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Shipping
MA Course Notes
1 06/02/2013
Chapter 1: Theoretical Analysis
2 06/02/2013
Chapter 1 : Stock and Flow Variables
3 06/02/2013
Chapter 1: Complex market
mechanisms
5 06/02/2013
Chapter 1: Expectations bring new
ship orders
7 06/02/2013
Chapter 1: Shipbreaking checks the
level of the fleet
8 06/02/2013
Chapter 1: Information from the freight
markets adjusts the level of the fleet
9 06/02/2013
Chapter 1: Summary
END OF CHAPTER 1
10 06/02/2013
Chapter 2: Markets and tools
11 06/02/2013
Chapter 2: The main global markets
12 06/02/2013
Chapter 2: The unstable balance of market
forces in freight markets
13 06/02/2013
Chapter 2: Summary
14 06/02/2013
Chapter 3: Marketing of Ship Services
16 06/02/2013
Chapter 3: Investment decisions
Ship values change with the shipping cycle. Ships (assets) are
more liquid during the upper section of the cycle and less so
during the lower part of it.
Important decisions in connection with the Liabilities section of
the balance sheet of the company can increase the profitability
of the company.
Traditionally shipping companies borrow large amounts of
money and base their ability to repay on profitable operations
and careful asset playing with timed sales and purchases of
ships.
Ship lending has generally a longterm character and it is secured
by mortgages and other forms of securitisation.
17 06/02/2013
Chapter 3: Bareboat charter
18 06/02/2013
Chapter 3: Ship investment financing
19 06/02/2013
Chapter 3: Summary
20 06/02/2013
Chapter 4: The Changing Regulatory
Framework
Shipping is highly regulated.
There are specific Producers of rules. These are: International
and Regional.
International: the United Nations and its agencies,
International Maritime Organization (IMO) and International
Labour Organization (ILO), Comite Maritime International,
Organization for Economic Development and Cooperation
(OECD) and so on.
21 06/02/2013
Chapter 4: Regional Producers of
Regulations
22 06/02/2013
Chapter 4: Enforcers of Regulations
There are also those who enforce the rules on ships and
management companies. These are:
The nations (flags) singly, or jointly as members of regional
groups (e.g, the EU).
The regional Memoranda on Port State Control.
The coastal states.
The classification societies acting on behalf of flag states.
23 06/02/2013
Chapter 4: Summary
24 06/02/2013
Chapter 5: Regional Memoranda on Port
State Control
25 06/02/2013
Chapter 5: ISM Code and Port State
Control
26 06/02/2013
Chapter 5: Critical Equipment in Port State
Control
27 06/02/2013
Chapter 5: International Conventions
Compliance in PSC
29 06/02/2013
Chapter5: Criteria for ship detention and
banning
30 06/02/2013
Chapter 5: Summary
31 06/02/2013
Chapter 6: Basic Tools for Quality
Management
32 06/02/2013
Chapter 6: Elements of Marine Insurance
34 06/02/2013
Chapter 6: Damage and Compensation
The insurer will only compensate for damages arising from risks
covered, not otherwise.
Usual risks which are not covered include the following:
Damage from inappropriate behaviour, or willful misconduct of
the insured.
Damage from delays.
Normal wear and tear.
Usual leaks and breakages.
Inherent vice
Rats and bugs
Machinery damage not consequent to maritime peril.
35 06/02/2013
Chapter 6: Forms of Loss
37 06/02/2013
Chapter 6: Marine Pollution
38 06/02/2013
Chapter 6: MARPOL Annexes
39 06/02/2013
Chapter 6: Management of international
pollution incidents
43 06/02/2013
Chapter 6: Hague Visby Rules
The carrier remains liable for claims in connection with the cargo
for one year following completion of discharge.
The vessel and the carrier are exempt of any liability in case the
vessel becomes unseaworthy, on provision of having complied
with the three principal obligations and not having willfully done
so. The burden of proof for this rests with the shipper.
The shipper has no obligation in connection with damage caused
to the carrier or to the vessel without error or omission of
himself or his staff.
Any deviation from the right course aiming at saving lives or
property at sea, or any other reasonable deviation for other
reason is not considered in violation of the rules.
45 06/02/2013
Chapter 6: Calculation of the value of
the cargo.
