FLP2233 Module1 Website

DIPLOMA IN
SHIP MANAGEMENT
2012 / 2013
MODULE 1
Introduction to the Shipping Industry
AUTHOR
Captain Rodger MacDonald

Chief Executive, Azimuth Marine Ltd
Lloyd's and the Lloyd's crest are the registered trademarks of the society incorporated by the Lloyd's Act 1871 by the name of ‘Lloyd's’
CONTENTS
Page No.
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1 HOW THE MARINE INDUSTRY HAS DEVELOPED . . . . . . . . . . . . . . . . . . . 7
1.1 A Brief History of Shipping. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

1.2 Shipping Today. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.3 The Need for Ships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.4 Who is Who in Shipping?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.4.1 The Global Environment and the Creators of Maritime
Treaties and Conventions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.4.2 The National Governments and Lawmakers and Regulators . . . . . . 17
1.4.3 The Ships and their Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.4.4 Supporting Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.5 The Management of Ships Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.5.1 Traditional Management Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.5.2 Outsourcing Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.5.3 Hybrid Management System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.5.4 What are the Reasons for Outsourcing?. . . . . . . . . . . . . . . . . . . . . . 19
1.5.5 Ship Management Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2 WORLD TRADE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.1 How has Trade Developed? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

2.2 The Supply and Demand for Shipping Services . . . . . . . . . . . . . . . . . . . . . . 25
2.3 The Economics of Sea Transport. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.4 The Impact of Transport Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.4.1 Bulk Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.4.2 Break-bulk Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.5 Shifting World Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.6 Market Forces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Diploma in Ship Management 2012 / 2013 (FLP2233) 1-1

Contents Module 1
3 THE MAIN SHIPPING MARKETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.1 The Dry Bulk Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

3.2 The Wet Bulk Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.2.1 Chemical Tankers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.2.2 Liquefied Natural Gas (LNG) Carriers. . . . . . . . . . . . . . . . . . . . . . . . 39
3.2.3 Liquefied Petroleum Gas (LPG) Carriers . . . . . . . . . . . . . . . . . . . . . 40
3.2.4 Other Liquids. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3.3 Container . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3.4 Cruise Ships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.5 Ro-Ro. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.6 Specialist Ships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4 THE WAY SHIPS TRADE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.1 It Starts with the Sales Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

4.2 Liner Trades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.3 Tramp Trades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.4 Bareboat Charters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.5 Time Charters, Voyage Charters, Bills of Lading and Waybills . . . . . . . . . . . 49
4.5.1 Time Charters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.5.2 Voyage Charters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4.5.3 Contracts of Affreightment (COA) . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5 AN OUTLINE OF THE DOCUMENTATION FOR THE

MARINE LINK IN THE LOGISTICS CHAIN . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.1 Cargo and the Transfer of Risk and Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

5.1.1 The Incoterms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.1.2 Documentary Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.2 Cargo Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.2.1 Sales Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.2.2 Certificate of Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.3 Certificate of Inspection, Quantity and Quality . . . . . . . . . . . . . . . . . . . . . . . 56
5.4 Commercial Invoice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
1-2 Diploma in Ship Management 2012 / 2013 (FLP2233)

Module 1 Contents
5.5 Cargo/Customs’ Manifests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

5.6 Certificate of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
5.7 Bill of Lading and Waybills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
5.7.1 B/Ls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
5.7.2 Waybills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.8 Limitation of Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.8.1 Hague, Hague-Visby, Hamburg and Rotterdam Rules . . . . . . . . . . . 59
5.9 Seaworthiness and Cargoworthiness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.9.1 The Term “Carefully to Carry” or Cargoworthiness . . . . . . . . . . . . . . 61
6 AN OUTLINE OF THE LAWS THAT GOVERN SHIPPING’S

LEGAL FRAMEWORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.1 Who Makes the Rules? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

6.1.1 International Maritime Organisation (IMO) . . . . . . . . . . . . . . . . . . . . 62
6.1.2 The International Labour Organisation (ILO) . . . . . . . . . . . . . . . . . . 64
6.2 The Four Pillars of Quality Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.2.1 SOLAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.2.2 International Convention for the Prevention of Pollution
from Ships (MARPOL) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.2.3 Standards of Training, Certification and Watchkeeping (STCW) . . . . 67
6.2.4 The International Maritime Convention . . . . . . . . . . . . . . . . . . . . . . . 72
6.3 Other Key Conventions, Codes and Guidelines . . . . . . . . . . . . . . . . . . . . . . 74
6.3.1 The Load Line Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
6.4 Who can Police the Rules? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
6.5 Flag States, Port States and Coastal States . . . . . . . . . . . . . . . . . . . . . . . . . 77
6.5.1 The Role of the Flag States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
6.5.2 The Role of the Port States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
6.5.3 The Role of the Coastal States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
7 THE WAY SHIPS ARE MANAGED AND HOW THEY OPERATE . . . . . . . . 81
7.1 The Role of Ship Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

7.1.1 Ship Management Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
7.2 A Generic View on How Companies Manage . . . . . . . . . . . . . . . . . . . . . . . . 83

Contents Module 1
7.3 How is Ship Management Structured? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

7.4 A Ship’s Budget Format . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
7.5 What are the Operational Interfaces? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
7.5.1 Fleet Teams and Support Teams . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
7.6 Crewing and Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
7.6.1 Seafaring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
7.6.2 Ship Manning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
7.6.3 Roles and Hierarchy Onboard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
7.6.4 Safe Manning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
7.6.5 International Safety Management (ISM) Code . . . . . . . . . . . . . . . . . 96
7.7 Measuring Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
7.8 Maritime Resource Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
8 WHAT SUPPORT IS AVAILABLE TO THE MANAGEMENT

OF SHIPPING? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
8.1 National Governmental Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

8.2 Naval Architects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
8.3 Shipbuilding Yards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
8.4 Classification Societies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
8.5 Underwriters and P&I Clubs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
8.6 Ship Brokers and Charterers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
8.6.1 Dry Cargo Chartering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
8.6.2 Tanker Broking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
8.6.3 Container Broking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
8.6.4 Sale and Purchase (S&P) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
8.6.5 Where Do We Find Shipbrokers . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
8.6.6 The Baltic Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
8.7 BIMCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
8.8 Banks and Financial Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
8.9 Nautical Training Facilities.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
8.10 INMARSAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
8.11 Trade and Related Associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
8.11.1 The International Federation of Shipmasters’ Associations (IFSMA) . 113

Module 1 Contents
8.11.2 Nautical Institute (NI). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

8.11.3 International Transport Federation (ISF) . . . . . . . . . . . . . . . . . . . . . 114
8.11.4 The International Shipping Federation (ISF) and the International
Chamber of Shipping (ICS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
8.11.5 The International Association of Independent Tanker Owners
(INTERTANKO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
8.11.6 The International Association of Dry Cargo Ship Owners
(INTERCARGO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
8.11.7 The International Association of Lighthouse Authorities (IALA) . . . 116
8.11.8 The International Maritime Pilots Association (IMPA) . . . . . . . . . . . 116
8.11.9 International Association of Classification Societies (IACS) . . . . . . 116
8.11.10 The International Ship Managers Association (INTERMANAGER) . . 117
8.11.11 The International Association of Ports and Harbours (IAPH) . . . . . 117
SUMMARY AND CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
TUTOR-MARKED ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
APPENDIX ONE: A LIST OF SHIPPING COMPANIES . . . . . . . . . . . . . . 122
Shipping Companies Based in Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

Shipping Companies Based in Asia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Shipping Companies Based in North America . . . . . . . . . . . . . . . . . . . . . . 125
Shipping Companies Based in South America . . . . . . . . . . . . . . . . . . . . . . 125
Shipping Companies Based in Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Shipping Companies Based in Oceania . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
APPENDIX TWO: A LIST OF SHIP’S DOCUMENTATION . . . . . . . . . . . . 126
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INTRODUCTION
In our global economy, no nation is self-sufficient. Each is involved at different

levels in trade to sell what it produces, to acquire what it lacks and also to
produce more efficiently in some economic sectors than its trade partners.
Without international trade, few nations could maintain an adequate standard of
living. Most of this trade is carried by sea.
Global trade allows for an enormous variety of resources – from Arabian Gulf oil
to Far East labour rates – to be made more widely accessible. Recent studies
suggest that maritime transport moves in the order of 7.5 billion tonnes per
annum (or 30,000 billion tonne miles) with annual freight earnings of around
US$271 billion. However, with the recent world economic problems the amount
of trade has reduced for the first time in many years. Despite this temporary
setback, it is true to say that without maritime trade and transport, the world
would not function and as the world recovers, trade will increase with new
challenges for the maritime industry.
There are many facets to this interesting and important industry. In the six
modules of this distance learning course you will gain a comprehensive insight
and understanding of the shipping industry and the complex multidisciplinary
nature of maritime trade and transport.
We will also discuss ship operations where we will investigate the four broad
segments of the cargo shipping industry. After examining the different types of
ships we look at the ship’s characteristics as well as the important aspect of safe
manning levels for ships. This is followed by an introduction to onboard
management with a description of the roles of each rank and discipline of
seafarers. This module includes a chapter devoted to international regulations
that govern shipping and a further chapter on how these rules are enforced.
Finally, we introduce port operations and how they serve the shipping industry.
You should by now know the procedure, but let me remind you that by making
full use of the online course forum and following up on the directed learning
suggestions raised at certain points during the course material you have the
potential to maximise your learning experience.

1. HOW THE MARINE INDUSTRY HAS
DEVELOPED
LEARNING OUTCOMES
At the end of this chapter you should:
• Understand the development of the world trade and the

shipping industry
• Identify the key players in the industry
• Understand how ships are managed.
1.1 A BRIEF HISTORY OF SHIPPING
1-001 Maritime trade has an interesting history and some of the earliest findings show
that bronze was made in Egypt using tin that almost certainly came from
Cornwall. This was about 3400 BC. There is evidence that the island of Crete
conducted sea traffic with Spain and England in 1600 BC, and the great port of
Pharos in Egypt was built between 1900 and 1800 BC.
1-002 The Phoenicians became prominent in sea trade, probably using the knowledge
of Cretans who had settled on their coast. The ancient port of Sidon, consisting
of two harbours connected by a water passage, was a typical port operating in
the period around 1250 BC. For the next 400 years until the Greeks gained sea
power the Phoenicians dominated Mediterranean trade.
1-003 Foremost amongst the ancient Greek shipping and trading communities of the
middle Greek period was the island of Rhodes. Firm believers in the freedom of
the seas for all, the seafarers and merchants of Rhodes were already establishing
the beginnings of maritime commercial practice in a way that is still recognisable
today. One of their greatest contributions was the concept of providing for a
common contribution to be made if goods were jettisoned to lighten the vessel
for the common good – general average.
1-004 Although still influencing the way in which we trade today, Rhodian law only
survives in written form through the digest prepared for the Roman Emperor
Justinian. The Rhodian law decrees that if in order to lighten a ship merchandise
has been thrown overboard, that which has been given for all should be replaced
by the contribution of all. (General average is differentiated from particular
average where the loss falls on one person – usually the shipowner, who hopes
to be able to recover under their insurance.)
1-005 The Roman Empire saw a great expansion of maritime trade pushing up into
northern Europe. Part of the shipping activity was in the support of far-flung

How the Marine Industry has Developed Module 1
legions but much was engaged in trade and then, as now, grain played a major
role. By 100 AD, Rome was importing 150,000 tonnes of grain a year, mainly
from a then more fertile North Africa. Roman law recognised the need for finance
and saw the further formalisation of the provision of maritime credit. Loans for
trading ventures were made against the security of the vessel and were only
repaid if the voyage was successful. In 554 AD, Justinian I established standard,
risk-related premiums of 8% and 12%.
1-006 By the Middle Ages, the northern Italian city states, principally Venice and
Genoa, had established well-regulated ways of conducting maritime trade.
Vessels, owned by one or more dedicated shipowners, would advertise them for
trade (much as a common carrier), with the ship’s name and proposed destination
carved on a board and carried round the town on a lance. Merchants would
appoint a supercargo to travel with their goods, and vessels were inspected for
seaworthiness prior to sailing, with the inspector frequently carving a mark on
the planking to indicate how deep he thought it safe to load the vessel – some
500 years before Samuel Plimsoll regularised the practice.
1-007 A charter party of 1263 for a voyage between Porto Pisano and Bugea shows
interesting similarities with modern commercial practice. It required the shipowner
to:
1-008 “provide a vessel in good condition and furnished with tackle and equipment as
specified, together with a crew of 36 skilful seamen (including the master, clerk
and supercargo), and six servants.”
1-009 The master and mariners were to be properly armed and together with the
stevedores were required to take an oath to observe the terms of the contract.
Lightering at his own expense against payment of the customary freight, the
owner undertook to sail within 10 days of contract and to deliver the cargo to the
receivers in Bugea in the same condition “as signed for”.
1-010 Outside the Mediterranean, to the north and east of a Thames/Rhine dividing
line, the Hanseatic League of more than 60 cities, including Lubeck, Hamburg
and Bremen, dominated maritime trade and transportation in a different way.
1-011 One of the premier trading cities, whose name remains with us today, was Visby
on the island of Gotland. During the twelfth century Visby was reported to have
12,000 active merchants and as many vessels – at least until the town was
sacked by the Danes in 1361. The basis of marine insurance, the principle of
spreading the risk, became interwoven into the very fabric of trade.
1-012 Laws and conventions were promulgated to control differing aspects of

maritime trade and transportation and generally took their name from an
important trading city in that particular trading area. The wine trade from
Bordeaux (then an English province) was regulated by the Judgements (or
Rolls) of Oleron, a small island off La Rochelle where Richard I is reputed to
have paused on his return from the Crusades. Promulgated in the latter part of
the twelfth century, they required, among other things, the master to consult
his crew before sailing, recognition of the hazardous nature of the Bay of
Biscay and the Western Approaches to the English Channel. Some of the
provisions of the Judgements of Oleron were incorporated into the “Ancient

Module 1 How the Marine Industry has Developed
Maritime Code of Visby”, produced half a century before the Danes paid their
courtesy call in 1361.
1-013 In the Mediterranean, Barcelona had become a powerful trading centre and, in
1258, published, in Catalan, the Consulate del Mare or Barcelona Ordinances.
Running to 300 chapters, and including the provision that the crew should be
provided with salt meat, bread, vegetables, oil, wine and water, they were still
influencing maritime commercial practice nearly 500 years later; in 1705 they
were translated into Dutch.
1-014 In England, Rhodian law and the Judgements of Oleron were combined under
the rule of Edward II in the Black Book of the Admiralty. Here was a much
closer relationship between cargo and vessel, merchant and mariner. Vessels
were generally smaller, voyages shorter and ownership, or part ownership of
several vessels in partnership, more common. Cargo also tended to move in
smaller parcels spread between more vessels. A measure of commercial
activity during this period of global expansion (as opposed to the current
globalisation), can be seen in the Dutch fleet of 1610. The 17th century is
known in Dutch history as the “Golden Age” because it marked a period of
unprecedented cultural flowering and economic growth in the Netherlands.
New political structures put in place in the 16th century were expanded and
refined and they were dominated not so much by the nobility or the clergy, as
elsewhere in Europe, but by the middle-class elite drawn mainly from the
wealthy merchant families and known in Dutch history as the regent class.
Consequently, political decisions were taken less (as in neighbouring countries
like England or France) with a view to gaining greater power or influence in
Europe or elsewhere in the world, than to promote or safeguard the nation’s
trading interests.
1-015 Amsterdam evolved into the world’s leading port and commercial centre. The key
to its success was its status as an “entrepôt”, indispensable to the selling on,
transhipment, warehousing and processing of imported products. Although still
under the control of Spain (enriched by their plunder of Central and South
America), the Dutch recorded a fleet of 16,000 vessels totalling one million
tonnes and manned by 160,000 seafarers. Little wonder that Sir Walter Raleigh
was moved to comment:
1-016 “Whosoever commands the sea commands trade. Whosoever commands the
trade of the world commands the riches of the world and, consequently, the
world itself.”
1-017 However, by the seventeenth century trading companies were being established
supported by their own fleet of vessels such as the East India Companies of
England, Holland, Denmark, France, Austria and Spain. This started a more
regulated trading pattern and the basis of today’s shipping industry.
1-018 England, at that time, had a protectionist approach to world trade and in 1720,
in exchange for a little financial support (£300,000), the Crown granted a
statutory monopoly to Royal Exchange Assurance and London Assurance as
the only companies authorised to conduct maritime insurance business. The
underwriters of Lloyd’s have survived, since they were operating as individual
“names”. The monopoly was repealed in 1824 with a salutary effect on insurance

An Artist’s Impression of Lloyd’s Coffee House
terms and premiums. However, the early Lloyd’s SG (Ship and Goods) policy
form survived from this time and was not replaced until 1983.
1-019 In the middle of the seventeenth century, England’s growing strength reduced
the maritime influence of Amsterdam’s role as the leading financial centre and
the centre of maritime commerce moved to London. This heralded another
landmark in the development of maritime commercial practice.
1-020 Out of the exchange of shipping information in the coffee houses of the City of
London grew a maritime insurance industry that is generally known as Lloyd’s
– the name of one of the principal coffee houses and meeting places for
shipowners, traders and underwriters. Out of the underwriter’s need for quality
standards grew Lloyd’s Register of Shipping, the first of the classification
societies, and out of the need for information, grew the international network of
Lloyd’s Agents and Lloyd’s List.
1-021 The restrictive practices in maritime insurance gave rise to another maritime
institution that survives today, the mutual hull insurance clubs set up regionally
by groups of shipowners dissatisfied with the rates offered in London. After
1824, the mutual hull clubs became less necessary and went into decline
(although they are seeing a small resurgence today). But, by the middle of the
nineteenth century, the expansion and diversification of trade, together with a
more philanthropic approach to seafarers’ welfare, gave the principle of mutual
insurance a new lease of life.
1-022 The first protection association was formed in 1855, the forerunner of the
shipowners mutual Protection and Indemnity Association of today – the P&I
clubs. During the eighteenth and nineteenth centuries, which started with the
United Kingdom growing in influence as the world’s major trading nation, a
number of events took place that directly affected the development of the
shipping industry.
1-023 In support of the insurance underwriter’s needs another Lloyd’s organisation

was formed. Lloyd’s Register of Shipping inspected and classed ships on their
suitability to undertake a marine adventure, so it was formed to meet the need
of marine insurers and to give a rating of the ships to be covered by hull
insurance. Lloyd’s Register was formed in 1760 and some time later others
followed, such as Bureau Veritas in 1828, the American Bureau of Shipping in
1862 and Det Norske Veritas in 1864.

1-024 In 1807, the British Parliament passed an Act making trading in slaves unlawful.
This immediately meant that American slave ships needed to be able to outrun
British frigates. This gave rise to the development of the fast clipper and heralded
a new dimension in seasonal and long distance trade.
1-025 A major milestone in shipping was the advent of steam which after a slow
beginning lasting nearly 60 years where sail continued to hold the upper hand,
steam propulsion was mainly used as an auxiliary. The end of the Napoleonic
wars in 1815 released around 1,000 vessels on to a changing market and within
four years the Savannah made the first steam auxiliary crossing of the Atlantic.
Its small steam engine and pinewood fuel supply were good for only a part of
the 24-day crossing. For most of the voyage the Savannah relied on a full spread
of sail, but the voyage demonstrated the practicability of steam navigation on the
ocean. (More recently another ship named Savannah was the first nuclear
powered commercial ship. Launched on 21 July 1959, she was in service
between 1962 and 1972.) However, it took until the end of the nineteenth century
before the era of sail was over.
1-026 It was during this period of transition in the last half of the nineteenth century
that famous entrepreneurs started shipping companies that dominated world
trade routes for over a century. These shipping companies built what we would
come to refer to as the merchant navy. Most of those companies are now just a
distant memory. For example in 1856 a Scotsman named William MacKinnon
who had established himself as a merchant in India for 20 years was contracted
by the Honourable East India Company to form a mail service from Calcutta to
Rangoon. Following the Indian mutiny in 1857 the East India Company ceased
to exist and this gave an opportunity for MacKinnon to expand his company. This
concern quickly prospered, and it expanded and reformed as the British India
Steam Navigation Company, destined to become in the 1930s the largest
shipping company in the world, known everywhere as the BI.
1-027 Another example was the enterprise of two brothers Alfred and Philip Holt who
set up a new enterprise in 1865 to establish a shipping service from Liverpool
to China. So in April 1866 the Agamemnon, which was a square-rigged barque
powered by high-pressure compound engines, sailed for Penang, Hong Kong
and Shanghai. This was the start of the Ocean Steamship Company and was

remarkable as was, at the time it undertook it, the longest steamship non-stop
voyage from Liverpool to Mauritius before refuelling. Many more similar accounts
can be found during this period and of course the transatlantic liner trade has
been well documented, particularly the tragic voyage of the Titanic.
1-028 At the beginning of the twentieth century international shipping was dominated
by Britain which owned almost 50% of the world’s registered tonnage. However
at this time in Svendborg, Denmark, a family of seafarers was engaged in
forming their own steamship company. It took some time and persuasion, but in
1904 their new company purchased a steamer called Ada, renamed it Svendborg
and AP Moller’s venture began, going on to become today the largest shipping
company in the world.
1-029 So steam became the future of shipping at the end of the nineteenth century and
the age of King Coal and a worldwide network of bunker ports and established
agents were opening. These developments, together with a peace-time need to
administer global empires (England, France, Holland and Germany) that relied
increasingly on a regular postal service, gave impetus to a growing network of
scheduled liner services. This was enhanced by gold-rush fever in the middle of
the nineteenth century, with the resultant flood of people from the old world
(Europe) to the new. Between 1850 and 1860 the population of Australia grew
from 404,000 to 1,100,000 and by 1880 half a million emigrants a year were
arriving in North America.
1-030 Naft had been known in Arabia for thousands of years and accounted for the
eternal flames of Egypt, Persia, Greece and Rome. It was not until 1854, when
the Rock Oil Company drilled its first well in Pennsylvania that commercial
exploitation really commenced. The American well was followed by drilling in
southern Russia. In 1877, the first tankship sailed in the Caspian Sea, and the
first ocean tanker was delivered in 1886.
1-031 According to Lloyd’s Register, by 1911 there were 280 vessels carrying bulk oil
in the service of an industry which was to generate new commercial and legal
challenges. Nevertheless, even in this totally new demand for maritime
transportation, the bill of lading, the mate’s care and attention and the master’s
signature and authority remained central factors in the trading transactions that
generate the fundamental basis for shipping.
1-032 Black Gold, in challenging King Coal, had another effect on shipping and life at
sea. When the Mauritania was converted to oil and her many boiler fires
eliminated, so were the jobs of 270 of her 300 engine room firemen.
1-033 From 1914 to 1945 the industry faced two world wars with a worldwide
depression in between. There were considerable losses during World War II and
those commercial shipping companies that survived had considerable rebuilding
to do between 1945 and 1955. Old links with trading partners had to be rebuilt,
but the wars had left their mark and colonial rule was coming to an end. In time
this would mean an end to European and American domination of sea
transportation.
1-034 Around 1960, a majority of ships, whether tramping or engaged in the liner
trades, were owned and operated by what may be described as vertically

integrated companies. In other words, the ownership and the commercial and
technical management including, crucially, the crewing of the ships, was
undertaken by a single entity; be it an independent shipowner or a division of a
larger organisation (such as the oil companies).
1-035 At this time, container ships of up to 1,000 TEU (twenty-foot equivalent units),
were replacing five or six conventional break bulk cargo ships on the main liner
routes. Since then capacity has increased to in excess of 12,000 TEU in ships
with an average speed of over 20 knots (as opposed to the 16–18 knots of the
liner vessels of 1960–1970).
1-036 This vertical management structure has important implications that still affect
ship managers today, and indeed, this model is still followed by a number of
highly successful ship operators. One of the key benefits of this structure is a
strong company ethos and a well-understood organisational structure. It also
encourages continuity of employment (especially for sea staff) and a strong
training programme that leads to professionalism and loyalty. Working together
the company has the ability to foresee changes in technology and trading
patterns and, of course, access to finance.
1-037 However competitive pressures were hitting the older established companies.
Changes in the balance of world trade and a growing nationalism in the Third
World brought about a major rethink in how ships could be managed, and they
could not overlook the availability of cheap labour.
1-038 A further key point of the integrated system of management was its contribution
to the overall ethos of safety. There was a sound relationship between the
national flag state and the nationally based shipping company. One benefit of
this arrangement was that safety standards were well understood and levels of
training were relatively high. The proliferation of horizontally integrated or
networked shipping operations had a weakness that saw the increase in flags of
convenience (FOC). The surge in FOCs was partly caused by the reluctance of
some national authorities to move in pace with the changing technological and
commercial pressures.
1-039 During the last 50 years technology, both within and outside the industry, has
had a major impact. One obvious external factor is the growth of aviation,
heralding the age of long haul, mass transport. This, over a period of a few years,
removed the demand for major passenger liners. At the same time, the first
class, international mail service transferred from sea to air and dealt a further
blow to fixed schedule liner traffic. This effect on the liner trade was compounded
by the introduction of containerisation.
1.2 SHIPPING TODAY
1-040 Today, it is argued that 90% of international trade is carried by sea.

Unfortunately during the period from mid-2008 to 2010 there was a serious
economic meltdown in the financial markets that inevitably slowed down
growth. In October 2008, the world witnessed banks failing and therefore not
doing what banks are supposed to do which is to lend money to help develop
industries.

1-041 As a result of this, public confidence declined and this had a negative impact on
retail selling. The inevitable result was a drop in demand for companies to purchase
and transport goods from manufacturing areas, particularly in the Far East. In turn
the manufacturing countries cut their orders for bulk materials such as ore and
coal and the dry bulk trade was affected by dramatic cuts in charter rates, as well
as prices of commodities that supply the manufacturers falling sharply.
1-042 At the same time the energy markets also suffered with crude oil prices halved
in value after their peak in mid-2008. It is important to understand that trading
patterns are cyclical. In 2009 world trade is experiencing the downward trend
after an incredible 11-year growth. However, there are optimistic signs from
China that growth is showing a positive return.
1-043 For the shipping industry, time is a constant problem. As we have seen, the
recession which has had a major downward effect on trade happened remarkably
quickly. The earliest signs were in mid-2008 and yet by October that year charter
and freight rates had dropped dramatically. But it takes from three to six years
from planning a ship to having it delivered for commercial use. This delay causes
a cyclical swing in the supply and demand requirement for shipping and at this
time we are witnessing large numbers of ships being delivered from Far Eastern
shipyards into a depressed shipping market. This problem is exacerbated by
fierce competition driving down the freight rates. On the other hand, it has
increased the number of older ships being scrapped, and some may argue that
this was long overdue. One thing is for sure; the market demand for shipping will
eventually increase and follow. Whilst it is difficult to predict the future, recent
history is worth studying to see how the markets change and view their effect on
the shipping industry.
1-044 The following graphs show world GDP against sea trade growth and you will
notice that sea trade follows GDP although it sustained a little longer than usual
until its dramatic fall in October 2008.

Compare the Growth in World Seaborne Trade against the Growth in World GDP below. Whilst the
seaborne estimation is optimistic there is no doubt that the two are related.

1.3 THE NEED FOR SHIPS
1-045 The world is totally dependent on shipping. Whilst the world output growth for
2006 and 2007 was around 5%, it is projected by the IMF that the global
economy in 2010 will only reach 1.9%, yet seaborne trade continues to grow,
albeit at a slower rate of 3.8%.
1-046 Furthermore, the tendency of the growing seaborne iron ore and coal trade was
confirmed in 2007 as well. The production of pig iron for instance rose by 17.8%
in 2007. Oil shipments are largely affected by demand patterns in North America,
Japan and Mediterranean countries, as these regions depend to a large extent
on seaborne crude oil imports. In 2007, the most important export regions for
coal shipments were Australia and Indonesia followed by China. However, recent
analysis shows that this growth has slowed significantly and appears to have
plateaued during 2008 at slightly higher than 2007.
1-047 The strength of maritime transport does not rest on its speed, but on its capacity
and on the continuity of its traffic. Railway, road and air transportation are simply
not able to support traffic at such a geographical scale and intensity. Maritime
shipping has seen several major technical innovations aiming at improving the
performance of ships or their access to port facilities, notably in the twentieth
century.
Directed Learning:
From researching on the internet you should be able to obtain trends in

the freight market. The Baltic Dry Index is a good place to start. Google
BDI for instance; from there you should be able to trace trends in
commodities container rates and liquid bulk trends. Use this information
to see how these trends may impact on your chosen shipping
company.
1.4 WHO IS WHO IN SHIPPING?
1-048 Shipping is a complex industry and has many stakeholders. Outside the sphere
of the ship operators there are four key spheres of influence.
1.4.1 The Global Environment and the Creators of Maritime Treaties and
Conventions
1-049 Having an overall influence in the industry is the global environment and the
international bodies that create treaties. There are three organisations. Firstly
the United Nations which created the United Nations Convention on the Law of
the Sea (UNCLOS). It is this convention that gives authority to the International
Maritime Organisation (IMO).
1-050 IMO is based in London and mainly through the consensus of over 160 nations
creates treaties, conventions protocols and codes.

