the most common obligations is to provide post-fixture services in accordance with the terms of the post-fixture agreement. In addition, in some cases, although not very common, ship managers are employed to carry out commercial management on behalf of ship owners. For example, when the real ship owner is a bank or other financial institution who does not have any ship operations expertise, they tend to subcontract the commercial management to a professional ship manager together with other routine operations.

The concept of commercial management Despite its wide usage in practice, there is no universally recognised understanding of the term commercial management. According to Garni (2016), commercial management deals with sales, revenue, procurement, marketing, expenditure and contracting with a focus on profit and loss.The contents of commercial management vary depending on the nature and model of the business and on the type of customers or partners. In many companies, for example, its common role is limited to the activities related to sales, marketing and finance. The meaning and use of the concept of commercial management can vary significantly in differ­ ent industries and businesses. Focused on its financial aspects, commercial management was defined by Lowe et al. (1997) as ‘the process of controlling or administering the financial transactions of an organisation with the primary aim of generating a profit’. However considering the issue from a project-oriented perspective, the definition was subsequently modified by Lowe & Leiringer (2005) as ‘the management of contractual and commercial issues relating to projects, from project inception to completion’.While it was not explicitly described in either definition, both Lowe et al. and Lowe & Leiringer implied the centrality of risk management and commercial management (Lowe, 2013). DOI: 10.4324/9781003081241-4

COMMERCIAL MANAGEMENT

According to the International Association of Contract and Commercial Management (IACCM), commercial management is more recently defined as ‘the discipline that both informs and implements business strategy and policies’. It informs in the context of ‘testing and aligning market requirement with organisational capability’ and implements through ‘ensuring effective and efficient operational procedures that establish and maintain those capabilities’ (IACCM, 2020). This definition signifies the application of the term beyond a project-based dimension and extends the functions of business strategy and policies. Although this definition emphasises the strategic role of commercial management, it is a rather general description of the commercial aspect of management. In the ship management business, the meaning and use of the concept of commercial man­ agement are three-fold. First, as a commercial organisation, a ship management company needs to carry out commercial activities to improve its profitability and develop sustainable business oppor­ tunities. To achieve this aim, it is crucial to support the commercial team in securing sustainable contracts for the services provided. Secondly, as explained in Chapter 2, most ship owning compa­ nies tend not to subcontract their core commercial activities to outside parties. Nevertheless, in practice, it is not surprising to see ship managers employed to carry out commercial management on behalf of ship owners. In addition, under the circumstances that ship owners do not contract out their commercial management activities, the ship manager should support ship owners in ful­ filling their commercial objectives. According to most ship management agreements, ship managers are normally to use their best endeavours to provide post-fixture services in accordance with the terms of the post-fixture agreement.Also, in all matters relating to the provision of these services, they need to comply with sound commercial ship management practices and to protect and promote the interests of the ship owner clients. For example, the ship manager is responsible for monitoring the execution of the charter party, ensuring that invoicing is accurately and promptly completed and that all commer­ cial claims are issued and followed up expediently.This includes but is not limited to freight, hire, demurrage, despatch, shifting, cargo claims, hold cleaning, performance claims and so on. In addition, if there is a conflict of interest, the ship owner’s interest should be prioritised because the ship manager owes a fiduciary duty to its principal owners (Mandaraka-Sheppard, 2013). The main contents of commercial activities in ship management include three aspects. The first one is overseeing and managing the performance of a business contract as it progresses.The second aspect is the long-term management of business opportunities that will enable the organ­ isation to continuously develop and grow.The third aspect is the alignment of commercial activi­ ties with organisational strategies and business policies.As a result, successful holistic commercial management should involve the recognition of not just the price and product but also the factors for long-term sustainable growth (Falcon, 2020). The factors that should be considered include strategic analysis, client satisfaction, risk evaluation, client connections and relationships and getting the right people on board to deliver competitive goods and services. The commercial manager needs to maximise business potential in terms of growth and profitability while monitoring and controlling internal processes, as well as managing external relationships with subcontractors, cli­ ents and a wide range of other stakeholders (DBW, 2020).

The role of the ship manager The manager of a ship – known in old times as the ship’s husband – is expressly appointed by an agreement to manage the vessel or vessels of a company for its owners (Mandaraka-Sheppard, 2013).The ship manager has a significant role when it comes to achieving the commercial objec­ tives set by ship owners. In general, ship managers do not own any shareholding of the ships they

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manage, even indirectly. In addition, many professional ship management companies firmly believe that they should not own any ships or any shareholding in any ships to maintain independence and avoid conflict of interest (Willingale, 1998).The agreement between the ship owner and ship manager will outline the management scope. It can range from simply providing crew for the ship through to full management, which may include commercial operations, technical management procurement, maintenance and so on (Bistricˇic´ et al., 2011). Although the exact clauses can vary significantly, most ship management agreements are based on some standardised forms that respond to a need for uniformity. The most widely used form in the industry is SHIPMAN, which was first issued in 1988. It was revised in 1998 to meet the requirements under the ISM Code and the contemporary practice in ship management. SHIPMAN was further updated in 2009 to meet contemporary market developments and legislative changes, such as the ISPS Code. With widespread usage in the industry, SHIPMAN 2009 also reflects the common practice in ship management. Clause 6 of SHIPMAN 2009, which was Clause 3.3 in SHIPMAN 1998, deals particularly with commercial management. According to this clause, the ship manager shall provide the following services for the vessel in accordance with the ship owner’s instructions, which shall include but are not limited to: (a)

(b) (c)

(d) (e) (f) (g)

Seeking and negotiating employment for the Vessel and the conclusion (including the execu­ tion there of) of charter parties or other contracts relating to the employment of the Vessel. If such a contract exceeds the period stated in Box 9, consent thereto in writing shall first be obtained from the Owners; Arranging for the provision of bunker fuels of the quality specified by the Owners as required for the Vessel’s trade; Voyage estimating and calculation of hire, freights, demurrage and/or despatch monies due from or due to the charterers of the Vessel; assisting in the collection of any sums due to the Owners related to the commercial operation of the Vessel in accordance with Clause 11 (Income Collected and Expenses Paid on Behalf of Owners); Issuing voyage instructions; Appointing agents; Appointing stevedores; and Arranging surveys associated with the commercial operation of the Vessel.

This clause covers a wide range of commercial activities relating to ship operation, from negotiating a commercial contract of the employment of the ship to the performance of the contract. In practice, the scope is extended to many other areas, such as giving instructions relating to the ship’s seawor­ thiness, letter of guarantee, cargo hold preparation, loading and unloading procedures, cargo damage, risk management and dispute resolutions.According to Clause 3 of SHIPMAN 2009, the ship manager carries out these tasks as the agent of the ship owner which is the ‘basis of the agreement’: Subject to the terms and conditions herein provided, during the period of this Agreement the Manager shall carry out the Management Services in respect of the Vessel as agents for and on behalf of the Owner.The Managers shall have authority to take such actions as they may from time to time in their absolute discretion consider to be necessary to enable them to perform the Management Services in accordance with sound ship management practice, including but not limited to compliance with all relevant rules and regulations. This clause creates agency relations between the ship owner and the ship manager. According to the principles of the law of agency, an agency can only act on behalf of a principal if he or she has

COMMERCIAL MANAGEMENT

the authority in law to do so.The agency who acts within the scope of authority conferred by the principal binds the principal in terms of the obligations they create against third parties (Damilola, 2016).As a result, the ship manager must act always within the authority conferred to him by the ship owner in accordance with the management agreement or the agency law. It is a common prac­ tice that the ship manager signs contracts on behalf of the ship owner or makes any other pledges always as an agent only (Mandaraka-Sheppard, 2013). There are basically three kinds of authority recognised in the law: actual authority, apparent authority and ratification (Bennett, 2014).As the term would suggest, actual authority is a legal rela­ tionship between the principal and agency created by a consensual agreement to which they alone are parties (Munday, 2010). However, an actual authority can be either express or implied. Express authority refers to the authority the agent possesses because the principal has expressly conferred that authority upon the agent, such as through a written contract or verbal agreement. In contrast, implied authority is authority an agent has by virtue of being reasonably necessary to carry out their express authority.As such, it can be derived from the usual incidents of the professional activi­ ties of the agent. Clause 3 of SHIPMAN 2009 provides that the manager shall have authority to take actions ‘as they may from time to time in their absolute discretion consider to [be] necessary’. For example, a ship manager has the authority to work on behalf of the ship owner if the ship is in an emergency and some intervention measure must be taken immediately to reduce loss or damage. In addition, implied authority can be derived from customs and trade usage (Baskind et al., 2016). In the ship management business, a wide range of practices are widely recognised by shipping pro­ fessionals. For example, the issues relating to ISM and safety, crewing and maintenance of the ship are traditionally known as the ship manager’s responsibilities. Apparent authority is also known as ostensible authority.As its name suggests, it arises where a third party is induced to enter into a transaction with a principal by a party who appears to have authority to act but who in fact does not have such authority (Munday, 2010). It may also exist where the principal’s words or conduct would lead a reasonable person in the third party’s posi­ tion to believe that the agent was authorised to act, even if the principal and the purported agent had never discussed such a relationship.The ship manager has apparent authority to bind the ship owner if a third party knows or reasonably believes that the ship manager is working on behalf of the ship owner, even if the ship manager is carrying out tasks not prescribed in the management agreement (Clarke et al., 2017).This may happen in several broad categories: 1 2 3

The ship owner may allow the ship manager to appear to third parties to be their agent when in fact the ship manager is not; The ship owner may allow the ship manager to continue to appear as their agent after the agency relationship has been terminated or the authority has been withdrawn; The ship owner may allow the impression to be given that the ship manager has greater authority than is in fact the case.

Where an agent acts without any authority or acts beyond the scope of their authority, then the principal can validate the agent’s actions by ratification (Baskind et al., 2016). Ratification causes such an act to become binding on the third party.As a result, ratification is a unilateral act of will. There is no requirement that the principal notifies any party that ratification has taken place (Clarke et al., 2017). For example, when the ship manager carries out a task beyond the scope prescribed by the management agreement, without ratification, the ship owner is not bound by the unauthorised agreement created by the manager if there is no apparent authority.Whereas in the situation of an act done by the ship manager with apparent authority, the ship owner and the third party are bound from the moment the agreement is consummated by the manager and the third party.

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There are difficult scenarios when the ship owner is an undisclosed principal and a third party is not aware of the owner’s existence. For example, the registered ship owner is never in the front line.This is particularly common when the real ship owner is an investor only, such as a bank with­ out any ship operation experience. For example, as the agency of the ship owner, the ship manager signs a charter party for a vessel in its own name and the charterer does not know the existence of the ship owner.The question that arises is whether the ship owner can hold the charterer liable for the charter party. It seems to be unfair to allow the ship owner to hold the charterer liable on a contract, as the latter does not know of the existence of the former. However, under the law of agency, an undisclosed principal can sue and be sued on a contract created by their agent with a third party. It could be argued that this runs counter to the general contractual rule as to the doctrine of privity of contract.1 However, what actually happens is that the agency law regards the contract as being between the agent and the third party but confers the principal the right to intervene and sue and be sued by the third party (Baskind et al., 2016). In a similar situation, a ship manager signs a seafarer employment agreement (SEA) directly with a seafarer without disclosing the name of the real ship owner.Although the ship owner is not a party to the SEA, he can sue and be sued by the seafarer.

The ship manager’s contractual obligations While the exact clauses are adjusted depending on the circumstances of the specific business, the management agreement will expressly lay out the ship manager’ obligations as to the scope, char­ acteristics and quality of services to be provided.The SHIPMAN 2009 prescribes a package of obli­ gations for the ship manager, and the main provisions are within Clause 8: Manager’s Obligations: (a)

(b)

The Mangers undertake to use their best endeavours to provide the Management Services as agents for and on behalf of the Owners in accordance with sound ship management practice and to protect and promote the interests of the Owners in all matters relating to the provi­ sion of services hereunder. Provided however, that in the performance of their management responsibilities under this Agreement, the Managers shall be entitled to have regard to their overall responsibility in relation to all vessels as may from time to time be entrusted to their management and in particular, but without prejudice to the generality of the foregoing, the Managers shall be enti­ tled to allocate available supplies, manpower and services in such manner as in the prevailing circumstances the Managers in their absolute discretion consider to be fair and reasonable. Where the Managers are providing technical management services in accordance with Clause 4 (Technical Management), they shall procure that the requirements of the Flag State are satisfied and they shall agree to be appointed as the Company, assuming the responsibility for the operation of the Vessel and taking over the duties and responsibilities imposed by the ISM Code and the ISPS Code, if applicable.

The starting point is that the managers undertake to use their ‘best endeavours’ to provide the management services as agents for and on behalf of the owners. The ‘best endeavours’ clause is commonly used in many types of professional service agreements. However, it may be interpreted as an express undertaking causing an onerous obligation for the service provider. In IBM United Kingdom Ltd v. Rockware Glass Ltd (1980), a UK court defined best endeavours as ‘an obligation to take all those steps in their power which are capable of providing the desired results . . . being steps which a prudent, determined and reasonable owner, acting in his own interests and desiring to achieve that results, would take’. Clearly, this obligation is something less than an

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absolute obligation. The party entering into such an obligation must do more than their second best (Knowles, 2012). There is no doubt that, as a standardised form created by the BIMCO, SHIPMAN tends to represent the ship owner’s interest.The ship manager, therefore, should be careful to evaluate what might be involved in terms of costs, time and the actions that might have to be carried out before undertaking an obligation to use ‘best endeavours’ in relation to a particular activity. It is unwise for the ship manager to accept an all-embracing ‘best endeavours’ clause without specifying the range of possible courses of action and what degree of effort is expected.‘Best endeavours’ is the most stringent one compared with other commonly used terms such as ‘all reasonable endeavours’ and ‘reasonable endeavours’. The latter terms only impose an obligation to do what can reasonably be done in a specific circumstance with regard to costs, commercial viability and the degree of difficulty. Therefore, ‘reasonable endeavours’ and ‘all reasonable endeavours’ can be considered alternative terms to ‘best endeavours’ with respect to the ship manager’s interest. However, there are circumstances when the ship manager has to accept a ‘best endeavours’ clause because of lack of bargaining power.As a precaution, the ship manager should insist on clar­ ifying the scope of endeavours in the management agreement. First, the agreement should make it clear whether the ship manager or the ship owner would bear any costs when the ship manager has to take steps to bring about the desired outcome and, if so, how much the costs should be. Furthermore, it is advisable to spell out the period for which the ship manager should attempt to pursue the objectives.Also, the agreement should clarify what steps the ship manager must take to achieve the objectives, including any legal duty or processes they should follow to bring about the desired consequence. Clause 8(a) of the SHIPMAN 2009 furthers requires that the ship manager provides services ‘as agents’ for and on behalf of the ship owners.This provision further confirms the ship manager’s status as ‘the agent’ and the ship owner as ‘the principal’.The law of agency imposes a wide range of special fiduciary duties for the agent, which will be discussed in the next sections. In addition, the standard of services provided by the ship manager shall be measured ‘in accor­ dance with sound ship management practice’.This should be understood as an objective standard and does not refer to the ship manager’s personal view of the standard of services. However, there is no explanation in SHIPMAN 2009 what ‘sound ship management practice’ is.As explained in Chapter 2, the global maritime industry is very complex and involves different values, culture, stakeholders, uses of technology and degrees and kinds of ethical concerns.There is no widely rec­ ognised understanding of what constitutes ‘sound ship management practice’.To a certain extent, this term has the same effect as ‘best endeavours’. If an accident happens, the ship manager may be easily targeted by the ship owner for not complying with ‘sound ship management practices’, or a dispute may occur regarding the interpretation of the term. Perhaps one of the most notable standards of services on ship management is the United Nations Conference on Trade and Development (UNCTAD) Minimum Standards for Shipping Agents, which were endorsed by the Committee on Shipping at its thirteenth session in March 1988.These standards were set out as the minimum standards and were recommended for use as appropriate. In the standards,‘shipping agent’ means any person (natural or legal) engaged on behalf of the owner, charterer or operator of a ship, or of the owner of the cargo, in providing shipping services, including: (i) (ii) (iii) (iv) (v)

Negotiating and accomplishing the sale or purchase of a ship; Negotiating and supervising the charter of a ship; Collection of freight and/or charter hire where appropriate and all related financial matters; Arrangements for Customs and cargo documentation and forwarding of cargo; Arrangements for procuring, processing the documentation and performing all activities required related to dispatch of cargo;

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(vi) Organizing arrival or departure arrangements for the ship; (vii) Arranging for the supply of services to a ship while in port.

It is clear that the commercial activities provided by the ship manager, as prescribed in Clause 6 of SHIPMAN 2009, falls within this broad range. However, the standards do not introduce any practi­ cal or detailed criteria on what the minimum standards are. Instead, they generally prescribe some requirements in terms of professional qualifications, financial qualifications and a brief code on professional conduct. For example,Article 5, Code of Professional Conduct, requires the following: The shipping agent shall: Discharge his duties to his principal(s) with honesty, integrity and impartiality; Apply a standard of competence in order to perform in a conscientious, diligent and efficient manner all services undertaken as shipping agent; (iii) Observe all national laws and other regulations relevant to the duties he undertakes; (iv) Exercise due diligence to guard against fraudulent practices; (v) Exercise due care when handling monies on behalf of his principal(s). (i) (ii)

These standards are not mandatory in nature and are to serve as guidelines for national authorities and professional associations in establishing their own standards. ‘National authority’ means the body established under national law to implement the legislation governing the registration and licensing of shipping agents (UNCTAD, 1988). In contrast, ‘professional association’ refers to an organisation created for the purposes of: (i) (ii) (iii)

Providing a central organization for those engaged in the profession of shipping agents; Establishing and upholding standards of conduct and practice for the profession; Exercising supervision over the members and securing for them such professional standards as may assist them in the discharge of their duties.

The International Ship Managers’ Association (ISMA), established in 1991, is such a professional association created to ‘improve standards and achieve a safer, more environmentally conscious, reli­ able and controllable ship management industry’ (InterManager, 2020). ISMA has strong input from underwriters, protection and indemnity (P&I) clubs, bankers and charterers and also cooperates with other bodies such as the IMO, ILO, EU and BIMCO. It also has a major focus on the application of the ISO Code of Accreditation as it applies to ship and crew managers (Branch, 2007). One of the most notable achievements of this professional association was the development of the ISMA Code of Ship Management Standard, which was claimed to reflect the highest standard of ship management practices (InterManager, 2016) and to advocate efficiency, quality and ethics in ship management (Gard, 1999).The code is comprehensive and suitable for ship managers, crew managers and ship and crew management divisions of traditional ship owners. It is mandatory for members who are audited by an independent body formed by some leading classification societies, such as DNVGL and Lloyd’s Register (Knight, 2013). The members who satisfy the audit will be accredited a certificate jointly signed by the leading classification societies. Therefore, the ISMA Code is seen by many ship managers as a means of quality assurance (Panayides, 2001). While the ISMA Code represents an important industry practice in the field of ship manage­ ment, it is doubtful that the code can be used to determine whether a ship manager fulfils the obligation of ‘sound ship management practice’. First, for now, the ISMA has about 30 members. Although it plays an important role in the industry, it cannot be claimed that the ISMA represents a majority of the ship managers. Secondly, the reasons for companies joining ISMA vary, ranging from

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a genuine interest in complying with the code to the intention of accruing a competitive advantage from membership (Willingale, 1998). At the same time, the ISMA claims the code represents the highest standard of ship management practices. If it is truly the highest standard, it would be inap­ propriate to apply it in an ordinary ship management agreement. The nature and characteristic of the obligations of ‘best endeavours’ and ‘sound ship manage­ ment practices’ under Clause 8(a) are softened by the second section of the clause which grants the ship manager overall responsibility in relation to all other vessels. However, this provision is not sufficient to relieve the ship manager from a general undertaking to use their best endeavours to provide services. First, it is clearly stated that the entitlement shall have no prejudice to the gen­ erality of the foregoing requirement.At the same time, if there is management oversight, it is very difficult for the ship manager to prove that they could not do better because they have to regard their overall responsibility in relation to other ships. In reality, the provision that the managers can make a decision ‘in their absolute discretion consider[ed] to be fair and reasonable’ is a delusional entitlement only. Clause 8(b) of the SHIPMAN 2009 refers to the obligation in relation to technical management. This obligation focuses on the compliance of requirements of flag states, which extend to the ISM Code and ISPS Code, under the umbrella of the SOLAS convention. The ship manager shall agree to assume the role of ‘company’, which does not simply bear its ordinary meaning as a body corporate. Instead, the word ‘company’ is specially defined in the ISM and ISPS, and it is broadly construed to include any organization or person who assumes operational responsibility for the ship and has agreed to take over, in particular, all of those imposed by the codes (Mukherjee, 2007). It is noteworthy that, according to Clause 8(b), the moment that the ship manager accepts the technical management of the ship, it is considered the ‘company’ under the ISM and ISPS and a package of statutory obligations will arise subsequently, including ensuring the compliance of the maritime governance as discussed in Chapter 2. For example, the ship manager, as the company defined in the ISM, is obliged to take over the duties and responsibilities in relation to the following aspects, regardless if these matters are spec­ ified in the contract or not (Mandaraka-Sheppard, 2013): 1

2

3

4

5 6 7 8

To define different levels of authority and lines of communication between shore and ship­ board personnel, as well as to establish procedures for reporting accidents and non-confor­ mities with the provisions of the ISM Code; To establish a safety management system (SMS) and company policy and ensure that the pol­ icy is implemented properly and maintained at all levels of the organisation, ship-based and shore-based; To designate a person (DPA) or persons ashore having direct access to the highest level of management, who should have authority and responsibility to monitor all aspects of safe operation of each ship; To clearly define the master’s responsibility and issue instructions and orders in a clear and simple manner and ensure that the ship’s personnel are able to communicate effectively in the execution of their duties under the code; To establish procedures, plans and instructions for key shipboard operations concerning the safety of the personnel, ship and protection of the environment; To identify potential emergency shipboard situations and establish procedures to respond to them; To take corrective action and measures to rectify the immediate problem and to prevent the recurrence of accidents, non-conformities (NCs) and hazardous occurrences; To establish procedures to ensure that the ship is maintained in conformity with the provisions of the relevant rules and regulations and that inspections are held at appropriate intervals;

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9

10 11

12 13

To report any NC and analyse its possible causes; to take corrective action and maintain records of these activities; to identify equipment and technical system operational failure, which may result in hazardous situations; To establish and maintain procedures to control all documents and protect data that are relevant to the safety management system; To undertake internal audits on board and ashore at regular intervals not exceeding 12 months to verify whether safety and pollution prevention activities comply with the safety management system; in exceptional circumstances, this interval may be extended by not more than 3 months; To assess the effectiveness and efficiency of the SMS; To ensure that the ship should be operated by a company that has been issued a document of compliance (DOC) and that every ship is issued with a safety management certificate (SMC) in compliance with the code.

The ship manager’s obligations can also be found in some other clauses of the SHIPMAN 2009. For example, Clause 18 prescribes a list of general administrative obligations.The ship managers shall keep the ship owners informed in a timely manner of the management issues, and they shall make available all documentation, information and records with respect to the matters covered by the management agreement.At the same time, they shall handle and settle all claims and disputes aris­ ing out of the management services unless the owners instruct the manager otherwise.According to Clause 19, the ship manager shall make the vessel accessible for the owners’ inspection prior to reasonable notice.

The ship manager’s fiduciary duties As discussed earlier, the ship manager has a duty to perform a range of obligations according to the terms agreed with the ship owner, including using their ‘best endeavours’ to provide the services ‘in accordance with sound ship management practice’. In addition, the ship manager is subject to a wide spectrum of fiduciary duties arising due to its position as the agent of the ship owner. Agents are normally subject to some special duties arising from the fiduciary nature of the agency relationship. This is because the principal normally places trust, authority and confi­ dence in the agent, and the agent has extensive power to affect the legal relations of its principal. In these circumstances, the sole written agreement is not enough to protect the principal, so equity will intervene and subject the agent to more strict duties in order to protect the principal from any abuse of power by the agent (Clarke et al., 2017). Fiduciary duties focus on the values of loyalty and fidelity. As Millett LJ explained in Bristol and West Building Society v. Mothew [1998] Ch 1 (CA) 18: A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.The distin­ guishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary.This core liability has several facets.A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal.This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations.They are the defining characteristics of the fiduciary.

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Duty to act for the best interest of the ship owner As the fiduciary agent of the ship owner, the ship manager, first of all, has a duty to do everything in the best interest of the owner.This is both a fiduciary duty and a contractual obligation under SHIPMAN 2009, as Clause 8(a) requires the ship manager to ‘protect and promote the interests of the Owners in all matters’.As a result, the ship manager must act in the way it considers, in good faith, would be most likely to promote the success of the ship owner’s business. In doing so, the manager must have regard, amongst other matters, to: 1 2 3 4 5

The likely consequences of any decision in the long term; The interests of the ship owner’s employees, including seafarers who need special protection; The need to foster the ship owner’s business relationships with suppliers, customers and others; The impact of ship operations on the maritime community and the environment; The desirability of the ship owner to maintain a reputation for high standards of business conduct and corporate social responsibility (CSR).

Most ship owners around the world are incorporated as a ‘one-ship company’ (or ‘single-ship com­ pany’) by splitting up their ships in the fleet into different companies. These individual single-ship companies are normally controlled by a group or holding company.The purpose of doing so is to allow the ship owner to limit the liability to the value of each ship (Luksilakul, 2015).When acting for a separate single-ship company, the ship manager should also have regard for the interest of the corporate group and take into account the whole of the existing circumstances.

Duty to act within the scope of authority As discussed earlier, the ship manager has a duty to act within the scope of authority conferred by the ship owner.The scope of authority can be universal, general or special. Universal authority gives the ship manager a very broad range of powers to act on behalf of the ship owner. It may extend to all aspects of ship operations with very limited restrictions. Also, the period of authority tends to be continuous until the ship owner terminates the authority by giving notice.This often happens when the beneficiary ship owner is a financial institution investor without any ship operation expe­ rience. General authority gives the ship manager the powers to act on behalf of the ship owner in a more limited scope, such as one or several categories of business. In contrast, special authority only gives the ship manager the power to conduct either only a single transaction or a specified series of transactions over a limited period of time (Huffcut, 1999).The ship manager must be careful during the conduct of the owner’s business to make sure they strictly work in accordance with the terms and conditions of the agreement. Under the circumstances when they realise that they may have to work beyond the limit for the interest of the owner, they need to request the owner to extend the scope of the authority. However, the validity of an act conducted by the ship manager may not be called into question on the grounds of lack of capacity by reason of any restrictions in the management agreement. In favour of a third party dealing with the ship manager in good faith, the act beyond the scope of authority still binds the ship owner if the third party reasonably believes the ship manager has the authority.

Duty to act with reasonable care, skill and diligence SHIPMAN 2009 provides the manager with an entitlement under Clause 17(b) which attempts to either limit, exempt or exclude the ship manager’s liability to the ship owner for any loss, damage, delay or expense. However, in the meantime, the ship manager has a duty to exercise reasonable

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care, skill and diligence when performing the management agreement. This duty contains both a subjective and an objective requirement. On the one hand, there is a subjective test.The ship man­ ager does not need to exhibit a greater degree of skill than may reasonably be expected from an ordinary ship manager. Instead, the ship manager just needs to have the general knowledge, skill and experience that may reasonably be expected of a ship manager carrying out the functions in rela­ tion to the ship management business. However, the ship manager has a continuing duty to acquire and maintain a sufficient knowledge and understanding of the standards of services in order to enable them to properly discharge their duties as the ship manager. For example, the ship manager should continuously familiarise themselves with the latest developments of maritime regulations and new requirements to ensure the owner’s interest is taken care of. On the other hand, there is an objective test.The ship manager needs to have the knowledge, skill, experience and competence that are expected of this specific manager.This can be examined in the context of and by reference to how a management agreement is negotiated and agreed to. For example, a ship owner may have a very high expectation from a large and reputable firm after paying a generous management fee. In contrast, the test may also allow inherently poor ship managers to escape liability for the ship owners’ loss or damage, even when most reasonable people would have regarded their decisions as obviously negligent.

Duty to avoid and disclose conflicts of interest The ship manager’s duty to avoid and disclose conflicts of interest is two-fold. First, the ship manger must avoid a situation in which it has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the ship owner. Second, the ship manager should avoid or, if it cannot avoid, disclose the involvement of the business that may cause conflicts of interest between its existing clients. As discussed in Chapter 1, today most ship management firms are professional and indepen­ dent third-party organisations. One crucial reason why a ship owner would like to subcontract its ship management to an external party is that the owner understands that the external party is not carrying out the same business for the competition. It is also explained in Chapter 2 that profes­ sional ship managers should have no financial stake in the vessels they are managing. In addition, ideally, they should not own or have an interest in any vessel at all, including the interest in a vessel through time or bareboat chartering. However, today it is not uncommon to see some ship man­ agement firms who also own or operate ships by chartering.This may inadvertently cause conflicts of interest between the clients and themselves. Also, some ship managers receive a commission from the seller when they buy supplies on behalf of the ship owner, such as bunkering or provision supplies. This also causes conflicts of interest even though the owner suffers no loss. The duty applies even when the ship manager gets a benefit by promoting someone’s product to the owner or referring the owner to a particular product. For example, the ship manager is permitted, or even obliged under the commercial agreement, to publicise the vessel’s movement to the freight market, aiming to promote the owner’s business opportunities. However, when the manager receives a commission for providing the information to a specific shipbroker, the duty to avoid conflicts of interest has been breached.The exploitation of any information, property or opportunity by virtue of their position as the ship manager constitutes a violation of this duty. It is immaterial whether the exploitation causes any loss or damage to the ship owner or not (Spruyt, 1994). In addition, the ship manager should not be involved in activities that may cause conflicts of interest between the existing ship owner clients. When the ship management firm is managing a large fleet belonging to a wide range of clients, it is certainly not possible to avoid this kind of conflict of interest. However, the ship manager must act with honesty and integrity and act fairly between the ship owners to protect its clients against unfair prejudice. When they realise that a

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conflict of interest has arisen, the ship manager should disclose the situation frankly to its clients to make sure the clients can always make informed decisions.To maintain a high level of professional­ ism, accountability and independence is crucial to uphold ship owners’ trust and confidence in the ship manager’s services and even the overall ship management industry.

Other duties Besides the duties discussed earlier, the ship manager also owes to their ship owner clients some other fiduciary duties under the law of agency. For example, the ship manager has a duty to account. This duty includes keeping accurate financial records and taking receipts of all their dealings on behalf of the ship owner.The manager also needs to hand over or otherwise account for all monies or property in their possession where these have been received for the ship owner. If the man­ ager receives any secret benefits or commission from a third party, he or she has to pay over and account for this because the benefits or commission are deeded to receive on behalf of the princi­ pal. Furthermore, the ship manager has a duty of confidentiality.They are obliged to preserve ship owners’ confidential information, including financial situation, sensitive data, marketing strategies, business plans and so on.This duty will continue even after the agency relationship with the ship owner ends.Also, the ship manager has the duty of loyalty and good faith, duty not to accept bribes and duty not to profit from and abuse the position as the agency of the ship manager.

