Ship Op Compiled Notes

Tolani Maritime Institute; B Tech ME, IV th Year
Online learning material for subject: Ship Operation and Management

Number: Ch 3 -01 Prepared By: S K Srivastava
Chapter III – Chartering and Charterparties

Charter:
A charterparty is contract whereby shipowner agrees to place his ship or part of ship, at the disposal
of merchant (charterer) for the carriage of goods from one port to another on being paid freight or to
let his ship being used for a specified period on payment of hire.
Demise and Non-Demise Charter
Demise Charterparty:
A demise charterparty arises when the charterer is responsible for providing crew and cargo, whilst
the ship owner provides the vessel. Charterer takes full responsibility of the operation of vessel and
pays all expenses incurred. It is generally for a long period of time and is also known as BAREBOAT
Charter.
It is a lease of ship for a time period and charterer takes care of the vessel as if he is the owner, he
charterer carries out all maintenance, survey and other operational responsibilities. He is responsible
for any losses to goods or others like pollution liability.
Any earning for carriage of cargo or salvage belongs to charterer, who pays a pre-agreed hire
charges to shipowner. Financers who wish to invest in ship but do not have expertise to operate ship
find this method suitable.
BIMCO has published BARECON 89 as a standard charterparty.
Non Demise Charterparty:
A non demise charterparty arises when the shipowner provides the vessel and its crew, whilst
charterer only provides cargo.
It may be a VOYAGE charterparty for a particular voyage in which shipowner agreed to transport
cargo in between two ports for a pre agreed freight usually paid on per tonne basis or lum sum.
Shipowner bears all expenses such as port charges, fuel cost, canal dues, loading and unloading
charges etc.
It may be a TIME charterparty for a stated period for remunerations called as hire usually in advance
at regular pre determined intervals of 15 or 30 days. Charterer pays for expenses related to voyage
such as fuel and port related costs.
Features of Voyage Charterparty:
1) Gross Terms: Shipowner pays for all expenses including loading-discharging and port costs.
2) Nett Terms: Charterer pays for all expenses involved in ports such as fees and stevedoring.
3) Gross Load Free Discharge (GLFD): Shipowner pays loading and charterer pays discharging
expenses.
For resolving any Query, please send mail to [email protected]
4) Free In and Out (FIO): Charterer pays loading and discharging stevedoring and Ship owner
pays all port fees and expenses.
5) Laydays: This is the range of days given to ship owner to present his ship ready in all respect
to load cargo at first loading port. If the last date is a cancellation date then it is called as
Laycan.
6) Notice of Readiness: It is a notice given by master of the ship to charterer informing him
about the arrival of the vessel at pre agreed place or port and its readiness to load or
discharge cargo as the case may be.
7) Laytime: It is the time allowed for loading / discharging. If the charterer takes more time than
agreed, he has to pay a compensation to shipowner called as Demurrage and if the same is
completed earlier than the expiry of laytime Despatch is payable to charterer by shipowner.
Usually in Bulk Trade the rate of dispatch is half the rate of demurrage and there is no
despatch in tanker trade. Periods for which Laytime shall not be counted is specified example
SHEX, SSHEX etc. Example 3 wwd SHEX EIU / UU
Laytime statement is prepared to ascertain time used in loading / discharging for determining
time saved or lost for calculation of demurrage or despatch.
8) Cargo description: Quantity of cargo is usually given in range such as 50,000, 5% MOLOO or
MOLCO. There is a guaranteed minimum quantity which the charterer must supply and who
will determine the quantity in the given range is pre agreed.
9) Freight: The amount, when and how to be paid is pre agreed including Dead freight and back
freight. Rate of Demurrage and Despatch is also pre agreed
10) Agency: Party responsible to appoint and pay for agent is pre agreed.
11) Lien: Shipowner has lien on cargo for freight not paid.
12) Statement of Fact: It is prepared by agent and signed by Master and Charterer’s
representative. It contains all details such as ship’s arrival, berthing and commencement of
cargo, interruptions in cargo operation etc. with time.
13) Note of Protest: Master has top record before a notary the circumstances leading to damage
of cargo or delay encountered in voyage.
14) Shipowner Pays: Repair & Maintenance, crewing, survey, stores and spares, food, other
operating cost, water, minimum fuel for ships use, Insurance premium etc. Plus Loading and
Discharging or Port fees as per terms and conditions.
Charterer Pays: Freight plus demurrage if applicable along with Loading and discharging as
per terms and conditions.

Features of Time Charterparty:
1) Vessel Description: Physical description of vessel including speed and bunker consumption in
ballast and laden voyage. Cargo discharging and loading capabilities and rate. All calculations
of voyage are for good weather condition such as Beaufort scale of 3
2) Laydays: This is the range of days given to ship owner to present his ship ready in all respect
at Delivery Place agreed in charterparty. If the last date is a cancellation date then it is called
as Laycan.
3) Duration of Charterparty with margin such as 5 years , more or less 15 days charter option.
Words such as all going well, without guarantee are written.
4) Trade limitations: Areas of the world where ship should not be employed, similar to trading
navigational warranty of H&M insurance policy
5) List of cargo which can be carried
6) Owner’s responsibility and expenses covered.
7) Charterer’s responsibility and expenses covered.
8) Bunker: Generally charterer provides bunker so quality of bunker to be specified by owner.
9) Delivery and Redelivery: Delivery is the place and time where time charter starts, the vessels
starts following commercial instructions of charterer. Charterer starts paying hire charges. At
the time of Delivery ON-HIRE survey is done to access the condition of vessel and quantity of
bunker on board which is purchased by charterer at the price in that area on that day.
Redelivery is the end of charterparty, The bunker on board is bought by shipowner at the
price on that area on that day. OFF-HIRE survey is conducted to access the damages to ship
during employment.
10) Hire: The amount and when and how to paid with annual increase are pre agreed.
11) Offhire: It is the non payment or deduction of hire charges by charterer for non or poor
performance of vessel. It includes the time lost due to non performance and extra bunkers
consumed.
12) Shipowner Pays: Repair & Maintenance, crewing, survey, stores and spares, food, other
operating cost, water, minimum fuel for ships use, Insurance premium etc.
Charterer Pays: Hire Charges plus Bunker, Port expenses, canal dues, stevedoring, agency
fees etc.
Examples of Voyage Charterparty: FONASBA, AMWELSH 93, GRAINVOY, NIPPONORE, GENCON
Examples of Time Charterparty: ASBATIME, NYPE 93

Chapter III – Chartering and Charterparties

Special Clauses in Tanker Charterparty:
1) Cargo retention clause: In the event that any cargo remains on board upon completion of
discharge, the charterer has the right to deduct from freight an amount equal to Free on
Board price of cargo retained plus freight payable
2) War Risk Insurance Clause: Policy to be arranged for first fourteen days by shipowner then by
charterer.
3) Cleaning Clause: Owner has to ensure that tanks, pumps and pipelines are cleaned to
charterer’s satisfaction prior to loading. (Product Tankers) and the sediments are reduced to
minimum by crude oil washing (Crude Oil Tankers)
4) Inert Gas Clause: The vessel must maintain a fully operational Inert Gas System at all times.
5) Pumping Clause: The Shipowner shall discharge all her cargo within 24 hours or maintain
100 PSI Pressure at manifold at all times.
6) No Drug and Alcohol Clause: By Seafarers.
Worldscale:
Worldscale rates are published by Worldscale association once a year on 1st Jan. It covers WS rates
for about 60,000 voyages. This schedule is available to members on subscription. The are calculated
for a standard vessel of 75000Mt DWT, capable of doing 14,5 Kt burning 55Mt of 380 cst fuel, 100
Mt is provided additionally for port operation and heating. Laytime is 4 days including loading and
discharging. Assuming the income of owner at 12000 USD per day.
Since owner’s vessel many not be same as standard vessel, he has to find a correlation between
freight of his ship with worldscale rate for same voyage.
Consecutive Voyage Charters:
To protect against fluctuating freight rates and need of finding ship every time the charterer
negotiates CVC with shipowner, They are nothing but voyage charters repeated many times. Every
condition remains same except Freight which changes at pre agreed formula giving weightage to
inflation, fluctuation in bunker price etc.
Contract of Affreightment:
It is not a charterparty but a contract of carriage of cargo (oil) by shipowner in various ships. It is
used in Long term and large quantity cargo contracts which are delivered over a period of time. The
terms and conditions are same as voyage charter including freight fixation but shipowner can provide
any suitable ships

Chapter V - Marine Insurance

Insurance:
There are many definitions of Insurance, they are:
1) Insurance is a method of sharing the financial loss of a few by many who are equally
exposed to the same loss.
2) Insurance is a method of spreading the risk of an individual over a group of
individual.
3) From prospective of Insured Insurance is exchange of Probable Big Loss (Accident) by
a Small fixed Loss (Premium)
Insurance covers only Fortuitous losses and not the one which are bound to occur.
Marine Insurance: As defined in MIA 1963:

“A contract of marine insurance is a contract whereby the insurer undertake to indemnify the
insured, in manner and to extent thereby agreed, against marine losses, that is to say, the
losses incidental to marine adventure”
In simple words: Marine Insurance is a contract where Insurer Indemnifies (covers the loss)
the Insured for the losses to subject matter caused by Insured peril upto the limit agreed
against a payment of premium.
Principles of Insurance:
As per Marine Insurance Act 1963, following are the principles applied to the contract of
Marine Insurance
1) Utmost Good Faith
2) Insurable Interest
3) Proximate Cause
4) Indemnity
There are two corollaries of Indemnity (i) Subrogation &(ii) Contribution
1) Utmost Good Faith: (Uberrima fides)

As per MIA 63;
“A contract of marine insurance is a contract based upon the utmost good faith, and if it
is not observed by either party, the contract may be avoided.”

“The Assured must disclose to the insurer every material circumstance which is known
by assured.”
“Every Circumstance is a material which would influence the judgement of Insurer in
fixing the premium, or determining whether he will take the risk”
“There is a duty to represent and disclose all material”
In Simple Words: Contract of Marine Insurance is a contract of Utmost good faith where
it is the duties of both parties to not only represent (provide right answer) but also
to disclose all material facts even if not asked.
A fact is a material if it can influence the decision of Insurer about the contract. i.e.
whether to issue policy or not and if to issue then at what premium and terms &
conditions.
In case of breach of Utmost God faith, either party can avoid the contract (It means
policy becomes null and void and no claim is paid even I claim is not connected with
such breach).
2) Insurable Interest:
As per MIA 63:
“Every contract of marine insurance is a wagering or gaming contract in case insured
has entered the contract without Insurable Interest or with no expectation of
acquiring such an interest”
“A person has insurable interest where he stands in any legal or equitable relation to
the property at risk, where he benefits by the safety of property or may be
prejudiced by its loss or damage.”
In Simple Words:
Insurable Interest is the financial interest of Insured, where he stands to lose financially
in case of loss or damage to subject matter and would be happy if no such loss
happens.
In the absence of valid Insurable Interest or an expectation to acquire Insurable Interest
the policy is considered as a wagering or gaming policy and becomes null and void.
In Hull Insurance following have Insurable Interest: Owner, Partial owner, Financer,
Bareboat charter, Mortgagee, Freight and third-party liability.
In Cargo Insurance following have Insurable Interest: Owner, Partial Owner, Financer,
mortgagee, and Freight if not paid.
Hull & Machinery Policies are no Assignable (Transferrable) therefore there is no transfer
of Insurable interest and policy expires when the Insured loses his insurable interest.
Cargo Policies are Assignable (transferable) therefore the policy is transferred to new
holder of Bill of Lading when cargo is sold. The last holder of B/L can claim for the
loss even if was not the original insured.
Insurable Interest can change also amongst various parties in case of joint ownership or
finance.
3) Proximate Cause:
The Latin phrase “Causa proxima non remota spectator” explains this principle, it means
that proximate cause and not remote cause shall be taken as the cause of loss.
In determining the proximate cause of loss one must consider the most dominant and
effective cause of loss which is not necessarily the nearest cause in time to the actual
loss.
The onus of proof that the cause of loss is an insured peril rests with the claimant
(Insured).
Definition: The active efficient cause that sets in motion a train of events which bring
about a result, without the intervention of any force started and working actively
from a new and independent source.
4) Indemnity:
It is the protection or security against damage or loss. It is also referred to make goo
the loss or damage. It is the financial compensation sufficient to place Insured in the
same financial position after a loss as he enjoyed immediately before it occurred.
(To Cover the Loss)
This principle is introduced so that profit cannot be made by Insured from Insurance
contract. This principle employs evaluation of financial value of subject matter hence
it is not applicable in Life Insurance.
However Marine Insurance is not of strict Indemnity and it can be over ridden. Example
New for Old Clause in ITC Hull 83.

Corollaries of Indemnity:
1) Subrogation:
It is the transfer of rights and remedies of the Insured to the Insurer after he has paid
for the loss as required in the policy.
This principle arises out of Principle of Indemnity, because if the Insured collects the
claim from the Insurer and also from the party liable for the loss, the Insured would
be making a profit, which is not permitted.
Subrogation is transfer of right of recovery from liable party from Insured to Insurer after
the Insured has been paid the Claim by Insurer. N such case the insurer will recover
the amount from the liable party.
As a matter of practice a Letter of Subrogation is taken in advance before paying the
claim by Insurer.
2) Contribution:
This principle ensures that when the subject matter is insured under more than one
policy, then all Insurers bear the risk in proportion to the sum insured by each one
them. i.e. each Insurer pays in a proportion of its insured value to total insured value.
This principle also originated from Principle of Indemnity, where Insured is prevented
from making profit from Insurance.
Double Insurance: Where two or more polices are effected by Insured on same subject
matter for same adventure and the sums insured exceed the indemnity (value of
subject matter), it is called as Double Insurance. As per MIA 63, it is legally allowed
but Insured is not allowed to receive any claim in excess of his insured value. i.e.
each Insurer will pay in a proportion of its insured value to Total insured value.
(Principle of Contribution is followed)

Practices of Marine Insurance:

1) Warranties:
These are conditions imposed by Insurer on to the Insured regarding Subject matter, which
Insured has to follow, these may be something which needs to be done or shall not be
done or conditions needs to be fulfilled.
Non-compliance of warranty is constituted as a breach and Insurer may declare policy as null
and void, however he may waive such breach. Non-compliance of warranty is excused
when warranty ceases or is rendered unlawful due to change in Law.
A warranty may be Express or Implied.
Express warranties are written in policy. Example Harbour craft not to go more than 25 Nm
from the shoreline. These are considered as the safety valve for underwriter, which
reduces the risk. It may be absolute or conditional.
Implied warranties are not written in policy but are considered to be included in policy. Such
as Implied warranty of Seaworthiness of the ship (applicable in voyage policies only) or
Implied warranty of Legality (applicable on all policies)
2) Statutory Exclusions:
These exclusions are specified in MIA 63 and cannot be covered in the policy.
1) Wilful Misconduct of the Assured
2) Ordinary Wear & Tear
3) Ordinary Leakage or Breakage, Ordinary loss of weight or Volume
4) Inherent Vice
5) Rats or Vermin
6) Delay
3) Losses:
Losses are divided in two categories
i) Partial loss : Any loss that is not a Total loss is called partial loss. It is also called as
Average. There are two main types
Particular Average : It is defined as a partial loss of the subject matter caused by a
peril insured against and which is not a General Average loss. It is a fortuitous
partial loss.
General Average: Done separately………..
ii) Total loss: These are of two types.
a) Actual Total Loss: It happens when…
…. Subject matter is completely destroyed.
…. Subject matter has lost its merchantable character (loss of species)
….. Insured is permanently deprived of Subject matter.
b) Constructive Total Loss: It happens when….
Insured decided to abandon subject matter to Insurer if estimated cost of
recovery, repairing, reconditioning and forwarding the subject matter exceeds
the Insured value of the subject matter or actual total loss becomes
unavoidable.
Notice of abandonment must be unconditional and given in writing. If such NoA is
accepted by Insurer then he pays for the total loss and takes over the remains
of property and therefore is considered as owner of the property. However
Insurer has a right to reject such notice and pay partial loss equal to total loss.
Waiver Clause in policies state that any measures taken by the Insured or Insurer
shall not be constituted as acceptance / rejection / withdrawal of NoA
4) Deductible: This is the amount agreed in the policy between Insurer and Insured. It is
deducted from claim and insurer pays balance amount. If the claim is lesser than
deductible value the Insured will not raise a claim. It helps in eliminating large number of
small value claims which results in less loss to Insurer due to reduction in administrative
costs, who gives a rebate in premium. Higher the deductible, lower the premium.
Deductible is not reduced from Total loss and Sue & Labour associated with Total loss claim.
5) Duty of Assured: Duty of Assured (Insured) is to “Act like a Prudent Uninsured”. It means
he is expected to exercise due diligence (proper care) of his property during the period of
Insurance and if it suffers danger of loss then take actions as he would have taken if he did
not had insurance policy.
Sue & Labour Clause in policies has originated from Duty of Assured.


