Tasks For SOP

Answers for tasks in NSA 2521 Shipping Management.
Ship Operation Tasks
Chapter 1-20
Students at HBV
1
Chapter 1
International seaborne trade-Globalization, the maritime nexus.
Page 10-42.
Task 1.
What is the main reason for seaborne trade fluctuation?
The share of seaborne trade volume has fluctuated only between 89.04% and 89.82% while
its share in trade value fluctuated seven times more. The main reason for those differences
lies in the fact that the share in trade value is strongly influenced by the price of the traded
commodities. In particular, the rising price of oil, but also that of other commodities, has
contributed to the rise in the share of sea-borne trade albeit only its value and not its
volume. Another trend that leads to an increase in the share of maritime trade value is the
changing composition of global maritime trade, which includes increasingly manufactured
and intermediate goods.
Task 2.
How is low-volume, high value goods typically transported?
The share of low-volume, high-value containerized trade has been growing since the
container was invented. Theyre typically transported in containers.
Task 3.
How much of the seaborne trade is dry bulk and liquid bulk?
Dry bulk: ~26% and liquid bulk: ~33%

Task 4.
What are the six key determinations of freight cost?
Distance
Plays some role as a longer journey requires more fuel and other operating expenses.
Doubling the distance increases freight rates by 15% to 25%.
Economies of scale
Larger trade volumes and bigger individual shipments reduce unit transport costs.
Larger trade volumes and shipments are also correlated with other determinants of
transport costs, such as part infrastructure and competition between service providers.
2
Trade balances
On many trade routes, volumes moving in one direction are higher than those moving
in the opposite direction. As carriers then have empty ships and containers available
for the return trip, freight rates for the return trip may be just half of the rate of the
outbound trip.
Type and value of traded goods
Transport costs vary depending on the commodity traded i.e. oil, dry bulk,
containerized cargo. If insurance costs are included in the overall transport costs a
higher value per ton of the commodity will also increase freight cargoes.
Competition and transport connectivity
Competition among carriers and competition between different modes reduces
transport costs, i.e. the freight rates charged to the shipper. If countries are not
connected to each other through direct liner shipping services, but instead
containerized trade between them requires at least one transshipment port, freight
rates tend to be higher.
Port characteristics and trade facilitation
Better port infrastructure, private sector investment, perceived port efficiency and
shorter waiting times at customs have all been found to lower freight rates.
Task 5.
Describe the relation between regional integration and regional transport
The relation between regional integration and regional transport is also two-fold: less
expensive and better intra-regional transport services lead to further regional integration, and
at the same time regional integration also affects the markets for transport services. Within
the European union, maritime cabotage services are liberalized for European registered
vessels, trucks from all member states are at liberty to move national cargo in all other
countries, and common standards help to create not only a common market for goods, but
also a common market for transport services.
3
Chapter 2
Shipping policy and globalisation.
Page 43-84.
Task 1.
Describe the most prominent international policy-making institutions within the shipping
sector
The most prominent international policy making institution include the United nations
international maritime organization, responsible amongst other for polices towards safety,
security and the environment in shipping generally, and the organization of economic co-
operation and development (OECD), which is made up of the developed countries of the
world and which is active particularly in shipbuilding policy and issues relating leads to
problems of implementation.
Task 2.
Which factors are driving shipping policies?
Historical perspectives
The shipping sector is partly at least, directed by its past, either immediate or more
distant. Thus traditional trade routes, port locations and maritime seats of power are
all established features of the market place. Shipping policy tends to emerge from, or
be associated with, the established network of trade patterns, centres of activity and
centres of patterns.
Nodes, networks and systems

The shipping sector is essentially a combination of nodes (ports), networks (trading
routes) and systems (the organization and infrastructure that connects the other two
items together including communications, financial agreements, a legal framework,
shipbrokers, freight forwarders etc.). Both governance and policy making ultimately
is about all these elements and the environment it creates for them.
Modal choice, intermodalism and flexibility

Shipping works in a highly competitive environment, not just within the industry
itself but also in competition with other modes. In Europe, short sea shipping faces
intense competition from trucking across the whole continent, whilst even
international rail services are increasingly competitive as developments in east
European infrastructure continue. Intermodalism, shipping is now seen as one link
within a complex intermodal chain. Policy making in shipping has much to to ensure
that developments are coordinated and that shipping industry plays its full role.
4
Deregulation and privatization