1-051 The International Labour Organisation (ILO) is a third body that creates
conventions focused on the seafarers’ welfare and social conditions.
1-052 In both IMO and ILO there are influencers providing technical and practical
inputs to the discussions. The NGO attending the meetings such as IACS; ITF;
ISF; IFSMA; Intertanko; intermanager; Greenpeace; FOTE have no voting power
but do provide powerful lobbies to represent the industry.
1-053 IMO and ILO delegates will also be influenced by the voice of the media and the
public at large.
1.4.2 The National Governments and Lawmakers and Regulators
1-054 International Conventions are by themselves not law. Each Convention Protocol
and code must be ratified by the Governments of each state to become law in
that country. Each country forms an Administration to implement the shipping
legislation; for example, UK’s Maritime and Coastguard Agency (MCA). These
administrations can be referred to as the flag State and they also take on the
responsibility of coastal State and Port State control.
1.4.3 The Ships and their Customers
1-055 Ships are built because there is trade or a service to be provided, and they are
designed and built to standards set by IMO conventions and the rules of
Classification Societies. The ships will be registered under a flag State and
operated under the laws of that State. The ship owner is responsible for
registering the vessel but who is the owner?
1-056 The owners may be sole or corporate owners or they may be remote owners such
as banks. In the latter case they will delegate the operational responsibility by
“bareboat” chartering. The Bareboat Charterer will become the demise owner.

1-057 The owner or demise owner decides on how the ship will be used and is
responsible for its liabilities, and of course will also benefit from the revenue it
gains.
1-058 Shipping is a derived market. That is to say that having a ship does not on its
own create a trade. The trade will dictate the amount and types of ships that are
required. There are buyers and sellers in international trade and either one may
use shipping to transport their goods. We call this group the shippers. It is
important to recognise the importance of the shippers and the ship owners’
difficulty is that the markets can change overnight (remember 2008); we are
designing ships to trade for 25 years on average.
1-059 The cargo owner can, and frequently does, change during the course of the
voyage. A ship manager will need to know whether he is providing a service for
the buyer or the seller, the shipper or the receiver, the consignee or even one of
a number of intermediaries who may have taken and resold title in the cargo
during the course of a given voyage. Therefore, the ship manager needs an
understanding of the way in which cargoes are bought and sold and how
maritime transport is contracted.
1-060 There are numerous other services ships provide such as support vessels in the
offshore exploration and production industry.
1.4.4 Supporting Groups
1-061 Many organisations that provide services to the maritime industry, especially
those of a commercial nature, can represent the interests of the international
trader as well as the shipowner or manager.
1-062 Mariners will be aware of the essential service ships’ agents provide in creating
the link between ship and port. Some ships’ agents are also appointed as
Lloyd’s Agents to support the London underwriters. Another important group for
ship management is the International Ship Managers’ Association (ISMA). We
discuss ISMA’s Code of Management in Chapter 8.
1-063 While there are other major maritime centres that are more closely involved with
the operational aspects of shipping, London holds position as a major centre
because English law is the basis of so much of maritime law. Closely allied to
this is London’s role as a major centre for maritime insurance.
1-064 The key area of support groups for the ship managers may be listed as follows,
and will be explained in Chapter 8.
Naval Architects
Ship Building Yards
Classification Societies
Underwriters and P&I Clubs
Ship Brokers and Charterers

BIMCO
Banks and Financial Institutions
Nautical Training Facilities.
Directed Learning:
Select a shipping company close to your region or one that is well known
to you. During the directed learning sections of this module we will
research more deeply into its activities.
Using the internet research the history of this company and discover the
trades that it is engaged in. Is this company primarily involved in the
tramp or liner trade?
1.5 THE MANAGEMENT OF SHIPS TODAY
1-065 There has been a trend over the past two decades for the beneficial owners of
a vessel to sub-contract part or all of her management and operation. This
divergence of responsibility has played a central role in the implementation of
the International Safety Management (ISM) Code. This is discussed in more
detail later in this module.
1-066 There are three management models in shipping and ship owners will generally
opt for one of the following:
1.5.1 Traditional Management Model
1-067 This is a fully integrated, in-house management system by the ship owner.
1.5.2 Outsourcing Management
1-068 Fully contracted-out management is when all the day-to-day technical, crewing,
accounting and financial functions are performed by a specialist supplier. The
suppliers of the service are Ship Management Companies.
1.5.3 Hybrid Management System
1-069 Partial outsourcing of selected functions, including joint venture capital

relationships.
1.5.4 What are the Reasons for Outsourcing?
1-070 There are many reasons for the growth of outsourcing and the subsequent
growth of ship management companies. In general, it is one or a combination of
the following:

• Cost savings (based on scale economies)
• Flexibility (freedom to invest/divest and diversify)
• Benchmarking
• Hassle factor (increasing regulations, inspection headaches)
• Inadequate in-house expertise (financial ship owners).
1-071 The globalisation of trade and finance and economic pressure to reduce vessel
operating costs frequently find its expression in an unremitting search for lower
manning costs. A direct effect of this has been that established corporate or
company values have been replaced by contractual relationships having varying
degrees of effectiveness. A major effect of this trend is to make the ship’s master
the servant of many different masters. It is important for the master to know where
responsibility, and authority, for different aspects of a vessel’s operation lie.
1.5.5 Ship Management Contracts
1-072 The Baltic and International Maritime Council (BIMCO) Standard Management
Agreement (Shipman) is one of the most commonly used contracts for engaging
ship managers. Under Shipman the vessel’s overall operation is divided into ten
functions. These are as follows:
1.5.5.1 Crewing
1-073 Undertaken by either, manager or owner and from their own resources or under
the auspices of a crew manager. Indeed more than one crew manager may be
involved and it is not uncommon for the master and senior management team to
be direct employees while the rest of the crew is hired through sub-contractors.
Among other things, a ship manager is required to ensure that the crew is familiar
with the vessel and its operation and to know how well the crew can communicate
between themselves and be fully aware of their level of competence. As well as
being aware of their general level of competence, a ship manager is required to
ensure that the crew is familiar with and qualified for the particular type of vessel
and its trade; in other words, that the crew they are relying on is fit for purpose.
1.5.5.2 Technical Management
This includes:
• supervision of the maintenance, repair and general efficiency of the vessel,
• the provision of stores and spares,
• ensuring that all the vessel’s international trading certificates are in order
and that the vessel meets international and national safety standards,
• insurance.
1-074 It is important for the ship manager to know who it is that is insured and also who
is co-insured or named on the policy (for example, owner, manager, bareboat

charterer) and whether the insurances are assigned to a bank under the terms
of a loan agreement. This applies to both loss or damage risk insurance (hull and
machinery) and liability insurance (protection and indemnity).
1.5.5.3 Freight Management
Important aspects of freight management are:
• the provision of voyage orders and other information to enable the master
to plan and undertake the voyage,
• the provision of voyage estimates and accounts,
• the calculation of hire and freights, despatch and demurrage,
• the arrangement of the correct collection and payment of all charter hire
and freight monies.
1.5.5.4 Accounting
The ship manager is required to:
• establish a proper accounting system; and
• maintain accountancy records.
1.5.5.5 Chartering
1-075 In accordance with owner’s instructions, to “…provide chartering services which

includes but is not limited to seeking and negotiating employment for the
vessel…”.
1-076 Although closely allied to freight management, the chartering function may be
undertaken by a separate organisation with the owner frequently keeping close
control of this activity. Poor co-ordination or co-operation between fixture
(chartering) and post-fixture (freight management and vessel operation) can and
does give rise to mistakes and disputes.
1.5.5.6 Vessel Sales and Purchase
1-077 Whether working for a shipowner or as a ship manager, the sale and/or purchase
of a ship is a major project activity where many strands need co-ordinating in
order that the purchase (or sale) price can be safely exchanged for the bill of
sale giving title in the ship. At the same time, the physical asset, the ship, has to
either be handed over in the contractually described condition or taken over and
rapidly made into an efficient working unit.
1.5.5.7 Provisions and Bunkering
1-078 Bunkering requires careful planning by the ship manager both in order to achieve
competitive prices without cutting out cargo deadweight (since bunker prices

vary both regionally and with the market) while at the same time ensuring
satisfactory quality.
1.5.5.8 Operation
1-079 Both freight management and operational management require a comprehensive

understanding of commercial shipping and the ability to issue clear and concise
instructions.
SELF-ASSESSMENT QUESTION
Do you think the pendulum has swung too far in the direction of “horizontal
management”?
Give three reasons to support your answer.

2. WORLD TRADE
LEARNING OUTCOMES:
• Understand how trade developed
• Identify the key players in the industry
• Understand how ships are managed.
2.1 HOW HAS TRADE DEVELOPED?
1-080 Electronic-based connectivity since 1995 has led to the networking of service
providers around the world. Shipping has made a major contribution to global
standards of living. Having argued that trade is the foundation of international
economic well-being, the bulk of which goes by sea, where is this trade?
1-081 Over the past 15 years trade liberalisation, in conjunction with sharply declining
communication and transportation costs, has caused a sharp increase in the
tradable goods portion of world output. At the same time the explosion in
e-based connectivity since 1995 has led to the networking of service providers
around the world. As a result, rapidly expanding trade in both goods and services
has become an increasingly powerful engine in driving dynamic growth around
the world.
1-082 World merchandise trade in 2009 was estimated to be worth 12 trillion US

dollars per annum.
1-083 By far the greatest amount of seaborne commodities are carried in bulk with
crude petroleum far ahead of the others as can be seen in the above chart
showing the top ten commodities.
1-084 However the picture changes somewhat when looking at the value of commodities
carried.
1-085 The predominant movement of trade has historically been in the West–East
direction. Until the latter part of the twentieth century Europe and the USA
supplied the developing world with manufactured products using raw materials
imported where necessary from the Third World. In the post-Korean war era,
Japan started to produce high-quality products at competitive prices and rapidly
became a leading industrial nation with one of the highest gross national
products in the world. South Korea followed and car manufacturing, ship building
and the development of new high-quality electronic equipment moved to the Far
East. However, it was the sudden emergence of China as a major manufacturing

World Trade Module 1
Illustration Indicating Seaborne Commodities by Tonnes
Illustration Indicating Seaborne Commodities by Value

Module 1 World Trade
country in the 1990s that saw the world become almost dependent on China to
provide finished products at remarkably inexpensive prices to meet the needs of
the affluent nations in the West.
1-086 According to the November update of IMF’s World Economic Outlook, the global
GDP growth was corrected by –0.2% for 2008 and –0.8% for 2009 versus the
projections published in the October issue. The emerging markets are performing
visibly better and still reached 5% in 2009.
1-087 On the one hand, high commodity prices helped to improve the financial situation
of certain countries, but on the other hand, high energy and food prices also
increased inflationary pressure worldwide. The current instability in oil prices
adds to this pressure. Nevertheless international trade depends on shipping.
2.2 THE SUPPLY AND DEMAND FOR SHIPPING SERVICES
1-088 In spite of the recent downturn, the previous pages should have demonstrated
that the world is totally dependent on shipping. Whilst the world output growth
for 2006 and 2007 was around 5%, it is projected by the IMF that the global
economy in 2010 will only reach 1.9%, yet seaborne trade continues to grow,
albeit at a slower rate of 3.8%.
1-089 Furthermore, the tendency of the growing seaborne iron ore and coal trade was
confirmed in 2007 as well. The production of pig iron for instance rose by 17.8%
in 2007. Oil shipments are largely affected by demand patterns in North America,
Japan and Mediterranean countries, as these regions depend to a large extent
on seaborne crude oil imports. In 2007, the most important export regions for
coal shipments were Australia and Indonesia followed by China. However, recent
analysis shows that this growth has slowed significantly and appears to have
plateaued during 2008 at slightly higher than 2007.
1-090 The strength of maritime transport does not rest on its speed, but on its capacity
and on the continuity of its traffic. Railway, road and air transportation are simply
not able to support traffic at such a geographical scale and intensity. Maritime
shipping has seen several major technical innovations aiming at improving the
performance of ships or their access to port facilities, notably in the twentieth
century.

2.3 THE ECONOMICS OF SEA TRANSPORT
1-091 The basic principles of economics will state that the origin of everyone’s
economic action is the production to satisfy their needs, but nobody can do
everything – which results in specialisation and therefore trade. Production and
trade are accordingly linked together by an organisation of the economic society
(either national or international).
1-092 Economic theory of trade has shown for a long time that differences in factors of
production give some producers either an absolute or a comparative advantage
over other producers of the same product. Production is not an end in itself;
production implies trade because the product has no value on its own. For
example, coal has no value in simply being mined; it only becomes valuable
when it is carried to the market where the consumers will buy and use it.
1-093 Absolute advantage concerns the quantities of a single product that can be
produced using the same quantity of factors of production in two different places.
The producer who can produce at a lower cost will have an absolute advantage.
For example, some countries who produce crude oil or iron ore have an
advantage because of their natural resources, while other countries who make
planes or cars have an advantage because of their professional skills and
education in new technologies, and some countries have an absolute advantage
in agricultural products because of their favourable weather conditions. For
example, we cannot grow bananas (naturally) in Northern Europe.
1-094 This also applies to the service industry. Ships manned with low-cost crews have
an absolute advantage on fleets manned with expensive crews provided the
technology is similar. But let us consider comparative advantage. Even if every
country could produce many products or services, one will have more advantages
for some products than for others. This fact progressively leads to specialisation
and therefore on to trade between different producers and consumers.
1-095 Provided the cost of transport between A and B is not too high, trade increases
between A and B. The essential condition for this can be defined by the simple
formula:
Ct < Ca – Cb
where Ct is the cost of transport, including sea transport and port costs
Ca: cost of production in Country A
Cb: cost of production in Country B.
1-096 The maritime transport cost, including all other logistic costs is, therefore, a
determining factor in the development of trade.
1-097 An important feature of the economics of shipping relates to its capital costs.
Because of their size, ships represent a significant capital outlay. Cruise ships
represent the most expensive class of vessels, with the Queen Mary 2 costing
US$800 million, but even a large container ship has initial capital outlays of
US$100 million. The annual cost of servicing the purchase of these vessels
represents the largest single item of operating expenditures, typically accounting

for over half of the annual operating costs. The main advantage of maritime
transportation is obviously its economies of scale, making it the cheapest per
unit of all transport modes. On the other hand, maritime transportation has one
of the highest entry costs of the transport sector. Typically, a ship has an
economic life between 15 and 20 years and thus represents a significant
investment that must be amortised. For instance, a Panamax containership can
cost US$50,000 per day to operate with most of the expenses related to fuel and
port charges. The operation of the maritime transport system requires financing
that can come from two sources:
1-098 Public. The public sector is commonly responsible for guidance infrastructures
(beacons and charts), public piers, dredging, and security and in several cases
of the administration of ports (under the umbrella of port authorities).
1-099 Private. The private sector is mostly concerned about specific facilities such as
piers, transhipment infrastructures and ships, which are commonly owned by
private maritime companies.
1-100 In the past, governments have intervened, often massively, in the maritime
sector to fulfil different goals such as economic development, national defence,
prestige, balance of payments, and the protection of the national industry. To
reach those goals, governments relied on methods such as regulations,
subsidies, national fleets, preference of cargo and ports of entry. Cabotage*
regulations have been one of the privileged measures to protect the national
maritime transportation industry.
1-101 The Merchant Marine (Jones) Act of 1920 implemented cabotage regulations for
freight in the USA. The shipping industry has a very international character. This
is reflected particularly in terms of ownership and flagging.
2.4 THE IMPACT OF TRANSPORT COSTS
1-102 Maritime transport costs are conventionally considered in two categories:
1. bulk cargo and
2. break bulk cargo.
2.4.1 Bulk Cargo
1-103 This refers to freight, both dry and liquid, that is not packaged such as minerals
(oil, coal, ore and grains). It often requires the use of specialised ships such as
oil tankers as well as specialised transhipment and storage facilities.
Conventionally, this cargo has a single origin, destination and client. It is also
prone to economies of scale. In a voyage charter the charterer is hiring space
on the vessel to carry a particular cargo rather than the vessel itself. Under a
voyage charter the remuneration paid to the owner is known as “freight”.
*Cabotage. Transport between two terminals (a terminal of loading/embarkment and a terminal of unloading/disembarkment) located in the same country
irrespective of the country in which the mode providing the service is registered. Cabotage is often subject to restrictions and regulations. Under such
circumstances, each nation reserves for its national carriers the right to move domestic freight or passenger traffic.

2.4.2 Break-bulk Cargo
1-104 This refers to general cargo that has been packaged in some way with the use
of bags, boxes or drums. This cargo tends to have numerous origins,
destinations and clients. Before containerisation, economies of scale were
difficult to achieve with break-bulk cargo as the loading and unloading process
was intensive labour and time consuming. Freight can be calculated in several
different ways, for example, weight, volume and special requirements for the
cargo and so on.
1-105 Shipping has traditionally faced two drawbacks. It is slow, with speeds at sea
averaging 15 knots (26 km/h). Secondly, delays are encountered in ports where
loading and unloading take place. The latter may involve several days of
handling when break-bulk cargo is concerned. These drawbacks are particularly
constraining where goods have to be moved over short distances or where
shippers require rapid service deliveries. However, technical improvements
tend to blur the distinction between bulk and break-bulk cargo, as both can be
unitised on pallets and increasingly in containers. For instance, it is possible,
and increasingly common, to ship grain and oil, both bulk cargoes, in a
container. Consequently, the amount of containerised freight has grown
substantially.
1-106 Size is also a major contribution to the economics of maritime transport. Each
time the size of a ship is doubled, its capacity is cubed (tripled). For shipowners,
the rationale for larger ships implies reduced crew, fuel, berthing, insurance and
maintenance costs. The largest tankers (ULCC) are around 500,000 dwt
(dominant size between 250,000 and 350,000 dwt), while the largest dry bulk
carriers are around 350,000 dwt (dominant size between 100,000 and 150,000
dwt). The only remaining constraints in ship size are now the capacity of ports,
harbours and canals to accommodate them.
1-107 It is the same with container ships. Due to the basic maritime economics, large
ships, such as the Emma Maersk offer significant advantages over long
distances. Shipping lines will obviously try to use this advantage over their long-
distance routes, keeping smaller ships for feeder services. In addition, a large
enough number of ships must be allocated to insure a good frequency of service.
Ports must adapt to this change in capacity.
1-108 It has been the development of larger tonnage and the container industry that
has had a dramatic effect on reducing the cost of transportation.

1-109 This can best be demonstrated by the following list of products and their
transport costs.
• US$ 0.05 per litre of gasoline price paid at the pump
• 1.4% of retail price of a TV set
• 1% of shelf price of a kilo of coffee
• 0.3% of retail price of a bottle of whiskey
• 1 cent for a can of beer.
2.5 SHIFTING WORLD MARKETS
1-110 Geographically, maritime transportation has evolved over the last four decades
especially through growth in trans-Pacific trade. By establishing commercial
linkages between continents, maritime transport supports a considerable traffic
that covers 90% of the intercontinental transport demand of freight.
Top 13 Exporters (Seaborne Tonnes)
Top Importers (Seaborne Tonnes)
1-111 The measurement of seaborne tonnes combines the weight of the cargo with
the distance the vessel travels on a voyage. As bulk cargoes account for the vast
majority of the cargo carried, then the above graph, which at first may be

surprising, bears logic. Australia exports huge quantities of ore and coal to
Europe and the Far East. Brazil also exports ore mainly to China. The major oil
producing nations such as Saudi Arabia, Indonesia, Venezuala, Mexico and the
UAE obviously export large quantities of liquid bulk cargoes. Canada and the
USA have large grain exports.
1-112 It is not surprising that the leading economies of the world are also the largest
importers. However, Japan, China and Korea imports predominantly raw material
and energy, whilst the USA and Europe also import finished goods from the Far
East.
2.6 MARKET FORCES
1-113 Supply and demand are the forces that make markets work. It is that that
determines the quantity of each good produced and the price at which it is sold.
A market is a group of buyers and sellers of a particular good or service. The
buyers as a group determine the demand for the product, and the sellers as a
group determine the supply of the product.
1-114 Markets take many forms. A competitive market is a market in which there are
many buyers and many sellers so that each has a negligible impact on the
market price. A seller has little reason to charge less than the going price, and
if he charges more, buyers will make their purchases elsewhere.
1-115 Perfectly competitive markets are defined by two primary characteristics:
1. the goods being offered for sale are all the same, and
2. the buyers and sellers are so numerous that no single buyer or seller can
influence the market price. Because buyers and sellers in perfectly
competitive markets must accept the price the market determines, they
are said to be price takers. For example the grain markets.
1-116 Some markets have only one seller, and this seller sets the price. Such a seller
is called a monopoly, for example state-owned utilities.
1-117 Some markets fall between the extremes of perfect competition and monopoly.
One such market, called an oligopoly, has a few sellers that do not always
compete aggressively, for example gasoline sales.
1-118 Another type of market is monopolistically competitive; it contains many sellers,

each offering a slightly different product. Because the products are not exactly
the same, each seller has some ability to set the price for his own product. An
example is the software industry.
1-119 The law of demand states that, if all other factors remain equal, the higher the
price of a good, the less people will demand that good. In other words, the higher
the price, the lower the quantity demanded. The amount of a good that buyers
purchase at a higher price is less because as the price of a good goes up, so
does the opportunity cost of buying that good. As a result, people will naturally
avoid buying a product that will force them to forgo the consumption of something
else they value more. The chart below shows that there is a downward slope.

1-120 A, B and C are points on the demand curve. Each point on the curve reflects
a direct correlation between quantities demanded (Q) and price (P). So, at
point A, the quantity demanded will be Q1 and the price will be P1, and so on.
The demand relationship curve illustrates the negative relationship between
price and quantity demanded. The higher the price of a good the lower the
quantity demanded (A), and the lower the price, the more the good will be in
demand (C).
1-121 Like the law of demand, the law of supply demonstrates the quantities that will
be sold at a certain price. But unlike the law of demand, the supply relationship
shows an upward slope. This means that the higher the price, the higher the
quantity supplied. Producers supply more at a higher price because selling a
higher quantity at a higher price increases revenue.
1-122 A, B and C are points on the supply curve. Each point on the curve reflects a
direct correlation between quantities supplied (Q) and price (P). At point B, the
quantity supplied will be Q2 and the price will be P2, and so on.
1-123 Unlike the demand relationship, however, the supply relationship is a factor of
time. Time is important to supply because suppliers must, but cannot always,
react quickly to a change in demand or price. So it is important to try and
determine whether a price change that is caused by demand will be temporary
or permanent.
1-124 When supply and demand are equal (that is, when the supply function and
demand function intersect) the economy is said to be at equilibrium. At this point,
the allocation of goods is at its most efficient because the amount of goods
being supplied is exactly the same as the amount of goods being demanded.
Thus, everyone (individuals, firms or countries) is satisfied with the current
economic condition. At the given price, suppliers are selling all the goods that
they have produced and consumers are getting all the goods that they are
demanding.
1-125 The chart below shows that equilibrium occurs at the intersection of the demand
and supply curve. At this point, the price of the goods will be P* and the quantity
will be Q*. These figures are referred to as equilibrium price and quantity.

1-126 Of course in the real world equilibrium can only ever be reached in theory, so
the prices of goods and services are constantly changing in relation to
fluctuations in demand and supply.
1-127 Disequilibrium occurs whenever the price or quantity is not in equilibrium. If the
price is set too high, excess supply will be created within the economy and there
will be inefficiency.
1-128 In the chart above price P1 the quantity of goods that the producers wish to
supply is indicated by Q2. At P1, however, the quantity that the consumers want
to consume is at Q1, a quantity much less than Q2. Because Q2 is greater than
Q1, too much is being produced and too little is being consumed. The suppliers
are trying to produce more goods, which they hope to sell to increase profits, but
those consuming the goods will find the product less attractive and purchase
less because the price is too high.
1-129 Excess demand is created when price is set below the equilibrium price.
Because the price is so low, too many consumers want the good while producers
are not making enough of it.
1-130 In this situation, at price P1, the quantity of goods demanded by consumers at
this price is Q2. Conversely, the quantity of goods that producers are willing to
produce at this price is Q1. Thus, there are too few goods being produced to
satisfy the wants (demand) of the consumers. However, as consumers have to
compete with one another to buy the good at this price, the demand will push
the price up, making suppliers want to supply more and bringing the price closer
to its equilibrium.

1-131 We have two situations that may occur when demand and supply curves change.
They are referred to as movements and shifts:
1-132 Movement reflects a change in both price and quantity demanded from one point
to another on the curve. The movement implies that the demand relationship remains
consistent. Therefore, a movement along the demand curve will occur when the
price of the good changes and the quantity demanded changes in accordance to
the original demand relationship. In other words, a movement occurs when a change
in the quantity demanded is caused only by a change in price, and vice versa.
1-133 Similarly to the movement along the demand curve, a movement along the
supply curve means that the supply relationship remains consistent.
1-134 Therefore, a movement along the supply curve will occur when the price of the
good changes and the quantity supplied changes in accordance to the original
supply relationship. In other words, a movement occurs when a change in
quantity supplied is caused only by a change in price, and vice versa.

1-135 A shift in a demand or supply curve occurs when a good’s quantity demanded
or supplied changes even though price remains the same. For instance, if the
price for a 20 ft container of beer was US$2,000 and the quantity of containers
demanded increased from Q1 to Q2, then there would be a shift in the demand
for beer. Shifts in the demand curve imply that the original demand relationship
has changed, meaning that quantity demand is affected by a factor other than
price. A shift in the demand relationship would occur if, for instance, the return
on empty containers was much lower than predicted.
1-136 On the other hand if the price still remained at US$2,000 but the quantity
supplied decreased from Q1 to Q2, then there would be a shift in the supply. Like
a shift in the demand curve, a shift in the supply curve implies that the original
supply curve has changed, meaning that the quantity supplied is affected by a
factor other than price. A shift in the supply curve would occur if, for instance, the
manufacturers had industrial action over a long period. The manufacturers would
be forced to supply for the same price.
1-137 Over the last few years we have seen supply and demand severely affect the
shipping industry. External forces of the recession have seen reductions in
demand for cargo to transport. This has affected the freight rates, in some cases
quite dramatically. Five years ago there was a shortage of ships in several trades
and shipyards had order books for new ships extending over several years. We
now have an oversupply of ships, new orders are being cancelled. The drop in
demand for new tonnage has affected the shipyards and, of course, second-
hand tonnage sales have also dropped.

Directed Learning:
Further researching the internet concerning your chosen company

should obtain a fleet list of ships in its operation.
Details such as:-
Type of ship
Size of ship
Probable trade routes.

3. THE MAIN SHIPPING MARKETS
LEARNING OUTCOMES
• Understand the main shipping markets
• Identify the types of ships that are engaged in each of the main
trades.
3.1 THE DRY BULK MARKET
1-138 Iron Ore. Steel production continues to grow, albeit supported largely by China,
the world’s largest producer. A feature of bulk trade over the past 15 years has
been the shift of cargoes towards the Asia/Pacific region and away from Europe
and the rest of the world. In 1980, for example, dry bulk trade (five major bulks
only) into Europe amounted to 369 million tonnes while Japan and other Asian
countries together took 280 million tonnes. However, by the year 2000, Europe’s
imports were almost unchanged at 385 million tonnes (+4%) while Japan and
the other Asian countries took 657 million tonnes (+135%). In percentage terms,
Europe took 46% of these trades in 1980 and now takes 30%, while Japan plus
other Asian countries took 35% in 1980 but 51% of all cargoes in 2000. In 2008
seaborne iron ore was at 844 million tonnes (an increase of 6.5% over 2007).

