COMMERCIAL SHIPPING AND OUTSOURCING OF SHIPPING OPERATIONS

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By Foluke Akinmoladun

Except for brief periods, profit margins in commercial shipping are usually slim, as it is a highly competitive business. Ship owners and ship operators are relentlessly under pressure to reduce cost. In such an environment the commercial ship manager or the ship operator, has to be well acquainted with the cargo capacity of the ship, the various weather and geographical conditions that the ship’s trade routes have and on what trade routes the ship will earn optimum freight rates.

Furthermore, the commercial shipping manager has to have detailed knowledge about charter parties, voyage costs, the proper wordings of bills of lading and the optimum procurement of bunkers/fuel for running the ship. It is also very important to safeguard freight payments and be well prepared to assist in dispute management and resolution.

The job of a ship operator/manager entails developing and maintaining good contacts with ship brokers and agents, cargo and insurance interests, bunker suppliers, superintendents, bankers, lawyers, government agencies and regulators, surveyors -and above all- the key representative on board: the master.

If a commercial ship failed to operate profitably then its very reason for existence would be removed. The consequences flowing from that would be loss of jobs at sea and ashore as well as damage to a whole range of related industries and professions; if there is no ship there is no need for seafarers, insurance, classification societies, chartering brokers, amongst other parties to the commercial shipping space. It is therefore crucial that the commercial management of ships is undertaken at the highest levels of professional standards, skill and with astute business awareness to ensure that the profitable goal is achieved.

There are six major areas of commercial activity in shipping. This is the sale and purchase of ships; the crewing, maintenance and management of the ship once it is acquired and identifying the type of ship and the type of trade, it will be involved. Thus, if a ship is a liner, the services and availability of the ship needs to be marketed for cargo. If the ship is a dry cargo tramp, marketing services for dry cargo tramp will be required and if the ship is a tanker, marketing for tanker chartering will also be required.

Finally, is the interaction between the ship and the ports where it loads or discharges. A ship owner may choose to engage in all and own all the types of ships or focus on some types of ships and some types of activities with respect to that particular ship. The question therefore for a potential ship owner, is what type of ship to acquire and under what financing terms? How to manage such ship after it has been acquired and what areas of ship operations should the ship owner focus on. This is where the question of whether, on acquisition of the ship, the ship should be managed by the ship owning company or by a third-party ship management company comes into play.

The use of a third-party ship management company may start shortly before the ship is acquired or after. Ship management functions are essentially categorised into the following: crewing and manning the ship; storage facilities and capacity of the ship; technical services with respect to the ship and its engines; insuring the ship and its activities, operating the ship in terms of the voyages of the ship and this function works in tandem with the commercial department that determines, the types of charter or voyages that will be most profitable for the ship owners and for the use of the ship.

Foluke Akinmoladun is a lawyer, accountant, mediator and arbitrator. She is the Managing Solicitor of Trizon Law Chambers and can be reached at: Foluke.A@trizonlawchambers.com

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