Both these have been major trends worldwide and the shipping industry is no
exception. Privatization of ports, state shipping companies and ancillary activities
coupled with the attempts by the EU to reduce state interference through relaxing
cabotage rules and reducing state subsidies have been apparent also. Shipping policies
have reflected these trends since the 1980s and will continue to do so.
Holism
Shipping policies have to recognise that shipping is part of a much wider activity that
is closely linked with a multitude of other economic, social, political and
technological developments which both influence the shipping environment and are
influenced by it. Thus shipping policy makers have to understand that any change
policy
Task 3.
In what way does the economy affect the shipping policymakers?
conomy might well include the impact of the introduction of the Euro across EU states, the
general depressed condition of the world economy in 2008-2009, the specific implications of
the state of the scrap market upon the shipping industry and the development of free markets
in Eastern Europe. It is significant but wide ranging context that is difficult to define and
understand its full and detailed implications but which is fundamental to shipping policy at all
jurisdictions.
Task 4.
How can the shipping industry be characterised?
5
Chapter 3.
Port and canals.
Page 59-84.
Task 1.
What do we mean by always afloat or safety aground?
Ports restricted by tides, with some or all berths being only accessible at certain stages of the
tide. Small ports may accommodate vessels which sit on the bottom whilst the tide is out,
leading to the expression in a charter always afloat or safety aground.
(There are many ports, including some very large ones, where the main area is within a basin
and can only be accessed by passing through locks (Ex: port of Antwerp). This can restrict
access to certain tidal conditions but it does mean that the draught alongside the quays is
constant, no matter what the state of the tide is outside the lock).
Task 2.
What are port dues normally based on?
Any ship calling at a port has to pay various dues and levies to the port authorities that are put
towards the cost of running the port and maintaining the publicly owned infrastructure
The dues are usually based on the net tonnage of the vessel, and there may also be charges
based on the actual quantity and type of cargo loaded or discharged.
Task 3.
What do we mean by weather vaneing?
Tankers can also load at offshore loading and discharging buoys, either a set of four boys
anchored to the seabed (called a conventional boy mooring) or a special rotating buoy called
a single buoy mooring (SBM)/ single point mooring (SPM). These latter two types allow the
tanker to rotate around the buoy as the tide and wind change. This is called Weather Vaneing!
The cargo connection is via large floating hoses connected to the buoy which then has a drop
line to an undersea pipeline which links to the shore. (Large tankers cal also load/offload in
shore but requires a lot of space to maneuverer, so their terminals are usually situated near to
the port entrance).
6
Task 4.
What is a ship chandler?
Ship chandlers provide all the stores a vessel needs, ranging from flood to linen and brushes
to toilet paper. They will also provide a number of general mechanical components but they
do not usually provide spare parts for the engine room. A ship will submit a requirement via
the ships agent before arrival and the chandler will deliver it during the port stay.
Task 5.
What is the Suez Canal maximum beam and draught measures?
The Suez Canal is the oldest very large canal and connects the Red Sea to the Mediterranean.
(Built 1869 by Ferdinand de Lesseps with some helps from others). The canal can accept
vessels of 40 m beam and with a draught of 19 m (a VLCC in ballast, a part-loaded VLCC or
a fully loaded Suezmax tanker).
(The vessels transit the canal in convoys: two convoys southbound and one northbound each
day).
7
Chapter 4.
Shipping industry cluster.
Page 85-100.
Task 1.
Which places are considered as prime shipping cluster centres?
- Oslo
- Singapore
- New York
- London
These places are prime shipping cluster centres, with top class services like, banks, insurance,
lawyers, suppliers, shipbrokers, etc. Where executives can talk shipping, network, and
generate enormous cross-sharing of ideas. The cluster concept could be considered
paramount. If an average size shipping company wants to succeed, it will be critical to be part
of such a network.
Task 2.
What characterizes the growth of the maritime industry in Singapore?
This is due to a focused approach from the government on many levels, for example, the
Singapore Maritime and Port Authorities (MPA), tax incentives, education programs offered
by institutions such as Nanyang and Technology University (NTU), and the establishment of
foundations, such as Singapore Maritime Training Foundation (SMTF).
Another reason for choosing Singapore as an Asian base is the countrys political
stability, that is provides progressive environment for businesses, the availability if people of
various types, relevant talents (Both quality and quantity are concerned). And the
proximity/connectivity with the entire region and indeed the world at large
This gives Singapore:
- A world-scale port
- Customers
- Shipbuilding
- Related industries
- Ship owners
- Traders
- Maritime law firms
- Shipbrokers
- Financiers
8
Task 3.
Why is clusters important?
It is important due to many factors. F. ex due to the development of technologies to enable
networks, and relevant competencies can be brought together. Knowledge can be shared and
can lead to new innovations, creating a high-pitched competence within the specific cluster.
A cluster will give the companies within it, access to important information, finance,
competent staff etc.
Task 4.
What are the key issues regarding national maritime clusters?
It is important for the interface with the customers to take place at each key local point
face-to-face, not on a virtual basis. Time differences are also important. Strictly national
clusters would not be well equipped to cope with this.
Also, in order to attract ownership of tonnage, to build the trading/chartering-type firms
within the shipping industry, or to attract operations crewing companies, and/or firms that
pursue an innovation-based strategy, it is important to be cost competitive. As such, a country
will have no choice but to be consistent when it comes to financial policy vis--vis the ship-
owning industry and other key shipping firms. The parameters and competitive conditions are
indeed global.
Task 5.
Which maritime cluster has been particularly successful in Asia?