Module 1 The Main Shipping Markets
1-139 Grain trade is currently flat in overall terms albeit with the usual seasonal
variations. The outlook for the 2010 year remains much the same, according to
the International Grains Council (IGC) at 322 million tonnes.
1-140 Coal trade is still expanding, mainly due to steam coal and power station
requirements but a full recovery in the coal trade requires the participation of the
steel industry. Currently, with the exception of China, there are no imminent
signs of this happening. Coal, first equal with iron ore in the single dry bulk trade,
accounting for some 798 million tonnes/year in 2007 and 814.5 million tonnes in
2008, remains highly influential in determining the overall demand-side
outlook.
1-141 The fact that coal trade growth is expected to slow down (although the trade will
continue to expand), over the next few years in the context of ever-expanding
new sources of oil supply, is not surprising given emissions legislation. But much
of coal trade growth over the past 25 years has been about restructuring entire
industries and setting up alternative, mostly overseas, sources. This, in turn, was
driven by a combination of simple economics (cheaper, albeit more distant,
supplies) and growing environmental concerns which perversely led to an
expansion in coal trade at the expense, in many cases, of domestic industries.
1-142 As global dry bulk trade continues to expand, so the fleet supply will gradually
come back from the oversupply position, which currently is causing the low
freight rates. The key question is when will this balance (or at least shift towards
balance) occur?
3.2 THE WET BULK MARKET
1-143 In the third quarter of 2008, global oil demand fell for the first time since the
1980s. In 2008, tanker cargoes reached 2.75 billion tonnes, two-thirds of which
were crude oil. This amounted to 33.7% of all seaborne trade for the year (down
from 34.1% in 2007). Combining the amount carried with the distance it was
carried, oil tankers moved 11,292 billion tonne-miles in 2008 (down from 11,705
billion tonne-miles of oil in 2005).

The Main Shipping Markets Module 1
1-144 By comparison, in 1970 1.44 billion tonnes of oil was shipped by tankers. This
amounted to 34.1% of all seaborne trade for that year. In terms of amount
carried and distance carried, oil tankers moved 6,487 billion tonne-miles of oil in
1970.
1-145 The United Nations also keeps statistics about oil tanker productivity, stated in
terms of metric tonnes carried per tonne of deadweight as well as tonne-miles
of carriage per tonne of deadweight. In 2005, for each 1 dwt of oil tankers, 6.7
tonnes of cargo was carried. Similarly, each 1 dwt of oil tankers was responsible
for 32,400 tonne-miles of carriage.
1-146 The main loading ports in 2005 were located in Western Asia, Western Africa,
North Africa and the Caribbean, with 196.3, 196.3, 130.2 and 246.6 million
tonnes of cargo loaded in these regions. The main discharge ports were located
in North America, Europe and Japan with 537.7, 438.4 and 215.0 million tonnes
of cargo discharged in these regions.
1-147 The larger tankers are mostly referred to as VLCCs (very large crude carriers).
However, there also Product Tankers and these tankers are designed to carry a
number of oil products and are generally smaller than crude carriers although
Aframax or even Suezmax size are sometimes used to carry products.
1-148 The products carried are generally gasoline, diesel fuel, aviation spirit, gasoil,
condensate, naphtha, lubricants, kerosene and some edible oils. These ships
are more complex and sophisticated than crude carriers with more tanks and
pipes to permit cargo separation. Also the tanks are coated to protect the cargo
from impurities and so on.
3.2.1 Chemical Tankers
1-149 Chemical tankers are developed to carry a wide range of different chemicals and
have an average capacity of 37,000 dwt and an average overall length of 180 m.
The design of today’s chemical tankers is characterised by a relatively high
speed and thus high propeller loading and high block coefficients with a relatively
full aft body. This requires a low overall resistance and related good powering
performance but also an excellent after body design, with a good flow towards
the propeller(s) and rudder(s), without flow separation.

1-150 During operation the ships sail at different loading, and therefore the design
optimisation is characterised by finding a compromise between different draughts.
1-151 Due to the chemicals onboard, safety on the ship during transit and harbour
operations is also a very important issue. They often carry liquid noxious
substances and have to be guided by the IMO MARPOL regulations (see
Section 5.5). There are three classes: IMO I (most hazardous), IMO II and IMO
III. The more dangerous chemicals require stainless steel tanks.
1-152 On some voyages a chemical tanker may carry up to 40–50 different parcels.
3.2.2 Liquefied Natural Gas (LNG) Carriers
1-153 These vessels are generally 60,000–80,000 dwt and are purpose built for
specific trades. The cargo is carried at –160ºC (–256ºF).
1-154 Natural gas is methane and is produced like oil by being brought to the surface
through techniques commonly used worldwide and piped to a liquefaction
process facility. All impurities are removed from the gas, which in the industry is
known as “sweetening”, prior to cooling.
• The cooling of natural gas to –160ºC allows it to be transported

economically by reducing the volume by 600:1. This process is called
liquefaction and produces a stable liquid ready for shipping.
• LNG is transported in special double-hulled ships built using two different

technologies known as Moss Rosenberg (spheres) and membrane (using
material with an expansion coefficient of practically nil).

• The liquefied natural gas is off-loaded as a liquid and pumped from the
jetty to storage tanks at the terminal. The liquefied natural gas remains at
–160ºC for the duration of the process.
3.2.3 Liquefied Petroleum Gas (LPG) Carriers
1-155 LPG carriers average in size about 10,000 dwt. They carry the cargo at –50ºC
(–60ºF).
1-156 Liquefied petroleum gas is a mixture of hydrocarbon gases namely propane,

butane, ammonia, ethylene, isobutene which are used as a fuel in heating
appliances and vehicles.
1-157 LPG is synthesised by refining petroleum or “wet” natural gas and is usually
derived from fossil fuel sources, being manufactured during the refining of crude
oil, or extracted from oil or gas streams as they emerge from the ground. At
normal temperatures and pressures, LPG will evaporate. Because of this, LPG
is supplied in pressurised containers. LPG is a low carbon emitting hydrocarbon
fuel available in rural areas, emitting 19% less CO2 per kWh than oil, 30% less
than coal and more than 50% less than coal-generated electricity distributed via
the grid.
3.2.4 Other Liquids
1-158 Other liquids can be carried in a variety of specialised vessels such as bitumen,
wines and beers and other liquids used for consumption or cooking.
3.3 CONTAINER
1-159 2009 was not a good year for the container-shipping industry which is poised for
vast rounds of purging and consolidation, with major players taking advantage
of the tough environment to grab more market share.
1-160 The credit crunch and eventual recession had a dramatic effect on the shipments
of finished goods from the Far East to the USA and Europe.

1-161 The stressed environment follows a flood of orders for new vessels and added
fleet capacity made before the shipping craze went flat in 2008. That capacity
will enter into the market for the next three to four years.
1-162 Companies like Evergreen Line, of Taiwan, were in negotiations to secure new
capacity at the height of the boom, but did not manage to secure new orders.
Meanwhile, Cosco Container, of China, is set to grow its fleet by 84%. It is still
unclear which the best place to be is: riding out the storm or fighting to build
market share, which has been the trend.
1-163 As of 10 September 2009, the 10 companies that have the largest liner fleets in
the world, according to Alphaliner, are (along with their percentage market
share) as follows:
• Maersk, of Denmark, 15%;
• Mediterranean Shipping Co., of Switzerland, 11.2%;
• CMA CGM, of France, 7.6%;
• Evergreen Line, of Taiwan, 4.4%;
• APL, of Singapore, 4.0%;
• Cosco Container Lines, of China, 3.5%;
• Hapag-Lloyd, of Germany, 3.5%;

• CSCL, of China, 3.4%;
• Hanjin Shipping, of South Korea, 3.0%; and
• NYK, of Japan, 3%.
3.4 CRUISE SHIPS
1-164 With a track record of continued growth, the cruise industry is well-positioned to
take on the global economic challenges of 2009. Sparked by new ships, ports
and destinations as well as innovative shipboard experiences, and a deep-
rooted popularity for cruising, passengers will continue to get incredible value
across the entire spectrum of cruise vacations, in all price categories.
1-165 Whilst 2009 represents an uncertain environment, for all industries and
consumers alike, the cruise industry has enjoyed customers who are mostly in
an age group that has been least affected by the current financial environment.
It is predicted that the cruise market is better placed than other travel sectors to
weather the recession.
1-166 In North America an estimated 13.2 million travellers cruised in 2008, up from
12.56 million in 2007. The statistics released at the Seatrade Convention in
Miami revealed 2008 saw a 23% increase in the number of people joining their
cruise in a UK port while the number of fly-cruise passengers increased by 4%.
The Mediterranean and Northern Europe, including the UK, were the most
popular destinations with increases of 17% and 24% respectively year on year.
3.5 RO-RO
1-167 A Ro-Ro ship is specifically designed to carry wheeled and tracked vehicles as
all or most of its cargo.

1-168 Vehicles are driven on and off the ship by means of the ship’s own ramps and
are safely stowed and secured under deck. Below-deck space and volume
utilisation is more efficient than on a containership, because Ro-Ro carriers are
designed to accommodate cargoes which cannot be stacked but which vary in
height.
1-169 Ro-Ro ships are commercially viable and the new car manufacturers prefer this
type of shipping for new automobiles that are transported by ship around the
world. By rolling cargo onboard these vessels and rolling it off at its destination,
shippers can reduce the number of times their cargo is handled, thus reducing
the risk of damages.
1-170 Since 1970 the market for exporting and importing cars has increased
dramatically and the number and type of Ro-Ros has increased also. In 1973,
Japan’s K Line built the European Highway, the first Pure Car Carrier (PCC),
which carried 4,200 automobiles.
1-171 Ro-Ros are also extensively used in the ferry industry, but this is generally in the
national or short-sea voyage markets, such as the Baltic and Irish Seas and the
English Channel.
3.6 SPECIALIST SHIPS
1-172 The major specialised markets that call for maritime support are in the offshore
exploration and production work, particularly in the oil industry. The picture
below shows an offshore supply vessel, sometimes referred to as PSVs (platform
supply vessels).
1-173 Offshore oil and gas fields are distributed throughout the world but just three
regions – the North Sea, the Gulf of Mexico and the South China Sea – attract
over 50% of spending. Yet relative shares are changing, with steady growth
forecast everywhere except Western Europe and with the Atlantic margin off
West Africa and Brazil plus the Persian Gulf now attracting much greater
spending levels.

1-174 There are some new oil and gas developments throughout the world, including
the major new and expanding areas such as in the Caspian Sea and Sakhalin
Island.
1-175 It is anticipated that there will be a major transfer of expenditure from the
traditional shallow water areas of the North Sea and Gulf of Mexico to the deep
waters off Brazil, the Gulf of Mexico, West Africa and elsewhere.
1-176 Other specialist vessels would include refrigerated vessels, car carriers and
livestock carriers as shown in the picture above.

4. THE WAY SHIPS TRADE
LEARNING OUTCOMES
• Understand the role of charter parties and bills of lading
• Know what is meant by bareboat charter, time charter and voyage

charter
• Identify the difference between liner and tramp trades.
4.1 IT STARTS WITH THE SALES CONTRACT
1-177 The shipping industry, like other industries involved in transportation, is not
immune to technological change. Initially in the ability to build larger and more
complex vessels and latterly in the area of communication and information
technology, the industry has seen significant changes over the last three
decades. Nevertheless, certain aspects of the operation of ships are deeply
conservative, especially on the commercial side where shipping and international
trade meet.

The Way Ships Trade Module 1
1-178 There is a shipping industry ultimately because there is a demand from

consumers and, the cheaper and more efficient transportation becomes, the
further it is that goods can travel to meet that demand. The delivery of these
goods depends upon an agreement between the producer of the goods (the
seller) and the consumer or some intermediary such as a wholesaler or
manufacturer (the buyer). Assuming that the buyer and the seller can agree a
price, they have two challenges to overcome before their transaction can be
successfully completed.
They need:
• to agree who will be responsible for transporting the goods from seller to
buyer; and
• the buyer needs to finance the transaction.
1-179 Once this is agreed, they can produce the sales contract, the primary document
behind the movement of virtually all cargo at sea.
1-180 The linkage between these two transactions; a flow of (physical) goods in one
direction and a flow of money (probably electronically) in the other, is a document
called a bill of lading. This is the principal document against which the buyer’s
bank may be requested to release some millions of dollars against the future
delivery of goods that the buyer may not have seen, that are not in his possession
and are, or are about to be, exposed to “the perils of the sea” on some unknown
or little known vessel.
1-181 This piece of paper, the bill of lading, is also the document that the ship’s master
(or agent) signs on behalf of the shipowner establishing the safe receipt of the
goods onboard, their quantity and quality and their eventual safe and timely
delivery. It also provides evidence of the contract of carriage.
1-182 Within this general concept there are a number of factors which may add
complexity and risk. These include:
• Where does the journey commence and end?
• Who arranges the transportation?
• Who insures the cargo? Where is the risk?
• How many times does ownership change during the course of transportation?
That is, is the cargo sold and resold?
• Who holds valid title to the goods?
• How complex is the financing and what security is required?
1-183 An increasing consideration, especially since the losses of the tankers Erika and
Prestige, the container ship MSC Napoli, and numerous dry bulk carriers, is
what is the quality of ship used and who will bear the liability for selecting that
ship? To put it another way, to what extent should flag state registration guarantee
the suitability and seaworthiness of a vessel? Similarly, what does classification

Module 1 The Way Ships Trade
society endorsement signify and should the shipping industry need to rely on
surveys by, for example, individual oil companies and the P&I clubs? Should,
indeed, the industry have to rely on port state inspections carried out at the
receiving ports, in other words, after the voyage (and major risk)?
1-184 Below these concerns are the areas of more direct interest to the shipowner or
manager in so far as he has more influence over them:
• Is the packaging or containment for the cargo correct?
• Is the delivered quantity and quality correct?
• Can the ship meet the necessary schedule?
• Who is responsible for instructing the master, for example, the owner or
the shipper or receiver?
• Does the contract of carriage impose any unacceptable burdens on the

ship or its owner?
and, by no means least:
• Does the proffered freight rate make a satisfactory contribution to the

trading, operating and financing costs of the ship?
1-185 Whether a vessel is carrying cargo or performing such other services as towing,
surveying, anchor handling or carrying passengers, candidates, as they work
through the modules, should remember that the requirement for shipping
services is generated by customer-led demand.
4.2 LINER TRADES
1-186 Maritime shipping is dominated by bulk cargo, which roughly accounted for 66%
of all the tonne-miles shipped in 2008, but the share of general common carrier
cargo is increasing steadily, mainly because of containerisation.
1-187 The liner trade is where cargo ships carrying general cargo or break-bulk,
container vessels and roll-on/roll-off vessels provide a service by offering space
in their holds or on deck for the carriage of parcels of cargo. They sail on
predetermined routes and on published sailing schedules and must accept
cargo proffered for shipment at their published freight rates. This obligation to
accept all suitable cargoes is based on the concept of the common carrier.
Within these constraints, the liner operator maintains total control over the ship
and its operation.
1-188 The key freight document is the bill of lading or sea waybill. As you can imagine
there will be a huge number of bills of lading issued for each ship and even per
container depending on the parcel size.
1-189 Containerisation and the dissemination of the just-in-time approach have

subordinated liner shipping within a door-to-door context of which the sea leg is
only part, and not necessarily the most expensive part. Liner shipping caters for

cargo of all kinds and, despite the high cost of ships and containers, participation
in bulk cargoes is not inconsiderable and rising. Waste paper is, for example,
perhaps the biggest single cargo carried in containerships, because of the need
to return empty containers to loading areas generating better revenues. A
healthy general cargo sector co-exists within the liner sector, but, apart from
specialist liner services (heavy lift, forest products, cars, refrigerated cargoes),
non-cellular general cargo ships tend to operate over routes with small cargo
constituencies or in countries with poor port infrastructures, increasingly in
short-sea trades.
1-190 In addition cargo liners are involved in through transport of containers. Ships
follow planned port visits and cargo can be booked against published freight
rates. Liner companies have extensive organisations, often in many countries,
and the cost of ship operation is a relatively small part of total expenses.
4.3 TRAMP TRADES
1-191 The alternative to the common carrier is the private carrier and this is referred
to as the tramp trade. Here the shipowner offers his vessel under contractual
terms negotiated between himself as shipowner and the owner of the goods to
be shipped. However, reality is not that simple and, as will be described later in
this module, there are two contracts which affect the carriage of the goods: the
charter party and the bill of lading, both interrelated but performing slightly
different functions. A ship engaged in the tramp trade is one which does not have
a fixed schedule or published ports of call.
1-192 A simple analogy in comparing liner and tramp trades is a bus service and a taxi
service. In the former you await the bus at a prescribed bus stop, buy a ticket for
a published fee and you are taken to another bus stop on the route. In the latter
case you hire your taxi from your choice of pick-up to your choice of set down
and the fare is based on distance and/or time.
1-193 Tramp ships generally trade on the spot market with no fixed schedule or
itinerary for the ports of call. However with specialised ships, for example LNG
carriers, they may be built and chartered for a long period to one customer.
1-194 The term is derived from an old meaning of “tramp” as itinerant beggar or
vagrant, and is first documented in the 1880s, along with “ocean tramp” (at the
time many sailing vessels engaged in irregular trade as well).
1-195 So to summarise, tramp ships are hired to carry cargo from one port to another
for a negotiated lump sum. The hiring of the vessels is arranged by various types
of charter parties. In general, the bulk trade is in the tramp market whereas
containerisation is in the liner trade.
4.4 BAREBOAT CHARTERS
1-196 Bareboat charters are sometimes referred to by the alternative title of “demise”
charters. This is more frequently a finance agreement rather than a charter in
the accepted sense. The financial owner of the vessel contracts an experienced
ship operator to become an “owner by demise”. The demise owner may not

afford the outright purchase of the ship, or wishes to reduce the risk of outright
ownership. There may even be tax advantages of bareboat chartering to both
parties.
1-197 The financial owner supplies a bare ship (hence the name) and the charterer will
take on the responsibilities of insuring, manning and maintaining the ship, as
well as keeping her profitably employed.
1-198 This form of contract is common where the owner is a bank or finance house
and has no desire to operate the ship commercially even if it had the ability to
do so. Owners with surplus tonnage not likely to be needed for some time may
also decide to bareboat their ships rather than try to operate them themselves.
However, there may be other reasons such as a major oil company wishing to
have some of its ships reading under a different “logo”.
1-199 A bareboat charter is generally fixed for long periods, the time being measured
in years rather than in months or days. Very often a hire purchase element is
included so that after making the final contracted payment the vessel becomes
the property of the charterer.
1-200 The payment received by the owner is called “hire money” and in a bareboat
charter this will be market determined. This is because virtually all the ship’s
running expenses will be paid by the charterer. Of course, if there is a hire-
purchase element the rate will be higher to reflect the capital cost of the ship.
1-201 About the only restrictions applied to bareboat charters are occasional limitations
on geographical areas (for example, no ice trading) or cargoes that can be
carried. Apart from these restrictions, the charterer under a bareboat charter will
be free to operate the ship as if he were the owner and may, therefore, charter
out the vessel under any of the following types of contract.
4.5 TIME CHARTERS, VOYAGE CHARTERS, BILLS OF

LADING AND WAYBILLS
4.5.1 Time Charters
1-202 A time charter is also an arrangement to hire the vessel for a period of time but
unlike the bareboat charter the owner retains control of matters such as crewing
and insurance. The charterer takes on most of the rest of the running expenses
and will be particularly responsible for all voyage costs and the fuel. Compared
to bareboat charters the period under a time charter is slightly shorter, although
provided both parties agree there is no limit to the time the charter is to run. Time
charters often carry “options” so that the charter can be extended upon agreed
terms if the charterer wishes to continue the arrangement.
1-203 As with the bareboat contract the charterer will pay hire money to the owner of
the vessel.
1-204 Time charter contracts theoretically allow the charterer to exploit the vessel as
he sees fit, although restrictions of all kinds are usually included in the contract.
The charterer may decide to operate the ship on a liner service, and this is
indeed quite a common practice and many major liner operators may charter in

a very large part of their fleet often renaming the vessels temporarily to reflect
their fleet image. Alternatively the charterer may decide to sub-charter the
vessel to a third party either on a voyage or time charter basis.
1-205 It is not unusual for a sub-charterer taking the vessel on a time charter basis to
further sub-charter the vessel. Often quite lengthy chains develop with the
consequence that finding the right party in connection with any particular
incident or event becomes a veritable nightmare. Matters are sometimes
worsened because the sub-charters are incompatible with the first or “head”
charter providing ample grounds for disputes and rich pickings for lawyers.
1-206 Both the above types of charter are sometimes referred to as period charters.
The common element in both is that the contract is for a period of time rather
than a particular cargo.
4.5.2 Voyage Charters
1-207 In a voyage charter the charterer is hiring space on the vessel to carry a
particular cargo rather than the vessel itself. Under a voyage charter the
remuneration paid to the owner is known as “freight”.
1-208 When a time charterer employs the vessel with a voyager charterer, the time
charterer assumes a new title, that of disponent owner. This term recognises
that the time charterers, because they have so much control over the vessel,
may appear to third parties to be in fact the owners.
1-209 Although the term is used extensively in practice, it can unnecessarily complicate
the description of the relationship between agent and owner/charterer. The
owner will remain in control of virtually all aspects of the voyage and pay most if
not all the expenses incurred.
1-210 It should be mentioned at this point that it is not unusual for loading and
discharging costs to be agreed as the responsibility of the charterer. This
practice has grown in acceptance and in fact today it is probably the most
common form of arrangement.
1-211 It may be that the charterer has a number of separate cargoes to move with the
same origin and destinations. The owner and charterer may agree to carry these
cargoes in the same ship, making consecutive voyages. Where this is the case
agreement has to be reached at an early stage over the question of whether or
not the owner will be permitted to carry other cargo on the ballast leg back to the
load port. If the vessel is obliged to sail in ballast the freight will be higher to
reflect the cost of the non-earning ballast leg.
1-212 The exact number of voyages under a contract of this type can be agreed in any
of several ways. There could, for example, be an exact number, or perhaps the
contract will be fixed for a definite timescale in which as many voyages as
possible will be undertaken. Another alternative is to fix the amount of cargo to
be carried either as a definite quantity or, where the charterer is a producer, it
could for a percentage or the whole of a defined period’s production.

1-213 The last option is not the same as a fixed period. This is because the capacity
of the ship and the production during the given period may mean that the vessel
has to make more trips after the end of the production period in order to move
all the cargo. Conversely, if the contract was for say a year’s production, but after
nine months no more production was possible because of a fire at the production
plant, then effectively the cargo produced in the nine months was the whole of
the annual production. If the ship had moved all of this in say ten months, then
the contract would end at that point.
4.5.3 Contracts of Affreightment (COA)
1-214 A contract of affreightment is very similar to a consecutive voyage contract but

with the difference that the contract is not for a single named ship. The owner is
therefore free to substitute other vessels from his fleet or to charter in outside
tonnage to satisfy the terms of the contract. There is, of course, nothing to stop
an owner with a COA from moving all the cargo in a single ship if circumstances
allow. And it is not unusual for a COA to be agreed to cover a period of many
years; in fact some COAs signed for the LNG trades cover 25 years or more and
new ships are even built to serve one particular contract and will never work in
any other employment.
1-215 The owner taking on a COA may find that the freight rate agreed with the
charterer is different from that at which he is able to charter in tonnage to carry
the cargo. If he is fortunate enough to find available tonnage at a rate below that
which he is himself being paid then he will be making an additional profit. On the
other hand, if freight rates harden and he is forced to pay more for outside
tonnage then he must bear the loss himself.
1-216 Where the COA is for a particularly long period, the contract will inevitably
contain provision for a regular negotiation of the freight rate. So as to ensure
continuity of tonnage, some long-term COAs allow not for a complete
renegotiation, but an escalation of the freight rate in line with market
conditions.
1-217 Many COAs are won by shipping pools rather than individual owners. A pool is
a joint venture by several owners and usually involves ships of similar type and
size. The idea is that each owner will contribute one or more vessels to the pool
so that a good-sized fleet able to cope easily with the demands of the COA is
established. Shipping pools are similar to the alliances operating in the liner
trades and are found in both the dry and wet sectors.
1-218 One of the owners, probably the one committing most ships to the pool, is
elected as the administrator and he becomes responsible for allocating the
ship’s cargoes under the various COAs the pool has won. All earnings are
pooled and all voyage expenses likewise. At the end of the COA, or at earlier
agreed intervals, participating owners are paid out their share of the profits.
1-219 There are a number of abbreviated terms that are used in charter parties and a
list of the more common ones are in Appendix A. However, it is important to
explain the following particular terms that are used.