Hull Insurance
MAR Policy Form:
Since 1982 MAR Policy form is used with different clauses. This Policy form was drafted by
Lloyd’s of London and Institute of London underwriters. This form is used by Both H&M and Cargo
Insurance.
Hull & Machinery Insurance:

Hull Policies are generally Valued Policies. The premium of ship depends upon various factors such
as age, type, class, flag, owner’s past record etc. to name a few. Hull policies are not Feely assignable
as the risk changes with change in management of vessel
There are various clauses which can be attached to MAR Policy Form but most commonly used in
India is ITC Hull (01.10.83) which is a Time Policy Clauses issued by ILU.
Features of ITC Hull 83

Clause 6 : Perils Clause
The perils are listed in two groups 6.1 and 6.2 . The second Group 6.2 is subjected to “Due
Diligence Provision” i.e. the claim is only paid if such loss or damage has not resulted from want of
due diligence by the assured or its managers.
Clause 6.1 Covers the loss or damage to subject matter caused by:
i) Perils of sea, rivers, lake and navigable waters (It consists of only fortuitous losses and does not
cover ordinary action of wind and waves)
ii) Fire, Explosion
iii) Violent theft by a person outside the vessel
iv) Jettison
v) Piracy
vi) Contact damages
vii) Earthquake, volcanic eruption & Lightening.

Clause 6.2 covers

i) Accidents in loading, discharging or shifting of cargo or fuel
ii) Bursting of Boiler, Breakage of Shaft.
iii) Negligence of Master, Officer, Crew & Pilot
iv) Negligence of Repairer or Charterer
v) Barratry of Crew.
Clause 23, 24, 25 & 26 : They are War, Strikes, Malicious Act and Nuclear exclusions respectively. i.e.
these are not covered in policy.
Clause 14: New for Old: Insurer has a right to deduct a reasonable amount based on depreciation
from any claims where an old part is replaced by new part (Indemnity). However, in clause New for
Old the Insurer is waiving their right to such deductions from claim.
As a matter of practice such waivers are not given above the age of 15 years.
Clause 12: Deductible – Done earlier
Clause 13: Sue & Labour

This clause is based on Duty of Assured.
Sue & Labour charges are expenses incurred by the Insured or their servants with the intention of
preserving the subject matter or minimizing loss after striking of Insured peril. Insurer agrees to pay
such expenses provided incurred reasonably in addition to other claims of loss, even Total loss even
if such measures are proved unsuccessful. The limit of Sue & Labour claim is Sum Insured.
Clause 8 & 9 : 3/4th Collision Liability & Sistership

3/4th Collision Liability clause is also referred as Running Down Clause.
Underwriter (Insurer) agree to Indemnify the Insured for 3/4th of any sum paid by Insured to other
party due to liability arising out of collision. They Include i) loss or damage to other vessel or
property on other vessel. Ii) GA & Salvage contributions iii) Delay or loss of use of other vessel or
property thereon.

Such liability is calculated on principles of cross liability.

Such Liability shall not exceed 3/4th Insured value.
In addition 3/4th of legal cost incurred by Insured are also covered.
However following are excluded: i) removal of wreck ii) personal property iii) Loss of life, personal
injury or illness, iv) pollution or contamination
Sistership Clause states that if the vessels under collision are wholly or partly held by same owner or
under same management, they should be considered as different entities for purpose of collision
liability.
Clause 1 Navigation:
This clause gives warranty for Navigation.
The vessel may sail or navigate with or without Pilot, go on trial trip or assist or tow another vessel
in distress. Vessel be towed where it is customary.
Ship to Ship transfer, i.e. loading and discharging cargo to another ship is not allowed, however
Insurer is informed ad additional premium is paid.
Institute Warranties: These are those parts of the sea where Insurer does not want Ship to go. These
includes area infested by Ice such as St Lawrence seaway, Great lakes, Greenland waters, Behring Sea
etc. However in the case vessel wants to visit such areas they can inform Insurer and pay additional
premium.
Clause 2 Continuation: ITC is time policy and expires at a predetermined time irrespective of location
and condition of ship. In such it is difficult to arrange renewal of policy, therefore if ship is in
damaged condition or in between ports, the policy may be continued till arrival next port by
informing Insurer in advance and paying additional premium.
Clause 4 Termination: Insurer shall terminate the policy automatically in case of i) change of
ownership, ii) change of flag, iii) giving ship on bareboat charter iv) suspension / withdrawal of class
certificate or change of class


Cargo Insurance
There are number of clauses which are in use however the most used are ICC-A, ICC-B and ICC-C,
which are used with MAR Policy form
Features of ICC-A,B & C
All these policies are similar except for the Clause 1 : Perils covered, rest all clauses are same.
Clause 1 : Perils Covered
ICC – A : This clause covers loss or damage due to “All Risk” except those EXCLUDED. Perils should
be fortuitous and non inevitable in nature.
Exclusions are:
- Willful misconduct of Insured
- Ordinary wear & tear, ordinary leakage, ordinary loss of weight or volume
- Insufficient and unsuitable packing
- Inherent Vice
- Delay
- Insolvency or financial default of shipowner
- Unseawothiness only if Insured is privy to it.
- War damages
- Damages by strikers and Riot
ICC- B Covers loss or damage due to 11 Perils

- Fire & Explosion
- Stranding, grounding, sinking and capsizing
- Overturning of Land conveyance and Derailment
- Collision or Contact
- Discharge of cargo at port of distress
- General average sacrifice
- Jettison
- Washing Overboard
- Entry of S.W. in Cargo compartment
- Sling Loss – object falling while loading or discharging
- Earthquake, volcanic eruption, lightening.
ICC- C Covers loss or damage due to 7 Perils

- Fire & Explosion
- Stranding, grounding, sinking and capsizing
- Overturning of Land conveyance and Derailment
- Collision or Contact
- Discharge of cargo at port of distress
- General average sacrifice
- Jettison
Clause 8 : Transit Clause (Duration clause):

- Insurance attaches when cargo leaves the stated warehouse for the commencement of
voyage.
- Insurance continues throughout ordinary voyage and warehousing.
- Insurance terminates on delivery at place of destination, or earlier if Insured requests or on
expiry of 60 days after reaching such destination place in case of no delivery.
-
Clause 10: Change of Voyage
If after attachment of Insurance, the destination is changed by Insured, Policy can be changed after
informing Insurer and paying additional premium.
Clause 14: Increased Value Insurance:

In case the increase in value of cargo takes place when Insurance Policy is in force, the Insured can
request increase in Insured value by effecting Increased value policy but principle of contribution
shall apply. i.e. the policies will pay for the claim in a proportion of their insured value to total
insured value.
Open Cover & Open Policy
Open Cover:
Open cover is issued to provide automatic and continuous Insurance protection to a regular exporter
/ importer engaged in international trade.
Open cover is an agreement whereby the insurer under whereby insurer undertakes to insure all
shipments declared by Insured and falling in scope of cover.
If an Insured has products going to various places in the world, he has to take individual policies for
each consignment thereby resulting in lot of manpower requirement and additional expenses.
As an alternative to above difficulties Open Cover is proposed.
Insured has to submit declaration form along with premium at required intervals. Insurer issues
policies for all declared consignments at pre agreed rates and terms & conditions which are valid for
one year, hence there is no need to renegotiate.
However, it comes with two conditions, they are
- Limit per bottom – this is maximum amount of shipment that can be loaded in a single ship
- Limit per Location – this is maximum amount of shipment which can be stored in location
(warehouse)
Advantages:
- Automatic policy for each consignment
- Rates can be negotiated for one year and bargain can be done.
- Reduction in administrative costs
Open Policy:
Open Policy is also known as floating policy. Clients having substantial turnover and large number of
dispatches can obtain continuous insurance cover under open policy.
An Open policy is issued, duly stamped, for an amount representing the assured’s estimated turnover
in respect of consignments which may be declared after paying agreed premium in advance for entire
turnover.
As a consignment is made the sum insured (premium paid) diminishes till it becomes zero or policy
expires after 12 months. In such case unused premium is returned back. There is a provision of
topping up premium and getting sum insured increased.
Insurer has the right to inspect the record of dispatches.
However, it comes with two conditions, they are
- Limit per bottom – this is maximum amount of shipment that can be loaded in a single ship
- Limit per Location – this is maximum amount of shipment which can be stored in location
(warehouse)
Advantages:
- Automatic policy for each consignment
- Rates can be negotiated for one year and bargain can be done.
- Reduction in administrative costs

Protection & Indemnity Insurance
P&I clubs are association off shipowner to cover each other from perils which are not covered in
Insurance market. They are mutual associations based on principle of mutual insurance where the
member acts as both the Insurer and Insured. When he pays for other members claim he is Insurer
and when he receives claim from others he is Insured.
Apart from Shipowners other parties who are exposed to liability in relation to the vessel can become
members such a bareboat charterer, ship manager or operators.
Club operates on “No Profit No Loss” policy and there is no premium. The payment of members is
known as “CALLS” which are collected as and when required. No Claim No Call. Club collects advance
call which is used to cover the expenses of the club. Further Supplementary calls are collected
whenever club have to settle a claim. The member of the club is obliged to pay such supplementary
calls.
Membership of club is given for one year which traditionally starts from 20th Feb. If a member wants
to leave the club then he can do so by giving one month notice and paying release call.
P&I clubs follows principles and practices of Marine Insurance and each member has to act like a
prudent uninsured, failure to do so can prejudice the cover.
The members of club meets once in two years in a general body meeting and elect a board of
directors, who runs the club either through a Managing Director or appointing a professional CEO.
Rules and Regulation of club are also decided in this General Body meeting. Club has a written
constitution which is provided to members.
Club appoints correspondent at every major port in the world, who carries out various activities of
club on a commission or fees. They acts as intermediate between the club and Master of vessel.
Duties of Club are:

- Handling claims as per the policy
- Training of members on Loss prevention & Loss minimisation
- Issue Letter of Undertaking or Financial Guarantee to secure release of members ship in case
arrested.
- To provide technical, legal and commercial advise to vessel in distress

List of Perils covered by P& I Clubs:

- Loss of Life / Injury & Sickness (It covers Doctor’s fees, medicine cost, test costs,
hospitalisation, operation, transport, repatriation, funeral expenses and compensation)
- Wreck removal expenses if Notice of Abandonment is not accepted by H&M Insurer.
- Diversion expenses not paid by Charterer
- Stowaway expenses and fines
- Life salvage expenses
- 1/4th Collison liability and excess collision liability not covered by H&M Insurer.
- Loss of personal effects of seaman
- Pollution fines and expenses
- Quarantine expenses
- Shipowner’s liability in case of cargo damage
- GA & Salvage Contribution not paid by Insurer
- Damage by wake of propeller
- Fines on Shipowner
- Sue & Labour expenses not covered by H&M Insurer.
- Omnibus Rule – It states that even if a particular peril is not covered under P&I Club policy it
can still be paid if other members agree to it.
IGPI : International Group of P& I Club are association of P&I Clubs , where the members are P&I
clubs who follows principle of mutual Insurance. Further they acts representative body at various
forums including IMO and they contribute by raising issues concerning shipowners.
Specialist Clubs:
1) FD&D ( Freight Demurrage & Defence )
This is a policy offered by P&I clubs or by specialist FD&D Clubs.
It covers the members legal cost for fighting a case to settle disputes regarding operation,
management & ownership.
Charterparty disputes such as Demurrage, off-hire, stevedores damages, bunker disputes are
covered. It covers lawyer’s fees, court fees, arbitrator’s fees, surveyor’s fees and other
expenses incurred.

2) Charterer’s Club
Time & Voyage charterer are unsuitable to become member of P&I club, therefore they have
their own Charterer’s club to cover their liabilities such as liability for cargo and liability to
shipowner for loss of damage to ship.
3) TT Club (Through Transport Clubs)

Due to containerisation shipowner in business of container transportation wants a cover for
containers especially during land voyage which they ae exposed to in door t door transport.
Similarly NVOC (Non vessel operating carrier) also needs protection. Since they do not operate
ship they can not be a part of P&I club.
TT clubs covers various risks such as Container damage, misdelivery of cargo, delay, quarantine
and disinfection expenses etc.
General Average
The law of General Average is in every country engaged in maritime adventure. This law existed
before the marine Insurance law. It’s principle is “That which is sacrificed for all, is borne in
proportion by all parties to adventure”
Definition: There is General Average act when and only when an extraordinary sacrifice is made or
extraordinary expenses are incurred in times of peril for the purpose of preserving properties
involved in common maritime adventure.
All properties who have benefitted of such act shall contribute for the sacrifice and expenses in
proportion to their contributory value which is fund after adding amount made good.
Example: Jettison of cargo to save the vessel in case of rough weather.
Essential of GA:
- There is an act
- Act is of sacrifice or extraordinary expenditure.
- Act is Intentional (voluntary) and reasonable
- Act is performed to preserve or save Imperiled properties involved in common maritime
adventure
- Such act is successful.
- Benefited properties contribute (even the sacrificed property contributes)
MIA 63 states that Insurer shall pay the contribution of the Insured in respect of GA Sacrifice and GA
Contribution. However, in case of underinsurance, insurer will pay his proportion only.
General Average is declared by Shipowner and calculations are done by Average Adjuster as per York
Antwerp Rule. Latest rules are York Antwerp Rules 94 amended in 2016
To secure the release of cargo, the owner can deposit his contribution in cash or by GA bond.
Insurer’s guarantee and Bank guarantee are also accepted.
Examples of GA:
1) Cargo Jettisoned to save imperiled ship & cargo
2) Water sprayed to fight fire in cargo compartment leading to loss or damage to other cargo
3) Damaging engine while attempting to refloat the ship after grounding.
York Antwerp Rules

It consists of four rules
1) Rule of Interpretation – except as provided by rule paramount and Numbered rule, the GA
shall be adjusted according to lettered rules.
2) Rule Paramount – In no case shall there be any allowance for sacrifice or expenditure unless
reasonably made or incurred.
3) Lettered Rule (A to G)
Rule A – Defines General Average
Rule B – Explains Common maritime adventure
Rule C – Explains losses not covered in GA
Rule D – Explains right to contribution
Rule E – Explains procedure for GA
Rule F - Explains additional expenses
Rule G – Explains procedures for GA
4) Numbered Rules (I to XXII)
Rule I – Jettison of Cargo
Rule II- Loss or damage by sacrifice for common safety
Rule III – Extinguishing Fire on shipboard
Rule IV – Cutting away wreck
Rule V – Voluntary Stranding
Rule VI – Salvage Remuneration
Rule VII – Damage to Machinery and boilers
Rule VIII- Expenses lightening a ship when ashore, and consequential damages
Rule IX – Cargo, Shi’s Material and stores used for fuel
Rule X – Expenses at port of refuge
Rule XI- Wages and maintenance of crew and other expenses putting in to and a port of refuge.
Rule XII – Damage to cargo in Discharging
Rule XIII- Deductions from cost of Repairs
Rule XIV – Temporary Repairs
Rule XVI – Amount to be allowed for cargo lost or damaged by sacrifice
Rule XVII- Contributory Values
Rule XVIII- Damage to Ship
Rule XIX – Undeclared or wrongly declared cargo
Rule XX – Provision of funds
Rule XXI – Interest on losses allowed in GA
Rule XXII- Treatment of Cash Deposits.


Types of Policies
Time Policy:
It is an insurance policy which starts on a particular date and terminates at a particular date. i.e it is
valid for a definite time period.
Example ; ITC Hull 83 is a time policy with validity of 12 months, however, it can be continued till
arrival next port by informing Insurer and paying extra premium. Similarly it terminates even without
completing time period in case of change of ownership / flag / class etc.
Voyage Policy:
It is an insurance policy which is valid for a voyage. i.e. from a starting place to an ending place
irrespective of time taken to compete the voyage.
Example: IVC Hull and ICC -A. ICC policy starts when the cargo leaves the stated warehouse and
completes upon delivery of cargo or on expiry of 60 days after reaching such place.
Valued Policy:
A valued policy specifies the sum insured as agreed between Insurer and Insured. In case of Total
loss this agreed sum is paid irrespective of actual value of subject matter before loss. In such case
the fixed value is guaranteed.
Unvalued Policy:
An unvalued policy does not specifies the value of subject matter but gives a limit of sum insured. In
case of Total loss the value of subject matter just before the loss is estimated and paid upto the limit
specified. It is useful for the subject matter whose value fluctuates.
Claim Procedure:
1) Insured informs Insurer about the loss as soon as he comes to know about it. Policy Number,
Detail of Subject matter, Initial repot of damage is given, so that Insurer can appoint a
surveyor to inspect.
2) Surveyor inspects the subject matter and gives a report that contains extent of loss,
proximate cause, actions to be taken
3) Following documents are submitted
a) For Cargo Claim:
- Surveyor’s report
- Insurance policy / Certificate
- Invoice / Packing List
- Bill of Entry / Customs declaration
- Letter of Origin
- Master’s Declaration / statement
- Extract of Ship’s log book
- Photograph and other evidences
- Short landing certificate / non delivery certificate
- Letter of Subrogation cum power of attorney
b) Hull Claims
- Surveyor’s report
- Registration Certificate
- Class Certificate
- Extract of Ship’s log book
- Weather Reports
- Tender for repairs
- Master’s statement
- Statement of account showing wages, bunker & disbursements.
- Letter of Subrogation cum power of attorney
4) In case Insured is not satisfied with the claim settlement he can take following action
- Report to Insurance Ombudsman
- Negotiate with arbitration
- Litigation
Reinsurance:
MIA 63 states that an Insurer under the contract of marine insurance is at risk and he may reinsure it.
The original insured has no rights in respect of such reinsurance.
Insurance is a transfer of risk from Insured to Insurer. When Insurer issues a policy he is subjected to
risk of loss or damage of property. In such case he may retain part risk and transfer the remaining
part risk to another company called Reinsurer.
Such reinsurance can be proportional or non proportional.
In proportional reinsurance the original insurer (ceding company) transfers a percentage of every risk
to reinsurer and pays the proportional premium.

