The sale or purchase ofa vessel represents more than just an ending or a beginning. It represents a major event which needs to be properly project managed. In fact, the operation ofa vessel throughout its life is a succession of events, large or small, frequently repetitive but each unique in time and circumstance, which require proper management. As such, they all need to be properly planned and each plan, whether it be large or small, unique or routine, warrants a careful and structured approach.
The first and critical step in planning is the collection, collation and assessment of information.
One of the major reasons why plans fail is because insufficient time is allowed for planning and in the busy, time pressured life ofa ship's master, this is easy to understand. Another, important reason why planning fails is because it is given a low priority because the task is ~ust routine',just another passage, just another port. It is essential to remind oneself that nothing is ever quite the same - it may be the weather or it may be the composition of the bridge management team, or it might be a small equipment fault. Anyone of these may trigger a sequence of events which lead to a critical situation or even amajor accident. How many times has a major incident appeared to be the result ofan apparently coincidental sequence of minor events?
Identifying and guarding against these incidents is where risk management should be woven into the planning process. The first steps of hazard identification - This is anew third mate' - and ri~
assessment - 'How competently can he or me fit into my team?' may be time consuming, but they are essential for good management. The process of hazard identification is based upon the principle of gathering
as much of the relevant information as possible. In other words it is a team task in which the master should involve his shipboard management team.
If the team is going to participate in a practical and meaningful way, they will need to be properly briefed. In other words, a prerequisite of proper planning is good communication. In many management systems, information equates to power and influence, so disseminating information can be a difficult process. It also means that the decision making process is much more open and potentially subject to criticism - no longer is it the unchallenged word emanating from the ivory tower of seniority.
This shift in the process of decision-making from a closed to an open forum can be difficult. Initially, for many, it may feel like abdicating the responsibility of leadership but, in effect, it is only moving it into public view. When all the information is gathered and all the advice and opinions assessed, it remains the master who has to draw it all together and select the correct course of action. Doing this in a forum where a decision can be judged and even criticised takes both courage and professional competence.
These ~ills really need to be learned as the young officer is promoted to the managerial role of chief officer. The good master, therefore, is not just a practitioner of the se skills, he is also a teacher. In order to achieve this, he needs to develop a range of attributes starting with not just a good command of basic facts but also the relevant professional understanding to display them effectively. The master also needs to be sensitive to changing events, including developing technology, knowing when to set aside the old and familiar as well as when not to be seduced by the new but unproved. This requires good analytical skills.
The open forum of team based management mentioned earlier, as well as the master's unique command role in emergency situations, will demand highly developed problem-solving, judgement and decision making ~ills. The master's role and the fact that however he manages, he is in command, demands both emotional resilience and social skills. The need to plan and initiate will require pro activity and the inclination to respond purposefully to events.
Creativity and mental agility together with the discipline to continue learning and developing skills, are the hallmark of the good manager as is the critical assessment of oneself as a manager and a person - self-knowledge or 'knowing thyself.
Knowing thyself, understanding one's own strengths and weaknesses, demands a high level of both honesty and commitment. The analytical techniques which can help in this process are similar to those that can help the master understand the strengths and weaknesses of the officers and ratings who make up his management team and work force.
A number of the most commonly used methods of analysis divide people's characteristics between four areas of attributes, with one usually dominant but not, generally, totally so. A master might consider whether his officers, his managers, are predominantly:
• lbInkers
who are good at facts and figures, researching, systems analysis, and will probably be good at setting up the on board computers. 'How?' . questioners.
• Sensors
who are good at initiating projects, setting up deals, troubleshooting and converting ideas into action.
"What?' questions.
• Intuitors
who are good at long term planning, creative writing, lateral thinking and brainstorming - and who are probably well able to manage change.
'Why?' questioners.
Feelers
who are good at developing and cementing relationships, counselling, arbitrating - and will converse as happily with a stevedore as with a :ship owner.'Who?' questioners.
Useful as these aids may be, people are complex and there is a real danger in labelling people inaccurately. These techniques are an aid to understanding and managing people, as with aids to navigation, they can be invaluable but need to be
·checked by visual observation at frequent intervals.
The better the master understands the
·characteristics of his officers, the better able he is to build an effective and efficient management team on board. With reduced - and mixed - manning, a properly managed team approach is arguably the best, if not the only way in which to make best use the human resource at the vessel's disposal.
Communication is a key element in achieving this.
The greatest mistake made about communicating in a business environment is in considering it as a one way flow - down the chain of command.
Communication is the way in which management makes its needs and requirements known. It is also the way in which other employees make their needs and desires known too. It is important to them that their voices are heard in a considerate way. At the very least, their message might contain information which will improve the master's decision making.
In a multi-cultural environment such as a ship, the proper use oftwo way communication becomes even more important, for the meaning contained within the -communication has to survive, not only translation but also cultural differences. Whatever the culture, a golden rule of communication is to take the time and trouble to work out what information the other person needs to know in order to enable them to carry out the required task efficiently.
