SHIP MANAGEMENT ROUND TABLE

Three prominent ship managers --Ramesh Bhat of Jardine Ship Management, Jordan Truchan of American Ship Management and Bruce W.B. Lucas of Atlantic Marine which manages APL's U.S. flag ships, sit down with Marine Log to discuss some of the issues facing ship managers and why more owners appear to be turning to third party management

Nick Blenkey (MARINE LOG): To what extent is third party ship management a growth industry? Are more owners turning to ship management because of ISM?

Ramesh Bhat: Owners certainly want ISM to be in place. In Jardine Ship Management, we manage 25 ships presently, and 16 of them, which are required to have ISM, are certified. We started the [Det Norske Veritas] SEP program in early 1993, and were one of the first companies in Hong Kong to get our certification. Being part of a large corporation, Jardine Matheson, where we believe that the customer is king, we were one of the fore runners with SEP. Our customers have always counted on JSM as being an entity they could fully trust, and for our part, we whole heartedly embraced the quality concept in order to enhance their trust in us. We feel that vessel owners with smaller number of vessels would benefit by entrusting their vessels to the ship managers to deal with the ever demanding maritime legislation worldwide.

Bruce W.B. Lucas: We suggest that third party ship management is a growth area, and that traditional owners are becoming fewer. The new owners tend to be investment companies, perhaps more so than they have been previously, and those companies perhaps are of limited duration, or are start-ups. But they start out wanting all their options open and to have those options at their finger tips. So third party management is a solution for them. Furthermore, I think that the responsibilities which are placed on owners now are becoming more and more onerous as a result of all the legislation which is in progress. ISM is still untested. What is going to happen when a ship has ISM and there's an incident and all the records and all the information are readily available immediately? This is making many owners nervous. I think that all this combines to make the ship manager the obvious repository for more tonnage, and therefore, ship management is a growth area.

Blenkey: Jordan, because of the particular circumstances of American President and Neptune Orient, do you think that you're in an individual situation?

Jordan M. Truchan: We're initially in an individual situation. But beyond the nine APL Maritime Security Program ships that we're managing, we're managing three new 3,500 TEU ships under the American flag. I believe that we offer a very good, solid management system for others, through our American seafarers and American management. We're very focused on systems in our operation. We're very focused on ISM. We were one of the first containership operators with ISM, well ahead of the schedule, and we are well along in our ISM certification for our Ready Reserve Fleet ships as well as our regular American-flag fleet. So, we're very well placed for managing other third party assets.

Blenkey: Do you think that with the cost of American seagoing labor you can attract some people with foreign flag ships?

Truchan: Obviously the cost of American seagoing labor is a factor, but there are certain niches where American seagoing labor may well be desirable. There is something to be said for having an American ship manager that is able to utilize some of the very good American labor that we have. There is a lot of talk of how there is going to be a shortage of maritime labor. I believe that the United States actually provides a very good labor source going forward. Certainly the cost is higher. The standard of living of Americans is higher. But, I believe that there is a place for what we have to offer.

Blenkey: Besides ISM, another worry for owners and investors is an apparent trend for prosecutors to want to bring criminal charges after, say, a pollution incident. I can see that investors would like to distance themselves and put the ship manager in the line of fire, so that if anything goes wrong, it's you that goes to jail and not the investor. Do you have a feeling that you're putting your life on the line in this way?

Lucas: "Your life" is a wee bit strong, but certainly we're exposing ourselves to these risks, and the risk of criminal prosecution is very real. It must be taken seriously. It is a fact that the ship manager is exposed but is to date not rewarded to the appropriate degree.

Blenkey: Back to ISM. Have you all, more or less, solved your ISM problems at the moment and, as your experience with ISM grows and your systems get more polished and honed, are you starting to get positive benefits.

Bhat: We in Jardine's have had a quality system for a very, very long time. Having gone through the SEP process in 93, the documentation system has been very well tested in our organization. Our claim records have historically been good, even before the ISM era. Operating under SEP over the last five years has therefore improvred our overall claim statistics by only 4%, probably not as much as some other companies who were operating to lower standards which provided a big margin of improvement post ISM. Even before the ISM era, JSM has always prided itself as a customer driven company with its primary focus being on providing a safe and high quality service to our customers in a cost efficient yet effective manner.

Blenkey: When you initially put in SEP, before ISM, did you get a bigger gain at that time when quality assurance was kind of new?

Bhat: I wouldn't say that we had a bigger gain because the basic systems were in place much, much earlier. The system was already well up and running. But, all the same, we do feel that because the documentation system is in place, the performance of the people on board has improved.