In non proportional reinsurance the original insurer transfers only the risk in excess of his limit of
retention in every case.
Advantages:
- Reduces the risk of original insurer
- Protection against catastrophe loss
- Increase in national market capacity by spreading the risk to other parts of the world
- Reinsurer gets business without contacting Original Insured.
Insurance Companies in India

In 1971 Insurance business was nationalized and many companies were merged to form four
nationalized companies, they are
- National Insurance Company Ltd. (H.O. In Calcutta)
- New India Assurance Company Ltd. (H.O. in Mumbai)
- Oriental Fire & General Insurance Company Ltd. (H.O. in Delhi)
- United India fire & General Insurance Company Ltd. (H.O. in Madras)
These company operate under the umbrella of General Insurance Corporation of India
Since Liberalization of economy in 1993 many private companies have entered the market.
Brief History of Marine Insurance:
1) Followed in India, China, Babylonia & Rhodes in ancient times

2) Followed as Bottomry and Respondentia bonds which were raised to generate finance
for conducting voyage and there was no need to pay back in case cargo or cargo & ship
were lost.
Bottomry was loan against ship & cargo
Respondentia was loan against cargo only
3) In 14th century Insurance market developed in Italy and England
4) By 17th century coffeehouse of Edward Llyod became the meeting place of underwriters
and Shipowners / Cargo owners.
5) In 1720 Govt. of England started first two companies – Royal Exchange assurance and
London Assurance
6) In 1871 Lloyds of London was incorporated by English Govt. It is the biggest hub of
Insurance & Reinsurance today.

Lloyd’s of London- It is a corporation which provides the premises and all necessary facility to
all its members to conduct Insurance business. The members are grouped into syndicates of
various sizes. Each syndicate is managed by an agent who conducts business for syndicate.
When the agent is approached by Insured the agent fixes terms & conditions and Premium. Then
risk is distributed amongst the members of syndicate and slip is filled detailing risk covered
by each member.
Later policy is Issued. In case of loss each member of syndicate pays for the loss in proportion
of his insured value.
Marine Insurance Act, 1963
This act was passed by Parliament of India on 18th April 1963 to codify law relating to Marine
Insurance. It follows English law (MIA 1906).
Features:
- It is concerned with both the Law and practice of Marine Insurance.
- Practices are important when the law is silent.
- Many sections of law are flexible, It starts with statement “Unless otherwise agreed”
- Principles are
- Utmost Good faith
- Insurable Interest
- Indemnity
- Proximate Cause.
Extra Notes:
1) Marine Adventure means any adventure where subject matter is exposed to maritime perils.
Subject matter may be property ( ship , cargo ) or freight, liability etc.
2) Maritime Peril means the perils consequent on, or incidental to, the navigation of sea.
Example Perils of Sea, Fire, War, Pirates, Thieves, Capture or Seizure, Jettison, Barratry or any
other peril designated by policy.
3) Contract of Marine Insurance covers both Sea and Land risk (mixed risk)
4) Particular Charges: Expenses incurred by or on behalf of the assured for the safety or
preservation of the subject-matter insured, other than general average and salvage charges,
are called particular charges. Such as Sue & Labour Charges, Particular charges are not
included in particular average.
5) Policy must specify
a. Name of assured
b. Subject Matter
c. Voyage or period of time
d. Sum Insured
e. Clauses ( terms & Condition )
f. Name & Signature of Insurer
6) Time Policy cannot be more than 12 months duration
7) Mixed Policy – where a contract is of both voyage and time
8) Salvage Charges are the charges recoverable under maritime law by a salvor independent of
contract.
9) Measure of Indemnity – The sum which Insured can recover for the loss to subject matter
covered in policy
10) Effect of underinsurance – In case of valued policy if the sum insured is less than the value of
subject matter, Insured is assumed to be his own insurer for the difference of such
underinsurance.
11) Proposal Form: It is the form filled by Proposer and submitted to Insurer, this form can be
given directly or through Agent or Broker.
12) Cover Note: It is an intermediate document stating that Insurance is in force and is valid only
till issuance of Policy
13) Claim Ratio is percentage of Claims Paid divided by Premium Earned.
14) IRDA (Insurance Regulatory & Development Authority of India) is a Government body formed
for promotion of Insurance & reinsurance. Formed in 1999 by IRDA Act, it controls the
functioning of Insurance companies in India by making rules and regulations which these
companies have to follow. All Insurance companies are registered under it and every new
policy is first approved by them before launching. For Customer grievance Insurance
Ombudsman operates under them.
Other Policies:
1) Builder’s Risk Policy: Covers the losses or damage to ship builder while a vessel is under
construction. It includes cost of repairing, replacing or renewing any damaged part. Insurance
terminates upon the delivery of vessel to shipowner.
It covers all risk except earthquake & volcanic eruption, loss due to faulty design.

2) War & Strikes Insurance: Covers—
- War, Civil war, Revolution etc.
- Capture, Seizure, Arrest of Vessel
- Damage due to derelict weapons of war (derelict means drifting & abandoned)
- Terrorist attack
- Damage caused by strikers, labour disturbance etc
Excluding Nuclear war or war between USA, Russia, France, UK & China
3) Freight Insurance: Covers Freight payable on delivery, If a ship is lost, it losses the freight
which is not paid.
4) Voyage Policy for H&M – IVC Hull 83- It is similar to ITC Hull 83 with few difference such as
navigational warranty, Continuation & termination clause are not applicable.
5) Port Risk Policy: It is available for shipowner whose vessel is engaged in seasonal trade or is
laid up in port for long duration. It includes risk specific to ports and also certain parts of
Protection & Indemnity cover as ship is not a member of any P&I club at that time.

Chapter VI– Shipping Companies
Shipping Companies: A shipping is an economic entity whose principle activity is commercial

operation of merchant ships.
For reasons of operation a shipping company may specialize in Liner or Tramp activities, or
specialize by the of ships such as Bulk Carrier, Tanker, Gas Carrier, Container etc. The organization
of shipping companies depends upon these factors.
Labour in shipping company is of two types (i) Seafarers & (ii) Shore personnel. Both are highly
specialized since the business requires a high degree of technical expertise.
The activities of shipping companies are basically two types:

a) Technical Operations which includes operation & management of ship, supply of bunker, food,
spares etc.
b) Commercial Operation which includes voyage estimation, conclusion of freight, Insurance
claims & Canvasing for cargo / chartering.
There is a great variation in organization structure of different shipping companies based on

following factors:
- Fleet size & overall turnover
- Type of trade (Cargo) - Operational Area
– Outsourcing of ship management activities
For very small companies a Line Organizational structure is preferred, It is simple but all
communication are channeled through Board of Directors who are involved in all major decisions
and small responsibility of minor repairs and purchase of stores etc. are delegated to Master of
ship. This is well suited with unsophisticated ship. The choice of Master and crew was very
important for shipowner. There were no well defined authorities etc. and shore organization was
very lean.
With growth in size and complexity of ship a new organization structure was adopted. With new
technology, changes in regulations and construction of ship, with greater emphasis on safety and
anti-pollution measures there was requirement of more staff. This lead to formation of various
departments such as Operation, Marketing, finance, Personnel & technical. All such departments
communicated with master of ship directly. BOD no longer contacted the master directly.
Initially there was no one to coordinate, recognizing this need companies stated to appoint a
coordinator called Ship Superintendent. This coordinator was given responsibility and authority to
control the operation & maintenance on ship. Some shipping companies turned this organization

to a matrix organization where each functional, cooperation between various departments, lack
of this resulted in losses.
Current Scenario: Most of the shipping companies adopt decentralization, which is a process of
dividing organizational activities into different autonomous divisions physically & functionally.
The organization structure is clearly shown in Company Safety and Quality Policy manual. The
Chain of command and communication is well established. It is recognized that full
decentralization can never be achieved so a “Simulated decentralization” (SDC) is adopted, in this
system the shipboard management team is accountable for all areas of cost and earning which
they can feasibly control, given the necessary support, information and advice. In the matters
they can’t control they can provide necessary information to shore staff.
General Liner Shipping Company will have following Structure:
a) Chairman & Directors – Chairman & managing director can be the same person or separate persons.
The role of each vary from company to company. Chairman is responsible for company policies and
development of business. Shareholders of company elect a board of directors in General body meeting
generally once in two years. This board elects a managing Director & Chairman. In some companies
Chairman is also designated as Chief Executive Officer. This group is also called as “Secretariat” which is
concerned with arrangement of capital, legal matters, appointment of executive personnel. In several
countries Company secretary or Chief Executive Officer is the only entity recognized by law. He is
responsible for complying with all legal requirements.
b) Finance Division- Generally headed by Finance Director, who is responsible for annual accounts,
budgets, revenue and expenditure forecast, investment and cash flow. They also carry out credit control
involving billing and payments. This department have many officers responsible for accountancy, costing,
audit, making business plan, Insurance purchase & claims etc. few important activities are Capital raising,
Investment, cash control, vessel accounting, Insurance purchase, Budgeting etc. Two main documents
prepared are (i) Balance Sheet (ii) Profit loss statement.
c) Marketing Division: Generally headed by Marketing Director, who is responsible for development of
company’s business within freight and passenger market. This department have many other officers
responsible for revenue generation, value added services, advertisement, customer liaison, market
research, product development and maintaining Public relations. They make strategy after conducting
market research. Some part of marketing can be outsourced such as sale / chartering to Agents who work
on commission basis.
d) Operations Division: Generally headed by Operation Director, who is responsible for achieving
optimum performance from the fleet. This department have many other officers responsible for ship
schedule, ship deployment, inward & outward freight movement which includes customs clearance,
transhipment, delivery to consignee etc. They also liaise with port agents / loading brokers / freight
forwarders etc. They liaise with port authorities, stevedores, truck operators etc. for smooth transfer of
cargo.

e) Technical Division: Generally headed by Technical Director, who is responsible for maintenance of
ships including supply of spares and stores, survey & certification, meeting class and mandatory
requirements & bunkering. This department has many marine engineering superintendents who are
responsible for new shipbuilding, drydocking, ensuring ship follows all requirements of Flag state and
carries valid certificates. They also provide advise to Ship Crew in various aspects of operating and
maintain ship. They are responsible for implementation of ISM Code and ensuring safety and pollution
prevention.
f) Personnel Division: Generally headed by Human Resource Director, who is responsible for training,
recruitment, career development, wages and salary negotiations, joining & repatriation, welfare,
contracts. They have to deal with Unions & Government office of labour supplying country. Many shipping
companies outsource this to a ship manager.
g) There could also be separate Quality Division, IT Division, Logistics Division, Conference Division,
Research & Development Divisions etc. or they may be part of Technical or Operation Division.

Ship Management
Ship management: There is more to ship operation than simply buying the ship, it involves finding cargo,
contracting with various parties, voyage planning, budgeting, arranging resources, operation &
maintenance of ship, complying with various international & local regulations etc. Shipowners sometimes
does not want to carry out all activities by themselves hence they appoint ship managers to perform them
on a fee.
Small shipowners want to take advantage of expertise of ship manager and Economy of scale as ship
manager operates large number of ships.
Types of Ship Management:
a) Manning-only management or Crewing: Here the manager provides the ship crew, appropriate in
number & competency complying with the requirements of flag state (STCW 95). Nationality can be of
owner’s preference in International registers (Flag of convenience). Crew must comply with standards
regarding competency, health, safety and responsible employment. Manning agent has to ensure joining
and repatriation off crew, training and welfare. Manning agent enters into contract with the crew on
behalf of Shipowner after negotiation of wages and terms & conditions of employment, pension
arrangement, tax, social security and other mandatory issues as per their country of domicile. They have to
ensure that crew have passed a medical examination with qualified doctor and ensure that crew shall have
a common working language and command of English language of a sufficient standard. In India they are
called RPSL (Recruitment & Placement Service License) who are approved by DG Shipping and have to
comply with all regulations of DGS.
b) Technical Management: Here the managers provide following services:

Ensuring that vessel complies with requirements of the law of flag state - Ensuring compliance with ISM &
ISPS Code - Supervise the maintenance and general efficiency of the vessel. - Supervising drydocking,
repairing, alteration to vessel - Ensure compliance with requirements and recommendations of
classification society - Supervising the sale and physical delivery of vessel - Supervising new shipbuilding
and physical delivery of vessel - Arrangement of Bunkers unless supplied by Charterer - Arrangement of
Stores, lubes, chemicals, gases, provision etc. unless provided directly by owner.
c) Commercial Management: Here the manager provides following services:

Seeking and negotiating employment of vessel and the conclusion of charter parties or other contracts
relating to employment of vessel. - Arrangement of Bunker fuel - Voyage estimation and accounting and
calculation of Hire, Freight, Demurrage or Despatch due from or to charterer of vessel. Assisting in
collection of such dues. - Issuing Voyage Instructions to Master of Vessel - Appointing Agents - Appointing
Stevedores - Arranging surveys associated with cargo - Arranging Insurance

d) Total Management: These include Technical, Manning & Commercial Management under a single
umbrella.
Agreement between Shipowner & Ship manager: Most widely used contract is suggested by BIMCO’s
SHIPMAN 2009 Some Important features are:
- Commencement & Appointment date

- Authority to managers (Managers shall authority to take actions from time to time as per their discretion
to enable them to perform the management services)
- Types & Details of service provided (Total, Crewing, Technical, Commercial)
- Obligation of Mangers (To protect & promote interest of owners, to perform their duties as detailed)
- Obligation of Owners (To pay all sums to managers punctually, to cooperate with managers, to inform all
facts as required)
- Insurance Policies (provided at owns expense for H&M, P&I, War Insurances)
- Income collected and Expenses paid on behalf of owners (Managers & Owners to maintain account of the
same)
- Management fees and Expenses (Owner shall pay management fees as agreed)
- Budget and management of funds (Manager prepared budget & monitors)
- General Administration (communication, documentation, notices)
- Inspection of vessel (Owners right to inspect vessel)
- Duration of Contract
- Termination (Circumstances leading to termination)
- Dispute Resolution (in accordance with English Law, London Maritime Arbitrator association rules)
ISMA Code: International Ship Managers association has adopted a code of ship managers standards
through which quality and safety can be enhanced.
The objectives of code are:
- Operating ship safety and efficiently
- Avoiding injuries to personnel and loss of life
- Conserving and protecting environment
- Protecting the owner’s assets
- Complying with statutory & class requirements
- Providing timely and accurate information to owner.

Turnaround Strategy for Shipping companies
Turnaround is a management technique applied to loss making or sick companies. It is a

restructuring technique used to prevent or stop a company from making loss or getting into
closure forever. It means radical shifting of performance of an enterprise towards improvement
from lossmaking to profit-making.
Turnaround management involves:

- Management review, root cause analysis and SWOT analysis to determine why company is
failing. - Creation of long term strategic plan
- Implementation of plan
- Reviewing progress of plan
- Make necessary changes as needed.
Major approach to turnaround strategy are:
1) Surgical Approach: It is tough measures and actions taken by management to reduce the losses
They may Include - Cost Control measures like:
o Reducing Management Overheads such as Office expenditure
o Reduction in manpower or salary or manning up to level of minimum manning.
o Reduction in hotel and travel expenditure.
o Reduction in overtime of crew o Joining and Signoff of crew at a cheap port
o Purchase stores at a cheaper place, ordering in bulk thereby extracting maximum discount.
o Controlling the consumption of stores and spares.
o Controlling Lubrication cost by better maintenance & housekeeping
o Carefully controlling victualling of crew by avoiding wastage
o Preventing delays & losses of cargo
o Preventing accidents
o Identification and sale of loss-making ships.
o Layup of ships to reduce expenses
2) Long term approach: It is taking measures on a steady but slow place to improve company’s
financial position, such as
- Restructuring of organization structure, it means rearranging of resources for improving
profitability and performance. It includes Technical restructuring like giving ship on management
to a professional ship manager. It includes Financial restructuring such as arranging capital from
shares, repayment of high interest loans.
- Optimum utilization of Resources such as human resource, capital and physical resources. -

Diversification in another business such as a Tanker operator making huge losses sells a tanker
and buys a container ship.
Hiring the services of an External expert.
Ownership of Vessel
A ship is owned by a commercial entity, it can be Proprietary, Partnership, Corporate, Publicly
listed company.
A owner can be an individual, owing all the stock of the company while being at the same time
chairman and sole director. In such case he shoulders the full responsibility of ownership.
Ownership may be held by the shareholders of company who appoints board of directors.
Directors may be involved in day to day operation of company or they may appoint a chief
executive officer to do so on their behalf.
Company is formed and registered before registering ownership of a vessel. Company has to
delegate power through formal resolution empowering authorized signatory duly notarized to
transact purchase, registration, sale etc. Such company has to raise capital to buy a vessel which
can be done by a variety of method such as debt, equity etc. Many countries allow foreign
investment, some have a cap on such investments on percentage basis.
For Registering Ship in India, it should be owned by:

- A citizen of India
- A company or a body established by or under any Central or State Act which has its principal
place of business in India
- A co-operative society which is registered or deemed to be registered under the Cooperative
Societies Act, 1912
Majority of ship owners are a Limited Liability corporations, holding all shares in the ship. As Per
Merchant Shipping Act 1958, ownership of a ship is divided into ten shares and not more than 10
people can register as owner of ship at the same time. A company can be registered as owner of
the vessel. Owner or Company has to submit documents in Registrar of Ships Office.
A mortgagee is not considered as owner of ship except for security of loan.

