Technical Ship Operations:

A Primer

Presented at
Webb Institute of Naval Architecture
Glen Cove, New York

24 October 2004

Presented by
Peter K. Wallace, ‘93

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2
Outline

• Make a few introductory comments.

• Review ship types and fleet sizes.

• Discuss ships and their operations.

• Describe technical operations.

• Make a few closing comments.

3
Shipping has some Impressive
Statistics
• Functions in a global environment very smoothly.

• 90-95% Operational of total life for typical, well

managed ships. The 5-10% of downtime is for
planned maintenance.

• Ships handle abusive conditions very well.

– Imagine a building the size of the Empire State Building
moving at 20 miles per hour and enduring regular motions of
35° amplitude combined with impact loads

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Focus

• For this presentation we will focus on tankers as the

case example:
– Largest sector of shipping.
– Most mature sector.
– Most available information.
– Generally leads the industry in terms of best practice and
regulatory requirements.
– Dry bulk, which is similar in operation, is second largest
sector

For those entering shipping, other than military, will likely be

working with tankers and dry bulk.

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Outline

• Make a few introductory comments.

• Review ship types and fleet sizes.

• Discuss ships and their operations.

• Describe technical operations.

• Make a few closing comments.

6
Types of Ships
• Tankers: Range in size from 2,000 DWT or so to over 500,000 DWT
– Crude, clean and dirty petroleum products, chemicals, food products, LNG, LPG, water

• Dry Bulk: Range in size from 5,000 DWT or so to 300,000 DWT

– Major Bulks: Grain, Iron Ore, Coal
– Minor Bulks: Other Agriculture, Cement, Fish Meal, Forest Products, Fertilizers, steel products

• Container Ships: Range in size from about 100 TEU to 12,000 TEU

• RORO and RO/PAX: Intermodal, passengers, ferries

• Passenger and Cruise Ships: Small sector, high profile.

• Break bulk: Small ships, common in small ports.

• Inland trading ships and barges: Growing sector

• Specialized Ships: Include anchor handlers, icebreakers, nuclear, drill ships, heavy lift ships.

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Types of Ships

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Various Ships--Tankers

Aframax LNG

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ULCC VLCC
 Representative Fleet Sizes

1,000

900

800

700

600

No. of Ships 500

400

300

200

100

0
COSCO Maersk NYK US Navy Teekay OSG GMC

Sources: Company Information, US Navy League, Yahoo Finance

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World Fleet Breakdown by Number
of Ships

3,165 1,732 General Cargo

5,679 18,150 Tanker
Dry Bulk
Passenger
6,139 Container
11,356 Other

Source: Shipping Facts 11

 Tanker Fleet Breakdown
by Number of Vessels

VL/ULCC
18%
Handysize
33%
Suezmax
11%

Panamax Aframax
13% 25%

Approximate Total: 2,500 ships in international trade

Source: Poten & Partners

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Ports--Offshore Buoy

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Outline

• Make a few introductory comments.

• Review ship types and fleet sizes.

• Discuss ships and their operations.

• Describe technical operations.

• Make a few closing comments.

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 Major Parties
SHIPOWNER CLASS
SOCIETIES
• Owner
CHARTERER
• Commercial Manager
• Technical Manager
SHIPYARDS
• Charterer
CARGO OWNER
• Insurance (Hull and P&I)
• Flag States
• PORT
Port States
AUTHORITIES &
INSURERS

• IMO
TERMINALS

• Class Societies
FLAG STATES PILOTS
• Financial Institutions
• Media

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Tanker industry: Responsibility
Chain
SHIPOWNER CLASS
SOCIETIES
CHARTERER

SHIPYARDS
CARGO OWNER

PORT INSURERS
AUTHORITIES &
TERMINALS

FLAG STATES PILOTS

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Commercial Chain
Cargo Owner

Charterer

Commercial Manager

Technical Manager

Specialty Manager
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Governing Bodies
• International Maritime Organization (IMO): UN organization.

• Classification Societies (IACS, Class): ABS, LR, DNV and others

• Port State: Regulations pertaining to port and country ship is calling.

• Flag State: Regulations pertaining to domicile of the vessel--that is

the country the ship is flagged under.

• NGOs: OCIMF, Intertanko, Intercargo, BIMCO and others.

These organizations form the rules, practices and enforce the same.

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Major Operating Codes
• ISM/ISO: Operating Documentation and Compliance

• STCW: Crew Qualifications

• MARPOL: Pollution Prevention

• SOLAS: Safety and Life Saving

• ISPS: Ship and Port Security

There are many others as well.

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Characteristics of Shipping--
Spill/Emergency Response
• Spill/Emergency Response is a result of OPA ’90 and
other incidents.

• Basic Elements include:

– Engineering
– Salvage
– Media Response
– Cleanup
– Commercial and Liability Response
– Some areas require escort tugs in sensitive areas

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Characteristics of Shipping--Media

• Companies becoming more media savvy than ever

before.