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There are a numb er of other aspects of communicating and of managing people in teams which a good manager needs to know, covering such diverse aspects as communicating effectively on paper, managing meetings and negotiating. A manager today needs new interpersonal skills just as he or she needs new technical skills. If there are doubts about this consider how both parent-child and employer- employee relationships have changed over the past half century .
Management information systems
One of the skills which today's manager needs is the ability to manage the vast amounts of information which the electronic age has spawned. In many ways, this consists of sifting the wheat from the chaff One of the areas in which management information can be more readily and more rapidly managed by computer power, is an organisation's financial perfonnance. There are a number of problems .associated with this as well as obvious benefits.
It might be argued that computer based accounting has given 'the accountant' undue influence within .shipping companies and focused decision making too far towards the cost side of the equation rather than on the income or commercial side. It is dangerous to generalise but part of the reason for this is that .accountancy feels happier working with cost figures.
They are in general terms both 'dead' figures and factual- they represent what has happened and stay where they are put (figuratively speaking). The technical database of historical fact makes an excellent platform for future projection.
Income figures, however, are alive and can be more problematical. They carry an aura of commercial 'confidentiality, defY easy prediction, are cyclical and not under the owner's control and are associated with difficult concepts like quality ofservice. Forthisreason, management information systems in the shipping industry and consequently the managerial ethos frequently concentrates on cost based accounting.
'Conversely, one of the benefits of computer power is the ease with which electronic data can be transferred from place to place. This, coupled with the reduction in shore-based management staff has seen the ship's staff becoming increasingly involved in and aware of the cost side of vessel operations. For this involvement to be effective and professionally :satisfying, authority needs to pass together with responsibility.
()ne of the skills which the master and his team need in order to assimilate this extension ofmanagerial responsibility is the management of budgets. This has two major aspects:
Building the budget and monitoring.
Managing expenditure.
Here might be mentioned one of the potential problems of budgets and the associated information system. A budget, like a passage plan, is there for guidance. They can indicate whether a vessel is off course (or budget) but not necessarily whether this is good or bad. One does not sail through a maj or storm just because a line drawn on a chart five days previously takes the vessel through the storm's current location. In a similar way, safety requirements, as opposed to routine maintenance, can defy budget constraints but,just as a vessel cannot steam ifshe has no bunkers, so she cannot be technically operated if there are no funds.
The analogy can be developed further. A master will endeavour to use his navigational skills to achieve the best set of speed and consumption figures for a voyage, with the least possible use of that cost item, bunkers. In a similar way, the master needs to use his managerial skills in order to deliver the best possible technic al operation of his vessel within budget constraints. The effective budget manager should know where he has some flexibility to adjust budgeted expenditure and must bear in mind that if economic conditions change, so might the vessel's economic course. Unfortunately, the 'accountancy approach' to budgeting means that adjustments are all too frequently on the cost reduction side and good commercial, or trading results are far too infrequently fe d back into the equation.
Vessel costs, or the costs which must be covered by the income which the vessel must earn, can be logically divided into three areas. The first and perhaps the most remote from the seafarer's point of view, are the finance costs which relate to the cost of having purchased the vessel.
This budget area would typically include the interest due for payment during a given budget period, on any bank or other loan that had been used to support the purchase the vessel. On a statutory accounting basis, it would also include an allocation of the vessel's depreciation over whatev er realistic life the vessel is allocated (typically 15 -20years) reducing to a residual value of, perhaps, ten percent of the vessel's original cost. Perhaps more useful from a management accounting point of view is the true cash- flow picture achieved by replacing the depreciation by loan instalment repayments falling due during the budget period in question.
In many cases, the financial aspects of the vessel's budget will be dealt with, corporately within the organisation. Nevertheless it is important to remember that the vessel carries these costs every minute of every day, whether on hire or idle, laid up or operating.
The next budget area covers the operating or technical costs - typically the block of costs which would be covered by a ship manager. Again these costs must be borne before the vessel has earned a cent,
although they can be trimmed. This might be by laying the vessel up or, too many seafarers will be aware, by cutting maintenance, personnel, training or other similar costs.
There are many different ways of marshalling operating (or technical) costs but whatever way they are arranged, they should include:
Personnel costs: the salary cost of sea-staff, the cost of filling the berths on board 365 days a year, thereby taking into account overlap and leave pay as well as the associated social costs of pensions, health insurance and employment taxes.
Shifting costs: or the costs of travel to and from a crew change. The size of this can be affected by changes in the vessel's trading patterns and reduces the longer crew members say on board.
Repair and maintenance costs: a large budget area which subdivides logically into a range of sub- areas and responsibilities. Budgeting in this area has a strong historical/statistical basis and relates to assumptions on trading patterns and machinery running hours. This is a cost area which will be affected by the corporate philosophy of the company ranging from 'repair when essential and keep the maintenance costs down' to a 'maintain proped y and reduce the need for repait' approach.
Stores and spares: an area where careful thought and analysis can save money by differentiation between high and low cost components and those that are essential (ship stoppers) and less essential spares. Put another way, thoughtful stock keeping.
The overstocked vessel is effectively carrying 'dead'resources-ineffectivelytiedupfundswhich should be working for the vessel and for the company.