Some types of institutions holding ownership of vessel are:
1) Registered Owner: The name of the company or individual under which a vessel is officially
registered.
2) Beneficial Owner: Someone who has interest in the company due to contract but is not a
registered owner.
3) Company: formed under Companies Act, with the purpose of generate money out of shipping
business. Companies have to follow the provisions of the Act for registration, disclosure of
accounts, other rules & regulations, payment of taxes etc.
4) Holding Company: A company formed to hold the shares of different companies.
5) Consortium: A group of companies combined to form a joint venture.

6) Leasing Company: A company formed by financers to finance the purchase of vessel.
7) Desponent Owner: A bareboat Charterer or a lessee company which operates the vessel.
Responsibilities of Ship owner: The contractual documents such as charterparty, bill of lading
and various international & national conventions such as COGSA govern liabilities for carriage of
good by sea, which fall upon the owner. He has to ensure Seaworthiness of vessel. Various
International conventions puts owner responsible for implementing the same on his ship. They
cover preventing & minimizing pollution through design, equipment and maintenance (MARPOL).
Safety of life, ship, its equipment and cargo (SOLAS). Selection, training and competency of crew
(STCW), welfare of crew (MLC) etc.

Chapter VII – Capitalization & Finance

Capital:
Capital structure of a company is that part of finance which represents long term financing
represented by debt & equity.
Capital = Debt + Shares
Capital structure depends upon Nature of Business & Size of company. Shipping is a Capital Intensive
business, it means large amount of capital is required to start or expand the business. Adequate
capitalization is required. Capital decisions are irreversible and have long lasting impact on the
organization.
Capital management involves:
- Estimation of Capital requirement
- Assessment of future events
- Finding right source of finance
- Balancing Capital requirement with future repaying capacity
- Evaluation of Capital Investment
1) Payback Period (Number of years to recover the investment by cash flow generated)
2) Net Present Value (Finding the present values of future cash flow & deciding whether to make
investment or not)
Shipping Finance:
There are many sources of finance for purchasing ship as given below.
a) Equity
b) Debt
c) Mezzanine
d) Lease
e) Others
Equity Finance:
Equity commonly called as shares is an investment to share the risk and rewards of the business,
usually without a time span. To liquidate his investment the investor has to sell his shares.
Equity given part ownership to investor, It may be difficult specially at times of recession, generally
suitable for company which cannot arrange capital by debt.
Common methods of raising capital by equity are:

i) Owner Equity
ii) Limited Partnership
iii) Ship Funds
iv) Public Offerings.
Owner Equity: Also known as private equity. It is the most obvious way of financing ships derived
from private sources or earnings of shipowner which may be his profit from shipping or other
industry. This is also referred as “Self-Financing”. However, it is nowadays inadequate as prices of
specialized ships are very high.
Limited Partnership: Shipowner raise outside equity by inviting investors into the shipping business
to form “Limited Partnership”. In this concept each ship is treated as a “Special Purpose Company”
with management sub contracted. Generally done to take advantages of tax laws.
Ship Funds: In this method of raising equity a Ship Fund is set up in a tax efficient location (F.O.C.
countries) and a general manager is appointed to handle buying, selling and operating company, who
is paid a management fee.
Public offering: Shares of company are sold via Public Offering to collect funds which company uses
to buy a new ship as set out in prospectus. Prospectus is a document explaining business model of
company, its strategy, financial condition & administration etc. New sale of shares can help in
reducing debt, build cash reserves, increase company’s market value & acquire new ships.


Debt Financing:
This is most favoured way of financing ship. It can be:
1) Bonds
2) Commercial Bank loans
3) Shipyard Credit
4) Private debt
Bonds: These are certificates issued by shipowner for specific purpose like purchase of new ship at a
specific interest rate and period. They are certificate of indebtedness, where issuer guarantees pay on
demand or on maturity. They can be sold ad purchased between parties.
Commercial Bank Loans: It is quickest and most convenient method. Debt is arranged fixing Interest
rate, tenor & mortgage. Loan can be taken by one bank or a group of banks.
Shipbuilding Credit: Credit is given by ship yard for purchasing, which is to be paid with interest. In
some cases there is a joint venture by shipping company & Yard.
Private Debt: Loan taken from Private Individuals or finance companies, this is generally with heavy
Interest rates and such financers mortgage the ship. (Pension funds, commercial finance companies,
Investment banks, ship-finance banks etc.)
.
Th debt financing is least expensive but most restrictive form of ship finance. These loans have to be
secured or collateralized by Insurance, Corporate Guarantee, Pledge of shares, Personal Guarantees
etc.
Lending is seldom 100 % of vessel acquisition cost, they prefer to have a portion of the cost
provided by the owner. This helps in ensuring serious involvement of owner and easy recovery in
event of liquidation. There may be more than one lender (primary – who covers major part, secondary
– who pays loans only because of primary lender)
Debt – Mezzanine Finance: It is used when bank is unwilling to loan owner sufficient money, to
close gap high yield corporate debt bonds are issued which provide high rate of return for investor.
They also present high risk and usually arranged by investment bankers for small companies.
Leasing: By definition lease is a contract between a lessor and a lessee, in which the owner permits
the user to use an asset over the term of the lease in exchange for the payment of rent. In shipping
term it is called as Bareboat Charter. In such contract the charterer uses ship as allowed to him in
contract and pays a hire charge per day to shipowner.
Other Methods:
1) Convertible debt: where the financer has a right to covert debt in equity shares at a particular
price in the future.
2) K/S Partnership: It stands for Kommanditt selskap, a limited liability partnership with tax
credits. Here the Owner places his capital on deposit and takes a longterm credit at a lower
rate to avail tax benefits.
3) K/G Partnership: It stands for Kommand It Gesslschaft It is a German Limited Partnership
system, which holds individuals liable only for the amount of their investment. It helps in
equity financing from high net worth individuals who get tax benefits. Mostly it is used for
small ships.
4) Government Grants: Financial assistance is given from government sources as aid to simulate
domestic shipbuilding or domestic shipping. It may in form of soft loans, subsidies, cash
grant, lower taxes, write -off previous loans, accelerated depreciation to reduce tax, operating
subsidies, fuel subsidies etc.
5) Hedge Funds: They are legal structure that enable the managers to pursue an almost limitless
range of investment strategies such as hedging against market downturn, investment in
currencies etc.
6) Basic Financial Documents: Almost all investors and lenders want to see similar financial
documents. By preparing a basic financial documents, and ideally, keeping it up-to-date, you'll
be in a better position to act quickly on financing opportunities.
There are two levels of financial documents to prepare, the basic documents needed for most
financial activities, and additional documents needed, especially for large loans or
investments.
a) Balance sheet. Financial report that shows the status of a company's assets, liabilities and
owners' equity; this gives a complete picture of the worth of a company.
b) Income Statement, also called Profit-and-Loss Statement. Summary of a company's
revenues, costs and expenses during one accounting period. This shows how profitable a
company is. If a company is new, these can be projected income statements.

c) Cash flow projections. Estimates of the schedule on which money will actually move into
and out of your company. Cash flow can be very different than income statements,
especially for companies that operate on an accrual basis accounting.
d) Audited financial statements. Financial documents like those listed above, but prepared
by an accounting firm that audits the documents to make certain they are correct.
e) Last two-three years' business tax returns.
Etc.
Lender Security:
Giving money as loan involves risk of return therefore the Lender may like o take security for his
funds. It can be in te form of Mortgage where a property is kept as security. Mortgage means that in
the event of non payment of loan, to our outstanding indebtedness the owner grants the linder the
assment of the whole vessel
Since the ship is mortgaged to Lender, he requires shipowner to:
- Insure the vessel by H&M Insurer
- Insure the vessel for war risk
- Cover Protection & Indemnity risk
- To comply will all requirements of Insurer and pay premium timely
- Owner has to maintain & operate vessel as per various relevant national & international rules
- Owner shall not carry out any alterations to vessel’s structure
- Owner shall not remove any part or equipment of vessel
- Owner shall maintain Class certification
- Owner cannot sell or lease vessel to anyone without consent of Lender
- Owner shall not take loan from anyone else without permission of Lender and total amount
shall not exceed 70 % of value of vessel
Lender has the right to inspect the vessel from time to time.

Economics of New & Second Hand Ships:

Purchasing ship is a very import task in any shipping company and they should carefully consider the
following before deciding that they will purchase a new ship or a second hand ship.
Points of Consideration:
1) Freight does not depend upon the age of ship hence earning capabilities of new and old ship
are almost similar.
2) New ship cost is very high as compared to second hand ship therefore important
consideration are:
- Availability of Finance & rate of Interest
- Tax benefit on new ship by Govt.
- Subsidies given by Govt. to encourage Shipbuilding activity.
- Availability of ships on Bareboat charter
- Difficulties in obtaining loan for old ship
- Fluctuation in price of second hand tonnage
- Time taken for delivery of new vessel
- Repairs or modifications required on a second hand vessel
- Change in Technology will have impact of fuel economy of vessel
- Risk of accident / pollution liability
- Possible changes in rules of IMO
- Difference in Operating expenses of both types of ships
- Reputation of company
- Drydocking cost especially at 20th & 25th year survey.
Sale & purchase of Ship
Purchase of Second hand vessel:

Step 1) Evaluate the need for acquisition, consider:
- Tonnage requirement (Required-existing)
- Market condition particularly relating to price and quantity of cargo
- Availability of Charter
- Rate of return of Investment

Step 2) Search appropriate vessel, important parameters are

- Age of ship
- Technical particulars
- Cargo carrying capacity
- Previous owners / managers
- Survey status
Step 3) Based on the above factors few ships are shortlisted inspection of records and general
condition is carried out.
Step 4) MOA & Pre Purchase Formalities:
- Signing Memorandum of agreement with the seller detailing Detailed physical Inspection and
its payment.
- An Escrow account is opened and 10 percent of estimated value of ship is deposited.
- Carrying out Detailed Physical Inspection of vessel for which ship has to stop its voyage or
cargo operations. It involves underwater survey of hull and opening of some machinery,
inspection of structure and tanks etc.
- If Ship is found suitable then price negotiation starts.
Step 5) Simultaneously DG Shipping is approached for obtaining clearance (Ship Acquisition &
License committee)
- Technical Clearance,
- Price Reasonableness
- Permission to register vessel
- Inspection of Vessel by DGS Surveyors before purchase.
Step 6) On Final Negotiation & DGS Clearance, following is carried out:
- Placing of crew onboard for familiarization
- Arranging for Class & Statutory Survey
- Signing of Bill of Sale, Delivery note, Declaration of ownership.
- MMD (DGS) allots new number, official call sign
- Name of ship is approved by DGS and same is marked and carved on ship at specified places
and approved by DGS.

Purchase of New Build vessel:
1) Same as step 1 of Purchase of Second hand vessel

2) Specifications: Before negotiating with shipyard following specifications are decided.
- Type of vessel
- Principal Dimensions
- Cargo carrying capacity
- Speed and Power
- Gear or Gearless
- Etc.
3) Specifications are circulated amongst various shipyards and quotations are obtained.
4) Selection of suitable shipyard based on their expertise, price, delivery schedule etc.
5) Negotiation and finalization of contract
6) Notifying future Flag state and Classification society, who will approved the plans and
monitor production
7) Attaching Technical team who will supervise the production and trials
8) Following steps 5 & 6 of purchase of Second hand vessel.
Sale of Second hand Vessel:
Step1) Identify the vessel for sale:

- Estimate the market value depending upon condition of vessel
- Complete all pending survey and certifications
- Report of Technical condition for buyer is prepared
Step 2) Place ship for sale in market either directly or through buyer
- Copy of Plans & Drawings of Ship
- Copy of Certificates & Class Survey reports
- Any other important document to be kept ready for showing to buyer
Step 3) Prospective Buyer will check General Condition and Papers of ship, if satisfied then.
Step 4) An Escrow account is established, 10 % of approximate value of ship is deposited.
- Vessel is taken to an anchorage where the buyer can inspect various parts of ship.

- If Buyer is ready for purchase then amount deposit in Escrow Account is taken by shipowner
as advance. If not then agreed value foe expense of inspection is deducted by shipowner and
balance is returned to buyer.
Step 5) Final Price Negotiation and Signing Contract of sale. Generally NSF 93 is used for
contract.
Step 6) Sale formalities:
- Obtain Free of Mortgage Certificate
- Obtain No dues to Crew Certificate
- Prepare Documents as required
- Hand over vessel with requisite amount of bunker, stores and food.
Subsidy in Shipbuilding:
Subsidy is a transfer of money from the government to an entity.
The objective of subsidy is to bolster the welfare of the society. It is a part of non-plan expenditure of
the government. Example “Shipbuilding Financial Assistance Policy” In this Government provides
“Financial Assistance”, means the monetary incentive granted by the government to the shipyards for
construction of vessels underlying a shipbuilding Contract.

Chapter IX – Commercial Shipping Practices
Freight:
It is the reward payable to carrier for the carriage and arrival of goods at destination in good
condition, ready to be delivered to merchant. The pricing of cargo ship services is dependent on
supply and demand, which are generally more complicated than other services.
Demand of Shipping is a Derived Demand: The demand is not of the ship but it is of the cargo. If
demand of cargo changes the demand of ship also changes. We can say that shipping is a Tertiary
activity dependent on Primary (Production) and secondary (Trade)
Factors affecting Demand and Supply of Ships thereby affecting Freight:

- World Economic Condition: Cycle of Boom and Recession,
- World Political Condition: War and Trade agreements
- Average Haul (Change in Tonne-miles): Closure of Canals
- Change in Regulations: New Sox Regulations, Scrapping Regulations
- Change in Technology: LNG Carriers
- Change in Bunker Price: Depletion of Natural Resources
- Weather Condition: Tsunami, catastrophe, Crop failure.
- Inflation and Interest rates, taxes, subsidy
- Seasonal Trade: Agri product, Cruise, Container
- Economy of Scale
Types of freight:
- Advance Freight: Payable in advance before delivery of goods, generally used in Liner
services and dry bulk services.
- Destination Freight: Payable only on safe delivery of cargo at destination
- BBB Freight: Freight payable on start of discharging of cargo, generally called as Before
Breaking Bulk
- Lum Sum Freight: Amount payable for the use of whole or part of ship cargo carrying
capacity. It is calculated on actual cubic capacity and is irrespective of actual quantity

delivered.
- Dead Freight: It is the freight for unoccupied space, The dead freight is provided for
compensation of the freight which would have been earned buy the carrier had cargo
owner given agreed amount of cargo.
- Back Freight: When goods are refused to be accepted on arrival at discharge place and
needs to be returned back.
- Pro-rata Freight: When cargo is carried only part of the the way and circumstances made
it impossible for voyage to continue further
- Ad Valorem Freight – when freight is charged on the basis of value of cargo example 2%
Freight in Liner:
LCL & FCL Cargo: When cargo is not able to fill a container either by weight or by volume such cargo
is called as Less Than Container Load, and if cargo can fill the container either by weight or by
volume then such cargo is called Full container load.
Freight is charged for LCL cargo either by stowage volume or by weight depending upon stowage
factor, example for heavier objects like metal it is by weight and for lighter objects like cotton it is
volume.
Freight for FCL cargo is charged either by CBR or FAK method. Commodity Box Rates are applied in
Boom when freight depends on the commodity inside the container, example dangerous goods will
be charged more than clothes cargo etc. While Freight All Kind is charged in recession and remains
same irrespective of commodity.
Many surcharges are applied to freight such as:
- Port congestion surcharge
- Exchange rate surcharge.
- Bunker rate surcharge
- Transhipment Surcharge
Surcharges will be applied only in certain conditions others wise not.
For some ports Container return charges are also applied if no return cargo is available.
Many operators gives Loyalty bonus for returning loyal customers.
Rate making for Containerized cargo is very complex. It considers many factors such as: Character of
Cargo, Susceptibility to damage, type of packaging, Broken stowage, Conditions required for storage,
Cost of handling specialized cargo, Insurance, Port Regulations and facilities etc.
Freight in Tramp Services:

AFRA: Average Freight Rate Assessment – This is a freight billing system which is composed of the
weighted average on independently owner tanker tannage. London tanker brokers panel determines
rates for various size categories which are applicable for six months and declared in Jan and July
each year.
WORLDSCALE: The worldscale system generally governs tanker fixtures and freight rates by a system
based on an Index called as WS100. It is calculated for an imaginary crude oil tanker capable of
carrying 75000 MT of crude oil between any set of two ports with an average speed of 14.5 Kt and
bunker consumption of 55 Mt per day burning 380 cst fuel oil. Various other parameter such as port
dues and bunker cost, laytime are assumed and freight calculated.
Relation between Time and Voyage charter rates:
Voyage charter rates are short term rates, specific to a voyage only. Whereas Time charter rates are
long term rates which may cover many voyages.
For Chareterer: If the market is buoyant and rates are expected to rise, he will prefer long term rates
and vice versa. Generally both rates move in same direction but with a time lag. When market is
rising the Long term rates tend to rise faster than the Short term rates, but eventually it will catch up.
When the market is falling long term rates fall faster than short term rates. Time charter rates reflects
how would the voyage charter rates will behave in future.
For comparison of Time and voyage charter rate the Time Charter Equivalent Rate is calculated from
voyage charter freight.

