Technical Ship Operations: A Primer

1. 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

3. 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.

4. 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

5. 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.

6. 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.

7. 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.

8. Types of Ships

9. Various Ships--Tankers Aframax LNG ULCC VLCC

10. Sources: Company Information, US Navy League, Yahoo Finance

11. World Fleet Breakdown by Number of Ships Source: Shipping Facts

12. Approximate Total: 2,500 ships in international trade Source: Poten & Partners

13. Ports--Offshore Buoy

14. 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.

15. Major Parties SHIPOWNER CLASS SOCIETIES • Owner • Commercial Manager • Technical Manager • Charterer • Insurance (Hull and P&I) • Flag States • Port States • IMO • Class Societies • Financial Institutions • Media CHARTERER SHIPYARDS CARGOOWNER PORT AUTHORITIES & TERMINALS INSURERS FLAG STATES PILOTS

16. Tanker industry: Responsibility Chain SHIPOWNER CLASS SOCIETIES CHARTERER SHIPYARDS CARGOOWNER PORT AUTHORITIES & TERMINALS INSURERS FLAG STATES PILOTS

17. Commercial Chain

18. 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.

19. 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.

20. 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

21. 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.

24. 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

25. 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.

26. 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.

27. 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.

29. 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.

30. 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.

31. Commercial Chain Focus on the Technical Management

32. 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.

33. 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.

34. 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

35. 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.

36. Ports--F(P)SO/FSU

37. 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

38. Technical Operations Strategic, Tactical and Operational Communications

39. 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

40. 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.

41. 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.

42. 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.

44. 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.

45. 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.

46. Comment on Design • Both were snubbed by the general community: • Icebreaking tankers are currently in vogue. • Return of nuclear in the next decade?

47. 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.

48. 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

49. 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.

50. 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.