5. AN OUTLINE OF THE DOCUMENTATION
FOR THE MARINE LINK IN THE
LOGISTICS CHAIN
LEARNING OUTCOMES
• Appreciate how the terms of trade influence contracts for the

carriage of cargo and the hire of ships
• Have an understanding of the elements of cargo documentation

and charter parties
• Know the meanings of seaworthiness and cargoworthiness.
5.1 CARGO AND THE TRANSFER OF RISK AND TITLE
1-220 We have already discussed that the purpose of merchant shipping is to provide
a service and by far the greatest user of the services of the industry is the cargo
owner.
1-221 The “cargo owner” may change a number of times during the course of a voyage
and, with containerisation leading the continual increase of through transport,
the “voyage” for some cargoes may now extend far beyond the “ship’s rail” and
the port. A cargo owner’s interest in the cargo may also change during the
voyage as the risk in the cargo (the responsibility for insuring the cargo or
bearing the cost of its loss or damage) will frequently pass at a different time
from the title, or ownership, of the cargo. As well as the cargo owner and the
insurer, there is also likely to be a financing bank with its own interests to
protect.
1-222 The first stage in the ultimate movement of a cargo by sea is the negotiation of
a sales contract that will establish the terms of trade. This will involve a buyer
and a seller, and the buyer may well be a trader planning to sell on the cargo
during the voyage.
1-223 A range of influences, including the relative negotiating strengths of the buyer
and seller, and indeed, their negotiating skills, will affect the terms under which
the sale is contracted. The most commonly used terms of trade have been
codified by the International Chamber of Commerce and are known as Incoterms
2010 and these frequently form the basis of the initial sale contract.
1-224 There are 11 different terms of trade, falling into four groups, and they address
the following 10 considerations which must be undertaken by either buyer or
seller in order to execute a successful transaction:

Module 1 An Outline of the Documentation for the Marine Link in the Logistics Chain
1a. Provision of the goods in conformity with the contract (seller).
1b. Payment of the price (buyer).
2. Provision of necessary licences, authorisations and other formalities.
3. Contract of carriage (and insurance).
4. Giving (or taking) delivery (title).
5. Moment of transfer of risk.
6. Division of costs.
7. Notices.
8. Proof of delivery, transport documentation or equivalent electronic message.
9a. Marking, checking and packing (seller).
9b. Inspection (buyer).
10. Other miscellaneous obligations.
1-225 It should be apparent how the decisions made by buyer and seller when
negotiating the sale contract flow directly into the contract of carriage. The ship
manager is, therefore, well advised to become familiar with the 11 Incoterms
summarised below:
5.1.1 The Incoterms
Group E: Departure
• EXW Ex Works (named place)
Group F: Main carriage unpaid
F signifies that the seller must hand over the goods to the nominated carrier free
of risk and expense to the buyer:
• FCA Free Carrier (named place)
• FAS Free Alongside Ship (named port of shipment)
• FOB Free On Board (named port of shipment)
Group C: Main carriage paid
C signifies that the seller must bear certain costs even after the critical point for
the division of risk for loss or damage has been reached.
• CFG Cost & Freight (C & F) (named port of destination)

An Outline of the Documentation for the Marine Link in the Logistics Chain Module 1
• CIF Cost, Insurance and Freight (named port of destination)
• CPT Carriage Paid to (named port of destination)
• CIP Carriage and Insurance Paid to (named port of destination)
Group D: Arrival
D signifies that it is the seller’s responsibility that the goods arrive at the stated
destination.
• DDP Delivery Duty Paid (named port of destination)
• DAT Delivered at Terminal (this is a new term)
• DAP Delivered at Place (this is a new term)
1-226 It is worth noting that the frequently used term “shipper” can have two meanings
within the context of contracts of sale and also contracts of carriage. Thus, for
example, the term “shipper” signifies both the person handing over the goods
and the person who makes the contract with the carrier: however, these two
“shippers” may or may not be different persons. For example, under a FOB
contract, the seller would hand over goods for shipment and the buyer would
make the contract of carriage.
5.1.2 Documentary Credits
1-227 Closely linked to virtually all commodity transactions is insurance and finance. A
process known as a documentary credit provides by far the greatest majority of
trade finance. The process of establishing a documentary credit is relatively
straightforward and has the advantage to the seller of providing a confirmed
method of payment.
• The buyer and seller conclude a sales contract providing for payment by
documentary credit.
• The buyer instructs his bank (the issuing bank) to issue a credit in favour
of the seller (the beneficiary).
• The issuing bank asks another bank, usually in the country of the seller, to
advise the seller and perhaps also add its confirmation to the documentary
credit.
• The advising or confirming bank informs the seller that the credit has been
issued.
1-228 For settlement, the seller sends the documents evidencing the shipment to the
nominated bank where the credit is available. After checking the documents, the
bank then pays the seller and passes the documents on to the issuing bank to
ensure that its payment to the seller is reimbursed. Finally, the issuing bank uses
the documents to secure its reimbursement from the buyer.
1-229 From this brief description, it is clear why this method of finance is called a
documentary credit and a central document is the bill of lading, possibly

supported by a survey report on the cargo. This goes a long way to explain why
banks will generally only accept clean bills of lading, that is, bills of lading that
normally stipulate that the goods were “in apparent good order and condition
when accepted”.
5.2 CARGO DOCUMENTATION
1-230 A wide range of documents can be involved in the international trading and
transportation of cargoes. As a ship manager’s task is often to distil clear voyage
orders from a complex, contractual arrangement, an understanding of the
principal documentation is essential. As stated, especially if time charters are
involved or if vessels are sub-chartered, carrying parcels of cargo for different
interests or the cargo is traded during the voyage, the situation becomes much
more complex. A diagrammatic approach to depicting the contractual relationships
is often a useful first step in analysing a situation.
5.2.1 Sales Contract
1-231 The transaction which leads to the transportation of goods by sea is initiated by
a sales contract. Although this is rarely, if ever, seen by the master or even the
shipowner or his chartering department, it contains the basic data against which
the (voyage) charter party is constructed.
1-232 Sales contracts may be complex and detailed documents relating to specific
cargoes sold on specific terms (for example, the Grain and Feed Trade
Association (GAFTA) provides a range of standard sales contracts) or much
more abbreviated telex or electronic data transmissions and these are common
in the oil industry. The sales contract should provide the basic information
about:
• the origin and place of loading of the cargo together with the dates on
which it will be ready for loading. This can be of critical importance as there
may be a contractual requirement to ship a certain quantity within a
specified period or the sales price may be decided by an (end of month)
index relating to the month in which the cargo was loaded and bills of
lading issued;
• the quality and quantity of cargo and possibly the agreed method of testing
for quality;
• the terms of trade and documentation requirements;
• details of insurance requirements.
1-233 As mentioned previously much of this information is codified by the 13

Incoterms.
5.2.2 Certificate of Origin
1-234 With complex international trade agreements and export/import quotas, not to
mention trade sanctions, this is an important document. It should not affect the
vessel directly but unfortunately it has been known for the contravention of

export or import regulations to result in the detention of, or a fine on, the vessel
rather than the errant charterer.
5.3 CERTIFICATE OF INSPECTION, QUANTITY AND QUALITY
1-235 The key point to understand here is that the buyer may have survey reports
reflecting a quantity and/or quality which is different from that pertaining at the
point of loading when the vessel’s responsibility commences.
5.4 COMMERCIAL INVOICE
1-236 This will establish the value of the cargo which will be important in any dispute
for, for example, short delivery. The invoice value may, however, be substantially
different from the commodity’s open market value. For some commodities,
values are established by international price indices at a certain date, for
example, the last trading day of the month in which the goods were loaded
onboard. This explains why it is so important that a master is not pressured into
signing for cargo before it is physically all onboard (pre-dated bills).
5.5 CARGO/CUSTOMS’ MANIFESTS
1-237 This is the document that contains the complete specifications of the cargo with
the intended destination that has been loaded by a vessel. This is a useful
source of information, especially if many parcels of cargo (or containers) are
being carried.
5.6 CERTIFICATE OF INSURANCE
1-238 This has been introduced to substitute the original floating policies for individual
shipments which are normally held by the bank or consignee. The certificate of
insurance will show proof that the responsibility for insuring the cargo has been
established under the terms of trade.
5.7 BILL OF LADING AND WAYBILLS
5.7.1 B/Ls
1-239 This 2000-year-old document remains at the heart of the transfer of goods from
seller to buyer. The diagram in Chapter 4, p. 45, in a simplified way, the main
elements of the overall transaction from the agreement between buyer and seller
to the delivery of the goods. Within the sale contract, the selected Incoterm (see
Chapter 4) will define whether seller or buyer is responsible for arranging
maritime transport. This brings a third, independent party into the contractual
relationship; the owner of the vessel in the role of carrier and signatory to the
charter party (unless the vessel is on time charter, in which case the time
charterer is signatory to the voyage charter although the owner and his master
onboard still retain fundamental responsibilities for the safe delivery of the
cargo). The illustration depicts a tramp trade transaction as opposed to the
rather simpler liner trade (or common carrier) transaction. Note that there are

three main contracts (financing the transaction is not considered here although
the bill of lading is a key document in this process):
• the sale contract for the goods – not directly linked to any of the other two
contracts;
• the voyage charter securing the services of the ship; and
• the bill of lading carrying out the three functions described below.
1-240 Note that the voyage charter and the bill of lading need to be linked by reference
in each to the other.
1-241 The three functions of the bill of lading are:
(a) either evidence of the contract of carriage (obtained in the voyage charter
in the illustration) or as the actual contract of carriage or affreightment in
the liner trades where their terms and conditions can be found on the back
of the bill itself;
(b) as a document of title to the goods and it is the master’s responsibility only
to deliver the goods to the rightful holder of an original bill of lading for the
goods at the port designated in the bill; and
(c) as a receipt for the goods, and stating the quantity (accurately) and quality
(in general terms) of the goods received – it is the duty of the owner
(carrier) to deliver the goods in the same description as on the face of the
bill that is, “in good order and condition” unless claused otherwise by the
master, in other words, a “clean bill”.
1-242 An example of a GENCON BILL can be found in Appendix I; this is one of the
most common bills of lading in general use. Although there is no legal definition
of “through transport” which is now a very common feature of containerisation,
there are two (slightly woolly) definitions:
• “Through transport” is performed by the carrier or the sub-contractor of the

carrier;
• “Multi-modal” means that the carrier will use at least two different modes
of transport to deliver the cargo.
1-243 A key issue here is defining who has control of, and responsibility and liability
for, the container at any – and every – part of its journey. A MULTIDOC 95 bill of
lading is contained in Appendix I and under MULTIDOC, the carrier (usually the
ocean carrier) assumes responsibility for the entire transportation.
5.7.2 Waybills
1-244 Used extensively for air freight, waybills are much simpler documents that are
not evidence of title to the goods, although they come under the CMI Uniform
Rules for Sea Waybills (Comité Maritime International). An example of a
LINEWAY BILL can be found in Appendix I. The aim of the LINEWAY Bill is to be

an incentive for the commercial parties involved in the liner trade to make further
use of sea waybills where there is no demand for negotiable documents
(BIMCO).
5.8 LIMITATION OF LIABILITY
1-245 Like much of maritime legislation, limitation, or the ability of the shipowner to cap
his financial liability, has commercial roots that are succinctly put in the preamble
to The Responsibility of (British) Shipowners’ Act of 1933:
“…Of the greatest consequence and importance to this kingdom to promote and
increase the number of ships and vessels, to prevent any discouragement to
merchants…which will necessarily tend to prejudice the trade and navigation of
this kingdom.”
1-246 It is a concept that has not always been popular and the US Limitation of Liability
Act of 1851 was described as:
“An Act which is vicious in its impact, unconscionable in its results and outmoded
in an age of institutionalised protective insurance; if it cannot be repealed
outright, [it] deserves only a narrow grudging and constrictive construction.”
1-247 Limitation of liability within the maritime world is a concept that sets shipping
apart from other areas of industry and commerce. It is found in both public and
private maritime law and, in general terms, this divides into:
• claims brought against the shipowners as the result of a contract for the
carriage of cargo which, not surprisingly, are mainly contractual disputes
and are governed by such private law conventions as the Hague-Visby
Rules; and
• claims brought in the main by third parties who have suffered loss or
damage as a result of the negligent navigation or operation of the vessel.
These tend to be suits brought under the law of tort and could be governed
by either the common law, for example a collision case, or public statutory
law, for example pollution. (Tort in English law is any wrong, not arising out
of contract, for which there is a remedy by compensation or damages.)
1-248 For cargo-related limitation, the starting point is the absolute liability of the
common carrier for the safety of the cargo entrusted to his care under English
common law. The carrier was exempt for loss or damage only if caused by act
of God, the Queen’s enemies or as the result of an inherent vice of the goods.
Increasingly shipowners sought to limit their liability further by adding protective
clauses to charter parties and bills of lading and contractual terms began to
displace the common law. This was possible under English law (as opposed to
more codified law) due to the English law concept of “freedom of contract”.
Shipowners and cargo owners were free to contract on any terms that they
deemed fit. This ultimately led to inequity in favour of the shipowner which was
finally resolved by international convention, namely the Hague Rules.
1-249 As the era of the merchant selling goods to a buyer with the goods being
transported by an independent carrier took over from the seagoing merchant

trader, so the problem arose of the buyer of the goods not being a party to the
original contract of carriage between the seller and the carrier. This was
eventually resolved by the introduction of the Bill of Lading Act 1855 (now
replaced in England by the Carriage of Goods by Sea Act 1992), which
determines the buyer’s legal rights under the contract of carriage.
5.8.1 Hague, Hague-Visby, Hamburg and Rotterdam Rules
1-250 It is the Hague and the Hague-Visby Rules, the Hamburg and more recently the
Rotterdam Rules which will be discussed in a later module that establish,
amongst other things, the extent to which the carrier can limit his liability. This
made trade and trading risks much more quantifiable for owner, shipper, receiver
and, importantly, insurer. It is also argued that it produced a downward pressure
on freight rates, to the general benefit of international trade.
1-251 Before being able to limit his liability, the carrier must meet certain obligations
which, in the Hague – Visby Rules, are set out in Article III:
Rule 1
The carrier shall be bound, before and at the beginning of the voyage, to exercise
due diligence to:
(a) make the ship seaworthy;
(b) properly man, equip and supply the ship;
(c) make the holds, refrigerating and cold chambers, and all other parts of the
ship in which goods are carried, fit and safe for their reception, carriage
and preservation.
1-252 This relates directly to the concept of seaworthiness and cargoworthiness and
will be explored further in later modules.
1-253 To invoke his right to limit his liability, the shipowner must be able to demonstrate
that both he and his servants exercised due diligence in the responsibilities as
the carrier.
5.9 SEAWORTHINESS AND CARGOWORTHINESS
1-254 The concept of seaworthiness is important in a legal context because it relates

directly to the shipowner’s right to limit his liability. From a starting point, under
English common law, whereby the common carrier has an absolute liability for
the safety of the cargo entrusted to his care, the shipowner has consistently
endeavoured to widen his right to limit his liability over and above the basic
exemptions of:
• Act of God;
• Queen’s enemies;
• Inherent vice of the goods.

1-255 The Hague-Visby and their successors are an attempt to find an equitable
balance between the shipowner’s and the cargo owner’s rights, responsibilities
and risks. Rule 1 of Article III of the Hague-Visby Rules states: “The carrier shall
be bounden, before and at the beginning of the voyage, to exercise due diligence
to:
• make the ship seaworthy;
• properly man, equip and supply the ship;
• make the holds, refrigeration and cold chambers, and all other parts of the
ship in which goods are carried, fit and safe for their reception, carriage
and preservation.”
1-256 To invoke his right to limit liability, the shipowner must be able to demonstrate
that both he and his servants exercised due diligence in the responsibilities set
out above. The cargo owner, shipper or receiver who has suffered loss or
damage to his cargo can be expected to challenge the shipowner’s right to limit
liability by proving that he has failed to exercise due diligence in these matters.
1-257 Cargo claims which are resolved in court or through arbitration generally take a
number of years to resolve. The ship manager may well find himself involved in
gathering evidence in order to establish whether due diligence had, or had not,
been exercised in ensuring that a vessel was seaworthy at a particular point in
time. He will first need to clarify the precise, contractual context of the
seaworthiness requirement.
1-258 The court or arbitrator will want to know:
• Was the vessel seaworthy (at the commencement of the voyage and at the
time in question)?
• If not, did the owner exercise due diligence to make the vessel
seaworthy?
• If not, did the unseaworthiness cause the loss or damage?
1-259 The third point raises the issue of causa proxima or the direct, as opposed to the
indirect cause (causa remota) of an incident or loss. In the words of Scrutton:
“The seaworthiness required is relative to the nature of the ship, to the particular
voyage contracted for and the particular stage of that voyage being different for
summer or winter voyages, whilst loading in harbour, and when sailing and
varies with the particular cargo contracted to be carried.”
1-260 The sometimes elusive concept of seaworthiness also affects hull insurance
(which is covered in more detail in a future module) and also the (British) Marine
Insurance Act 1906 (sections 39–40) states: “A ship is deemed seaworthy when
she is reasonably fit in all respects to encounter the ordinary perils of the seas
of the adventure insured.”
1-261 In other words, it is essential that a ship manager takes all reasonable steps to
ensure that a vessel is seaworthy at and before the commencement of every
individual stage of the voyage. Moreover, the ship manager must be able to

prove that he has done so and much of that proof should reside in the safety
ethos of the organisation.
5.9.1 The Term “Carefully to Carry” or Cargoworthiness
1-262 The Hague (and associated) Rules also introduce the concept of cargoworthiness.
This is an important consideration associated with fitness for purpose and
condition. Is, for example, the vessel of the right type and construction, especially
cargo containment (for example, does a tanker have the right tank coating for
the product to be carried) and condition, usually decided by survey (if of the right
type, is the tank coating in sufficiently good condition to protect the product)?
1-263 Even if the vessel is fit for purpose and the cargo containment is in good
condition, the owner and particularly the master have an over-riding duty to
carefully load, stow, carry, discharge and deliver the cargo entrusted to the
vessel. Even if the shipper’s stevedores are loading and stowing the cargo, the
master is not absolved of a duty to ensure that, in his view and experience, the
cargo is being “carefully loaded and stowed”.
1-264 In this context, the master carries a much more direct responsibility to the
eventual receiver of the goods than any shipper’s stevedore. (This responsibility
goes hand in hand with the master’s “seaworthiness” responsibility to make sure
that the cargo is so stowed that the vessel has sufficient stability for “the
envisaged voyage in the envisaged conditions”.)
1-265 It is important to bear in mind that the eventual receiver of the cargo may well
not be a party to many of the contracts involved and may have purchased the
cargo on the basis of a bill of lading, possibly supplemented by an inspection
report on the particular goods. This inspection may well have been made before
goods were delivered for shipment and eventually loaded onboard. In other
words, there may be a difference in the apparent quality and/or the quantity of
the goods between this inspection and the evidence of the mate’s receipts on
loading.
1-266 The shipper will certainly not want the master’s description on the bill of lading
acting as a receipt for the goods to differ from the other documentation which he
will present to the bank in order to release the documentary credit in his favour.
Hence, pressure on the master to sign clean (unqualified) bills of lading is
frequently intense. This is an area where the master may require, and should be
able to rely on, staunch support and good advice from his owner or the ship
managers. Bearing in mind that these situations inevitably arise in the “wrong
time zone” (that is, in the middle of the ship manager’s night) while the master is
under intense pressure to sail, ship managers need to have procedures in place
to support their masters. One source of support is, if available, the local P&I club
correspondent; the owner’s agent may be another, but the ship’s agent may
frequently be appointed by or more beholden to the shipper.
1-267 Finally, although modern communications and data transmission technology are
making inroads into the relative isolation of the master and his ship, for the major
part of the marine transportation link in the transfer of goods from buyer to seller,
the master and his crew have sole care and custody of those goods.

6. AN OUTLINE OF THE LAWS THAT GOVERN
SHIPPING’S LEGAL FRAMEWORK
LEARNING OUTCOMES
• Know how shipping conventions protocols and codes are created

and amended
• Understand the role of IMO and ILO
• Know the key conventions and what they are for
• Identify what the industry refers to as the “Four Pillars of Quality

Shipping”.
6.1 WHO MAKES THE RULES?
1-268 Rules are intended to prevent accidents. Both IMO and ILO debate create and
amend treaties, conventions, protocols and codes. However it is the responsibility
of the flag state to ratify them in their own country before they become law.
6.1.1 International Maritime Organisation (IMO)
1-269 Under UNCLOS, the Convention establishing the International Maritime

Organisation (IMO) was adopted in Geneva in 1948 and IMO first met in 1959.

Module 1 An Outline of the Laws that Govern Shipping’s Legal Framework
IMO’s main task has been to develop and maintain a comprehensive regulatory
framework for shipping and its remit today includes safety, environmental
concerns, legal matters, technical co-operation, maritime security and the
efficiency of shipping.
1-270 IMO’s specialised committees and sub-committees are the focus for the technical
work to update existing legislation or develop and adopt new regulations, with
meetings attended by maritime experts from Member Governments, together with
those from interested intergovernmental and non-governmental organisations.
1-271 The result is a comprehensive body of international conventions, supported by

hundreds of recommendations governing every facet of shipping. There are,
first, measures aimed at the prevention of accidents, including standards for ship
design, construction, equipment, operation and manning – key treaties include
SOLAS, the MARPOL convention for the prevention of pollution by ships and the
STCW convention on standards of training for seafarers.
1-272 Today, we live in a society which is supported by a global economy, which simply
could not function if it were not for shipping. IMO plays a key role in ensuring that
lives at sea are not put at risk and that the marine environment is not polluted by
shipping – as summed up in IMO’s mission statement: Safe, Secure and Efficient
Shipping on Clean Oceans. It has always been recognised that the best way of
improving safety at sea is by developing international regulations that are followed
by all shipping nations and from the mid-nineteenth century onwards a number of
such treaties were adopted. Several countries proposed that a permanent
international body should be established to promote maritime safety more effectively,
but it was not until the establishment of the United Nations itself that these hopes
were realised. In 1948 an international conference in Geneva adopted a convention
formally establishing IMO (the original name was the Inter-Governmental Maritime
Consultative Organisation, or IMCO, but the name was changed in 1982 to IMO).
1-273 Below is an outline of the structure of IMO with its committees and sub-committees:

An Outline of the Laws that Govern Shipping’s Legal Framework Module 1
6.1.2 The International Labour Organisation (ILO)
1-274 The driving forces for ILO’s creation arose from security, humanitarian, political
and economic considerations. There is a keen appreciation of the importance of
social justice in securing peace, against a background of exploitation of workers
in all nations. There is also increasing understanding of the world’s economic
interdependence and the need for cooperation to obtain similarity of working
conditions in countries competing for markets.
1-275 As far as shipping is concerned the ILO is concerned with the social aspects of
those working at sea. They have introduced many conventions and codes but in
2006 produced the International Maritime Convention which has also been
called the seafarers “bill of rights”. This has yet to be ratified by a number of
states before it becomes accepted as an international convention. It is hoped
this will be achieved by 2011.
6.2 THE FOUR PILLARS OF QUALITY SHIPPING
1-276 The industry has identified four international conventions that are key to ensuring
that ships trade safely, securely and do not damage the environment, in other
words “quality shipping”. This does, of course, require that flag states and port
states to ensure that the owners maintain their obligations under these
conventions.
6.2.1 SOLAS
1-277 Although the Titanic disaster prompted the concept of the International
Convention for the Safety of Life at Sea (SOLAS) in 1914, the IMO’s first task
when it came into being in 1959 was to adopt a new version of SOLAS, the most
important of all treaties dealing with maritime safety.
1-278 The SOLAS Convention in its successive forms is generally regarded as the
most important of all international treaties concerning the safety of merchant
ships. After the first version was adopted in 1914, in response to the Titanic
disaster, the second in 1929, the third in 1948, and the fourth in 1960 versions
were created.
1-279 The 1960 Convention – which was adopted on 17 June 1960 and entered into
force on 26 May 1965 – was the first major task for IMO after the Organization’s
creation and it represented a considerable step forward in modernising regulations
and in keeping pace with technical developments in the shipping industry.
1-280 The intention was to keep the Convention up to date by periodic amendments
but in practice the amendments procedure proved to be very slow. It became
clear that it would be impossible to secure the entry into force of amendments
within a reasonable period of time.
1-281 As a result, a completely new Convention was adopted in 1974 which included
not only the amendments agreed up until that date but a new amendment
procedure – the tacit acceptance procedure – designed to ensure that changes
could be made within a specified (and acceptably short) period of time.

1-282 Instead of requiring that an amendment shall enter into force after being
accepted by, for example, two-thirds of the Parties, the tacit acceptance
procedure provides that an amendment shall enter into force on a specified date
unless, before that date, objections to the amendment are received from an
agreed number of Parties.
1-283 As a result the 1974 Convention has been updated and amended on numerous
occasions. The Convention in force today is sometimes referred to as SOLAS,
1974, as amended.
In today’s SOLAS there are 12 chapters:
(i) General provisions
(ii) Construction
(iii) Life saving appliances
(iv) Radio communications
(v) Safety of navigation
(vi) Carriage of cargoes
(vii) Dangerous goods
(viii) Nuclear ships
(ix) Management for the safe operation of ships (ISM Code)
(x) High speed craft
(xi) Special measures for safety and security
(xii) Additional safety for bulk carriers
6.2.2 International Convention for the Prevention of Pollution

from Ships (MARPOL)
1-284 Oil pollution of the seas was recognised as a problem in the first half of the
twentieth century and various countries introduced national regulations to
control discharges of oil within their territorial waters. In 1954, the United
Kingdom organised a conference on oil pollution which resulted in the adoption
of the International Convention for the Prevention of Pollution of the Sea by Oil
(OILPOL), 1954. Following entry into force of the IMO Convention in 1958, the
depository and Secretariat functions in relation to the Convention were
transferred from the United Kingdom Government to IMO.
1-285 In 1967, the tanker Torrey Canyon ran aground while entering the English
Channel and spilled her entire cargo of 120,000 tonnes of crude oil into the sea.
This resulted in the biggest oil pollution incident ever recorded up to that time.
The incident raised questions about measures then in place to prevent oil

pollution from ships and also exposed deficiencies in the existing system for
providing compensation following accidents at sea.
1-286 An international Conference in 1973 adopted the International Convention for

the Prevention of Pollution from Ships. While it was recognised that accidental
pollution was spectacular, the Conference considered that operational pollution
was still the bigger threat. As a result, the 1973 Convention incorporated much
of OILPOL 1954 and its amendments into Annex I, covering oil.
1-287 But the Convention was also intended to address other forms of pollution from
ships and therefore other annexes covered chemicals, harmful substances
carried in packaged form, sewage and garbage. The 1973 Convention also
included two Protocols dealing with Reports on Incidents involving Harmful
Substances and Arbitration.
1-288 In 1978, in response to a spate of tanker accidents in 1976–1977, IMO held a

Conference on Tanker Safety and Pollution Prevention in February 1978. The
conference adopted measures affecting tanker design and operation, which
were incorporated into both the Protocol of 1978 relating to the 1974 Convention
on the Safety of Life at Sea (1978 SOLAS Protocol) and the Protocol of 1978
relating to the 1973 International Convention for the Prevention of Pollution from
Ships (1978 MARPOL Protocol) – adopted on 17 February 1978.
1-289 As the 1973 Convention had not yet entered into force, the 1978 MARPOL
Protocol absorbed the parent Convention. The combined instrument – the
International Convention for the Prevention of Marine Pollution from Ships, 1973,
as modified by the Protocol of 1978 relating thereto (MARPOL 73/78) – finally
entered into force on 2 October 1983 (for Annexes I and II).
1-290 The Convention includes regulations aimed at preventing and minimising

pollution from ships – both accidental pollution and that from routine operations
– and currently includes six technical Annexes.
1-291 MARPOL is constantly being amended and updated to keep pace with demands
to reduce environmental damage to the planet. For example, the 2008
amendments to the MARPOL Annex VI regulations are to reduce harmful
emissions from ships even further.

Annex I Regulations for the Prevention of Pollution by Oil
Annex II Regulations for the Control of Pollution by Noxious Liquid

Substances in Bulk
Annex III Prevention of Pollution by Harmful Substances Carried by Sea

in Packaged Form
Annex IV Prevention of Pollution by Sewage from Ships
Annex V Prevention of Pollution by Garbage from Ships
Annex VI Prevention of Air Pollution from Ships
1-292 The main changes to MARPOL Annex VI will see a progressive reduction in
sulphur oxide (SOx) emissions from ships, with the global sulphur cap reduced
initially to 3.50% (from the current 4.50%), effective from 1 January 2012; then
progressively to 0.50%, effective from 1 January 2020, subject to a feasibility
review to be completed no later than 2018.
1-293 The limits applicable in Sulphur Emission Control Areas (SECAs) will be reduced
to 1.00%, beginning on 1 July 2010 (from the current 1.50%); being further
reduced to 0.10%, effective from 1 January 2015.
1-294 Progressive reductions in nitrogen oxide (NOx) emissions from marine engines
were also agreed, with the most stringent controls on so-called “Tier III” engines,
that is, those installed on ships constructed on or after 1 January 2016, operating
in Emission Control Areas.
1-295 The revised Annex VI will allow for an Emission Control Area to be designated
for SOx and particulate matter, or NOx, or all three types of emissions from
ships, subject to a proposal from a Party or Parties to the Annex, which would
be considered for adoption by the Organisation, if supported by a demonstrated
need to prevent, reduce and control one or all three of those emissions from
ships.
1-296 The shipping industry does have a huge responsibility with regards to the
environment, but in spite of the media’s focus on oil pollution caused by tankers,
maritime transportation is far “greener” than road, rail or air when it is compared
on a tonnes per kilometre basis. As far as the MARPOL Convention is
concerned, IMO has set an excellent example in changing the industry for the
better.
6.2.3 Standards of Training, Certification and Watchkeeping (STCW)
1-297 The 1978 STCW Convention was the first to establish basic requirements on
training, certification and watchkeeping for seafarers on an international level.
Previously the standards of training, certification and watchkeeping of officers
and ratings were established by individual governments, usually without
reference to practices in other countries. As a result standards and procedures
varied widely, even though shipping is the most international of all industries.