TOLANI MARITIME INSTITUTE
ISO 9001:2015 CIP Grade1 (Outstanding)
COURSE NOTES
SHIP OPERATION AND MANAGEMENT
Course Code: Prepared for Academic Year: 2018 – 2019

Compiled by: Capt. RajkumarGoel Reviewed by: Mr. Shishir Kumar Srivastav

Table of Contents
TalegaonChakan Road, Induri. Taluka Maval, Pune -410507
Contents
Sr. No. Contents Page No
1 Chapter I (Brief History of Shipping) 3 - 16
2 Chapter II (Conference Systems) 17 – 22
3 Chapter III (Bills of Lading) 23 – 29
4 Chapter IV (Marine Insurance)
5 Chapter V (Shipping Companies)
6 Chapter VI (Capitalization and Finance)
Chapter VII (Ship Operations)& Chapter VII (Commercial Shipping

7 30 – 49
Practice)
8 Chapter IX (Merchant Shipping Act) 50 - 67
9 Chapter X (Marine Conventions)
(1) These notes are solelyfor the purpose of guidance and students are to refer to text and
reference books available.
1
List of Figures:
Fig. No. Title Page
List of Tables:
Table No. Title Page
2
Chapter I– Brief History of Shipping
 MODERN SHIPPING PRACTICE
 Depends on the successful operation on harmonious interaction between
 Merchant ( or manufacturer )
 Shipper
 Ship owner
 Receiver
Merchant or manufacturer
 He seeks business overseas and must use sea transport to get his goods to the market.
His responsibility is to ensure that the goods are ready, in good condition to be shipped
and dispatches on time.
Shipper
 He is the link between the manufacturer and the shipowner, and arranges for the
transport of goods from manufacturer’s premises (or other mutually agreed location) to
safe stowage on board the ship. He arranges for the expedient sorting and packages of
the goods, finds suitable sailing schedule, and books cargo space with the selected
shipping company. He also arranges for the various documents require for the transport
of the goods.
 He must thus have an intimate knowledge of the requirements of the world, and the
realization of the right goods for the particular areas.
ShipOwner
 His prime responsibility is to ensure that his ship is AT ALL TIMES fit to safely load t, carry
and discharge the cargoes that the shipper or agent has arranged. This means the ship
must be mechanically sound in sound condition, with efficient machinery, and a cre
complement which satisfies the requirements of International regulations.
 In cases where the shipowner hands over his vessel to professional ship manager, these
functions become the responsibilities of the ship manager.
3
Receiver ( Consignee)
 He receives the goods at the port of discharge on presenting the required “ bills of
lading” to the shipping company or the local representatives. The shipping company or
their agents, issue a deliver order in exchange for the Bills of lading. The consignee hand
over the Delivery order to the officer in charge of the ship, and gets his cargo.
Agents
 All the above entities often appoint agents, who act on behalf of the principals, in such a
manner that the principal is legally liable for all the acts carried out by the agents. When
a principal appoints an agent, then all the acts of the agent and responsibilities incurred
are of the account of the principal as though he had acted personally, BUT only when he
has given his agent the power to act in such manner.
Freight Forwarders
 Freight forwarders typically act as a shipper’s agent during the shipping process. Freight
forwarders select the mode and carrier for their clients’ shipments, provide and process
documentation, and make freight, terminal, and handling payments on behalf of their
clients. In operational terms, forwarders primarily focus on consolidating or combining
many small shipments into a single large shipment, which can then be shipped at a
lower cost. Typically, a freight forwarder will purchase unit(s) from a carrier and sell
space within the unit(s) to several shippers. The cost charged for this space is
significantly less than the cost of an entire unit and thus allows small shipments to be
processed efficiently.
NVOCCs
 Non-vessel operating common carriers (NVOCCs) buy space from ocean carriers for
consolidated shipments from a variety of clients. NVOCCs specialize in less than
container load (LCL) shipments and perform many of the same functions as freight
forwarders. Unlike forwarders, however, NVOCCs are common carriers that use
containers rather than vehicles or vessels. NVOCCs are frequently the customers of
freight forwarders and the clients of ocean carriers. A typical situation might involve a
NVOCC combining a partial load from Durban bound for Antwerp from Forwarder A with
a partial load bound for Antwerp from Forwarder B, and subsequently hiring an ocean
carrier to move the loaded container from Durban to Antwerp.
 As transport costs for loaded and empty containers are often the same, NVOCCs try to
find backloads for empty containers returning to port from inland locations, which
allows NVOCCs to obtain revenue on the return of empty containers to port while
enabling the flow of goods.
Customs Brokers
4
 Customs brokers escort goods through the customs process and have experience with
local customs regulations and trade practices. Brokers ensure compliance with laws and
verify that customs documentation has been completed.
Export Packers
 Export packing firms supply packaging materials and services for overseas shipments.
Export packers specialize in packing for maximum shipment cost efficiency and typically
are familiar with any agricultural restrictions and quarantines that pertain to packaging
material.
 Typical clients of packers are producers that are capable of marketing products locally
but that lack the expertise to correctly protect their goods for international movement.
Packers are also employed by exporters that require specific packaging of their goods for
transport.
Marine vehicles and cargo

 General cargo vessels
 Passenger vessel
 Container ( Box) vessels
 Dry Bulk carriers
 Self unloading dry bulk carriers
 Oil tankers
 Gas carriers
 Ro-Ro ships
 LASH ships
Marine cargo
 Bulk Cargo – Solids in particulate and granular form, generally homogenous in
composition, loaded directly into the ship’s holds, without any packaging – can be dry
bulk of Bulk oil.
 Packaged cargo – generally small size, and consisting of a number of individually packed
units.
 Pre slung cargo – Several units are put into a common sling. The whole sling is then
placed on board, and the entire sling with cargo units are unloaded in the discharge
port.
 Palletization – The cargo is consolidated into packages ( boxes, bags, cartons, cases,
drums, bales, rolls) are lashed to formal unit and placed on a pallet. Four way entry
pallets are considered most suitable for shipboard use.
5
 This arrangement eliminates the use of for heavy packaging, reduces handling and
labour required, speeds movement of goods, reduces dunnage required, permits cargo
to be stowed compactly and tidily, thus reducing broken stowage and facilitates tallying
of cargo.
 Containerisation – A container is a box made of steel aluminium or Fibre glass. A 20 foot
equivalent unit (TEU) measures 20ft X 8ft X 8.5ft. An FEU measures 40ft X 8ft X 8.5ft. A
TEU weighs around 1.2 MT and carries 19MT. An FEU weighs about 2.0MT and carries
about 38MT. It is of a permanent character, strong enough for repeated use. It is
designed to facilitate transport of goods from one mode to another (road to rail to sea
or vice versa) without intermediate reloading.
 It is designed so as to be easy for filling and emptying (stuffing or destuffing). They are
also built with pockets where fork lift prongs can be inserted for lifting.
Advantages :
 Saves in packing costs
 Less damage to cargo during handling
 Less theft and pilferage
 Less handling time in every port, saving costs.
 Preserves quality and purity of cargo.
 Reduces port time of the ship, and improves the running time/port time ratio of the ship
 Easy tallying and documentation
 Amenable to computerization
 For the shipper, less inventory costs and stable inventory control possible by a regular
containership schedule
 The BIGGEST advantage is the offer of door to door service on an international scale via
intermodal transport systems.
LASH
 Lighter Aboard Ship concept came about as a means to avoid ship delays in waiting for
berth. Cargo is loaded on lighters or barges which can be cover and made watertight.
These are then towed to the anchorage area where at the mothership lifts them up from
their stern area by means of large gantry crane and loads them into holds. Lighters for
dischargepicked up from the ship’s holds and floated in water, from where they are
towed to jetty.
Marine cargo (cont)

 Ro-Ro : There is no cargo gear for lifting cargo. Cargo area extends the length of the ship.
It has movable deck ramps connecting the decks. Bow stern and often part of the
6
shipside open up, and can be lowered to form Ramp over which vehicles can be driven
into the ship. The ramp rests on the jetty, and can be raised and lowered to adjust the
ships drafts and tidal effects. The ship is geared to carry cars, trucks, trailers and
anything that can be into or off it.
 The main deck can be fitted with cell guides to carry containers. The greatest advantage
is the speed at which cargo can be lowered and discharged. Port stays are a matter of a
few hours only.
 Securing of cargo is a very important factor in these ships, Because the units are on
wheels the decks should not be wet, slippery or greasy. Vehicle brakes should be on, and
the engine in gear. For heavy vehicles, besides the normal security arrangements,
movements should be restricted by jacking up, or placing roughened material between
the unit and the deck to increase friction.
Care of cargo : General Cargo

 In the hatch square items such as machinery, should be stowed in the hatch square from
which position they can be directly lifted in or out.
 When stowing different cargoes the possibility of they damaging one another by taint
dust and sweeping, insect infestation , condensation from moisture content and by
crushing, must be kept in mind
 Heavy cargoes for loading or discharge with ship’s gear must be stowed within reach of
the appropriate crane or derrick
 Dunnage softwood planks 150mm X 30 mm should be used with all general cargoes to
protect the cargoes from moisture, to provide a non slip base for heavy items, to spread
the load of a concentrated weight, and to bind the stow together.
 When heavy (crates) and light items (cartons) are to be stored together , the cartons
must be above the crates.
 Every item of cargo must be secured, so that it cannot move and suffer damage when
the ship works in a seaway. The securing methods will vary with the cargo (wire lashings,
turnbuckles with pad eyes etc.), but they must be effective to prevent cargo movement
when the ship encounters heavy weather.
 Separation is to prevent different cargoes or different parcels of the same cargo from
inadvertently getting mixed. The method depends on the type of cargo being carried.
Chalk marks, water paints, plastic or polythene sheets are commonly used.
 Pilferage ; Valuable cargoes should be stored in lockable spaces (welded doors for
carrying legal expensive drugs for medical purposes)
 Handling, Chafing, crushing- through careless cargo work-
 Dangerous cargoes ; carriage is governed by the IMDG ( International Maritime
Dangerous Goods) Code and the BDC (Bulk Dangerous Chemicals) Code. Goods should
be packed such that, having regard to the properties of the goods, they withstand the
ordinary risks of handling and transport by sea. The shipper must provide a declaration
7
that the goods are packed in accordance with regulations. Dangerous goods must be
stowed in a manner which is safe and proper and in a location where the appropriate
adequate ventilation can be provided.
Care of cargoes- Refrigerated cargo

 Frozen cargo- meat, Fish, poultry- about---20C, Chilled cargo- cheese, eggs, fresh
vegetables- -2C to +6C Air cooled cargo – Fruits- 3C to 10C
 Reefer rooms to be clean without taint, or odour, to be at the required temperature-
fridge machinery in efficient condition. During loading inspection of incoming cargo to
be done regarding its apparent condition and temperature. Just the minimum required
opening of the doors should be done to reduce ingress of heat and moisture into the
reefer compartment to minimum.
 During stoppages in loading, the reefer plant should be run to cool the chamber.
 During transit temp control is most important. A log book and/or data logger must be
kept on the continuous reading of temperatures and CO2 content of the room
atmosphere.
 During cargo discharge a surveyor is generally called to check the transit temperature
and CO2 records.
Care of cargoes - Bulk cargo

 GRAIN
 In accordance with IMO rules for the carriage of grain leave least possible no of holds
partly filled. Trimming to be performed to minimize effect of cargo shifting. All free
grain surfaces in partly filled holds to be trimmed level. The ship must be upright
before proceeding to sea. Hatch covers and other opening to be watertight (a
frequent cause of damage is sea water contamination of grain cargo). Ventilation to
be continuously provided to prevent condensation and to remove heat (grain
generated heat)
 Infestation of insects – frequent inspection to be done to guard against it. Dust fires
and explosion have occurred in grain cargoes. No smoking anywhere near the holds.
 COAL
 ( Thermal coal for power generation and power station – Coking coal for
metallurgical use in steel plants)
 Can produce explosions and go on fire.
 Should not be stowed adjacent to hot areas.
 Holds and Bilgewells to be thoroughly cleaned before laoding commences
 Coal with high moisture content increase the danger of cargo shifting, self heating,
and creating corrosive sulphuric acid.
8
 Surface ventilation to be provided continously.
 Regular monitoring of the atmosphere for the following gases to be done: metahe,
Oxygen, CO.
 Regular monitoring of the cargo temperature
 Smoking and naked lights to be prohibited on deck.
 Burning , cutting, chipping, welding, or any other hot work not to be allowed in the
cargo hold area.
 Cargo to be trimmed reasonably level to the boundaries of the cargo space to
prevent formation of gas pockets.
 Hold Bilges to be daily sounded, and PH value taken to check acidity.
 IRON ORE
 Trimming(Athwart ships) level to reduce chances of cargo shifting.
 Bilges to be pumped out regularly to move water which has drained out from the
cargo
 Bilges to be sounded daily to detect any sign of water ingress and hold flooding.
 Holds should not be entered except when the air has been tested and found safe.
Developments in shipping and cargo handling

 Mid 1950s- Closed shelter deck vessels are evolved (tween deck vessels)
 1960s – Bulk carriers evolve and used for 25% of Bulk trade rest 75% by tween deck
vessels
 1980s- Changes in ILL convention 1966 enables designers to take advantage of inherent
stability of the bulk carrier and its self stowing characteristics.
 1980s- CONBULKERS – Bulk carriers fitted for carriage of containers developed from
open bulk carriers for versatility of adjusting to different types of cargo.
 1980s- Self unloaders – They have a system of conveyor belts and disharge boom which
swings out over the shipside. No shore gang required discharging cargo
 1990s- Multi modal system - one operator arranges for transport of goods from the
shipper to the consignee- door to door taking complete charge of the transportation
which may involve transport by road, rail and air, in addition to sea transport.
Developments in cargo handling

 1950s derrick – The simple derrick consists of a derrick boom which is raised lowered
and moved sideways by several different purchases. Dis advantages : lacks
manouverability. Capacity id restricts. Derrick requires to be plumbed repeatedly to
access various areas of cargo hold.
9
 The Jumbo derrick ( heavy lift) . Components are larger size than a single derrick-
individual winches for slewing, topping, hoisting and lowering.- all can be done
simultaneously.
-
DERRICK
10
JUMBO DERRICK
Deck cranes
 Hook and grab operation
 Luff, slew, hoist and lower
 Easy to use
 Very versatile turn 360 deg.
 5 ton to 75 ton capacity Automatic cut outs are provided to prevent overload and load
to safe limits.
 In case of failure with suspended load it can be mechanically lower to a safe position.
Gantry and jib cranes

 Easy to use
 Very versatile turn 360 deg.
 5 ton to 75 ton capacity Automatic cut outs are provided to prevent overload and load
to safe limits.
 In case of failure with suspended load it can be mechanically lower to a safe position.
SHIP CRANE
11
GANTRY
Self unloader vessels

 In these Bulk carriers a system of conveyors transport the cargo from the holds to the
receiving facility ashore. Horizontal belts run under the cargo holds for the entire length
of the cargo area
 Hydraulically operated gates at the bottom of the cargo hold allows a controlled rate of
discharge from individual holds.
 Load sensors at the individual belts prevent overloading of belts.
 Transfer conveyor send the materials to a central lower hopper.
 The elevated conveyor now transports the material to the upper or boom hopper. A
conveyor on rotatable boom forms the last link to conveyor system. The boom can be
swung out and positioned as required by the shore reception facility.
 The cargo discharge operation is done by ship’s crew
 Used originallyfor great lakes but have since diversified.
 No shore gangs required and discharge rate of 12000 MT/ HR.
Multi-Modal transport
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 Means carriage of goods by at least two different modes of transport from a place in one
country to another in a different country.
 Governed by UN Convention on International Multi modal transport of goods 1980.
 MTO means any person who on his own behalf or through another person acting on his
behalf concludes a MT contract and who acts as a principal ( not as an agent on behalf of
the consignor or of the carriers participating in MT operations )and who assumes
responsibility for the performance of the contract.
 Main features:
 Carriage of goods by two or more modes of transport.
 One contract, one document for both/more modes.
 One responsible party for entire transport – MTO
 Existence of different carriers and subcontractors who may be used by MTO.
 Indian Multimodal Transport of Goods Act 1993:

 An Act to provide for the regulation of the multimodal transportation of goods, from
any place in India to a place outside India, on the basis of a multimodal transport
contract and for matters connected therewith or incidental thereto.
 It extends to the whole of India except the State of Jammu and Kashmir.
 It shall be deemed to have come into force on the 16 th day of October, 1992.
 Definitions.- In this Act, unless the context otherwise requires,--