Truchan: We also had a SEP system in place, and we had a very large quality program going throughout the company with APL in the nineties. When we started American Ship Management, we were able to recertify. Because, of course, many of our people had beent trained and most of our processes had been documented. With ISM, we're able to build on the SEP processes we had in the past and carry forward with the ISM documentation and processes. The important thing about ISM is not that you have the system, but that you use the system. And, we were very active in making sure that we developed the system in house with our own people having a buy in and making them want to use the system. And, there is still some education around that, but that's really the focus of where we're going with it. We tried to use a minimum of consultants and to bring management and seagoing staff into being very active in making it happen for the whole ISM concept.

Blenkey: Did you inherit the same relationship with the maritime unions that you had under the APL name? Truchan: Yes, pretty much so. Blenkey: Are they on board with this effort?

Truchan: We adopted the APL labor union agreement when we started American Ship Management so, the people that we have working on the ships today are pretty much the same people who worked for APL. They've been exposed to ISM and SEP. But, going forward, I think that there is an opportunity to get them even more involved. It's a smaller, more focused management team now in American Ship Management. And, our principal way of managing is around the ISM/SEP processes. They're fundamental to our whole management process. The shipboard unions are playing a big part. There are actually six different unions represented on the vessels, and they are playing a big part in making our ISM systems successful. Lucas: Your question was, I think, 'Are we getting positive benefits from ISM?' I'm not sure. I think I'm sure of the positive benefits we're getting administratively. And, I think that generally ISM is going to benefit the industry in that there were always shipowners and shipmanagers who did the job properly, and those were never the problem, ISM will, however, raise the standards for those who were otherwise not as effective or who were not performing effectively or efficiently. So, I think that, as an industry, we will get positive benefits as a result of that. Financial benefits-I haven't seen them yet. Hopefully, these will accrue in the future as a result of the continuing process.

Blenkey: All three of you were, in one way or another, on the QA route before the ISM became imposed. You were also involved in doing it for its own benefits. Will it work for people who really see it only as an imposition?

Bhat: I believe that there are owners around who would still like to have the document of compliance without putting the systems in place. I do not know whether by July 1, 1998, when it becomes mandatory, they will get to it. Intertanko feels, I understand, that about 90% of the tanker owners would be compliant by July 1, 1998. And what happens to the 10 %? I think it will be left to the Port State Control authorities to react.

Blenkey: Now that you all have ISM under control, how are you going to cope with STCW?

Lucas: I don't think we all have ISM under control. I don't think. The thing about ISM, it's a continuous process. We cannot say that any of us are doing it perfectly. But, we're as good as any and better than most, I would think.

Truchan: We have the guidelines in place, and we have the ability now to manage around those guidelines. And, it's an evolving process. We need to continuously work with it. We need our personnel to improve it. I mean, a part of ISM is improvement of processes. And, we need to get personnel so actively involved that they improve the processes, streamline the management to improve the cost structure around vessel operation and improve safety. You don't really feel like you have your arms around ISM as much as it gives you a focus toward management. It gives you a documented focus toward management which is a very positive thing.

Blenkey: Do you already have an impression that the people on board the ships have bought into ISM and see it as for their benefit?

Bhat: Yes, definitely.

Truchan: Yes.

Lucas: On the whole, I think yes, but I still think that we have a lot of indoctrination and training to do becaus seafarers are a very skeptical lot. They have seen it all before. They have seen all these new rules and regulations introduced previously, and while they are making an effort, I don't know that they are all whole heartedly convinced and have adopted it as a religion yet.

Blenkey: So, even if you haven't got ISM perfected, because it's an ongoing process, have you gotten comfortable living with it?

Truchan: Well, with the containerships that we manage, it's really not mandatory for a couple more years. But, we still believe that it's a very good way to be doing our business. It's a very good way to focus our management and focus our crews.

Lucas: I think it's a sad thing that people who have known about the imposition of ISM becoming mandatory for the past four years are now, some of them, still rushing to gain certification. Some, of course, have justifiable reasons , but others have just postponed and left it. That is a sad reflection of the type of people who are still in the industry. Whereas Jordan says that four years prior to him having to do it, he's actually got it.

Blenkey: Let's turn to STCW. There's an impending shortage of labor, and STCW seems likely to make it worse.

Bhat: As far as our manning agency in Manila, Philippines is concerned, the shortage of labor is not really there. We have been in a position to meet owners' requirements. We have our JUMP (Jardine Upward Marine Program) program which has been going for quite sometime wherein seafarers who are on leave are called into our office in Manila for this two day module. Several of our non-Filipino officers are routed through Manila for a Bridge Resource Management Course. We also have a fleet training superintendent who goes on ship to ship, principally on all technically managed ships, so basically all our ships are covered ten days in a year. Our retention rate for senior officers is 95%, junior officers is 82%, and ratings is 90%. We have been in a position to meet the demands of owners and third party managers who have approached us. Presently we man 50 vessels from our manning agency.

Blenkey: Bruce, will you be able to supply your crewing clients with an adequate supply of STCW 95 qualified people.