Management of risk and insurance Risk is everywhere. It is an unavoidable feature of commercial activity. According to the latest version of ISO 31000, it is described as ‘the effect of uncertainty on objectives’ (Tranchard, 2018). More specifically, Hubbard (2020) defines risk as ‘a potential loss, disaster, or other undesirable event measured with probabilities assigned to losses of various magnitudes’.The undesirable event could be just about anything, such as natural disasters, pandemic, bankruptcy of a major client, polit­ ical instability, workplace accidents resulting in damage of goods or human injuries. As discussed in Chapter 2, merchant ships are operating in a very dynamic and challenging environment. Ship owners and managers are therefore facing various sources of risks. Some major types of risk in the ship management business include economic risk, compliance risk, financial risk, political risk, credit risk, operational risk and so on. As mentioned in the first section of this chapter, to manage these risks constitutes an import­ ant part of commercial management. Risk management is defined by Hubbard (2020) as ‘the iden­ tification, analysis and prioritisation of risks followed by coordinated and economical application of resources to reduce, monitor and control the probability and/or impact of unfortunate events’.As the definition suggests, the process of risk management includes the analysis and mitigation of risks, as well as the establishment of risk tolerance and the management of the resources for doing all of these tasks. All these components of risk management are important, but this section will only focus on some basic measures taken by the ship manager to manage their commercial risks. Some other aspects will be discussed in the following chapters. As the agent of the ship owner, the ship manager undertakes vast responsibilities and duties, so they tend to face the risk of being liable not only towards third parties but also towards their principals. Many liabilities to third parties that could arise from these services are discouraged by Clause 3 of SHIPMAN 2009, which states that the manager ‘shall carry out Management Services in respect of the vessel as agents for and on behalf of the Owners’.With this provision, the manager is protected to a large extent from the liabilities and claims by virtue of agency contract law and the doctrine of vicarious liability.2 According to the law of agency, the principal is normally liable for the

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breach of any contract terms to a third party. Also, for a tortious act of an agent in the course of its business, vicarious liability arises and the principal is normally answerable for the consequence. However, this protection is not watertight. First of all, when the ship manager is working for an undisclosed principal and the third party is not aware of the existence of the principal, the manager may face a claim and be sued directly by the third party. For example, very often many ship man­ agement companies sign employment agreements with seafarers directly without disclosing the identity of the ship owner. Under the seafarer employment agreement, the ship manager is deemed to be the employer and can be liable for unpaid wages or seafarers’ injury or death related to this employment. Of course, the ship manager can recover the compensation from the owner, but they may have to pay the seafarer in the first place. Furthermore, the ship manager is exposed to the liabilities which are imposed by the maritime environment law ranging from international regulations, from EU law to national law. For example, according to the International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001 (Bunker Convention),‘ship owner’ means the owner, including the registered owner, bareboat char­ terer, manager and operator of the ship.As a result, the manager may face the same liability as that of the owner for pollution damage caused by any bunker oil on board or originating from the ship under their management. A similar rule applies in the International Convention on the Removal of Wrecks when the ‘manager’ is included in the definition of ‘Operator of the Ship’. In addition, the duties in the EU Ship Recycling Regulation to provide information about the ship which is to be scrapped and to ensure that the ship is recycled at an approved facility are also imposed on the ship manager (Gjelsten & Hanevold-Sandvik, 2018). At the same time, if the manager fails to perform their contractual obligations as per the management agreement and sound ship management practice, they will be exposed to contractual liability to the ship owner. In SHIPMAN 2009, this liability to the other party has been dealt with by exclusion, exemption and limitation provisions in the agreement.According to Clause 17(a), neither party shall be liable for any loss, damage or delay due to the listed force majeure3 events and/or conditions, such as acts of God, government requisition, riots, epidemics, extraordinary weather conditions, strikes, lockouts and other similar causes beyond the reasonable control of either party. While most boilerplate force majeure clauses are quite similar, the ship manager needs to devise the clause based on its specific risk management strategy. Also, where any force majeure event happens, the ship manager needs to take relevant measures to invoke the effect of this clause, such as giving notice, minimising the impact and collecting evidence. Under Clause 17(b), the ship manager’s liability to the owner is exempted unless the owner’s loss, damage or delay or expense has resulted solely from the negligence, gross negligence or wilful default of the managers or their employees or agents or sub-contractors employed by them in con­ nection with the vessel. Save where loss, damage, delay or expense has resulted from the manager’s personal act or omission committed with the intent to cause the same or recklessly and with the knowledge that such loss, damage, delay or expense would probably result, the manager’s liability for each incident or series of incidents giving rise to a claim or claims is limited to a total of ten times the annual management fee payable under the agreement. Compared with the loss and damage often suffered by the ship owner in many marine acci­ dents, the limit of the manager’s liability under SHIPMAN 2009 seems to be quite low. The con­ sideration behind this limitation clause is that the managers should be able to limit their liability so that they can insure it, except in particularly culpable situations. It is a common practice in the ship management business to limit the ship manager’s liability by referring to the level of the annual management fee per ship. By doing so, it is possible to strike a reasonable balance between the funds received by the mangers on the one hand and their exposure for insurance purposes on the other (Mandaraka-Sheppard, 2013). However, if the manager’s act was committed purposely or recklessly with knowledge of the likely outcome, the limitation provision will not apply and liability

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to the owner can be far beyond the ten times annual management fee. It is also noteworthy that the ten times fee limitation applies to each occurrence. If the ship runs into a series of accidents giving rise to different claims, the ship manager’s liability may also exceed the ten times management fee limitation (Spruyt, 1994). The ship manger’s liability to third parties can be dealt with by two means: indemnity clause and insurance policy.According to Clause 17(c) of SHIPMAN 2009, the ship owner undertakes to keep the ship manager and their employees, agents and sub-contractors indemnified and to hold them harmless against all actions, proceedings, claims, demands or liabilities whatsoever arising out of or in connection with the performance of the management agreement.This provision is further strengthened by Clause 17(d) ‘Himalaya’. A Himalaya clause is a contractual provision intended to confer a benefit on an entity that is not a party to that contract. It was originally designed to provide agents, servants and sub-contractors of a carrier with the same protection afforded to the carrier by the contract of carriage of goods by sea (Merkin, 2013).According to Clause 17(d), every exemption, limitation, condition and liberty contained in the agreement and every right, exemption from liability, defence and immunity application to the manager or to which the managers are enti­ tled shall also be available and extended to protect the manager’s employee or agent. Risk management has long been associated with the use of market insurance to protect indi­ viduals and companies from various losses associated with accidents. It is certainly crucial for the ship manager’s liabilities to the owner and third parties to be covered by insurance policies. According to Clause 10(c), the owner’s insurance shall name the ship manager and any third party designated by the manager as a joint assured, with full coverage. As a result, the ship manager is often jointly assured with the ship owners in the vessel’s P&I4 coverage. However, there are several issues with respect to this clause. First, whether the ship manager has a valid insurable interest. Mandaraka-Sheppard (2013) considers that the ship manager has a valid insurable interest because ‘he stands in a legal relationship to the ship that he is contracted to manage, and he might benefit by its safety or might be prejudiced by its loss’. Secondly, the ship manager is named in a number of IMO conventions as being responsible for various defaults, so the manager is exposed to various liabilities, which also constitutes an insurable interest. This will lead to the second issue: as a joint assured, whether the ship manager is responsible for paying the premium, release calls or deductibles arising in connection with the owner’s insur­ ance.A joint assured, typically a joint owner of the vessel, is normally considered a member of the club.This confers on the joint assured the same entitlements as the policyholder. In the meantime, most P&I club rules dealing with joint members provide that all joint members are jointly and sev­ erally liable for unpaid calls (Semark, 2013). The second part of Clause 10(c) states that ‘the owner shall procure such insurances on terms such that neither the managers nor any such third party shall be under any liability in respect of premiums or calls’. However, a pre-condition is given to this undertaking:‘if obtainable at no addi­ tional cost’, so the ship owner is not obliged to procure such insurances on such terms if the cost is higher.Also, the terms between the ship owner and the manager do not affect third parties, such as the insurer.There is a risk that if the ship owner fails to pay the full amount of premium or calls, despite the previously mentioned terms in the policy, the ship manager may still be liable for paying the unsettled premium and calls. Another option for the ship manager is to be insured as a co-assured.A co-assured is a party to the contract of insurance, so he or she is entitled to the benefit of the contract of insurance as of right, by virtue of the terms and conditions agreed when he or she was named (Gard, 1997). Typically, a co-assured will have a direct operational, manning or financial interest in the vessel or unit covered and will be named under the co-assured list on the Certificate of Entry (CoE), along with their full company name and role in operations (Skuld, 2018). Unlike a joint assured, a co-as­ sured is not considered a member of the club. He or she is merely named as an assured on the

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CoE and thus entitled to the protections provided under the coverage. Co-assureds are not enti­ tled to membership in the club, and therefore they do not have the same rights as members. For example, they have no voting rights in the club (Gard, 1996). However, to enjoy the benefit under the coverage, a co-assured is normally jointly and severally liable for all sums due to the club under the policy on which they are named as co-assured, including outstanding premium, supplementary calls and deductibles (Skuld, 2018). In order to cater to different situations, many P&I associations provide coverage for affiliates as an alternative to the earlier co-assurance (Dorfman, 2002). In many cases, a non–ship owning entity may face ‘misdirected arrow claims’ which would more appropriately have been directed against the vessel or ship owner. Misdirected arrow coverage applies under the circumstances where a co-assured is held liable for paying in the first instance for loss or damage which is properly the responsibility of the member of the club. It extends only to those amounts which would be recov­ erable from the club had the claim with respect to such loss or damage been made or enforced against the member (Gard, 1997). Under the so-called ‘umbrella of a member’s entry’, the clubs extend a ship owner’s coverage to non–ship owning entities, such as the ship manager.This coverage is also known as ‘Group Affil­ iate cover’ or ‘Cover for Co-assured Companies’ (Semark, 2013). By doing so, the ship owner as a member of a P&I club is afforded an extension of the benefit under the coverage. In such a case, the ship manager’s protection is of a dependent character and exists only as an extension of the coverage to the owner.As a result, the ship manager will not be held liable for any outstanding calls owned by the ship owner.5 However, the issue with this arrangement is that the ship manager is not a party to the insurance policy and therefore he or she is not automatically entitled to the benefit under the coverage. After an incident has happened, the club, in its sole discretion, may agree to extend coverage to the ship manager but has no obligation to do so (Gard, 1997). Some ship managers feel that it is not necessary to be named as co-assureds on the owner’s CoE.Where the ship manager is acting within the authority only as an agent of the ship owner and has never taken over any of the owner’s responsibilities in their own name, for their own account and at their own risk, then the ship manager may feel that he or she has enough protection based on the agency relationship between the owner and himself or herself. Any claims connected with the vessel should be appropriately brought against the owner as the principal, not their agent, so it is not necessary to have a co-assured coverage. Also, the ship manager may feel that the terms and conditions of the ship management agreement place all risks with the owner, so it is unlikely to have any risk to cover.Another reason is that the ship manager does not want to be involved in any responsibility to pay premiums, calls, deductibles or any expenses relating to the insurance policy. However, without co-assurance, it may cause significant risks to the ship manager. First of all, the ship manager may function beyond the scope of authority or fail to prove he or she is acting solely in the ship owner’s name and will consequently be held liable for a claim. Even when the manager is acting strictly as an agent of the owner, co-assurance may still generate important benefits for the ship manager. For example, the manager is on the front line of ship operations, so he or she tends to be exposed to misdirected arrow claims even as an agent.As a result, the ship manager may be held liable for paying a claim in the first instance. At the same time, regardless of how wonderful the management agreement with the ship owner is, if the ship owner goes bankrupt or is unable to perform its obligations, the manager is thereafter exposed to all the risks (Gard, 1997). In many cases, the ship manager needs also to be jointly insured with the ship owner in the owner’s hull and machinery (H&M) insurance for the ship.This is particularly important if the ship manager provides technical management or the nature of other duties the manager undertakes needs this protection (Mandaraka-Sheppard, 2013). For the same reason explained earlier, the ship manager should be careful that they will not be liable for the unpaid calls. For example, according to Clause 16.1 of British Marine’s Hull and Machinery General Terms and Condition, joint assureds

COMMERCIAL MANAGEMENT

shall be ‘jointly and severally liable to pay the premium due under the Policy’. Also, some H&M underwriters may not want to extend the coverage to the ship manager because they would rather see the ship manager as a target for a claim from them in subrogation instead of as a co-assured (BIMCO, 2005). Also, there are claims against ship managers that are not caught in the P&I and H&M insurance, so they need additional protection to cover the residuary liabilities. First, where the ship manager has acted negligently, the contract makes the manager liable for negligence to the ship owner, subject to the contracted limit of ten times the annual management fee. Secondly, where the ship manager has acted outside their authority or beyond their function as a ship manager, they may have to face a claim and liable for the consequence in their own name (Spruyt, 1994). In addition, even though the ship manager is jointly insured with the ship owner under the P&I and H&M insurance, he or she may not be fully protected.The first common reason is that most insurance products have a deductible amount that the insured is not able to recover. Furthermore, under a joint insurance policy, the protection of the ship managers has to stand or fall together with that of the ship owner’s protection. It is associated with a risk that the manager can be vulnerable in cases in which the ship owner is guilty of, for example, wilful misconduct, or breach of statutory regulations or the insurers’ compulsory rules. Accordingly, the ship owner may lose their entitle­ ment to the insurance or the amount of compensation is significantly reduced.As a result, the ship manager will only recover from the insurer to the extent that the owners themselves would have been entitled to recover, or maybe nothing at all.Also, if the ship owner can limit their liability but the ship manager cannot, the ship manager may find themselves uninsured for the amount of the claim beyond the ship owner’s limitation (Mandaraka-Sheppard, 2014). The ship managers usually have professional insurance provided to cover residuary liabilities, which for some reason may not be covered by the ship owner’s P&I and H&M insurance. For exam­ ple, the International Transport Intermediaries Club (ITIC) is one specialises in the insurance of transport intermediaries, such as ship managers, port agents and shipbrokers, who may be exposed to professional negligence claims and risk being held responsible for the liability of others (Spruyt, 1994). The ITIC was formed in 1992 through the merger of CISBA CLUB, a mutual insurer of shipbrokers, founded in 1925, and Transport Intermediaries Mutual Insurance Association (TIM), founded in 1985 (ITIC, 2020).The major liabilities covered by the ITIC include failure to maintain the ship, appointing unqualified crew, failure to arrange insurance, error in fixing the ship and other negligence claims against the ship manager. In most cases, the insurance coverage offered by the ITIC makes it a condition that the ship manager shall be named as a co-assured in all insurances taken out by the ship owner with respect to the ship under their management. In practice, some ship owners do not name independent ship managers as co-assured on their H&M policies.According to BIMCO (2005), it is a highly dangerous practice that may leave ship managers exposed to large claims from third parties for which they may be uninsured. One important aspect of the ITIC insurance is to cover risks for claims brought by third parties against the ship manager when the ship owner’s indemnity is inoperative or the ship owner has gone into liquidation. It also covers legal costs in defending claims or in pursuing claims against others (Mandaraka-Sheppard, 2013).As can be seen, the ship manager needs to have multiple sources of protection, rather than just relying on one type of insurance policy.

Notes 1

The doctrine of privity of contract is a common law principle which provides that a contract cannot confer rights or impose obligations upon any person who is not a party to the contract.The premise is that only parties to contracts should be able to sue to enforce their rights or claim damages as such.

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2 By virtue of the doctrine of vicarious liability, a principal/employer is liable for an agent/employee’s negligent actions if they were committed in the course or scope of the employee’s employment or are closely con­ nected with what the employee is authorised by the employer to do.Vicarious liability arises when a princi­ pal is answerable for the tortious act of an agent in the course of its business. 3 Force majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, epidemic or an event described by the legal term act of God, prevents one or both parties from ful­ filling their obligations under the contract. In practice, most force majeure clauses do not excuse a party’s non-performance entirely, but only suspend it for the duration of the force majeure. 4 Protection and indemnity insurance, or as it is more commonly known, P&I, is a form of mutual maritime insurance provided by a P&I club to protect the ship owners against liability claims from crew, passengers and third parties. Liability claims include those such as collision, property damage, pollution, environmental damage and removal of wrecks. 5 InNewcastle Protection & Indemnity Association v.V. ship (USA) Inc and Ship Management SAM [1996] 2 Lloyd’s Rep 515, unlike the provision dealing with joint entries, the rules dealing with group affiliates did not render them liable for calls or other sums due to the club. It was held that in the absence of such a provision in the club rules or in the Certificate of Entry, the club had no right to claim for unpaid contribution from such affiliates (Semark, 2013). See also the case O’KANE v. JONES (The “Martin P”) [2003] EWHC 3470 (Comm).

Chapter 5

Operations management

The previous chapter examined some key issues relating to commercial management. As we can see, the vision and strategic objectives of a commercial organisation can only be realised through the completion of each process of commercial activities. This chapter discusses operations man­ agement, which plays a central role in ensuring the success of commercial activities. In general, an organisation’s commercial success relies on the implementation of operations management, which is a key to achieving competitiveness in any manufacturing or service industry. It involves planning, organising and supervising processes and making necessary adjustments for higher profitability (Belyh, 2019). In the meantime, active collaboration between different organisational departments is needed to ensure optimal outcomes for both the organisation and its clients. Operations man­ agement is the activity of managing the resources that produce and deliver services or products required by customers. Every organisation has an operations function because every organisation produces some category of service or product, which will generate profit for the organisation. Operations management is particularly important in the ship management business due to the special features and characteristics of shipping business, as was discussed in Chapter 2. Ship man­ agement companies are service organisations, which deal with delivering service to ship owner customers.An operations manager has a wide range of responsibilities to ensure that ships under their management run smoothly and safely for the ship owner clients.

The concept of operations management In the commercial world, operations can be seen as one of the many functions within an organi­ sation, such as marketing, workforce, technology and finance.The operations function is normally described as the aspect of the structure devoted to the creation or delivery of goods and services. It is obvious that all organisations need to undertake operations activities because every organ­ isation creates goods or services (Porter, 2011). However, the role of operations is much larger than just that of implementing an organisation’s strategies. According to Bettley et al. (2005), it is the foundation for, and the driver behind, successful strategic planning and implementation. In many cases, the key to success is often an operations-based advantage (Hayes & Upton, 1998).Therefore, like any activities, operations needs management to ensure planning, financial and risk control, development, resource allocation and communications are conducted in a coordinated way. Kamauff (2009) defines operations management as ‘the direction and control of the processes that transform inputs into outputs for customers’, including finished goods or services. A process is a set of coordinated activities combining and implementing resources and capabilities to produce an outcome. It is also considered a structured set of activities designed to accomplish a specific objective which, directly or indirectly, creates value for an external stakeholder or client (GBO, 2007). The basic inputs to the operating processes are labour, capital and material (Mahadevan, DOI: 10.4324/9781003081241-5

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2010). Operations management is critical to the lives of all of us because, in nature, it is responsible for the production and delivery of all the products or services that we need for our daily lives (Barnes, 2018).According to Kachru (2009), operations management constitutes all of the activities that an organisation conducts in order to deliver value to its customers. It includes a set of pro­ cesses that transform either materials or information into a product or service. Jones & Robinson (2012) commented that operations management actually underpins most of human activities and shapes the society in which we live. According to Collier & Evans (2009), operations management is both a science and an art of ensuring that goods or services are produced and delivered successfully to customers. It involves working with things and with people, with certainties and with possibilities, probabilities and risks. According to Kamauff (2009): The science includes understanding the processes, tools, and techniques.The art is in applying them effectively within the context of the people who provide the inputs, the people who process the inputs into outputs, the people who deliver the outputs, and the people who buy those outputs. Operations management is a systematic approach which involves addressing various issues to be dealt with by an organisation. The objectives of operations management are to ensure that the organisation is able to ‘keep costs to a minimum and obtain revenue in excess of costs through careful planning and control of operations’ (Mahadevan, 2010) and to maintain ‘delivery reliability’ and ‘product quality’ (Kachru, 2009). Effective operations management entails the design and con­ trol of systems responsible for the productive use of all resources, including materials, facilities, equipment, people and in developing goods or services. It encompasses planning, sourcing and procurement, production, inventory, marketing, distribution, sales, supply chain management, quality management, management information systems and many others (Kamauff, 2009). Operations managers are the people who have specific responsibility for managing some, or all, of the resources that are needed for carrying out corresponding operations functions (Kachru, 2009). In different organisations, the operations manager could be called by some different names. For example, they might be called the ‘fleet manager’ in a distribution or shipping company, the ‘administrative manager’ in a hospital, or the ‘store manager’ in a supermarket (Slack et al., 2016). In order for operations managers to succeed, they need to take some steps: plan, implement the plan and monitor the processes. In the meantime, they must make the most of the financial, human and materials assets available to them (Kamauff, 2009). For example, some key activities that operations managers need to do include (Collier & Evans, 2009): ●● ●● ●● ●● ●● ●● ●● ●●

Translating market knowledge of customers to design and manage goods, services and processes;

Helping organisations do more with less;

Ensuring that resources (labour, equipment, materials, and information) and operations are

coordinated; Exploiting technology to improve productivity; Building quality into goods, services, and processes; Determining resources capacity and schedules; Creating a high-performance workplace; Continually learning and adapting the organisation to global and environmental changes.

Organisations can be broadly classified, in terms of their outputs, as either manufacturing or ser­ vices. Manufacturing organisations produce physical, tangible items which can be stored as inven­ tory before delivery to the customer. Service organisations produce intangible items that cannot be

OPERATIONS MANAGEMENT

produced ahead of time. One of the key developments in operations management is the increasing importance of service operations because the service industry accounts for an increasing propor­ tion of the output of industrialised economies (Porter, 2011). However, in a globalised commercial environment, there is fierce competition between various service providers (Heskett et al., 2008). Today’s organisations are facing the challenge that customers are expecting higher levels of service throughout all levels of engagement (McLaughlin, 2009). To maintain a competitive advantage, the service organisation needs to develop, adapt and continuously improve their capabilities to ensure alignment with changing business requirements and objectives. Irrespective of the type of business, all services organisations need to consider how to best meet their clients’ expectations through service operations management. According to Johnston & Clark (2008), service operations management is concerned with delivering service to the customers or users of the service. It covers the activities, decision and responsibilities of operations managers in service organisations.The primary objective of service operations is to make sure that the required services are delivered effectively and efficiently while maintaining the highest quality of service. Compared with manufactured goods, service operations have some unique features (Kachru, 2009), such as: ●● ●● ●● ●● ●●

Most services are intangible so they cannot be inventoried;

Demand for services is difficult to predict/model;

Capacity is also difficult to predict;

Service capacity must be provided at the appropriate place and time;

Labour is usually the most constraining resource for services.

Furthermore, according to Barnes (2018), due to the nature of a service operation, it is much more difficult to define and measure the quality of a service.This is different from the quality of a product, which can be defined and measured in terms of its functionality. In contrast, the quality of a service can often only be judged by its recipient.To a certain extent, it often depends on the perception of the client. It is not surprising that such perceptions can vary significantly between one client and another and between the client and the service provider. As a result, the quality of service often depends on the psychological state of a customer at the time of consumption, which happens simultaneously with the time of delivery (Schneider & White, 2004).At the same time, some other factors modify the customer’s perception of quality and consequently affect the organisation’s competitiveness, such as service delivery speed, delivery reliability, response to demand changes, flexibility, location of service and continuity of support (Kamauff, 2009; Parker, 2018). Ship management is a service-oriented, customer-focused and process-based framework, and ship management companies are service organisations.They respond to the requirements of their customers (namely ship owners) and satisfy their needs through a service delivery process. The ship manager has to deliver a wide array of services, including ship manning, victualling, stores arrangements, ship chandler procurements, repairs, maintenance and drydock supervision. In the maritime sector and with respect to ship management, the term ‘operations management’ has a dual meaning. Firstly, ship managers need to direct and control the processes of routine ship opera­ tions on behalf of the ship owner.This includes providing well-qualified personnel on board to over­ see and participate in cargo operations, safe navigation, machinery operation, ship maintenance and ensuring compliance with key performance indicators (KPIs) and familiarity with the latest national and international legislations.The second aspect is contractual – the ship manager’s services should comply with the ship management agreement and meet the expectations of the ship owner clients. The former can be flexible and subject to varying interpretations, often depending on the business environment, and may differ on a case-by-case basis, as ship operations themselves are not uniform and vary temporally, spatially and geographically. In some ways, one could say that the multifarious heterogeneity of maritime operations is in fact the norm, and thus can often be highly challenging.

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The ship manager, also referred to sometimes as ‘technical ship manager’, has a wide range of responsibilities relating to operations management aimed primarily at ensuring smooth operations at sea and in port.The high levels of competition in the industry make it necessary to improve qual­ ity, productivity and efficiency of ship operations. More specifically, the main responsibilities include: ●● ●●

●● ●●

●● ●● ●● ●● ●● ●● ●●

Supervising day-to-day operations of the ship including budget control, navigational safety, cargo, maintenance, ballast and tank cleaning, marine pollution prevention and inspections; Maintaining safety standards, ensuring compliance with legal regulations and company policies, implementation of procedures, acting as a member of the emergency response team when needed; Conducting internal audits and following up on the non-conformities and corrective action reports; Taking part in the monitoring and analysis of operational data to ensure potential problems are averted and providing guidance to vessels, fleet managers and senior management team on any special requirements; Setting up KPIs and monitoring to view the progress of the company’s business goals. Providing advice to the vessels and fleet management team on cargo requirements, tank clean­ ing, stability and stress and to maintain all statutory requirements for the vessel; Defining high-risk jobs and approving or disapproving after scrutiny, therefore assisting the ship staff in evaluating the risks; Sharing incidents and near-misses among the fleet to spread awareness and caution. Periodically reviewing the safety management system (SMS) befitting the latest conventions and regulations; Organising safety campaigns and crew training to promote onboard safety; Collaborating with other departments and stakeholders to optimise service delivery and enhance customer’s satisfaction.

The ‘sea voyage cycle’ The tasks performed by the ship manager are numerous and can disorientate the observer who wishes to study and understand them. One way of resolving this and understanding the ship man­ ager’s role is to use what we have called the ‘sea voyage cycle’. Similar to the guest cycle model used in the hospitality industry and the product cycle used in product development, the sea voyage cycle attempts to break down the ship manager’s role from a spatial perspective based on the geographical location of the ship, its voyage and the related tasks that are performed.The purpose of efficient ship operations is to ensure that cargo is loaded smoothly at the load port; carried safely at sea using the shortest, safest route; and discharged smoothly at the discharge port, thus completing one successful sea voyage. The main function of the ship manager is to support and facilitate the ship owner in delivering the shipping services. This is done by three teams on board, namely the deck department, which includes the navigators; the engine department; and the small catering department that makes meals for the onboard team.This shipboard team is supported by the ship manager ashore through the collaboration of a number of departments. For example, a manning department arranges for crew signing-on and signing-off and their monthly salary remittances.1 It also involves a technical department consisting of a ship superintendent who monitors and supports the ship on a daily basis with support staff, a quality department which assists in International Safety Management (ISM) audits and a commercial department which assists in cargo-related matters. Together they form what could be referred to as the operations team ashore. While these duties are broadly

OPERATIONS MANAGEMENT

defined, their practice is largely determined by the type of ship, the characteristics of a specific sea voyage, the number and location of the ports visited and operational tasks during the different stages of the voyage, including the port stay for cargo operations.2 From an operations perspective, a sea voyage can be divided into five distinct phases: ●●

●●

●●

●●

●●

Pre-arrival: • Sailing; • Waiting in anchorage; Arrival: • Pilotage operations; • Berthing operations; Port stay: • Cargo operations; • Ship repair and supplies; • Crew affairs; Departure: • Pre-departure; • Departing from berth; Post-departure: • Sailing; • Waiting in anchorage.

As shown in Figure 5.1, these five phases together constitute the sea voyage cycle, which is then repeated when the ship proceeds to its next port.The next section describes the role of the ship manager in detail from an operations perspective.

Figure 5.1 The sea voyage cycle

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Operations in each phase of the sea voyage cycle In each phase of the cycle, certain categories of operational tasks are conducted by the respon­ sible persons ashore and offshore. While some tasks are general and carried out daily irre­ spective of where the ship is, a number of specific actions need to be undertaken under each category. For example, for the appointment of the port agent (pre-arrival stage), the ship man­ ager needs to investigate whether the charterer or owner has a pre-appointed agent or not. In case of the latter, the ship manager needs to investigate the background of the agent, set out the scope of authority, negotiate the agency fees, confirm the appointment with the ship owner and send the agent details to the shipmaster.There are different types of port agents based on the tasks that they carry out on a daily basis. For example, owners’ and charterer’s agents pri­ marily carry out cargo-related tasks and the ship’s inbound and outbound clearance with port authorities. In contrast, husbanding/husbandry agents normally carry out non–cargo-related activities, such as crew changes. During the post-departure stage, the ship manager needs to pay resulting dues to this port agent based on the “pro forma disbursement account” (PDA) and related invoices. Thus, as can be observed in Figure 5.1, there is a range of operational tasks to be conducted in each phase of the ship’s sea voyage cycle. While some tasks are conducted by the ship man­ ager (for example, arranging for the delivery of ship stores), the ship’s master and crew are often directly responsible for conducting others (such as safe navigation). However, being their immediate employer, the ship manager has the duty of supervising the performance of these tasks.This is done through daily email communications, telephone calls, regular reports and superintendent visits to the ships. Due to logistics and costs, the latter is usually carried out once or twice a year, though this frequency may change depending on the ship’s condition, location of the ship manager and the location of the ports where the ship calls.

Pre-arrival operations phase Pre-arrival operations include tasks typically related to port preparation. Cargo- and mooring-re­ lated operations are usually undertaken by ship staff, while stores, supplies, repairs and survey-re­ lated tasks are undertaken directly by the ship manager. Major categories of pre-arrival operations tasks include: ●● ●● ●● ●● ●● ●● ●● ●● ●● ●● ●●

Appointment of port agents;

Completion of the pre-arrival checklist and associated tasks;

Pre-arrival reporting, declaration and information exchange;

Port state control preparations;

Ballast water management (if applicable);

Joiner preparation including flight bookings (if applicable);

Stores and provisions arrangement (if applicable);

Survey booking (if applicable);

Repairs and technicians arrangements (if applicable);

Bunkers and or fresh water arrangements (if applicable);

Conduct bridge team meetings (BTMs) for the harbour inbound and outbound passage with

navigation officers.

Port safety checks: With tightening port safety requirements worldwide, pre-arrival checks have become expanded. For example, the Australian iron ore loading port of Port Hedland requires ships to thoroughly check the condition of their mooring ropes prior to arrival.Any rope found in

OPERATIONS MANAGEMENT

a frayed condition at the berth automatically leads to an ‘Adverse Berth Report’ being issued by the port to the ship owner.This has led to a practice in most ships of flaking out the entire length of all mooring ropes on deck and examining them two to three days prior to arriving at Port Hedland. Another example is the condition of the accommodation ladder’s net and the rigging method, par­ ticularly in US and Canadian ports.These places require one end of the accommodation ladder net to be fast on the railings of the ladder and the other end to be secured to the jetty. Failure to do so may lead to unwanted delays from the stevedores. Moreover, with the stevedores’ strong union influences, the ships could be penalised heavily. Ballast water management: Ballast water management is more often carried out on bulk carriers and tankers.The vessel needs to ensure the ballast water is either exchanged or taken through the ballast water treatment system (BWTS) and accurate logs and records are available for inspections in ports. Due to the nature of their cargo and operations, ballasting and de-ballasting requirements on container ships are less frequent. Crew changes: Crew changes and stores arrangements are perhaps two of the most import­ ant and time-consuming tasks of the ship manager from an operations perspective. The former is arranged based on two requirements: (a) the contract periods of onboard crew and (b) the logistics costs for seafarers. The former depends on the seafarer employment agreement (SEA) and the collective bargaining agreement (CBA) and are typically 4 to 8 months for officers and 9 to 12 months for the crew.The logistics costs of flights are affected by the geographical location of the seafarer’s country of domicile and the ports that the ship is expected to call. Rotterdam; Antwerp; Fujairah; Dubai; Singapore; Hong Kong; and ports in Japan, Korea and China tend to be favoured for seafarers living in the currently largest crewman-providing nations of China, the Phil­ ippines, Ukraine, India and Indonesia. However, the choice of these ports also depends on the ease of crew changes, port agency costs and location of the berth itself. For example, in Japan, the crew change’s costs can sometimes be prohibitive if the ship is located far from the nearest airport. However, these costs can be moderate when the ship is located close to the air terminal. In 2020, the additional criterion of government clearances was introduced to these two criteria due to COVID-19–related quarantine and flight restrictions. Ship stores and provisions: Ship stores are typically requisitioned for ships and arranged by the ship manager every three months (quarterly requisitions), while spare parts are ordered on an as-needed basis by combining the operational concepts of just in time (JIT) delivery and minimising onboard inventory.The engine room equipment is one of the largest recipients of the latter, both from a frequency and costs point of view. Ship provisions for the food on board, often referred to as ‘victualling’, on the other hand, are ordered by ship staff every month (for fresh produce) and every few months (for meat and groceries). However, this also depends on the ports and trade route and the extent to which ship suppliers are able to supply condiments to cater to that crew’s needs and costs, since ships rarely call on ports in the crew’s country of domicile. Costs for these vary, and ships tend to be under tight budgets of US$7 to 9 per crew member per day, as defined in the CBA.This can be a challenge, since many ports are located far from cities, thus reducing the options available and increasing logistics costs. Port agents: Large ship management companies, which in this chapter mean organisations with more than 50 ships under management, tend to pre-negotiate annual rates with port agents in different ports. Some large port agency companies have branches worldwide, such as Inchcape, S5 and Norton Lilly. Ship managers may enter into a long-term agreement, thus securing better rates. Smaller companies, on the other hand, tend to enter into new contracts each time a ship calls a port. It is common for port agents to charge an up-front ‘coordination fee’ or ‘retention fee’ prior to signing a contract.This can vary worldwide. For example, coordination fees in China are US$180,

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while in India, they are INR 20,000 to 50,000, roughly US$270 to 670, depending on the agency and port. Agents who assist in carrying out crew changes are typically referred to in the industry as ‘husbanding’ or ‘husbandry agents’. It is a term that, like many maritime terms, is a remnant from a few centuries ago but is used regularly. The husbandry agents in 2020 had a huge role to play due to COVID-19 pandemic quarantine period, arranging for COVID-19 tests and certificates, coordinating with the ship management company for flight bookings/cancellations and transports for repatriation.

Arrival operations phase Operations carried out just before and during arrival at the port fall into two categories: (a) general pre-arrival operations and (b) port-specific operations.The former is carried out in all ports and include making ropes ready by flaking out about 30 metres on deck.This is done to save valuable time during the actual mooring operation, to get the ship alongside safely and efficiently and to ensure that mooring winches are in normal working condition. In the meantime, the ship’s master and crew need to prepare the ship for commercial activities. The latter consists of tasks specific to that port. For example, if a ship is expected to take bunkers in that port, a pre-arrival bunker meeting is held, tools and flanges are kept ready, manual soundings of fuel oil tanks are taken and oil pollution equipment is tested. Major categories of tasks that form part of the arrival operations include: ●● ●● ●● ●● ●● ●● ●●

Real-time information sharing of the estimated time of arrival (ETA);

Master–agent information exchange of local port conditions, including weather, congestions,

security and cargo-related arrangements; Preparation for pilot boarding and vessel manoeuvring; Making the ship ready for loading/unloading and tendering a notice of readiness (NOR); Scheduling of port operations; Compliance with local requirements; Planning work hours and complying with MLC, 2006 rest hour requirements.

Real-time information sharing of the ETA: It is normal practice for ships to send the ship’s ETA to the pilot station in the local time daily. This tends to be approximate. However, about three days before arrival, this becomes critical, as the pilot, mooring gangs and stevedores are hired based on this ETA.Agents may ask the ship to adjust the ETA to a certain time depending on the availability of the pilot, mooring gangs and stevedores. In some parts of the world (for example, Singapore, China or Long Beach, California, USA), there may be penalties if a ship changes her ETA a day before, as many services may have been reserved for her. Hence, masters typically allow for exigen­ cies that can delay the ship when providing this ETA. ETAs can get delayed due to environmental factors, namely adverse weather and currents, and due to operational factors, namely the slowing down of ships that is necessary when approaching the pilot station. Masters factor in the latter, typically by allowing for an extra hour.The former is allowed for by combining personal experience, vessel behaviour, traffic density and weather reports. Master–agent information exchange: This email exchange consists of agents asking the ship for information and ships providing this and vice versa. As listed in Table 5.1, the former consists of documents, ship certificates, crew list, personal effects declaration and additional documents as required by local regulations.The latter includes local port conditions, weather, congestion in the port which can delay vessel berthing, security requirements and cargorelated arrangements.