 (a) “carrier” means a person who performs or undertakes to perform for a hire, the
carriage or part thereof, of goods by road, rail, inland waterways, sea or air;
 (b) “competent authority” means any person or authority authorised by the Central
Government, by notification in the Official Gazette, to perform the functions of the
competent authority under this Act;
 (c) “consignee” means the person named as consignee in the multimodal transport
contract;
 (d) “consignment” means the goods entrusted to a multimodal transport operator
for multimodal transportation;
 (e) “consignor” means the person, named in the multimodal transport contract as
consignor, by whom or on whose behalf the goods covered by such contract are
entrusted to a multimodal transport operator for multimodal transportation;
 (f) “goods” means any property including live animals, containers, pallets or such
other articles of transport or packaging supplied by the consignor, irrespective of
whether such property is to be or is carried on or under the deck;
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 (g) “mode of transport” means carriage of goods by road, air, rail,inland waterways,
or sea;
 (h) “multimodal transportation” means carriage of goods, by at least two different
modes of transport under a multimodal transport contract, from the place of
acceptance of the goods in India to a place of delivery of the goods outside India;
 (i) “multimodal transport contract ” means a contract under which a multimodal
transport operator undertakes to perform or procure the performance of
multimodal transportation against payment of freight;
Factors affecting universal adoption

 Inadequate port infrastructure in ports of developing countries.
 Ports stretched beyond capacities.
 Varying benchmarks for performance rating at ports around the world.
 Poor connectivity at different terminals around the world. – land bridges, expressways,
rail bridges.
 Insufficient and outdated equipment requiring multiple handling.
 Non uniform stacking capacities, warehouses and container yards
 Varying tax sops given by different countries to multimodal transportation.
Liner Services:
 Liner Service – is a service that operates within a schedule and has a fixed port rotation
with published dates of calls at the advertised ports.. A liner service generally fulfills the
schedule unless in cases where a call at one of the ports has been unduly delayed due to
natural or man-mad causes..
 Example : The UK/NWC continent service of MSC which has a fixed weekly schedule
calling the South African ports of Durban, Cape Town and Port Elizabeth and carrying
cargo to the UK/NWC ports of Felixstowe, Antwerp, Hamburg, Le Havre and Rotterdam.
 Liner shipping is to provide regular services between specified ports according to time
tables and prices advertised well in advance. The service is, in principle, open to all
shippers and in this sense it resembles a public transportation service. The provision of
such a service, often offering global coverage, requires extensive infrastructure in terms
of ship s, agencies, and equipment
 The vast majority of liner cargo is containerized that is, it is carried in sealed metal
containers from point of origin to destination. These containers come in standard sizes
(Typically20 ’,40’,and45’in length) and may include various specialized technologies,
such as refrigeration units for chilled and frozen foods, or internal hanger systems for
carrying garments. Containers serve, in essence, as a packing crate and in transit
warehouse for virtually every type of general cargo moving in international commerce.
The standard measure of the volume of containerized cargo is a TEU (twenty foot
14
equivalent unit). For example, one forty foot long container of cargo would be counted
as two TEUs of cargo.
Tramp Services:
 Tramp Service or tramper on the other hand is a ship that has no fixed routing or
itinerary or schedule and is available at short notice (or fixture) to load any cargo from
any port to any port..
 Example : A ship that arrives at Durban from Korea to discharge cargo might carry some
other cargo from Durban to the Oakland in the West Coast of USA which in an entirely
different direction.. From Oakland say for example it could carry some cargo and go to
Bremerhaven.
 Tramp shipping are irregular shipping, mainly over nonstandard routes, with no definite
schedule. Tramp ships are used to transport bulk cargoes and break-bulk cargoes of low
value that do not require fast delivery. The transportation of cargoes that are picked up
or dropped off along the way plays a large role in tramp shipping. Tramp ships are slow
and can transport a variety of cargoes. Specialized types of dry-cargo, liquid-cargo, and
mixed-cargo ships are also used in tramp shipping. Tramp shipping plays an important
role in the foreign trade of the capitalist countries.
 Today, the tramp trade includes all types of vessels, from bulk carriers to tankers. Each
can be used for a specific market, or ships can be combined like the oil, bulk, ore carriers
to accommodate many different markets depending where the ship is located and the
supply and demand of the area. Tramp ships often carry with them their own gear
(booms, cranes, derricks) in case the next port lacks the proper equipment for loading or
discharging cargo.
Liner differs from tramp shipping in several instances:

 In the first place, in liner services vessels are scheduled according to a given frequency of
calls at predetermined specified ports along a given route, while in tramp shipping the
service is not scheduled and the entire vessel is normally chartered for a given voyage or
for a period of time.
 Secondly, vessels used for liner shipping also have quite different characteristics from
other kinds of vessels: in particular, since containerization has taken place, ships used in
liner services are cellular container vessels, having different sizes and tonnages, and are
capable of carrying from a few hundred boxes up to several thousands. Hence, liner
vessels are capable of carrying a large variety of goods in small parcels whereas tramp
vessels usually transport one and the same good in large quantities, be it solid or liquid,
as it happens with, respectively, bulkers and tankers.
 The capacity of liner vessels to transport a large and variable number of goods in parcels
or cargo units displays a third peculiarity of liner services compared to tramp ones: as
we have just pointed out, tramp vessels carry dry or bulk liquid cargo (oil, ore); in
contrast, goods moved in liner services are high-value ones, i.e. either manufactured or
semi-manufactured goods.
15
 Finally, substantially different are also the contractual terms accompanying liner
transport vis-à-vis tramp shipping: in the former mode of transportation, the
relationship between shippers and carriers is regulated by standard printed forms of
contracts (e.g. bills of lading or similar documents) whose terms and conditions are
directly prepared by carriers without any negotiation with their contractual
counterparts, except as regards tariffs. In tramp shipping, the trader normally charters
and pays a negotiated rate for the whole ship, either for a voyage or for a period of time.
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COURSE NOTES


Table of Contents
Contents

7 30 – 49
Practice)
1
List of Figures:
Fig. No. Title Page
List of Tables:
2
Chapter II– Conference System
 Liner conferences, which began in the 1870s as a device used by ship-owners in the
cargo-liner trades to address problems of over-competition, seasonality and cut-throat
pricing, have always attracted opposition. They are fundamentally cartels, albeit ones
that have been permitted to exist by competition authorities because the consequences
of prohibiting them were always regarded as worse than permitting them to remain.
 They protected themselves by using rebates on the price of freight, so that a shipper of
cargo who decided to use a non-conference shipping company would be denied this
cheaper rate if he subsequently needed to use a conference line shipping company. And
while there were occasional challenges on the legality of such practices by conference
lines, it was argued that the stability they brought to a trade, with regular sailings by
quality ships and long-standing freight agreements, along with the support of ports
which were in terms of the cargo they generated marginal, justified the constraints on
free competition.
 And there was no doubt that in many of the long haul trades from Europe to Asia,
Australia and New Zealand, South America and the Pacific, the regular services operated
by the conference lines were a huge benefit to merchants who were completely
dependent upon shipping for the supply of their manufactured goods, and getting their
own products and commodities to market. Even when the cargo was slack and a non-
conference ship would call only “on inducement”, (which meant only if sufficient cargo
could be found), the conference liner would arrive on its schedule to pick up cargo at a
pre-agreed rate. Were it not for the conferences, freight rates would violently see-saw,
long periods would be suffered where shipping was scarce and the dependability of
regular liner shipping would be missing.
 The fact that the conference negotiations on freight rates were undertaken by the lines
acting in concert was always a source of controversy and shippers, who tended to be
more fragmented than a handful of liner operators, would complain at their supposed
disadvantages. But it would be difficult to deny that the success of many industries in
remote countries like the South East Asian rubber, or Australian and New Zealand wool,
owed much to the availability of regular and high quality shipping that the conferences
supplied.
Shippers council:
 Shippers want to safeguard the delivery of their products to their customers in the right
condition, at the right time, at the right price, and in the most efficient and sustainable way.
Members are national shippers’ associations, European commodity trade associations, and
businesses.
3
Chartering:
 What does it mean to “charter” to ship? A standard dictionary definition for the verb “to
charter” is “to hire, rent or lease (something) for usually exclusive and temporary use.”
When the term is applied to ships, it basically refers to the hiring, rental or lease of a ship
for a period of time and / or a particular voyage. Generally speaking, the party making his or
her ship available for hire is the shipowner, while the party hiring the ship is the charterer.
 The practice of ship chartering is an important instrument in facilitating world trade. For the
shipowner, who has invested millions of dollars worth of capital in the construction,
manning, maintenance and operation of his ship(s), the ability to charter those ships helps
to ensure that they are gainfully employed in the carriage of goods by sea, thereby enabling
the owner to earn a return on his investment. On the other side of the equation, chartering
provides the producers of raw materials, agricultural products or manufactured goods with
the physical means of transporting their products to distant markets for sale to consumers,
without requiring them to invest in the construction and operation of vessels themselves.
The practice of ship chartering also allows the world’s traders, through the mechanism of
the worldwide charter market, to match the supply of cargo‐carrying vessels with the
demand for cargoes to be carried, by chartering in from those who own or control vessels
and by chartering out to those who need transportation.
 The types of charters used in such cases could range anywhere from ten to fifteen years in
duration, in order to provide the oil companies (or indeed, any shipper with a long term
requirement for bulk transport) with a base of shipping capacity to cover long‐term
material supply contracts. Charters of such long durations are generally agreed upon before
the vessel is actually built, while shorter term time charters, anywhere from five to twelve
years, would be obtained on the charter market.
 However, it is important to remember that there are a variety of other factors that can
affect freight and hire rates. On the ship side, such factors can include the age of a vessel
(since older vessels require a higher insurance premium on their cargo); vessel speeds and
rates of bunker consumption, special equipment and cargo‐handling gear, and cubic and
tonnage capacities. On the cargo side, such factors are often based on a cargo’s physical
characteristics and their potential to cause damage to the ship (e.g. sulphur can have a
corrosive effect on the steel in a cargo hold, or heavy scrap metal can cause damage to a
ship’s structure). Still other factors that can affect rate determination are the speed of
loading or discharge, the amount of commissions payable and the area in which the trade
will occur (e.g. a war risk region).
 Once the owner of a particular ship and the shipper of a particular cargo have been brought
together, the specific terms and conditions of the commercial transaction they intend to
undertake will be incorporated into a charterparty. In legal terms, a charterparty can be
defined as a lease of a ship in whole or in part for a long or short period of time for a
particular voyage. A charterparty is part contract of hire (affreightment) and part contract
of transport (carriage). Affreightment is basically placing a ship at the disposal of another
party, while transport is essentially the carrier taking charge of the goods.
 The proportion of “affreightment” decreases as one moves from a demise charter, to a time
charter, and then to a voyage charter, while the proportion of carriage increases from a
4
demise charter through a time charter to a voyage charter. Hire is the consideration paid
under demise and time charterparties; freight is the consideration paid under voyage
charterparties and bills of lading.
 Most liner companies build their pricing policy around the dual principles of price stability
and price discrimination. The case for price stability is obvious. Liner companies have a fixed
overhead, so why not fix prices? Anyway, with so many customers, negotiating every price is
not practical. Ideally once prices are set, they should change only when there is some valid
reason for doing so, such as an increase in the cost of providing the service or a major
change in the underlying unit costs. The case for commodity price discrimination is equally
obvious. Charge higher rates to commodities which can bear the cost, and discount low
value commodities. This enables the liner company to attract a wider range of cargoes than
would be economic if there was a single standard freight charge.
 Even with a FAK (Freight All Kind) rate, the procedure for quoting the customer a freight
5
charge and preparing an invoice is quite complex because liner companies charge separately
for items which they regard as ‘additional’ to the basic transport service they provide.
Typically the invoice sent to a customer will include some or all of the following items:
 Freight charges: The charge for transporting the box or cargo. Sometimes the
customer is quoted a ‘door to door’ rate, but often there are separate charges for
port-to-port transport, and collection or delivery.
 Sea freight additionals:Surcharges to cover unbudgeted costs incurred by the liner
company. The bunker adjustment factor (baf) covers unexpected increases in the
cost of bunker fuel, which accounts for a major proportion of operating costs on long
routes. Currency adjustment factor (caf) covers currency fluctuations. The currency
adjustment factor is based on an agreed basket of costs and is designed to keep
tariff revenue the same, regardless of changes between the tariff currency rates of
exchange. Port congestion surcharges may be charged if a particular port becomes
difficult to access due to congestion.
 Terminal handling charge (THC):These are charged per container handled in local
currency per container to cover the cost of handling the container in the port. Within
a region, ports may have different charges. Some operators absorb THCs into the
through freight rate.
 Service additional:If the shipper undertakes additional services for the customer—
for example, storage of goods, customs clearance or transshipment—there would
be an additional charge for this.
 Cargo additional:Some cargoes attract additional charges because they are difficult
or expensive to transport. For example an open top container, heavy lift, etc. To
simplify the charging process some companies may negotiate special contracts with
major customers, offering discounts on volume or other concessions. These are
known as Service Contracts.
Freight (Contract Rates vs Spot Rates)
 Both freight spot and contract rates offer shippers a different value proposition, with
contract providing the year-long security of price and capacity, while spot is there to assist
shippers when their contract carriers are not enough or there is a special need to move
freight on a lane a contract price has yet to be negotiated.
Understanding when to employ each will provide the best road to success.
 A spot freight rate is the price a freight service provider offers a shipper at a point in time to
move their product from point A to point B.
 A contract rate is the rate a motor carrier, freight broker or logistics service provider (LSP)
agrees to use when moving a shipper’s freight for a set lane and its freight characteristics
over a set period of time.
6
 In most cases, contract rates are set for a one year period. Spot freight rates are based on
the market conditions at the time and at times are so dynamic that they change from hour-
to-hour.
 Spot rates are market driven by the most fundamental economic concept: the law of
supply and demand. Under this concept, as demand goes up on a constant of supply the
economic value of the commodity will rise, and in times when the demand goes down there
is the opposite effect. Freight is more complex than just a simple demand slide up and
down the supply curve because on any given day the supply of freight equipment in a given
freight lane can also increase or decrease causing not only a slide on the demand curve, but
also a shift in supply.
 Another way to put it is under the law of supply and demand, price is determined by the
interaction of supply and demand: an increase in supply will lower prices if not
accompanied by increased demand, and an increase in demand will raise prices unless
accompanied by increased supply.
 It concludes that in a competitive market, the unit price for particular goods or services, will
vary until it settles at a point where the quantity demanded will equal the quantity supplied,
resulting in economic equilibrium for price and quantity transacted.
Tanker Chartering:
 The act of hiring a ship to carry cargo is called chartering. Tankers are hired by four types of
charter agreements: voyage charter, time charter, the bareboat charter, and contract of
affreightment.
 In a voyage charter the charterer rents the vessel from the loading port to the discharge
port. In a time charter the vessel is hired for a set period of time, to perform voyages as the
charterer directs.
 In a bareboat charter the charterer acts as the ship's operator and manager, taking on
responsibilities such as providing the crew and maintaining the vessel.
 Finally, in a contract of affreightment or COA, the charterer specifies a total volume of cargo
to be carried in a specific time period and in specific sizes, for example a COA could be
specified as 1 million barrels (160,000 m3)of JP-5 in a year's time in 25,000-barrel (4,000 m3)
shipments. A completed chartering contract is known as a charter party.
 One of the key aspects of any charter party is the freight rate, or the price specified for
carriage of cargo. The freight rate of a tanker charter party is specified in one of four ways:
by a lump sum rate, by rate per ton, by a time charter equivalent rate, or by World scale
rate.
7
 In a lump sum rate arrangement, a fixed price is negotiated for the delivery of a specified
cargo, and the ship's owner/operator is responsible to pay for all port costs and other
voyage expenses. Rate per ton arrangements are used mostly in chemical tanker chartering,
and differ from lump sum rates in that port costs and voyage expenses are generally paid by
the charterer. Time charter arrangements specify a daily rate, and port costs and voyage
expenses are also generally paid by the charterer.
 The Worldwide Tanker Normal Freight Scale, often referred to as World scale, is established
and governed jointly by the World scale Associations of London and New York. World scale
establishes a baseline price for carrying a metric ton of product between any two ports in
the world. In World scale negotiations, operators and charterers will determine a price
based on a percentage of the World scale rate. The baseline rate is expressed as WS 100. If a
given charter party settled on 85% of the Worldscale rate, it would be expressed as WS 85.
Similarly, a charter party set at 125% of the World scale rate would be expressed as WS 125.
World scale indicator
 The world scale indicator describes the fluctuations of the instant freight for the oil tankers.
The creation of that indicator was the result of the great need to find a way to describe the
market. Because of the great number of tanker voyages, the plain mention of these freights
in these voyages in $/ton would not help the market. For example on a voyage that last
twice longer that another, someone would except that it this difference will also be different
in instant freights.
 For the description of the market the method of validation of a representative ship owner is
used. Through that method there a calculation of an instant freight, big enough, in order for
the ship owner to keep his vessel operational. So, for a specific voyage and for the prices of
the fuels and other expenses, freight is calculated ($/ton of cargo), which would have
covered the expenses of the voyage.
 That freight is called basic freight of voyage. The price of that freight is changing frequently
due to calculations and estimations that are executed in short periods of time. Through
these calculations the price of the freight for all the main oil tanker routes is placed. In that
point it should be mentioned that in specific routes that are not included in the main routes,
the freight comes out through the price of the fuel in the period of time that the voyage will
be executed.
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COURSE NOTES