1-298 The Convention prescribes minimum standards relating to training, certification

and watchkeeping for seafarers which countries are obliged to meet or exceed.
1-299 The Convention did not deal with manning levels: IMO provisions in this area are
covered by a regulation in Chapter V of the International Convention for the
Safety of Life at Sea (SOLAS), 1974, whose requirements are backed up by
Resolution A.890(21) Principles of Safe Manning, adopted by the IMO Assembly
in 1999, as amended by Resolution A.955(23) Amendments to the Principles of
Safe Manning (Resolution A.890(21)).
1-300 The Articles of the Convention include requirements relating to issues

surrounding certification and port state control.
1-301 One especially important feature of the Convention is that it applies to ships of
non-party states when visiting ports of states which are Parties to the Convention.
Article X requires Parties to apply the control measures to ships of all flags to
the extent necessary to ensure that no more favourable treatment is given to
ships entitled to fly the flag of a state which is not a Party than is given to ships
entitled to fly the flag of a state that is a Party.
1-302 The difficulties which could arise for ships of states which are not Parties to the
Convention is one reason why the Convention has received such wide
acceptance. By December 2000, the STCW Convention had 135 Parties,
representing 97.53% of world shipping tonnage.
1-303 The 1995 amendments, adopted by a Conference, represented a major revision

of the Convention, in response to a recognised need to bring the Convention up
to date and to respond to critics who pointed out the many vague phrases, such
as “to the satisfaction of the Administration”, which resulted in different
interpretations being made.
1-304 Others complained that the Convention was never uniformly applied and did not
impose any strict obligations on Parties regarding implementation. The 1995
amendments entered into force on 1 February 1997. However, until 1 February
2002, Parties may continue to issue, recognise and endorse certificates which
applied before that date in respect of seafarers who began training or seagoing
service before 1 August 1998.
1-305 One of the major features of the revision was the division of the technical annex
into regulations, divided into Chapters as before, and a new STCW Code, to
which many technical regulations have been transferred. Part A of the Code is
mandatory while Part B is recommended.
1-306 Dividing the regulations up in this way makes administration easier and it also
makes the task of revising and updating them simpler: for procedural and legal
reasons there is no need to call a full conference to make changes to Codes.
1-307 By the start of the twenty-first century the Convention has been amended four
times and will continue to be dynamic and change each 10 years in order to
meet the changes in technology. In view of this, and more than 10 years since
its last major revision, the Secretary General, at the opening of the thirty-seventh
session of the Sub-Committee on Standards of Training and Watchkeeping,

remarked that perhaps the time had come to give some preliminary consideration
to any need for another comprehensive review of the Convention to ensure that
it meets the new challenges facing the shipping industry today and in the years
to come.
1-308 The Maritime Safety Committee acknowledged this and instructed the STW
Sub-Committee to define first in detail the issues to be reviewed and advise the
Committee accordingly, before embarking on the actual work.
1-309 Accordingly, the Sub-Committee at its thirty-eighth session, after preliminary

discussions, agreed the review should only embrace the following principles:
1. retain the structure and goals of the 1995 revision;
2. do not down-scale existing standards;
3. do not amend the articles of the Convention;
4. address inconsistencies, interpretations, outdated provisions, MSC

instructions, clarifications already issued and technological advances;
5. address requirements for effective communication;
6. provide for flexibility in terms of compliance and for required levels of

training and certification and watchkeeping arrangements due to innovation
in technology;
7. address the special character and circumstances of short-sea shipping

and the offshore industry; and
8. address security-related issues.
1-310 Following detailed discussions, it was agreed that the present structure of the
Convention had more than adequately served its purpose and there was no
need to review it. Furthermore, there was unanimous agreement that during the
review process it was necessary to ensure that there was no down-scaling of
existing standards.
1-311 The amendments to the STCW 1978 text (now formally known as the Manila
Amendments) were adopted on the 25 June 2010. It should be noted that the
coverage of the Convention is much broader including not only able seafarers
previously in ILO 74 but also security and environmental watchkeeping duties.
The relevant outcomes for each chapter of STCW are as follows:
Chapter I (General Provisions)
1-312 There are 11 new definitions generally to cover amendments and additions;
however, there is now clear distinction between “Certificates of competency” and
“Certificates of proficiency” with these terms standardised and other terms now
removed throughout the Convention. This and some increased requirements in
this chapter, particularly in Regulation I/2, Certificates and endorsements, are

intended to prevent fraud and unlawful practices. In Standards A-I/2 there is

substantial detail regarding the issue and registration of certificates and in B-I/2
further guidance. This is also dealt with new clauses in Revalidation A-I/11 and
B-I/11 and in Communication of information in A-I/7 and B-I/7.
1-313 In B-I/6 there is now comprehensive guidance on training by long distance

learning.
1-314 In Regulation I/3 and A-I/3 vessels operating in Near Coastal voyages must now
agree between the parties and specify the details involving trade areas and
other conditions.
1-315 Harmonising with the requirements of the ILO MLC 2006, there are a number of
basic clauses in Regulation I/9 Medical standards including the maximum
two-year validity of a medical and a maximum three-month period for renewal.
There are now mandatory generic medical standards in A-I/9 including a chart
of specific eyesight requirements and this is supported by a chart on physical
standards in the guidance B-I/9.
1-316 In Regulation I/14, Responsibilities of companies, there are requirements for

refresher and update training for seafarers and clear indication that there is
effective oral communication onboard.
Chapter ll (Master and Deck Department)
1-317 Apart from the amendment of year service to 12 months in Regulation II/1 the
main addition is the new Regulation II/5 Requirements for certification of able
seafarer deck with appropriate competencies in A-II/5. The training requirements
in A-II/1, 2 and 3 are more specific on the use of ECDIS, but training in celestial
navigation, Morse and visual signals are downgraded. Leadership, managerial
skill and teamwork skills are now a requirement and there are new competencies
on planning a voyage and conducting navigation as well as maintaining safe
navigation using ARPA and ECDIS.
Chapter lll (Engine Department)
1-318 Whilst unfortunately in Regulation III/1.2.2 the 30 months training was

reduced to 12 months words were added to cover an alternative minimum 36
months of approved seagoing service with at least 30 months in the engine
department and a requirement to complete workshop skill training. Clause
2.2.1.1 has removed assistant engineer (engineer trainee) and replaced this
with engineer (qualified). It should be noted that the IMO declined to address
the anomaly with the ILO MLC 2006 regarding the minimum age for a
watchkeeping rating of 16. This is contrary to the ILO position that night
watches cannot be covered by seafarers under 18. There are now three
significant additions to chapter III, Regulation III/5, Certification of engine
room able seafarer, III/6, Certification of electro-technical officer, III/7,
Certification of electro-technical rating. These have appropriate competencies
in standards and some additional guidance in B. There is also in B-III/2 new
guidance for engineers regarding the operation and safety of electrical power
plants above 1000 V.

Chapter lV (Radiocommunication and Radio Operator)
1-319 There was no significant amendments made.
Chapter V (Special Training Requirements)
1-320 There was a major restructuring of this chapter with respect to tanker training.
Regulation V/1-1 now covers training for oil and chemical tankers, and V/1-2
liquefied gas tankers.
In Standards the competency tables are

– A-V/1-1-1 basic training for oil and chemical tankers,
– A-V/1-1-2 advanced training for oil tankers,
– A-V/1-1-3 advanced training for chemical tankers,
– A-V/1-2-1 basic training for liquefied gas tankers
– A-V/1-2-2 advanced training for liquefied gas tankers.
1-321 There are two options for the advanced training on tankers with a three months
minimum reduced to a one month onboard special training option. All crew with
immediate responsibility for loading tankers will require advance training. There
is also extensive guidance in part B.
1-322 Regulation V/2 Personnel on passenger ships aligns the provisions of all passenger
ships with those previously required on ro-ros; it does however still retain the
provisions to confine basic safety requirements to those designated on muster lists.
There are new competency tables for crisis management and human behaviour
training as well as crowd management, and a requirement for refresher training.
1-323 In guidance B-V there are new sections for dynamic positioning, navigational
watch and anchor handling on offshore supply vessels and vessels operating in
ice-covered polar waters.
Chapter Vl (Emergency, Occupational Safety, Medical Care and Survival Functions)
1-324 Evidence must be provided every five years that basic training has been
maintained but this can be done by onboard training and drills. There is now a
requirement to carry a basic training certificate where it is not included in the
qualification for a certificate. There are also additional new competencies in
survival required in A-VI/2 Proficiency in survival and rescue boats.
1-325 The certification for ship security officer is under Regulation VI/5 and security
training of seafarers in VI/6 with appropriate competency tables in standards
A-VI/5, and A-VI/6 including security awareness training, and further guidance
in Part B-VI.
Chapter VII (Alternative Certification)
1-326 There are no amendments to the regulations but training competencies for
general purpose ratings have been introduced with section A-VII/1.4.1 to 3 and
new clauses A-VII/2, 3 and 4.

1-327 There is further guidance on training programmes for integrated ratings in part
B-VII/2.
Chapter Vlll (Watchkeeping)
1-328 There are two amendments to the regulations; the first being the introduction of
a mandatory maximum alcohol level for watchkeepers, although this cannot be
higher than national or company standards. In A-VIII/1.10 this is set at no greater
than 0.05% blood alcohol level and 0.25 mg/l alcohol in the breath.
1-329 The second amendment includes maintaining watches for the purpose of
security.
1-330 The primary changes to section A-VIII/1 Fitness for duty were the increase in
minimum rest hours from 70 to 77 hours and the removal of the old clause 4,
derogation clause. This is offset with the addition of the new clause 9 which
provides for administration to allow exceptions back down to 70 hours for up to
two weeks but not continuously. Of more concern is the ability over 48 hours to
vary clause 3 regarding the minimum six- and four-hour break with the four-hour
not being consecutive. The abuse of this variation especially on short sea coastal
vessels should not be possible but we should be vigilant against back to back
14-hour watches over two days.
1-331 There is in part B-VIII/1.4 reference to exceptions under the ILO MLC 2006
which ideally introduces the need to give clear reasons and advises Administrations
to be concerned at possible fatigue; however, history has not proven them to be
very active in this respect.
1-332 In Standards Part 3 there was substantial text regarding bridge and engine room
resource management and in Part B further guidance on anchor watches.
6.2.4 The International Maritime Convention
1-333 The new International Labour Convention was adopted by the International
Labour Conference of the ILO, under article 19 of its Constitution at a maritime
session in February 2006 in Geneva, Switzerland.
1-334 It sets out seafarers’ rights to decent conditions of work and helps to create
conditions of fair competition for shipowners. It is intended to be globally
applicable, easily understandable, readily updatable and uniformly enforced. The
Maritime Labour Convention, 2006, has been designed to become a global legal
instrument that, once it enters into force, will be the “fourth pillar” of the
international regulatory regime for quality shipping, complementing the key
Conventions of the IMO such as the International Convention for the Safety of
Life at Sea, 1974, as amended (SOLAS), the International Convention on
Standards of Training, Certification and Watchkeeping, 1978, as amended
(STCW) and the International Convention for the Prevention of Pollution from
Ships, 73/78 (MARPOL).
1-335 The Maritime Labour Convention, 2006 contains a comprehensive set of global
standards, based on those that are already found in 68 maritime labour
instruments (Conventions and Recommendations), adopted by the ILO since

1920. The new Convention brings almost all of the existing maritime labour
instruments together in a single new Convention that uses a new format with
some updating, where necessary, to reflect modern conditions and language.
The Convention “consolidates” the existing international law on all these matters.
The Conventions addressing the seafarers’ identity documents were recently
revised in 2003 (Convention Nos. 108 and 185) and are not included in the new
Convention. In addition, the Seafarers’ Pension Convention, 1946 (No. 71) and
one Convention (The Minimum Age (Trimmers and Stokers) Convention, 1921
(No. 15)), which is no longer relevant to the sector, are not consolidated by the
Maritime Labour Convention, 2006.
1-336 The Convention will enter into force 12 months after the date on which there
have been registered ratifications by at least 30 Members with a total share in
the world gross tonnage of ships of 33%.
1-337 This is much higher than the usual ratification level (for ILO Conventions) and it
uses a new formula that is intended to assure greater actual impact of the
Convention. It reflects the fact that the enforcement and compliance system
established under the Convention needs widespread international cooperation
in order to be effective. Since many of the obligations under the Convention are
directed to shipowners and flag states it is important that ILO Members with a
strong maritime interest and a high level of tonnage operating under their legal
jurisdiction ratify the Convention.
1-338 The existing ILO maritime labour Conventions will be gradually phased out as
ILO Member States that have ratified those Conventions ratify the new
Convention, but there will be a transitional period when some parallel Conventions
will be in force. Countries that ratify the Maritime Labour Convention, 2006, will
no longer be bound by the existing Conventions when the new Convention
comes into force for them. Countries that do not ratify the new Convention will
remain bound by the existing Conventions they have ratified, but those
Conventions will be closed to further ratification.
1-339 The decision by the ILO to move forward to create this major new Maritime
Labour Convention was the result of a joint resolution in 2001 by the international
seafarers’ and shipowners’ organisations, later supported by governments. They
pointed out that the shipping industry is “the world’s first genuinely global
industry” which “requires an international regulatory response of an appropriate
kind – global standards applicable to the entire industry”. The industry called on
the ILO to develop “an instrument which brings together into a consolidated text
as much of the existing body of ILO instruments as it proves possible to achieve”
as a matter of priority “in order to improve the relevance of those standards to
the needs of all the stakeholders of the maritime sector”. It was felt that the very
large number of the existing maritime Conventions, many of which are very
detailed, made it difficult for governments to ratify and to enforce all of the
standards. Many of the standards were out of date and did not reflect
contemporary working and living conditions onboard ships. In addition, there
was a need to develop a more effective enforcement and compliance system
that would help to eliminate substandard ships and that would work within the
well-established international system for enforcement of the international
standards for ship safety and security and environmental protection that have
been adopted by the IMO.

1-340 The Convention does not apply to:
• ships which navigate exclusively in inland waters or waters within, or closely

adjacent to, sheltered waters or areas where port regulations apply;
• ships engaged in fishing;
• ships of traditional build such as dhows and junks; and
• warships or naval auxiliaries.
6.3 OTHER KEY CONVENTIONS, CODES AND GUIDELINES
6.3.1 The Load Line Convention
1-341 The purpose of a load line is to ensure that a ship has sufficient freeboard and
thus sufficient reserve buoyancy. The freeboard on commercial vessels is
measured between the uppermost continuous deck and the waterline and this
must not be less than the freeboard marked on the Load Line Certificate issued
to that ship. The load line makes it easy for anyone to see whether a ship has
been overloaded.
1-342 The stability of ships can be seriously affected by overloading, especially if the
cargo shifts during the course of the voyage and the practice of marking ships
to indicate how low they may safely rest in the water when loaded goes back
several centuries. Most merchant ships today are covered by the International
Convention on Load Lines 1966 as amended
6.3.1.1 A Recent History of Load Lines
1-343 The United Kingdom Government passed a law in 1850 setting up the Marine
Department of the Board of Trade, to enforce application of laws governing
manning, crew competence and operation of merchant vessels.
1-344 Nonetheless, seafarers themselves had little say in the safety standards aboard
what one captain described as a “coffin ship”. In fact, until 1871, it was actually
illegal for seafarers to refuse to go to sea, even on the grounds that the ship they
were sailing on was unseaworthy. In 1866 four successive crews refused to
serve on a ship called the Harkaway on the understandable grounds that even
at anchor in a calm sea the ship took on more than one metre of water a day.
They were sent to prison.
1-345 In the 1860s, calls for regulations to limit overloading on ships were growing in
the United Kingdom. A shipowner from northern England, James Hall, was
concerned about the impact on insurance rates of the high number of shipping
casualties – losses had doubled in 30 years. Although many shipowners were
portrayed as irresponsible, Hall could see the benefits – in terms of lower
insurance rates – of getting all shipowners to abide by good practices.
1-346 In particular, Hall petitioned the Board of Trade to investigate the large number
of ship losses and the Board of Trade inquiry found overloading was one of the
factors to blame. Meanwhile, a coal dealer and liberal Member of Parliament,

Samuel Plimsoll, took up the load line cause. Plimsoll began a battle to try and
get merchant shipping laws reformed – against stiff opposition from a minority
of shipowners.
1-347 A Royal Commission on Unseaworthy Ships was set up in 1872 and finally the
United Kingdom Merchant Shipping Act of 1876 made load lines compulsory.
The load line mark included in the legislation – though the position of the line
was not fixed by law until 1894 – became known as the “Plimsoll Line”: a circle
with a horizontal line through the middle.
1-348 Figures on ship casualties probably helped to goad the British parliamentarians
into action: in the year 1873, around the coastline of the United Kingdom, 411
ships sank, with the loss of 506 lives. But this figure only covers the United
Kingdom coastline: between 1867 and 1882, loss of life in British vessels alone
(and excluding fishing vessels) totalled 33,427 seafarers and 5,987 passengers.
Ships lost numbered 16,393.
1-349 In 1906, laws were passed requiring foreign ships visiting British ports to be
marked with a load line, while a German law of 1903 also issued freeboard
regulations, spreading the regulatory net further.
1-350 In the United States, American vessels were loaded to a formula based on
“inches per foot of depth of hold” until 1917 when the US Shipping Board
required adherence to British Board of Trade standards based on a set of
calculated freeboard tables.
1-351 Load line legislation was introduced in the American Congress in 1920 and
failed, but a Load Line Act was passed in the United States in 1929.
1-352 By that time, there was a proliferation of different freeboard rules in use by
various marine administrations and classification societies, which meant there
was a lack of global standardisation.
1-353 The first international conference on load line regulations was envisaged for
1913, but the approaching war meant this planned conference was never held.

1-354 In 1922, however, the British Chamber of Shipping sponsored a conference,

which adopted recommendations derived from studies on existing regulations
elsewhere, with a view to eventually adopting them as international regulations.
1-355 Further preparatory work by the major maritime nations of the time resulted in
an international conference held in London in 1930 – which adopted the first
International Load Line Convention.
1-356 The rules adopted at the conference were not based on exact scientific principles
– but were essentially a compromise between the various national rules which
had been developed previously.
1-357 The 1930 Load Line Convention was the first international agreement for
universal application of load line regulations and applied to seagoing ships in
international trade and was based on the principle of reserve buoyancy, although
it was recognised then that the freeboard should also ensure adequate stability
and avoid excessive stress on the ship’s hull as a result of overloading. The rules
covered superstructure evaluations, freeboards and strength standards.

1-358 The minimum freeboard was designed to provide a standard of “reserve buoyancy”
(the volume of the watertight hull above the load waterline), while the protection
of openings in the hull and superstructures, such as hatches, ventilators, air-pipes,
scuppers, overhead discharges and the access openings in the bulkhead of
superstructures was an important consideration in the assignment of freeboard.
1-359 Another major concern was the protection for the crew by consideration of the
strength of gangways, guard rails, lifelines and the height of the working platform
itself.
1-360 The calculated freeboard was the basic minimum summer freeboard in salt
water. The regulations divided the world into different geographical/seasonal
zones, with different load lines for each – in recognition of the fact that sea and
weather conditions vary greatly in different sea areas and in different seasons of
the year. A ship sailing in winter in the North Atlantic Ocean had to have an
increase in freeboard while for voyages in the tropical zones and in fresh water
there was a freeboard deduction.
1-361 Freeboard was measured from the top of the deck amidships to the top of the
line through the centre of the load line disc. Forward of the disc was a grid
composed of lines indicating the maximum loading, for the summer at the level
with the line in the disc and others further down for winter in the north Atlantic
and above for the tropical zones and for fresh water. Special rules were provided
for tankers and for the carriage of timber deck cargo.
1-362 The 1930 Load Line Convention was an important step in establishing universally
applicable rules.
Directed Learning:
Visit IMO website at www.imo.org and research into the current activities
of the sub-committees. If you click onto newsroom in the right-hand
column you will see IMO Meetings. Click onto IMO Meetings and a list of
all the committees and sub-committees will appear on the right-hand
side. Select one of these and you will find reports on what had been
decided at these meetings.
6.4 WHO CAN POLICE THE RULES?
1-363 In many respects port state control is the enforcing body of the maritime
conventions as their officers carry out the inspection of foreign ships in national
ports to verify that the condition of the ship and its equipment complies with the
requirements of international regulations and that the ship is manned and
operated in compliance with these rules.
6.5 FLAG STATES, PORT STATES AND COASTAL STATES
1-364 The responsibilities of each of these states generally come under the same
government administration.

6.5.1 The Role of the Flag States
1-365 UNCLOS Article 94 requires the flag state to effectively exercise its jurisdiction
and control in administrative, technical and social matters over ships flying its
flag (“flag state control”) and to:
• maintain a register of ships;
• assume jurisdiction under its internal law over each ship flying its flag and
its master, officers and crew in respect of administrative, technical and
social matters concerning the ship;
• flag states must take such measures for their ships to be safe;
• the construction, equipment and seaworthiness of ships;
• the manning of ships, labour conditions and the training of crews, taking
into account the applicable international agreements (for example, STCW
and ILO Conventions);
• the use of signals, the maintenance of communications and the prevention

of collisions.
These measures must include those necessary to ensure the following:
• that the ship is surveyed by a qualified surveyor of ships and has onboard
such charts, nautical publications and navigational equipment and
instruments as are appropriate for the navigation of the ship;
• that the ship is in the charge of a master and officers who possess
appropriate qualifications, in particular in seamanship, navigation,
communications and marine engineering, and that the crew is appropriate
in qualifications and numbers for the type, size, machinery and equipment
of the ship;
• that the master, officers and crew are fully conversant with and required to
observe the applicable international regulations concerning the safety of
life at sea, the prevention of collisions; and
• the prevention, reduction and control of marine pollution, and the

maintenance of communications by radio.
1-366 In many cases the flag states have delegated their authority and responsibility
to carry out inspections and surveys to class societies.
6.5.2 The Role of the Port States
1-367 Many of IMO’s most important technical conventions contain provisions for ships
to be inspected when they visit foreign ports to ensure that they meet IMO
requirements.
1-368 These inspections were originally intended to be a back-up to flag state

implementation, but experience has shown that they can be extremely effective,

especially if organised on a regional basis. A ship going to a port in one country

will normally visit other countries in the region before embarking on its return
voyage and it is to everybody’s advantage if inspections can be closely
co-ordinated.
1-369 This ensures that as many ships as possible are inspected but at the same time
prevents ships being delayed by unnecessary inspections. The primary
responsibility for ships’ standards rests with the flag state – but port state control
provides a “safety net” to catch substandard ships.
1-370 To try to standardise the inspections regional port state control organisations
have been established and these are known as Memoranda of Understanding
or MOUs:
• Europe and the North Atlantic (Paris MOU)
• Asia and the Pacific (Tokyo MOU)
• Latin America (Acuerdo de Viña del Mar MOU)
• Caribbean (Caribbean MOU)
• West and Central Africa (Abuja MOU)
• the Black Sea Region (Black Sea MOU)
• the Mediterranean (Mediterranean MOU)
• the Indian Ocean (Indian Ocean MOU)
• the Arab States of the Gulf (GCC MoU (Riyadh MoU))
6.5.3 The Role of the Coastal States
1-371 Any country having a coastline is entitled under international law to take certain
limited steps to protect that country’s interests. There are four main zones of
varying jurisdiction:
• estuaries, bays, ports and similar enclosed areas of the sea;
• territorial waters – extending 12 miles to seaward of defined “baselines”

along the shore;
• a contiguous zone – covering the territorial waters and a further 12 miles

to seaward; and
• the exclusive economic zone (EEZ) – extending to 200 miles. A state’s

powers range from full sovereign powers within internal waters, to rights
limited to the exploitation of natural resources on and above the EEZ.
1-372 However coastal states must not violate one of the cornerstones of international
maritime law – the right of merchant ships to innocent passage across the seas.

All states have the right of free passage of their ships through the high seas, the
outer 12 miles of the contiguous zone, the continental shelf zone and the EEZ.
1-373 Innocent passage is defined by UNCLOS as navigation through the territorial

sea whether or not actually entering internal waters or calling at a roadstead or
port facility. To be innocent a ship’s passage must not be prejudicial to the peace,
good order or security of the coastal state. Vessels engaged in innocent passage
may anchor and stop, but only if incidental to ordinary navigation or beset by
extraordinary circumstances.
1-374 However, it is accepted by international law that coastal states may regulate
maritime traffic, protect navigational aids, cables and pipelines, conserve living
resources and protect the environment generally, prevent, reduce or control
pollution, and prevent the infringement of customs, fiscal, immigration or sanitary
laws. Where a ship is to call at its ports, a state may in the territorial sea take
necessary steps to prevent any breach of the conditions to which admission of
those ships to internal waters or her call to the port is subject.
1-375 As far as pollution is concerned, UNCLOS Art 211 sets out the state’s authority:
in the exercise of their sovereignty within their territorial sea coastal states may
adopt laws and regulations for the prevention, reduction and control of pollution,
provided they do not hamper innocent passage of foreign vessels. They may
include the EEZ in these measures, provided they conform to and give effect to
generally accepted international rules and standards.
1-376 A coastal state needs to ensure that it does not reach beyond internationally
accepted norms of interference with foreign vessels, both from a perspective of
comity (what is done by one state can be done to its own flag vessels by other
countries) and to remain within the bounds of reality and practicality. Stopping a
vessel en passage through territorial seas is a drastic and potentially dangerous
exercise.
Directed Learning:
Identify the administration responsible for port state control in your own
country. Are statistics and/or findings available relating to ship inspections?
How many ships are inspected? Are the inspections targeted? How
many ships fail the inspection and what are the reasons? Do you notice
any trends? – add your feedback onto the course forum and discuss your
findings with the other participants.

7. THE WAY SHIPS ARE MANAGED AND HOW
THEY OPERATE
LEARNING OUTCOMES
• Understand the role and structure of a ship management company
• Identify the various responsibilities both ashore and afloat
• Understand the responsibilities of the Shipmaster
• Know the importance of a safety management system.
7.1 THE ROLE OF SHIP MANAGEMENT
1-377 The operation of a ship is a multi-faceted activity the objective of which is to

realise maximum benefit to the shipowner whilst serving the needs of the
merchant (shipper and consignee). Ship operations are defined as “the functions
associated with the earnings of a ship”. The following functions are now
considered: crewing and training (including the ISM Code), bunkering, repair
and maintenance (R&M). Each area has a cost component which impacts on the
bottom line.
1-378 The cost implications of the above functions and costs associated with insurance,
management and administration, stores and supplies will be covered in
Module 5: “Ship Revenues and Costs”.
1-379 A ship manager should strive to provide quality assured crew management
services, through the expedience of arranging for employment seafarers for the
purpose of manning ships with qualified, medically fit and suitably experienced
seafarers:
• with adequate numbers of seafarers for the trade in which the ships are
engaged;
• in accordance with STCW 95 (for the particular flag state);
so as to provide for, but not be limited to, the human element of:
• operating the ships safely and efficiently;
• avoiding injuries to personnel and loss of life;
• conserving and protecting the environment;

The Way Ships are Managed and How they Operate Module 1
• complying with all applicable national and international rules and

requirements;
• applying recognised industry standards when appropriate;
• providing the client with sufficient, accurate and timely information about
the status of the crew;
• continuous development of skills and systems in the business;
• preparing for emergencies.
A ship manager should strive to provide quality assured ship management

services, which entails, but is not limited to:
• operating the ship and transporting cargo efficiently;
• avoiding injuries and loss of life;
• conserving and protecting the environment;
• protecting client’s assets that are entrusted to the ship manager;
• complying with statutory and classification rules and requirements;
• applying recognised industry standards when appropriate;
• providing the client with sufficient, accurate and timely information about
the operation and status of the ships;
• continuous development of skills, systems and understanding of the

business;
• preparing for emergencies.
1-380 Note that the objectives here relate to the functions of ship management on
behalf of the client, rather than the internal business objectives of a particular
ship management company.
7.1.1 Ship Management Ethics
1-381 A ship management company’s business ethics should encompass the following
points:
• the company acknowledges that both it and the client are carrying on a
business with a view to profit;
• the company shall not accept business for which it does not have the
necessary capability and resources;
• the company shall allocate its resources so as to render equitable and

faithful performance to each of its clients;

Module 1 The Way Ships are Managed and How they Operate
• the company shall advise the client of any conflict of interest;
• the company shall respect the confidentiality of each client’s business and
activities;
• the company’s policy shall emphasise its commitment to safety, protection

of the environment and to safeguarding the client’s property;
• the company shall, whenever possible, advise the client of any potentially
dangerous or other unacceptable situations;
• the company shall not knowingly participate in any activities that it knows
to be unsafe or illegal;
• the company’s policy shall be to promote a healthy working environment

including, but not limited to, the provision of safeguards against drug and
alcohol abuse aboard ship always in conformity with internationally
accepted standards;
• the company shall at all times adhere to sound principles with respect to
the management of funds and cash;
• the company shall not continue or commit itself to carry out business for a
client and/or owner when the service to be provided may be used for the
furtherance of illegal activities to the actual knowledge of the company;
and, if a member of Intermanager;
• the company’s policy and aim shall be to provide services in compliance

with the ISMA Code as applicable.
1-382 The tenor of the business ethics will give the potential ship manager a good
understanding of many of the business pressures he or she will encounter.
7.2 A GENERIC VIEW ON HOW COMPANIES MANAGE
1-383 All managers contemplating joining a company should take a critical look at how
it is organised and this critical appraisal should continue throughout their time
with that company. Just as life for the seafarer has undergone radical change, so
too has, and is, life for the ship manager. The management of change will be just
as important within the shore staff as it is at sea and will require astute thinking
in order to marry the best of traditional nautical experience to continually
developing technologies. At the same time, modern ship management has no
place for tradition that is rooted in no more solid a foundation than the change
resistant cry of “We have always done it this way”. Conversely, the wise ship
manager will learn to think carefully about how technology-driven labour-saving
devices will affect the balance of life and work onboard, including the quality of
the job, before succumbing to the blandishments of salesman or cost
accountant.
1-384 The tensions between technological development and the sometimes dangerous
mantra that technology always allows costs to be reduced must be balanced
against what can best be described as good seamanship based on (enlightened)

common sense. The sea has not changed, despite technology. Satellites and
satellite communications may have improved the ability to identify and track
storms (Beaufort scale 10, waves of up to 55 knots and very high waves with
long overhanging crests for those who have not met one at sea).
1-385 Nevertheless, storms can still be damaging for shipping, despite the increase in
the size of ships. Technology in shipbuilding also produced its own problems.
The use of high tensile steel, for example, enabled scantlings to be reduced and
deadweight, and therefore payload, to be increased. Its effect on the overall
seaworthiness of ships is now, at long last, being reassessed – but too late for
the crew of the bulk carrier Derbyshire, lost with all hands in storm conditions,
and for too many others.
1-386 The ship manager will experience, throughout his career, intense pressures to
reduce costs: cheaper crews, reduced scantlings, deferred training, less quality
control on bunker specifications, cuts in planned maintenance schedules to
mention a few of the more common approaches. All will deliver a fairly
immediate, and fairly direct, saving to set against the sudden (but not unusual)
downturns in freight rate which characterise shipping. Some of these measures
will also bring additional, medium to long-term costs in their wake, together
with adverse effects on safety, quality and the morale and job satisfaction of
the seafarer. These costs may be less direct and, therefore, less easy to
attribute. The overall cost to the industry of flag of convenience crews, for
example, has been significant – and has contributed in no small part to the
need for an ISM Code and the implementation of port state control
inspections.
1-387 The message is that the ship manager will come under frequent pressure to cut
costs. He should always endeavour to consider the longer term effect of
immediate actions (or reactions) and always remember that he or she has a
responsibility for the lives of sea staff whose work environment is not impressed
by a need to show an immediate cut in costs.
1-388 Finally, it is not just cost cutting on the shipside that has given rise to an increase
in insurance claims. The recent findings of one of the major P&I clubs indicates
that while crew generated human error has been generally declining over the
past decade, shore staff error is now an increasing contributor to major claims
(UK P&I Club – Seaways, November 1999).
7.3 HOW IS SHIP MANAGEMENT STRUCTURED?
1-389 Like any other business, a shipping company will be owned by public and/or
private shareholders and responsibility of the management of the company is
accountable to both investors and creditors in their stewardship function of the
company. It is generally accepted that the interests of the shareholders are
represented by the company’s board of directors.
1-390 The generic structure of shipping companies is shown in the following diagram.
Many shipping companies, particularly the larger ones, will have a more complex
structure.