Singapore have been particularly successful in this area of the world.
9
Chapter 5.
The sector of shipping.
Page 101-108.
Task 1.
What determine todays pattern of tanker trade?
The pattern of tanker trading are determined by the main oil-producing and refining areas.
Often tankers have long voyages from one relatively inhospitable oil producing area to an
equally inhospitable jetty miles from anywhere serving an oil refinery.
Task 2.
What does tanker and bulk traders have in common regarding cargo offering?
Both tankers and bulk trade where cargoes is at offer and not on any previous determined
trade route. They both seek cargoes to match the ship and attempts to cut ballast cargoes to a
minimum.
Task 3.
What kind of knowledge is important for a dry bulk trader to possess?
Movement is very much dictated by the world economic situation. The dry bulk operator not
only has to know his own marked, but also has to have a keen eye for world developments,
whether they be of an economic or political nature or a natural disaster or failure of a crop in
one country or another.
Task 4.
Describe the liner cargo-trading pattern.
Liners offer scheduled services on fixed routes at published-and generally stables rates,
unlike tramp ships, which lay for hire like taxis. They are the trains of international seaborne
trade. They do not, in normal circumstances, offer the whole ship for hire (charter); they offer
the customers (shippers) the facility of carrying individual packages, parcels, crates or
nowadays mostly containers as part (less than full) ship loads.
Task 5.
What do we mean by short sea shipping?
Vessels operating in the coastal or so called short sea (as opposed to deep sea) trades may
operate either scheduled or tramp services.
10
Chapter 6.
The freight market.
Page 109-125.
Task 1.
What affects the freight market?
The freight market is determined by the balance between the supply and demand of shipping
services of various kinds. A measure of the state of the market is freight level which a certain
type of vessels can obtain in various standard trades.
The freight market is dependent on the state of the world trade market and the ever changing
price of oil. The price of oil affects both world trade and owners cost for bunkers, but it also
sometimes strongly influenced by circumstances such as war, widespread strikes, bad
harvests, ice bound waters, etc. Another important factor which affects the freight market is
the granting of government subsidies to shipyards. In addition, the scrapping of vessels
affects the freight market.
Task 2.
How can the dry cargo market be subdivided?
The dry cargo market may be subdivided into the following sectors:
- Bulker
- Tween decker
- Container
- Ro/Ro
- Liner
- Small ships
- Special ships
Task 3.
What do we mean by (PCTC) and where do they normally trade?
Pure Car and Truck Carrier (PCTC) is a large type of Ro/Ro vessels designed to carry cars
and trucks.
11
Task 4.
What is the BIFFEX market and how does it work?
BIFFEX, the Baltic International Freight Futures Exchange - was a London-based exchange
for trading ocean freight futures contracts with settlement based on the Baltic Freight Index
(BFI). It started trading dry cargo freight futures contracts in 1985, and was modestly
successful for some years. On this exchange there where two daily sessions for trading
charter parties and contracts which were to be performed at some later date (up to two years).
Task 5.
What does the load factor indicate and how do we calculate it?
The load factor indicates how much of the available cubic capacity is made use of, we
calculate it like this:
3
= 100(%)
3
12
Chapter 7
Charter forms.
Page 126-154.
Task 1.
What is a booking note?
A shipper who wants to book cargo space on board of a vessel contacts the agent of a
particular line, who then often confirms by so-called booking note (B/N). When the goods
have been received for shipment or shipped on board a bill of landing will be issued on behalf
of the carrier and then those in the bill of landing supersede the B/Ns terms and conditions.
Task 2.
Describe the purpose of pooling vessels
Various types of co-operative arrangement have been introduced covering the three main
functions in the shipping industry, namely:
(1) ownership and financing;
(2) nautical and technical operations; and
(3) commercial operation.
In some cases, particular where all three functions are co-ordinated, ship owners and
charterers may jointly set up an independent company to carry out those activities. Such joint
ventures or pool agreement exist in liner shipping as well as in chartering operations. The
objects of such agreements are usually to:
Reach a better negotiating position
Achieve more efficient use of the fleet and organizations
Achieve a more efficient marketing and chartering position
Obtain access to otherwise closed markets
Avoid certain taxes or fees
Limit competition
Task 3.
What is laytime?
Where the charterer carries out the loading and/or discharging, the parties generally agree that
he will have a certain period of time at his disposal for the loading and discharge of the
vessel, so called laytime. The laytime is a reflection of the basic idea of voyage charter, that
the owner, who is operating the ship, will be liable for all delay in connection whit the transit,
whereas the charterer may be liable (or part liable) for delay in connection with loading and
discharge.
13
Task 4.
Give a description of consecutive voyages
Consecutive voyage charters are a special type of voyage charter in which the vessel is
contracted for several voyages, which follow consecutive upon one another. Sometimes a
charter party states that the ship will make a certain number of consecutive voyages and
sometimes that she will make many voyages as she may perform during a certain period of
time. The parties have agreed, as in time charter, that the vessel will be at the disposal of the
charterer for a certain period of time. The individual voyages are made on voyage terms and
conditions with freight paid per voyage.
Task 5.
What is overlap and underlap
At the end of the charter period the charterer has to redeliver the vessel at the place agreed.
It would often be hard for the charterer to use the ship effectively during the last part of the
charter period if he had to redeliver her on a particular day.
The charter party therefore usually contains provisions on overlap, entitling the charterer to
use the vessel for a reasonable time after the expiration of the charter against an agreed hire
or on underlap, entitling the charterer to redeliver her somewhat earlier than the basic charter
provides.
14
Chapter 8.
Ship cost.
Page 155-175.
Task 1.
What Capital cost are two fundamentally different cost components?