OPERATIONS MANAGEMENT

Table 5.1 Master–agent information exchange Operation

Activities

Local port conditions and berthing schedule

Pilot boarding time, berthing prospects, expected time of berthing (ETB), port stay, expected time of commencement of cargo work (ETCD), expected time of sailing (ETS), port congestion, anchorage stay if applicable Surveyor/technician attendance, on-signer arrival details, bunker barges if any, garbage and sludge removal Granting of free pratique, port security level and contact info, shore leave regulations, gangway watch, sniffer dog checks for stowaways (Panama, South Africa), underwater survey for narcotics (Venezuela, Columbia), quarantine regulations and checks Cargo plan, maximum draft alongside, number of stevedore gangs, number of cranes, loading/discharging rate Timings of the use of ship cranes for stores and provisions, lifeboat drills permission, shuttle bus service phone number, seaman centre details

Other port activities Security requirements and local port regulations

Cargo-related information Additional information

Preparation for pilot boarding and vessel manoeuvring: Based on information received from the port agent (via email) and the pilot (via VHF radio), the ship’s staff rigs the pilot ladder on the required side and prepares to receive the pilot in accordance with port regulations and IMO rules. In some parts of the world – for example, Rotterdam (Europe), Port Hedland (Australia) and Qingdao (China) – pilots may board the ship via helicopter due to safety reasons or due to the distance from shore. In such cases, ships need to make additional preparations as per the International Chamber of Shipping (ICS) guide to helicopter/ship operations, including keeping additional firefighting equipment and personnel near the helicopter boarding area and removing any obstructions. Making the ship ready for loading/unloading and tendering the NOR: The ship’s master tenders an NOR as soon as the ship is deemed to have ‘arrived’, a legal term whose interpretations vary from port to port.To address these port-specific interpretations, ships tender the NOR based on what their ship manager and owner advises them to do, and normally tender the NOR when the ship reaches the pilot station or arrives within port limits or the anchorage, tendering it again if it has been found to be erroneous. Due to its ramifications on laycan and charter party requirements, the time and position of tendering the NOR are especially important.

Port stay operations phase The port stay operations phase commences once the ship is alongside and ‘all fast’, a term used to convey that all the required mooring ropes have been made fast (tightened) on the mooring bitts and that the mooring gang is no longer required. It continues through cargo operations until the ship is finally ready to sail. During the port stay of the ship, the ship’s master and crew face various challenges and risks. Cargo operations are normally the most important task that they carry out at the port. On a modern container ship, bulk carrier or tanker, this 24-hour operation is carried out by just three officers and six deck crew, with the master supervising and advising them.To achieve this, the second and third officers patrol the deck and ships office on a ‘six on–six off’ schedule. The chief officer is in charge of the cargo operations on board and tends to theoretically work from morning to night, but depending on the cargo work, often he or she has to work during nights

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as well.This poses a challenge to their rest hours, and anecdotal evidence from seafarers suggests that they are often fatigued in port due to long hours of work. In April 2010, the bulk carrier Shen Neng 1 ran aground at Douglas shoal after loading 65,000 tonnes of coal.The official investigation found that the chief officer was highly fatigued after having stayed awake in port supervising cargo operations and carrying out de-ballasting for two days (ATSB, 2011). Research and IMO circulars suggest that fatigue due to port operations continues to be an unresolved issue of high-risk potential.This makes the port stay operations phase one of the most challenging that the ship manager and ship together face. In addition to these, the ship manager and ship staff have a range of other issues to deal with depending on the different scenarios of the voyage, the port activities planned, the ship type and specifics of that voyage and port call. The ship manager may have arranged for a crew change; this needs to be verified, given possibilities of flight delays. Surveys and repairs may have been arranged, and proper and timely delivery of these services needs to be liaised and verified, a challenge in recent years given the narrow and persistently reducing port stay windows of many container ships (a few hours) and bulk carriers in fast cargo work ports (one to two days). Surveys that may have been arranged should be verified and carried out without any issues. Additionally, the port stay may become even more complicated if an emergency situation takes place. For example, a bulk carrier might have a failure of the crane or hatch covers, necessitating urgent arrangements for workshop attendance by the ship manager. Most port stays have a very busy schedule. On container and roll-on roll-off (RORO) ships, schedules are even busier, as they stay in port for just a few hours, during which all operations must be completed. Furthermore, unlike bulk carriers that have longer sailings of seven or more days between consequent ports, container ships tend to operate as ‘feeder’ vessels when coasting, with extremely short interport sailings, sometimes as short as a few hours, thus increasing the pressures on ship staff. Lean management must take place in these fast-paced port calling operations, as problems must be prevented. The major categories of port stay–related tasks are: ●● ●● ●● ●● ●● ●● ●● ●● ●● ●● ●● ●●

Cargo operations;

Completion of various port formalities and clearances;

Incident reporting (if applicable);

Port state control and inspections (if applicable);

Arrangement for crew change (if applicable);

Arrangement for seafarers’ shore leave (if applicable);

Arrangement for stores and provisions (if applicable);

Arrangement for class survey, vessel maintenance and repairs (if applicable);

Arrangement for internal and external audit (if applicable);

Arrangement for ship manager (superintendent) inspection (if applicable);

Emergency situation response (if applicable);

Lifeboat drills in compliance with SOLAS.

Stores, spares and provisions: Each of these tasks is handled differently by the ship manager. Even though the ship manager arranges for the delivery of stores and provisions before the ship berths, he or she needs to thereafter monitor and check whether the stores have arrived onboard and whether they are ‘fit for purpose’. If unfortunately wrong deliveries are made, the ship manager needs to ensure they are returned and, if possible, a replacement is obtained before the vessel sails out. Since the time available for these activities is very short and involves time taking customs clearances and logistics to and from the ship supplier’s warehouse, it can be cumbersome, yet is

OPERATIONS MANAGEMENT

necessary. On the other hand, ship spares are directly delivered to the port agent’s office, who arranges their transportation to the ship. Some spares are easily handled manually; however, main engine spares and liners may require an additional trucking company hire due to their size. Provi­ sions may be ordered through the same or a different ship supplier depending on prices, quality and deliverability. Cargo operations: Although cargo operations are carried out by ship staff, the ship manager may have to get involved and assist the ship if there is a problem, for example, damage to vessel by stevedores, any problem with the ship’s hatch cover opening and closing arrangements (in case of a bulk carrier), ramps and forklifts (in case of a RORO vessel) and if a shore workshop or surveyor is needed to enable the ship to sail safely. Many ship owners prefer to communicate with the vessel manager rather than with ships, especially when there is an issue onboard; thus the ship manager may have to guide ship staff often. Communications between the owner and the manager tend to be more effective (compared to owner and ship directly), as the ship manager understands better how to negotiate with the specific vessel’s crew. Completion of various port formalities and clearances: These are directly carried out by the ship staff and port agent, with the latter shouldering most of the work. The ship’s role in this is generally confined to providing all the required documents; paperwork; certificates; and, if required, to assist any shore-based customs, immigration and quarantine inspectors on board in their inspection. While these are considered routine in most ports, in some countries, they can be extremely strict. For example, quarantine and health inspectors in Canada, the United States, Australia, Chile and Argentina are known to take rounds of the poop deck, main deck, garbage lockers, galley, pantry and mess rooms to check that there is no open food waste garbage. Health inspectors in Brazil and Argentina often take a sample of the drinking water from tanks. Additionally, they are known to levy fines if they find any expired food items in the provision stores. Incident reporting (if applicable) and emergency situation response (if applicable): Normally, a ship should be able to enter and leave a port incident-free. However, once in a while, a minor or major collision, allision, grounding or pollution may occur. In such cases, the ship manager has to activate the emergency room ashore; send reports to the ship owner, protection and indemnity (P&I) insur­ ers, flag state and classification society; and arrange for a superintendent to fly in and investigate. In some cases, the ship manager may even liaise with the P&I club and local contacts to help the ship tide over any legal issues that may emerge, thus helping the ship owner by going ‘the extra mile’. Ship managers in such instances should deal with the situation through the usage of their critical-thinking and problem-solving skills. Port state control (PSC) and inspections (if applicable): PSC inspections have now become rou­ tine in many ports, and while the port state control officer (PSCO) is shown around by the onboard team, the ship manager may need to assist them, especially when certain paperwork as demanded by the PSCO is not found on board. Since PSC inspections show up online and subse­ quently on websites like Equasis and are used by agencies like RightShip for chartering decisions, ship owners are sensitive to such matters and hold the ship manager directly responsible for any issues. Arrangement for crew change (if applicable): As mentioned in the previous sub-section, if there are any crew changes, the ship manager arranges and sends flight tickets on board. However, when flights are delayed or the ship’s ETA changes, the ship manager may need to quickly re-book flights at the last moment and send updated details to the ship. It is normal for joining crew to have their joining dates postponed at the last moment due to such exigencies. Arrangement for seafarers’ shore leave (if applicable): Normally, shore leaves are arranged by the port agent. However, ship managers may sometimes try to arrange additional welfare activities

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like visits from the port chaplain or the seamen’s club. In some countries due to the crew nation­ ality, the shore leave facility is restricted. For example, the United States denies shore leave for non-visa candidates, and Saudi Arabia restricts shore leave due to the Islamic law, which is strictly enforced. These are just a few of many countries that due to their national legislations, seafarers are unwelcome. Arrangement for class survey, vessel maintenance and repairs (if applicable): Ships undergo surveys every year, normally within the window for that survey. This includes surveys required by the IMO for load line, safety construction, safety equipment, radio, oil pollution prevention and the ISPS and ISM codes. The surveys are arranged by the ship manager in direct liaison with the classification society. Once the surveyor is onboard, the seafarers show him or her the equipment and address any questions. Thereafter, the surveyor prints out and delivers the new survey certificates. In case of any repairs, these are arranged by the ship manager through a shore-based workshop and continuously monitored by him or her for attendance and reso­ lution for the task. Arrangement for internal and external audits and ship manager (superintendent) inspection (if applicable): The ISM Code requires ships to be audited from a safety management perspective every year by an internal auditor who is part of the ship manager’s quality assurance team, fol­ lowed by an external audit by the classification society.The former may be carried out in port or with the internal auditor sailing between ports, thus carrying out the internal safety audit at sea. Ship managers (also called superintendents and ship superintendents) tend to visit their ships every year, and sometimes more often if logistics permit. After inspection, the superintendent issues an onboard deficiency log (ODL), and later the ship staff are required to complete the jobs listed and close the ODL. This helps them communicate face to face with ship staff, make important decisions for the upkeep and maintenance of the vessel, obtain a first-hand perspec­ tive of the condition of the ship and gain an understanding of any problems that the ship staff may be facing.The average superintendent travels out of the office for about 100 days each year, and he or she needs to manage the remaining ships even while travelling. Email and cell phone thus have become the connection to all ships, making the role of IT systems and cybersecurity pivotal in daily ship operations.These people are used to conducting multiple tasks at the same moment even while travelling. Lifeboat drills in compliance with SOLAS: This is another crucial element which needs accurate planning. As per the SOLAS requirements, lifeboats need to be launched and manoeuvred in the water once every three months and every six months for free-fall lifeboats. Due to security issues and sea conditions, many ports do not permit the ship staff to carry out lifeboat drills. In the ports that allow it, it becomes imperative to carry out the lifeboat drills. An alternative scenario is to carry this out at anchorage or whilst underway in stopped conditions. However, it is subject to charterer’s acceptance to stop the vessel and this furthermore poses a risk due to the sea state, current and weather. Planning for the drill is essential despite the busy schedule in port and assures that the lifeboats are in a satisfactory state of operation.

Departure operations phase The departure operations phase can be further divided into a pre-departure stage and a post-de­ parture stage. A ship is officially said to have departed from a berth when all its mooring lines are cast off, referred to officially as ‘All gone and clear’ (AGC). Other key milestones during her departure are POB, SBE and other cargo- and sailing-related timings, all of which have a commercial significance in her operations (Table 5.2).

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71

Table 5.2 Key milestones/timings during the ship’s departure operations phase Abbrev. Pre-departure phase: • Controls, steering gear tested time • Completed loading/discharge time • Completed lashing time (especially in container and general cargo ships) • Closed hatch covers time (especially in bulk carriers) • Hoses disconnected time (in tankers) • Completed purging time (in tankers) • Time when all stevedores left the ship • Pilot on board time • Stand by engines During departure: • Stations forward and aft • Tug made fast time (for each location – forward, midship and aft) • Commenced singling up time • Singled up fore and aft • All gone and clear Post-departure phase: • Tugs cast off time • Change of pilot time (if applicable, especially in rivers and long pilotages) – See note 1 • Pilot away • Ring full away/commencement of sea passage

CTCS ETC

POB SBE

Tug m/f s/up AGC Tugs c/off P/away RFA

Note 1: In many ports, rivers and waterways, it is normal to have different pilots who guide the vessel in each section of the pilotage waters based on their competency, specialisation and qualifications; for example, berthing/harbour pilot, river pilot, sea pilot, bay pilot, reef pilot and so on.An outward passage from ports in Japan (for example,Tokyo, Yokohama, Osaka, Nagoya, Kobe), China (for example, Shanghai, Nanjing), Belgium, the Netherlands and Germany (for example, Zeebrugge,Antwerp, Rotterdam, Bremen, Bremerhaven) can involve anywhere from two to five of such pilot changes. Some river passages to bulk carrier loading ports in Argentina can involve river pilotages of up to two days.

Pre-departure operations phase Before the ship departs for its next voyage, one of the important tasks for the ship’s master and crew is to exercise due diligence in making the ship seaworthy before the voyage (Zhang & Phillips, 2016).The terms ‘due diligence’ and ‘seaworthy’ have multiple legal connotations which depend on the type of ship. For example, traditionally, it is also required that the ship’s officers try out bilge pumping arrangements.While this continues to be a legal requirement for bulk carriers, it is not so on container ships. Bulk carriers tend to have distinctly separate load and discharge ports. On con­ tainer ships, where loading and discharging are carried out simultaneously at multiple ports, much like a shuttle service, this requirement has given way other requirements like checking whether the ship has “Dangerous Goods Manifests” for all the containers loaded. Pre-departure port operations (Figure 5.2) can be divided into navigational tasks (for example, carrying out control tests on the bridge to ensure that all navigational equipment is working satis­ factorily); steering gear to be tested; seamanship tasks (for example, preparing for ‘forward and aft mooring stations’, lashing all loose items on the deck and battening hatches down, often guided by the ship’s watertight integrity checklist); administrative tasks (ensuring all documentation has been completed and the ship has been given the ‘Port Clearance Certificate’ from the port authorities, without which a ship cannot sail out); engine room tasks (for example, preparation of main engine

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Pre-Departure port operations Navigation tasks

Seamanship tasks

Administrative tasks

Engine room tasks

Special tasks

Figure 5.2 Task categories in pre-departure port operations phase

and generators for operation during the sea passage); and special tasks (for example, drug and stowaway searches carried out before ships depart from ports where past experience, port and insurance circulars have led them to believe the necessity of such searches). Stowaway searches are now routinely carried out before sailing out of predictable ports like those in Africa, as well as ports in Europe, due to a larger number of stowaways that have been discovered on container ships and RORO ships sailing out of Belgium, Spain, Italy and the UK. In the meantime, the ship’s master needs to make sure that the ship’s departure procedure is followed and all formalities are completed.The major categories of tasks are as follows: ●● ●● ●● ●● ●● ●● ●● ●● ●● ●● ●● ●●

Complete departure checklist; Confirm and agree on all cargo documents and incident claims, if any; Exercise due diligence to make the ship seaworthy; Confirm post-departure instruction to ship managers; Confirm all cost invoices and pay port disbursement (if applicable); Obtain a Port Clearance Certificate (PCC); Confirm voyage instructions and notify all crew; Voyage planning, preparation for casting off and sailing; Complete various reports to relevant stakeholders; Ensure that all crew returning from shore leave are healthy; Ensure that all crew onboard are healthy; Confirm agents for POB time.

These major tasks also depend on the type of ship. For example, on bulk carriers and general cargo ships, a ‘Statement of Facts’ (SOF) is an important document that lists the timings of all important cargo-related activities that occurred in the port. It can take the ship’s master one to two hours to verify all of these before signing this document.The SOF forms the basis for cargo claims, if any, and numerous port-related charges. However, due to their hectic nature, container ships rarely present the master with an SOF. Similarly, bills of lading (BLs) are a routine but important document pre­ sented to the master in bulk carriers. However, on container ships, this document is not provided.

Post-departure operations phase After departure, the ship will normally sail to the next port of call with or without cargo. The nature of this voyage depends largely on the type of ship, her service, charter party requirements and the owner’s needs.While container ships normally have specific ports that the ship heads to and a published schedule consisting of anywhere between 5 and 20 ports per month, this is not always so in bulk carriers and tankers. Charterers and operators of bulk carriers and tankers often ‘hunt’ for the most profitable cargo options after the ship sails out; hence ships are routinely asked

OPERATIONS MANAGEMENT

to head towards a certain region (for example,‘head towards Singapore’ or ‘Suez Canal’ or ‘Panama Canal’ or ‘Qingdao’) even if the ship does not have any cargo in this region. This allows the ship operator to procure the most profitable cargo charter for the ship, a decision which depends on prevailing charter hires, commodity prices, the ship’s geographical location and its cargo carrying capabilities.The final destination port is only confirmed to the ship a few days prior to arrival.While during the pre-ECDIS era, this required ships to maintain a complete portfolio of paper charts of the world, which the second officer had to keep current, the ECDIS has resolved this issue, and ships can obtain electronic navigational chart (ENC) permits through email. However, with multiple vendors involved and ever changing in identity, obtaining ENC permits has become a complicated process for ship’s officers. Communication when sailing: When the ship is sailing, it turns into an isolated and independent workplace.The ship’s master has the overall responsibility for the ship at sea. In the past, commu­ nication between a sailing ship at sea and its shore management team was very limited because telecommunication technology was still at an infant stage, leading to limitations. It was normal for just one message to pass between the ship and the office, typically on telex.Today, the development of information technology has made it possible for data to be shared and exchanged conveniently, and sometimes excessively through, email or other methods such as the cloud.The recent ability of ship managers to access information on their smart phones has meant that managers are able to monitor ships’ movements day and night no matter where they are. However, ships have not advanced similarly. Most ships have just one computer terminal for sending and receiving emails, and this is only accessible to one person, the ship’s master, whose job is not desk bound.There is no system onboard that enables officers to check email when they are not sitting at a desk, and a ship can be thought of as something similar to a nine-storied building, with the computer terminal on the uppermost floor, thw engine room in the bottom four floors and the main deck on the fifth floor.This compels ship’s officers to choose between accessing email and doing their regular day-to-day tasks on deck. In fact, all of the ship’s officers and crew perform tasks that, by their very nature, require them to move around the ship and not be desk bound. Therefore, on one hand, this communication explosion has proven beneficial for the shore-based desk-bound ship manager, ship owner and charterer. On the other hand, it has resulted in a large increase in the tasks that the ship staff is expected to perform without any increase in manpower or any improvement in accessibility to technology. In the meantime, many ships still do not have internet onboard (satellite connection tends to be very expensive). Even for those that do have it, the speeds or accessibility is far lower than that of their shore-based counterparts.All these further increase the problem. Whereas two decades ago, most ship managers received just one position report daily from the ship, today they can monitor the ship’s movement and conditions in real time using vessel track­ ing websites and subscriptions linked to the ship’s GPS and long-range information and tracking (LRIT).While in law the ship’s master still has the overall authority over the ship, the ship manager plays a far more active role today in the ship’s onboard affairs, even when the ship is sailing.A ship’s manager and ship staff must circumnavigate the limitations noted while making sure that the ship navigates safely without any stoppages at sea. The major categories of tasks during the ship’s sailing phase include: ●● ●● ●● ●● ●● ●●

Send daily report to all relevant stakeholders;

Take care of the cargo on board, and pay special attention to dangerous goods if loaded;

Conduct planned maintenance and repairs;

Crew’s safety meetings and training drills;

Management of inventory of onboard consumption;

Make requests for ship’s spare parts;

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●● ●● ●● ●●

Take care of seafarers’ welfare and mental health;

Prepare the ship for surveys and inspections;

Monitor provisions and fresh water and analyse various provision quotes from the ship

chandlers; Check cargo lashings to make sure they are tightened, and watertight integrity is maintained.

The latter has become even more important in the COVID-19 era, as crew sign-offs have become difficult to arrange due to continuously changing restrictions by governments of different countries, flight unavailability and family-related matters of seafarers themselves. Further, if a seafarer onboard is found to be positive for COVID-19, this creates severe work pressures on the already highly reduced staff onboard as they attempt to prevent any disruption. With the COVID restrictions mentioned earlier, people have seen extreme cases taking place. Crew changes and disembarkation have become common problems for many ship owning com­ panies leading to extra costs as they have to move the ships around several ports to manage to change the crew.This issue caused mental health issues to crew members, as some members ended up being offshore for periods of more than six months. Client liaison management: It is in the field of client liaison that a ship manager’s highest utility surfaces.Also referred to as ‘customer relation­ ship management’, it necessitates the ship superintendent and the crew as the front-line staff use relationship marketing in order to ensure that their customers’ requirements are achieved (Sawh­ ney, 2001). Newer research suggests ‘the need to synchronise rather than homogenise’ services, hinting at providing services that are tailor-made for each customer (Sawhney, 2006).While this is indeed better suited for customers, it also increases costs and personnel from the ship manager’s perspective. Ship owners are a ship manager’s primary customers, and each ship owner has a different set of criteria that they value. For example, all ship owners expect that their cargo will reach the des­ tination without any damage, with zero claims and that loading and discharge proceed in a timely manner, with zero unplanned stoppages of the ship at sea. However, for bulk carrier owners carry­ ing sensitive cargo such as grain, they tend to be keener on minimising cargo damages and may not mind some deviation to avoid rough seas that could result in cargo damage. Container ship owners, on the other hand, may be keener that their ships make the required ETA, since any delay will result in large-scale disruptions in container logistics for those containers that were planned for the cur­ rent ship, as well as containers that were planned to be transhipped from the current ship to other ships. In contrast, heavy lift carriers need to avoid any rough seas altogether.The owner may allow ships to take additional weeks making detours to ensure that the ship remains in calm seas, thus preventing the slightest damage to their precious heavy cargo. There may also be idiosyncratic requirements of certain ship owners based on their earlier experience, especially traditional ship owning companies and families. Some may be very partic­ ular that their name is seen on the ship side and funnel with bright colours and no rust weeping, while others might prefer to maintain their anonymity. Porter suggested the use of ‘competitive advantage’ in order to distinguish one’s services from other players (Grant, 1991).A ship manager must thus ‘discover’ these owner-specific requirements and preferences, many of which may not be clearly articulated up-front. In the meantime, he or she needs to keep track of the requirements and pass those on to the ship crew. If the requirements are discovered not to be in compliance, the ship manager needs to take corrective measures in order to maintain smooth relations. A recent addition to this list are pension funds and financial investment companies, some of which are oper­ ated by large banks, who buy ships as distressed and undervalued assets, operate them for a few years and sell them as soon as they are able to realise a pre-decided profit. The ship manager may also be handling a number of varied ship owners, each with their own different requirements and expecting to receive priority or at least satisfactory treatment. This

OPERATIONS MANAGEMENT

makes the ship manager’s work even more challenging. Ship owners generally tend to be tough people, and they want things to be delivered as promised and in the best possible way to avoid any monetary losses. Ship management contracts are typically renewed every 12 months; thus a ship owner theoret­ ically has the option to change the ship manager.This makes ship management a highly competitive sector. Many ship owners take an active interest in the day-to-day operations of the ship, with a few even commenting adversely and seeking explanation if the ship’s crew exceeds the already limited catering budget. Usually there is a long-term relationship between the ship manager and the ship owner, as it is not convenient to train a new manager on a regular basis. All ship owners tend to be sensitive to PSC inspections, findings and the odd detention, irrespective of the age and initial condition of the ship. The use of PSC inspections as data for calculating RightShip ratings, which in turn determine the ‘charter desirability’ and charter hire of bulk carriers, further reinforces this. RightShip is a bulk carrier rating organisation primarily created by two of the largest bulk carrier charterers in the world, BHP Billiton and Rio Tinto, in order to rate ships based on their past record of cargo carriage, safety and performance.Therefore, the ship manager is assigned the unenviable task of continuously trying to convince the ship owner that the latter has indeed made the best decision by employing that particular ship manager to manage his or her ships. The ship manager’s role in operations management is critical to a ship’s commercial perfor­ mance. Ship owners hand over the day-to-day operational tasks of the ship, its crewing, victualling and maintenance to third-party ship managers for a fee. However, the services expected consist of a multitude of activities, with differences between various ship owners and ships. This makes the ship manager’s work challenging.The ship voyage cycle used in this chapter helps the stakeholders identify each of these tasks and understand their role in the larger spectrum of a ship’s voyage and activities. Each of these phases requires different treatment depending on the type of ship, its geo­ graphical location and the owners’ requirements. Due to fierce competition in this sector of the industry, all of these aspects must be successfully conducted and completed. Only on satisfactory completion of these can a ship manager expect to thrive.

Notes 1 2

Seafarers’ salaries would be paid directly into their chosen bank account by the ship management company or a payroll company. The terms of sign-on and sign-off are commonly used in the maritime industry to describe the process by which seafarers join a ship and their relieved person then leaves that ship after handing over his or her tasks to the reliever.

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Chapter 6

Technical management

Technical management provides technical expertise and support to the management team of an organisation. Its purpose is to ensure that the organisation has access to the right type and level of people to manage technical issues and, thus, meet business objectives (Hamblin, 2019).The previous chapter examined operations management, which involves different phases of a ship’s sea voyage cycle. It is normally concerned with planning, organising and supervising the processes and activities in the provision of ship management services.This chapter moves on to discuss technical manage­ ment, which plays a critical role in the delivery of ship management services. In maritime shipping, technical management aims to achieve safe, pollution-free and costefficient vessel operations, which at the same time abide by the international rules and regulations (Willingale, 1998). As discussed in Chapter 2, one feature of ship management is that it is a tech­ nically savvy business. Successful operations management relies on professional and high-standard technical management to make sure that the ship is functioning efficiently and in a safe, seaworthy and reliable condition that meets all required international and national legislations. According to Furnival & Crispe (2017), this is normally one of the most demanding and broad-reaching disci­ plines of ship management. It involves interaction with not only shore-side personnel and shipboard staff but also a variety of external bodies required for successful ship operations. The meaning and concept of technical management in the context of ship management has three dimensions. First, according to most ship management agreements, it is often at the ship own­ er’s discretion to outsource technical management to the ship manager. For example, in SHIPMAN 2009, if the parties agree to include this service in the contract, the ship manager shall provide the specific technical management services according to Clause 4 of the SHIPMAN 2009. Secondly, in the broad sense of the term, technical management is relevant to almost any services that the ship manager provides for the ship owner. Many technical management activities are embedded in various activities or processes when the ship manager provides other services. As a result, the sound practice of technical management should be abided by all the time when the ship manager is engaged in the ship owner’s business. In addition, the ship management company, as an independent organisation, needs to implement technical management to support and facilitate its operational activities and business objectives.

The concept of technical management Technical management is one of the main functions of service operations. It normally constitutes the groups, departments or teams that provide technical expertise and overall management of the organisation’s infrastructure (GBO, 2007). Professional technical management involves systematic efforts employed in the timely deployment of a process or system and in balancing its cost, sup­ portability and effectiveness during its life cycle (Jamil et al., 2015). The primary aim of technical DOI: 10.4324/9781003081241-6

TECHNICAL MANAGEMENT

management is to provide expert advice and technical support so that the organisation can oper­ ate properly at an optimum lowest overall total cost (Lewis & Payant, 2007).As a result, the func­ tion normally works very closely with every stage of service where there is a need for technical support. One of the most important aspects of technical management is the facility management, which is a professional management discipline aiming for the efficient and effective delivery of support services to the organisations that it serves (Atkin & Brooks, 2009).The Oxford Dictionary defines a facility as ‘a place, amenity, or piece of equipment provided for a particular purpose’. Facility management can be understood as ‘the process of dealing with or controlling things, equipment, amenities and people in a place provided for a particular purpose’ (Taprial & Kanwar, 2018). In recent years, facility management has become a profession that encompasses multiple disciplines to ensure the functionality of the built environment by integrating place, process, people and tech­ nology (Payne, 2000). For example, the Facility Management Association defines the term as ‘the practice of integrating the management of people and the business process of an organisation with the physical infrastructure to enhance corporate performance’ (FMA, 2002). Among a wide range of activities to be conducted in facility management, routine facility maintenance plays a special and important role. Maintenance work is preventive. It is the work nec­ essary to maintain the originally anticipated useful life of a fixed asset and the upkeep of property and equipment (Roper & Payant, 2014). Routine facility maintenance, also known as preventative maintenance, is the day-to-day upkeep of facilities, including machinery and equipment, which will ensure their capacity to perform their expected functions (Lewis & Payant, 2007). Routine facility maintenance should be carried out at lower costs compared to the potential costs caused by a major failure (Roper & Borello, 2013). For example, in ship management, erosion of quality can devalue a ship over time both in the value of the asset and its capacity to earn revenue from customers. Low facility maintenance standards can disrupt the operations of facility users, reduce performance and put business success at risk. Maintaining facilities on a routine basis seeks to keep standards high, prevent failures and protect the value of facilities (Landport, 2019). Although technical management is involved in all the processes of service, it is often very closely related to incident management and problem/emergency management (Brahmachary, 2018). An incident is an event that could bring about disruption to, or loss of, an organisation’s functions, services or operations. It needs to be dealt with properly; otherwise, an incident can escalate into an emergency, crisis or disaster. Incident management is a term describing the systematic efforts of an organisation to identify, analyse and correct hazards at an early stage to prevent future recur­ rence (Brooke, 2004). It is the process of limiting the potential disruption caused by such an event, aiming for a return to business as usual (Nguyen et al., 2017). In contrast, problem management investigates the underlying cause of incidents. It aims to prevent incidents of a similar nature from happening again (Egan, 2009). By ratifying problems, which often requires a structural change to the operational infrastructure in an organisation, the number of incidents can be reduced over time (Blokdijk, 2008). In general, technical management plays a dual role in a service organisation. First, it is the custo­ dian of technical expertise and knowledge relevant to managing the organisational infrastructure. In this role, technical management ensures that the skills, expertise and know-how required to design and improve service operations are identified, developed and enhanced. Second, technical manage­ ment provides actual resources to support service operations. In this role, technical management ensures that adequate resources are effectively allocated and deployed to meet the needs of cli­ ents. For example, the technical management team needs to take relevant actions to design, build, operate and improve the technology required to support and deliver services (Hamblin, 2019). In ship operations, technical management is the services rendered to maintain and oper­ ate vessels. Rather than the ship owner, these duties are often performed by a third-party ship

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management company. Nevertheless, the majority of traditional Greek ship owners would consider outsourcing of technical management of ships to independent ship management companies a loss of their companies’ key competencies and competitiveness, as it leads to monetary benefits such as cost minimisation.As discussed in Chapter 5, ship management companies are service organisa­ tions.They respond to the requirements of ship owner–customers and satisfy their needs through the delivery process of various services.The objectives of technical management are to help plan, implement, maintain and periodically review a stable technical infrastructure to support the ship owner’s business process through three main tasks.The first task is to create a well-designed and highly resilient, cost-effective technical solution strategy.Today most ship management firms employ comprehensive ship management systems which support and encapsulate the entire business and technical processes involved in managing a fleet of vessels (Turan et al., 2009). Furthermore, the ship manager needs to supervise and monitor the crew and make sure that they use adequate technical skills to maintain the technical infrastructure in optimum conditions. One purpose of this step is to prevent any facility or technical failure.Also, if any facility or technical failure does happen, it is imperative to use technical skills to speedily diagnose and resolve the problem and bring the system to the originally anticipated condition (GBO, 2007). By performing these tasks, the ship manager expects that the shipboard organisation has access to the right type and level of technical support.Also, since ship management companies provide technical ship management services to a variety of ship owning clients, they can take advantage of more substantial scale of economies, such as in ship repairs and purchasing, supported by stronger and more diverse networks of suppliers and partners.This brings about greater efficiency and ultimately translates to lower operating costs for ship owners (Marlow, 2020). As discussed earlier, the term ‘technical management’ can be very broad and inclusive.The ship management agreement shall prescribe the scope of management services. According to Clause 4 of SHIPMAN 2009, the common services that the ship manager provides for the ship owner regarding technical management includes the following: (a) (b) (c) (d) (e)

(f) (g) (h)

(i) (j)

Ensuring that the Vessel complies with the requirements of the law of the Flag State; Ensuring compliance with the ISM Code; Ensuring compliance with the ISPS Code; Providing competent personnel to supervise the maintenance and general efficiency of the Vessel; Arranging and supervising dry dockings, repair, alterations and the maintenance of the Vessel to the standards agreed with the Owner provided that the managers shall be entitled to incur the necessary expenditure to ensure that the Vessel will comply with all requirements and recommendations of the classification society, and with the law of the Flag State and of the places where the Vessel is required to trade; Arranging the supply of necessary stores, spares and lubricating oil; Appointing surveyors and technical consultants as the Managers may consider from time to time to be necessary; In accordance with the Owner’s instructions, supervising the sale and physical delivery of the Vessel under the sale agreement. However, services under this Sub-clause 4(h) shall not include negotiation of the sale agreement or transfer of ownership of the Vessel. Arranging for the supply of provisions unless provided by the Owners; and Arranging for the sampling and testing of bunkers.

As can be seen from this clause, some types of services are specific, such as arranging the supply of necessary stores, spares and lubricating oil and arranging for the sampling and testing of bun­ kers. However, other sub-clauses can be quite general and inclusive, and the parties may need a

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more detailed agreement to define the exact scope of services. For example, services ensuring compliance with the ISM Code, the ISPS Code and the requirements of the law of the flag states can extend to a wide range of matters and dimensions.1 Also, the sub-clause on ‘providing competent personnel to supervise the maintenance and general efficiency of the Vessel’ may cause uncertainty and dispute without a consensus on the standard of ‘competent’ or ‘efficiency’. In general, the main categories of technical management services include the ship’s seaworthiness, maintenance and repairs, budget and cost control, performance management, safety and security management, information management and so on.