In case the value of the cargo is not mentioned in the Bill of Lading, and
there is need to determine same for compensation in case of cargo
damage, the liability of the carrier is limited.
The amount of compensation is determined after comparing two values,
of which the highest is taken.
The value is approximated either through the Exchange value of the
cargo, or failing this - on basis of its marker price, or by taking the
usual price of a commodity of this nature taking account also of the
quantity.The above value is taken to apply at the port of destination.
The highest between any of the above three values and 666.67 SDR
parcel, unit of measurement, or kilo of weight (inclusive of packaging) is
the value of the cargo.
46 06/02/2013
Chapter 6: Out of court settlement of
disputes .
The high cost of litigation in UK courts has made necessary the
development of complementary mechanisms of settling
differences.
Arbitration has been the object of UK legislation since 1950
and it is a formal procedure which necessitates the presence of
both sides in the proceedings. Arbitration has become expensive
in recent years and the winning party is given an award .The
award can be challenged or appealed.
Parties often come to agreement in order to avoid publication of
the arbitration outcome for commercial reasons.
Mediation (ADR) is a simpler, cheaper and much faster
method of seeking out of court settlements
47 06/02/2013
Chapter 6: Out of court
settlements..continued
It has been introduced in 1997 and it lasts only one day.
Presence of the parties is not necessary.
It is quite cheap and not antagonistic, it confers no reward, it
has confidential character and all suggestions for settlement are
not obligatory for the participants, unless there is a signed
agreement.
Mediation is already popular in insurance disputes, charterparty
differences etc and it has shown significant growth also in the
Netherlands, Germany and the United States.
END OF CHAPTER 6
48 06/02/2013
Chapter 7: International Shipping
Codes and Corporate Governance
Traditionally shipping legislation has followed big accidents.
International shipping has seen three major codes introduced in
the last ten years.
These are the ISM Code, STCW 95 and the ISPS Code. These
codes have a normative character they tell you how to do
things and therefore they form an integral part of the ethical
background of ship management.
The ISM code has been hailed as a success by the P+I Clubs,
but its introduction has coincided with other major impact
developments I.e. the introduction of the Enhanced Survey
Programme, the strengthening of existing bulk carriers and the
worldwide adoption of the Port State Control.
49 06/02/2013
Chapter 7: ISM Code ..continued
The ISM code licenses ship managers and ships towards safety
management of ships. The office and the ships are obliged to run
according to the Safety Management System that themselves have
developed.
The philosophy of the ISM Code is based on the written reporting of
nonconformities in the application of the SMS.The system works well
when nonconformities are promptly identified, are reported in writing,
become object of corrective action and, do not happen again.
In addition to nonconformities and accidents, near misses also need to
be reported.
The proper application of the ISM code is supervised by the Designated
Person Ashore who provides a direct link of the vessels to the highest
level of authority within the management company.
50 06/02/2013
Chapter 7: Legal implications from the
compliance with ISM
Through the code there are is evidence on a number of very
important aspects of ship ownership and management including
seaworthiness, civil and criminal liability, due diligence in the
context of Hague Visby rules disputes, insurance cover and
compliance with international rules and regulations.
So far insurance companies have been limiting themselves in
asking as proof of compliance with the Code copies of the
Document of Compliance and the Safety Management
Certificate.Deeper investigations of the paper trail generated by
the Code may hold surprises if applied in future as the proof of
matters such as privity and lack of due diligence becomes
easier.
51 06/02/2013
Chapter 7: International Ship and Port
Facility Security Code
Spinoff from the September 11 events the Code aims at making
ships and ports less easy victims of potential terrorist activity.
The philosophy of this Code is similar to that of the ISM Code
and a Security Management System is put into place and
managed in a similar manner.
The legal implications of this Code are by far less severe in
comparison to those of the ISM, but there may be instances of
clashing requirements between ISPS and SOLAS, despite the
former being part of the latter.
52 06/02/2013
Chapter 7: STCW(95) Standards of
Training, Certification and Watch keeping.
As the title suggests this international Code describes the
minimum standards to be observed for training watch keeping
officers and the corresponding certification.
Training institutions are vetted and the various seamen
supplying nations are entered into lists, the highest of which is
the white list.
This international instrument has helped tremendously in
reducing the circulation of fraudulent seamen certificates and
thereby increasing the safety onboard.
