Inspection Observation Replies

1. Inspection Observation Replies REPLIES TO SIRE (and other) INSPECTION OBSERVATIONS Revised: 13 November 2003

2. Inspection Observation Replies Note: The following presentation represents the policies of Koch Shipping only, and may not reflect the procedures or opinions of any other SIRE user or OCIMF member.

3. Inspection Observation Replies Koch Shipping is an internal service group that charters and operates ships on behalf of Koch entities, for cargoes that are being actively traded en-route.

4. Inspection Observation Replies Assumption: The quality of the owner’s replies to SIRE inspection observations is a measure of owner management quality.

5. Inspection Observation Replies When the SIRE inspector leaves the gangway, the vessel inspection is finished; Now, the vetting of the vessel’s management begins …… !

6. Inspection Observation Replies How is the owner going to be vetted for “fitness”? By the vetting manager’s subjective assessment of the quality of the owner’s replies to observations from his ship’s inspection.

7. Inspection Observation Replies “Fitness”: The vessel, crew and her owners are part of a team of resources that must “fit” together to maximize the profit of the trader’s oil trade (the “deal”).

8. Inspection Observation Replies Some of the players on the team that carries the oil trader’s deal: • cargo scheduler (operations assistant of the trader) • charterer’s vessel operations coordinator • cargo insurance broker and underwriter • charterer’s P&I Club • independent petroleum inspectors • measurement field agents - cargo auditors • port pilots, agents and line handlers • charterer’s chartering manager • vessel, master, officers and crew • vessel owner and technical managers • vetting manager • vessel class society

9. Inspection Observation Replies We are all servants of the cargo trader .. His deals pay for all of our activities. What does he want …….. ?

10. Inspection Observation Replies The trader’s #2 objective: Competitive cost ……. A charter rate that is better than market. What is the trader’s #1 objective ……..?

11. Inspection Observation Replies OPTIONALITY! The ability to deliver the cargo anywhere the ship can safely go.

12. Inspection Observation Replies So the ships that make the most money for us are not necessarily the cheapest … but the ones that are universally accepted. They offer the greatest optionality to the trader.

13. Inspection Observation Replies The amount of money Koch makes on every rejected vessel is: Absolutely nothing! The added-value product of every vetting system is a pool of approved vessels.

14. Inspection Observation Replies Many otherwise acceptable vessels do not pass vetting because the owner’s replies to the SIRE report do not provide “closure” of the indicated conditions. Approval is delayed or denied.

15. Inspection Observation Replies So …. please help me help you get your ship accepted! Send the inspecting company, SIRE (and/or me), deficiency responses that show: acceptance & respect for the system.

16. Inspection Observation Replies Help me help you get accepted! Send responses that show: acceptance & respect for the system. An active Safety Management System that takes every deficiency seriously.

17. Inspection Observation Replies Send responses that show: acceptance & respect for the system. an active Safety Management System that takes every deficiency seriously. a reply that: identifies the root cause of the deficiency fixes the existing cause of the deficiency identifies changes to operating procedures to reduce the chance of the deficiency occurring again.

18. Inspection Observation Replies Some replies which are not accepted: • “Rectified.” ….. (trust me!?) ….

19. Inspection Observation Replies Some replies which are not accepted: • “Rectified.” • “when convenient”… (spending money is never convenient!)

20. Inspection Observation Replies Some replies which are not accepted: • “Rectified.” • “when convenient” • “at the earliest opportunity”

21. Inspection Observation Replies Some replies which are not accepted: • “Rectified.” • “when convenient” • “at the earliest opportunity” • “We have reminded the Master/Chief ...”

22. Inspection Observation Replies Some replies which are not accepted: • “Rectified.” • “when convenient” • “at the earliest opportunity” • “We have reminded the Master/Chief ...” • “The parts have been delivered on board.”

23. Inspection Observation Replies Some replies which are not accepted: • “Rectified.” • “when convenient” • “at the earliest opportunity” • “We have reminded the Master/Chief ...” • “The parts have been delivered on board.” • “He has been cautioned and instructed ...”

24. Inspection Observation Replies A world-class response includes: The observation (SIRE), number and text repeated.

25. Inspection Observation Replies A world-class response includes: The observation (SIRE), number and text repeated. A convincing statement that the root cause has been sought and found - (see: Analytic Trouble Shooting).

26. Inspection Observation Replies A world-class response includes: The observation (SIRE), number and text repeated. A convincing statement that the root cause has been sought and found - (see: Analytic Trouble Shooting). A statement that managers has “objective evidence” that corrective action has been completed,(or will be completed by a stated date), to fix close the item.

27. Inspection Observation Replies A world-class response includes: The observation (SIRE), number and text repeated. A convincing statement that the root cause has been sought and found - (see: Analytic Trouble Shooting). A statement that managers has “objective evidence” that corrective action has been completed,(or will be completed by a stated date), to fix close the item. A statement of preventive measures taken to avoid a repetition of the condition (SMS change, etc.).