The concept of seaworthiness The seaworthiness of merchant ships plays a critical role in ensuring the safety of life and property and the prevention of marine pollution. It deals with the fitness and readiness of a ship and its fun­ damental ability to sail safely to its destination.The standards of seaworthiness extend to literally all aspects of a ship, including the human element, physical structure, documentation, cargo wor­ thiness and so on. It is one of the most complicated concepts in the maritime regulatory regime, and it takes many forms. For instance,Article 94(1) of UNCLOS (1982) requires that flag states are under a categorical duty to exercise jurisdiction and control in relation to ‘administrative, technical and social matters’ over ships that are permitted to fly its flag. Seaworthiness is a crucial element concerning this duty, and this is further set out in the remainder of the article, particularly in Article 94(3) and (4). Similarly, in the commercial context of the carriage of goods by sea, the Hague/Hague–Visby Rules state that the carrier has the obligation to exercise due diligence to make the ship seaworthy before and at the beginning of the voyage. In marine insurance law, seaworthiness is an implied war­ ranty of the ship owner, the breach of which results in the loss of insurance coverage, even though there is no causal relationship between the breach and the loss (Soyer, 2001). In the law relating to seafarers’ employment contract, seafarers are guaranteed the protection that originates from the legal implication that the ship on which they are employed to work is, in fact and law, seaworthy. For instance, the UK Merchant Shipping Act confers upon seafarers a statutory right to an implied term of seaworthiness, which cannot be displaced or exempted by contractual agreement (MSA, 1995). However, as one of the most important terms in maritime transportation and ship manage­ ment, seaworthiness is not an absolute concept, but a relative one, dependent on the particular environment, context and facts. In the meantime, the standards of seaworthiness have changed greatly with the introduction of new maritime regulations, such as the ISM Code, the ISPS Code, the MLC, 2006 and so on.This is primarily dependent on and determined by a variety of different contractual purposes and perspectives.A ship might be seaworthy as between the insurer and the ship owner, though unseaworthy as between the ship owner and the shipper of a particular cargo (Hodges, 1999). For instance, frozen cargo requires a special freezing apparatus, though that does not affect the safety of the ship, although it may impair seaworthiness under a marine insurance policy (Mitra, 1993).This was made clear in The Eurasian Dream (2002), where it was held that sea­ worthiness is relative to ‘the nature of the ship, to the particular voyage, or even to the particular stage of the voyage on which the ship is engaged’. The meaning of seaworthiness has also been regulated by a number of national laws and con­ ventions.The US Harter Act of 1893 was the first attempt to balance the power between carriers and cargo owners (Hodges, 1996).The act set a limit on carriers’ liability for loss due to negligence or failure to exercise due diligence to make the ship seaworthy.The significance of this lies in the fact that the principles established in the Harter Act became in many ways the basis of liability in the Hague Rules and then followed by the Hague–Visby, Hamburg and Rotterdam Rules.

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According to Rule (1) of Article 3 of the Hague Rules and the Hague–Visby Rules, the carrier has the obligation to exercise due diligence before and at the beginning of the voyage.These obli­ gations include: (1) (2) (3)

Make the ship seaworthy, Properly man, equip and supply the ship, and Make the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation.

The Hamburg Rules and Rotterdam Rules have not changed these major obligations. However, the carrier’s duty to ‘make the ship seaworthy’ is replaced by ‘make and keep the ship seaworthy’ under the Rotterdam Rules.As a result, the duty is extended to cover the entire voyage. Despite its important role in maritime law, there is a lack of united definition of seaworthiness. According to section 39(4) of the Marine Insurance Act 1906, ‘A ship is deemed to be seaworthy when she is reasonably fit in all respects to encounter the ordinary perils of the seas of the adven­ ture insured’. Based on numerous decisions,Tetley described seaworthiness in the following terms: Seaworthiness may be defined as the state of a vessel in such a condition, with such equipment, and manned by such a master and crew, that normally the cargo will be loaded, carried, cared for and discharged properly and safely on the contemplated voyage. (Hendrikse et al., 2008) However, there is no specific statutory definition that has received universal recognition in the maritime industry.Therefore, maritime courts have to define seaworthiness on a case-by-case basis (Foster, 1999). In some cases, seaworthiness is defined as the ‘condition in which a ship should be enabled to encounter whatever perils of the sea a ship of her kind, and laden as she is, may fairly be expected to encounter in performing the voyage concerned’. In some other cases, the vessel must be ‘fit to encounter the ordinary perils of the voyage’; it must be ‘in a fit state . . . to encounter the ordinary perils of the voyage insured’; the state of fitness required ‘must depend on the whole nature of the adventure’ (Margetson, 2008). A ship is considered unseaworthy when it is in such a condition, that in consideration of the vessel’s trade, the risk to human life associated with going to sea exceeds what is customary.The condition can be caused by a variety of reasons, such as defects in the hull, equipment, machinery, crewing, overloading or deficient loading (Kristiansen, 2013). Seaworthiness requires that the ship be designed and constructed to resist the usual danger in the sea for the contracted voyage. How­ ever, it has been generally accepted that the meaning of seaworthiness should not be limited to merely the physical facilities of the vessel.There are a number of general aspects in which a vessel must be considered to assess its seaworthiness.The key elements to which seaworthiness of a ship should extend can be described in Table 6.1. A ship manager needs to understand that seaworthiness relates not only to the physical prop­ erties of the ship but also to other aspects such as manning and cargo-worthiness. The key ele­ ments to which seaworthiness of a ship should extend can be categorised into three dimensions. First, the design, construction and equipment of the ship shall meet the requirements of shipbuild­ ing and specifications of ship survey and obtain the corresponding qualification certificate. Second, it must be equipped with indispensable crews, ship equipment and supplies. Third, cargo stowage shall comply with the requirements of the relevant conventions, codes and regulations. If the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseawor­ thiness. In the meantime, the ship manager may be held liable for the relevant parties’ loss.

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Table 6.1 Key elements to which seaworthiness extends Items

Examples

Certificates and documents

Statutory documents, classification certificates and documents, insurance certificates and documents Compliance with the requirements of statutes and rules of flag states and classification societies The hull, machinery and other technical equipment, hatches, pipes and pumps, tackle and steering mechanism Radio, radar, compass, etc. Charts, publications Sufficiency of fuel, provisions and medicines Quality of fuel, provisions and medicines Competency in number; competency as individuals General competency; specific competency Dangerous stowage and loading Overloading Latent defect, pilot

Design and construction Structure and other technical equipment Navigational equipment and aids Fuel, provisions, medicines Competency of the crew Stowage and loading Other factors

Ship maintenance management From a technical perspective, maintenance is a task which ensures that physical assets continue to fulfil their intended functions at a minimum economic or human risk (Werbin´ska-Wojciechowska, 2019). Ship maintenance can be defined as the process of identifying and utilising maintenance assets in a predetermined manner in keeping the material condition of ships at the desired level (DeWitt, 1991). It is a combination of all technical, administrative and managerial activities during the life cycle of a ship intended to retain it, or restore it to a state, in which it can perform the des­ ignated function (PNEN, 2010).The activities generally involve functional checking, servicing, repair­ ing or replacing of the necessary machinery, equipment, devices and supporting utilities (Rondeau et al., 2012). However, maintenance is no longer a question of making repairs or defining articulated programmes of prevention. It has today acquired the meaning of a complex management service, oriented towards the prevention of breakdown, but also towards pursuing a variety of other objec­ tives, including those of a commercial nature (Cigolini et al., 2009). Maintenance management may be defined as management activities that determine the mainte­ nance objectives, strategies and responsibilities and implement them by means such as maintenance planning, maintenance control and supervision and improvement of methods in the organisation including economic aspects (PNEN, 2010). It forms one of the most important aspects of the ship’s technical management.The overall aim of maintenance management is to make sure that the ship is operating in its best condition, to maintain the originally anticipated useful life2 of the ship’s hull, machinery and equipment (Alhouli, 2011). According to Johnson (2002), the general objectives of maintenance management are connected with the following: ●● ●● ●● ●● ●●

Ensuring system basic functions (availability, efficiency and reliability);

Ensuring system life through proper connections between its components (asset management);

Ensuring safety for human operators, environment and system itself;

Ensuring cost effectiveness in maintenance, and

Enabling effective use of resources, energy and other materials.

There are two main maintenance approaches, namely preventive maintenance (PM) and correc­ tive maintenance (CM) (Ben-Daya et al., 2009;Yardley et al., 2006). PM, also known as ‘planned or

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scheduled maintenance’, is performed periodically according to the run time of a system or its

components as planned by the manufacturer. It includes all activities performed, aiming to ‘retain

an item in a specified condition by providing systematic inspection, detection and prevention of

incipient failures’ (Werbin´ska-Wojciechowska, 2019). According to Kececioglu (2003), the objec­ tives of PM include:

●● ●● ●● ●● ●● ●● ●●

Increase systems’ reliability and efficiency;

Decrease the number of incident failures;

Decrease the time a system is not operable and non-productive;

Decrease the system’s downtime and thus increase its uptime;

Decrease the overall spare parts requirements;

Decrease the maintenance man-hours; and

Decrease the system’s life-cycle cost.

In general, the approach of PM tries to predict or forecast the wear and tear of a system or its

components by using appropriate approaches and recommends corrective action.The most com­ monly referred to strategies in this area, are time-based PM and condition-based maintenance

(CBM) (Gandhare & Akarte, 2012). According to Kececioglu (2003), PM is performed at regularly

scheduled intervals and includes but is not limited to the following activities:

●●

●● ●● ●●

Servicing periodically, such as replenishing depleted oil, changing aged oil, greasing and lubri­ cating, refuelling, cleaning, adjusting, aligning, checking and cleaning electrical contact surfaces, removing rust deposits, tightening loose units, making routine checks and calibrating; Inspecting, checking out, replacing or repairing failed redundant units; Replacing components before they enter their prescribed wear-out life period; Overhauling in a minor or major way aged and worn-out units.

In contrast to PM, CM is performed on a system that is inoperative or operating in a degraded condition.According to Nowakowski & Werbin´ka (2009), CM includes any action that occurs when a system has already failed, so there is no possibility to optimise its performance with respect to a given economic or reliability criteria. In general, the CM actions are reactive, unanticipated and thus unscheduled (Wireman, 2004). They are generally carried out at unpredictable intervals because the time to any specific facility’s failure cannot be planned ahead of time. It may result in system unavailability.Therefore, in CM, there is no possibility to make any optimisation of operational and maintenance parameters (Goel & Murari, 1990). The overall aim of CM is to restore the facility to safe and satisfactory function within the shortest possible time. The decision to take a CM action depends primarily on whether the degraded condition is critical to performing the current mission or the missions in the near future (Yardley et al., 2006).According to Kececioglu (2003), the aim of CM can be achieved by conducting various preventative activities, such as diagnosing the failure or malfunction and implementing the required corrective actions.The common actions include adjusting, aligning, tightening, replacing or repairing the parts, components and subsystems which caused the unscheduled failure; checking out the equipment; cleaning them up; and logging the restorative action time. A ship at sea is isolated from onshore maintenance and repair facilities. If a failure or break­ down occurs during the voyage, the required repair or replacement parts may not be available onboard. As a result, the failure of a vital piece of equipment can be very costly and may even put the whole vessel at risk (Alhouli, 2011). In the meantime, when the ship is out of service, the ship owner may have to bear the loss of off-hire caused by the downtime of the vessel. Added to this are the consequences of dangerous operation and environmental damage (Rothblum, 2000).

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Therefore, proper maintenance is a crucial aspect of a ship’s performance management, as it leads to prevention of monetary losses. Maintenance schemes in ship management often follow a typically planned schedule according to running hours or calendar, no matter whether maintenance is technically needed or not (Deris et al., 1999). Nowadays, most ship owners and ship managers have decided to use a planned main­ tenance system (PMS) to help them reduce costs and have greater control over the surveys that a vessel may need. It results in business benefits and helps ship owners and ship managers manage the budget for the maintenance processes, and it reduces the risk in ship operations (Bayer et al., 2018). Using a PMS reduces the operating costs as well as elevates sustainability of the machinery. Moreover, it enables ship owners to demonstrate total commitment to quality ship management, as required in the ISM Code. Proper maintenance management avoids off-hire time, and as a direct consequence, it contributes to achieving the maximum revenue through ship availability and pro­ ductivity (Branch & Robarts, 2014). Although PMS has become a common theme across the industry, the ways it is used tend to differ.The use of PMS is much more than just a specific onboard documentation of jobs.The PMS of today is a central communication platform for all technical matters and tasks in a shipping company. It is highly and efficiently integrated with procurement systems and quality and safety software sys­ tems that deal with both processes and data.All the three functions typically come from the same vendor to reduce interfaces and issues around updates or upgrades. The system is also designed to alert the user of the overdue jobs and the appropriate shore facilities regarding spare parts or technical assistance that is needed when an equipment casualty affecting a ship’s primary mission area exceeds the ship’s repair capacity (Yardley et al., 2006). The ship manager has a duty to make sure that all machinery, engines and technical compo­ nents of a vessel are in acceptable working condition 24 hours a day, including ensuring that ship speed and bunker consumption requirements are met.The PMS can help the ship manager track this from ashore, and it permits the technical department to monitor the ongoing, pending and completed jobs onboard.The main purpose of the system is to make sure that all maintenance is carried out within set intervals and corresponding with the schedule in the PMS (Bebic´ et al., 2019). Apart from the satisfactory working condition, the PMS also allows the engineers to identify any potential issues or include a new practice to avoid disruptions and prevent any mishaps.The bene­ fits do not so much lie in saving maintenance work, but more in reducing defects, especially those deriving from badly executed maintenance (Zingoni, 2010). The planning and management requirements vary according to the category of work and ves­ sel type (Evans, 2007). Ship repairs can be done in the traditional way by bringing the vessel to a shipyard or conducting repair in ports or at sea when the ship is in operation.The first approach is both time-consuming and expensive; thus the use of the traditional way is decreasing (Chakraborty, 2020). According to Alhouli (2011), a ship’s repair work can be categorised in increasing order of scale and cost: ●● ●● ●● ●● ●●

Voyage repairs (minor and continuous repairs).

Routine docking (underwater work).

Major repairs (typically steel).

Damage repairs (usually steel).

Refit, conversion, and new installations.

There are certain requirements for routine drydocking and other occurring repairs which need to be done. However, the intervals between dockings are often stretched as long as possible (Wank­ hede, 2020). According to Mackenzie (2004), typically 75 per cent of the work in the shipyard involves routine ship maintenance and the remaining 25 per cent is for damage repair and ship

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conversion. However, the dry dock is an expensive process which requires systematic and efficient planning and cost estimation to minimise overhead costs along with other unnecessary expenses (Wankhede, 2019). Many ship managers report that a 20 to 30 per cent cost overrun to the dry dock budget is rather common instead of an exception (Hansen, 2013). The shipping industry is now in the era of big data; new tools are available for ship managers to better deal with changing customer expectations, and these instruments represent the ‘new normal’ for ship managers to remain in the game.Today some ship management firms are using big data analytics (BDA) as a new tool to improve ship performance through planned hull maintenance. For example, some firms have equipped the ships under their management with sensors collecting high-frequency data which are sent to the shore-based data centres.The utilisation of these data enables the company to generate hull performance tools, reduce fuel consumption and improve energy efficiency (Perera & Mo, 2017). However, while the software plays an important role in today’s ship management, maintenance management is not just a software system. It is a combina­ tion of trained personnel, software and best practices, all focusing on the same goal (Trout, 2019).

Performance management The concept of performance management arose approximately in the post-industrial world of the 1980s and blossomed in the 1990s (English & Lindquist, 1998).According to Forss (2002), it is usually seen as one possible approach to how higher levels in an organisational system can hold lower levels accountable for activities. Performance management has become a widely practised and popular management reporting approach in recent years. It is crucial to the sustainable devel­ opment of holistic management and decision-making activity within companies wishing to operate as world-class organisations. Moreover, enabling the technology, which assists in the delivery and personalisation of corporate performance information, is having a deeper and more rapid impact than ever before (Sharif, 2002). Performance management refers to activities, tools, processes and programmes that compa­ nies create and/or apply to manage the performance of individual employees, teams, departments and/or the whole organisation (Tang & Zhang, 2021). Its purpose is to ensure that organisational goals are consistently and effectively met in an efficient manner. According to DeNisi (2000), per­ formance management is a ‘broad range of activities that an organisation engages in to enhance the performance of individuals, with the ultimate aim of improving organisational effectiveness’. It is also defined as a continuous process of ‘identifying, measuring and developing the performance of individuals and teams and aligning performance with strategic goals of the organisation’ (Aguinis & Pierce, 2008). Performance management has some key characteristics; it should be strategic, integrated, shared, continuous, specific and flexible (Hutchinson, 2013). Performance management is an area that ship owners and operators must focus on in order to maximise their profitability and productivity.A responsible ship manager’s priority is to make sure that vessels are continually running and that lay-up is reduced to the minimum amount possible in order to exploit a ship as much as possible during its designed life cycle.When the focus is on the technical aspects, technical performance measures (TPMs) provide an assessment of key capability values in comparison with those expected over time (Acqnotes, 2018).TPMs is a term used by the industry to show how well a system is satisfying its requirements or meeting its goals (Oakes et al., 2006). As an old management adage suggests, if there is no measure, there is no management.A TPM programme provides an early warning of the adequacy of a design in terms of satisfying selected critical performance parameter requirements of a system. It also determines the success of the sys­ tem, or portion thereof, and that will receive management focus and be tracked (EIA, 1999). Many

TECHNICAL MANAGEMENT

organizations use the terms TPMs and key performance indicators (KPIs) interchangeably. In recent years, in the face of growing economic pressure, many shipping companies are keen to pursue high operational performance (Visvikis & Panayides, 2017). Ship management needs to develop the capability to measure performance through a comprehensive performance management system that integrates KPIs (Konsta & Plomaritou, 2012). As a result, shipping KPIs has become a typical buzzword in ship management and operations. Shipping KPI was a system developed by a cross-industry group in 2006, but it only became well-known in the industry in 2015 when the BIMCO took ownership of the system and updated it regularly (Panayides, 2019). It is an innovative tool for the global shipping industry for defin­ ing, measuring and reporting information on operational performance.The ship managers can use the system to compare their business performance against the industry standard and potentially identify where efficiency improvements could be made. In the meantime, it can communicate ship operational performance, both internally and externally (BIMCO, 2020). The current Standard V4.0, launched in September 2020, is built up hierarchically with three different levels. As shown in Figure 6.1, on the lowest level there are 63 performance indica­ tors (PIs), which are the building blocks for KPI value calculations.The PIs are directly observable parameters (measurements or counters) for each ship under management, such as the data related to the number of collisions, number of dismissals, number of fire incidents and number of PSC inspections and detentions.These PIs are the only elements that must be reported manually or by means of the implemented ICT system. On the second level, there are 33 KPIs.They are on a scale from 0 to 100, where 0 indicates low and 100 is an outstanding performance.This makes it possible for ship managers to compare ships with different characteristics or amount of data captured.The KPIs are expressions of perfor­ mance of a ship within a specific area, and they can be expressed in an absolute or relative way. Each ship can compare with other ships on the same KPI based on its own ranking criteria.Therefore, it creates a ranking result where each ship is given its rank.The absolute KPI ranking is derived from a descending list sorted by the highest to lowest performance rank, returning the actual position of the ship within its ranking criteria.The relative KPI value is a mathematical combination of relevant performance indicator values.The return value is a percentile position within the ranking criteria on a scale between 0 and 100 per cent (BIMCO, 2020).As a result, the KPIs can be used as internal and external benchmarking to set incentives for continuous improvement.

Key performance indicator (KPI Groups) (Total 8) Key performance indicators (KPIs) (Total 33) Performance indicators (PIs) (Total 63)

Figure 6.1 Overview of the BIMCO Shipping KPIs Standard V4.0 Source: (BIMCO, 2020)

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Finally, on the highest level, the BIMCO KPIs are combined into eight groups for better cat­ egorisation and visualisation purposes (BIMCO, 2020). These eight groups include environmental group, health and safety group, human resource management (HRM) group, navigational safety group, operational group, security group, technical group and PSC group. These eight top-level KPI groups categorise a set of related KPIs best expressing the ability of an organisation or vessel to perform in a certain area.The environmental group is often used to assess the ability of the organisation or vessel to prevent the violations of ballast water management, oil spills or any kind of pollution that could harm the environment as a result of the vessel operation. The health and safety group has to do with the capability of the organisation or vessel in managing the health and safety issues, such as accident frequency and deficiencies.The HRM group is related to the organisation’s ability to employ competent personnel, retain staff and create an enabling envi­ ronment for the development of their people.The purpose is to meet the organisation’s expected standard and competence to ensure safe and efficient operation of the ships.The navigational safety group deals with the safety of the ship during navigation and the elimination of navigational deficien­ cies.The operational group is used to analyse the operational effectiveness of the ship, such as safety and efficiency of cargo handling, ship availability and budget management.The security group mea­ sures the ability of the organisation or vessel to manage ship security. It also takes into account the breaches of security procedures within the organisation and the ships they operate to have a clear picture of their performance.The technical group deals with the ability of the organisation or vessel to maintain the ship, reduce the number of deficiencies and minimise failures of critical equipment and systems.The PSC group measures the performance of the organisation or vessel with regard to PSC issues, including the number of PSC inspections, deficiencies and detentions. Shipping KPIs provide fundamental signs as to whether the business of a ship is on the right course of achieving its fundamental strategic objectives (Visvikis & Panayides, 2017). This system makes it possible for operational performances to be defined, measured and reported on in terms of the issues that arise in the day-to-day and long-term operations.The different categories of indi­ cators provide a structured picture of how effective the organisation’s performance is; the issues arising from the ship’s deficiencies; and the human factor, including shore staff and crew onboard and the results arising from the technical operations. In addition, the BIMCO Shipping KPI system integrates the mandatory Energy Efficiency Design Index (EEDI3) for new ships and the Ship Energy Efficiency Management Plan (SEEMP) for all ships with respect to carbon dioxide (CO2) emissions.The EEDI states the recommended index of the amount of CO2 that ships are allowed to emit.The purpose of the EEDI is to improve the machin­ ery operation and hull design and reduce CO2 emissions by increasing the ship’s overall efficiency. The EEDI was made mandatory for ships built after 1 January 2013, aiming to promote the use of less polluting equipment and engines. It specifies the ratio of CO2 the ship would emit per tonnemile of work done by the ship.Various levels of phases are set and streamlined as per the ship type, size and year built to achieve fuel efficiency (IMO, 2011). Unlike the EEDI, which emphasises technical design parameters to be attained by the ship design­ ers and builders, the SEEMP focuses on the shipboard operation to monitor energy efficiency. It pro­ vides an organised approach for the ship management companies and ship operators to monitor and manage the ship’s efficiency performance over time by using the Energy Efficiency Operational Indicator (EEOI) as an evaluation tool.There are a set of guidelines for the EEOI issued by the IMO to facilitate measures of fuel efficiency.The guidelines include enhanced voyage planning, frequent propel­ ler cleaning and the introduction of technical measures such as waste heat recovery systems.These measures encourage the ship owners and managers to plan at each stage and consider new practices and technologies to optimise the performance of their ships (Karan, 2020).The 76th session of the IMO’s Marine Environment Protection Committee (MEPC 76), which was held in June 2021, adopted further technical and operational measures to reduce carbon emission from the shipping industry. The measures include the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator

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(CII) rating scheme.The aim of the EEXI is to measure the energy efficiency of in-service vessels over 400 GT that fall under MARPOL Annex VI. It requires ship managers to assess their ships’ energy consumption and CO2 emissions against specific requirements for energy efficiency for each vessel type.The Carbon Intensity Indicator (CII) is a measure of how efficiently a ship transports goods or passengers and is given in grams of CO2 emitted per cargo-carrying capacity and nautical mile.The rating is given on a scale - A, B, C, D or E - indicating a major superior, minor superior, moderate, minor inferior, or inferior performance level.The performance level would be recorded in the ship’s SEEMP. However, despite their significant utility, nowadays there are many different indicators to look at, making comparison of performance between companies difficult. In the meantime, various par­ ties bring issues with regard to the explanation of the same information in many different ways. Also, KPIs should be aligned with the organisation’s objectives, strategies, plan and business policy. They need to measure the most significant things – not everything – and to have the support of the workforce. To have successful indicators, the shipping KPIs need to be communicated to the workforce at different levels in a way where they can be tracked and simply explained (NoE, 2015).

Quality and safety management Quality is defined by the ISO4 (2002) as ‘the totality of features and characteristics of [a] product or service that bear on its ability to satisfy stated or implied needs’. Quality management refers to coordinated activities to direct and control an organisation with respect to quality. For organisa­ tions aiming to achieve sustained success, they need to implement a quality management system (QMS). A QMS can be defined as a system of ‘procedures, processes, and resources that are for­ malized to achieve quality objectives’ (Kapur et al., 2020) or a management system ‘to direct and control an organisation with regard to quality’ (ISO, 2008). Central to a QMS is the quality policy, which includes the overall aim and strategic direction of the organisation related to quality.A qual­ ity policy, as formally expressed by the top management of an organisation, will generally provide a framework for the setting of quality objectives and management principles (Visser et al., 2010). In general, a QMS provides assurance through four tools: quality planning, quality assurance, quality control and quality improvement (Reichenbächer & Einax, 2011). Quality planning is focused on setting quality objectives and specifying the necessary operational processes and resources to fulfil quality objectives. Quality assurance includes all preventive activities which are focused on providing confidence that quality requirements will be fulfilled. It also includes proactive controls to prevent problems associated with customer dissatisfaction. Quality control concerns activities focused on conforming to quality requirements so that customers receive only products or ser­ vices that meet their requirements. Quality improvement is the part of the management system which is focused on the continual improvement of activities increasing the ability to fulfil the requirements, including effectiveness, efficiency and traceability (Visser et al., 2010). After all, in business, quality is what gives a company the greatest competitive advantage and customer loyalty. Safety is defined as freedom from unacceptable risk or a state from which the risks are judged to be acceptable (Manuele, 2003). It is a feature of an object – for example, a machine, an activity or technology – that does not threaten people or the environment. Safety management is an organi­ sational function which ensures that all safety risks have been identified, assessed and satisfactorily mitigated.The objective of safety management is to prevent human injury or loss of life and to avoid damage to the environment and property (Gustin, 2008). Quality and safety management forms an integral part of any service organisation’s mission and strategy. Effective implementation of quality and safety management is essential for ensuring the success­ ful delivery of services and the sustainment development of business (Love et al., 2018).The importance of linking the business practices of quality and safety has been widely recognised in the industry.Accord­ ing to Rahimi (1995), the quality of work-life balance will improve when management views safety as the

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result of their management system rather than treating accidents as a special occurrence outside their management system. Quality management is focused on improving the product or service provided to the customer (Chiarini, 2011). In contrast, the main purpose of safety management is to prevent injuries in the workplace. It is focused on improving the conditions that exist in producing the product or ser­ vice (Maxfield, 2010).According to Ladewski & Al-Bayati (2019), quality and safety would have stronger values within an organisation if their management was in harmony rather than disconnected. As for the shipping organisations, quality is not only about all stakeholders’ satisfaction but is also associated with safety requirements. It is highly recommended to implement a quality assur­ ance system that will help with quality management (Andonov, 2016).A quality assurance system is meant to increase customer confidence and an organisation’s credibility. It can enable a company to better compete with others by improving work efficiency and building trust and loyalty with cus­ tomers (Reichenbächer & Einax, 2011).The standards available to the ship manager for the imple­ mentation of quality and safety management are wide-ranging (Panayides, 2001). For example, the ISO provides a series of standards on quality management and quality assurance. ISO 9004:2018 gives guidelines for enhancing an organisation’s ability to achieve sustained success, which is con­ sistent with the quality management principles given in ISO 9000:2015 (ISO, 2020). ISO 14001 provides the elements of an effective environmental management system. ISO 50001 provides a framework to improve and optimise the way energy is managed. ISO 45001:2018 specifies require­ ments for the management system of occupational health and safety (OH&S) and gives guidance for its use. All these standards enable organisations to provide safe and healthy workplaces by proactively improving its OH&S performance and by preventing work-related injury and ill health (ISO, 2018). In the meantime, the IMO provides a long list of standards specifically applicable to the mar­ itime industry.The most important one is the ISM Code, being incorporated as the Chapter IX of the International Convention for the Safety of Life at Sea (SOLAS).The ISM Code’s primary aim is to establish an international standard for the safe management and operation of ships and preven­ tion of marine pollution.The central standard of the ISM Code is that improvement in safety at sea depends on changes in performance and that human force is the key.The code includes 13 sections that cover issues from safety and environmental protection guidelines; to the responsibilities and authority of individual companies; to documentation and certification, verification and control. It plays an important role in reducing the effects of human error, both ashore and onboard, by apply­ ing QMSs (Kuo, 2007). Meeting the requirements of the code is evidenced by the ship’s flag state in a five-year ‘document of compliance’ (DOC) for ship managers and a five-year ‘safety management certificate’ (SMC) for the ship.All these are subject to regular internal and external audits.Also, it is enforced by the PSC under a different memorandum of understanding (MOU).As a result, the ISM Code has forced maritime companies with poor or weak management systems to produce a formal, structured safety management process for the first time (Vandenborn, 2018). One of the ISM Code’s key objectives is to establish a ‘safety culture’ in shipping companies and onboard ships.The concept of a safety culture exists in most industries where high-risk oper­ ations take place. Before becoming a common practice in the maritime industry, this concept was well established in many other industries (Anderson, 2015). The purpose of a safety culture is to ensure that the organisation has the essential elements in place that make it resilient to opera­ tional hazard and associated risks (Roughton & Crutchfield, 2013). One of the most frequently cited definitions of safety culture was given by the Advisory Committee on the Safety of Nuclear Installation (ACSNI): The product of individual and group values, attitudes, perceptions, competencies, and patterns of behaviour that determine the commitment to, and the style and proficiency of, an organisa­ tion’s health and safety management. (ACSNI, 1993)

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There are very few accidents, incidents or unsafe acts which could not have been prevented or traced to some form of organisational or human error (Antonsen, 2017). If people had been think­ ing constantly about safety, as occurs in a safety culture, many of those accidents would have been avoided.The IMO suggests that the key to achieving a safety culture is in (Spitzer et al., 2014): ●● ●● ●● ●●

Recognising that accidents are preventable through following correct procedures and estab­ lished best practice; Always plan ahead to avoid/prevent incidents; Constantly thinking safety; Seeking continuous improvement.

The concept of a safety culture within the marine industry is constantly adapting and changing due to accidents and disasters.All senior managers in a shipping company, who are subject to the respon­ sibility in a decision-making context, should pay high attention to the safety culture of the vessel and the organisation.Also, aside from being ethical and socially responsible, the shipping company should create and sustain a safety culture in order to maximise the benefits and cost savings that can be achieved from enforcing the ISM Code appropriately (Christodoulou-Varotsi & Pentsov, 2007). To improve the safety culture in the maritime industry, the ISM Code requires owners and operators of ships to put in place a safety management system (SMS).The mandatory application of the SMS is to ensure the compliance of rules and regulations related to the objectives of the code and the effective implementation and enforcement thereof by flag state administrations.The independent capability to monitor operational compliance with the SMS and to provide the nec­ essary quality control for consistently high performance is an intrinsic but beneficial part of ship management (Christodoulou-Varotsi, 2008). The SMS is an organised system planned and implemented by the shipping companies to achieve the objectives of the ISM Code. It ensures that the ship complies with the mandatory safety rules and regulations and follows the codes, guidelines and standards recommended by the IMO, flag states, port states and classification societies. The contents of an SMS can be divided into a series of aspects, including: ●● ●● ●● ●● ●● ●● ●● ●● ●● ●● ●● ●●

General;

Safety and environmental policy;

Designated person ashore (DPA);

Resources and personnel;

Master’s responsibilities and authority;

Company’s responsibility and authority;

Operational procedures;

Emergency procedures;

Reporting of accidents;

Maintenance and records;

Documentation;

Review and evaluation.

The SMS is a crucial aspect of the ISM Code, and it details all the important procedures, practices

and policies that are to be followed in order to improve the safe functioning of vessels at sea. It

consists of details as to how a ship operates on a day-to-day basis, how routine drills and training

are conducted, measures taken for safe operations, what procedures are to be followed in case of

an emergency, who the DPA is and so on (Kantharia, 2020).

For example, one innovative aspect of the SMS is the special role of a DPA.As defined by the ISM Code, the DPA plays a major part in delivering the SMS of a shipping company. It is the DPA’s

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responsibility to create the proper mind-set, attitudes and behaviour of the company employees in support of a vessel’s operations.The role is the ‘keystone’ to provide the structure and support for an efficient and effective SMS onboard a vessel (Dales, 2016). As outlined in the ISM Code, the DPA’s responsibilities are to: ●● ●● ●●

Ensure the safe operation of each vessel;

Monitor the safety and pollution-prevention aspects of the operation of the vessel and ensure

that adequate resources and shore-based support are applied; Provide a link between the managing company and those onboard, with direct access to the highest level of management.

The objectives of the ISM Code are to ensure that safety is secured and achieved, humans are protected from injuries and harms and the environment and property are not damaged.This can be achieved by promoting a good safety culture in the maritime industry. Certainly, the ISM Code has made shipping safer and cleaner over the past two decades (Vandenborn, 2018). However, it has also paradoxically increased bureaucracy and overlooked operative personnel (Bhattacharya, 2009).The implementation of the ISM Code has caused excessive documentation, and this increased paperwork has led to a bureaucratic culture (Bhattacharya & Tang, 2013; Kongsvik et al., 2014; Xue et al., 2018). Dhir (2021) criticises the integration of various standards into the maritime management system, and he argues that the system is now becoming too complex. The ISM Code and ISO standards were implemented to ensure that all ships are operated within a defined manage­ ment framework, thus ensuring proper management of safety and compliance with various requirements. However, the maritime industry has made the lives of the ship managers and seafarers more complicated by requiring them to get certified for all these different and rapidly changing systems. This ends up making ship operational processes more complicated and less implementable. In the meantime, safety science has undergone a paradigm shift from Safety-I to Safety-II (Teperi et al., 2019). From a Safety-I perspective, the purpose of safety management is to make sure that the number of accidents and incidents is kept as low as possible, or as low as is reasonably practicable (Hollnagel, 2014).The Safety-II paradigm argues that the industry should be less concerned about how to prevent things from going wrong. Instead, the focus should be on why things go right (Steen, 2019).According to the theory of Safety-II, safety management needs to look for ways to enhance the ability to succeed under varying conditions, so that the number of intended and acceptable outcomes is as high as possible (Andonov, 2016).