Table of Contents
Contents

7 30 – 49
Practice)
1
List of Figures:
Fig. No. Title Page
List of Tables:
2
Chapter III– BILL OF LADING
Bills of Lading
 The bill of lading is a record of the quantity of cargo and of its apparent order and condition
at the time of shipment and, as such, is a vitally important document. Cargo damage or
shortage claims can result from errors in the quantity and condition of cargo recorded on
the bills of lading. The bill of lading also represents the cargo itself and possession of the
original bill indicates who is entitled to receive the cargo at the discharge port. If you have
any doubt about dealing with bill of lading problems, call the local P&I correspondent
immediately.
 A bill of lading can be used as a traded object. The standard short form bill of lading is
evidence of the contract of carriage of goods and it serves a number of purposes:
 It is evidence that a valid contract of carriage, or a chartering contract, exists, and it
may incorporate the full terms of the contract between the consignor and the carrier
by reference (i.e. the short form simply refers to the main contract as an existing
document, whereas the long form of a bill of lading issued by the carrier sets out all
the terms of the contract of carriage);
 It is a receipt signed by the carrier confirming whether goods matching the contract
description have been received in good condition (a bill will be described as clean if
the goods have been received on board in apparent good condition and stowed
ready for transport); and·
 It is also a document of transfer, being freely transferable but not a negotiable
instrument in the legal sense, i.e. it governs all the legal aspects of physical carriage,
and, like a cheque or other negotiable instrument, it may be endorsed affecting
ownership of the goods actually being carried. This matches everyday experience in
that the contract a person might make with a commercial carrier like FedEx for
mostly airway parcels, is separate from any contract for the sale of the goods to be
carried; however, it binds the carrier to its terms, irrespectively of who the actual
holder of the B/L, and owner of the goods, may be at a specific moment.
The BL must contain the following information:

 Name of the shipping company;
 Flag of nationality;
 Shipper's name;
 Order and notify party;
3
 Description of goods;
 Gross/net/tare weight; and
 Freight rate/measurements and weighment of goods/total freight
General Procedures
 Typical discrepancies with bills of lading:
 wrong port and date;
 quantity of cargo incorrect;
 description of cargo incorrect;
 condition of cargo incorrect.
Check the details on the bills against tally sheets, mate’s receipts, boat notes, draft
surveys;
 Note on the bills any details of damaged cargo, or short-delivered cargo, or any other
discrepancies. (Guidelines on how to describe pre-shipment damage to steel cargoes is
contained in the Club’s Guide to P&I Cover. If in doubt call the local P&I correspondent
and ask for a surveyor).
 It is not your job to decide whether the cargo is marketable, only to decide whether it is
in apparent good order and condition, this is particularly relevant to steel cargoes.
Typical Problems
 shipper objects to the bills being claused - notify your owner or manager and P&I
correspondent immediately;
 if you suspect that the agents have signed bills on your behalf without checking the
mate’s receipts or without noting on the bills any remarks which are in the mate’s
receipts – inform your owner or manager immediately;
 the bill of lading is not presented at the discharge port by the person requesting delivery
of the cargo - notify your owner or manager or the P&I correspondent immediately.
Golden Rules to follow

 never sign wrongly dated bills;
 never sign clean bills for damaged cargo or for cargo which is not in apparent good order
and condition;
 never sign bills for cargo which has not been loaded;
 always call the P&I correspondent if you have any problem with the condition and
quantity of cargo or with the bills of lading;
 never deliver cargo to a third party without presentation of the original bill;
4
 never discharge cargo against a letter of indemnity without your owner’s or manager’s
or the Club’s agreement.
 If it is agreed to retain one original bill of lading on board against which the cargo may
be delivered, the shippers’/charterers’ instructions for procedures at the discharge port
must be strictly followed. In such a case, to protect the shipowner from a claim for mis-
delivery of the cargo, all original bills of lading should be endorsed as follows:
 “One original bill of lading retained on board against which delivery of cargo may
properly be made on instructions received from shippers/charterers.”
Always advise your owner or manager of any deviation which involves cargo
discharge.
MAIN TYPES OF BILL

 Order bill of lading
 This bill uses express words to make the bill negotiable, e.g. it states that delivery is
to be made to the further order of the consignee using words such as "delivery to A
Ltd. or to order or assigns". Consequently, it can be indorsed (legal spelling of
endorse, maintained in all statute, including Bills of Exchange Act 1909 (CTH)) by A
Ltd. or the right to take delivery can be transferred by physical delivery of the bill
accompanied by adequate evidence of A Ltd.'s intention to transfer.
 Bearer bill of lading
 This bill states that delivery shall be made to whosoever holds the bill. Such bill may
be created explicitly.
 Surrender bill of lading
 A surrender bill of lading is a document issued by exporters that allows importers to
legally own the items the exporter shipped. When importers pay for a shipment, the
exporters surrender their ownership rights to the items so they cannot claim title or
power over them; this tends to be a cleaner method of transferring ownership than
some other bill of lading documents provide. These documents are typically paired
with a documentary collection, although even if this is not used, the entity charged
with holding the bill of lading should not surrender it until the importer pays.
 Clean bill of lading:
 States that the cargo has been loaded on board the ship in apparent good order and
condition. Such a BL will not bear a clause or notation which expressively declares a
defective condition of goods and/or the packaging. Thus, a BL that reflects the fact
that the carrier received the goods in good condition. The opposite term is a soiled
bill of lading , which reflects that the goods are received by the carrier in anything
but good condition.
 A sea or air waybill:
 is a non negotiable receipt issued by the carrier. It is most common in the container
trade either where the cargo is likely to arrive before the formal documents or
5
where the shipper does not insist on separate bills for every item of cargo carried
(e.g. because this is one of a series of loads being delivered to the same consignee).
Delivery is made to the consignee who identifies himself. It is customary in
transaction s where the shipper and consignee are the same person in law making
the rigid production of documents unnecessary.
THE INDIAN CARRIAGE OF GOODS BY SEA ACT (1925)

 1. It extends to the whole of India.
 2. Application of Rules:
 Subject to the provisions of this Act, the rules set out in the Schedule (hereinafter
referred to as “the Rules”) shall have effect in relation to and in connection with the
carriage of goods by sea in ships carrying goods from any port in India to any other
port whether in or outside India.
 3. Absolute warranty of seaworthiness not to be implied in contracts to which Rules apply –
There shall not be implied in any contract for the carriage of goods by sea to which the Rules
apply any absolute undertaking by the carrier of the goods to provide a seaworthy ship.
 4. Statement as to application of rules to be included in bills of lading – Every bill of lading,
or similar document of title, issued in India which contains or is evidence of any contract to
which the Rules apply, shall contain an express statement that it is to have effect subject to
the provisions of the said Rules and applied by this Act.
 5. Modification of Article VI of Rules in relation to goods carried in sailing ships and by
prescribed routes – Article VI of the Rules shall, in relation to-
 the carriage of goods by sea in sailing ships carrying goods from any port in India to
any other port whether in or outside India, and
 the carriage of goods by sea in ships carrying goods from a port in India notified in
this behalf in the Official Gazette by the Central Government to a port of Ceylon
specified in the said notification.
 6. Modification of Rules 4 and 5 of Article III in relation to bulk cargoes – Where under the
custom of any trade the weight of any bulk cargo inserted in the bill of lading is a weight
ascertained or accepted by a third party other than the carrier or the shipper and the fact
that the weight is so ascertained or accepted is stated in the bill of lading, then,
notwithstanding anything in the Rules, the bill of lading shall not be deemed to be prima
facie evidence against the carrier of the receipt of goods of the weight so inserted in the bill
of lading, and the accuracy thereof at the time of shipment shall not be deemed to have
been guaranteed by the shipper.
 7. Saving and operation –
 (1) Nothing in this Act shall affect the operation of Section 331 and Part XA of the
Merchant Shipping Act, 1958 (44 of 1958) or the operation of any other enactment
for the time being in force limiting the liability of the owners of sea-going vessels.
 (2) The Rules shall not by virtue of this Act apply to any contract for the carriage of
goods by sea before such day, not being earlier than the first day of January 1926, as
6
the Central Government may, by notification in Official Gazette appoint nor to any
bill of lading or similar document of title issued, whether before or after such day as
aforesaid, in pursuance of any such contract as aforesaid.
CARGO SURVEYS:
 In most contracts of carriage, the shipowner’s responsibilities begin at the time of loading
and it is, therefore, important to inspect the cargo at this stage. Pre-shipment inspection of
cargo is undertaken to determine and document the condition of the cargo at this time. This
inspection is commonly referred to as the pre-loading survey. This survey can be carried out
by the ship’s Master and officers, owner’s representatives or surveyors instructed by the
owner depending on the trade and nature of the cargo.
 If the cargo is not as described in the shipping documentation, a decision will have to be
made whether to reject the cargo or accept the cargo and adequately describe any
differences on the mate’s receipts and bills of lading. Early notification of any deficiencies to
the shippers is desirable together with owner’s intentions on rejection of the cargo or
clausing the mate’s receipts and B/Ls. This notification can be given direct to the shippers
but is more commonly given to the agents, stevedores or charterers, depending on the
owner’s contractual relations.
 Masters and deck officers employed by owners who trade their ships in liner services are
usually trained to take care of pre-shipment inspections. Liner companies usually employ
cargo superintendents, who can be called upon to assist if there is a problem. They may also
have their own network of contracted surveyors who can be called upon quickly if an
unusual cargo is to be loaded. Ships employed in the main bulk trades, (oil, grain, ore, etc)
or specialized ships such as gas carriers and RoRo vessels usually have sufficient and
adequately trained Masters and officers on board to take care of any pre-shipment
inspections that are necessary. However, problems may arise if a tramp operator is
chartered to carry, for example, steel products, paper products or breakbulk cargoes but the
Master and the ship’s officers have little or no experience of these products. In many
instances, loading operations commence immediately upon the ship’s arrival and there is
little time for the ship’s personnel to inspect the cargo. The ship’s personnel may be
unfamiliar with the port and the system of loading, they may not know the agents, who
almost always will be the charterer’s agents, and they will be put under pressure by the
charterers and possibly a cargo superintendent employed by the charterer to load their ship
as quickly as possible.
NOTE OF PROTEST
 The Note of Protest is a declaration under oath by the Master of the ship. It covers
circumstances beyond master’s control which may cause/have caused loss or damage to the
ship or cargo or may have caused the Master to leave an unsafe port, which may render the
owners liable for legal action by another party.
 It is a notarized statement obtained after a ship enters port after a rough voyage. Its
purpose is to protect the ship’s charterer or owner from liability for damage to the cargo,
7
the ship or to other ships in a collision, where this was caused by the perils of the sea (for
example, bad weather).
 The Note of Protest can be better understood after reading the following:
1. This NoP has to be made before a notary public (public officer constituted by law),
magistrate (a civil officer who administers the law) or consul (diplomat) or other
authority without delay and within 24 hours of arriving at port
2. When making the NoP, the Master has the right extend the NoP to cover
unforeseeable circumstances (vis a vis the NoP)
3. If the NoP is made in relation to the cargo, the same should be made BEFORE
unloading the cargo. This is done to exclude any room for legal liability directed
towards the vessel for damaged cargo
4. If instructed by the owner, the NoP may be forwarded to all parties concerned with
copies kept with the owner and onboard
5. NoP should be noted/is applicable to each port of discharge and not just for the first
port of call seeing as maritime trade involves cargo that might involve more than one
port, i.e, same cargo discharged at different ports
The NoP is applicable when
 When the ship has experienced adverse weather conditions during the voyage which
might have resulted in damage to the cargo
 The ship is already damaged and it does not matter if further damage is caused/might be
caused
 Due to circumstances beyond the control of the Master, ventilation of the cargo was not
carried out
 The cargo which is shipped is such that it is likely to be damaged during the voyage (the
bill of lading, in this case, must be endorsed after liaising with the P&I club and the
shipper)
 The charterer(s) or the agent(s) commit a serious breach of the terms of the charter
party. This could include but not be limited to undue delays, refusal to load cargo,
discrepancies in the cargo mentioned as per charter party etc
 The consignee fails to discharge cargo, take delivery or cover freight associated with the
cargo with vis a vis the charter party and the bill of lading
 Following a General Average Act (GA is the apportionment of financial liability for the loss
arising from the jettisoning of cargo by dividing the costs among all parties)
 Allowed by the charter party (included but not limited to) – refusal to pay demurrage (a
charge payable to the owner of a chartered ship on failure to load or discharge the ship
within the time agreed), sending the vessel to unsafe port etc
Extended Protests
8
 The NoP is not an all-encompassing document but may be open to legal liability as the
extent of damage cannot always be gauged at the initial stage. For this purpose, the
Master may reserve his right to extend the protest. This extension can be availed when
data associated with the cargo is obtained and ascertained after necessary survey. It is
therefore important during noting the protest to include the clause “reserve the right to
extend the protest at a time and place convenient”
9
COURSE NOTES


Table of Contents
Contents

7 30 – 49
Practice)
1
List of Figures:
Fig. No. Title Page
List of Tables:
2
Chapter VII– SHIP OPERATIONS
SAILING SCHEDULES
 Each year, millions of vessel schedules change and make shipping more challenging for
importers and exporters. It can be difficult and very costly to manage all these vessel delays
for any party in supply chain.
 There are many factors involved in having access to updated vessel schedules, especially for
exporters. Exporters may be utilizing outdated sailing schedules thus creating inaccurate
bookings. Truckers need to be notified each time a schedule is changed. At times the
exporters are unaware of the schedule changes. The cargo can be taken to the port earlier
than it should be and have a delayed departure, which can create demurrage charges.
Alternatively, schedules can be changed for vessels to depart at an earlier time than that
originally scheduled. This can be a problem for exporters, as they may miss the critical cut
off times and cause the cargo to be delayed.
 Importers are also affected seriously by changes to vessel schedules. Importer makes all
production and sales plans according to vessel schedules. Any changes of the arrival dates
have to be known by them so they can adjust their production cycles and programs.
Importers are also responsible for scheduling truckers’ pickup and delivery appointments. If
the sailing schedule changes, trucker appointments need to immediately be adjusted.
 As freight forwarders, it is imperative that we receive updated vessel schedules in order to
best serve and update our customers. It is important for our customers to be able to have
confidence in our efficiency and reliability. Being on schedule, avoiding and reporting delays
ultimately cuts costs and increases reliability in the shipping industry.
 Effects on changes in schedule in..

 The Export Perspective:
 Inaccurate bookings: If you are not accessing the latest sailing schedules, you could
be making bookings and plans based on outdated departure and arrival dates.
 Demurrage charges: Each time a schedule is changed, you may need to notify your
trucker of the new pickup and delivery times at the port. If you are not aware of the
schedule changes, your cargo may incur demurrage charges for having the container
wait at the port too long before vessel departure.
 Missed container cut-off times: If schedules are changed to depart earlier than
originally planned, you may miss carriers’ critical cut-off times. Your cargo may not
be loaded on the vessel if the deadlines are not met. Conversely, if you find out that
3
schedules are delayed, you could have more time to prepare your containers.
 Reduced schedule reliability: When a schedule changes from its original plan, the
route’s schedule reliability decreases. Unreliable routes make it harder to minimize
risk and downstream costs in the supply chain. A lack of visibility to schedule
performance makes it more challenging to determine the schedules that are the best
fit for your transportation needs.
 The Import Perspective:

 Mistimed trucker appointments: Each time a schedule is changed, you may need to
notify your trucker of the new pickup and delivery times at the port. The sailing
schedule changes may require you to adjust the timing of trucker appointments. If
you are not aware of the schedule changes, you may incur extra costs from your
truckers for empty runs.
 Discovering changes after arrival: Often, shippers discover that a shipment has been
delayed after they receive the arrival notice or a customer calls asking for the status
of a shipment. A lack of visibility to schedule changes and finding out about delays
too late to implement contingency plans can result in late deliveries, missed sale
dates, or factory shutdowns.
UNBALANCE IN SEA TRADE