53 06/02/2013
Chapter 7: Business Environment and
Business Culture
Three principal factors influence the formation of what is
commonly called Business Culture. These are:
Business objectives which lead to the formation of strategic
plans,
Corporate governance , which includes building tactical plans,
and
Ethical business codes, which directly determine how
functional plans will be made.
The above in combination will shape the philosophy under which
operation manuals are drafted.
54 06/02/2013
Chapter 7: Respecting the Human
Element in Shipping
There are certain rights and obligations for those who work in
shipping.
The rights include fair remuneration, safe work environment,
lack of discrimination and lawful handling of the employees
rights.
The obligations which can also be seen as rights of the
employer include respect of the working hours, cooperation
with other members of the staff, respect of business secrets,
respect of safety regulations and avoidance of doing things
which are against his obligations to the employer (conflict of
interest).
Human error has been identified by the P+I Clubs as accounting
for up to 80% of the accidents.
55 06/02/2013
Chapter 7: Vertical and Horizontal
Business Structure
The traditional model of managing a shipping company comes
straight from the way naval ships used to be run two hundred
years ago and it is characterised by the philosophy of command
and control. It is laid out vertically and vertical also is the flow
of authority.
This pyramidic type of management has certain important
drawbacks and is no longer used in other industries.
Modern management uses horizontal flow of authority and
instead of relying on endless reports to the head of the
organisation, it focuses on reporting of nonconformities only.
The ISM code has introduced important elements of horizontal
management.
56 06/02/2013
Chapter 7: The use of Teams in
Shipping
Training teams has become very important and includes the
following:
Listening
Providing feedback
Creating relations of trust
Analyzing and composing arguments
Resolving disputes
Presentation of own case in short
Be able to attend to solution of technical problems.
The leader of the team assumes the role of the local manager and
is responsible for the good performance of his team.
57 06/02/2013
Chapter 7: Business Ethics
59 06/02/2013
Chapter 8: Strategy and
competitiveness
Shipping is heterogenous and different weights are attributed to
ship characteristics when viewed from different perspectives.
Tankers are assessed differently from bulk carriers, and each
one of these ship types is assigned different priorities is its
assessment from different parties.
Competitiveness is perceived differently from charterers and
owners since the former wants his cargo to be transported
safely and cheaply, whereas the latter wants to make a profit.
Examples are given in the following slides:
60 06/02/2013
Chapter 8: Characteristics of a competitive
bulk carrier as seen from the charterer
61 06/02/2013
Chapter 8: Characteristics of a competitive
bulk carrier as seen from the owner
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Chapter 8: Charterers view of what makes
a tanker competitive.
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Chapter 8: Tanker competitiveness as seen
from the owner
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Chapter 8: Flag competitiveness
65 06/02/2013
Chapter 8: Flag competitiveness
..continued
In the past matters such the abundance of officers and seamen,
the access to banks and freight markets used to be prime
criteria of a competitive registry.
Modern telecommunications and the globalised environment of
international shipping have changed all that.
What seems to matter today is whether a flag is in the White
List of Paris MOU, how profits and personal income are taxed,
how liberalised the flow of funds in and out of the country is,
and so on.
In recent years there has been a big effort to reverse the
fortunes of EU national flags with the introduction of tonnage
tax and relaxation of manning rules.
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Chapter 8: Competitiveness of Management
Company
69 06/02/2013
Chapter 8: Management of
Entrepreneurship
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Chapter 8: Summary
72 06/02/2013
Chapter 9: Outsourcing
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Chapter 9: Finding capital
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Chapter 9: Income and expense flows
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Chapter 9: Survival during freight slumps
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Chapter 9: Summary
END OF CHAPTER 9
79 06/02/2013
Case Study Number 1
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Replacing the EU Short Sea Fleet
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Fundamental requirements of our model
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A model with two variants
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VARIANT 1
Bank financing for the mother company
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VARIANT 1
The subsidiaries
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VARIANT 1
The bareboat charterers
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VARIANT 1
Financial Plan
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VARIANT 2
Leasing Company Financing
88 06/02/2013
VARIANT 2
More on the lessee company
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VARIANT 2
Income sources
90 06/02/2013
IN BOTH VARIANTS
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The way ahead
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Why these ships have stayed around for so
long ?