Information system management Information is the lifeblood of today’s industry, and the information system (IS) is a crucial stra­ tegic asset of any commercial organisation. It has almost become a cliché to say that Information technology (IT) and the IS are all-pervasive throughout our society (Whiteley, 2013).The flow of information is a significant factor for the effective, efficient and productive operation of a business. The IS plays a vital role in an organisation’s overall performance. It supports business processes and operations of an organisation in many ways. O’Brien & Marakas (2005) have identified three fundamental roles played by ISs in businesses. ISs support business processes and operations.They also support the decision-making of managers and employees. In addition, ISs support strategies for competitive advantage.To a certain extent, new forms of IT have completely changed the way society organises its economic activities (Humbert, 2007).

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The global maritime industry is in the midst of a significant transformation to increase its efficiency and visibility by applying new IT. With the rapid technological advancements, sharing information, keeping databases and effective communication can be done with ease.The retention of information through a shipping company has changed since the introduction of ISs, as well as the development of speed and power in terms of computers.The main advantage that the IS provides is the establishment of databases from which information is accessed and analysed in order to identify current trends. For example, the systems offer the ability to compare the operational costs of ships, as the accounts of them are always updated and available to access (Soares & Santos, 2018). The use of computers and technology has completely transformed the way in which compa­ nies operate as well as gather, share and use information. With technology developments, more computer-based systems can be used to help the ship manager more effectively complete their job and maintain their competitive advantage in the market. However, the rate of development of the IT and IS far outpaces the improvement in our ability to implement and manage the technology. What is actually being achieved with modern IT and IS lags far behind what can be achieved, and the gap is widening (Willingale, 1998).As a result, how to manage IT and IS themselves has become a real issue which is challenging for the parties involved. The collection, processing and storage of real-time data and an analytical infrastructure have enabled ship managers and ship owners to adapt to various challenges, such as environmental policies and regulations that are implemented today. According to Liu et al. (2014), a typical ship information system (SIS) is divided into three parts, with each part having a different focus.The first part is a communication system, which provides ship system facilities. The second part is a display network, which works as a subnet for translating information to the displays.The third part is sensor networks, which consist of spatially distributed devices communicating through wireless radio and cooperatively sensing physical or environmental conditions (De et al., 2013). For example, various monitoring systems Starkey & Harlaftis (2017) and navigation equipment (Murphy, 2004) are rep­ resentative sensor networks in the ship. Therefore, the question for today’s ship managers is not whether to digitalise their operations, but how to do it more effectively and which ship management system to choose. According to Panayides (2001), the choice between different software programmes and the system is crucial, as it will affect efficiency and good return on investment. Nowadays, most maritime organisations have an information systems department (ISD) providing software and hardware system development, software selection, network security, supply and support. At the same time, an IS policy needs to be made at the highest levels of the organisation to outline its aim, responsibilities, procedures, security and other issues. Besides, to simplify the workload, streamline procedures and improve the efficiency in operations, the ship management software needs to be continuously updated and optimised to take advantage of the latest technological advancements (Dickie, 2014). Given the importance of the IS, its security and protection have become crucial aspects of ship management. As ISs have become essential to business and commerce, they have also increasingly become a target for attacks.According to Merkow & Breithaupt (2014), the fundamental principles of information security include confidentiality, integrity and availability.These three principles form the basis of all security programmes. Every element of an information security programme should be designed to achieve one or more of these principles (Burnette, 2020).To ensure the confiden­ tiality, integrity and availability of information, Bourgeois & Bourgeois (2014) introduce a variety of tools, such as authentication, access control and encryption. Each of these tools can be utilised as a part of an overall information security policy. For example, many ship management firms have adopted a wide range of measures to protect data and ISs, including the following: ●● ●●

Equipment and media protection; Backups;

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●● ●● ●● ●● ●● ●●

Anti-virus programmes; User access controls; Network access controls; Disaster recovery; Limiting hacking threats; Security incident response.

In the meantime, information security requirements will continue to be aligned with the organisa­ tion’s goals, and their policies are intended to be an enabling mechanism for information sharing, electronic operations and reducing information-related risks to acceptable levels. During the past years, cybersecurity-related companies are a new trend we have seen emerging in the maritime industry.

Emergency management An emergency is any unplanned event that can cause death or significant human injuries, disrupt operations or cause physical or environmental damage. It can threaten the financial standing of an organisation’s businesses or even the entire industry.According to Beaverton (2018), emergencies can be categorised into four types depending on the level of threat to lives and property.The first type is the routine emergency, which is handled on a daily basis by the operational department. This type of emergency does not have a significant impact on safety, health and wellbeing.The sec­ ond type is the minor emergency, which can usually be managed by existing resources and can be handled at the scene.The third type is the major emergency, which needs outstanding assistance to manage the threat.The fourth type is the catastrophic emergency that has a significant impact on the safety of life, property and the environment, so it needs an aggressive response. Emergency management is the organisation and management of the resources and responsi­ bilities for dealing with ‘potential and actual large-scale hazards, threats, and disasters’ (Bumgarner, 2008). It is a risk-based discipline regarding how to handle and avoid risks, particularly those that have catastrophic consequences. The fundamental principles of comprehensive emergency man­ agement are based on four pillars: mitigation, preparedness, response and recovery (Bullock et al., 2013). Prevention is sometimes separated as a fifth pillar. Etkin (2016) explains the four pillars of comprehensive emergency management (CEM) as follows: ●● ●● ●● ●●

Mitigation refers to long-term actions that reduce the risk of disasters.

Preparedness involves planning for disasters and putting in place the resources needed to cope

with them when they happen. Response refers to actions taken after a disaster has occurred. Recovery encompasses longer-term activities to rebuild and restore the community to its pre-disaster state, or a state of functionality.This is also a good time to engage in activities that reduce vulnerability and that mitigate future disasters.

According to Kipp & Loflin (1996), emergency management can be divided into the pre-incident phase and post-incident phase.The activities of the pre-incident phase include predicting and analys­ ing potential risks and developing necessary action plans for mitigation. In contrast, the post-incident phase starts while the emergency is still in progress.At this stage, challenges can arise in the location, allocation, coordination and management of available resources (Bielić et al., 2011). It is important that both phases have an effective emergency response plan, and the objectives of the plans should be aligned to ensure the overall aim of emergency management can be achieved (FEMA, 2006).

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It is crucial to integrate emergency management in ship management and operating proce­ dures. First of all, it is a requirement under the ISM Code Part A, which states that the SMS should provide for measures ensuring that ‘the Company’s organisation can respond at any time to haz­ ards, accidents and emergency situation involving its ships’ (IMO, 1997a). At the same time, the good practice of ship management requires that the company should respond to an emergency timely and effectively. For example, Emergency Response and Rescue Vessels (ERRVs) Management Guidelines provide the ship managers and all other personnel involved in the offshore operations with the general technical guidance regarding the proper conduct of those operations as part of the recovery arrangements (Oil & Gas UK, 2008). One important aspect of ship emergency management is to maintain a contingency plan onboard and ashore. The contingency plan is a proactive strategy designed to help the shipping organisation and ship respond effectively to a significant future event or situation that may (or may not) happen. It describes the course of actions or steps the management and staff of the organisation and ship need to take (Athuraliya, 2019).The plan covers a wide range of emergency procedures, including fire, collision, aground, pollution, piracy, medical issues, heavy weather and so on. In addition, the contingency plan needs to be updated to meet emerging issues in the industry. For example, following the outbreak of COVID-19, a coronavirus contingency plan should be kept by the ship master and used as a practical guide to managing possible coronavirus-related incidents (Corn, 2020). The pandemic was a great way to see first-hand how these plans work and under­ stand their importance. Another critical aspect of emergency management is to have an effective emergency response team (ERT). The ERT is a group of people who prepare for and respond to any emergency inci­ dent. Members of the ERT should be thoroughly trained for potential emergencies and physically capable of carrying out their duties (Badiru & Racz, 2013).The team is generally composed of peo­ ple from different departments to cover various issues, including technical issues, communication, legal issues, media, liaison and so on. The format of the ERT varies based on the structure of the organisation, the way people are employed, their positions and their capabilities. As a result, the identification and set of the role of team members are the first and most important steps that need to be taken. For example, a senior marine safety and quality (MS&Q) manager of a prestigious ship management company stated that a typical ERT consists of the following personnel: ●● ●●

●●

Incident coordinator; ERT leader. The ERT leader is the person who is responsible for: • Acting as incident coordinator once the ERT is assembled; • Activating the ERT and deciding on key roles for the ERT and principal resources, including additional support if required; • Keeping the owner closely advised throughout; • Liaising with the company and owner’s lawyers; • Handling all dealings/communications with the media; • Keeping ERT members appraised of updates and changes during the incident; • Keeping the Marine Operations Compliance Department (MOCD) and the executive board appraised; • Issuing reports and updates; • Deciding when to stand down the ERT; • Holding a review meeting after the incident is over. Marine coordinator. The marine coordinator is the person who is responsible for: • Deputising as ERT team leader if the managing director (MD) is absent;

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●●

●●

●●

●●

• Coordinating communications with the protection and indemnity (P&I) club; • Coordinating communications with charterers; • Coordinating communications with involved oil majors where applicable; • Deciding on marine resources required by the ERT. Technical coordinator. The technical coordinator is the person who is responsible for: • Coordinating communications with the hull and machinery (H&M) insurers. • Coordinating communications with the damage stability consultants where applicable. • Mobilising resources to the incident (on-site team). Consideration should be given to using resources from other regional offices if necessary. • Deciding on technical resources required by the ERT. Crewing coordinator: The crew coordinator is the person who is responsible for: • Coordinating communications with the manpower supply office; • Monitoring seafarer welfare; • Arranging drug and alcohol testing; • Deciding on the need for further crewing resources required by the ERT. MS&Q superintendent. The MS&Q superintendent is the person who is responsible for: • Coordinating communications with the vessel; • Coordinating communications with the local agents (appointing protective agents if required); • Coordinating communications with local port authorities; • Coordinating communications with the flag administration; • Coordinating communications with the coastal state; • Coordinating communications with oil spill response organisations and the qualified individual; • Coordinating any chart supplies required by the ERT. Fleet superintendent. The fleet superintendent is the person who is responsible for: • Coordinating communications with the Classification Society; • Coordinating communications with the purchasing department; • Providing technical support to the ERT and the vessel; • Contacting equipment manufacturers where necessary.

The occurrence of emergency requires a timely and effective response to the conditions through a mutual and synchronised approach of the different roles. In the event of an emergency, no mat­ ter what nature it is, the person receiving the initial contingency call should first ensure that the master has reported the incident as per the Shipboard Oil Pollution Emergency Plan (SOPEP) or Shipboard Marine Pollution Emergency Plan (SMPEP).The purpose of the plans is to provide guid­ ance to the master and officers onboard the ship with respect to the steps to be taken when an oil or marine pollution incident has occurred or is likely to occur. Since any emergency may lead to an oil or marine pollution incident, it is necessary to engage in pollution prevention procedures as early as possible. The decision to activate the ERT is taken by the ERT leader, who is often a senior executive of the organisation.The ERT leader has to discuss with the ERT members the facts known to them and may call for additional information from the vessel, other individuals or organisations before deciding on any course of action.The ERT has to review the information gathered and shall decide what immediate outside assistance or specialist services are required, in addition to any initiated

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by the master, to limit or contain any loss of life, injury, damage, pollution and so on. Commercial factors should be taken into account, but the safety consideration must never be overridden. In the meantime, the ERT leader needs to keep the owner and other parties closely advised throughout the incident period. Legal advice may be required when a commercial dispute has occurred or is likely to occur. Therefore, it is necessary to collect relevant evidence and keep a good record of the incident, such as taking statements from the vessel’s crew.Also, media advisors are often needed to assist in statement preparation and general media handling if the incident is likely to get into the public domain and garner media attention. When the incident situation has been stabilised and the vessel is considered to be safe, the ERT will consult with the owners, the P&I club and H&M underwriters as to the necessity to take any actions to protect the relevant stakeholders’ interests. In terms of future improvement, the ship manager will occasionally issue circular letters, safety bulletins and other summary statistics and reports of accidents, incidents and near-misses to the fleet, officers, management teams and industry safety forums, highlighting regular occurrences, causes and lessons learned.

Notes 1

The issues relating to compliance with the ISM Code, the ISPS Code and the requirements of the law of the flag states will be discussed in more detail in Chapter 8 on compliance management. 2 The useful life of an asset is an accounting estimate of the number of years it is likely to remain in service for the purpose of cost-effective revenue generation (Kenton, 2019a, 2019b). 3 In July 2011, the IMO, in response to the assembly’s plea to lessen the greenhouse gas (GHG) emission from ships, MEPC 62 adopted a resolution, MEPC.203(62), by introducing mandatory technical and operational measures for the energy efficiency of ships.That includes the EEDI and SEEMP (MEPC 72/17, 2018). 4 ISO (International Organization for Standardization) is an independent, non-governmental international organization with a membership of 165 national standards bodies. It is the world’s largest developer and publisher of international standards.

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Chapter 7

Human resource management

The previous chapter focuses on technical management, which provides technical expertise and support for the management of an organisation providing services. It relies on the right type and level of people who can manage technical issues.This chapter moves on to human resource man­ agement (HRM), which is about the management of people to realise the desired business objec­ tives. It is a fundamental activity in any organisation in which human beings are employed.A central feature of HRM is the crucial links between human resource policy and practices and the overall organisational strategic aims.Today people believe that effective HRM can deliver a sustained com­ petitive advantage in the short term while preparing for longer-term success (Pickford, 2001). As mentioned in Chapter 1, maritime shipping relies heavily on its people to make the business viable, reliable and efficient. The unique features of the maritime business underline the importance of effective HRM in ship management, which is embedded in almost any service the ship manager provides for the ship owner.As a result, the sound practice of HRM should be complied with all the time when the ship manager is engaged in the ship owner’s business.

The concept of human resource management There have been various debates about precisely what is meant by HRM, how it differs from industrial relations and personnel management and the extent to which it is considered to serve the employer’s objectives alone rather than aiming to satisfy other stakeholders’ expectations (Marchington & Wilkinson, 2005). First of all, the term ‘human resources’ is defined by Boxall (2014) as the overt talents and underlying characteristics that are intrinsic to the human being, which people can apply to the various tasks and challenges of their lives. In the commercial world, it refers to the set of the people who make up the workforce of an organisation, industry, business sector or economy. Dransfield (2000) defines the term as ‘the people that work for an organisation, and the contributions that they make through their skills, their knowledge and their competence’. However, Osterby & Coster (1992) pointed out that the term ‘human resources’ reduces people to ‘the same category of value as materials, money and technology – all resources, and resources are only valuable to the extent they can be exploited or leveraged into economic value’. Considering ‘human’ as a ‘resource’ to be ‘managed’ implies a cold, mechanistic approach (Pickford, 2001). Instead, effective HRM needs to study the behaviours of people and maximise their potential through a cooperative approach. It is a mistake commonly made by both academia and industry to call people themselves ‘human resources’.According to Boxall & Purcell (2015), people are not human resources. On the contrary, they are ‘independent agents who possess human resources, which are the talents they can deploy and develop at work and which they take with them when they leave an organisation’. Therefore, there has been a tendency to replace HRM with ‘people DOI: 10.4324/9781003081241-7

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management’ to highlight the facts that ‘organisations are the people in them’ and ‘people make the place’. For example, today many organisations have renamed their HR department to ‘people development’ department. However, HRM is still the most commonly used term in both academia and practice. HRM is concerned with the individual or groups within the organisation. There is no one accepted view as to what HRM is. According to Storey (1995), HRM is a special approach to manage employees to achieve competitive advantage ‘through the strategic deployment of a highly committed and capable workforce, using an integrated array of cultural, structural and personnel techniques’. In a broad sense, it includes all the policies and practices used to employ people and organise work. It is also used in a narrower sense to denote a specific approach to people manage­ ment in both theoretical and practical terms (Gilmore & Williams, 2013). In the existing literature, a variety of definitions are given for HRM. For example, it was defined by Boxall & Purcell (2003) as ‘all those activities associated with the management of employment relations in the firm’.This definition was developed as ‘the management of work and people in an organisation’ (Boxall et al., 2007), and then as ‘an inevitable process that accompanies the growth of organisations’ (Boxall & Purcell, 2010).A most recent definition given by Boxall & Purcell (2015) describes HRM as ‘the process through which management builds the workforce and tries to create the human performances that the organisation needs’. The development of understanding HRM highlights the reference to the totality of the organisation’s management of work and people and not simply to those aspects where human resource specialists are involved.According to Armstrong & Taylor (2020), the recent understanding of HRM has ‘a strong conceptual basis drawn from the behavioural sciences and human capital and industrial relations theories’. The objectives of HRM are derived from the basic aims of an organisation. Every organisation has some aims, and every part of it should contribute directly or indirectly to the achievement of the desired aims. Traditionally, the objectives of HRM are to ensure the organisation can achieve the desired business aims through people (Aquinas, 2009b).Today, HRM’s objectives have become more and more influenced by the organisation’s business aim, as well as individual and social goals. According to Armstrong & Taylor (2020), HRM’s objectives can be defined as being to: ●● ●● ●● ●●

●● ●● ●●

Support the organisation in achieving its business aims by developing and implementing human resource strategies that are integrated into the business strategy; Contribute to the development of a high-performance organisational culture; Ensure that the organisation has the talented, skilled and engaged people it needs; Maintain a positive employment relationship between management and employees, bearing in mind that employees must feel trusted, valued and appreciated if they are to work effectively and efficiently over time; Provide for a satisfactory employee experience; Further the wellbeing of employees as major stakeholders; Achieve social legitimacy by ensuring the rightfulness of how management treats its stakehold­ ers and by applying an ethical approach to people development.

To achieve these objectives, HRM covers a wide range of activities and shows a vast array of varia­ tions across industries, business units, organisational levels, occupations, firms and societies (Boxall et al., 2007).The activities are normally delivered by means of the human resource system, which operates within the framework provided by the human resource architecture (Armstrong, 2011). In general, a system is a set of practices or activities that work together and interact to achieve a purpose. A human resource system constitutes of interrelated and jointly supportive parts which enable human resource objectives to be achieved. In contrast, the human resource architecture is a comprehensive representation of all that is involved in HRM (Armstrong & Taylor, 2020).According

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to Becker et al. (2001), the term human resource architecture is used to broadly describe ‘the continuum from the HR professionals within the HR function, to the system of HR-related poli­ cies and practices, through the competencies, motivation and associated behaviours of the firm’s employees’.The architecture is often seen as a special combination of ‘the HR function’s structure and delivery model, the HR practices and system, and the strategic employee behaviours that these create’ (Hird et al., 2010). HRM plays a fundamental role in ship management, especially with regard to recruitment, train­ ing, placement, performance appraisal and work diversity. Ships would not be able to run without seafarers, nor would the shore side be able to function without the required people. An organi­ sation’s success is mainly due to its employees, as they are vital for its existence and operations. According to Spruyt (1994), the real core assets of a ship management company are ‘its people, its systems, its corporate leadership and its market image’. The meaning and concept of HRM in the context of ship management have two dimensions. First, an organisation cannot provide services or deliver them reliably unless it recruits and retains the people who have the knowledge, skills and inclination to do the jobs (Boxall & Purcell, 2015). Ship management firms need to gain access to the stock of human talents which enable them to provide prescribed services for the market, such as the technical and operations management services, as discussed in the previous two chapters.This chapter focuses on the second dimension, which is crew management. Under the ship management agreement, the ship manager is often employed by the ship owner to provide crew management services. Crew management covers a wide range of activities, such as seafarer recruitment, seafarer training, seafarer placement and repatriation, developing policies relating to the seafarer and developing strategies to retain qualified seafarers.According to Clause 5(a) of the SHIPMAN 2009: (a)

Crew Management The Managers shall provide suitably qualified Crew who shall comply with the requirements of STCW 95.The provision of such crew management services includes, but is not limited to, the following services: (i) Selecting, engaging and providing for the administration of the Crew, including, as appli­ cable, payroll arrangements, pension arrangement, tax, social security contributions and other mandatory dues related to their employment payable in each Crew member’s country of domicile; (ii) Ensuring that the applicable requirements of the law of the Flag State in respect of rank, qualification and certification of the Crew and employment regulations, such as Crew’s tax and social insurance, are satisfied; (iii) Ensuring that all Crew have passed a medical examination with a qualified doctor certi­ fying that they are fit for the duties for which they are engaged and are in possession of valid medical certificates issued in accordance with appropriate Flag State requirements or such higher standard of medical examination as may be agreed with the Owners. In the absence of applicable Flag State requirements the medical certificate shall be valid at the time when the respective Crew member arrives on board the Vessel and shall be maintained for the duration of the service on board the Vessel; (iv) Ensuring that the Crew shall have a common working language and a command of the English language of a sufficient standard to enable them to perform their duties safely; (v) Arranging transportation of the Crew, including repatriation; (vi) Training of the crew; (vii) Conducting union negotiations; and (viii) If the Managers are the Company, ensuring that the Crew, on joining the Vessel, are given proper familiarisation with their duties in relation to the Vessel’s SMS and that

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instructions which are essential to the SMS are identified, documented and given to the Crew prior to sailing. (ix) If the Managers are not the Company; (1) Ensuring that the Crew, before joining the Vessel, are given proper familiarisation with their duties in relation to the ISM Code; and (2) Instructing the Crew to obey all reasonable orders of the Company in connec­ tion with the operation of the SMS. (x) Where Managers are not providing technical management services in accordance with Clause 4 (Technical Management): (1) Ensuring that no person connected to the provision and the performance of the crew management services shall proceed to sea on board the Vessel without the prior consent of the Owners (such consent not to be unreasonably withheld); and (2) Ensuring that in the event that the Owners’ drug and alcohol policy requires measures to be taken prior to the Crew joining the Vessel, implementing such measures; In addition to these crew management tasks, the ship manager is often required to arrange crew insurance issues, which constitute an important aspect of the management of seafarer affairs. (b)

Crew Insurance The Managers shall throughout the period of this Agreement provide the following services: (i) Arranging Crew Insurance in accordance with the best practice of prudent managers of vessels of a similar type to the Vessel, with sound and reputable insurance compa­ nies, underwriters or associations. Insurances for any other persons proceeding to sea onboard the Vessel may be separately agreed by the Owners and the Managers; (ii) Ensuring that the Owners are aware of the terms, conditions, exceptions and limits of liability of the insurances in Sub-clause 5(b)(i); (iii) Ensuring that all premiums or calls in respect of the insurances in sub-clause5 (b)(i) are paid by their due date; (iv) If obtainable at no additional cost, ensuring that insurances in Sub-clause 5(b)(i) name the Owners as a joint assured with full cover and, unless otherwise agreed, on terms such that Owners shall be under no liability in respect of premiums or calls arising in connection with such insurances. (v) Providing written evidence, to the reasonable satisfaction of the Owners, of the Man­ agers’ compliance with their obligations under Sub-clause 5(b)(ii) and 5(b)(iii) within a reasonable time of the commencement of this Agreement, and of each renewal date and, if specifically requested, of each payment date of the insurances in Subclause 5(b)(i).

Ship management companies need to recruit and retain competent personnel both ashore and onboard. In recent years, there has been a growing shortage of qualified seafarers. There are many reasons, and they tend to mirror the reasons which make seafarers lose interest in sea jobs. The shortage of qualified seafarers not only causes difficulties for the ship manager to provide manning services for the ship owner, but it also gives rise to various risks in shipboard safety management. In the meantime, people with sufficient seafaring experience are also desperately needed ashore to maintain the high quality of ship management. The shortage of these profes­ sionals could lead to many vacant positions in shipping companies or government offices (Zhang & Drumm, 2020). As a result, the whole maritime industry will face challenges concerning its sustainable development.

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The human element in the maritime industry Since the mid-1990s, the maritime industry has increasingly addressed the importance of the ‘human element’. The IMO defines ‘human element’ as ‘a complex multidimensional issue that affects maritime safety, security and marine environmental protection involving the entire spec­ trum of human activities performed by ships’ crews, shore-based management, regulatory bodies and others’ (IMO, 1997b). It was recognised that the safety and security of life at sea, protection of the marine environment and over 90 per cent of the world’s trade depend on the professionalism and competence of seafarers (IMO, 2018). The human element was found to be responsible for a considerable percentage of accidents at sea worldwide (Zhang et al., 2019). These accidents were caused by human error, which were related to fatigue or lack of competence.They have resulted in the loss of human lives and some­ times severe pollution of coastal and ocean environments, as well as in damage to state and private property (Rizzuto & Soares, 2011). In 1994, the IMO Assembly adopted the International Safety Management (ISM) Code, which was incorporated into Chapter IX of the SOLAS. In the next year, the organisation further adopted the guidelines on implementation of the code by Resolution A.788 (19). According to the code, the human element is not ‘confined to the traditional design and layout of equipment and work­ places, but also covers aspects of manpower, organisation, management, allocation of responsibility, automation, communication, skills, training, health, safety, and the prevention of errors or accidents’ (IMO, 1994). In July 1995, the IMO adopted an amendment to the STCW, which represented a major revision of the convention and was elaborated as the STCW Code (IMO, 2019). Compared with its previous amendments, the 1995 revision attaches considerable importance to the human element. For example, it prescribes obligations for the member states to provide detailed informa­ tion on the administrative measures taken to ensure compliance with the convention (Regulation I/7 of STCW 1995). Also, the STCW Code introduces measures to tackle the problem of fatigue in watchkeeping personnel. A framework of minimum resting periods was designed for personnel participating in watchkeeping. In addition, the code deals with medical first aid and survival func­ tions and special requirements concerning the training and qualifications of personnel on board roll-on roll-off (RORO) passenger ships.All these new requirements call for more attention to be paid to the human element and more research to be conducted in this field. In the meantime, with the overall growth in the world fleet, the shortage of seafarers and the decline of seafaring skills have drawn the attention of the industry (Nguyen et al., 2014).The rele­ vant stakeholders have made essential efforts with respect to recruitment, retention and training of seafarers worldwide. However, the previous statistics taken from some international surveys indicate that there is an overall shortage of seafarers, in particular well-trained officers (Xhelilaj et al., 2011).The BIMCO/ICS Manpower Report, which has been published every five years since 1990, is regarded as the most comprehensive analysis of global supply and demand of seafarers (BIMCO & ICS, 2020). As stated by the BIMCO & ICS (2015) Manpower Report, one of the most serious problems the shipping industry faces is a global shortage in the supply of seafarers. Previous reports identified that there was a shortfall of about 16,500 officers (2.1 per cent) in the middle of the 2010s and a need for an additional 147,500 officers by 2025 to service the world merchant fleet (BIMCO & ICS, 2015). Moreover, some officer categories are in exceptionally short supply, especially engineer officers at a management level, and officers are needed for specialised ships such as chemical, LNG and LPG carriers (Petersen, 2016). Mark Charman, CEO of Faststream Recruitment Group, argues that there is a more serious shortage of senior officers with gas experience than expected. Many maritime employers have competed for the under-supplied seafarers by providing better work­ ing conditions. For example, a survey by Faststream of approximately 1,000 seafarers in the gas

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shipping sector found that the most important factors in choosing a company to work for were money, rotations, new vessels and onboard communications such as Wi-Fi (Hand, 2017). One of the key reasons for the shortfall is the unattractive treatment onboard; another is unhelpful legislation and practices. In some parts of the world, particularly in the traditional mari­ time countries, there is an apparent reluctance on the part of young people to choose seafaring as a profession. Even for those young people who do make the choice of going to sea, their careers at sea are often short, as they are either unwilling or unable to take on higher duties or, even more importantly, they actively choose not to remain at sea (Zhang et al., 2020b). Because the existing pool of well-qualified officers from traditional maritime nations (TMNs) continues to diminish, it was also viewed that the future provider of ships’ officers ‘will increasingly be oriented towards countries at lower levels of development’ (Glen, 2008). Noting that the global shortage of seafarers may threaten the international shipping industry, the IMO launched the ‘Go to Sea!’ campaign in 2008 in association with the ILO, the ‘Round Table’ of shipping NGOs, including BIMCO, ICS/ISF, INTERCARGO, ITF and INTERTANKO (IMO, 2009). The objective of the campaign is to attract young people to the seafaring profession and to build a pool of ‘competent and efficient seafarers’ to meet future demand (Mazhari, 2018). However, accomplishing the aim relies on the joint forces and collective efforts of all of the stakeholders in the maritime industry. Therefore, it is important to provide rewarding, stimulating and long-term career prospects for seafarers and to promote seafaring as an attractive option for young people (Leong, 2012).

The maritime labour market Maritime shipping is a globally organised and coordinated service sector, with the function of effi­ ciently transporting commodities through global supply chains (Walters & Bailey, 2013). It is a sector that in general could be defined as global, mobile and continuously growing (UKDOT, 2015). Since it is integrated into global supply chains, maritime transport faces intensified pressure to meet cus­ tomer requirements such as on-time delivery, high service frequency and flexibility in the provision of alternative shipping solutions. Maritime shipping is international, and so is the maritime labour market. The competition for freight business not only holds dire consequences for owners and managers but seafarers as well (Leong, 2012).The reduction of maritime labour cost has become a predominant business strategy in response to fierce competition (Cariou & Wolff, 2011a). At the beginning of the 20th century, almost all ships were generally crewed by nationals of the ship’s flag, and the market for seafarers was predominantly divided (Alderton et al., 2004). The market went through a massive change during the latter part of the 20th century when the industry was faced with declining demand, rising oil prices and falling freight rates (Havedahl, 2006). To reduce operation costs, many ship owners chose to remove themselves from the often very constricting national regulations that followed with the registration of a ship in that country (Lillie, 2004). Between the middle of the 1970s and middle of the 1990s, the use of foreign flags began to gain widespread popularity (Leong, 2012). As discussed in Chapter 2, seafarers represent a unique occupational category. Nowadays, they can be employed on vessels under various flags, owned and operated by people from different countries. In that sense, the maritime labour market is much more open and complex than any other economic sector in the world (Bagoulla & Guillotreau, 2016).The maritime labour market is of a particular international nature, characterised by mobility and globalisation.According to Sencila (2018), the modern maritime labour market is a complex set of interconnected phenomena and presents the phenomenological model of the global labour market. It is a field of seafarer supply and demand, influenced by demographical, economical, technological, geopolitical and other factors.

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Developments of a network that would be dedicated to the management of seafarers were underway and would eventually stretch globally (Mathebekase, 2018).The introduction of the open registry system and flags of convenience made it possible for ship owners and different managers to recruit seafarers from all over the world (Alderton et al., 2004; Tang & Zhang, 2021). This has made the maritime labour market a truly global one. One crucial competitive advantage in ship management is crew supply management at the offshore maritime centres, such as Hong Kong and Singapore, with lower social security costs and access to low-wage crew members from China, Ukraine, Russia, India and the Philippines (Goulielmos et al., 2011).Third-party crew management has become the driving force in developing maritime human resource supply chains. According to Anastasiou (2017), the global maritime labour market benefits both ship owners and labour supply states. The massive ‘production’ of seafarers through training can lower wages and hence ship owners’ operating expenses. In the meantime, labour supply states see a reduced unemployment rate and an increase in remittances. Driven by this economic rationale, ship man­ agement companies open crewing agencies and establish maritime training institutions to source cheap human resources from developing countries, such as the Philippines, China and India. As a result, maritime employment relations have become highly transnational. For example, a Chinese seafarer may work on a Panamanian ship owned by a Greek ship owner, or a Filipino seafarer may work on a Hong Kong vessel owned by a Chinese ship owner (Shan & Zhang, 2020). Some major maritime nations are competing for a global share in the supply of seafarers (Tang & Zhang, 2021;Tang & Zhang, 2019). China, the Philippines, the Russian Federation and Ukraine are estimated to be the five largest providers for all seafarers. In the middle of the 2010s, it was esti­ mated that there were 1,647,500 seafarers engaged in international shipping. Among them, about 774,000 were officers and 873,500 were ratings. However, these seafarers were not distributed evenly among the major seafarer supply countries. For example, although India has a population of 1.3 billion, it only supplies 7 per cent of the global seafarers. In contrast, the Philippines, with a population of 100 million, provides 20 per cent (Tarrazona, 2017). The Philippines has been the largest supplier of seafarers in the world, but now China has overtaken the Philippines in terms of numbers (SeamanRepublic, 2016).As shown in Table 7.1 and based on the estimates of the global supply of seafarers for 2015, China is the largest supplier for all seafarers and officers, while the Philippines is the biggest supplier for ratings (ICS, 2017).Although Chinese seafarers have played an increasingly important role in the international maritime industry, they tend to be an invisible group compared with seafarers from some other countries (Zhang, 2016). The HRM department of shipping companies is responsible for ensuring access to good-quality officers, which are now in a global shortage (Fei, 2018).The highly competitive environment of the shipping industry keeps affecting the companies’ strategies and leading them to decrease their operational costs. Since the manning expenses constitute about one third of the operational costs, it is obvious that shipping companies seek to recruit low-cost seafarers. In this context, it is not Table 7.1 Estimated five largest seafarer supply countries For all seafarers

For officers

For ratings

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

China Philippines Indonesia Russian Federation Ukraine

China Philippines India Indonesia Russian Federation

Source: Table compiled by the authors adapted from SeamanRepublic (2016)

Philippines China Indonesia Russian Federation Ukraine

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surprising that many shipping companies do not consider seafarers as their valuable assets that contribute to their competitiveness, but as a complement to the technical system that one names ‘vessel’ (Gerstenberger, 2002).At the present time, where the global maritime labour market offers a variety of officers, the quest for cheap labour seems to be easy regarding the quantity; however, it is risky in terms of quality. According to Progoulaki & Theotokas (2010), the popular strategic choice regarding manning, based on the employment of low-cost seafarers, has been proved to lead to cost reduction and competitiveness in the short run.The constant hunt for the cheapest labour proves to be gainful, especially nowadays that the global maritime labour market offers a great variety in terms of quality and quantity (Tang et al., 2016). However, in the long term, it can present a risk to the shipping companies’ competitiveness.