7.4 A SHIP’S BUDGET FORMAT
1-391 In order to understand how a ship management company might be organised, it

is important to know how a shipowner’s income is generated and also how it is
spent (mainly by the ship manager!). Budgeting and voyage calculations are
discussed in detail later in this course; what is given below is an overview
designed to put some of the functions of ship management in context.
1-392 The Finance and Accounts Department will produce income and expenditure
reports which are sometimes referred to as P&L (Profit and Loss) reports. These
are produced regularly throughout the year and show variances between the
actual and budgeted figures. This is an essential management tool to inform
managers how their department is doing financially. Early variances can be dealt
with or explained to the board of directors. Budgets will also enable managers to
make key decisions in their strategic planning.
1-393 This department will also keep cash flow statements and balance sheets for the
company. They will use an IT accounting system which meets the company’s
requirements and which allows it to maintain the records of all costs and
expenditure incurred and all other relevant data to provide the required
reporting.
1-394 They will also produce invoices to customers and pay suppliers on the authority
of the cost centre.
1-395 This department will assist management in preparing and submitting annual
budgets to the management (owners) and control the budgets throughout the
year.
1-396 They will also play an important role in preparing project management
costing.
1-397 Below is a typical simplified income and expenditure report format.

Income and expenditure
Income Expenditure
• Liner trade Op costs

Freight rates • Crew costs and victualling
• Tramp trade • Fuel oil and water
Time or voyage charters • Maintenance and repair
Bareboat charters • Dry docking
• Others • Insurance
Consultancy • Agency and port dues
Management contracts Non-op costs
Sales and purchase • Depreciation
Tax benefits and so on • Bareboat charter
7.5 WHAT ARE THE OPERATIONAL INTERFACES?
1-398 Ship management companies can be organised in a number of different ways

and in developing their structure, managers will need to consider the critical
interfaces, both internal and external.
The main external interfaces will include:
• the shipowner, the direct customer;
• the owner’s broker;
• the shipper, the indirect but ultimate customer;
• the classification societies;
• the hull insurance broker and claims handler;
• the protection and indemnity club;
• legal advisers;
• the flag state authorities;
• the crew providers and training organisations;
• various suppliers of stores and equipment internationally;
• mechanical, electrical and electronic support companies;
• agents and freight forwarders;
• banks and especially the ship manager’s own bank.

1-399 Internally, the primary interface should be between the ship manager responsible
operationally for a ship and that ship’s master. It is through this link that the
owner’s trading requirements are transmitted to the ship to be co-ordinated with
the ship’s technical management requirements.
1-400 Around the ship’s trading schedule, the ship manager must organise the
maintenance, surveying, storing, bunkering, manning and, where necessary, the
repair of the ship. This activity will generate a number of information flows
between ship and shore that need to be correlated and co-ordinated, without
producing communication bottlenecks. The technical operation must not end up
being reactive and planned and predicted operational requirements should be
fed to the chartering activity in good time; a further reason why the trading/
operating interface needs to be fostered. It may well, for example, be more
financially beneficial for the owner to take a slightly lower freight rate in order to
position the ship for a dry-docking. The ship broker needs to be made aware of
the dry-docking plans in good time.
1-401 Managers responsible for the sea-staff and for purchasing as well as the
superintendents responsible for nautical and engineering aspects of the ship’s
operation need to be kept up-to-date on a real time basis. The designated person
and those responsible for safety also need to be in this loop which must encompass
all personnel involved in the company’s emergency response teams.
1-402 Other functions such as insurance and finance can be briefed on a less frequent
basis but should be up to date enough to respond to an operational emergency
or advise on the implications of any major change in plan.
7.5.1 Fleet Teams and Support Teams
1-403 The description of the main communications interfaces outlined above might
indicate why many ship managers favour multi-disciplinary fleet teams over a
more traditional, departmental approach.
1-404 Functional departments such as personnel (or human resources), stores and
purchasing, finance and engineering provide members of each fleet team to
work with and in support of the ship operators under a fleet manager. The
number of ships in each fleet varies with type, trade and the constitution of the
fleet team but is generally in the range of 6–10 vessels.
1-405 The fleet teams should be left as free of general administrative work as possible.
However, it is good practice for them to be involved in the budgeting and
accounting process for the ships within their fleet. This is one reason why a
representative of the finance department can be a valuable member of the
group. The monetary aspects of ship management are important and need
careful control. Frequently funds need to be advanced to port agents ahead of a
ship’s port call and disbursement accounts may take several weeks to be
collated and settled. In the meantime, each cost centre must accrue the
estimated expense so that accurate financial reports of performance against
budget can be made to the owner.
1-406 At the same time, cash flow planning is crucial if the expenditure is to be kept
within the funding flow agreed with the owner. A ship management company will

receive significant sums from the shipowner to finance the daily operation of the
ship or ships. An unscheduled bunker requirement, for example, due perhaps to
a sudden change in trading pattern, may well leave the ship manager temporarily
reliant on his own as opposed to the owner’s funds, not good ship management
practice. The ship manager should remember too that the shipowner may well
have an uneven cash flow situation.
1-407 Other support departments, such as insurance and claims or a nautical

department that may well be the repository of knowledge on cargoes, can give
advice and support on an “as required” basis. There is today an increasing
requirement to have professional expertise to cover such matters as
communications and information technology and even to manage the seemingly
never-ending increase in legislation, inspections and procedures and its
associated documentation.
1-408 Purposefully separate must be the quality audit and safety function although
quality and safety should be seen as the way in which the company operates
and not as an external requirement.
7.6 CREWING AND TRAINING
1-409 The numbers of seafarers employed at sea in the world’s commercial shipping
fleet was estimated in the ISF/BIMCO 2005 Manpower Update to be in the order
of 1.2 million persons. Of the total number 470,000 were officers and 730,000
ratings. Seafarers are dominantly male with the percentage of females being
estimated at between 1% and 2%.
1-410 In recent years the traditional link between seafarers and the flag state has been
weakened. The supply of seafarers is established on a global basis where, over
the last 40 years, seafarer supply has moved from traditional maritime nations to
Asia and Eastern Europe – where labour costs are relatively cheap. The
development of the internationally agreed Standards of Training, Certification and
Watchkeeping Convention is leading to the establishment of common standards
in which nationality of the seafarer is not an issue. High cost seafarers from
traditional maritime nations, are still found in particular niches such as the offshore
and passenger sectors of shipping but in times of recession when a company’s
survival might be under threat ship managers will look for cheaper crews.
1-411 The 10 leading supply nations as established by Manpower Update are shown
in the table on the next page.
7.6.1 Seafaring
1-412 The crew of any ship are self-sufficient. Their primary responsibility is for the
safety of the ship and its cargo. The workload onboard the ship is divided
between officers and ratings, the detail of which will depend on the trade served
and the type of ship.
1-413 The seafarer will normally be away from home for many months at a time. There
are many factors which encourage persons to go to sea, but salary is of prime
importance.

Nationality Officers Ratings
India 46,500 32,400

Philippines 46,400 74,000
China 42,700 79,500
Ukraine 28,900 36,100
Turkey 22,100 60,300
Russia 21,700 34,000
Greece 17,000 15,000
UK 14,000 4,500
Japan 13,000 6,900
Vietnam 10,500 7,000
1-414 Seafaring is still a hazardous occupation. The hazards of seafaring are many,
including: discomfort, caused by the ship’s movement, fatigue, particularly when
working in the intensive coastal trades, and potential injury caused by the ship’s
structure, machinery and difficult cargoes. In addition seafarers are prone to
catch infectious diseases, such as malaria, hepatitis, TB, HIV when visiting
foreign ports, and suffer from stress associated with separation from families.
More recently dangers associated with piracy, terrorism and criminalisation are
having an impact on the seafaring life.
7.6.2 Ship Manning
1-415 The ships by their very nature have to be self-contained units and even though
modern communications keep the vessels in close contact with companies
ashore, the seafarers are on the spot when any situation arises and have to
manage the situation.
1-416 In general, the ship management consists of the Shipmaster, Chief Engineer
and Chief Officer. On larger operations such as cruise ships the management
may expand to the Hotel and other specialist services.
1-417 Links between the ship’s managers and the shore management are normally
with company’s superintendents as far as the operational aspects are concerned.
However there are two legally required representatives in the company that have
direct responsibility for the ship’s safety and security. With regard to safety a
Designated Person Ashore (DPA) has the responsibility to ensure that the ship
maintains the Ship Management System.
1-418 A similar role is carried out by the Company’s Security Officer as required by the
International Ship Port Facility Security Code.
7.6.3 Roles and Hierarchy Onboard
1-419 The ship’s master is to all intents and purposes the chief executive of the ship’s
operation. The master’s role and responsibilities are explained in Section 4.4.

Normally there are three departments on the ship: deck, engine room and hotel
services. This is illustrated below and explained in the following sections.
7.6.3.1 The Deck Department
1-420 Under the Chief Officer the deck department is responsible for the safe navigation
of the vessel, the correct loading, stowage and discharging of the cargo, the
maintenance of the ship other than the machinery and the security, health and
safety of those onboard the ship.
1-421 On most general cargo ships there will be at least two other officers serving
under the Chief Officer. Together the three officers will operate a watch system
both at sea and in port. There are arguments as to the best way to divide the
watches to reduce tiredness but the old system of the six four-hour watches is
still the most common. The chief officer generally takes the “4 to 8 watch” in the
morning and evening.
1-422 The second officer the “12 to 4 watch” night time and afternoon.
1-423 The third officer the “8 to 12 watch” morning and evening.
1-424 As a rule the Chief Officer is responsible for the cargo planning and deck
maintenance whilst the second officer is responsible for the navigation and will
prepare the voyage plan.
1-425 Assisting the officers are the deck crew (or ratings). They are led by a bosun who
will be the most experienced deck hand.
1-426 On larger passenger ships the number of officers is somewhat higher.

7.6.3.2 The Engine Room Department
1-427 In a similar manner to the deck department the Chief Engineer is supported by
two or more officers and engine room crew. Unless the ship is licensed to
operate with an unmanned engine room these officers will keep engine room
watches in a similar manner to the deck department.
1-428 In addition to operating and maintaining the ship’s main engines and auxiliary
engines, this department is also responsible for all the mechanical parts of the
vessel. Today added responsibilities and skills are required as more complex
electronic and electrical equipment is fitted.
7.6.3.3 The Hotel-services Department
1-429 The ship’s officer and crew have to be fed and watered and the hotel-services
department provides cooks and stewards to cater for them. Of course this
department is much larger on passenger ships and has extra requirements for
entertaining passengers on cruise ships. In the case of the latter, this department
also has an essential role to play in cases of emergency when crowd control
may be of utmost importance.
7.6.3.4 Security and Safety
1-430 Under the ISPS Code each ship must have a security officer onboard. On
passenger ships these are normally dedicated persons and are normally recruited
from security agencies. However on cargo ships the security officer is selected from
one of the officers onboard who has undertaken a short course for this purpose.
1-431 The ship’s safety officer requires no further qualifications although many
companies do provide training for their officers. Generally one of the deck
officers is appointed as the safety officer. This is a responsible position for
obvious reasons but also from a company point of view the Safety Management
System (SMS) onboard has to be strictly adhered to. Serious non-compliance of
the SMS can lead to ships being detained by the Port State Control Officer.
7.6.3.5 Role of the Ship’s Master
1-432 According to national and international legislation the ship’s master has an
overriding responsibility for the safe operation of the ship. This is an old, very
well-known fact based on common law. But in this day and age it is not so easy
for him to fulfil his obligations in this respect, with so many new and different
players in the maritime arena, for example, shipowners, shipping companies,
management companies, shipping operators, charterers, manning agents and
so on.
1-433 Others who also have demands on the master are the Flag State administration,
the Port States, the Classification Societies, the Insurance Companies, the P&I
Clubs, the cargo owners, the stevedores, the crew and so on. In this regard we
have an increasing number of incidents and accidents where commercial
pressure is being put upon the master by one party or another, not to fulfil his
responsibilities, not to mention the lack of protection and support from others.

1-434 There are some IMO references to the role of the master. In Resolution A443(XI)
and the provisions contained in Section 5 of the International Safety Management
(ISM) Code, IMO Resolution A.741(18), concerning the master’s responsibility
and authority states that decisions of the Shipmaster with regard to Maritime
Safety and Marine Environment Protection invites Governments to take the
necessary steps to safeguard the Shipmaster in the proper discharge of his
responsibilities in regard to maritime safety and the protection of the marine
environment by ensuring that:
• the Shipmaster is not constrained by the shipowner, charterer or any other

person from taking in this respect any decision which, in the professional
judgement of the Shipmaster, is necessary;
• the Shipmaster is protected by the appropriate provisions, including the

right of appeal, contained in, inter alia, national legislation, collective
agreements or contracts of employment, from unjustifiable dismissal or
other unjustifiable action by the shipowner, charterer or any person as a
consequence of the proper exercise of his professional judgement.
1-435 The ISM Code, Section 5 – Shipmasters’ Responsibility and Authority, states
that:
1-436 “The Company should ensure that the Safety Management System (SMS)
operating on-board the ship contains a clear statement emphasizing the Master’s
authority. The Company should establish in the SMS that the Master has the
overriding authority and the responsibility to make decisions with respect to
safety and pollution prevention and to request the Company’s assistance as may
be necessary.”
1-437 The SOLAS Conference in November 1995 adopted the following new Regulation
to SOLAS Chapter V, Safety of Navigation: “The Master shall not be constrained
by the shipowner, charterer or any other person from taking any decision which,
in the professional judgement of the Master is necessary for safe navigation, in
particular in severe weather and heavy seas.”
1-438 The Nautical Institute defines the Shipmaster as: “the captain of a merchant ship
qualified by the appropriate certificate of competency who is appointed by the
shipowner. He has the responsibility to efficiently prosecute the voyage and an
overriding responsibility to ensure the safety of his passengers, crew, ship and
cargo with the duty generally to save and preserve life at sea. In the event of his
death or incapacity command descends to the second-in-command who is the
senior deck officer and then through the other deck officers in order of rank.”
7.6.3.6 The Shipmaster’s Responsibility with regard to the Cargo Owner
1-439 When cargo is delivered to a ship for carriage, the carrier becomes the bailee of
the cargo owner and the master, as the carrier’s servant, assumes the duties of
a bailee. “Bailment” is the transfer of goods by one person (a bailor) to another
(a bailee) for a particular purpose, for example, delivery of goods by a shipper
to a carrier (for carriage by sea, and so on), delivery of goods to a freight
forwarder (for forwarding to a carrier). In bailment there is a transfer of possession
but not of title, that is, the bailor remains the owner of the goods until title is

passed to another person. The bailee is responsible for the safekeeping of the
goods and must, when the purpose for which the goods are bailed has been
fulfilled, either return them or deliver them as the bailor instructs. While there
does not have to be a contract between bailor and bailee, there must be intention
to create a bailment relationship, and most bailments are on contract terms (for
example, a carrier’s terms and conditions). A contract for the carriage of goods
by sea is, at the same time, a contract of bailment. Whenever a bill of lading is
issued, the contract of carriage becomes a contract of bailment. Ownership of
the goods remains with the bailor, who has the right to demand their return or
give directions as to their delivery, and so on.
1-440 However, this right is qualified by any lien that the bailee has over the goods, for
example a carrier’s lien for unpaid freight. The master of a loaded cargo ship is,
as a servant of the bailee, responsible for the care and proper delivery in good
condition of his goods. The master has no title (that is, legal right to ownership)
in the goods. He may, however, have cause to dispose of the goods as an agent
of necessity.
1-441 As an agent of necessity, the master of a vessel in peril:
• will have implied powers to act in the best interests of all owners of property
in his care;
• may take special emergency measures to preserve the property in peril or

minimise any loss due to damage already suffered;
• may make a General Average sacrifice or expenditure, for example, have

goods landed, transhipped, reconditioned or even sold, without liability for
misappropriation;
• may deviate from the contract route (although he would have to show very
good reason for doing so);
• may enter into a salvage agreement which may oblige the property owner
to contribute to the salvor’s award. Where property is owned by more than
one owner (for example, as in the case of a loaded general cargo ship),
the master is the agent of necessity in respect of each property owner.
Examples of maritime situations where agency of necessity may arise are:
• where a salvage agreement must be urgently made by a master (on behalf

of the owners of cargo, cargo containers and freight at risk, as well as the
shipowners) but there is insufficient time to contact the cargo owners for
their instructions;
• where a carrier, who has goods in his possession which are starting to
deteriorate, and who is unable to contact the owner, takes action to
preserve the goods; and
• (perhaps) where a shipmaster of a vessel loading in a port, which comes

under military or terrorist attack, makes an emergency departure from the
port to preserve cargo from destruction or capture.

7.6.3.7 Shipmasters’ Chief Responsibilities
1-442 Chief amongst a shipmaster’s numerous responsibilities are:
• the preservation of the safety of the crew, any passengers and the ship;
• the safeguarding of the marine environment;
• to act as if ship and cargo were his own uninsured property;
• the prosecution of the voyage with the minimum of delay and expense;
• to always act in the best interests of the shipowner;
• to carry out all that is usual and necessary for the employment of the vessel;
• to obey the owner’s instructions (except where they would mean breaching
the law); and
• to exercise care of the goods entrusted to him and see that everything
necessary is done to preserve them from harm during the voyage (for
example, ensuring proper ventilation, bilges are pumped, temperatures
monitored and controlled, and so on).
Directed Learning:
Investigate the safe manning levels for ships flying the flag of the country
of your choice. This can normally be achieved using the internet and
looking at the website of the country’s administration. Another interesting
way is search “safe manning levels for ships”. Publish your results on the
course forum and compare with the posts from the other participants.
1-443 The Deck Team is responsible for the safe navigation of the ship, care of the
cargo while at sea and the safe loading and discharging of cargo in port. It is
also responsible for cosmetic maintenance of the vessel, seamanship operations,
and the bulk of the legal and commercial business onboard. Deck Officers aspire
to command and achieve the position of Ship’s Master.
1-444 The Engine Team is responsible for the running and maintenance of mechanical
and electrical equipment throughout the vessel including the main engine,
boilers, pumps, electrical generators, refrigeration plant and fresh water
generators. The senior engineering officer is the Chief Engineer.
1-445 The Catering Team is responsible for all culinary aspects onboard the ship as
well as laundry and hygiene.
7.6.3.8 The STCW Convention
1-446 The STCW Convention applies to ships of non-party States when visiting ports
of States which are Parties to the Convention and is enforced by the system of
Port State Control.

7.6.4 Safe Manning
1-447 The STCW Convention does not deal with manning levels, sometimes known as
the manning scale of a ship. A scale for the number of officers required by a ship
is established and will in the case of deck officers depend on the size of the ship
and its trading pattern. For engineering officers the scale depends on the power
of the engine and the trading pattern. The numbers of seafarers needed to man
a merchant ship is covered in Chapter 5 of the International Convention for the
Safety of Life at Sea (SOLAS), 1974. The SOLAS requirements are supported
by a resolution established by IMO known as the “Principles of Safe Manning”.
1-448 The requirement for well-trained, competent and motivated seafarers has not
diminished. The task of ensuring that a ship is properly manned with skills
appropriate to the task required to be undertaken is an increasing challenge.
The global workforce is creating concerns in the traditional maritime nations
which are seeing the attractiveness of the long-term seafaring career
decrease.
7.6.4.1 Responsibilities of Companies
1-449 The Administration may require the company responsible for the operation of the
ship to prepare and submit its proposal for the minimum safe manning level of a
ship in accordance with a form specified by the Administration.
1-450 In preparing a proposal for the minimum safe manning level of a ship, the
company should apply the principles, recommendations and guidelines contained
in this resolution and should be required to:
• make an assessment of the tasks, duties and responsibilities of the ship’s

complement required for its safe operation, for protection of the marine
environment, and for dealing with emergency situations;
• make an assessment of numbers and grades/capacities in the ship’s

complement required for its safe operation, for protection of the marine
environment, and for dealing with emergency situations;
• prepare and submit to the Administration a proposal for the minimum safe
manning level based upon the assessment of the numbers and grades/
capacities in the ship’s complement required for its safe operation and for
protection of the marine environment, justifying the proposal by explaining
how the proposed ship’s complement will deal with emergency situations,
including the evacuation of passengers, where necessary;
• ensure that the minimum safe manning level is adequate at all times and
in all respects, including meeting peak workload situations, conditions and
requirements, and is in accordance with the principles, recommendations
and guidelines contained in this resolution; and
• prepare and submit to the Administration a new proposal for the minimum
safe manning level of a ship in the case of changes in trading area(s),
construction, machinery, equipment or operation and maintenance of the
ship, which may affect the safe manning level.

7.6.5 International Safety Management (ISM) Code
1-451 The ISM Code evolved through the development of Guidelines on “Management
for the Safe Operation of Ships and for Pollution Prevention”. It was established
to rectify the situation occurring in the late 1980s when there was a number of
significant shipping accidents. Among the accidents was the loss of the Roll-on/
Roll-off ferry Herald of Free Enterprise off the port of Zeebrugge, Belgium, in
March 1987 where human error combined with management faults attributed to
the loss of the ship and 192 persons. The “Disease of Sloppiness” referred to in
the subsequent accident inquiry into the loss of the Herald of Free Enterprise
describes the situation which was experienced at the time.
7.6.5.1 Establishment of the ISM Code
1-452 The Code was established under Chapter IX of the International Convention for
the Safety of Life at Sea (SOLAS). It was phased in over a period of time, initially
being a requirement for passenger ships, tankers and bulk carriers and by 2002
for all ships over 500 gross tonnes and above.
1-453 The objective of the ISM Code is to provide an international standard for
shipboard and shore-based safety management, with the objective of ensuring
safety at sea including the prevention of injury or loss of life and the avoidance
of damage to the environment. The ISM Code provides a framework, based on
international regulation for the development, implementation and assessment of
safety and pollution prevention management.
1-454 The ISM Code is divided into two Sections. Part A concerns the implementation
of the Code and Part B Certification and Verification.
7.6.5.2 Safety Management System (SMS)
1-455 The ISM Code establishes safety-management objectives and requires a SMS
to be established by the company responsible for operating the ship. The
company is required to establish a policy and provide shore-based support to
achieve the safety management objectives required.

1-456 The ship operator is responsible for implementing a SMS. The SMS covers six
key ship operational areas namely:
(i) the establishment of a safety and environmental policy
(ii) instructions regarding the safe operation of the ship
(iii) defined levels of responsibility and lines of communication
(iv) accident reporting procedures
(v) preparations for dealing with emergency situations and
(vi) procedures for internal audit and management review.
1-457 The ISM Code requires the appointment of a DPA who is the link between the
company management and the ship. The DPA has to have access to the highest
level of management in the company. The ISM Code also requires that the ship’s
master provides reports on the operation of the SMS to shore-based
management.
1-458 The operation of a ship requires it to hold a Document of Compliance (DOC)

which confirms that the ship complies with the requirements of the ISM Code.
The DOC is issued by the Flag State for a period not exceeding five years and
is subject to annual verification.
1-459 Practical activities associated with the ISM Code. In practical terms under the
ISM Code the company is responsible for ensuring that:
• the ship’s master is properly qualified and fully conversant with the SMS
and given proper support to perform his duties;
• the ship is manned with qualified, certificated and medically fit seafarers;
• personnel are familiarised with any new tasks and duties which they are
required to perform;
• training needs in support of the SMS are identified;
• communications between ship personnel are effective;
• plans and instruction, including checklists for key shipboard operations are
established; and
• procedures and plans allowing the ship’s crew to respond to shipboard

emergencies are produced and practised.
1-460 It has always been good practice for a shipping company to establish regular
maintenance of the ship and its equipment, particularly that equipment whose
failure could result in a hazardous situation. The ISM Code formalises procedures
emphasising the need to report and take corrective action for any non-
conformities found.

1-461 The implementation of the ISM Code has been a major influence in the process
of improving safety onboard a ship and creating a safety culture within shipping
companies.
7.7 MEASURING PERFORMANCE
1-462 Following the initiative of Intermanager, industry is looking at an increased

use of Key Performance Indicators (KPIs). These can be useful management
tools or guidelines providing they are kept simple, relevant and standardised
to ensure measurements are fair and comparable. It is important to keep
things simple!
For example:
Adherence to Operating Expenditure budget (+/− x%)
Ship Availability, that is comparing offhire (% of time [unplanned]) against

available time
Safety = Loss-Time-Incidents (LTIs)
Environmental = cargo spills/emissions to air
Vetting inspection records.
1-463 KPIs can test the performance of the following ship management
responsibilities:
1. Management, leadership and accountability
2. Recruitment and management of shore-based personnel
3. Recruitment and management of ships’ personnel
4. Reliability and maintenance standards
5. Navigational safety
6. Cargo, ballast and mooring operations
7. Incident investigation and analysis
8. Safety management
9. Environmental management
10. Emergency preparedness.
1-464 It is important that the performance of managers can be measured and analysed
so that the overall performance can be improved.