One reason is the shipbuilding Directives which have disallowed
shipbuilding aids.
Another reason is that dozens of EU shipyards specialising in small
ships have vanished (maybe as a result of the above).
A third reason is that the profit margins of coastal ships are less
than fat.
A fourth reason is that the construction cost of these ships on a per
ton basis is four times the cost of building a panamax sized
ship.
There may be other reasons too.
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Has financing played a part in this
situation?
94 06/02/2013
Stop here to count what we have in hand
so far..
95 06/02/2013
It is evident that if we decide to deal with
the problem, we need to attack it on
several fronts simultaneously.
Ships must be built quickly and cheaply. This calls for
serial/modular construction arrangements using standard
parts.
Construction can be concentrated to fewer yards which
will benefit from scale economies.
Banks must be made to feel comfortable financing their
construction.
Scrapping should assist building.
Charterers should step in to help, or else they will have to
build their own ships (as it has recently happened with a
big oil company in Greece).
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How do we build quickly and cheaply?
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Standard sterns, for example, including
engineroom arrangements and shafting ..
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or common bows, which can be built and
assembled without the need for a slipway.
99 06/02/2013
A standard hull fitted as containership here, if we change
the cargo carrying section we can have a different type of
ship, suitable to carry dry or liquid cargo in bulk.
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How do we cope with narrow profit
margins?
101 06/02/2013
Finally, how do we keep financiers happy?
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more specifically..
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The Short Sea operator who wants to see his ship replaced,
sells his old ship and invests in shares of one daughter
company which builds a standard ship of his choice.
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The same arrangement is followed in all
daughter companies.
105 06/02/2013
Where does the mother company get its
funds from?
106 06/02/2013
In practice
107 06/02/2013
Benefits for all..
109 06/02/2013
The Motorways of the Seas as an
Exercise in Strategic
Management
By Professor Alkis John Corres
European Short Sea Network
Greek Office
110 06/02/2013
The Short Sea Initiative
111 06/02/2013
The concept of the MoS..
is still under development. We cannot talk of a
complete concept yet, nor can we afford
repetition of the same mistakes in SSS.
Firstly: We need to develop it so it does not remain
an empty concept.
Secondly: We need to define the goals
Thirdly: We need to prioritise actions
Fourthly: We must proceed in stages
Fifthly: We must be able to measure progress
112 06/02/2013
Let us further examine these..
The Budget
Nothing moves without a budget. The best way to
fail a project is deny it a budget.
That has been the case in the SSS so far. The
result is slow growth and an average age of EU
SSS cargo vessels in excess of 27 years.
This is the number one requirement for any
serious discussion about MoS.
113 06/02/2013
The lack of goals
While the objective shifting cargoes from roads
to the sea has been clear and with us from
the outset, there have been no short and
medium term goals.
I am seeing this as a consequence of the lack of a
budget.
If there was a budget, there would be a time
frame and control mechanisms.
Goals setting must be part of the early
design of the Motorways of the Seas.
114 06/02/2013
The Shipbuilding Directives..
Not only have wrecked the EU shipbuilding
industry, but
Have left the EU short sea fleet seriously
overaged and commercially weakened at the
mercy of international competition.
The effect of these Directives must be
waved for vessels operating in the EU
Short Sea trades including the Motorways
of the Seas.
115 06/02/2013
Customs procedures for SSS..
..vessels has been a longstanding joke. Another joke has
been the preferential rates for short sea ships in EU ports.
Consider the TIR truck for a moment in the EU carrying
transit cargo, and the EU short sea vessel also carrying
cargo.
The documents needed are tenfold of those for the truck per
box carried. SHIPS SHOULD MOVE IN PORTS AS FREELY
AS TRUCKS IN EUROPE DO.
Zero tolerance on this matter.
116 06/02/2013
As for the ESN
119 06/02/2013
We need performance goals..
121 06/02/2013
..and proceed in stages.
Stage 1: Identification of participating members,
MOUs, agreements, etc.
Stage 2: Business Plan and funding
arrangements.
Stage 3: Approval of Stage 2 and formation of
the MoS management unit
Most of all however we need an EU
Commission approved model of a MoS
management company
122 06/02/2013
The MoS can yield results..
If designed properly
If funded properly
If managed properly
If they offer good services to cargo
If they offer profitable operation to ships
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Case Study Number 3
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