Industrial relations in the maritime industry According to Edwards (2009), the term industrial relations came into common use in Britain and North America during the 1920s. Since the 1980s, it has been joined by personnel management and human resource management. All three terms denote a practical activity relating to the man­ agement of people.According to Singh (2010), the evolution of the meaning of industrial relations is linked to industrialisation and the growing complexity of industrial enterprises. Its roots can be traced to the immediate aftermath of the industrial revolution and the issues that arose because of the growth in industries in terms of volume, variety and size of production (Hills, 1995). While industrial relations are broadly associated with the relationship between the employer and the employees, the term is different from employment relations.The latter focuses on the rela­ tionship between the employer and the employees in an organisation (Deb, 2009). In contrast, the scope of industry relations extends beyond the two-party domain. It includes all kinds of relation­ ships that come into existence as a result of employment, such as the relationships between man­ agement, employees or among employees and their organisations that characterise or grow out of employment (Singh, 2010). In particular, the collective force of workers has to be factored in and becomes a significant power to be dealt with. Furthermore, Dzimbiri (2008) argues that it involves the state, who has a significant stake in this relationship as an instrument of socio-economic devel­ opment.According to Yoder (1958), industrial relations are the designation of ‘a whole field of rela­ tionships’ which exist due to the necessary collaboration of workers in the employment process of an industry. Fei (2018) defines the term as ‘the management of work-related obligations and entitlements between employers and their employees’. As discussed in Chapter 2, some special characteristics of the seafarers’ occupation make the industrial relations of maritime shipping unique. For example, when seafarers sign off from their ships, they tend to scatter into different regions of the world. It is difficult for them to gather together and to take collective action to bargain with their employers for better employment con­ ditions (Zhang, 2016). One special feature derives from the fact that ship owners could easily flagout their vessels under the framework of the open registry. They are able to hire seafarers from any part of the world and reduce the possibility of seafarers organising and resisting at a global level (Dimitrova, 2010). As a result, seafarers are faced with tremendous obstacles that prevent them from exercising collective and individual rights. Industrial relations in the maritime sector are often evaluated through maritime trade unions both on an international and domestic level. As a concept, the relationship between trade unions and the companies operating in the market has been designed to provide protection for the employees (Xiao, 2000). Some of the important domestic maritime unions can be found in coun­ tries such as the United States, United Kingdom, European Union, and Australia. On the interna­ tional level, one special example is the International Transport Workers’ Federation (ITF).The ITF

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represents the interests of transport workers’ unions in bodies that take decisions affecting jobs, safety and employment conditions in the transport industry. It directly bargains with the maritime employers and, through its network and dockers’ support, has the power to enforce a collective bargaining agreement (CBA) (Lillie, 2013). A CBA is also referred to as a ‘union contract’. It is a formal contract between an employer and a group of employees that ‘establishes the rights and responsibilities of both parties in their employment relationship’ (Barth & Hayes, 2006). In order to encourage and promote workers’ rights to collective bargaining, the ILO adopted the Right to Organise and Collective Bargaining Convention in 1949 (ILO, 1949).This convention has been widely accepted by its member states and has a very high ratification level of 167 countries. It has also been consolidated in a series of subsequent maritime labour conventions: for example, the Merchant Shipping (Minimum Standard) Convention, 1976; the Recruitment and Placement of Seafarers Convention, 1996; and the MLC, 2006. A transnational CBA plays a unique and important role in the maritime industry for seafarers. The idea of a transnational CBA on terms and conditions of work covering the entire industry came at a time when the growth of the ITF and its FOC campaign ‘pressed maritime employers to the wall and made them sit at the bargaining table’ (Dimitrova, 2010).As a result, the International Maritime Employers’ Council (IMEC), formed by a group of maritime employers, started from the early 1990s to negotiate on an international level with the ITF on seafarer employment conditions (Gekara & Sampson, 2021). In 2003, the International Bargaining Forum (IBF) was established as the mechanism within which representative maritime employers’ organisations and seafarers’ unions could negotiate and reach agreement over the wages and conditions of employment (IMEC, 2003). The IBF system for pay negotiations represents an innovative approach to collective bargaining in the maritime sector and the wider global approach to multinational industrial relations (Walters & Bailey, 2013). In the MLC, 2006, the right to collective bargaining was recognised as one of the four funda­ mental rights, together with the elimination of forced or compulsory labour, the abolition of child labour and the elimination of discrimination. The convention therefore requires that machinery appropriate to national conditions be established to ensure the effective recognition of seafar­ ers’ right to collective bargaining (Papadakis et al., 2008). The substantive content of the seafarer employment agreement (SEA) should not only be in accordance with national laws and regulations but also be compliant with the agreement of collective bargaining.Also, the CBA (if any) should be incorporated into the SEA, and a copy of that agreement should be kept available onboard for the purpose of flag state and PSC inspections (Zhang, 2016).

Sustainable workforce development Sustainable workforce development means ‘the creation of a workforce, and of workforce prac­ tices, which will flex, grow and evolve in line with company needs’ (Brown, 2005). The conse­ quences of a sustainable workforce are the very ones employers seek: productivity, talent retention, consistent attendance, work engagement (Merberg, 2017) and long-term social benefits (Chen & Cooper, 2014). In today’s global economy, high-level skills are the determinants of competitive advantage and economic growth.Talented and skilled people are the most important assets for a country, industry or organisation (Bagoulla & Guillotreau, 2016). One of the best descriptions of the sustainable workforce is offered by Kossek et al. (2014) as follows: A sustainable workforce is one where the work environment is caring and supports employee wellbeing. Employees are not seen as primary resources that can be deployed (and depleted)

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to serve employers’ economic ends.Their skills, talent, and energies are not overused or overly depleted.They are not faced with excessive workload nor with a relentless pace of work for weeks or years on end. During times of crisis (e.g., natural disasters, sickness), employees are given time to recover or seek the extra resources they need to be able to perform in the future. Burnout is avoided and workers are given time for renewal. When human resources are used in a sustainable way, employees are not only able to perform in-role or requisite job demands, but also to flourish, be creative, and innovate. Sus­ tainable human resource management practices develop positive social relationships at work, which enhances business performance, including greater cohesion among organizational mem­ bers, commitment to common purpose, hope for success, resilience, knowledge sharing, and collaborative capacity. It is estimated that more than 1.6 million seafarers work at sea who are responsible for ensuring maritime transportation operates safely, efficiently and environmentally friendly (ITF, 2020). How­ ever, as discussed earlier, the maritime industry has been facing a global shortage in the supply of seafarers.To make the situation worse, the days of ‘a job for life’ have gone, and so has the expecta­ tion that young people would stay at sea for long periods. In recent years, the outflow of seafarers from the nautical sector to shore-based businesses has become a trend (Weintrit & Neumann, 2015).At the same time, most of today’s young people would not like to go to sea at all. The meaning and concept of sustainable workforce development have three dimensions. First of all, the future and long-term sustainability of the shipping industry depends on the sustainable supply of the workforce.The maritime industry needs to promote and improve its public image to attract and retain talented people. In 2008, the IMO launched the ‘Go to Sea!’ campaign, aiming to increase the recruitment of seafarers for a sustainable supply of manpower to the shipping indus­ try. Secondly, with the maritime industry growing and the number of applicants not meeting the demand, the shipping organisations need to take effective measures in terms of hiring and keeping qualified seafarers on staff (MITAGS, 2019). In addition, the maritime industry needs to provide the basis for a fulfilling and satisfying lifelong seafaring profession. This requires collaborations among key stakeholders to support seafarers’ sustainable career progression. For example, the industry is urged to do more to make life at sea and away from home more akin to life enjoyed by people on the land. In the meantime, maritime employers need to encourage women to work in the seafaring profession (IMO, 2008). It is a crucial task to attract fresh, young talent to the maritime organisation or to build on the organic promotion of existing talent to achieve the broader aims of the wholly sustainable devel­ opment of business. It is not only the interest in business needs but also the wellbeing that have been taken into account. For example, many ship management firms are seeking to foster increased cohesion between crews by creating a bond between the crew with amenities like the internet, café, game rooms and focusing more on team building activities (Nautilus, 2018). Some other firms have been renaming their employee functions with a more human-centric orientation by using terms such as ‘employee experience’, ‘people’ and others to signal a shift in the brand (Foot & Hook, 2008). The Advisory Conciliation and Arbitration Service (ACAS) has developed a model to help the organisation improve the effectiveness of their people management by promoting an ‘effective workplace’.According to ACAS (2007), effective workplaces are typically associated with the following factors: ●● ●● ●●

Ambitions, goals and plans that employees know about and understand; Managers who genuinely listen to and consider their employees’ views so everyone is actively involved in making important decisions; A pay and reward system that is clear, fair and consistent;

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●● ●● ●● ●● ●● ●● ●● ●● ●●

A safe and healthy workplace;

People feel valued so that they can talk confidently about their work and can learn from suc­ cesses and mistakes; Everyone is treated fairly and valued for their differences; Work is organised to encourage initiative, innovation and people working together; An understanding that people have responsibilities outside work so they can openly discuss ways of working that suit personal needs and the needs of the business; A culture where everyone is encouraged to learn new skills so that they can look forward to furthering employment either in their present organisation or elsewhere; As much employment security as possible; Formal procedures for dealing with disciplinary matters, grievances and disputes that managers and employees know about and use fairly; A good working relationship between management and employee representatives that fosters trust.

Also, it is critical to promote good practice in the maritime industry by implementing corporate social responsibility (CSR) and maintaining a sustainable maritime labour force.The implementation of CSR can attract high-quality talent, enhance a company’s image and eventually improve its mar­ keting performance (Tang & Gekara, 2020). It is recognised that a skilled, loyal and well-motivated seafarer is ‘an essential factor in reducing operational costs by increasing efficiency, safe operations’ and protecting the employer’s ‘investment in expensive vessels and equipment’ (Progoulaki & Roe, 2011). In contrast, stress, fatigue and complaints can lead to reduced performance, which is usually the reason for environmental damage, loss of life and loss of property. Therefore, it is becoming more commonly accepted that voluntary CSR should be embedded into the maritime business, because respecting seafarers’ rights has become a strategy with the reward of more profit than is produced by ignoring CSR (Lillie, 2008).As one of its advantages, the MLC, 2006 will lead to a ‘more socially responsible shipping industry’ (ILO, 2011). It is important to note that the convention requires the maritime industry to pay greater regard to their social responsibilities. Maritime employers should respect and fairly reward the contribution of seafarers for the sustainable development of the maritime labour market.The quality of the industry relies ultimately on the quality of people who are competent and committed and who provide safe and efficient ser­ vices, as well as making an effort to prevent loss and damage.As discussed in Chapter 4, maritime employers are well aware of the importance of aggregating the talents of those who are committed to the industry and have the required expertise. Therefore, it is of great importance to improve both the conditions of employment and the image of the industry so that those who serve in it can have safe, rewarding and fulfilling career prospects (Alexander & Richardson, 2009). Promoting decent work and economic growth is set as the eighth Sustainable Development Goal (SDG) in the 2030 Agenda for Sustainable Development by the UN.As highlighted by the IMO, ‘world trade and maritime transport are, therefore, fundamental to sustaining economic growth and spreading prosperity throughout the world, thereby fulfilling a critical social as well as an eco­ nomic function’ (IMO, 2021).As designed by the UN during the COVID-19 crisis, seafarers are key workers who operate global maritime transport (UN, 2020). In the IMO’s statement IMO and the Sustainable Development Goals, to achieve the SDG 8 – decent work and economic growth – the IMO continues its work to promote seafarers’ welfare. Seafarers are contributors to achieving SDG 8 and will benefit from the achievement of decent working conditions. Good employment conditions onboard are fundamental factors for good labour relations between the employer and the seafarer and for attracting and retaining qualified labour (Alderton et al., 2001). It is indisputable that good payments and proper treatments can be essential motives for young people to choose the seafaring profession.Also, enjoyable working and living conditions

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are vital elements in encouraging them to overcome social isolation and separation from their families and to spend a longer time at sea (Dimitrova, 2010). In contrast, miserable life onboard and unfair treatment can result in ‘reduced lifespan among highly skilled seafarers who are in short supply’ (Smith, 2007).

The management of a multicultural crew The shipping industry has been one of the first sectors to be globalised and to recruit its person­ nel all over the world in order to employ workers at a cheaper rate (Tang & Zhang, 2021; Zarate, 2011). In today’s ship management, one major challenge is the employment and management of q multicultural crew in such an international environment.

The multicultural crew in the maritime industry The term culture has been defined in many different ways by many authors. According to Hofst­ ede et al. (1991), it is the ‘collective programming of the mind which distinguishes the members of one group or category of people from another’. Culture and its normative qualities are expressed through the values individuals hold about life and the world around them. In turn, these values affect their attitude about the form of behaviour considered appropriate and effective in a given situation (Adler & Gundersen, 2007). Knowing and understanding people’s culture-based values and attitudes can help to predict their behaviour and reactions and enable adequate interaction (Chirea-Ungureanu & Rosenhave, 2011). It can be extremely complex to explain and understand the differences between cultures. Hampden-Turner & Trompenaars (2020) believe that people can never understand other cultures. Aiming to reduce this complexity and to make cultural differences more understandable, different models of cultural conceptualisation have been developed. For example, Hofstede et al. (1991) formulated one well-known approach to define five key dimensions of national culture.They char­ acterised different cultures based on the level of power distance, the degree of individualism or col­ lectivism, the degree of masculinity or femininity, the level of uncertainty avoidance and the extent of long- or short-term orientation. It is widely acknowledged that national culture explains many of the differences in work-related behaviour and individuals’ behaviour in teams (Guirdham, 2017). The modern merchant fleet is mostly manned by crews composed of people from different nationalities, cultures and formation (Hasanspahic´ et al., 2018). Integrating people and cultures and making organisations work efficiently and cohesively is one of the main tasks in the HRM within the shipping industry.As mentioned earlier, the world merchant fleet is manned by more than 1.6 million seafarers of almost every nationality.Traditionally, seafarers were the ones who transmitted culture across the globe, whereas nowadays the vessel itself often is the location of complex cul­ tural encounters (Bartłomiejski, 2010).With the maritime industry strongly focusing on profitability and economic efficiency, the labour market for seafarers became more and more globalised (Lenze & Schriwer, 2014). Consequently, the majority of the world’s merchant fleet is now manned with a multicultural crew (Progoulaki & Roe, 2011). There are a variety of definitions of a multicultural crew. For example, Puck (2009) defines the term as institutionalised or timely restricted social systems composed of more than two individuals of two or more nationalities.They interact directly or virtually and have a common goal and a com­ mon responsibility for the output of the teamwork.This definition implies that the existence of sev­ eral nationalities within the team makes it multicultural; hence nationality is equalised with culture. However, it is questionable whether culture can be defined along national borders. Considering

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time and scope limitations, the concept of culture is simplified by differentiating cultures based on the underlying nationalities (Gibson, 2006). Within multicultural crews, the backgrounds of the seafarers differ drastically in terms of cul­ tural dimensions. Nevertheless, the crew has to work and live together, despite the cultural distance that may lie between them.Apart from the differences in national culture, the seafarers also have to deal with the distinctive industry culture, which has traditionally developed in the maritime world. It is characterised by a high degree of collectivism, as teamwork is essential in the operation of a ship (Jensen & Oldenburg, 2020). Due to the hierarchical system onboard, there is a high level of power distance. Moreover, risks and uncertainties have to be avoided in a safety-critical business such as shipping.Also, direct communication and masculine values are dominant.Thus, the maritime industry is highly regulated, which causes a strong rule orientation (Logie, 2011). This characterisation can differ depending on the company and ship, but it illustrates the complexity of the onboard culture. This can lead to problems, as people must conform with industry values that might conflict with their own cultural norms. Additionally, the interaction of the crew is challenged by the difference in national culture and the contrasting culture-based values and attitudes (Mellbye & Carter, 2017). The employment of a multicultural crew goes along with a number of advantages and disad­ vantages (Horck, 2004; Tang & Zhang, 2021). On the one hand, diversity can significantly improve the performance of the crew as a team and may enable them to become more effective than a monocultural crew. Progoulaki & Theotokas (2016) consider culturally diverse maritime human resources to be a shipping company’s core competency, as it leads to a framework of strategic choices and gains a sustainable competitive advantage. However, in the meantime, multiculturalism also causes challenges in the maritime industry. Communication failures and misunderstandings lead to distrust, dissatisfaction and conflicts onboard that negatively impact teamwork. Ultimately, these issues result in intercultural incompetence that can cause costly incidents and accidents. According to Horck (2005), many accidents are explained by human factors that are associated with ‘multicultural misconceptions, power distance (a subaltern’s respect to superiors), stereotyp­ ing and substandard communication’.

Benefits of a multicultural crew As mentioned previously, the majority of the modern merchant fleet is manned by multicultural crews to save operational costs.Apart from economic reasons, ship owners look for a workforce outside of their national labour market due to declining numbers of available seafarers from their own countries.The rising living standards in the industrialised countries caused the global labour market to change and led to a shortage of labour in the so-called 3-D jobs: Dirty, Dangerous and Difficult (Rahman & Salleh, 2018). The seafaring profession is becoming less and less attractive because of extremely short transit times in ports and a decreasing number of seafarers in combi­ nation with an increasing list of responsibilities.This results in an imbalance of supply and demand of seafarers and a significant shortage of officers (Srinivasan, 2020). This lack of seafarers, mainly from the OECD and European Union member states, forces local shipping companies to recruit non-nationals.These often stem from Asia, particularly from the Philippines, India, China or Indone­ sia. Another vast share comes from the former Soviet Union and the Baltic States (Horck, 2006). Hence, employing a multicultural crew is a huge advantage for shipping companies, as they can access a larger pool of possible crew members and thereby strategically evade the problem of the shortage of national seafarers and at the same time reduce operating costs (Leong, 2012). The advantages of multicultural crew constellations are not restricted to the ship owners, but equally apply to seafarers, who profit in terms of developing their leadership competencies within a multicultural environment and may gain valuable experiences that benefit their future career (Horck, 2005).A study by Sampson & Zhao (2003) revealed that seafarers saw many advantages in

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being part of multicultural crews. Philippine seafarers, for example, preferred it, due to nepotism being a problem among monocultural crews, where senior officers were favouring friends, relatives or people from the same region. Furthermore, it has also been argued that safety may increase due to social distance, tolerance, understanding and respect among crew members from different nationalities (Berg et al., 2013; Sampson & Zhao, 2003). Multiculturalism onboard might also contribute to an increase in safety by providing a solution to communication problems, in particular among the crew and external parties, such as pilots and port authorities (Theotokas & Progoulaki, 2005). A case that properly illustrates this is the MV Bright Field accident (NTSB, 1996).The bulker lost propulsion power and hit a shopping mall in New Orleans. None of the crew was injured, but 62 people ashore suffered minor and partly serious injuries.The damage to both the shoreside facilities and the vessel ranged about USD 20 million.The underlying reason for the accident was miscommunication between the American pilot and the Chinese crew. As the deck and engine department communicated in Chi­ nese, the pilot could not understand and hence was unaware of the ongoing technical difficulties. If the crew was not composed of one culture only, then the working language onboard would most probably have been English, and the pilot would have been aware of the problems and could have reacted accordingly (Gregory & Shanahan, 2017). Further advantages of multicultural crews can be seen in the different approaches and view­ points. Sharing different views and ideas by persons from various cultures is essential in a compet­ itive work environment like shipping (Horck, 2005).The diversity of multicultural crews allows for increased creativity, which can lead to more alternatives and better solutions to problems. How­ ever, the decisive factor is the crew’s ability to understand, appreciate and successfully make use of cultural diversity (Rozkwitalska et al., 2016). Ultimately, teams can become more effective, given that diversity is well-managed and leaders onboard find the right balance between creativity and cohesion. Well-managed cultural diversity is an asset that enables multicultural crews to become even more effective than monocultural crews (Behfar et al., 2006). It is suggested that multicultural teams either perform highly effectively or highly ineffectively compared to monocultural teams (Behfar et al., 2006). Unfortunately, cultural diversity is more often ignored and suppressed than well-managed. Consequently, cultural differences become an obstacle to performance and lead to underperforming multicultural teams. In order to reach a high level of effectiveness in a multicultural environment, it is of the utmost importance to properly han­ dle cultural differences instead of allowing them to cause problems (Adler & Gundersen, 2007). In the maritime context, the management level onboard needs to support and acknowledge cultural diversity and adapt the management style to the crew, to achieve the maximum cooperation and performance (Badawi & Halawa, 2003). Cultural diversity indeed has the potential to benefit shipping companies and seafarers a like. However, this depends on the prerequisite that it is handled in a sensitive manner onboard. Oth­ erwise, there is an extremely high risk of the crew underperforming, which might have severe negative impacts.

Challenges of a multicultural crew Despite the numerous advantages of multiculturalism onboard, it has also caused rising worries about the competence of ship crews (Berg et al., 2013). For example, one of the primary challenges is communication. The ship crew is the highest risk factor when it comes to maritime safety, as about 80 per cent of marine accidents are caused fully or partly by human errors (Chan et al., 2016). In their guidance on the 12 most significant people factors, the MCA (2017) states that miscommunication was the third biggest factor (13.4 per cent) contributing to maritime near-miss cases between 2003 and 2015.1

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Communication is the basis on which people interact, and it is closely linked to culture, as a person’s cultural values, attitudes and beliefs are expressed in their way of communicating. Hall (1959) commented that ‘culture is communication and communication is culture’.The two aspects are strongly interrelated; hence cultural differences often pose substantial obstacles to effective and efficient communication. According to Berg et al. (2013), cultural misunderstanding is a common denominator for most problems related to multicultural crews. The underlying reason for cultural misunderstandings is that people’s communication styles are culturally bound. Individualist cultures, for example, prefer directness and openness and use words primarily to convey a meaning (verbal communication). Collectivistic cultures instead prefer modesty and indirectness and convey a meaning by use of non-verbal communication, such as ges­ tures and body language (Gregory & Shanahan, 2017).Therefore, proper understanding and inter­ pretation are highly connected to cultural competence (Rothlauf, 2014). Communication involves a complex, multilayered, dynamic process, aimed at the exchange of meaning. Every communication has a sender, sending a message, and a receiver, receiving it and sending a response (Adler & Gun­ dersen, 2007). However, the sent message is never identical to the received message.The same applies to the sent and received response.The greater the cultural difference between the involved parties, the greater the difference between the meaning they attach to certain words and behaviours (Wood, 2012). Hence, in intercultural communication, the difference between the sent and the received message or response is likely to be much greater than within a conversation that involves only one culture. Consequently, intercultural communication often results in misunderstandings (Knapp et al., 2011). Another important obstacle to effective communication is the difference in language (Lijun Tang et al., 2016). Language is what enables humans to communicate verbally and at the same time constitutes one of the strongest elements of culture (Wang & Gu, 2005). Even though it is an important tool for understanding, it can also cause confusion and frustration. In the maritime industry, the lingua franca is English (Horck, 2005). For the majority of the crew, this is not the native language, which causes concerns about whether precise communication can be achieved, especially in emergency situations.There is a huge potential for misunderstanding due to different accents, noisiness of the workplace and stress. Under stress and panic, humans behave instinctively and likely use their mother tongue, which may lead to chaos and confusion on ships with a multi­ cultural crew (Nakazawa, 2004). Since a declining number of ships have a single-nationality crew, language problems and lack of communication have increasingly been reported (Berg et al., 2013).The implications of communica­ tion deficiencies can be extensive, especially in the safety-critical maritime environment. Among a multicultural crew, misunderstandings can cause challenging situations to turn into tragic catastro­ phes (Badawi & Halawa, 2003). In the past, there were plenty of examples of communication failures of a multicultural crew, which have led to severe incidents and accidents (Salleh et al., 2019). The grounding of the chemical tanker Attilio Ievoli in the South Coast of England in 2004 illustrates the consequences of cultural miscommunication (MAIB, 2005). The Ukrainian second officer of the ship was aware that the vessel was off-course, but after an unsuccessful attempt to communicate this to the Italian master, he did not dare to approach him again.This was interpreted as a consequence of the high-power distance. In the Ukrainian culture, just like in many Eastern European cultures, the authority and competence of a superior cannot be questioned (Gregory & Shanahan, 2017). In this case, the underlying cultural values that influenced the second officer’s communication style led to insufficient risk reporting and a safety threat. If the captain would have acknowledged cultural differences and would have been aware of the discrepancy in power distance between the Italian and Ukrainian national culture, he could have actively encouraged the second officer to communicate openly to superiors.

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This incident shows that cultural knowledge and appreciation of differences are crucial to achieving proper communication and understanding. Only if the multicultural ship’s crew is aware of the implications of these culture-based differences on communication are they able to adapt to each other and thus overcome the challenges of cross-cultural understanding. In the meantime, the aspect of communication is closely interrelated with teamwork. If good communication among the crew is not ensured, teamwork will not function onboard (Chirea-Un­ gureanu & Rosenhave, 2011). Where considerable effort is needed to understand and be under­ stood, crew members are likely to reduce social contact (Kahveci et al., 2000).The lack of common language, as well as cultural intolerance, can cause the isolation of crew members, which in the long run manifests itself in depression and alienation and thus becomes a serious risk factor (Horck, 2006). Furthermore, the development of sub-groups among different nationalities is an impediment to effective communication and interaction of the crew as a team.Within these sub-groups, people are likely to speak the same native language, share the same values and norms and therefore feel comfortable. However, the crew as a whole will suffer if sub-groups become too entrenched or competitive (Gibbs & Gibson, 2016). Multicultural crews, just like any multicultural team, face specific challenges. Teamwork is demanding even under the best circumstances. Information needs to be shared, individual tasks must be coordinated and possible conflicts have to be resolved. Multicultural teams not only deal with these common difficulties but are additionally challenged by cultural diversity and the inher­ ent communication difficulties (DeSanctis & Jiang, 2005). Most shipping companies employ multi­ national crews nowadays and expect efficient teamwork from them. As stated by Ion (2014) in a conference on discourse and multicultural dialogue: Aboard ships, more than anywhere else, team members should be united, and establish cohesion not rebellion, since they all should pursue the same goal: well-done work in safety conditions. Multicultural diversity, with all its disagreements, delay in decisions, stress, and misperceptions should not lead to confusion or difficulty in workplace relationships. It can be difficult to form a team out of a crew that has different cultural backgrounds, as the individual members may have contrasting notions of teamwork and what constitutes good leader­ ship (Gibbs & Gibson, 2016). Even though the crew members pursue the same goal, it cannot be assumed that cultural differences can simply be resolved by polite and fair behaviour of the team members, because what seems polite and fair to one cultural group does not necessarily apply to another one. Hence, goodwill is not enough to make multicultural crews function as a team (Mendez, 2017). If the crew is not aware of the influence of culture on communication and teamwork and not able to see unity in diversity, they will perform below expectations and potential.Therefore, team leaders, as well as team members, have to be specifically prepared to work in a culturally diverse setting and need to understand the impact of cultural diversity on their performance as a team in order to empower them to overcome cultural obstacles and increase effectiveness. Seafarers need to learn about the inherent potential of multiculturalism onboard and, most importantly, need to receive adequate input and support to make use of the synergy potential.

Integrating intercultural competence As discussed in the previous context, shipping is considered one of the most dangerous industries, and safety should always be considered the top priority in ship management. Horck (2005) com­ ments that there is a correlation between the malfunctioning multicultural crews and maritime accidents. He considers multiculturalism onboard to be a direct or indirect contributor to the

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majority of human errors in the maritime context. As a result, intercultural competence plays an increasingly important role in today’s multicultural working environment (Kondratiev et al., 2016). Intercultural competence can be defined as a set of ‘cognitive, affective, and behavioural skills and characteristics that support effective and appropriate interaction in a variety of cultural con­ texts’ (Bennett, 2008). A lack in one of the elements of this skillset is an obstacle to successful intercultural interaction. This competence is crucial because it has an impact on the success of communication among the members of the multicultural crew (Kinthaert, 2017). Apart from lan­ guage as a means of verbal communication, other obstacles may arise with regard to the inter­ pretation of non-verbal communication aspects. Therefore, intercultural competence is the key to decrypt the signs and enables effective communication, which in turn is the prerequisite for functioning teamwork. Without proper communication among the crew, no cohesion and trust can be established to guarantee successful teamwork, neither in the professional nor in the private sphere. However, the performance of the crew relies on their interaction as a team. Performance is understood to be composed of two components: efficiency and effectiveness, meaning doing the right things and doing them right (Ingram, 1996). Onboard, neither of them can be reached without a well-functioning team, where the responsibility for the output is shared by all members. If the team performs well, this will ultimately reflect on the safety of ship operations (Wang & Gu, 2005). The effective functioning of multicultural crews heavily relies on the level of intercultural com­ petence of the individual seafarers. As this competence is not equally and naturally possessed by every person, it must be developed, partly through experience and specific education and training (Lenartowicz et al., 2014).According to STCW, training in leadership and teamwork has been made mandatory, meaning that the so-called ‘Human Element, Leadership and Management’ (HELM) training is required for seafarers in order to gain or upgrade their certificate of competency (CoC) (MCA, 2016). In order to assist maritime training institutes worldwide in the implementation of the STCW requirements, the IMO developed several model courses that provide learning objectives and sug­ gested timetables (IMO, 2020a). The IMO model course 1.39 (Leadership and Teamwork) serves as a basis for HELM training and covers aspects such as cultural awareness and cross-cultural communication. However, the course outlines only allow a total of about 45 minutes to deal with these subjects. It is questionable whether the limited time dedicated to establishing awareness for this important matter is sufficient. While the importance of maritime English as a common language has been recognised and addressed in maritime education, less emphasis has been put on culturally motivated interper­ sonal dynamics and the development of intercultural competences (Benton, 2005). Therefore, demands for improved training and education onboard as well as ashore came up, accelerated by new aspects of the internationalisation of seafaring (Horck, 2010).Although new methods for edu­ cation and training aimed at the development of intercultural competence have been introduced to various industries, they are still rarely found in the shipping industry (Badawi & Halawa, 2003). As Horck (2005) mentions, the shipping industry is too conservative and not yet mature enough to take advantage of cultural diversity. Although the maritime industry is highly globalised and multicultural, intercultural competence development has not been considered an important aspect on the agenda of most maritime edu­ cation and training institutes (Theotokas et al., 2013). Still, individuals who interact with people of other cultures need to develop competencies that enable them to communicate appropriately and work together efficiently and effectively.Therefore, seafarers need to be provided with appropriate training, as the quality of input determines the quality of output (Etman & Halawa, 2007). Hence, there is a necessity for intercultural competence development among maritime professionals that has to be tackled by maritime organisations at the macro level, as well as by shipping companies at the micro level (Theotokas et al., 2013).

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To raise the importance of intercultural education in the curriculum of maritime studies would require a revision of several pieces of international legislation, such as the STCW convention. How­ ever, this process could take years and is not considered a top priority (Halid & Genova, 2011). Therefore, shipping companies should instead take a proactive approach to adequately train their seafarers in-house and provide them with the necessary support from the shore side. Ultimately, practical experience is equally important to the development of intercultural com­ petence. Education and training can only provide seafarers with a certain level of awareness, but they are responsible to actively use this input in order to create an agreeable working environment in which teamwork can deploy its potential (Choe & Dayna, 2015). Employing multicultural crews can be a challenge for effective teamwork onboard.The biggest obstacle in this context is the failure of communication, caused by poor intercultural competencies. Ultimately, this will reflect in the crew’s performance and the safety of ship operation.Therefore, proper education and training have to take place, focusing on the development of intercultural competences, to empower multicultural crews to exploit their possibilities and make full use of their synergy potential (Jensen & Oldenburg, 2020). Based on this prerequisite, multiculturalism onboard can be highly beneficial and contribute to a more effective, efficient and safer working environment. However, if the prerequisite is not fulfilled, multicultural crews will perform below their potential and even worse than monocultural crews. The maritime industry is far behind in terms of intercultural competence development compared to other industries (Acejo, 2021). Therefore, it must be assumed that in the current state, the potential of multiculturalism onboard is not fully exploited and that the impact on performance and safety is negative due to a lack of intercultural competence among seafarers. It is obvious that the industry is changing, and seafarers nowadays need to bring additional qualifications, such as intercultural competence. Hence, further research has to be conducted on how intercultural education can practically be incorporated into the maritime industry. To ade­ quately address this within STCW and to implement it in the syllabus of maritime universities requires time.Therefore, the responsibility for prompt action lies with the shipping companies to invest in the education and development of their seafarers.The maritime industry is a competitive business, and it is necessary to be a step ahead of competitors and to go beyond compliance, especially when taking into consideration the high increase in performance and safety that a welltrained multicultural crew can achieve.

Note 1

The first two categories of the most common people-related factors leading to accidents or incidents are situational awareness (22.5 per cent) and alerting (15.3 per cent).

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Chapter 8

Compliance management

The previous chapters discussed five key aspects of ship management that focus on the business operations and processes of ship management activities. All these operations and processes must adhere to various types of compliance requirements to ensure that the organisation meets the relevant rules, regulations and obligations. Based on the discussion of the previous chapters, this chapter moves on to compliance management.The requirements of compliance management are embedded in almost all the activities that the ship manager engages in in the ship owner’s business. It can help the business stay ahead of issues before they become major problems, so effective com­ pliance management plays a crucial role in any business activities.To achieve this objective, the ship management company needs to establish and implement a compliance management system which includes the design, development and delivery of the compliance management programmes. In the meantime, a compliance officer is needed to work with senior levels of management to ensure strategies are in place and to deal with compliance management matters.

The concept of compliance management In the commercial world, there are many forms of compliance that an organisation and its employees need to uphold. The term compliance refers to adherence to, or conformance with, various kinds of requirements put into place in order to make sure that those internal or external rules are met (Haines & Gurney, 2004; Iyer, 2015). In a narrow sense, compliance focuses on the adherence to a package of legal requirements, including laws, regulations and mandatory rules. In contrast, the broad sense of compliance involves not only the compulsory legal requirements but also ethical codes, culture values, integrity, accountability, best practices and anything relating to ‘doing the right things’ (Biegelman & Biegelman, 2010). Compliance is a self-evident virtue resulting in safer workplaces, safer products, healthier food or a cleaner environment (Parker & Nielsen, 2011). Not sticking to compli­ ance can result in risks and damages done towards both the organisation and its clients, especially in a dynamic and fast-changing commercial environment. For example, according to Kipp (2013): Managing compliance is not just a functional necessity-it is a critical component needed to successfully navigate the turbulent global environment and deliver against the business strategy-especially in the wake of high-profile cases and recent events around the world. There is no unified definition of compliance management. In general, it is about the management and adherence to the policies, laws, standards, regulations, codes of conduct and any other desired requirements that apply to an organisation. For example, in a narrow sense, Abdullah et al. (2009) define the term as ‘mechanisms to keep enterprises’ business safe from possible violation of reg­ ulatory compliance’. Similarly, Pearson (2019) defines compliance management as ‘the process by DOI: 10.4324/9781003081241-8

COMPLIANCE MANAGEMENT

which managers plan, organise, control, and lead activities that ensure compliance with laws and standards’. According to Kharbili et al. (2008), compliance management refers to the definition of means to avoid ‘illegal actions’ by controlling an organisation’s activities. By extension, the term also refers to frameworks, standards and software employed to ensure the organisation’s observance of legal requirements. While legal compliance is a must, conformance with other standards is also important (John­ son, 2017). The boundary of compliance management is further expanded by Karagiannis (2008) to cover three key elements.The first element is the regulatory approach to ensuring compliance with regulations and corporate governance. The second element extends to the standardisation approach which ensures adherence to general standards, such as those provided by the Interna­ tional Standards Organization (ISO).The third element focuses on the corporate standards, which ensures the observance of best practices of the specific industry. In this chapter, the term compli­ ance management is defined as the sum of all organisational and technical activities that support the alignment of business processes and information systems with regulatory requirements, general standards and best practices of the maritime industry. Nevertheless, this chapter mainly focuses on the first dimension, that is, compliance with regulatory requirements in ship management.