• Media is being courted for commercial, operating,

legal and public relations reasons.

Shipping is no longer the closed club that is beyond the

site of the public.

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Characteristics of Shipping--
Classification
• Purpose: Independent verification of vessel construction and
operation

• Organizations: Class Societies

• Basic Services: Plan Review, Surveys

• Enhanced Services: ISM/ISO, CAP/CAS

• Additional Services: Planned Maintenance, Spill Response,

Additional Analyses

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Characteristics of Shipping--
Financial Markets
• Growing number of publicly traded companies.

• Mergers and acquisitions have been strong for the

past few decades.

• Forcing more accountability and transparency.

Shipping is entering age of being an open and accessible industry.

Shipping’s operating practices reflect this maturing into modern
market dynamics.

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Characteristics of Shipping--
Insurance
• Protection and Indemnity (P&I)—club arrangement
(self insurance)

• Hull and Machinery—more traditional, but somewhat

self insured

• Cargo—traditional insurance.

• COFR and other large lines: Disaster insurance.

Large coverage on small asset base.

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Characteristics of Shipping--Flags
• Flags of Convenience (non-ITF)

• Open Registry (ITF—no other restrictions)

• National Flag—(tight citizenship/build/trade restrictions)

• Paris MOU List shows relative ranking of flag states (US no. 17
behind PRC, Bermuda and Liberia from 2004 list)

Flag State is important for corporate, crewing and trading reasons.

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28
Outline

• Make a few introductory comments.

• Review ship types and fleet sizes.

• Discuss ships and their operations.

• Describe technical operations.

• Make a few closing comments.

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Owners, Operators and Managers
• Shipowners

• Operators

• Commercial Managers

• Technical Managers

• Specialty Managers--Crew Managers

All varieties of operating models are common. Many firms use a

variety of models on a case-by-case basis.

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Commercial Chain
Cargo Owner

Charterer

Commercial Manager

Technical Manager Focus on the Technical Management

Specialty Manager
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Short, Medium and Long Term
Activities
• Short Term--Daily Concerns
– Daily operations to keep the ship moving.

• Medium Term--Occurring in a frame of 3-12 months

– Planning, development and closing of various projects, programs or
efforts that happen periodically or specific events.
– Predominantly foreseeable, but somewhat larger in scope or size
than daily operations can realistically handle.

• Long Term--Anything beyond 12 months

– Business development, long term strategic and tactical efforts.

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Typical Short Term Activities
• Arranging crew changes
• Arranging crew training
• Approving purchase requisitions and placing purchase orders
• Coordinating with charterer the details of port calls and voyage
characteristics
• Coordinating with service technicians, agents or others that are
visiting the vessel
• Coordinating with suppliers and agents for materials

Occurring within the time frame of the next port call or is

otherwise an immediate action item.

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Typical Medium Term Activities
• Preparing for drydockings, Special Survey
• Other Maintenance and Repair planning
• Establishing or reconfirming purchasing frame contracts
• Establishing or reconfirming service contracts
• Arranging charter cover for vessels coming off long term charter
• Planning for phase in of new regulations and charterer
requirements
• Execution of acquiring and disposing of vessels

Occurring in a frame of 3-12 months

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Typical Long Term Activities
• Market shifts
• Crewing contracts
• Influence legislation
• Influence operating practice
• Business Development
• Researching and gauging market shifts

Typically strategic and certain tactical activities, including business

development, liaison activities, corporate planning and arranging long term
contracts.

And almost anything else beyond a 12 month window.

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Ports--F(P)SO/FSU

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Role of Technical Manager

• Technical Manager has concerns of all technical and

operational aspects of ship management.
– Maintenance and Repair
– Crewing
– Procurement
– Operations
– ISM/ISO/Environment and Reporting
– Insurance
– Engineering
– Accounting

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 Outside Parties
Technical Operations Owner
Commercial Manager
Charterer
Port Agents
Strategic, Tactical and
Ship Manager Operational Communications Suppliers/Service
Executive Providers
Financial Institutions
Maintenance and
Repair Shipyards
Operations Class/Regulatory

Crewing NGO/Trade
Organizations
Procurement
Insurance
ISM/ISO/Reporting Ships Media Response
Engineering Operations Sea Staff (shore side)

Accounting Maintenance and Repair

Class/Regulatory

Crewing

Procurement

ISM/ISO/Reporting 38
Technical Ship Management--
Responsibility Lines
• Maintenance and Repair
– Ensure all maintenance and repair requirements are carried out
– Records
– Planning for hull and machinery
– Coordination with crew, suppliers, technicians, engineering, Class,
Flag State and others

• Crewing
– Arrange crew changes and scheduling
– Arrange crew training
– Arrange crew documentation
– Manage crew payroll with accounting and crewing agents

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Technical Ship Management--
Responsibility Lines
• Procurement
– Ensure requisitions are complete and accurate
– Coordinates with M&R and others
– Orders materials
– Arranges material deliveries to meet the ship
– Coordinates with ship and accounting for payments

• Operations
– Coordinates with post fixture team (charterer/commercial) for ship routing,
including bunker calls.
– Coordinates with all departments that have business with ship during voyage and
in port.
– Coordinates customs, port state agents, vetting inspections and others.
– Arranges and coordinates ship agents.
– Main point of contact for all outside parties relating to daily operation of the ship.