7.8 MARITIME RESOURCE MANAGEMENT
1-465 Finally, it is the author’s belief that one of the problems in the shipping industry
today is that many companies have a great divide between the shore and the
shipboard managers. If we consider the shore-based personnel and the
shipmaster, ships’ officers, engineers, pilots and other personnel that are
involved in the ship’s operations as the Maritime Resource management then
we can see that the ship’s operation would run safer and more effectively. The
whole team needs to understand and have knowledge about human capabilities
and limitations and to safeguard positive attitudes to safety and teamwork. As
far as the bridge management is concerned, situation awareness is critical for
safety and heavily affected by our attitudes and human limitations.
1-466 Maritime resource management requires positive attitudes and management

skills, cultural awareness and the ability to communicate. There has to be effective
leadership in emergencies which relates to good judgement and decision making
and awareness of the human involvement in errors. This requires shore-based
managers to really understand what is happening onboard their ships today.
1-467 Shipping has never been more regulated, inspected and controlled on safety
issues than today, and yet fatigue continues to be a problem. We have to adjust
the focus of enforcement and actually analyse the actual workload onboard. The
focus of enforcement and management is decisive of what is considered relevant
and important. What you look for is what you get! The distribution of work
onboard is not balanced today and the paper work that the officers and masters
have to carry out is often duplicated and unnecessary.
1-468 Another concern that has arisen since the multi-national make up of the
shipboard teams is the culture power distance. Hofstede’s Power Distance Index
measures the extent to which the less powerful members of organisations and
institutions (like the family) accept and expect that power is distributed unequally.
Power distance reflects how decisions of the power holders should be viewed
– challenged or accepted.
1-469 IFSMA and the Swedish Club have carried out a number of workshops on MRM.
We ask the participants to state what they think are the causes of accidents and
the lists in general are as follows:
• Cultural differences
• Communication errors
• Fatigue/stress
• Sub-standard ships/equipment
• Crew training, lack of knowledge
• Lack of situation awareness
• Weather

• Pilot error
• Commercial and or company pressure
• Information overload
• Lack of company safety culture
• Over confidence/negligence
• Alcohol
• Technical and mechanical failures
• Incompetence
• Human error
• Undermanned
• Over confidence
• Time pressure
• Personal problems.
1-470 So this leads to a rather fundamental question. To what extent are these causes
dealt with in existing training programmes of seafarers? Food for thought?

8. WHAT SUPPORT IS AVAILABLE TO THE
MANAGEMENT OF SHIPPING?
LEARNING OUTCOMES
• Identify the various organisations that support the shipping

industry
• Understand what is meant by Classification Societies and their

role
• Know how shipping is insured
• Understand the role of the shipbrokers.
8.1 NATIONAL GOVERNMENTAL AGENCIES
1-471 The structures used by national governments to monitor and regulate their
shipping interests can vary widely. At one end of the scale, as has been seen,
some governments sub-contract great swathes of their statutory obligations to a
classification society. At the other end of this scale, tradition and the juxtaposition
of shipping and trading interests has given rise to a complex tapestry of
ministerial and quasi-governmental organisations.
1-472 Ship managers will need to identify for themselves how the flag states, under
which their fleets are registered, operate. Some of the questions that the ship
manager may need to ask are “Which organisation is responsible for:
• the registration of vessels and mortgages;
• the framing of shipping policy and statutory regulations;
• the application and monitoring of statutory and other safety legislation (in
England, for example, the Maritime and Coastguard Agency is responsible
for applying legislation formulated by the Ministry of Shipping which in turn
is currently subsumed into the Department of Environment, Transport and
the Regions (DETR). For other industries, such as offshore oil production,
safety policy is affected through the Health and Safety Executive);
• conducting accident investigations (such as MAIB, the Marine Accident

Investigation Branch of the MCA);
• employment and social security legislation;
• the national presence at IMO and international similar bodies;

What Support is Available to the Management of Shipping? Module 1
• taxation as it is applied to shipping;
• customs and excise?”
1-473 This is not an exhaustive list, but hopefully gives a feel for the areas of
importance.
8.2 NAVAL ARCHITECTS
1-474 The Naval Architects play an essential role when designing and modifying ships.
Some larger companies may have naval architects “in house” but most ship
mangers will seek the service of professional companies that will put forward
design concepts to meet the owner’s specifications. These designs will then be
submitted to shipbuilding yard for quotations.
8.3 SHIPBUILDING YARDS
1-475 Shipbuilding yards will build and deliver ships to meet the requirements specified
by the plans submitted. They are mostly found today in China, South Korea and
Japan. The contract terms for building are complex and often involve financial
arrangements. However before work starts on the building it is important that the
plans are agreed by the appointed classification society.
8.4 CLASSIFICATION SOCIETIES
1-476 Today classification societies are recognised as non-government organisations

that implement maritime rules on a global basis covering:
structural strength of the hull;
safety and reliability of propulsion and steering systems;
effectiveness of essential auxiliary systems.
1-477 They set technical rules, confirm that designs and calculations meet these rules,
survey ships and structures during the process of construction and commissioning,
and periodically survey ships to ensure that they continue to meet the rules.
1-478 All ships are assigned one or more character symbols as applicable. For the
majority of ships, the character assigned will be 100A1 or +100A1. The + sign is
assigned to ships that have been co-structured under the classification society’s
special survey. The 100 notation will be assigned to all ships considered suitable
for sea-going service and A1 will be assigned to:
(a) Ships having onboard, in good and efficient condition, anchoring and/or
mooring equipment in accordance with the Rules, or
(b) Ships classed for a special service, having onboard, in good and efficient
condition, anchoring and/or mooring equipment approved by the Committee
as suitable and sufficient for the particular service.

Module 1 What Support is Available to the Management of Shipping?
1-479 Classification society notation, like the rules that regulate the design of ships,
has become increasingly complex and more comprehensive over the years. This
area of the generation of rules for ship design and the subsequent survey of a
ship against those rules remains a central part of the service provided by the
various societies. It is important to understand that the rules are generated by
and belong to the individual societies.
1-480 The classification society’s role of producing construction rules and regulations
and surveying against them gave the societies an expertise (and integrity) that
is frequently used by national governments. In the more established shipping
nations, “class” is frequently charged with the right to undertake certain statutory
surveys, the load line survey being a prime example and one which leads
directly to the appearance of a classification society’s initials on the Plimsoll
mark.
1-481 In a number of countries, especially those offering what are frequently referred
to as flags of convenience, whole areas of marine administration may be sub-
contracted to one or more classification society. Statutory rules, derived from an
international (IMO) convention and made into individual national law, and the
individual classification society’s construction rules lie closely together. It is
important for the ship manager to understand which is which.
1-482 In addition to their regulatory role, classification societies have expanded their
business in a number of other directions. One direction is in the provision of
commercial ship design services extended, in some cases, to offer computer
models to aid ship investment decisions. In another, they have extended their
functions by offering quality audits (based around ISO 9000) and, in a reflection
of their statutory role, by auditing ISM Code compliance on behalf of certain flag
states.
1-483 The International Association of Classification Societies (IACS) is an NGO

comprising of the key classification societies. The current members of IACS
are:
American Bureau of Shipping ABS
Bureau Veritas BV
China Classification Society CCS
Det Norske Veritas DNV
Germanischer Lloyd GL
Korean Register of Shipping KR
Lloyd’s Register of Shipping LR
Nippon Kaiji Kyokai NKK
Registro Italiano Navale RINA
Russian Maritime Register of Shipping RS

1-484 The classification societies play a key role in contributing to the safety and
reliability of ships. Class is the largest technical resource in the design,
construction and operation of ships and maintains research and development
resources to develop better technical rules. Class also provides technical
support to the industry, the flag states and the IMO.
8.5 UNDERWRITERS AND P&I CLUBS
1-485 Underwriters and P&I Clubs insurance for the shipowner comes in two main
forms: hull and machinery insurance and protection and indemnity insurance.
Insurance is covered in a later module and its mention here is only as a guide
to the organisations involved.
1-486 Lloyd’s is well known for its marine insurance activities and provides a forum for
independent underwriting syndicates, to which insurance brokers take their
clients’ “risk”. Working closely alongside Lloyd’s is the Institute of London
Underwriters which provides the market for major insurance companies. Other
major maritime centres, New York and Oslo, for example, also have major
underwriting centres.
1-487 For the shipowner, the most important function of Lloyd’s and the ILU is to
provide insurance against loss or damage to their ships. The market has many
other activities of course, including the extension of insurance to cover war risk,
the insurance of cargoes, and a major reinsurance activity whereby risk is
further diluted.
1-488 The first level of risk dilution is through the “slip” system whereby the insurance
broker will first find a lead underwriter who will give him attractive terms on the
first few per cent of the total risk on an individual ship or a whole fleet. The broker
must then find other underwriters to take the balance of the risk, following the
lead underwriter’s terms, until 100% of the risk is covered.
1-489 This process is the central reason why the underwriting market can only be
approached through an insurance broker. It is, therefore, of paramount
importance that the shipowner or manager selects a good broker to represent
his interests. The broker in turn needs and deserves to be fully briefed on the
owner’s fleet and its operation if he or she is to secure the best terms for that
fleet.
1-490 The broker’s role does not stop there and claims handling is a crucial part of the
broker’s activities. The benefit of keen premium rates can be negated by
inefficient claims handling, and a ship manager is well advised to explore a
broker’s claims handling record when selecting a broker.
1-491 A shipowner’s other main exposure is his liability for third party claims. These
may come from cargo owners and shippers, through personal injury claims from
crew members or the general public or from society at large as, for example,
claims against shipowners for environmental damage caused by oil spills.
1-492 These liabilities are the province of the mutual protection and indemnity
associations (P&I clubs). P&I clubs are, as their name implies, mutual insurance
clubs whose affairs are run by a management company. The relationship

between club and manager is so close that, for most purposes, the two
organisations can be thought of as one. The P&I clubs, or more accurately, their
managers are an invaluable source of information on a wide range of commercial
and operational matters and a ship manager is well advised to establish a good
working relationship with his club and its correspondents (or representatives) in
ports around the world.
1-493 Cargo and charter party disputes make up a large proportion of the P&I club’s
work and most clubs have a separate “club”, covering freight, demurrage and
defence (FD&D) where legal advice can be sought. Unlike hull insurers, who
charge a fixed premium against the negotiated terms of the hull policy, P&I clubs
charge a “call” based on their estimate of the likely club exposure and expenses.
As mutual organisations, this may need to be adjusted, and retrospective
additional calls (or refunds) may be made. However, once a vessel is entered
into a club, the manager’s advice and experience is there to be used.
1-494 Cargo claims resulting from major incidents where general average is declared
are complex and will bring into play specialist loss adjusters. The average
adjuster, of which the majority are based in London, acts on behalf of the
shipowner but under a strict code of practice which aims at achieving a fair
apportionment of loss under the York–Antwerp Rules.
8.6 SHIP BROKERS AND CHARTERERS
1-495 Starting at the beginning, a prospective shipowner may well approach a sale
and purchase broker in order to identify the availability of different types of
vessel. Some sale and purchase brokers are independent specialists, some are
divisions of larger brokering houses. Many have sub-specialisations dealing with
new buildings (placing contracts with shipbuilders) or demolition (an increasingly
contentious operation from an environmental point of view). All sale and
purchase brokers should have close links with banks and financial institutions.
1-496 Either as part of the same organisation, or as separate, specialist companies

and the commercial oriented ship manager will need to establish close working
relationships with chartering brokers. Again, there are specialisations, the one
between wet and dry cargoes being the most common. However, coastal trades,
gas, offshore support vessels, containerships are just few of the sub-divisions.
The ship manager will also need to determine whether a particular broker has
greater strengths as an owner’s broker or as a charterer’s or cargo owner’s
broker. The ship manager will also want to know how close a particular broker is
to a particular fixing opportunity. He should know who acts as a house (or tied)
broker and who has particularly close working relationships with whom.
1-497 While brokers, and especially those who are members of the Baltic Exchange
and similar organisations, have a strong professional code, broking houses are
major centres of market information and their currency is information in exchange
for information. Ship managers should be aware of this and always choose their
words and their confidences wisely. In general terms, a broker’s services are
based on “no cure, no pay”; or in other words, a commission is only charged on
successful conclusion of business (a fixture or a sale). Convention determines
that the shipowner (or the seller in the case of ship purchase) pays the
commission.

1-498 The larger broking houses will also have research departments that publish
statistics relating to the supply of and demand for shipping services. They can
also provide valuations of ships.
1-499 The freight market is huge and complex with shipowners, operators and
charterers at the mercy of fluctuating freight rates. Thousands of events can
have an impact on the cost of sea transport and anyone moving bulk commodities
operates in an extremely volatile environment.
1-500 As has already been mentioned, vast amounts of fuels, foodstuffs and fertilisers,
construction materials and other raw goods are moved by sea. Half of these
cargoes are energy related – oil, coal and gas. Container traffic is just over 10%
by weight, but much higher in terms of value.
1-501 Shipbrokers are specialist intermediaries between shipowners and charterers

who use ships to transport cargo, or between buyers and sellers of ships.
1-502 With their specialised knowledge they assist owners and charters in negotiating
a fair and workable charter party under the prevailing conditions of the
markets.
1-503 The freight market is subject to a wide range of external variables, but it is
fundamentally driven by the following factors:
• Fleet supply. How many different types of ships are available? How many
vessels are being delivered and how many are being scrapped?
• Commodity demand. What are the levels of industrial production? Has the
grain harvest been successful? Are the power stations importing more
coal? How is the steel industry performing?
• Seasonal pressures such as winter fuel, Christmas retail demands and

so on.
• Weather has a big impact on the shipping markets from the size of harvests
to ice in ports and river levels.
• With bunker fuel accounting for between one-quarter and one-third of the
cost of running a vessel, oil price movements directly affect shipowners.
1-504 Choke points particularly affect tankers with almost half of the world’s oil passing
through a handful of relatively narrow shipping lanes. These points include the
Straits of Hormuz and Malacca, the Suez and Panama Canals, the Bosporus
and other important channels whose closure – either from conflict, terrorist
attack, piracy or a collision in the overcrowded shipping lanes – would change
the entire world’s supply patterns.
1-505 Market sentiment also has an effect because perhaps as little as half of the
demand side is known in a timely fashion and market opinion affects the freight
market just as much as the actual supply and demand of ships and cargoes.
1-506 So there is a specialist role of the shipbroker. The key words in this business are
complex and specialised, and a single broker could not cover every part of the

many charter parties that are agreed every day. They specialise both as
individuals and with broking firms who will have separate departments which
focus on:
• Dry cargo chartering;
• Tanker chartering;
• Containers;
• Sale and purchase; and
• On a smaller scale – demolition sales and research.
8.6.1 Dry Cargo Chartering
1-507 Dry cargo brokers are typically specialists in the chartering of dry bulkers, and
are appointed to act either for a shipowner looking for employment for a ship, or
a charterer with a cargo to be shipped.
1-508 Dry brokers typically maintain large databases of vessel positions, cargoes and
rates and pay close attention to the direction of the markets so that they can
advise their clients accurately on how to maximise profits or minimise
expenses.
8.6.1.1 Dry Cargo Specialisation
1-509 This area of business is often sub-divided into size classes of bulkers and each
sector involves different cargoes, trade routes, owners and charterers and dry
brokers tend to specialise in one of these sectors.
8.6.2 Tanker Broking
1-510 Tanker brokers specialise in the chartering of tankers or liquid bulk carriers. This
requires an entirely different set of skills and knowledge to dry cargo broking.
Tanker brokers may specialise in
• Crude oil
• Gas
• Oil products
• Chemical tankers.
1-511 Tanker brokers negotiate maritime contracts which are known as charter parties.
The main terms of negotiation are freight/hire and demurrage.
1-512 Freight or hire rate (when a time charter) for crude oil tankers is based on
universal calculations assessed once a year and is known as Worldscale. For
specialist ships, such as LNG tankers, where the charter market is smaller,
prices are agreed at a fixed rate between the parties.

8.6.3 Container Broking
1-513 Container brokers specialise in the chartering of container ships and provide
container shipowners and charterers with market-related information.
8.6.4 Sale and Purchase (S&P)
1-514 S&P brokers handle the buying and selling of existing or new ships. They discuss
opportunities and market trends with shipowners, report on sales, value vessels,
calculate freight earnings, advise on finance and try to find ships for specific
employment opportunities.
1-515 When a ship is sold, brokers usually negotiate on behalf of the buyer and seller
on price and terms and also provide a route to resolving any disputes which
might arise. Some S&P brokers specialise in the sale of ships for scrapping
which requires a different set of skills.
8.6.5 Where Do We Find Shipbrokers
1-516 Major shipbroking centres include
• London
• Oslo
• Piraeus
• New York
• Houston
• Hamburg
• Copenhagen
• Singapore
• Tokyo
• Hong Kong
• Shanghai.
1-517 Many of the centres tend to specialise on their geographical needs.
1-518 London remains by far the largest centre, mainly for historic reasons but also
because of the city’s reputation as a global maritime centre. London’s shipbroking
centre is the Baltic Exchange with a total membership of over 550 companies
and 2,000 individuals (December 2006); approximately 400 Baltic member
companies are based in the UK. The Baltic also has a growing membership base
in the USA, Europe and the Far East.

1-519 Baltic Exchange members are at the heart of world trade, arranging for the
ocean transportation of industrial bulk commodities from producer to end-user.
The bulk freight market relies on the co-operation of shipbrokers, shipowners
and charterers to ensure the free flow of trade.
8.6.6 The Baltic Exchange
1-520 It is worth understanding the history of the Baltic Exchange. In 1744 the owners
of a coffee house in Threadneedle Street in London changed its name from the
Virginia and Maryland to Virginia and Baltic to reflect the trade of the regulars
who met there to make arrangements and draw up agreements for the
transportation of goods by sailing ship.
1-521 Just as the opening of Edward Lloyd’s coffee house in Tower Street was the birth
of Lloyd’s of London, so the opening of the Virginia and Baltic Coffee House can
be said to be the birth of the Baltic Exchange. The coffee house of 1744 was an
open house with no members, but the common interest was in the trade of
tallow, oils, flax, hemp and seeds from the Baltic states.
1-522 The repealing of the Corn Laws in 1846 resulted in the wholesale importation of
foreign wheat. The numbers of shipowners and brokers rose to meet this need
and the Baltic suddenly required more space.
1-523 A company – the Baltic Company Ltd – was formed to purchase new and larger
premises and in 1857 South Sea House on Threadneedle Street was acquired.
1-524 1859 was also the year in which a telegraph office was established at South Sea
House enabling faster and more frequent communication around the world.
1-525 Ten years later the Suez Canal was opened, heralding a new era for commerce
and shipping.
1-526 However, the increasing size of trade and the required growth in ship tonnage
led to a very contemporary problem – the raising of capital to finance new
shipbuilding. At that time shipbrokers owned and managed steamers raising the
cash for them from friends and clients.
1-527 At the time, this meant the shipowner had unlimited liability. So a change was
necessary to encourage investment in shipping. The advent of the concept of
limited liability meant that a large number of people began to invest in shipping
on a speculative basis.
1-528 The late nineteenth century was a period of unparalleled prosperity for Great
Britain. It controlled nearly a third of all global industrial output, with its nearest
rival the USA lagging far behind. Britain’s trade was worth double that of France
and the amount of shipping organised by members of the Baltic was
proportionately enormous.
1-529 It was around this period that the telephone made its first appearance and the
Edison Telephone Company which first installed telephones at the Baltic. By
1881 calls to and from South Sea House numbered 200 a day.

1-530 By the beginning of the twentieth century a new larger office was required in St
Mary Axe. The 1903 Baltic Exchange was one of the City’s grandest trading
halls. Shipbrokers, owners and charterers representatives would gather to share
information and to physically transact the deals. Up until 1920s the Baltic was
primarily a grain exchange with up to 250,000 tonnes of grain bought and sold
on its trading floor every day.
1-531 The heads of all the firms, big and small, walked the trading floor every day and
stayed for lunch. Amid the hustle and bustle, brokers would queue for the
telephones and strain to make them heard above the din of business chatter.
1-532 By attending the Baltic the brokers not only learnt what the shippers were
offering – the types of grain and the periods of shipment, but also obtained
concessions on price and terms which neither buyer nor seller could manage if
they met face to face. In the course of a series of conversations on the trading
floor, a chartering clerk obtained a firm offer of a vessel and a firm bid for the
carriage of the cargo much more easily and swiftly than was possible by
telephone, telegram or letter.
1-533 Baltic Exchange shipbrokers undertake to abide by a code of business conduct

based on the motto “Our Word Our Bond” and those who breach the code are
disciplined or expelled.
1-534 The First World War created huge difficulties for an international institution like
the Baltic Exchange with its German and Austro-Hungarian members and their
clerks banned. The return to peacetime conditions saw the role of the Baltic
shifting. The decline of the British Empire and Britain’s position on the global
stage was reflected by a crisis of confidence at the Baltic Exchange. Members
began to ask whether a broker was necessary and a series of conferences with
grain merchants, millers and seed crushers and oilseed brokers was called.
1-535 By the end of the 1920s not only ships, but also aeroplanes were being chartered
to carry goods. In February 1929 S. Instone & Company issued Britain’s first
charter party. 1929 also saw the introduction of the London Corn Trade
Association’s futures market at St Mary Axe.
1-536 Trade at the Baltic was however declining as the Wall Street Crash of 1929 led
to a global economic crisis. Trade patterns altered as governments implemented
protectionist policies in the face of the Depression sweeping the industrial world.
The earnings of those engaged in shipping slumped as international trade
declined and the number of Baltic members dropped.
1-537 By 1935 the days of the Baltic as a commodity market were over as the Baltic
became a freight market. The brokers had ceased to depend solely on the British
merchant navy for their business and fixed cargoes of all nationalities and from
ports in one part of the world to another without touching the British Isles.
1-538 At the outbreak of World War II in 1939 the government introduced the Ministry
of Shipping to organise the chartering of ships and cutting out the Baltic brokers.
After a few weeks of war, Britain began to run short of wheat imports and the
government abandoned the system and introduced the direct acquisition of
ships.

1-539 The ministry would instruct the owners to carry certain cargoes and follow
certain routes and all chartering was on a time charter basis. The Baltic was
forced to suspend its operations and was not back in business until September
1945.
1-540 The Ministry of Shipping still retained full control of the direction of voyages, but
shipowners and their brokers could arrange chartering and conclude fixtures. In
1952 the government relaxed its control of the commodity and shipping markets.
Membership of the Baltic rose again and the exchange expanded, building an
annex to house the secretariat and offices for tenants.
1-541 In May 1971 there was a radical redrafting of the rules for membership. It was
stipulated that a company seeking membership must satisfy the board that it had
a reasonably large capital. Most of the members by this stage were limited
companies who nominated individuals to represent them on the Baltic’s trading
floor.
1-542 Through the 1970s and 1980s the communications revolution gathered pace.
First the telex machine, then faxes, cheap international calls, mobile phones,
e-mail and the internet made face-to-face meetings on the trading floor
increasingly redundant. The number of sessions held declined as shipbrokers
increasingly stayed in their offices.
1-543 Partly due to the IRA bombing of the Baltic Exchange but in reality to take
advantages of today’s technology the trading floor no longer exists. But the work
of the Baltic continues as an important contributor to our industry.
1-544 The Baltic Exchange today is housed at 38 St Mary Axe, next to the 1903
Exchange site. There is no longer a trading floor, but the Baltic continues to
provide meeting and catering facilities for its members and tenants.
1-545 The Baltic today focuses on providing freight market information, dispute
resolution and a light regulatory framework for the shipping market.
1-546 The shipbroker has to act towards the principal as though they were the actual
owner or charterer.
1-547 “It is important that a broker’s word should be considered binding and
trustworthy…he should not be allowed to escape with impunity for such gross
breach of faith.”
1-548 The remuneration is a percentage of the income generated from the successful
transaction.
8.7 BIMCO
1-549 BIMCO warrants a mention since, amongst other activities, they are active in the
formulation of charter parties. The Baltic and International Maritime Council
(BIMCO), based in Denmark, focuses more on the dry cargo market but also
produced standard contracts for ship management (ShipMan) and bareboat
agreements (BareCon).

8.8 BANKS AND FINANCIAL INSTITUTIONS
1-550 Shipping is a highly capital intensive industry in need of excessive funds for the
replacement of the world’s fleet. The largest source of funds provided to the
shipping industry comes from other people’s money, mainly in the form of debt.
1-551 As a consequence shipping is more susceptible than other comparable industries

to changes in financial markets. The financial turmoil that started in 2007 and
really hit in late 2008 means that many of the capital market and structured
finance markets closed and, as ship finance is seen as a high risk business,
there was, and still is in 2011, little liquidity in the financial markets for such
investments.
1-552 Financing ships is, at different times, more or less “fashionable”; the decision to
invest or disinvest being taken against criteria that do not always benefit the
long-term stability of the shipping industry, nor conform to a proper analysis of
supply and demand.
1-553 Thus, most financing institutions will look at not only the detail of the shipowner’s
proposal, but also at how it fits into their overall investment programme in
general and their shipping portfolio in particular. Experienced bankers will
remember too, that shipowners tend to exaggerate earning potential and that
ships are a depreciating asset operating in a highly competitive and hostile
environment, both physical and commercial.
8.9 NAUTICAL TRAINING FACILITIES
1-554 Nautical colleges, academies and training centres are in most maritime nations
to provide maritime education and training (MET) for the supply of manpower for
the shipping industry. MET covers a wide spectrum of training institutions which
range from those delivering short-time courses to post-graduate studies.
Shipping is an international industry and operates worldwide in a multinational,
multicultural and multifunctional environment. Following the STCW Convention
MET providers will take into account the international cultural challenges and
meet the international standards and related regulations.
1-555 The commonly agreed principles in establishing an effective MET are based on
some of the following considerations:
• Provide the training to meet the national and international demands of the
industry.
• Liaise with shipping companies to meet their requirements.
• Apply the internationally recognized standards which will of course include

STCW.
• Keep abreast of changing technology so that appropriate training is

provided to meet current practices.
• Work closely with accrediting, awarding and licensing authorities and

provide the best way to balance college and onboard training.

• Provide education for industrial updating to meet participants need for

continuous professional development.
• Liaise with other MET institutions worldwide to achieve a high level of

excellence.
8.10 INMARSAT
1-556 Set up in 1979, the International Maritime Satellite Organisation (INMARSAT),

as a not-for-profit international organisation having be requested by IMO for the
purpose of establishing a satellite communications network for the maritime
community.
1-557 The intent was to create a self-financing body which would improve safety of life
at sea. The name was changed to International Mobile Satellite Organisation
when it began to provide services to aircraft and portable users, but the acronym
“INMARSAT” was kept. When the organisation was converted into a private
company in 1999, the business was split into two parts: The bulk of the
organisation was converted into the commercial company, Inmarsat plc, and a
small group became the regulatory body, IMSO. Today INMARSAT provides
voice and data satellite services to ships, aircraft and military users as well as
people operating in remote areas such as aid workers.
8.11 TRADE AND RELATED ASSOCIATIONS
8.11.1 The International Federation of Shipmasters’ Associations (IFSMA)
1-558 IFSMA is a Federation established to uphold International Standards of

Professional Competence for Seafarers commensurate with the need to ensure
Safe Operational Practices, Preservation from Human Injury, Protection of the
Marine Environment and Safety of Life and Property at Sea.
1-559 IFSMA was granted Consultative Status at the United Nations International
Maritime Organisation (IMO) in 1975. This Consultative Status as a non-
government organisation (NGO) enables the Federation to represent the views
and protect the interests of the serving shipmaster unfettered and unfiltered
either by national governments or by shipping companies.
1-560 In February 1993 IFSMA was placed on the International Labour Office’s special
list of Non-Governmental International Organisations.
1-561 The purposes of IFSMA are:
• to further professional contact and communication between shipmasters

on a world-wide scale,
• to support and assist to the best of its ability the interests of the IMO and
the ILO in their endeavours to maintain and increase maritime safety,
security and the prevention of pollution in the marine environment,
• to work with those international organisations involved in regulating

maritime safety and security, and other maritime matters regarding

transportation by way of sea routes and in all other uses of the oceans and
seas of the world,
• to further co-operation between shipmasters and shipowners and national

administrations, and to promote mutual interest in safety and security at
sea and pollution prevention,
• to further the establishment of international professional standards for

shipmasters and other ranks and recognised adequate manning scales,
• to continuously strive to maintain the professional standards at a level

commensurate with general technological and social change and
progress.
8.11.2 Nautical Institute (NI)
1-562 The Nautical Institute is the international professional body for qualified seafarers
and others with an interest in nautical matters. The NI provides a wide range of
services to enhance the professional standing and knowledge of members who
are drawn from all sectors of the maritime world.
1-563 The NI’s aim is to provide the strongest possible professional focus, dedicated
to improving standards of those in control of seagoing craft, while maintaining
the Institute as an international centre of nautical excellence.
8.11.3 International Transport Federation (ISF)
1-564 The ITF has been helping seafarers since 1896 and today represents the
interests of seafarers worldwide, of whom over 600,000 are members of ITF
affiliated unions. The ITF is working to improve conditions for seafarers of all
nationalities and to ensure adequate regulation of the shipping industry to
protect the interests and rights of the workers. The ITF helps crews regardless
of their nationality or the flag of their ship.
8.11.4 The International Shipping Federation (ISF) and the International

Chamber of Shipping (ICS)
1-565 ISF represents the employers’ voice on industrial relations issues, proactively
explaining and justifying employers’ activities to the media. To others, ISF is an
authority on the STCW Convention and assists with advice on its detailed
technical requirements.
1-566 The ISF Secretariat also supports other international organisations, such as our
sister organisation the International Chamber of Shipping (ICS), and the
International Maritime Employers’ Committee (IMEC). While each organisation
is quite independent, these links ensure an exchange of information and
co-ordination to prevent overlap and duplication of effort.
1-567 ISF is also an active member of the International Committee on Seafarers’

Welfare (ICSW) and regular contacts are maintained with representatives of
maritime unions, including the International Transport Workers’ Federation (ITF).