Compliance with maritime governance As discussed in Chapter 2, maritime shipping is governed by a multitiered and polycentric gover­ nance (or jurisprudence) system. There is no single institution, actor or source of authority that defines and prescribes maritime governance. Instead, there are a variety of actors and regulations, together constituting a set of governance arrangements within multiple interdependent contexts under the overarching set of maritime conventions, laws, customs and practices, which satisfies the criteria of a polycentric governance system (Gritsenko, 2017; Gritsenko & Roe, 2019).

The UN framework Driven by the global nature of shipping, the maritime regulatory regime is characterised by a long history of polycentric governance (Gritsenko & Roe, 2019; Leeuwen, 2015; Monios, 2019). The shipping industry is regulated at an international level by a number of international organisa­ tions responsible for the safety of life at sea, maritime security, environmental protection and the employment conditions of seafarers. First, the UN has always been very active in creating regu­ lations in shipping. One of the most important instruments produced by the UN in 1982 is the United Nations Convention on the Law of the Sea (UNCLOS). It requires in Article 94 that every state shall be responsible for the ‘labour conditions’ and ‘social matters’ onboard ships flying its flag. Secondly, the convention has established pivotal cornerstones for the international maritime regu­ latory regime, including ship registration, obligations of flag states, qualifications of seafarers and so on.The UNCTAD Minimum Standards for Shipping Agents (1988) was adopted to ‘uphold a high standard of business ethics and professional conduct’ among shipping agents.The UN Convention on Conditions for Registration of Ships (1986) attempted to set standards for the registration of vessels in a national registry, including registration, ownership, accountability, management, the role of the flag state and references to the genuine link.The convention requires 40 signatories whose combined tonnage exceeds 25 per cent of the world total to bring it to enter into force (IMO, 2020b). However, as of September 2020, only 15 states had ratified or acceded to the convention. It is unlikely to attain the minimum requirement of entering into force in the near future. Besides, the IMO and ILO, as special agencies of the UN, have also established special frameworks wherein a wide range of specific issues are regulated.

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The IMO The IMO was established in 1948 and was originally known as the Inter-Governmental Maritime Consultative Organisation (IMCO) until 1982, when it became a specialised agency of the United Nations.With responsibility for the safety and security of maritime matters, it has six main bodies relating to the adoption and implementation of conventions.The assembly and council are the main organs, and the committees involved include the Maritime Safety Committee, the Marine Environ­ ment Protection Committee, the Legal Committee and the Facilitation Committee (Özçayir, 2001). Over the past half-century, the IMO has adopted more than 40 conventions and protocols and has played an important role in establishing the maritime regulatory regime. The IMO’s first task was to adopt a new version of the International Convention for the Safety of Life at Sea (SOLAS), which was first adopted in 1914 following the Titanic disaster and became one of the most important of all the treaties dealing with maritime safety (IMO, 2013). The other key instrument of the IMO is the International Convention on the Prevention of Pollution from Ships (MARPOL), aimed at preventing pollution from ships caused by operational or accidental causes. Gradually, the regulatory focus has been shifting to a balanced approach, covering both hardware and technical matters, as well as operational and management issues (Tang & Zhang, 2021). The International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW) sets the minimum qualification standards for seafarers.The International Safety Management (ISM) Code, which was incorporated in Chapter IX of the SOLAS, provides an international standard for the safe management and operation of ships at sea. This balanced approach reflects the industry’s recognition of the role played by good management and adequate education and training in achieving the objective of ‘safer ships, cleaner seas’ (Tang & Zhang, 2021). Although the IMO has produced a large amount of legislation over the years, these have not been adopted and implemented as rapidly and effectively as they should have.The problem of sub­ standard maritime practice therefore continues to exist. Effective responsibility of flag states relies on both the will and the ability to establish the maritime infrastructure and the legal capability to implement and enforce the applicable laws that they have created (Mansell, 2009). When a state ratifies an international convention, it promises to make it part of its national law and to enforce it in the same way as it enforces its domestic laws. However, in many countries, the enforcement of a convention is not always on the government’s list of priorities. In other cases, even when a state would exercise its responsibilities, lack of technical expertise and financial resources may prevent it from fulfilling the aspiration (Özçayir, 2001). Also, despite the efforts of the sub-committee, it appears that the IMO is ineffective in carrying out an oversight role of flag state implementation and an enforcement role in the reg­ ulation of ships. Both flag states and the IMO should be more accountable in the fulfilment of their responsibilities. However, it seems that they have demonstrated ‘an individual and collective inability to administer and regulate ships in a consistent and uniform manner’ (Mansell, 2009).As the International Commission on Shipping summarised in its inquiry into ship safety states (ICS, 2000, p. 32): A major concern was the inability of a significant number of registers to provide adequate legal and administrative infrastructure to meet their obligations in international law, in particular, the United Nations Convention on the law of the Sea, 1982. . . . A general consensus is that there are sufficient regulations to do the job, the problem is their lack of implementation. Major reasons stated for the failure to implement the necessary measures were the lack of competent personnel and financial resources, and a lack of political will in many cases. . . . There was a widespread view throughout the Commission’s inquiry that the IMO work on flag State performance has been largely ineffective. Concerns were also expressed concerning

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the validity of the Convention on Standards of Training, Certification and Watchkeeping 1978 and Revision 1998 (STCW) White List, as well as the effectiveness of the International Safety Management Code (ISM).

The ILO The ILO was established in 1919, aimed to ‘set international labour standards, promote rights at work, encourage decent employment opportunities, enhance social protection and strengthen dialogue on work-related issues’ (ILO, 2019). Since its establishment, the ILO has adopted 190 con­ ventions and 206 recommendations on a range of issues related to social and employment rights, over 70 of which were specifically maritime-related. However, because the ILO lacks effective enforceability of its standards at sea, many conventions could not deliver on their promise to pro­ vide seafarers with the improved rights and conditions that have been long desired. Many of its rec­ ommendations just sounded good in theory but did not take into consideration the practical reality of the daily lives of seafarers onboard ships. As a result, the ratifications of these instruments are very low, and a large number of conventions have never entered into force. For example, only five countries ratified the Accommodation of Crew Convention (ILO C075, 1946), and three countries ratified the Social Security (Seafarers) Convention, 1987. Compared with the IMO’s conventions, the percentage of ratifications of ILO conventions is significantly low. The Merchant Shipping (Minimum Standards) Convention, 1976 (ILO C147) is one of the most important instruments created by the ILO.About 15 important ILO conventions and different arti­ cles were incorporated in the appendix of the convention.The appendix was further extended by the Protocol of 1996 to the Merchant Shipping (Minimum Standards) Convention (ILO P147, 1996). Member states need to lay down national laws or regulations with regard to three major tasks. The first task is to ensure ships flying their flag comply with relevant safety standards, including standards of competency, hours of work and minimum manning, for the safety of life onboard a ship. The second task is to take appropriate social security measures, and the third deals with shipboard conditions of employment and shipboard living arrangements. In the meantime, the ILO also adopted the Labour Inspection (Seafarers) Convention 1996 to establish an inspection and compliance system (ILO C178, 1996).The convention requires that each ratifying state shall establish a system of inspection of seafarers’ working and living conditions. The inspection shall be maintained ‘at intervals not exceeding three years and, when practicable, annually’, to verify that the seafarers’ working and living conditions conform to national laws and regulations.After each inspection, one copy of the report in English or the working language of the ship shall be furnished to the master of the ship, and another copy shall be ‘posted on the ship’s notice board for the information of the seafarers or sent to their representatives’.The convention is further supplemented by the Labour Inspection (Seafarers) Recommendation (ILO R185, 1996). Although many of these requirements could not produce as much practical effect as they were expected to, it was a significant step forward that these two instruments provide detailed provi­ sions regarding cooperation and coordination between public institutions and other organisations (Pentsov, 2008). Many of these provisions were followed by the later Maritime Labour Convention, 2006, which address issues related to seafarers’ working and living conditions, duties and power of inspectors, central coordinating authority, annual reports and inspection reports.

Maritime Labour Convention, 2006 An important historical event of the ILO in the maritime sector was the adoption of the Maritime Labour Convention, 2006 (MLC, 2006). The convention, consolidating 68 legal instruments and recommendations of the ILO, has been in force since 20 August 2013. It is often referred to as a ‘bill of rights’ for the world’s maritime workers. For the 1.6 million seafarers worldwide, this new

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convention brings together, in one place, international minimum standards that ensure decent work. It also levels the playing field for ship owners to help ensure fair competition. One of the most important features of the MLC, 2006 is that it prescribes responsibilities for the three major interested parties in the maritime industry: the flag states, port states and seafarer-supplying states. It is considered the ‘fourth pillar’ of the maritime regulatory framework, alongside the SOLAS, the STCW and the MARPOL, the three other maritime conventions adopted by the IMO (McConnell et al., 2011). One of the major innovations introduced by the MLC, 2006 is the requirement that ships carry and maintain a maritime labour certificate (MLC) and a declaration of maritime labour compliance (DMLC).The MLC, attached to the DMLC, shall be issued to a ship by the flag state or a recognised organisation on behalf of the state. A range of factors must be inspected and confirmed to meet national laws and regulations before an MLC can be issued or renewed.The MLC and DMLC con­ stitute ‘prima facie evidence’ that the ship has been duly inspected by the state whose flag it flies and the requirements of this convention have been met to the extent so certified. It was the first ILO convention to establish a new certification system for working and living conditions onboard. Another major innovation is that flag states shall prescribe ‘on-board procedures for fair, effective and expeditious handling of seafarer complaints’ alleging breaches of the requirements of the con­ vention. Unlike the complaint procedure provided in other ILO conventions, the new convention sets out a ‘whistle-blower’ provision in Regulation 5.1.5 (McConnell et al., 2011).According to the provision, flag states are required to prohibit and penalise any victimisation of seafarers for lodging a complaint. The relevant clauses provide a right on the part of the seafarer to be ‘accompanied or represented during on-board complaints procedure, as well as safeguards against the possibility of victimisation for filing complaints’ (MLC, 2006).Apart from the flag state control and port state control, according to the MLC, 2006, seafarers are also protected by a special and separate body of policies and laws of labour- supplying states.The general obligations of the labour-supplying states are related to seafarer identification, competence certification, recruitment and placement service, employment agreement, welfare and social security protection. Despite the great strength and progress discussed earlier, the MLC, 2006 has several weak­ nesses that undermine its effect in practice. First of all, like any other international conventions, the MLC, 2006 is a compromised result of states and other stakeholders.While some key issues were mentioned in the convention, it fails to provide provisions guaranteeing seafarers’ entitlement ‘to uphold these rights’ (Bauer, 2008), such as the issues related to shore leave, access to port welfare services, freedom of association, social security and so forth. For the same reason, many clauses of the MLC, 2006 have been criticised due to lack sufficient enforcement power (Dimitrova, 2010). In addition, the key to the effective enforcement of the MLC, 2006 lies in the port states taking their responsibilities seriously, such as through port state control (PSC) inspections.

Port state control PSC can be defined as the control of foreign-flagged ships in national ports (Özçayir, 2001).A port is ‘an area within which ships are loaded with and discharged of cargo and includes the usual places where ships wait for their turn or are ordered or obliged to wait for their turn, no matter what the distance from the port’ (CMI et al., 1980).As a result, a port state is the state ‘with territorial sovereignty over a port to which a foreign vessel is requesting entry, or currently resides within’ (Honniball, 2017). PSC is argued to be ‘a complement’ to the existing jurisdiction of the flag state but can never be a replacement for it.When the ship enters the territory of another state, the flag state jurisdic­ tion ‘clashes with the rules and regulations’ that the other state wants to enforce with regard to anyone entering its ports or territory (Özçayir, 2001).The PSC mechanism confers the jurisdiction

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over to a port or coastal state to inspect foreign-flagged vessels that call in its ports.The legal base for this right rests on the UNCLOS,Article 218, Enforcement by the Port States: When a vessel is voluntarily within a port or at an off-shore terminal of a State, that State may undertake investigations and, where the evidence so warrants, institute proceedings in respect of any discharge from that vessel outside the internal waters, territorial sea or exclusive eco­ nomic zone of that State in violation of applicable international rules and standards established through the competent international organization or general diplomatic conference. This jurisdiction can be confirmed by a range of treaties addressing labour standards, pollution and the fight against sub-standard merchant ships and illegal fishing vessels. For example, the ILO mandates the states verify by inspection or other appropriate means that the ships comply with applicable international labour conventions and applicable collective agreements. Under the ILO enforcement framework initially introduced by the ILO C147, primary responsibilities are imposed on flag states with regard to the compliance and enforcement of international standards over ships flying their flags.The ILO mainly prescribes two enforcement forms. It regulates the effective con­ trol by the state with respect to the ships registered in its territory, which is known as flag state control. On the high seas, only the flag state may exercise legislative and enforcement jurisdiction over a ship.At the same time, it provides PSC imposed by the state regarding the ships registered in a foreign state and calling into its ports. The origin of PSC can be traced back to 1978 when a number of maritime authorities in West­ ern Europe developed and signed the ‘Hague Memorandum’ to audit living and working conditions onboard vessels in collaboration with each other.When the memorandum was about to take effect, one of the major oil spill accidents in history occurred off the coast of Brittany, France, as a result of the grounding of the VLCC Amoco Cadiz.This accident led to a strong political and public outcry in Europe for more stringent regulations on the safety of shipping. Consequently, a new memorandum of understanding (MoU) on PSC was signed by 14 European countries in Paris (known as the Paris MoU) and came into operation in 1982 (Tang & Zhang, 2021). As of today, the Paris MoU has been expanded to include 26 European countries and Canada as signatories. Following the Paris MoU, other eight regional agreements on PSC MoUs have also been established: Asia and the Pacific (Tokyo MoU), West and Central Africa (Abuja MoU), the Caribbean (Caribbean MoU), the Mediterranean (Mediterranean MoU), the Indian Ocean (Indian Ocean MoU), the Black Sea region (Black Sea MoU); Latin America (Acuerdo de Viña del Mar) and the Riyadh MoU.Apart from these, the US Coast Guard maintains the tenth PSC regime. The introduction of PSC was one of the most important developments in the maritime reg­ ulatory regime. PSC is the inspection of foreign ships in national ports to verify that the ship is constructed, maintained, manned and operated in compliance with the requirements of interna­ tional regulations. Its mission was and still is to eliminate the operation of sub-standard ships in its area of responsibility (Tang & Zhang, 2021). The inspection was originally introduced as a backup to flag state implementation, but it has been proved that the inspection system can be significantly effective (IMO, 2010). It plays an import role in enforcing the law and in monitoring observance of the standards created by international organisations.As mentioned earlier, the control systems used by the flag states and international bodies have proven ineffective in eradicating sub-standard ships from the seas (Özçayir, 2001). Many conventions encourage port states to inspect for the compliance of vessels entering their ports and to report any deficiencies to the flag states and other partners, such as the vessel’s next port of call (Kasoulides, 1993). Port state jurisdiction grants the port state a right to investigate and, possibly, a duty to detain where ‘sufficient evidence of the violation’ is identified after investigation, but proceedings ‘are not instituted or are discontinued by the flag state’ (Kasoulides, 1993). It is an innovative expansion

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of the jurisdiction in international law, which certainly plays an important role in eliminating sub­ standard ships (Marten, 2014). Despite the inconsistencies, the regulatory enforcement mechanism of PSC is seen to have provided a good service, rectifying the inherent weaknesses of flag state control, combating sub-standard ships and preventing a race to the bottom (DeSombre, 2006, 2009). It forces established FOCs, such as Panama and Liberia, to ratify more international conventions on safety and labour standards and to raise admission standards of their registries (Tang & Zhang, 2021). However, the effective enforcement of international standards, in particular the maritime labour standard, still mainly relies on flag states’ adherence to the conventions.With respect to the PSC regime, there are a number of negative aspects counterbalancing the positive ones. First, it is questionable whether a port state has enough motivation to exercise effective and thorough sur­ veillance, inspection and punishment over foreign ships.This is particularly unlikely if the violations do not affect the port state’s interests. Another issue faced by a port state is the commercial consideration.The port state would face a conflict of internal interests, especially economic ones concerning its exports and imports, if it becomes a ‘tough prosecutor’ and punishes vessels that call at its ports to load or discharge cargo (Kasoulides, 1993). For instance, an importing nation’s greatest interest would be ‘a reduced price on the imported goods’, while a flag state’s primary concern would be ‘increasing its registry via the appeal of lax standards’ (Bauer, 2008).A port state may gain a competitive advantage by ignoring the conven­ tions’ mandates and that could lead to the establishment of a ‘port of convenience’ (Bauer, 2008). A further controversial issue is whether port state authorities will comply with the applica­ ble international legal standards or will implement their national legislation, which might prove different in its application. In addition, the lack of financial support and competent inspectors, the discrepancy between the judgments of different inspectors and the lack of an international body to supervise and regulate the regime could also hamper the effective enforcement of the system. In practice, the PSC inspection is considered the right of a port state operating under regional agreements, rather than a duty or obligation required by the international regulation (Zhang, 2016). It tends to be in the self-interest of a county or port to gain a competitive advantage by ignoring the convention’s requirements.

Compliance with international sanctions Over the past several years, the use of international economic sanctions has prominently returned under international relations and the global geopolitical landscape (Weber & Schneider, 2020). Sanctions take various forms and can be imposed by a variety of jurisdictions. The United States has certainly shown itself to be one of the countries with an aggressive foreign policy under the presidency of Donald Trump (Drezner, 2019). The term sanction originated from the Latin word sanction, which means ‘a decree or ordi­ nance with a penalty attached’ (Brewer, 1878). Today, it often represents an official approval or disproval for an action.According to Krieger (2010), sanction is one of the few words in the English language that has ‘diametrically opposite meanings’.When sanction is used in an appositive sense, it means official permission or approval. In contrast, in a negative sense, it means official disap­ proval, which is associated with the risk of incurring penalties. Sanctions are often imposed in the regimes of the UN, the EU and unilaterally by a national state, such as the United States and the United Kingdom.The United Nations Charter often defines the term sanction in its negative sense. According to Chapter VII of the charter, the Security Council can take any sanctions measures as needed to maintain or restore international peace and security. Under Article 41 of Chapter VII, the measures encompass a broad range of enforcement options that do not involve the use of armed force (UNSC, 2020).

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The use of sanctions as tools of foreign policy or economic warfare has become unprecedently prevalent (Hufbauer et al., 2007). Since 1966, the Security Council of the United Nations has established 30 sanctions regimes, with 14 ongoing sanctions which focus on supporting the political settlement of conflicts, nuclear non-proliferation and counter-terrorism (UNSC, 2020). In recent years, the EU has increased its use of sanctions to pursue its foreign policy objectives laid down within the framework of the EU’s Common Foreign and Security Policy (Forwood et al., 2020). As of November 2020, the EU had 19 sanctions regimes in place that implement UN sanctions (EC, 2020).At the same time, the EU had 35 autonomous sanctions regimes against countries that are not subject to UN sanctions. It is noteworthy that both the UN and EU have commonly adopted 10 of these 54 sanctions regimes (EU, 2020). Regarding unilateral sanctions, the United States has certainly shown itself to be the coun­ try with the most aggressive foreign policies. Over the past years, it has been actively using financial sanctions and listing decisions through the US Treasury’s Office of Foreign Assets Control (OFAC).As of November 2020, there are 35 active OFAC sanctions programmes (USDOT, 2020). Unlike the UN and EU sanctions, the US domestic sanctions regimes are draconian asset-freezing measures backed by criminal penalties, as well as significant civil fines and forfeiture for violations (Happold & Eden, 2016). There is a hot debate going on about the legal nature and effect of financial sanctions imposed by the UN, EU and domestic nations.This book has no intention to deal with the debate. However, with the bulk of international trade being moved by merchant vessels, economic sanctions regimes are of particular relevance in the maritime industry. In recent years, the industry has often been directly targeted by specific maritime sanctions imposed by the United States and EU. For example, considering its close affiliation to the energy sector, the maritime industry is exposed to a variety of sanctions related to the oil, petroleum and gas trade (Marcura, 2015). As mentioned, the United States has been particularly active in imposing sanctions to achieve its economic and political objectives. Unlike the UN and EU sanctions, US sanctions are not imple­ mented through local legislation.They largely target certain entities and individuals within the United States.At the same time, certain US sanction regimes also target non-US entities and individuals, such as Iran and North Korea. It is particularly important for the ship owner and manager that a non-US entity or person may find itself ‘blacklisted’ by the United States where it continues to do business with a US-sanctioned entity or person.This is because entities and individuals operating outside of the United States may still be exposed to the risk of violating US sanctions where (Standard, 2019): ●● ●● ●●

●● ●●

It is found to have assisted a US person in evading US sanctions;

The individuals involved were present in the US when the US sanctioned transaction took

place – in which case the individuals will be treated as US persons; It is involved in sanctioned transactions which have US connections – for example where pay­ ments are to be made in USD, or where US insurers, banks or other US persons or entities are involved; It is involved in the re-export of US goods or technology to countries subject to US sanctions; It is involved in a transaction that is in breach of US ‘secondary sanctions’ which are targeted against Non-US persons.

One of the countries that is included in the target list of US sanctions is Iran. Since 1979 the United States has applied various economic, trade, scientific and military sanctions against Iran (Aljazeera, 2012).After the 2018 withdrawal from the Joint Comprehensive Plan of Action (JCPOA), the United States started to re-impose sanctions related to the energy, financial, shipping and shipbuilding industries (Khandelwal, 2019).The re-imposed US sanctions have significantly hit Iran with respect to its oil exports.At the start of 2018, the volume of Iranian oil productions was about 3.8 million barrels per day (bpd). By October 2019, Iran’s crude oil production had fallen to 2.1 million bpd on average, and it was reported that only 260,000 bpd on average was being exported (BBC, 2019).

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Venezuela is another country facing US sanctions. For more than a decade, the United States has employed sanctions as a policy tool in response to activities of the Venezuelan government and Venezuelan individuals. Since 2017, the executive orders issued by the Trump administration have led to a significant expansion of sanctions against Venezuela (Seelke, 2019). In early 2020, the OFAC imposed a long list of comprehensive sanctions. The targets include at least 144 Venezuelan or Venezuelan-connected individuals,Venezuela’s government oil companies and national central bank and any entities or individuals in relation to these governmental bodies (Seelke, 2020). In addition, the United States has widely imposed sanctions on some other countries, entities and individuals, including Cuba, Russia, North Korea, Somalia, Sudan, Zimbabwe, Syria, Libya, China, many organisations and citizens in these countries and so on.The OFAC administers a number of different sanctions programmes. According to the US Department of the Treasury, the sanctions can be either comprehensive or selective.They use the blocking of assets and trade restrictions to accomplish the United States’ foreign policy, national security or other political goals (USDOT, 2020). These US sanctions increase the risks of violations by the shipping companies who are involved in the transactions related to the sanction targets. For example, in 2019 the US sanctions against Iran and Venezuela caused 300 oil tankers to be placed off-limits as there was a fear within shipping companies of breaching the US sanctions, making freight rates reach new highs. Furthermore, oil com­ panies also are avoiding oil tankers directly or indirectly owned by the shipping companies who are targeted by US sanctions for allegedly transporting oil from Iran or Venezuela (Parraga & Khasawneh, 2019).These sanctions, according to the US government, automatically freeze all assets of the com­ pany if they enter the United States or if they are in possession of a US citizen (Dobreva et al., 2020). As far as the maritime industry is concerned, it is criticised that unilateral sanctions imposed by the United States make it impossible for marine service providers to implement credible com­ pliance.These sanctions are even considered a ‘kiss of death’ for innocent ship owners (Bockmann, 2020a). According to Mater (2019), the economic sanctions have become a complex web that can be exhausting for Americans, foreign governments and private organisations. As a result, flag registries, marine insurers, ship owners, charterers, ship managers and financial institutions tend to be targeted, provoking concerns that they are being used to unofficially police sanctions or be excluded from a global industry that operates in US currency (Bockmann, 2020a). Under the pressure of US sanctions, many ship owners have undertaken tactics of reflagging their ships which are linked to the sanctioned subjects (UNCTAD, 2020). For example, Samoa1 is a major flag registry considered by a shadowy fleet of tankers which have been linked to ship­ ments of Iranian crude, fuel oil, condensate and liquified petroleum gas during the past several years (Bockmann, 2020c). However, since the 2010s, the US Treasury and lawmakers have taken measures to prevent these allegedly ‘deceptive shipping practices’ or ‘subterfuge fleet’ (Berman, 2012). According to Blas (2012), these measures specifically highlight the attempts to ‘evade sanc­ tions through the use of front companies’, as well as the deceptions to ‘conceal its tanker fleet’ by repainting the ship or flag-hopping.2 The US sanctions extend to the international registries that provide an FOC for the targeted ship owners. Many flag states were forced by the United States to de-flag the ships engaged in evading US sanctions. For example, in 2020 the Tanzanian registry removed four flag-hopping tankers that were detected shipping sanctioned Iranian cargoes (San­ chez, 2020).The removals are a further sign of intensifying pressure imposed by the US sanctions on the allegedly ‘subterfuge’ fleet engaged in ‘illicit transfers’ of sanctioned shipments.According to Bockmann (2020b), a number of other smaller flag administrations, including Gabon, Cook Islands, St Kitts and Nevis, have removed the vessels from their registries in the same year. Most vessels had been re-flagged after being removed by larger registries, including Panama and Liberia, for their connections with Iran,Venezuela or other sanctioned states. There is no doubt that compliance with sanctions plays a crucial role in maintaining smooth ship operations and preventing loss. In the global business, ship owners would have to comply with

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maritime sanctions checks imposed by multiple jurisdictions.The ship manager has the obligation to undertake appropriate due diligence with respect to compliance with various sanctions, in par­ ticular the sanctions imposed by the United States. Any breach in the current sanction regimes can have devastating consequences, which include legal disputes and liabilities, delay of the vessel, invalidation of insurance coverage, damage to reputation, significant fines and vessel detention, a blacklist of vessels and companies and even criminal offences (Marcura, 2015). The ship owner and manager need to be vigilant to the changing sanctions landscape and take measures to ensure that no commercial activity being undertaken involves a designated sanctioned entity or breaches sanctions (HSN, 2019). However, when the global shipping industry experiences a tough time due to a sluggish market situation and an oversupply of tonnage, many ship owners and operators tend to trade in these sanctioned areas for a lucrative profit.They may choose to carry out certain types of ‘compliance’ measures to evade these sanctions. For example, some ship owners try to evade sanctions by switching off the AIS or disabling GPS equipment.To deceive the commercial checks conducted by financial institutions, many ship owners or managers provide false documents relating to goods and vessel movement, such as a bill of lading with false ports of loading and discharging.These arrange­ ments can cause serious consequences. First of all, the OFAC can still disclose these if they conduct further business checks, in particular when the parties have to use the US dollar for commercial transactions. Furthermore, these actions constitute fraud against not only the OFAC but also any third parties, so it can lead to commercial disputes and lawsuits. In the meantime, these defrauding activities can result in the invalidation of both ship and cargo insurance coverage. As a result, the ship manager should take measures to prevent these activities from happening for the ship owner’s best interest. Otherwise, if the manager participates in this kind of activity, then they have breached their duties under the law of agency, as explained in Chapter 3.

Challenges with compliance management While compliance management plays a crucial role in ship management and operations, the ship manager faces various challenges in implementing effective compliance management.According to an industry study among compliance experts,Abdullah et al. (2010) identify some major compliance management challenges. These challenges can be divided into three main categories: challenges related to external regulations, challenges related to customers and challenges related to solutions. The challenges relating to external regulations include frequent changes in regulations, multi­ level and polycentric regulations, principle-based legislation, overlap in regulations and inconsisten­ cies.The fact that international standards, legislation, regulations, government laws and rules regularly change means that organisations face challenges keeping up with the new requirements (Karagiannis et al., 2007). One major challenge for the maritime stakeholders is the frequently adopted new regulatory instruments. For example, 2019 was a busy year in terms of adopted IMO regulations with SOLAS amendments, significant milestones for the fuel oil consumption data collection system (DCS) and the EU’s Monitoring, Reporting and Verification (MRV) regulation, and the MARPOL Annex VI global sulphur limit IMO 2020 (Sillitoe, 2019). At the same time, the new requirements created at the national level cause further difficulties. One main issue is related to principle-based legislation produced by some maritime nations. The ship manager and operators have to decide on an approach to meeting the legal obligations by themselves.According to Abdullah et al. (2010), although this approach allows an organisation to be creative in meeting the requirements, it exposes the organisation to the risk of inappropriately interpreting the legislation. In addition, the unique characteristics of multilevel and polycentric regulations in the maritime industry tend to cause prob­ lems of overlap, duplication, inconsistency and even conflict. These problems often exist between

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the legal instruments of nation-states and those of international regulatory bodies (Grabosky & Braithwaite, 1993).As a result, the ship manager and operator may have to violate some standards when they try to comply with other regulations that are inconsistent.They may generate some neg­ ative consequences, particularly regarding additional risks and compliance cost. The challenges related to customers involve many aspects, including lack of a compliance culture, lack of resources, lack of efficient risk management and lack of awareness. First of all, the compliance culture plays a vital role in the inculcation of compliance management in an organi­ sation. It involves employees’ perspectives towards the value and objectives of the organisation, including what it stands for, its clients, investors, regulators and colleagues (ACCC, 2005). A good compliance culture can promote a positive attitude towards legal compliance activity at all levels within an organisation (Morton, 2005). However, one common problem faced by the ship manager is the resistance of the ship owner– client. The senior management team of the ship owner often sees compliance as one of the least value-added activities for their business. Consequently, the operational level has no guideline or pro­ cedures, and this further results in ignorant and inexperienced compliance practice among employ­ ees, such as the crew onboard or ship operators. Similarly, the organisation mind-set is directly affected by the belief of employees.The team that lacks training and education on the importance and procedures of compliance has a low willingness to accept compliance activities within business operations.The situation can be made worse if the shipping organisation has no compliance officer or the officer has very limited influence on either the management or the support team. Compliance management needs a variety of resources, including human resources and financial resources. Cost of compliance is often one of the crucial issues that make an organisation hesitant to get a compliance system in place (Kharbili et al., 2008). As discussed earlier, if the high-level management of the ship owning company lacks interest in compliance management, they will not provide the needed resources to enable the organisation to implement a compliance management system.This can often result in a lack of efficient risk management. It is noteworthy that risk man­ agement and compliance management are related, but they are not the same thing. According to Kanjilal (2020), risk management involves predicting and managing risks to protect an organisation from risks that might eventually result in non-compliance. In contrast, compliance management is the systematic process of managing compliance within the boundaries of a time limit and a budget, and non-conformance to compliance requirements is itself also a risk. A further challenge faced by the ship manager is the ship owner’s lack of compliance awareness.This is often associated with a lack of compliance culture, but it can be extended to several specific factors.The first factor is the lack of perception of compliance as an added value.According to Zerafa & Farrugia (2020), the most effective way to build a healthy compliance culture is to view compliance as an added value rather than a business burden. However, many ship owners regard compliance as a business cost because they see no returns for the expensive documentation and time consumed.They consider that risk and compliance management system adds complexity to a commercial business and makes the business harder.Also, some ship owners believe that the only benefit derived from the compliance management system is that they avoid getting fined by regula­ tors.These opinions suggest their lack of understanding of the relevance of compliance to business, so they are unable to correctly embed rules and obligations in their daily operations to guide busi­ ness processes (Governatori et al., 2007).To overcome such difficulties, it is necessary that various standards and regulations be interpreted with regard to, and mapped to, business processes by specialists who deeply understand both the legal and the operational aspects of the organisation (Abdullah et al., 2010). At the same time, it is noteworthy that the lack of communication among staff contributes significantly to these problems.When compliance problems are identified in busi­ ness operations, they should be reported to the senior management team, and consensus building needs to be conducted among all staff for future improvement.

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The challenges related to solutions include the lack of holistic practices, lack of facility support, lack of a compliance knowledge base and lack of habit of creating compliance evidence (Abdullah et al., 2010). First of all, it is believed that compliance should be systematically cascaded at every level of the organisation, starting with a clear direction from the top, and then deployed appro­ priately through every layer (Paul, 2008). However, many organisations lack holistic practices and instead leave the compliance tasks to the commercial or legal department, so there is no effective collaboration between different sectors. In the meantime, effective compliance relies heavily on facility support, such as IT infrastructure, learning and training facilities, equipment for monitoring and reporting, tools for newsfeeds, alerts, self-assessment and updates and so on (Abdullah et al., 2010). Furthermore, many organisations are unwilling to outsource third-party knowledge services. They tend to rely upon their in-house knowledge base, which is often not sufficient to support the organisation’s compliance requirements. For example, many new maritime regulations, such as IMO 2020, involve complicated and technical issues.The organisations need to outsource training programmes from maritime specialists and experts to enhance their compliance knowledge base in order to carry out relevant tasks properly. In addition, many organisations do not have a habit of producing evidence of compliance and this causes serious problems in ship operations. Lack of evidence of compliance can result in ship detention, breach of warranties and lawsuits. For example, according to the safety management system (SMS) and MARPOL 73/78, as amended, a ship needs to carry out spot checks of onboard equipment and procedures. The ship needs to maintain a clear record and documentation with regard to the performance of relevant activities. Otherwise, a ship might be detained for lack of evidence in a PSC inspection.Also, as discussed previously, the evidence is a crucial part of commer­ cial dispute resolution. For example, if there is any dispute regarding cargo damage or demurrage, proper maintenance of evidence with respect to cargo operations will be critical in defending or supporting commercial claims. On the contrary, in many shipping organisations, compliance management is done for the pur­ pose of the compliance record only, rather than for the sake of good business. For example, many ships deploy the method of ‘double bookkeeping’, by which they prepare two separate sets of doc­ umentation, one real and one false (Zhang, 2016). By doing so, the crew aim at tricking inspectors or other parties into believing that the relevant requirements have been properly complied with onboard. However, all these activities could not serve the real purpose of compliance management. According to Zerafa & Farrugia (2020), compliance management is not only about having docu­ mented policies and procedures but is also about ensuring that employees carry out their functions in a compliant manner.