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Technical Ship Management--
Responsibility Lines
• ISM/ISO/Environment and Reporting
– Relatively new department (<10 years)
– Coordinates and manages all ISM and ISO documentation, training, audits
and reporting.
– Coordinates and manages all elements related to environmental and quality
records that may or may not be addressed within ISM/ISO.
– Coordinates with the myriad of reports required for owners, charterers, vetting
organizations and others.

• Insurance
– Technical ship managers very often only handle Hull and miscellaneous
insurance such as crew or professional liability.
– Technical ship managers coordinate with Owners and others on P&I claims,
cargo insurance, COFRs and other lines directly worked with Owner or
Commercial Manager.

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Technical Ship Management--
Responsibility Lines
• Engineering
– Very often the “Special Projects” group.
– Supports all groups, particularly M&R and Executives.
– Typically leads new build programs.
– Typically leads on major refurbishment or conversion efforts.
– Very often involved in business processes and business development.

• Accounting
– Typically one of the larger departments.
– Coordinates flow of monies through the appropriate ships and accounts.
– Coordinates cash management.
– Handles crew payroll, material and service invoices, and other fees.

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Outline

• Make a few introductory comments.

• Review ship types and fleet sizes.

• Discuss ships and their operations.

• Describe technical operations.

• Make a few closing comments.

44
Trends in Design and Operation
• Move towards larger containerships. Parcel carriers such as DHL, FedEx and UPS moving
into 3PL shipping.

• Move towards smaller tankers and more product over crude carriers. Partially influenced by
more upstream processing and smaller fields.

• Short sea and inland shipping is expected to grow worldwide.

• Rapid fleet build of LNG.

• More automation--impending crew shortages, particularly of officers

• More planned maintenance and monitoring systems.

• Movement towards heavier scantlings, IACS Joint Projects underway.

Growing world trade is good for shipping.

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Comment on Design

• Both were snubbed by the

general community:

– Icebreaking tankers are

currently in vogue.

– Return of nuclear in the next

decade?

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Trends in Regulation
• Environment--Genesis with Amoco Cadiz and Torrey Canyon

• Safety and Quality--Highlighted with Titanic

• Accountability--Highlighted with Exxon Valdez

• Security is much smaller than overall trends above and has

largely been incorporated within operating practice. Still in
implementation and refinement stages.

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Trends in Regulation--
Environmental Regulations
• MARPOL 73/78 to Segregated Ballast tankes
• MARPOL/OPA ‘90 to Double Hull
• Clean Air Emissions
• Antifouling Coatings
• Ballast Water Treatment/Exchange

Enforced by Port States, Flag States very aggressively

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Trends in Regulation--Quality and
Safety
• Increasing use of and expansion of:
– Vetting: Charterer inspection and approval of vessels.

– CAP: Condition Assessment Program is based on actual

condition of vessel and compares to as-built for structural
and machinery items.

– Transparency: Corporate commercial and operational

responsibility lines clearly defined and documented.

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Trends in Regulation--Accountability
• ISM and ISO. Sarbanes-Oxley for publicly traded firms.

• COFRs and other large lines of policy coverage.

• Aggressive enforcement by Port States and Flag States. Many

previous infractions are now criminal where before they were
considered minor.

• Classification Surveys are increasingly more stringent,

particularly from third special onwards.

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Strengths of Shipping

• Multinational

• Mature

• Physical

• World market with real currency/trading

“When goods don’t cross borders, armies do.”

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Weaknesses of Shipping
• Perceived to be a “Black Art”

• Low Returns (volatile and cyclical industry)

• High Risk

• Large Liability

“The problem is that shipping is like the larger world in which it operates
—an inherently disorderly affair, existing mostly beyond the reach of
nations and their laws, beyond the dikes and coastal horizons, and out
across the open seas. It is not exactly a criminal industry, but it is an
amoral and stubbornly anarchic one. And it admits as much about
itself…”--William Langewiesche

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Recommended Reading

• The Prize, Daniel Yergin and Joseph Stanislaw

• Commanding Heights, Daniel Yergin

• Maritime Economics, Martin Stopford

• The Invisible Billionaire, Jerry Shields

• The Shipbreakers (Atlantic Monthly, August 2000),

William Langewiesche
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The End

Questions?

Peter K. Wallace
e-mail: [email protected]
presentation available on www.knickerbocker-maritime.com

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