Capital cost are normally divided into two parts, the payment for borrowed money (interest
payment and repayment of loan) and the capital depreciation of the vessel. One should
remember that these are two fundamentally different cost components. The payment for
borrowed money are a cash outflow for the company, but depreciation is not a cash item, for
accounting purpose only.
Task 2.
What determine the capital cost of the ship?
The capital cost of a ship will depend on a number of different factors. Some of these factors
are:
The investment cost, i.e. either the newbuilding or second-hand price of the ship,
including brokers commission, cost related to delivery of ship, etc.
The financial structure for the investment, which depends on how much equity (the
owners own cash) is allocated to the project and how much is borrowed.
The interest rate for borrowed money, which depends on the size of loan, the solidity
of the owner, the security offered and the general level of interest rates.
The economic life of the ship and residual value (demolition price).
Tax regulations, which may influence depreciation rates.
Task 3.
What determine the operating cost of the vessel?
The operating cost of a ship are defined as those cost items that are related to the purely
operational aspects of running the ship. The operating cost only comprises the fixed costs and
not the variable costs, which depend on the actual sailing of the ship.
15
Task 4.
What determine the fixed cost of the vessel?
The fixed costs of the ship, which are the costs that the ship owner should incur in order to
make the ship ready to sail, constitute the following elements:
Manning costs
Maintenance and repair
Stores, supplies and lubrication oils
Insurance costs
Management overheads, including administration.
Task 5.
Give some example of various types of surveys performed on vessels.
Annual survey. Normally, visual examinations to ascertain the general condition of
the ship or relevant item. However, a more thorough annual survey may be required
for particular structures or equipment due to consequences of failure or age. Normally
window around due date: +-3 months.
Intermediate surveys. Due between the second and third annual survey. They involve
visual examination of hull structures, machinery and electrical installation/equipment.
Items additional to those of the annual survey may be included.
Other complete periodical surveys. These relate to additional class notations, boiler
surveys, radio equipment surveys, safety equipment, etc. They can be due at 1, 2,5 or
5 year intervals depending on item in question.
Dry docking survey. Due twice within five years Intervals not exceeding three years
although an underwater survey plus hull survey might be accepted in lieu of a
docking survey.
16
Chapter 9.
The sale and purchase of second hand ships.
Page 176-217.
Task 1.
What is last done
This is part of the valuation criteria. The market value of a ship will be assessed by reference
to a variety of factors. Last done is one of these factors.
If the ship has previously been sold on the second-hand market, S&P (sale and purchase)
brokers will use its previous sale price as a reference for the market value of the ship in
subsequent sale negotiations. This reference is known in S&P broking language as last
done.
Task 2.
Describe the three steps of marine surveyor inspections
Buyers usually appoint an experienced marine surveyor to carry out a pre-purchase inspection
prior to entering into a legally binding contract for the sale and purchase of the ship.
This inspection process can be separated into three distinct components:
- Review of class records
- On board inspections
- Report of findings
Review of class records:
At first the surveyor will make a detailed review of the ships class records in order to gather
as much background information as possible. This information will usually be gathered
before entering the vessel since some of the information may alert them of possible problems.
The surveyor will be looking for:
- Identity of the ships builders
- Identities of her present and previous operators and owners
- Recent trading activities
- Resent sale and purchase record
- The trade in which the ship operates and her market reputation.
17
On board inspection:
The surveyor goes on board the ship to:
- Make a visual inspection of representative parts of the ships hull, deck, tanks, cargo
spaces, accommodation, bridge and radio areas, machinery spaces, machinery and
equipment-although, etc.
- Take ultrasonic measurements of steel thickness, test tank coating, check hatch
covers, closing mechanisms
- Review the ships deck and engine log books for resent casualties or other problems
- Review the ships class and trading certificates to check compliance with class and
convention requirements
- Discuss the ships performance, recent trading history (including types of cargo
carried), and other matters relating to the ships condition with the master and chief engineer
- Make detailed photographic record of the condition of the ship
Report:
The surveyor usually calls the buyer when onboard the vessel to discuss the survey strategy.
After being onboard, the surveyor prepares a detailed written report which:
- Records where and when the inspection was made and which parts of the ship where
inspected
- Describes the ships main technical particulars and dimensions
- Outlines the ships classification details and her class survey status
- Reviews the ships trading certificate
- Describes the ships main machinery and equipment
- Includes any relevant entries from the ships logs
- Includes a detailed report of the conditions found on board the ship and the surveyors
observations upon, and conclusions in relation to, those conditions and the ship itself
- Contains a detailed indexed photographic record of the ship
Task 3.
What is sale subject to charter?
Some ship sale and purchase transactions expressly contemplate the ship being sold Subject
to charter and in such cases the price being paid for the ship will be determined not just by
the value of the ship itself bt also by reference to factors relating to the charter such as
amount of the charter hire, the remaining duration of the period and the quality of the charter.
18
Task 4.
What is the blue certificate?
It is a document issued by The International Transport Workers Federation (ITF). It is issued
to flag of convenience shipowners who have signed an ITF-acceptable agreement which
serves to notify seafarers and dockers unions round the world that a ship crew is covered by
an agreement which meets ITF`s standards. Representatives of ITF affiliates regularly visit
ships in port to check whether they re covered by valid ITG-acceptable agreements and to see
whether the shipowners are complying with such agreements.