Lubricating oils: an element usually borne in this sector of the budget and directly related to the expected use of individual machinery items and to the vessel's anticipated trading pattern. This is an area where a good link between commercial planning and technical operation can make effective savings by increasing or reducing the lubricating oil stock depending upon the expected trading pattern.
Victualling and Pantry Stores: usually handled separately from the general stores and again an area where advance notice of anticipated trading pattems can contribute to cost savings.
Insurance: covering hull insurance, the vessel's entry into a P & I Club (liability insurance), war risk insurance, etc., either as a direct cost or an allocation from afleetpolicy. It is always essential to remember that insurance, which imposes a high cost item on the operational budget, never does more than recompense the owner for part of the true cost of an accident- the inevitable 'perils of the sea' or the less inevitable negligence of master or crew. The true cost of an accident is invariably
higher than the claim, especially when the loss of (potential earning) time and the call of managerial resources is taken into account.
Franchise: this is an allocation in the budget to account for the insurance deductible or excess, the most obvious part of an insurance claim not refunded or indemnified by the insurer but not, as indicated, the only uncovered cost arising from an accident.
Over and above this range of direct costs will be another block, sometimes referred to as overheads, which relates to costs which might be spread over the fleet or a particular class of vessel or which might have implications going beyond that budget period, Costs of training may appear here together with the costs of modifYing or upgrading the vessel to ensure continued compliance with national and international rules and regulations. There may also be an allocation oftime and travel costs for superintendents or other shore staff visiting the vessel.
Finally, the shore establishment costs need to be apportioned and allocated across the vessels in the fleet or, in the case of management, this may be replaced by a ship management fee.
The third area of the vessel's budget covers the operation of trading the vessel and is of critical importance, since it is the only sector of the whole budget which includes an income. This income may come from charter hire (voyage or time) or from direct freight income (container rates etc.) or from passenger fares. The costs associated with a vessel's trading budget cover such items as bunkers, port costs and cargo-handling costs (except of course when on time charter). Unfortunately, and not always necessarily, little of the information about a vessel's trading performance reaches the master and his offic ers. The pretext is generally 'commercially confidential information' although charter rates, to within a few cents, are generally well known to those competing in similar markets.
This lack of information is a pity because the master and his team can make a very real contribution to the trading performance ofthe vessel in one ofthe key areas where customer service is, or should be, delivered. It is also the area in which the time pressures imposed by commercial trading requirements translate into a heightened risk profile which can flow through the technical operation ofthe vessel. It is The Nautical Institute's contention that this is an area where a much greater involvement of the sea staff, coupled with a wider understanding of the commercial aspects of the ship operation, would be beneficial.
Trading and contracts of affreightment The first part of commercial understanding comes from the recognition of what drives international trade and shipping's role as an, albeit critical, service 106 THE NAUTICAL INSTITUTE
provider. The glob alisation of industry and its manufacturing and processing facilities both drives and is driven by shipping's ability to deliver a fast and efficient maritime link in an increasingly complex logistical network. The first major contribution to industrial globalisation was in the form of the economies of scale provided by the introduction of the very large raw material carriers in the late sixties (both VLCC and Panamax and Capesize dl)' bulk carrier). This, despite frequent and often quite violent freight rate fluctuations, effectively pegged the cost of transp orting low value raw materials, particularly crude oil, iron ore and stearn coal at a level which allowed other factors to determine where primal)' processing, heavy industrial manufacturing and energy generation would take place.
This was followed by containerisation and other forms of specialised carrier (such as the pure car carrier) which, in a similar way, enabled other factors than transportation cost and time to play a greater role in the location of the lighter end of both manufacturing and processing industl)'. These other determinants include the cost and availability of an efficient work force and a national governments' willingness to support the financing of the necessal)' means of production (or factories to use a slightly outmoded term). These decisions were overlaid in certain cases by the need to locate final manufacture within regional trade barriers in order to ensure tariff free access to markets. As a result, the components in a manufactured item may have made a number of substantial maritime journeys from raw material through semi-finished components to final product before that product finally reaches its market place.
To a large extent, the cost of multiple maritime transportation is offset by an endeavour to keep stockpiles as low as possible and the means ofdelivery as fast and flexible as possible - the basis of 'just in time' delivel)' systems.
Over this pattern must be laid the major uncertainties which disturb, to a greater or lesser extent, the logistics manager's endeavours to establish a steady supply train. Climate is one major factor, which has its impact in two areas. Warm or cold (mainly northern hemisphere) winters have a direct effect on the demand for (liquid) bulk transportation which ripples through into the dry bulk sectors as combination carriers are drawn in or released. On the dl)' bulk side, it is the agricultural production of staple food crops - the rice and grain harvests - which directly affect vessel demand and freight rates.
International and regional conflicts, trade barriers and tariff disputes as well as regional fluctuations in demand all impact back on the demand for shipping services. Crucially, too, against this picture of a monolithic, global trading system, there are new markets emerging and ever changing opportunities for traders to take advantage ofinequalities in the market.