Lucas: Well, the answer is yes. We will, but it's becoming more and more difficult to attract and retain these people. The pressures that are on manning are growing all the time. We have one first class customer who spends some 20% of the amount of his payroll on training cadets and another 20% on upgrading. This is a substantial amount, and this is only to maintain his own requirements. This does not apply to the rest of the industry. Now, there are cruise lines that are out there which are developing and expanding at an ever increasing pace. They are demanding quality people. And, they're not necessarily commercial in their approach. They do not need to be, perhaps, as much as some others do and therefore they can throw conditions at seafarers which the rest of the industry can't hope to match and make it very attractive. So it is becoming more and more difficult. I don' know how much of of this is affected by STCW. I think the biggest problem is perhaps more the worldwide shortage generally of qualified and well trained officers.

Blenkey: Are East European countries going to continue to be a source for officers?

Lucas: Yes, they are. We have opened an office in Estonia. We are also in the process of doing so in Croatia. We continue to look at China and other sources. Again, the need for training means it is going to take many years for these resources to come through.

Blenkey: Do you use East European resources, Ramesh?

Bhat: Yes, we do use ships staff from East European countries, mainly Russia. We have a few of our ships manned by Russians, top to bottom.

Blenkey: Jordan, are you itching to say you don't have any of these problems?

Truchan: I think that STCW is going to become a standard that is very positive. It steps up by a certain amount the training that the unions need to do, and that we need to do. We do have an aging work force, so it gives the possibility to bring some younger people into the business. Interestingly enough, last week we just activated five of our government ships that we have standing by and our unions and our officers stepped up quickly and were able to man the ships very rapidly. We do have very qualified people here, but I think that STCW is another very good benchmark and will keep the labor standards as good or better than they are today.

Blenkey: Are young people wanting to come into this industry as ratings?

Truchan: There is obviously always a requirement for more good, qualified people in the industry. With the unemployment rate going down, it becomes more of a challenge to get good people. But, there are people who certainly are willing to go to sea. The standards on our ships are good. The standard of living is good. The ratings also have.good vacation benefits, and quite good pay. There are some enticements.

Lucas: It is quite possible that in our search for qualified and quality crews for international foreign-flag ships that, in the not too distance future, we may actually have to look seriously at American officers depending on how much further the shortage goes. It may well be that the American officer could be employed in the international industry. The American government is probably one of the few governments which continue to train as a government entity rather than it being done by private companies.

Truchan: I've been on the campaign for a long time to try to make the American officers much more competitive, and certainly they're very very qualified. Americans' tax structure works against them, and also the legal system, with the P&I claims, works somewhat to their disadvantage, but we're trying very hard to work on those two particular issues both in our own company and with our unions. If we could solve those two issues, it would make the American officer far more competitive internationally.

Blenkey: Could Jardine's do some shopping for officers here?

Bhat: JSM is a customer driven company, and if a customer requires American officers, that is exactly what he will get from JSM. In JSM, customer focus is absolute, and satisfying our customers is our ultimate goal. We do employ a few Canadian officers, whom we find to be excellent.

Blenkey: Are there any specific STCW anomalies that are problematic? How are you going to keep track of the paperwork?

Lucas: The paper work is becoming increasingly horrendous even to the extent that I saw the other day in some of the papers of one seafarer that he had been given a certificate for watching training videos. And so the paper goes on. It's endless. Can you imagine that every time you watch a video you're given a certificate by the ship's master? Where will it stop?

Blenkey: I saw that the Star Center is offering an STCW instructor's STCW course, because, if your own in-house people are giving training, they themselves have to be STCW trained to do so. Do you guys have problems at the moment in making your own people STCW instructed instructors?

Bhat: Our JUMP evolved around the need to provide focused training to our staff both afloat and ashore. Several of our key staff including the Fleet Training Superintendent have been through the train the trainer course, which is of great assistance in imparting in depth training during our JUMP seminar bothashore and afloat. Our parent company Jardine Matheson prides itself on investing in its people by putting them through some of the best managerial training courses available in Hong Kong and United Kingdom. The knock on effect of this strong training culture is felt all the way down from the managing director of our company to the messman on our ships.

Blenkey: Are STCW rest period requirements presenting any sort of problem? Truchan: No, I don't think so! But, I agree that the paperwork is an issue. I think that making a huge paperwork morass is something that needs to be avoided.

Blenkey: Do you think there is a need for some massive central data bank that's accessible to administrations and owners, where every seafarer's records and video watching certifications are all on permanent file, and anybody can go to it.

Lucas: I don't know what the advantages or benefits of it would be unless the labor force was totally mobile. We don't necessarily have a mobile labor force. We retain these people with a narrowing system. So, I cannot see how the advantages of something like that.

Truchan: Certainly in our internal payroll system, we have to share the labor force with a number of other companies, but we have a relatively captive number of people. So, we know that we get a good share of the same people and we can computerize and gather personnel data. We are working with the unions and USCG toward developing something along that line.

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