1-568 While the regulation of labour standards, and of medical or professional

standards applying to seafarers, forms a key part of our work, providing
information or guidance on industry manpower developments is equally
important, in areas such as international wage rates, training developments or
recruitment trends.
1-569 Two principal ISF Committees report to the Council to prioritise work undertaken,
the Labour Affairs Committee and the Manning and Training Committee. Each
meet at least twice each year and membership is open to all ISF member
associations.
8.11.5 The International Association of Independent Tanker Owners

(INTERTANKO)
1-570 Intertanko is the International Association of Independent Tanker Owners and

has been the voice of independent tanker owners since 1970, ensuring that the
oil that keeps the world turning is shipped safely, responsibly and competitively.
1-571 Membership is open to independent tanker owners and operators of oil and
chemical tankers, that is non-oil companies and non-state controlled tanker
owners, who fulfil the Association’s membership criteria. Independent owners
operate some 80% of the world’s tanker fleet and the vast majority are Intertanko
members. As of January 2009, the organisation has 270 members, whose
combined fleet comprises some 3,100 tankers totalling 249 million dwt, which is
75% of the world’s independent tanker fleet. Intertanko’s associate membership
stands at some 300 companies with an interest in shipping of oil and chemicals.
1-572 Intertanko is a forum where the industry meets, policies are discussed and
statements are created. It is a valuable source of first-hand information, opinions
and guidance.
1-573 The strong support that Intertanko enjoys allows it to speak authoritatively and
proactively on behalf of tanker operators at international, regional, national and
local level. It is also able to maintain a 25-strong secretariat and a network of 14
committees and four regional panels that coordinate an extensive work
programme that comprises more than 50 agenda items. Governments and
shipping regulators have taken a closer interest in tanker shipping in recent
years. Intertanko has responded by establishing, strengthening and maintaining
relationships with legislators on all levels, working with them to ensure a fair and
equitable distribution of the responsibilities and liabilities involved in carrying oil
and chemicals by sea.
8.11.6 The International Association of Dry Cargo Ship Owners (INTERCARGO)
1-574 Since 1980, it has represented the interests of owners, operators and managers
of dry cargo shipping and works closely with the other international associations
to promote a safe, high quality, efficient and profitable industry.
1-575 Membership benefits include the provision of information on technical, commercial

and operational issues relating to the dry cargo industry, an active Committee

structure, and participation in the work of the IMO where we enjoy observer
status.
1-576 Intercargo believes that a new approach is needed to maintain a safe, efficient,
environmentally friendly and profitable dry cargo shipping industry.
8.11.7 The International Association of Lighthouse Authorities (IALA)
1-577 IALA is a non-profit-making international technical association. Established in

1957, it gathers together marine aids to navigation authorities, manufacturers
and consultants from all parts of the world and offers them the opportunity to
compare their experiences and achievements.
1-578 IALA is encouraging its members to work together in a common effort to

harmonise aids to navigation worldwide and to ensure that the movements of
vessels are safe, expeditious and cost effective and at the same time protect the
environment. Taking into account the needs of mariners, developments in
technology and the requirements and constraints of aids to navigation authorities,
a number of technical committees have been established bringing together
experts from around the world. The work of the committees is aimed at
developing common standards workshops through publications of IALA
Recommendations and Guidelines.
1-579 This work ensures that the mariners have aids to navigation which will meet their
needs both now and in the future. IALA is therefore contributing to the reduction
of marine accidents and to the increasing safety of life and property at sea, while
protecting the marine environment.
1-580 IALA also encourages cooperation between nations to give developing countries
the opportunity to make use of new aids to navigation techniques.
8.11.8 The International Maritime Pilots Association (IMPA)
1-581 IMPA is a professional, non-profit making body with a truly international outlook.
It is primarily concerned with promoting professional standards of pilotage
worldwide in the interests of pilots’ safety. It seeks to fulfil this task by encouraging
both consultation between its members and the exchange of technical information
with other industry partners and regulators at the local, national and international
levels.
1-582 The association was formed thanks to the initiative of pilots’ associations from
the five continents whose representatives met in Kiel, Germany, in June 1970.
IMPA was officially launched in Amsterdam in May 1971.
1-583 To date, it has over 8,000 members in 54 countries. IMPA seeks to achieve its
principal objective – the promotion of professionally sound and safe pilotage.
8.11.9. International Association of Classification Societies (IACS)
1-584 Dedicated to safe ships and clean seas, IACS makes a unique contribution to
maritime safety and regulation through technical support, compliance verification

and research and development. More than 90% of the world’s cargo carrying
tonnage is covered by the classification, design, construction and through-life
compliance rules and standards set by the ten Member Societies and one
Associate of IACS.
1-585 On 14 December 2005 the Common Structural Rules for Tankers and Bulk
Carriers were unanimously adopted by the IACS Council for implementation on
1 April 2006. The Council was satisfied that the new rules have been based on
sound technical grounds, and achieve the goals of more robust and safer
ships.
1-586 IACS now implements the CSR maintenance programme (IACS Procedural
Requirement No. 32) via the IACS CSR Knowledge Centre (KC). All the agreed
Q&As and CIs (Common Interpretations) are published on the IACS website
without delay in order to assist its Member Societies and industry in implementing
the CSR in a uniform and consistent manner. IACS has also put in place a long-
term plan to further increase the harmonisation between the Tanker and Bulk
Carrier rule sets.
8.11.10 The International Ship Managers Association (INTERMANAGER)
1-587 Towards the end of the 1980s, ship management was emerging as an important
industry in its own right, but there was a lack of any real forum for ship managers
as a homogeneous group. The idea of forming an association of ship managers
was first floated at that time, partly to serve this need but also in response to
what was perceived as unfair criticism of a growing industry sector.
1-588 Ship managers had been made scapegoats for a perceived deterioration in
shipping standards over the preceding two decades. The argument ran that, with
the replacement of the traditional shipowner structures by new types of owner
such as K/S investors, third-party managers had become the instrument of cost-
cutting and shoddy operations.
1-589 In fact there have always been responsible ship managers and they were among
the first to recognise the pressure on standards. The ship management sector
reacted with more determination than any other within the shipping industry and
embarked on a quality assurance system by which negative trends could be
acted upon.
1-590 The result of this initiative was the creation of the ISMA in the spring of 1991.
Today, InterManager represents ship managers worldwide controlling a fleet of
over 1,000 ships. To spread the quality ideal, in 1994 membership was extended
to crew managers, and more recently a class of Associate Membership created
for those companies and organisations sharing the same principles.
8.11.11 The International Association of Ports and Harbours (IAPH)
1-591 The principal objective of IAPH is to develop and foster good relations and
cooperation among all ports and harbours in the world by proving a forum to
exchange opinions and share experiences on the latest trends of port
management and operations. IAPH strives to emphasise and promote the fact

that ports form a vital link in the waterborne transportation and play such a vital
role in today’s global economy.
1-592 The founding fathers of the IAPH believed five decades ago that ports could
contribute to create a more peaceful world by helping world trade grow and
develop, as explicitly shown in it’s motto, “World Peace Through World Trade –
World Trade Through World Ports”. As contained in its Constitution, IAPH is
committed to promoting world peace and the welfare of mankind as its ultimate
goal.
1-593 In the wake of the tragic events of 11 September 2001 in the USA, IAPH has
actively participated in IMO’s meetings to explore ways and means to prevent
and suppress acts of terrorism against ships at sea and in ports.
Directed Learning:
Pick at least three of the above institutions (choosing those that are of
most interest to you) and research more details of their services using
the internet. Consider how these institutions could be useful to your
selected company.
Post anything you find that is useful or pertinent on the course forum so
we can all consider the information.

SUMMARY AND CONCLUSIONS
Having completed this module you should now have a clear overview and
understanding of:
• World trade and that shipping is a derived industry dependent on global

needs.
• The markets that the shipping industry serves.
• The international organisations and institutions that are involved in the

shipping industry.
• The various ship types and sizes in common use today, their characteristics
and the way they are constructed.
• How ships operate and the trades they are engaged in.
• The difference between the tramp and liner trades and the types of charter
parties used.
• The role of the ship broker and chartering terms.
• How ships are managed and manned and the minimum safe manning
level.
• Who makes and regulates the laws governing maritime trade.
• The key maritime regulations and the documentation that is required for
international maritime operations.
In the forthcoming modules the subjects we have discussed will be dealt with in
far more detail. You may consider the analogy that this course covers the
maritime industry and the ship manager’s responsibilities as though you were
doing a jigsaw puzzle. This first module is the picture to help you put the pieces
together.

TUTOR-MARKED ASSIGNMENT
During the course of this diploma, some tutor marked assignments will require
you to research into a ship operating company. It can be a company that has
ships engaged in any type of maritime activity, for example, liner trade, tramping,
ferries, cruise ships, offshore supply boats, seismic work and so on.
Your first assignment, therefore, is to select a company that you can gain access
to. This could be the company you work for, a company that is a customer of
yours, a company that provides you with a service, or a company that has a
website access (for example, P&O).
Having selected the company, write in about 500 words a description of that
company to describe its main activities. Your assignment should include the
following items:
• Number and type of ships it operates.
• The type of trade the ships are engaged in.
• The main areas of trading.
• Any historic information that could give a background to the company.
Additional research could include:
• The management structure of the company.
• What flag are the ships registered under?
• What classification society is used?
• What type of crewing arrangements are used?
• Average age of the fleet.
In summation, you should reflect on whether you regard the management

structure as vertically integrated or not, and give an indication on how you feel
the company is perceived by the public at large.
For candidates taking the Diploma option, a Tutor-Marked Assignment must be

completed for each core module. There is a minimum pass mark for each
assignment and candidates will be expected to reach this minimum standard.
Collectively, the assignments represent a possible one-third of the candidate’s
final mark.

Module 1 Tutor-Marked Assignment
On the cover page of your assignment, could you please

include the following information:
Your Name
Course Name – Ship Management
Course Code – FLP2233
To speed the processing of assignments, please return your typed assignment

by post, fax or email directly to the TMA Administrator:
Post: Mrs Parmjit Gill

TMA Administrator
The School of Maritime Operations and Logistics
North West Kent College
Lower Higham Road
Gravesend
Kent
DA12 2JJ
United Kingdom
Tel: +44 (0)1322 629684
Fax: +44 (0)1322 629667
Email: mol@nwkcollege.ac.uk
Remember to keep a copy of your completed assignment in case of loss in the

post. Please also state if you would like confirmation of receipt of your
assignment. If so, you must include your email address, as confirmation by post
or fax is not possible.
Emailing assignments will only be accepted if they are sent as attachments to

the email message.
You should attempt to complete each assignment within four weeks of receipt of
the module.
In order to be able to sit the exam, at least 50% of the assignments must be
submitted three months before the exam and 100% of assignments must be
submitted one month prior to the exam.
Please see your Course Handbook for full details.

APPENDIX ONE: A LIST OF
SHIPPING COMPANIES
Shipping Companies Based in Europe
Nation of Company Nation of Owner

Company Owner
Belgium Delphis Denmark A.P. Moller-Maersk Group

CMA CGM Belgium France CMA CGM
Denmark A.P. Moller-Maersk Group Denmark A.P. Moller-Maersk Group
Unifeeder A/S Denmark Unifeeder A/S
Finland Finnlines Italy Grimaldi Group
France CMA CGM France CMA CGM
Delmas France CMA CGM
Germany Hapag-Lloyd Germany TUI AG
Hamburg Süd Germany Hamburg Süd
Deutsche Afrika Linien Germany Rantzau Group
John T Essberger Germany Rantzau Group
Senator Lines South Korea Hanjin
Italy Costa Container Lines Italy GF Group
Grimaldi Group Italy Grimaldi Group
Italia Marittima Taiwan Evergreen Marine
Linea Messina Italy Linea Messina
Lithuania AB DFDS LISCO Denmark DFDS A/S
Norway Wilhelmsen Lines Sweden Wallenius Wilhelmsen
Logistics
Russia Far-Eastern Shipping Russia Far-Eastern Shipping
Company Company
Sweden HUAL Sweden HUAL
Wallenius Lines Sweden Wallenius Wilhelmsen
Logistics
Switzerland Mediterranean Shipping Switzerland Mediterranean Shipping
Company S.A. Company S.A.
United Atlantic Container Line United Atlantic Container Line
Kingdom Kingdom
Hatsu Marine Taiwan Evergreen Marine
OT Africa Line France CMA CGM

Module 1 Appendix One: A List of Shipping Companies
Shipping Companies Based in Asia

Company Owner
China China Ocean Shipping China COSCO

Company
China Shipping Container China China Shipping
Lines Container Lines
Hong Kong CSAV Norasia Chile Compania
Sudamericana de
Vapores
Orient Overseas Container Hong Kong Orient Overseas
Line International Limited
Sinotrans Shipping Hong Kong Sinotrans Shipping
India Shipping Corporation of India Shipping Corporation of
India India
Bharati Shipyard Limited India Bharati Shipyard
Limited
Indonesia Samudera Shipping Line Indonesia Soedarpo Group
Iran Islamic Republic of Iran Iran Islamic Republic of Iran
Shipping Lines Shipping Lines
PARS LV Shipping Co. Iran LV Shipping Co – UK
Israel Zim Integrated Shipping Israel Zim Integrated Shipping
Services Services
Japan Kawasaki Kisen Kaisha Japan K Line
Mitsui O.S.K. Lines Japan Mitsui O.S.K. Lines
Nippon Yusen Kaisha Japan Nippon Yusen
Tokyo Senpaku Kaisha Japan Nippon Yusen
South Korea Dongnama Shipping South Korea Dongnama Shipping
Corporation Corporation
Korea Marine Transport South Korea Korea Marine Transport
Kien Hung Shipping South Korea Kien Hung Shipping
Hanjin Shipping South Korea Hanjin
Heung-A Shipping South Korea Heung-A Shipping
Hyundai Merchant Marine South Korea Hyundai Merchant
Marine
Kuwait United Arab Shipping Kuwait United Arab Shipping
Company Company
Malaysia MISC Berhad Malaysia MISC Berhad
(continued)

Appendix One: A List of Shipping Companies Module 1
Shipping Companies Based in Asia (Continued)

Company Owner
Pakistan Pakistan National Shipping Pakistan Pakistan National

Corporation Shipping Corporation
Kopak Shipping
Company
Singapore Neptune Orient Lines Singapore Neptune Orient Lines
IMC Pan Asia Alliance Singapore IMC Pan Asia Alliance
Pacific International Lines Singapore Pacific International
Lines
Taiwan Cheng Lie Navigation Taiwan Cheng Lie Navigation
Evergreen Marine Taiwan Evergreen Marine
Wan Hai Lines Taiwan Wan Hai Lines
Yang Ming Marine Taiwan Yang Ming Marine
Transport Corporation Transport Corporation
Thailand Regional Container Lines Thailand Regional Container
Lines
United Arab Global Shipping & Logistics United Arab Global Shipping &
Emirates Emirates Logistics
United Arab UAE-SHIPPING.COM United Arab United Arab Emirates
Emirates Emirates Ports and Shipping
Directory
Philippines Negros Navigation Co., Inc. Philippines Negros Navigation Co.,
Inc.

Module 1 Appendix One: A List of Shipping Companies
Shipping Companies Based in North America

Company Owner
Canada Seaboard International Canada Seaboard International

Shipping Company Shipping Company
United States American President Lines Singapore Neptune Orient Lines
Matson Navigation United States Matson Navigation
Company Company
Horizon Lines United States Horizon Lines
Star Shipping United States Star Shipping
Mexico Transportacion Maritima Mexico Transportacion Maritima
Mexicana Mexicana
Shipping Companies Based in South America

Nation of Nation of
Company Company Owner Owner
Argentina Maruba Argentina Maruba

Brazil Aliança Navegacao e Brazil Aliança Navegacao e
Logística Logística
Libra de Navigacao Chile Compañía Sudamericana
de Vapores
Mercosul Line Denmark A.P. Moller-Maersk Group
Chile Compañía Sudamericana Chile Compañía Sudamericana
de Vapores de Vapores
Compañía Chile Navi Chile Compañía Chile Navi
International International
Shipping Companies Based in Africa
Nation of Company Nation of Owner Owner

Company
South Africa Safmarine Denmark A.P. Moller-Maersk Group
Shipping Companies Based in Oceania

Nation of Company Company Nation of Owner Owner
Australia Australian National Lines France CMA CGM

APPENDIX TWO: A LIST OF SHIP’S
DOCUMENTATION
Under the IMO legal instruments there are currently listed some 67 different
certificates and documents required to be carried onboard ships. Some, such as
certificates for masters, officers and ratings, must be issued for each person
onboard.
However, not all of the 67 have to be carried on all ships, for example oil tankers
have specific documents. The certificates and documents are issued mainly by
national maritime administrations and/or those institutions, such as classification
societies, authorised to act on behalf of administrations. The issuing organisations
will normally, in most countries, have electronic records of the certificates that
they have issued. However, the electronic format cannot apply to all the
documents listed. Some of them contain operational information that must be at
hand onboard the ship. Others are operational records that must be maintained
and updated at all times.
IMO have tried to classify the listed documents into three categories: Under
document type they are classed as follows (note the preceding number is the
running total of this type):
A. Certificates and documents issued by a certifying authority which could

confirm that they have been issued to a ship. In principle, these documents
might not have to be kept onboard, since inspectors could verify their
existence by checking the database of the issuing authority prior to the
arrival of the ship. There are about 34 of the 67 documents in Category A.
B. Documents and manuals that are necessary for the operation of the ship.
Some of these are issued by authorities and the authority could confirm
their issue. However, they must be kept onboard.
C. Documents recording various aspects of ship operation. These must be

kept onboard.

Module 1 Appendix Two: A List of Ship’s Documentation
Ship type Document Name Document type
All Ships 1 International Tonnage Certificate 1A

All Ships 2 International Load Line Certificate 2A
All Ships 3 International Load Line Exemption Certificate 3A
All Ships 4 Intact Stability Booklet 1B
All Ships 5 Damage Control Plans and Booklets 2B
All Ships 6 Minimum Safe Manning Document 4A
All Ships 7 Fire Safety Training Manual 3B
All Ships 8 Fire Control Plan/Booklet 4B
All Ships 9 Onboard Training and Drills Record 1C
All Ships 10 Fire Safety Operational Booklet 5B
All Ships 11 Certificates for Masters Officers or Ratings 6B
All Ships 12 International Oil Pollution Prevention 5A
Certificate
All Ships 13 Oil Record Book 2C
All Ships 14 Shipboard Oil Pollution Emergency Plan 7B
All Ships 15 International Sewage Pollution Prevention 6A
Certificate
All Ships 16 Garbage Management Plan 8B
All Ships 17 Garbage Record Book 3C
All Ships 18 Voyage Data Recorder System – Certificate 7A
of Compliance
All Ships 19 Cargo Securing Manual 9B
All Ships 20 Document of Compliance 8A
All Ships 21 Safety Management Certificate 9A
All Ships 22 International Ship Security Certificate (or 10A
Interim)
All Ships 23 Ship Security Plan and Associated Records 10B
All Ships 24 Continuous Synopsis Record 4C
All Ships 25 Noise Survey Report 5C
Passenger Ships 26 Passenger Ship Safety Certificate/Exemption 11A
Certificate
Passenger Ships 27 Special Trade Passenger Ship Safety 12A
Certificate
Passenger Ships 28 Special Trade Passenger Ship Space 13A
Certificate
Passenger Ships 29 Search and Rescue Co-operation Plan 11B
Passenger Ships 30 List of Operational Limitations 12B
(continued)

Appendix Two: A List of Ship’s Documentation Module 1
Passenger Ships 31 Decision Support System for Masters 13B

Cargo Ships 32 Cargo Ship Safety Construction Certificate 14A
Cargo Ships 33 Cargo Ship Safety Radio Certificate 16A
Cargo Ships 34 Cargo Ship Safety Certificate 17A
Cargo Ships 35 Exemption Certificate 18A
Cargo Ships 36 Document of Authorisation for the Carriage 19A
of Grain
Cargo Ships 37 Certificate of Insurance or Other Financial 20A
Security in respect of Civil Liabilities for Oil
Pollution Damage
Cargo Ships 38 Enhanced Survey Report File 6C
Cargo Ships 39 Record of Oil Discharge Monitoring and 7C
Control System for the last Ballast Voyage
Cargo Ships 40 Cargo Information 8C
Cargo Ships 41 Bulk Carrier Booklet 14B
Cargo Ships 42 Dedicated Clean Ballast Tank Operation 15B
Manual
Cargo Ships 43 Crude Oil Washing Operation and Equipment 16B
Manual
Cargo Ships 44 Condition Assessment Scheme Statement of 17B
Compliance, CAS Final Report and Review
Record
Cargo Ships 45 Hydrostatically Balanced Loading 18B
Operational Manual
Cargo Ships 46 Oil Discharge Monitoring and Control 19B
Operational Manual
Cargo Ships 47 Subdivision and Stability Information 20B
Ships Carrying 48 International Pollution Prevention Certificate 21A
Noxious Liquid for the Carriage of Noxious Liquid
Chemicals in Bulk Substances in Bulk
Ships Carrying 49 Cargo Record Book 9C
Noxious Liquid
Chemicals in Bulk
Ships Carrying 50 Procedures and Arrangements Manual 21B
Noxious Liquid
Chemicals in Bulk
Ships Carrying 51 Shipboard Marine Pollution Emergency Plan 22B
Noxious Liquid for Noxious Liquid Substances
Chemicals in Bulk
Any Chemical 52 (International) Certificate of Fitness for the 22A
Tanker (where Carriage of Dangerous Chemicals in Bulk
applicable)

Module 1 Appendix Two: A List of Ship’s Documentation
Any Gas Carrier 53 (International) Certificate of Fitness for the 23A

(where Carriage of Liquefied Gases in Bulk
applicable)
High Speed Craft 54 High Speed Craft Safety Certificate 24A
High Speed Craft 55 Permit to Operate High Speed Craft 25A
Ships Carrying 56 Document of Compliance with the Special 26A
Dangerous Requirements for Ships Carrying Dangerous
Goods Goods
Ships Carrying 57 Dangerous Goods Stowage Plan 23B
Dangerous
Goods in
Packaged Form
Ships Carrying 58 International Certificate of Fitness for the 27A
INF Cargo Carriage of INF Cargo
Nuclear Ships 59 Nuclear Cargo Ship Safety Certificate or 28A
Nuclear Passenger Ship Safety Certificate
Special Purpose 60 Special Purpose Ship Safety Certificate 29A
Ships
Offshore Support 61 Certificate of Fitness for Offshore Support 30A
Vessels Vessels
Diving Systems 62 Diving System Safety Certificate 31A
Dynamically 63 Dynamically Supported Craft Construction 32A
Supported Craft and Equipment Certificate
Mobile Offshore 64 Mobile Offshore Drilling Unit Safety 33A
Drilling Units Certificate
Wing-in-Ground 65 Wing-in-Ground Craft Safety Certificate 34A
Craft
Wing-in-Ground 66 Permit to Operate Wing-in-Ground Craft 24B
Craft
Summary: Document Type A = 34; Document Type B = 24; Document Type C = 9.

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DIPLOMA IN

Introduction to the Shipping Industry

Captain Rodger MacDonald

1 HOW THE MARINE INDUSTRY HAS DEVELOPED . . . . . . . . . . . . . . . . . . . 7

1.1 A Brief History of Shipping. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2.1 How has Trade Developed? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Diploma in Ship Management 2012 / 2013 (FLP2233) 1-1

3 THE MAIN SHIPPING MARKETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

3.1 The Dry Bulk Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

4 THE WAY SHIPS TRADE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

4.1 It Starts with the Sales Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

5 AN OUTLINE OF THE DOCUMENTATION FOR THE

5.1 Cargo and the Transfer of Risk and Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

1-2 Diploma in Ship Management 2012 / 2013 (FLP2233)

5.5 Cargo/Customs’ Manifests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

6 AN OUTLINE OF THE LAWS THAT GOVERN SHIPPING’S

6.1 Who Makes the Rules? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

7 THE WAY SHIPS ARE MANAGED AND HOW THEY OPERATE . . . . . . . . 81

7.1 The Role of Ship Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Diploma in Ship Management 2012 / 2013 (FLP2233) 1-3

7.3 How is Ship Management Structured? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

8 WHAT SUPPORT IS AVAILABLE TO THE MANAGEMENT

8.1 National Governmental Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

1-4 Diploma in Ship Management 2012 / 2013 (FLP2233)

8.11.2 Nautical Institute (NI). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

SUMMARY AND CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

TUTOR-MARKED ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

APPENDIX ONE: A LIST OF SHIPPING COMPANIES . . . . . . . . . . . . . . 122

Shipping Companies Based in Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

APPENDIX TWO: A LIST OF SHIP’S DOCUMENTATION . . . . . . . . . . . . 126

© Copyright IIR Limited 2012. All rights reserved.

Diploma in Ship Management 2012 / 2013 (FLP2233) 1-5

In our global economy, no nation is self-sufficient. Each is involved at different

1-6 Diploma in Ship Management 2012 / 2013 (FLP2233)

At the end of this chapter you should:

• Understand the development of the world trade and the

• Identify the key players in the industry

• Understand how ships are managed.

1.1 A BRIEF HISTORY OF SHIPPING

Diploma in Ship Management 2012 / 2013 (FLP2233) 1-7

1-012 Laws and conventions were promulgated to control differing aspects of

1-8 Diploma in Ship Management 2012 / 2013 (FLP2233)

Diploma in Ship Management 2012 / 2013 (FLP2233) 1-9

An Artist’s Impression of Lloyd’s Coffee House

1-023 In support of the insurance underwriter’s needs another Lloyd’s organisation

1-10 Diploma in Ship Management 2012 / 2013 (FLP2233)

Diploma in Ship Management 2012 / 2013 (FLP2233) 1-11

1-12 Diploma in Ship Management 2012 / 2013 (FLP2233)

1.2 SHIPPING TODAY

1-040 Today, it is argued that 90% of international trade is carried by sea.

Diploma in Ship Management 2012 / 2013 (FLP2233) 1-13

1-14 Diploma in Ship Management 2012 / 2013 (FLP2233)

Diploma in Ship Management 2012 / 2013 (FLP2233) 1-15

1.3 THE NEED FOR SHIPS

From researching on the internet you should be able to obtain trends in

1.4 WHO IS WHO IN SHIPPING?

1-16 Diploma in Ship Management 2012 / 2013 (FLP2233)

1.4.2 The National Governments and Lawmakers and Regulators

1.4.3 The Ships and their Customers

Diploma in Ship Management 2012 / 2013 (FLP2233) 1-17

1.4.4 Supporting Groups

Ship Building Yards

Underwriters and P&I Clubs