Task 5.
When does the S/P broker entitlement to commission arise?
The general legal principle is that an agent will be entitled to commission when he is the
effective cause of the business transaction in question.
19
Chapter 10.
The new Singapore Sale Form.
Page 218-237.
Task 1.
Which five clauses in the Singapore sales form do you consider most important?
I consider the following five clauses most important.
Clause 1: Deposit
Clause 5: Notice and Notice of actual Readiness
Clause 8: Documentation
Clause 9: Encumbrances
Clause 15: Arbitration
Task 2.
If you compare Clause 2 of the NSF, with Clause 1 of the SSF, which one appears more
detailed?
If compared with Clause 2 of the NSF, Clause 1 of the SSF appears much longer and detailed
but most of the extra wording is aimed at clarifying the duties of sellers and buyers as far as
the deposit is concerned and reflects both current market practise and the stringent anti-
money-laundering requirements with which banks must comply.
Task 3.
Explain the difference between a notice of Readiness (NOR) and Notice of Actual
Readiness (NOAR).
The functions of the NOAR under SSF is exactly the same as NOR under the NSF or Nippon
Sale 1999, but the requirement for its validity are radically different. For the NOAR to be
valid three conditions must be fulfilled (see next question).
Task 4.
Describe three requirements for a valid NOAR (clause 5).
(i) The vessel must have arrived at the delivery place agreed in the contract or notified under
C1 5(a)
(ii) The vessel must be physically ready for delivery
(iii) The seller must have ready all of the sellers documents by clause 8.
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Task 5.
Why is the Arbitration and Governing Law (clause 15) extremely important?
This clause is extremely important for the Singapore shipping community. It provides for two
alternatives from which the parties may choose by deleting whichever is not applicable. In
the absence of such deletion, however, alternative 15 (i) and Singapore law will apply to the
exclusion of any other law and Singapore will be the seat of arbitration, under the rules of
Singapore Chamber of Maritime Arbitration.
21
Chapter 11.
Explanatory notes.
Page 238-281.
This chapter do not have any questions.
This chapter consist of sale forms, which it is recommended that you know the basic uses of,
e.g. when and where they are used, that knowledge can be a nice side note during exam or
even a sub-question.
22
Chapter 12.
Shipping finance and international capital market.
Page 282-320
Task 1.
What is the advantage of the US capital market?
Task 2.
Give some examples of debt financing.
Debt financing is essentially the voluntary use of borrowing money from a secondary party,
like a bank, to fulfil a financial need. An example of this could be a firm not having the
required own capital within its investors to acquire the necessary assets to partake in a
booming market. Hence, the firm decides to borrow money from a bank to finance the
acquiring of the required asset. The firm is now in the banks debt and need to pay this back
over time with interests.
Task 3.
What is the most important factor when issuing an IPO placement?
I assume this is regarding the choice to issue IPOs or going public as it is called. The
biggest factor influencing this decision is the market fluctuation, as the firm might be
undervalued if the market is bare, another factor is the life cycle stage of the firm, which
determine the first day under-pricing, however this is secondary to the marked fluctuation
factor.
If this is in regards to the IPOs performance, there are other factors. Here the key factors are;
the age of the company, the age of the fleet, gearing level, size of the company, and
proportion of equity offered. Where the gearing level is argued to me the most significant
factor.
Task 4.
Which shipping segment have majority of IPOs?
I assume that the segment others is not a single segment but a collection of many small
segments, I find that the NYSE stock market segment have the majority of IPOs issued at 30
in the period of 1984-2007, followed by NASDAQ with 25 for the same period. These two
are also 2/3 of the main global stock market, were the third member is LSE, which were not
listed on the table.
It is beneficial to remember that IPOs are the presenting of stocks to the public, so the term
IPOs and stocks are often used interchangeably when discussing IPOs and stocks.
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Task 5.
What is the shipping bound market?
The bond market is the use of debt financing with the use of bonds as security, this market is
divided into two parts, the primary market were the bonds are first offered, and the secondary
market which is re-trading of bonds like selling/buying debt. The primary market is
predominantly used.
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Chapter 13.
Financial market products.
Page 321-338.
Task 1.
What risks can be hedged by a shipowner?
The ship owner can:
- Chose what kind of interest rate he/she wants e.g. flexible, fixed or a hybrid.
o IRS
o FRA
o Interest rate caps
o Interest rate floor
o Interest rate collar
o Binary interest rate options
o Swaptions
- Forward foreign exchange contracts (FFE).
- Forward freight agreement (FFA).
Task 2.
Give examples of exogenous factors affecting the shifts in the financial markets.
An exogenous factor is a factor outside of a firm or markets control, like a recession, were a
firm may do everything right but still fail.
- Financial crisis
- Increase in government help
- Change in demand
Task 3.
What is the purpose of an interest rate hedging program?
The goal of interest rates hedging programs is to generate a product that will generate a series
of cash flows designed to in full or in part adverse movement in interest rates. For loans this
can serve as some kind of protection against rising interest rates.
NB. We can summarize hedging as a tactical investment to reduce or remove the risk of
another investment.
25
Task 4.
What do we mean by forward rate and how do we calculate it?
A FRA is a single period interest rate swap, which is payed partly or in full at the beginning,
the FRA settlement is then calculated by this amount with a discount basis.
Task 5.
Describe the functions of a (FFA).
A shipowner can decide upon a FFA contract if he/she expect the freight to reduce in the
future. The owner can then decide to make a contract with a fixed rate for the period he/she
thinks it will benefit him/her, this contract is then offered to the open market.
26
Chapter 14.
Shipping market financing: Basel III.
Page 339-349.
Task 1.
Give a description of Stopfords four sub-markets.
- The shipbuilding market
The building of new ships.
- The freight market