Notes 1

2

The Samoan registry was initiated by the government of Samoa with the adoption of the Samoa Shipping Act 1998.The maritime laws of Samoa were aligned with many changes in ship registration, financing and seafarers licensing and documentation, which had occurred in the shipping industry (Flagadmin, 2020). Flag-hopping is the practice of repeated and rapid changes of a vessel’s flag for the purposes of circumvent­ ing conservation and management measures or provisions adopted at a national, regional or global level or of facilitating non-compliance with such measures or provisions (Nordquist et al., 2019).

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Chapter 9

Looking forward

Globalisation, connectivity, transparency and enhanced information technology are all phrases used to explain the changes that we see in today’s world.The business environment and workplace are very different today from that of decades ago.There are fundamental changes in methods of work­ ing and the workplace itself (Best et al., 2007).The future of business continues to face a variety of challenges, such as the impact of pandemics; trade retaliations; frequent economic sanctions; and strict governance in health, safety and environmental protection. The economic new normal has become a necessary stage of global business development.The new normal of management is on its way, and with that, new opportunities arise. The maritime shipping industry has various unique features. It can be described as a complex system composed of relatively independent parts that constantly search, learn and adapt to their external environment (Caschili & Medda, 2012). Ship management is a fundamental activity of the world’s maritime business. It is an area that requires integrative knowledge that spans across mul­ tiple disciplines and needs varied experiences.Thus, ship managers will continue to play a key role in the future of the maritime infrastructure.The need to have an ability to identify and neutralise threats, to manage risks and to make decisions that will optimise costs and contribute to perfor­ mance improvements is ever pressing (Visvikis & Panayides, 2017). In their management practice, to normalise the new normal is both a challenge and an opportunity for maritime organisations. Therefore, knowledge has remained vital, never more so than in today’s knowledge economy. This concluding chapter has two purposes. First, this chapter draws together the key issues and challenges underpinned by the quest for good practices of ship management. It also suggests ways to reconcile the conflict between best practices and suitable practise for ship management companies. Second, this chapter looks into the future of ship management. In particular, it consid­ ers the impact of digitalisation on future ship management, including the benefits and obstacles of digitalisation and the issues related to cybersecurity.

Drivers for improvement in ship management As discussed in the previous chapters, one of the ship manager’s main obligations is to provide man­ agement services as per best practices of the ship management industry.This requirement is pre­ scribed in both the BIMCO SHIPMAN 2009 Standard Ship Management Agreement and Crewman 2009 Standard Crew Management Agreement. According to SHIPMAN 2009, the managers shall arrange crew insurance ‘in accordance with the best practice of prudent mangers of vessels’.Also, the standard forms specify that the managers undertake to use their ‘best endeavour’ to provide the management services in accordance with ‘sound ship management practice’. However, the BIMCO’s standard agreements provide no explanations regarding what is con­ sidered a ‘best practice’ or ‘sound practice’. Neither is there a generally accepted understanding of DOI: 10.4324/9781003081241-9

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these terms. The phrase ‘best practices’ has become a buzzword. It is used in many industries to signify a method that establishes a standard way of doing things as a means of driving higher perfor­ mance, success, ideal behaviour or ethics (Labi, 2020).The meaning of ‘best practices’ varies greatly in different situations. It is a term that can be employed widely and across a range of industries. In the commercial world, the term is used in connection with issues from quality control to employee treatment to explain the most efficient approach of conducting a business task. Best practices, in a specific industry, can also be used as a benchmark, where an organisation can share actionable solu­ tions with other companies (Kenton, 2019b). Ko & Fink (2010) consider it ‘an industry accepted way of doing something that works’. Generally, it includes a set of ideas, ethics or guidelines that represent the most effective and efficient course of action in a given business sector (Bretschneider et al., 2005).These may be developed and established ‘by authorities, such as regulators or govern­ ing bodies, or they may be internally decreed by a company’s management team’ (Kenton, 2019b). The term best practices has emerged relatively recently in discussions about ship management and operations.According to GL (2013), the term is defined as ‘all approaches, procedures, business models or tools that ship managers are using to do their business smarter, safer and greener, i.e., to be on top of competition’. For example, with the adoption of the International Safety Management (ISM) Code came the requirement for an approach to use measurable benchmarks and commu­ nicate ways to rapidly implement new standards of excellence across a company by identifying non-conformities, analysing their frequencies and consequences, developing solutions and supervis­ ing the implementation of those solutions to ensure they solve the problems effectively. While it is used in the industry as a guiding principle or methodology for consistency and to drive the greatest outcomes, the term best practices can be ambiguous and potentially misleading (Labi, 2020). First of all, it is doubtful whether best practices exist in the ship management industry at all (Levison, 2010).There is no universal way of doing things, and a practice may only be the best fit in a specific context.What works for an organisation in a specific scenario may not necessarily work for another organisation with a different situation (Barthélemy, 2018).Therefore, on a riskadjusted basis, an organisation needs to evaluate its business position and take measures to reduce the risk of adopting the wrong best practices (Reda, 2019). Nevertheless, the maritime industry has developed a set of standards of excellence which have proven to be effective and efficient. Many of these standards are considered the benchmark of good practices and used to determine a level of compliance with the business requirements and assess whether it is acceptable for delivery.These requirements can be commonly found in the issues relat­ ing to safety and security, treatment of seafarers, corporate social responsibilities, energy efficiency and risk management. For example, after the loss of a British cargo ship MV Grainville in December 1981 (Lettens, 2008), the British government issued Merchant Shipping Notice 1424 in 1990 entitled ‘Good Ship Management’ (Anderson, 2015).This notice was followed by the ISF and ICS publication ‘Code of Good Management and Practice in Safe Ship Operation’ (ICS, 1982).As discussed in Chapter 6, the ISM Code is another response by the industry to the loss of a British ferry, MS Herald of Free Enterprise. In recent years, the practice of ship management has changed dramatically in many aspects, including new regulations and disruptive technologies.As a result, ship managers continue to face new challenges, and they need to respond quickly to changes or innovations in their unique business.They are under increasing pressures in many aspects to drive improvement in ship management practices. One major driver is economic pressure. As mentioned earlier, freight rates are driven down by overcapacities and weak end-user demand. Meanwhile, it becomes harder or more expensive to obtain financial resources at times of economic downturn. Ship owners and operators are often exposed to substantial operational business risks which result from large swings in freight rates and voyage and operating costs. Cost cutting has therefore been identified as a major motivation for ship owners and operators to introduce appropriate measures to achieve economic benefit by managing their ships more efficiently and safely.

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As a result of economic pressure, performance optimisation has become a crucial approach for ship managers to improve ship efficiency. According to Petersen (2018), making a ship efficient should come from firstly designing an efficient ship, and secondly by keeping the ship technically fit through ensuring maximum hull and propeller performance. Many ship management firms rely on a vessel performance optimisation (VPO) system to pursue the best performance from the ships under their management.The key components of a VPS system normally include maintenance optimisation, procurement optimisation, crew optimisation, commercial optimisation and optionality and so on. Also, the increasing stricter regulatory environment significantly increases operation costs and imposes additional pressures and risks.Today’s maritime regulatory regime is becoming increasingly more demanding and multifaceted, such as the introduction of the Maritime Labour Convention, 2006 and its amendments (MLC, 2006); Control and Management of Ships’ Ballast Water and Sed­ iments (BWM); IMO 2020; and so on. With the growing environmental concerns in world trade, shipping companies urgently need to cope with challenges in a way that does not undermine their business growth, while, at the same time, adds economic and environmental benefits to the global shipping chain (Panayides, 2017). For example, the introduction of ‘green’ management practices by companies engaged in ship operation and management is crucial for achieving optimal performance and gaining an advantageous position in the competitive market (Lirn et al., 2014; Lun et al., 2016). Another source of pressure is from the human resources aspect. Maritime shipping is tradi­ tionally capital intensive, but it relies heavily on its people to make the business viable, reliable and efficient.The unique features of the maritime business underline the importance of effective human resource management (HRM). Such characteristics relate to the differences between shipboard and onshore personnel in the companies. In recent years, clear trends which have been recorded to impact the human aspect of management are also highlighted in the maritime industry.These trends include globalisation, workforce shortage, declining of skills, influence of new technologies, lack of responsiveness and quality of service. Shipping companies are competing with each other in the context of an increasing shortfall in terms of quality and a competitive workforce.The multidimen­ sionality of human resource pressures which are present in shipping poses significant challenges to ship operation and management (Mitroussi, 2013).At the same time, there exist the requirements in terms of quality and safety of operations, corporate social responsibilities, fair treatment of sea­ farers, maritime security and so on. While these sources of pressures have been discussed in the previous chapters, it is worth mentioning that they are interrelated. Maritime shipping is a safety-critical industry. The advance­ ment of technologies has played a key role in improving the safety and efficiency of ship operations. Shipping companies need to access and make use of technologies developed by third-party service providers. However, at the same time, it is increasingly recognised that human error underlies the majority of maritime accidents. HRM is thus at the core of ship management, and good HRM practices may offer a competitive advantage. No wonder, in recent years, that there is a shift in the management focus from technical matters onto the human element. Meanwhile, implementation of international standards increases ship owners’ operation costs, but proper compliance will also improve safety and quality operation of ships and reduce maritime accidents. As such, all these sources of pressure work together to drive improvements in ship management practices.

The main challenges of ship management in the future As discussed earlier, the future of ship management will continue to face various challenges.These challenges are associated with a number of factors, such as human resources, regulations, technol­ ogies and so on.To maintain their competitiveness, ship managers have to find ways to add value to the shipping supply chain rather than being just a service provider.

LOOKING FORWARD

One of the major challenges is the shortage of qualified maritime labour. Since the 1990s, the BIMCO/ISF Maritime Manpower Survey has been consistently reporting a current, as well as a pro­ jected future, shortage of seafarer officers in the global labour market (BIMCO & ICS, 2015; BIMCO/ISF, 1995, 2000, 2005, 2010).Though some researchers have challenged the methodology of the BIMCO/ ISF survey (Leggate, 2004; Li & Wonham, 1999), it has become an industry consensus. Some anecdotal evidence (e.g., some companies have resorted to poaching officers; some are unable to release officers on time, as they are unable to find replacements) does indicate its veracity. Nevertheless,Tang & Zhang (2021) and Leong (2012) suggested that the shortage is more likely to be experienced in senior ranks (e.g., chief officer and second engineer) and in special ship sectors (e.g., gas carriers). The shortage has been aggravated by the difficulty in attracting young people to join maritime jobs and the decline of seafaring skills. According to Caesar et al. (2015), unfavourable working conditions onboard ships have led to low job satisfaction and dwindling interest in the seafaring profession, as it is negatively affecting the attraction and recruitment of young people into the sea­ faring career.To attract young people into the maritime industry, there is a need for improvement in working conditions onboard ships in order to meet the expectations of the current generation of job seekers. Measures used for both the hiring and retention of seafarers must focus on moti­ vating seafarers to stay longer at sea, as well as improving the working conditions onboard ships. Also, crew welfare needs to be improved through the refinement of organisational policies that are discriminatory towards seafarers. Furthermore, better management of the relationship between ship owners and seafarers is needed to improve retention. The future of ship management will also continue to face the challenges of sustainable devel­ opment. According to Irvine (2016), the maritime shipping industry can influence both positively and negatively the UN’s 2030 Agenda for Sustainable Development and the associated Sustainable Development Goals (SDGs), which are associated with economic growth, social inclusion and the environment (UN, 2015). As part of the United Nations family, the IMO has taken measures to promote its 2020 World Maritime Theme of ‘Sustainable Shipping for a Sustainable Planet’ (IMO, 2018). For example, atmospheric emissions from ships are strictly regulated globally, and the IMO has designated a number of emission control areas (ECAs) in which more stringent regulations apply. Several options are available for merchant ships to meet sulphur emissions requirements. These include switching to low-sulphur oil when visiting ECAs, installing a scrubber system and converting the vessel to use alternative fuels, such as liquefied natural gas (LNG). Each option has its advantages and is applicable for different cases. Selecting an inappropriate method of reducing sulphur emissions may incur a large amount of unnecessary cost; thus, the key stakeholders need to understand the characteristics of all available methods of reducing sulphur emissions (Wang, 2020). The regulations on decarbonisation and emissions from ships are more challenging.The IMO’s future emission strategy aims to decrease greenhouse gas (GHG) emissions by at least 50 per cent by 2050.While there is no consensus on the route to achieving this target, some operational measures have been taken, such as slow steaming, route optimisation, reduction of ballast, optimum use of ocean currents, shore power supply in ports and training present and future employees.To sum up, ship managers of the future will have to face the conflict between providing sustainable and affordable services, while contributing to preserving common resources (Madaleno, 2017).

The impact of digitalisation on ship management in the future Previously, the shipping business was basically an analogue operation that relied greatly on tradi­ tional ways. The maritime industry is built on a conservative culture with a limited appetite for innovation. It operates within stringent protocols and a hierarchy to ensure order and adaptability

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to change, thus taking time to incorporate new technology into the system (Yang, 2019). However, this has changed over the last few years. Significant changes have occurred, with the increased advancements in technology affecting virtually every industry.The international maritime industry is no exception, even if it has adopted these much later as compared to other industries. In recent years, it seems that the industry has taken up new technologies and digitalised the system to keep up with other sectors of the world economy, and it is changing at a much faster rate than ever before.

Benefits of digitalisation With the development of new technologies such as the internet of things (IoT), big data analytics (BDA), artificial intelligence, blockchain and autonomation, significant changes have taken place in the maritime sector.These technologies have helped the key stakeholders capitalise on the existing resources and processes, thus creating more business opportunities, greater competitive advan­ tage, operational competences and connectivity for the maritime business to make better resolu­ tions (Splash, 2018). The innovations also have significant potential opportunities and benefits to the industry, and among them is the reduction of maritime risks and driving the industry towards the SDGs. According to UNCTAD (2020), the maritime industry has a fleet of over 98,000 ships that carry more than 80 per cent of the global trade.This means that massive data are generated in the process, and maintaining these large volumes of data can be challenging when using traditional data management systems. In addition, the global economy is moving much faster than it was moving a decade ago; therefore, to manage such large volumes, the maritime industry needs to digitalise its system so that it can keep up with the other industries that are its primary suppliers.The digital­ isation of the maritime industry has led to the connection to the IoT and the increased analysis of the data generated in the sphere, thus allowing for the exponential growth of the field through the automation of processes (Zaman et al., 2017). The combination of enhanced digital data analysis and physical connectivity has helped the ports, carrier companies and intermodal transport system integrate their systems, thus offering an improved quality of services, building global supply chain networks and offering better visibility of the shipments at any given time (Inkinen et al., 2019). This is made possible with the artificial intelligence technology that has been incorporated into the industry and the different systems, thus helping in the analysis of the continuously growing volumes of data generated from the automated systems.These systems include the GPS network that is mostly used for navigation by the carriers and the cargo tracking systems, among others, that are necessary for the smooth operation of the industry (Sarabia-Jácome et al., 2019). The maritime industry has increased its productivity due to digitalisation, including improved efficiency in the navigation routes, and also the port processes, as most of them are becoming automated. Digitalising the port call process and optimising a vessel’s speeds and navigation routes have also reduced the carbon footprint by the maritime industry (Ellingsen & Aasland, 2019). At the same time, digitalisation has led to the extension of new business opportunities like the cargo tracking and capacity management, maritime waste management and crew recruitment necessary for the optimisation of maritime processes. As a result of digitalisation, there is an increased eco­ nomic growth, as geographical distance has become less relevant in the international maritime business. Labour costs have also reduced significantly through digitalisation, as most processes are automated and thus there is an increased demand for the maritime services (Gkerekos et al., 2019). Ship managers need to be prepared for the changing interoperability and improvement of global maritime standards.The digitalisation of the industry has given policymakers in the industry a chance to promote interoperability of the data-driven processes that have become necessary in

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the industry with the increase in international trade. Before digitalisation, different companies used different packaging systems and dimensions that made it difficult to manage cargo using different routes. However, the system has changed, as digitalisation has helped in the standardisation of the containers used in shipping. The standards for data management are also important (Pan et al., 2019). An example of this is the application of blockchain technology, as the shipping lines have over the past few years started to develop innovations with the world-leading information tech­ nology and companies. Initially, the formulation of policies in the maritime industry took years to be adopted, but with digitalisation and standardization, policymaking is accelerating exponentially (Fruth & Teuteberg, 2017). There is also improved data protection as a result of digitisation. Shipping companies, container providers and intermediaries compete for a share of the stake in the industry. For all these entities to benefit in the digitalised industry, they have to comply with the rules and regulations that govern data management and ownership (Feibert et al., 2017).This means that digitalisation has led to fair services in the industry, as the government can control all the entities in the industry. Data sharing is also promoted, as companies and different entities in the industry share information, thus improv­ ing the services they offer. One of the essential commodities of the 21st century is information, and the digitalisation of the maritime industry has led to an exponential increase of information generated (Ellingsen & Aasland, 2019).Additionally, the analysis power has also improved; therefore, the industry can analyse the information generated to help in decision-making and improving the services offered. Digitalisation has also led to sustainable development in the shipping industry. It has led to increased optimisation of maritime processes, hence, reducing the amount of energy used in these processes.This means that there is a significant reduction in the carbon footprint in the industry. There is also reduced accidents in the port and at sea (Kitada et al., 2018). Furthermore, digitalisa­ tion has streamlined the system, hence contributing to sustainable development all over the world. The improvements that have been made in the industry due to digitalisation have also led to a reduction in the costs and time traders have to wait for their cargo to arrive at their destinations. There is also improved transparency, as the new system has led to improved data management, thus reducing the risk of small traders losing their cargo during transit (Sanchez, 2020). Also, there is a benefit related to maritime security.The maritime industry has, for a long time, been a victim to pirates, and traders have lost their cargo in so many cases.The reason for this is because the traditional system lacked a perfect system to track the ships for the extended period they spend in transit.With digitalisation, shipping companies can track every ship in real time and maintain communication at all times (Baldauf et al., 2018). Information is also relayed with ease even in transit; thus, in the case of bad weather and possibility of pirate attacks, ships can be warned and thus change their navigation routes to a much safer route. In the case of attacks or problems at sea, ships can get assistance with ease, as compared to a few years ago, when ships ended up being stranded at sea for months (Kim & Gausdal, 2020).The data analysis systems also use the informa­ tion and data provided by other industries like the security sector to predict the risk and thus make important decisions regarding their navigational routes and the probability of risk.

Obstacles of digitalisation While the rapid development of technology has enabled ships to garner the benefits of digital systems, IoT, cloud data, automation and so on, it also has brought various challenges in industrial systems that need to be addressed in the current scenario (Siarry et al., 2021).The common chal­ lenges related to digitalisation in the ship management industry are cybersecurity, technical issues, data privacy, legal framework and cost. Data standardisation and collaboration among stakeholders are also vital to address the obstacles of digitalisation in the maritime industry.

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In recent years, cyberattacks on ship systems and networks have been witnessed in the indus­ try and have raised many concerns. Cyberattacks are generally a newly introduced threat both globally and in the shipping industry, and usually these attacks are kept hidden to exploit the compromised vessel for a longer period and achieve greater profits (Jones et al., 2016). Cyberat­ tack threats in the maritime industry usually include business disruption, financial loss, damage to reputation, damage to goods and environment, etc. According to Mash (2014), most cyberattacks were driven by attempts to obtain personal or financially sensitive data. However, many companies have begun to experience highly sophisticated and complex cyberattacks aiming to inflict damage to property and operations by taking control of victims’ systems. Mash (2014) reported that significant weaknesses have been identified in the cybersecurity of essential systems used to aid navigation in ship operations.These include the electronic chart dis­ play and information system (ECDIS), global positioning system (GPS) and automatic identification system (AIS). For example, the IMO requires every vessel to have an AIS, which should exchange information regarding a vessel’s type, indemnity, position, course, speed, navigational status and other safety-related information. However, the AIS does not have an inbuilt mechanism to encrypt or authenticate signals, thus making it a vulnerable target for cyberattacks. To address these issues, IMO (2017b) adopted Resolution MSC.428(98) on Maritime Cyber Risk Management in Safety Management System. According to the guidelines, cyber risk manage­ ment is defined as ‘the process of identifying, analysing, assessing and communicating a cyber-related risk and accepting, avoiding, transferring or mitigating it to an acceptable level’. The resolution stated that an approved SMS should take into account cyber risk management in accordance with the objectives and functional requirements under the ISM Code.The guidelines state that there are additional systems installed onboard ships that are vulnerable to cyberattacks, including but not limited to the following items: ●● ●● ●● ●● ●● ●● ●● ●●

Cargo handling and management systems;

Bridge systems;

Access control systems;

Propulsion and machinery management and power control systems;

Passenger servicing and management systems;

Passenger-facing public networks;

Communication systems;

Administrative and crew welfare systems.

Many of these systems are required to be installed by ships in order to comply with international standards and flag administration requirements. IMO (2017b) recommends that all ship owners adopt a cyber risk management plan including five elements.The first one resolves around defining personnel roles and responsibilities and identifies the systems that, when exploited, could pose risks to ship operations. In the case of cyberattack, ship owners and personnel should be able to imple­ ment risk control processes and measures to protect against the attack and ensure that shipping operations can continue normally. Detecting a cyberattack in a short time enables the company to act accordingly to assess the issue. In case of a cyberattack, ship managers should be able to respond and restore the necessary systems for shipping operations or services affected by the cyber-event, thus developing and implementing activities and plans to accomplish resilience is an important pro­ cess that should be followed. Finally, quickly recovering after a cyberattack could help the company minimise their damages, and for that reason identifying the necessary measures to back up and restore cyber systems is equally an important step that ship companies should consider. At the same time, some maritime associations adopted the Guidelines on Cyber Security Onboard Ships to keep aligned with the IMO’s Resolution MSC.428(98) on Maritime Cyber Risk

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Management (BIMCO, 2018).The associations participating in the drafting of the guidelines include the BIMCO, International Chamber of Shipping (ICS), International Association of Dry Cargo Shipowners (INTERCARGO), Oil Companies International Marine Forum (OCIMF), International Association of Independent Tanker Owners (INTERTANKO), International Union of Marine Insur­ ance (IUMI), InterManager and World Shipping Council (WSC).The guidelines provide comprehen­ sive instruction to ship managers, ship owners and operators on how to assess their operations and develop procedures to strengthen cyber-resilience onboard their ships. It will continue to be updated regularly to mirror the evolution of cybersecurity threats and to outline new measures to mitigate dynamic cyberthreats (Jorgensen, 2018). Also, it is noteworthy that cyber risks create issues that many insurers may wish to exclude under their standard policies. These exclusions have attracted widespread criticism, with many seeing it as too broad and draconian (Banner, 2019). One of the widely accepted market clauses for cybersecurity is the Institute Cyber Attack Exclusion Clause (CL380):1 In no case shall this insurance cover loss damage liability or expense directly or indirectly caused by or contributed to by or arising from the use or operation, as a means for inflicting harm, of any computer, computer system, computer software programme, malicious code, computer virus or process or any other electronic system. The CL380 covers any loss or damage (including business interruption and consequential loss) or liabilities attributable to a breakdown of a computer system. However, if the loss, damage or liability was caused by either directly or indirectly use of a computer or its associated system or software, such damage, loss or liability will be excluded from coverage (Chatfield, 2018). Some cyberattacks can have devastating consequences. Ship owners and managers need to be aware that they might not be able to recover any loss under the CL380 in case of a cyberattack (Mash, 2014). Furthermore, the large-scale data sets generated from shipping activity in terms of navigational and ship performance information create technical challenges concerning both the quality and quantity of data handling (Perera et al., 2016). Nita & Mihailescu (2017) support this argument and add that these large and complex data sets require a scalable architecture for efficient storage, manipulation and analysis.The lack of structure and a system in the collection of operational data from various data sources impairs data quality and can cause data inaccuracy (Lambrou et al., 2019). From the ship owner’s perspective, the total cost of ownership (TCO)2 associated with acquiring software and electronic systems is a key consideration, and it must be considered in the cost– benefit analysis in terms of integrating and managing the increasing level of digitalisation in shipping (Wojnarowicz & Fagerhus, 2013). In addition, the lack of a legal framework, which is uniformly applied in the maritime industry concerning digitalisation, is among the major challenges. The first legal hurdle in the maritime context arises from the fact that shipping companies in many cases are transnational businesses, and there is a national fragmentation in the law (Koskenniemi, 2014). For example, the adoption of the General Data Protection Regulation (GDPR), which entered into force in 2018, is expected to harmonise the legal fragmentation for data protection throughout the EU. It is applicable to ships that are owned by a European ship owner located in the EU. However, its application is disputable when the ships are flagged in any of the non-EU popular and largest flags, such as Panama, Liberia, Hong Kong or Marshall Islands (Ford & Wilcox, 2019).The maritime regulatory framework needs to be set out globally in the interest of the future of digital shipping. Due to the challenges posed in the maritime sector by the introduction of digitalisation, according to Späth (2017), it is essential to develop matching and structured systems and to create standards that will help establish a mar­ itime digital landscape enabling the efficient sharing and utilisation of information for the benefit of all stakeholders.

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Notes 1 Other exclusion clauses include the Cyber Loss Absolute Exclusion Clause (reference: IUA 09–081) and Cyber Loss Limited Exclusion Clause (reference: IUA 09–082). 2 The TCO includes the purchase price of a particular asset, plus operating costs over the asset’s life span. Looking at the TCO is a way of assessing the long-term value of a purchase to a company or individual (Twin, 2020).

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Index

acquisition 10, 33, 37 agency relations 44 arrival operations phase 66 asset management 81 audit 48, 68, 70, 119 automatic identification system 132 ballast water management 64, 65 best endeavours 43, 46, 47, 49, 50 best practice 89, 99, 126 big data analytics 6, 39, 84, 130 BIMCO 47, 48, 57, 85, 86, 100, 101, 126, 129, 133 BIMCO/ICS Manpower Report 100 bulk carriers 13, 14, 71 business policies 26, 27, 28; basic policies 27, 28; general policies 27; specific policies 27, 28 business strategy 16, 24, 25, 27, 43, 97, 101, 114 cargo operations 63, 67, 68, 69 choice of flag 35, 37 CL380 see Cyber Attack Exclusion Clause (CL380) class survey 6, 68, 70 collective bargaining agreement 65, 104 commercial management 1, 6, 10, 42, 43, 44, 53, 59 communication 73, 108, 110, 132 compliance culture 124 compliance management 114 comprehensive emergency management 92 concept of ship management 9, 11 concept of strategic management 24 condition-based maintenance 82 conflicts of interest 12, 34, 52 container ships 14 contingency plan 93 contract out see outsourcing contractual obligations 10, 46, 54 Convention for the Safety of Life at Sea (SOLAS) 88, 116 Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW) 116 corporate social responsibility 51, 106 corporate strategy 24, 25, 27 corrective maintenance 81

crew changes 65, 74 crew coordinator 94 crew insurance 99, 126 crew management 6, 48, 98, 99, 102 cross-cultural understanding 111 cultural diversity 109 cultural misunderstanding 110 cyberattack 132, 133 Cyber Attack Exclusion Clause (CL380) 133 data management 40, 130, 131 definition of compliance management 114 departmentalisation 30 departure operations 70, 71, 72 designated person ashore (DPA) 31, 32, 49, 89, 90 digitalisation 10, 40, 126, 129, 130, 131, 133 document of compliance 50, 88 DPA see designated person ashore (DPA) duty of confidentiality 53 effective teamwork 113 electronic navigational chart 73 emergency management 92 emergency response team (ERT) 62, 93, 94, 95 emission control areas 129 Energy Efficiency Design Index (EEDI) 86 Energy Efficiency Operational Indicator (EEOI) 86 ERT see emergency response team (ERT) estimated time of arrival 66 facility management 77 fiduciary duties 10, 47, 50, 53 flagging-out 5, 16, 36, 37 flag of convenience (FOC) 5, 16, 35, 36 fleet superintendent 94 FOC see flag of convenience (FOC) functional strategy 24, 27 general cargo 4, 13, 15, 71, 72 general cargo ships 4, 13, 15, 71, 72 General Data Protection Regulation (GDPR) 133 globalisation 126

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INDEX

greenhouse gas 23, 95, 129 Guidelines on Cyber Security Onboard Ships 132 human element 10, 11, 79, 100, 128 human resource management 1, 10, 86, 96, 103, 105, 128 ILO see International Labour Organisation (ILO) incident management 77 industrial relations 10, 96, 97, 103, 104 information system 39, 40, 90, 91, 132 information systems department 91 information technology 90 intercultural competence 111, 112, 113 intercultural education 113 International Bargaining Forum (IBF) 104 international economic sanctions 10, 120 International Labour Organisation (ILO) 21, 22, 117, 119 International Maritime Employers’ Council (IMEC) 104 International Maritime Organization (IMO) 3, 16, 22, 23, 36 international sanctions 120 International Ship Managers’ Association (ISMA) 48 International Transport Intermediaries Club (ITIC) 57 International Transport Workers’ Federation (ITF) 103 ISM Code 29, 31, 44, 46, 49, 70, 78, 79, 83, 88, 89, 90, 93, 95, 99, 127, 132 ISMA Code 48 key performance indicators (KPI) 85 KPI see key performance indictor (KPI) law of agency 44, 46, 47, 53, 123 legal compliance 115, 124 lifeboat drills 68, 70 liquefied natural gas 14, 129 long-range information and tracking 73 maintenance management 10, 81, 83, 84 management agreement 45, 46, 47, 49, 50, 51, 52, 54, 55, 56, 61, 78, 98 marine coordinator 93 maritime governance 21 Maritime Labour Convention 2006 29, 117, 128 maritime labour market 19, 101, 102, 103, 106 maritime regulatory regime 22, 23, 79, 115, 116, 128 maritime security 40, 115, 128, 131 MARPOL 40, 116, 118, 123, 125 master–agent information exchange 66, 67 memorandum of understanding (MoU) 41, 88, 119

Merchant Shipping Act 79 Merchant Shipping (Minimum Standards) Convention,The 1976 117 mergers and acquisitions 20, 24, 33 Minimum Standards for Shipping Agents 47, 115 Monitoring, Reporting and Verification (MRV) 123 MoU see memorandum of understanding (MoU) MS&Q superintendent 94 multicultural crew 10, 107, 108, 109, 110, 112, 113 multilevel and polycentric governance 22 notice of readiness (NOR) 66, 67 objectives of HRM 97 occupational health and safety 88 Office of Foreign Assets Control (OFAC) 121, 122, 123 onboard deficiency log 70 open registry (OR) 16, 19, 35, 36, 102, 103 operations management 10, 59, 60, 61, 62, 75, 76, 98 operations managers 60 OR see open registry (OR) organisational structure 6, 10, 17, 20, 24, 28, 29, 30, 31, 32, 33 outsourcing 6, 7, 31 performance management 10, 12, 79, 83, 84, 85 pilot boarding 66, 67 planned maintenance system 83 port agents 65 Port Clearance Certificate (PCC) 71, 72 port formalities and clearances 68, 69 port safety checks 64 port state authorities 120 port state control (PSC) 41, 64, 68, 69, 118; inspections 69, 75, 85, 86, 104 port state jurisdiction 119 port stay operations 67, 68 pre-arrival operations 64 preventive maintenance 81 professional ship management see third-party ship management quality and safety management 87 quality assurance 87 quality management system 87 real-time information sharing 66 reasonable care 51 RightShip ratings 75 role of the ship manager 10, 43, 63 safety and quality 28, 93, 128 safety culture 88, 89, 90

INDEX

safety management certificate 50, 88 safety management system 31, 49, 50, 62, 89, 125 scope of authority 45, 51, 56, 64; actual authority 45; apparent authority 45; ratification 45, 104 seafarer employment agreement 46, 54, 65, 104 seafarer supply countries 102 seafaring profession 9, 17, 19, 24, 101, 105, 106, 108, 129 sea voyage cycle 10, 62, 63, 64, 76 seaworthiness 10, 79, 80, 81 service operation 61 service organisation 61, 77, 87 ship emergency management 93 Ship Energy Efficiency Management Plan (SEEMP) 86 ship manager’s liability 55 ship manager’s responsibilities 45 ship owning 1, 4, 6, 7, 8, 9, 13, 43, 56, 74, 78, 124 ship registration 16 ship stores and provisions 65 shipboard hierarchy 17 Shipboard Marine Pollution Emergency Plan (SMPEP) 94 Shipboard Oil Pollution Emergency Plan (SOPEP) 94 shipboard organisation 78 shipbuilding contract 16 SHIPMAN 2009 10, 44, 45, 46, 47, 48, 49, 50, 51, 53, 54, 55, 76, 78, 98, 126 shipping market 1, 4, 7, 12, 13, 20, 24, 37 shipping market cycles 20

single-nationality crew 110 Standards of Training, Certification and Watchkeeping for Seafarers (STCW) 98, 100, 112, 113, 116, 117, 118 strategic management 24; specialisation strategy 4; strategic choice 7, 9, 103 strategy, positioning 37, 38 Sustainable Development Goal (SDGs) 23, 106 tankers 14 technical coordinator 94 technical management 76 technical performance measures 84 third-party knowledge services 125 third-party ship management 5, 6, 9 total cost of ownership 133 types of ships 4, 9, 13, 24 UNCLOS see United Nations Convention on the Law of the Sea (UNCLOS) United Nations Convention on the Law of the Sea (UNCLOS) 16, 79, 115, 119 US sanctions 121, 122 US Treasury’s Office of Foreign Assets Control (OFAC) 121 vessel maintenance and repairs 68, 70 vessel performance optimisation 128 world fleet 2, 3, 5, 6, 13, 15, 19, 100

165