28. Inspection Observation Replies “Objective evidence” A document, report, message, completed checklist copy, note, or certificate in your files, that you can show me when I come to visit your offices. Something that “closes the loop” on the deficiency!

29. Inspection Observation Replies The corrective action (ISM), cycle: Identify & record the non-confomity. Find the root cause(s). Develop effective corrective action. Implement the corrective action. Revise procedures. Complete the closure process.

30. Inspection Observation Replies Helpful hint: Refer to specific parts of your Safety Management System whenever possible when writing your SIRE report replies … is shows that you really believe in the process.

31. Inspection Observation Replies Bad example #1 Observation: “The vessel does not have a vapor release response plan.” Reply: “The vessel’s vapor release response plan is included in section 8.3.2 of the vessel’s ISM Manual.”

32. Inspection Observation Replies Bad example #1 Better reply: + Recognizing that the Master was not aware of the location of the vapor release plan within our SMS manual, we sent our superintendent on board 11 Oct 02, and he conducted SMS training with all officers so that they are now fully aware of all contents of our SMS procedures manual.

33. Inspection Observation Replies Bad example #2 Observation: “The main engine is covered with oil.” Reply: “The main engine has been cleaned.”

34. Inspection Observation Replies Bad example #2 Better reply: During the shipyard period Nov 02, we have arranged for a factory representative to supervise work to eliminate all fuel and lube oil leaks from the main engine, after which the engine will be cleaned and re-painted.

35. Inspection Observation Replies Bad example #3 Observation: The IGS oxygen sensor bubbler was found without any water in it while the vessel was discharging. Reply: “The bubbler was filled with water immediately.”

36. Inspection Observation Replies Bad example #3 Better reply: The engineers pre-discharge checklist has been amended to include an item to verify that the IG sensor bubbler is filled to correct operating level prior to starting the cargo transfer. SMS section 13.6, revised 11 October 2002.

37. Inspection Observation Replies Bad example #4 Observation: A June inspection found a C-of-C issued Feb, due in July: “vessel to submit results of stern tube lube oil analysis”. Reply: “Condition of class will be attended to in due course.”

38. Inspection Observation Replies Bad example #4 Better reply: “Stern tube lube oil sample test results were submitted to class on 17 March and Condition of Class was deleted on 22 April 2003. Deletion of C of C will appear on 1 July class quarterly report.”

39. Inspection Observation Replies Good example #1 Observation: “Steering gear emergency reserve tank was found only 1/3 full of hydraulic fluid.” Reply: “Reserve tank was refilled immediately. The engineers weekly checklist has been amended to include an item to “verify steering gear reserve tank is full”.”

40. Inspection Observation Replies So, Saying: “we fixed the deficiency” may no longer be sufficient to close an inspection observation, but …..

41. Inspection Observation Replies Saying: “we fixed the deficiency and we fixed the reason that the observation existed (giving details).” is truly impressive and indicates the presence of an active Safety Management System.

42. Inspection Observation Replies I don’t really want to know: “Did they fix it for BP 6 months ago.” What I want to know is: “Will the problem still be under control when my cargo is on the ship next month?”

43. Inspection Observation Replies All SIRE report replies are important, but reports with a large number of conditions listed deserve special attention by the owner’s vetting manager. More “observations” = less chance of approval:

44. Inspection Observation Replies Koch SIRE report grading system - score distribution: number of report number % of currently % observationsscore of ships total approved approved 0 10 60 5% 40 66% 1 to 4 9 230 18% 185 80% 5 to 8 8 335 26% 235 70% 9 to 12 7 190 15% 115 60% 13 to 16 6 110 8% 40 36% 17 to 20 5 100 8% 35 35% 21 to 24 4 140 11% 0 0% 25 to 28 3 80 6% 0 0% 29 to 32 2 40 3% 0 0% 33 to 36 1 20 2% 0 0%

45. Inspection Observation Replies Summary: Koch uses the owner’s replies to detect the presence (or absence), of an active management system that is necessary to provide a reliable vessel, and a reliable transportation partner, for routine cargo transport AND in the event of an incident.

46. Inspection Observation Replies We also try to detect from the SIRE replies whether or not the owner’s management culture includes a positive, helpful, service-oriented attitude …. always preferring an owner who would rather be “helpful” than be “right” (as in: “stubborn”). Because ….

47. Inspection Observation Replies It is apparent from government initiatives, legal cases and post incident comment, that regulators would like to consider the shipowner and the charterer as co-venturers (partners), in the oil transportation voyage, and jointly responsible for its outcome.

48. Inspection Observation Replies Events which demonstrate this point of view include: Erica Cerda Neptune Dorado September 18, 2002 Prestige - November 2002

49. Inspection Observation Replies Events which demonstrate this point of view include: Erica: owner invisible - charterer took the heat. Cerda Neptune Dorado September 18, 2002

50. Inspection Observation Replies Events which demonstrate this point of view include: Erica Cerda: detained in Europe - charterer was named in the press. Neptune Dorado September 18, 2002