The commercial exploitation of ships.
- The Sale and purchase market

The second hand trading of ships.
- Demolition market.
The end cycle of a ships life.
These markets are closely related to each other, were a change in one of them will affect the
rest, for better or worse.
Task 2.
What is the effect of increased freight rates?
By increasing the freight rate we have produced a change in one of the sub-markets, this will
have an effect on the second hand market (S&P) and the shipbuilding market. The promise of
further financial gain in the market will encourage investors to buy ships that can take part in
the good freights, as well as the difference in price for new ships compared to second hand
ship will increase, were the second hand ships become more expensive. This can result in
new ship orders decreasing.
Task 3.
Describe the 5 Cs.
The 5 Cs are the evaluation criteria of a maritime investment on the part of the bank, these
criterias are:
- Character and capacity
- Conditions
- Capital
- Collateral
- Company
An additional for called the 7 Cs are sometimes used, were they add the criterias: Credit
history and Common sense.
27
Task 4.
What do we mean by ship owners policy?
The ship owners policy consists of 4 parts within credit risks 11 parts, these are:
- The ship owners policy as regards his participation in asset play practices or his
orientation towards chartering and the operational yield of assets.
- The ship owners, and ship managers policy towards preserving general and
instant liquidity and cash flows.
- Ship owners policy in terms of long-term borrowing potentials.
- Ship owners policy in terms of financial leverage.
Task 5.
What are the characteristics features of Basel III?
The Basel III is based on two axes. In short:
- Under Basil III, core tier I must stand at 4.5% while banks are required to
maintain an additional 2.5%, which raises the bar to 7%.
- The introduction of new instruments to replace hybrid capital, which replace any
hybrid capital issued with other financial instruments, which protect their capital.
28
Chapter 15.
The Ship owners stands on a third-party management.
Page 350-367.
Task 1.
Identify four specific trends that affect the growth of third-party ship management services.
- The globalization of shipping
- Shipping is becoming more and more part of a logistics distribution chain
- Increasingly specialised vessels and markets
- The use of information technology
Additionally:
- The shortage of manpower
- The need to keep cost as low as possible
- Increased legislation
- Increased liability
- Provision of a wide range of main and value-added services and part of ship
management companies
Task 2.
What is the most notable difference between the Greek and the British ship-owners with
respect to their preference to third-party management?
Greek ship owners were, according to the study, not keen on hiring third-party management
with as many as 91.3% saying no and only 4.3% said yes. While British owners said no 40%
of the time and yes 30%of the time.
(Remaining % is yes, but not now and no, but think about it)
It is worth noting that there were 46 Greek ship owners and 20 British ship owners in the
study.
Task 3.
Explain why Greek ship owners are more reluctant to outsource their technical
management.
The study claim its based in hesitancy and scepticism.
29
Task 4.
What kind of expertise will ship managers typically offer?
There are 10 typical forms of management, these are:
- Crewing
- Technical management
- Insurance
- Freight management
- Accounting
- Chartering
- Sale and purchase
- Provisions
- Bunkering
- Operations
Task 5.
Which factors affect the choice of a ship management company?
I assume this is in regards to whether or not we would chose to hire a management company,
and here we have 6 key choice makers.
- Economic pressure
- Expertise
- Flag out
- Family conflicts
- Flexibility
- Principals age
(According to the study participants).
The study also look into the criteria for which company they choose when they are going to
hire a management company, these are:
- Nationality of managers
- Same location as owning firm
- Offices world wide
- Least expensive
- Best quality
- Specialized services
- Solid reputation
30
Chapter 16
The legal concept of registration.
Page 368-384.
Task 1.
Describe the content of the 1958 Geneva Convention on the high seas, article 2.
The United Kingdom merchant-shipping act 1995 provides that clearance or transire shall not
be granted for any ship until the master has declared to an officer of costume the name of the
nation, which he claims she belongs. If a ship attempts to proceed to sea without such
clearance of transpire, she may be detained until the declaration is made. Furthermore, a
stateless ship is liable to confiscated.
Task 2.
What is the consequence of a stateless ship?
The consequence of a stateless ship is that the ship is that it not enjoys no protections what so ever,
and international law will not protect it. She is by that unable to engage in lawful trade since ports will
deny entry. The ship can also be seizure.
Task 3.
Explain the origin of ship registries
Registration is the entry of the vessel in the public records of a state.
The registration of ships has its origins in the laws of imperial Rome and was widespread in
the city states of mediaeval Italy. The name of the ship would have been registered, together
with the name of her owner and her tonnage: fraud in such matters could lead to confiscation
of the vessel.
In England, the registration system goes back to the 17th and 18th century navigation acts. The
object of the navigation act was to prevent foreign vessel taking advantage of the commercial
privileges enjoyed by vessels flying the British flag. By the late 18th century they also sought
the restrict entitlement to the flag to ship built within the British dominions.
Task 4.
What is the difference between registration and documentation?
By documentation we mean the issuance to a vessel by the competent authorities of a state
of a document evidencing the vessels nationality and attesting to her right to fly the national
flag of state.
Although registration and documentation generally go hand in hand, this is not always the case and
the two concepts should not be confused; for registration generally involves the recognition and
protection of the ship-owners title to the vessel as well as the conferment of nationality;
documentation, on the other hand, is chiefly concerned whit granting entitlement to fly the national
flag.
31
Task 5.
What do we mean by a dual or parallel registration?
In so-called dual registry situations, which arise when a vessel registered in one state receiving
entitlement to fly the flag of another state on the basis of a bareboat charter arrangement with suitably
qualified persons in the latter state, the distinction between documentation and registration becomes
crucial.
32
Chapter 17.
Factors influencing the choice of flag.
Page 385-398.
Task 1.
What in meant by bearer share?
Hiding the beneficiary of the registered ships income either by the use of registries that do not
disclose the corporate structure of the registered companies, or by dummy corporations
founded in other countries. This is done to avoid paying taxes on the income from the ship.
In short: It is the hiding of the beneficial ownership details.
This is considered one of the harmful registry practices the maritime industry are challenged
with.
Task 2.
Which countries have established themselves as crew-supplying nation?
The countries that have established themselves as crew-supplying countries include: India,
Korea, Pakistan, the Philippines, Poland and Sri Lanka.
Task 3.
What is the role of the international transport federation?
They campaign against open registry fleets registered in what they have classified as a flag of
convenience. This can bring forth problems when arriving in port and must be taken into
account.
In short, they go after vessels carrying a flag of convenience.
Task 4.
Can reputation be an issue regarding open register?
It can and is a issue, oil companies are highly viable for environmental damage caused by
their chartered ships, so the standards of those ships need to be high. The standards of a ship
can often be correlated to the flag they carry, so much so that ports keep record of the
conditions of and on ships that go through. This is then used to evaluate the flag they carry
and the chance for ships with that flag to be lacking international standards. This then forms
as a reputation for the flag, and do affect the choice of registration.
33
Task 5.
Besides economic and political motivation, which other factors are influencing the choice
of flag from an owners perspective?
The age of the ship, the length of the ship, the ships tonnage, reputation of the registry, and
the standards imposed by the flag state can influence the choice of flag.
34
Chapter 18.
The impact of choice of flag on ship management.
Page 399-423.
Task 1.
Describe the features of a FoC.
A FoC in a Flag of Convenience, and are identified with six common characteristics:
- The country of registry allow ownership and/or control, of its merchant vessels by
non-nationals.
- Access to the registry is easy and transfer from the registry at the owners option
is not restricted.
- Taxes on the income from the ships are not levied locally or are low.
- The country registry is a small power with no national requirements under any
foreseeable circumstances for all the shipping registered, but the taxing of large
tonnage affect the countries national income.
- Manning of vessels by non-nationals is freely permitted.
- The country of registry do not have the mechanisms to impose international
standards, nor do it wish to do so.
Task 2.
In what way can a nations merchant fleet contribute to their national economy?
If the fleet is owned by a company within the country, they (the company) will have to pay
taxes on the income the fleet generates. They also pay the normal tonnage tax other vessels
do (in open registries), maybe a registration fee as well.
Task 3.
Which indirect cost has the strongest impact on a ship owners decision to flag out?
NB. Flagging out is to change the ships national flag to a flag of convenience or open
registry.
The strongest reason for a ship owner to flag out to a FoC is the manning costs, which is by a
good margin the largest expense in the running of a vessel. Wages are split into two
components; Direct and indirect wages. Were indirect is in short the national insurance
payment, pension, leave entitlements, medical expenses, training and so on.
35
Task 4.
What kind of financial benefits can a ship owner obtain by flagging out?
The largest financial benefit is the reduction of operating cost in regards to the crew, like
wages, stores and maintenance.
Manning is split into two components; direct and indirect wages. Direct being the wages of
the seafarers home countrys currency compared to the US dollar, and indirect are the wages
that are not immediate payment to the employee.
Stores are products used by the crew, ranging from food o toilet paper.
Maintenance can range from medical attention to training in new equipment and systems.
The owner will also have a good chance of avoiding taxes and registration fees (tonnage not
included) when flagging out to a FoC.
Task 5.
Why to companies often tend to keep seafarers on their payroll list even when they are not
serving on board their companys vessels?
They do this in order for companies to retain the acquired experience and be able to install
more easily commitment and corporate culture, this creates a supply of competent seafarers
available for the company, as well as for office jobs and other higher positions that may open
in the future.
36
Chapter 19.
The ISM code key issues.
Page 424-438.
Task 1.
What are the common causes of accidents at sea?
A common factor that was appearing in each report of accidents of ships was basically each
of those incidents were primarily arising as a result of human failings (Cause Human error).
For example, in the Human Element in shipping causalities report, it was stated that the
human element was found to be causative in over 90% of collision and groundings and over
75% of contact and fires/explosions.
Task 2.
Describe the objectives of the ISM code
The objectives of the code are to ensure safety at sea, prevention of human injury or loss of
life, and avoidance of damage to the environment, in particular to the marine environment
and to property.
Safety management objectives of the company should, inter alia:

1- Provide for safe practices in ship operation and a safe working environment
2- Establish safeguards against all identified risks
3- Continuously improve safety management skills of personnel ashore and abroad
ships, including preparing emergencies related both to safety and environmental
protection
The safety management system should ensure-

1- Compliance with mandatory rules and regulations
2- That applicable codes, guidelines and standards recommended by the organization
administration, classification societies and maritime industry organizations are
taken into account.
Task 3.
Is the decision to seek a QA accreditation voluntary or mandatory?
The decision to seek QA accreditation would have been a voluntary one taken by the ship-owner or
ship manager concerned. Quality assurance is a voluntary process, which shows that the audited
company or body performs to certain standards, which the body itself sets. Its objective is to deliver
a consistent service which meets the expectations of the customers.
No legal requirements for a ship-owner to have a QA accreditation it is entirely voluntary.
Task 4.
Is the ISM code a mandatory requirement?
37
Compliance with the ISM code is quite different it is a mandatory requirement.
Task 5.
Explain the consequences if the ship owner fails to comply with the ISM code?
f a ship owner fails to comply there may some serious legal and insurance implications, since the
ship-owner would be in breach of the law of his flag state and international law as well the law of the
country the ship happens to be visiting.
38
Chapter 20.
The international safety management code and legal implication.
Page 439-478.
Task 1.
Mention some factors that contributed to utilization of the Panamanian flag.
The use of FOCS is a valid choice currently for ship-owners as they try to maximize their
profits by avoiding tax and swerving away from stringent states with strict rules and
regulation especially with more and more restricted conventions coming to play. However,
just like in the past, ship owners change their flag based on political reasons they will in the
future as well. For instance, in the past, early 20th century the prohibition laws of the USA
preventing sale of liquor resulted in transfer of ships to Panamanian of flag, which at the time
had a liberal maritime law to attract foreign tonnage. I think that the use of flags of
convenience depends on the state of the maritime industry in terms of rules and regulations.
Ship owners will shift from having a FOC such as Liberia if there was a war in order to enjoy
naval protection, as Liberia does not provide it to non-national vessels.
With all that being said, FOCs will be used more as they give the ship owners the
convenience and opportunity to make more money since its tax free.
Task 2.
What are the functions of a classification society?
Classification societies have to functions: first, they carry out structural surveys on ships
which are entered with them and issue certificates that the ships are complying with the rules
and regulations of the particular class; they can also advise shipbuilding yards on the proper
construction of ships. The certificates of are required by the SOLAS convention and are very
important for the trading of ships, but are not certificates of seaworthiness.
Second, classification societies carry out statutory surveys on behalf of flag states to verify
that ships entered with them comply with the international mandatory requirements of
SOLAS and MARPOL conventions. For example, certificates required by SOLAS to be
issued by the flag administrations are: international tonnage certificate, passenger ship safety
certificate etc.
Second, classification societies are authorised to carry out formal audits of ships and
operating companies, and issue certificates of compliance with the particular requirements of
the ISM and ISPS codes. Such certificates are valid for a certain period of time and can be
verified by an intermediate audit.
39
Task 3.
What is the purpose of the ISM code in safety?
What the ISM code does is that it superimposes a safety case regime by which risk analysis
by owners has become compulsory, whether or not the owners or operators have realised it. It
has adopted a new approach to ship operations and management by requiring ship owners to
establish a safety management system (SMS) so that the companys philosophy to safety
becomes transparent. It obliges both flag and port states to enforce it.
The purpose is to provide an international standard for the safe management and operation of
ships and for pollution prevention. By the Assembly of IMO resolution A.443 (XI), all
governments were invited to take the necessary steps to safeguard the shipmaster in the
proper discharge of his responsibilities with regard to maritime safety and the protection of
the marine environment.
Task 4.
Describe the content of the tanker management self-assessment (TSMA)
ISM code marked the beginning of a safety culture, or perhaps that was what had been
intended. To reinforce a culture of safety, further measures have been taken by industry
organizations which aim to further the objectives of the code in a parallel way. Such
measures include:
The initiative by oil majors to require tanker owners to complete the Tanker Management
Self assessment (TMSA) forms, if they wish to trade with the oil majors.
The TSMA program encourages vessel operators to assess their own safety management
system against listed key performance indicators and provides best practice guidance on how
to attain appropriate standards of safety performance. Vessel operators are encouraged to use
their assessment results to develop phased improvement plans that can be applied, as
appropriate, across their entire fleet and to share TMSAs with potential charterers via the
TMSA database.
Task 5.
What do we mean by the two cornerstones of management?
The two aspects of management (crewing and technical) are the cornerstones of the
requirements of the Code for a safe management system.
GOOD LUCK WITH THE EXAMS EVERYONE!
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Tasks For SOP

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Answers for tasks in NSA 2521 Shipping Management.

Ship Operation Tasks

Dry bulk: ~26% and liquid bulk: ~33%

Nodes, networks and systems

Modal choice, intermodalism and flexibility

Deregulation and privatization

- The freight market

- The Sale and purchase market

Safety management objectives of the company should, inter alia:

The safety management system should ensure-

Compliance with the ISM code is quite different it is a mandatory requirement.

GOOD LUCK WITH THE EXAMS EVERYONE!

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