Trade surplus - favorable balance of trade --- is an excess of exports over imports.
Trade deficit - unfavorable balance of trade --- is an excess of imports over exports.
In layperson's parlance, the trade surplus means earn more and spend less, while the trade deficit
means spend more and earn less.
The trade surplus and deficit is analogous to one person's fortune is another person's misfortune.
The danger is imminent in either situation. A country with a record trade surplus is often
threatened with sanctions and trade barriers from a deficit-ridden importing country. A country
with a record trade deficit is usually faced with the internal social upheaval.
The imposition of trade barriers, such as import quotas and higher duties, is not a solution to
meeting the international challenge. The trade barrier will be confronted with a trade retaliation. A
trade retaliation will be faced with a counter-retaliation. The conflict will not end if an agreement is
not reached. The remedy to beat the trade imbalance is to understand foreign cultures and
business practices, and to provide competitive products and services.
It is a good practice to diversify export markets. Concentrating exports to only a few markets poses
imminent danger to an exporting country. Too much export concentration in a market usually
invites protectionist trade laws from the importing country. In case the importing country imposes
sanctions, the effect to the economy of the exporting country and the livelihood of its people can
4
be devastating.
an economy is balanced if its consumption and investment are the same size as its production. In
other words if its savings are the same size as its investments. We also saw how an economy could
become unbalanced if its savings were not completely spent on investment, in which case not all
the products made by that country could be sold because there would be insufficient demand.
There are a number of ways that an economy can adjust under such circumstances to re-establish
balance and if, like most economies on earth, a country has external trading relationships, one way
is to export the goods that domestic demand cannot buy. By exporting the economy can continue
to operate at full capacity and the economic contraction that would otherwise occur as result of
excessive savings can be avoided because now the payment for some of the goods are coming from
abroad. Rebalancing an economy through exports to overcome the lack of demand caused by too
much saving requires that a country run a trade surplus, that it exports more than it imports.
Before looking at how an imbalance caused by too much savings can be corrected by trade it is
worth briefly looking at how balanced trade works. When a country’s trade is in balance its exports
are the same as its imports so the export/import trade has no impact on the overall balance of the
economy.
To see how an unbalanced trade system works lets imagine just two countries, one is running a
trade surplus and the other a matching trade deficit. The country with the trade surplus is exporting
goods it could not sell domestically because of lack of demand. The country importing the goods
now finds some of its investment or consumption goods are being supplied by imports so the
demand for goods from its domestic economy will shrink and so the domestic economy will shrink.
Unemployment will go up. The two economies combined are balanced in the sense that combined
their consumption plus investment balances with total production, but the balance is different for
each individual country. The surplus country has solved it under consumption problem by importing
some demand from the deficit country, while the deficit country has seen its economy shrink and
so it has also imported unemployment.
5
This unequal balance of trade does not seem very stable. The exporting country is still saving too
much, its savings are piling up in its financial institutions and because all its investment costs have
already been met there are no domestic ways left to invest those accumulating savings. At the
same time the importing deficit country has seen its economy shrink, because imports have
replaced demand for domestic goods, and so its economy no longer generates enough income to
pay for those imports.
So in theory the imbalance of trade, one country running a surplus and the other running a deficit,
should self correct very quickly. However in the real world this does not happen and surpluses and
deficits can last for a very long time and grow to be very large. This is because the obvious solution
to the problem of the instability of uneven trade, of surpluses and too much savings in one country,
and deficits and too little demand in the other economy, is for the surplus country to send some of
its excess saving to the deficit country to increase its domestic demand. This movement of funds
across borders is called capital flows. And capital flows are at the root of the current global
economic crises.
There are many ways the excess savings of the surplus country finds its way to the deficit country
and they all involve using the immensely complex system of global financial institutions. These
financial institutions have increased dramatically in size, overall weight in the economy, complexity
and global reach in the last two to three decades.
Surplus countries can transfer excess savings by its businesses making direct investments in deficit
countries, either through the purchase of local companies or through actual capital investment in
things such as new factories, transport facilities or communication systems. This sort of capital flow
is positive as it improves the recipient country’s economy and is not very volatile because the
capital cannot be withdrawn easily or quickly.
6
VOYAGE ESTIMATION
The best way to understand this subject is through an example.
The example here deals with a voyage estimate for iron ore business from Port Hedland in Australia
to Lianyungang in China. Full forms of most of the abbreviations were given in earlier articles.
However, in order to make it easier and for quick reference, you will find the full forms given at the
end.
Example:
A ship owner has received the following indication from charterer directly:
Acct: FCC
52,000MT IRON ORE IN BULK 10PCT MOLOO
1SBP PORT HEDLAND, AUSTRALIA / 1SBPLIANYUNGANG
LAYCAN : 15 -22 SEP’01
FRT (Freight in US $/tonne) INVITE OWNERS BEST BSS
(Basis)
FIOST, 1/1 (1 Port for loading and 1 port for discharging)
LOADING RATE: 40,000MT PWWD SHINC
DISCHARGING RATE: CQD (Take as 4 days)
NO ADDCOMM/(No address commission for Charterers)/NOBROKERAGE
END
Some relevant information:

- Vessel free Hong Kong (it means that the vessel will need to ballast from Hong Kong to the load
port, assuming no cargo available).
- Vessel can load 54,000 mt iron ore maximum
- Vessel ETA loadport 17 SEP’ 01
- Speed : 13 knots
- Bunker consumption: F.O. 35mt per day
- D.O. at sea 2mt per day
- D.O. in port 4mt per day
- Price of F.O. $ 110.-
- Price of D.O. $ 155.-
- Port Disbursements
7
- At Port Hedland $30,000.-
- At Lianyungang $30,000.-
(Port Disbursement means: Expenses at port for various headssuch as port charges, tugs, pilotage
etc. ).
- Other expense assume $ 3,000.-
- Charterer in”Vessel daily hire $ 6,000.-
- Discharging take about 4 days
- Distance: HongKong/Port Hedland2,710 nautical mile
- Port Hedland/Lianyungang 3,257 nautical mile
a) Prepare a voyage estimate and give the break-even freight rate.

b) Draft a firm offer in short form to reply the above indication from Charterer.
Your reply should include all the followings:

- the normal main terms
- assume a vessel name and some particulars (need not put figures except DWT, Yr built, Flag, Class,
Cubics, GRT/NRT)
- freight rate and payment
- Loading and discharging rate
- Taxes and charter party form, etc.
ANSWER a):
SAILING DAYS REQUIRED:
A) HONG KONG/PORT HEDLAND = 2710/312 (13
KNOTS*24 HRS) = 8.69 DAYS
BALLAST PASSAGE
B) PORT HEDLAND/LIANYUNGANG = 3257/312 (13

KNOTS*24 HRS)= 10.44 DAYS
LADEN PASSAGE
For simplicity:
(1) Same speed/fuel consumption taken forloaded and ballast legs, in practice, it is better to
describe themseparately e.g. Ballast 13.5 Kn at 34 mt and Loaded 12.5 at 34mt.
8
(2) No weather factor taken. Generally may add about 3 daysor 5% to the total number of sailing
days, as reasonable to do sodepending upon the length of the business and expected weatherat the
time of year).
PORT STAY:
C) LOADPORT I.E. PORT HEDLAND 54,000 MTS CARGO/40,000 MTS LOAD RATE = 1.35 DAYS
D) DISPORT (Discharge Port) I.E. LIANYUNGANG = 4DAYS (GIVEN IN QUESTION)
TOTAL DURATION (A+B+C+D) = 24.48 DAYS, say 24.5 days.
BUNKER/FUEL COST:
WHILE SAILING:
E) FUEL OIL = 19.13 DAYS (A+B) * 35 MTS/DAY
CONSUMPTION * USD 110/PMT = USD 73,650
F) DIESEL OIL = 19.13 DAYS * 2 MTS/DAY * USD 155/MT = USD 5,930
IN PORT CONSUMPTION:
G) DIESEL OIL = 5.35 DAYS (C+D) * 4 MTS/DAY * USD155/MT = USD 3,317
TOTAL BUNKER COST (E+F+G) = USD 82,877
TOTAL VOYAGE COST:

BUNKER COST = USD 82,877
PORT DISB = USD 60,000
CHARTERED IN VESSEL COST = USD146,850
OTHER EXPS = USD 3,000
TOTAL = USD 292,727

BREAK EVEN FREIGHT RATE REQUIRED TO PERFORMTHIS VOYAGE:
USD 292,727/54,000 MTSCARGO = USD5.42 PMT
ROUNDED OFF TO USD 5.40 PMT
Points to ponder:
1. Suppose the vessel had an engine breakdown and the repairstook 4 days at sea. (Hint: No main
9
engine consumption for these4 days but generators will be running).
2. Suppose vessel faced bad weather and took 3 days extra.Assume same Main Engine consumption
for these 3 days butthe speed had dropped due to adverse current/swell and wind.
NOTES:
A Twist
Important: Note the difference between the breakeven rate andthe rate offered.
Estimated Revenue from the Business = 54,000 x 8 =US$ 432,000.
Total Expenses = US$ 292,727.
Net estimated profit:=US$ 139,273 i.e. 5,689/day.
Please note the example given above takes into account theprevailing rate in a very poor market of
end 2001.
Today, the same Panamax, as considered above, earns close to 3times i.e. the hire of the Chartered
“in” vessel is US$18,000/day and the Cost of bunkers is F.O. = US$ 300/ton; D.O. = US$ 490/ton.
How about reworking the figures to get an idea of the cost of transporting one ton of iron ore and
comparing with that obtained above?
ABBREVIATIONS
FCC: First Class Charterer;
MOLOO: More or Less in Owners’ Option;
SBP: Safe Berth, Port;
FIOST: (Free In/Out and Trimmed. Charterer pays for cost ofloading/discharging cargo, including
stowage and trimming);
AGW UCAE WP: All Going Well, Unforeseen CircumstancesAlways Excepted, Weather Permitting;
PWWD: Per Weather Working Day;
SHINC; Sundays and Holidays Included;
CQD: Customary Quick Despatch (Here the owner or despondent owner must find out from agents
as to what is customary in thatport for similar size vessels to discharge and what is the line
upsituation, holidays etc – to make the question easier, use 4 days in this case it is important to
note that here the risk lies with theOwner/despondent owner because if the ship gets delayed, the
losswill be on their account);
DHD: Despatch Half Demurrage.
ADDCOMM: Address Commission.
MANNING OF SHIPS
Ships cannot run on fuel, fresh air and sophisticated equipment only. These have to be operated by
10
sufficient number of adequately trained, qualified, and experienced seafarers so that the ships can
cross the oceans safely, and the cargo placed in their care is delivered to its destination, in as good
a condition as it was received.
Functions to be performed by ship's compliments/staff:

In order to achieve this objective, International Maritime Organization (IMO) has created the
Convention on Standards of Training, Certifications and Watchkeeping for seafarers (STCW) which
prescribes that the ship shall be manned by qualified seafarers to carry out the following functions
to the best of their ability;
1. Navigation means taking the ship from one place to the other well clear of all dangers
2. Cargo handling and stowage means looking after the cargo from the time it is loaded in the ship
till it is finally unloaded at the destination.
3. Controlling the operation of the ship and care for person on board means ensuring that the ship
is operated in a safe manner throughout the voyage. Without causing any damage to the
environment and the seafarers on board remain safe and healthy at all times.
4. Marine engineering means maintaining and operating the ship's machinery, whether on deck of
in engine room, in efficient manner.
5. Electrical, electronics and control engineering means operating the ship's electronic and
electrical equipment, including control systems, in an efficient manner.
6. Maintenance and repair means looking after the ship's structure, fittings, equipment and
machinery so that the ship as a whole will perform without any hitch.
7. Radio communication means ensuring that continuous communication is available betwen the
ship and with the shore organizations for safety of the ship, life and environment.
Navigating officers are trained, qualified and certificated to be competent to perform functions 1, 2,
3 and 7, while the engineering officers shall be competent to perform the functions 3, 4, 5 and 6.
Few ratings are trained and nominated to support the officers in performing the above funcions.
Minimum Safe Manning Document:

In order to ensure that every ship is manned by adequate number of seafarers who are competent
and capable of carrying out the above functions, IMO has prescribed in Regulation 14 of Chapter V
of the SOLAS as follows:
 Each state shall adopt measures to ensure that, from the point of view of safety of life at sea
all its ships are sufficiently and efficiently manned.
 All ships engaged on international voyages shall carry a safe manning document issued by
the Flag State (The state where the ship is registered)
Principles of Safe Manning:

In order to help the states to issue proper safe manning document to their ships, IMO has
prescribed principles for deciding the precise minimum safe manning of different ships, by its
11
resolution No. A.890 (21) which was subsequently amended by another resolution No. A.955 (23).
These principles are follows:
Maintain safe navigational, engineering and radio watches: This means that certain number of
qualified seafarers should be on duty on the deck, on the bridge and in the engine room, round the
clock whether the ship is at sea or in port. The qualification of these seafarers have been prescribed
in another convention of IMO, namely STCW.
Maintain general surveillance of the ship: This means that some persons have to be nominated to
take regular rounds of the ship throughout the voyage, and thus ensure that no untoward incident
is likely to take place which may harm the ship, cargo or persons.
Safely moor and unmoor the ship: This means that some persons have to be nominated to take
regular rounds of the voyage, and thus ensure that no untoward incident is likely to take place
which may harm the ship, cargo or persons.
Manage safety functions of the ship when employed in stationary or near-stationary mode at sea:
Safety of the ship and life at sea is of paramount importance and this function applies to practically
every seafarer on board.
Perform operations to prevent damage to the marine environment: Everyone nowadays is highly
conscious of protecting the marine environment. Hence responsible seafarers on board should
operate the ship in environment friendly manners.
Maintain safety arrangements and cleanliness of all spaces to minimize the risk of fire: Prevention is
better than cure. Hence responsible seafarers ob board have to take steps to minimize or eliminate
the chances of occurrence of fire. Also they should maintain necessary equipment to extinguish the
fire should it occur.
Provide medical care on board ship: Ships do not carry a qualified doctor because there are very
few persons on board. Hence it becomes necessary that certain seafarers are adequatly trained to
tackle medical emergencies till appropriate help is available from shore.
Ensure safety of cargo during transit: Cargo has a high commercial value and importance for the
ship owner because that is what brings in his revenue. Hence a ship should have adquately trained
and qualified seafarers to take care of the cargo till when it is finally unloaded.
Inspect and maintain structural integrity of the ship: If a ship has to perform voyages across the
seas throughout its life time, in all kinds of weather conditions, then it is essential that seafarers on
board should be able to periodically inspect and maintain its strength, and thus protect their own
safety.
Operate in accordance with the ship's security plan: Ensuring security of the ship and thus
protecting the lives of seafarers on board has become and essential duty and requirement in
today's world. For this purpose some seafarers have to be trained and delegated this responsibility,
particularly when the ship is in port.
Operate and maintain all watertight closing arrangement: Every ship has number of compartments
for various purposes which are opened for carrying out various functions. However once the ship is
at sea these are normally closed watertight so that sea water can never enter the ship. This has to
be ensured by trained seafarers.
Deploy competent damage control party: Should a ship meet with an accident causing structural
damage then appropriate steps will have to be taken by trained seafarers on board to control and
12
mitigate the damage.
Operate and maintain all fire fighting and life saving appliances: If a fire ever occurs at sea, the
appropriate equipment will have to be operated to extinguish it. Similarly in the unlikely even of the
ship sinking at sea the appropriate equipment will have to be operated to abandon the ship in life
boats and life rafts. To ensure that these equipment function properly during emergency, these
have to be maintained and periodically tested. For carrying out all these functions adequate
number of trained seafarers has to be available on board the ship.
Muster and disembark all persons on board: In emergency for abandoning ship as stated in the
previous paragraph, it has to be ensured that all the ship's crew are properly mustered or
assembled and they disembark in a disciplined and controlled manner, So that every seafarer
escapes safely. For this purpose adequate number of trained seafarers has to be available on board
the ship.
Operate and Maintain main and auxiliary machinery: Every ship is provided with considerable
amount of machinery for propulsion, power generation, refrigeration, air-conditioning, heating
systems, cargo operation, anti pollution equipment, etc. For operating and maintaining all these
necessary machinery adequate number of trained seafarers has to be available on board the ship.
In keeping with the above regulations and principles, all flag states have issued safe manning
document to their ships. This document is one of the many certificates which every ship should
carry before it can be permitted to go out to sea. Directorate General of Shipping (DGS) of
government of India has also done same vide their order dated 26-11-2009 for deck department
and order dated 17-09-2002 for engine department.
Minimum Safe Manning of Indian Ships by Navigating Officers and Ratings:
Safe manning has been prescribed on the bases of the following criteria:
 Types of ships: Passenger ship, Roll-on-Roll off passenger ship, special trade passenger ship,
oil, chemical and gas tanker, other cargo ships, special purpose ship.
 Gross Tonnage (GRT) of the ship
 Area of operation - International voyage, Near coastal voyage (NCV), coastal trade of India,
Maximum distance from land, Smooth or partially smooth waters.
Few typical example of manning of certain ships are as follows:
Type of Gross Area of Category Certificate Number
ship Ton operation
Special Any International Master Master (FG) 1
trade
C/O Chief Mate (FG) 1
passenger
ship Watchkeeping officers Second Mate (FG) 2
GMDSS Operator GMDSS COP 1*
Watchkeeping ratings W/K COP 3
Other ratings Nil 3**
Cook Certified 1
13
Special Any Other than Master Master NCV 1
trade international C/O Chief Mate NCV 1
passenger
ship Watchkeeping officers Second Mate NCV 1
Cook Certified 1
Cargo ship > International Master Master (FG) 1
including 3000
C/O Chief Mate (FG) 1
tanker
Watchkeeping officers Second Mate (FG) 2
Cook Certified 1
Cargo ship >500 Indian Coast Master Master NCV 1
C/O Chief Mate NCV 1
Watchkeeping officers Second Mate NCV 1
Cook Certified 1
Oil, <3000 Near Coastal Master Master NCV 1
Chemical Voyage
C/O Chief Mate NCV 1
or Gas
tanker Watchkeeping officers Second Mate NCV 1
Cook Certified 1
* - Anyone of the above officers may hold GMDSS COP and designated as GMDSS operator
**- One or more may hold Able Seafarers COP as per 2010 amendments to STCW Convention
FG - Foreign Going
NCV - Near Coastal Voyage
GMDSS - Global Maritime Distress and Safety System
14
COP - Certificate of Proficiency
Minimum safe manning of Indian ships by engineering officers and ratings

Manning has been prescribed on the basis of the following criteria:
Type of Ship - Tanker, Other cargo ships, Special purpose ship
Kilowatt power of propulsion machinery
Status of engine room - Whether manned or unmanned Machinery Space (UMS)
Area of Operation - International voyage, Near Coastal trade of India, Smooth or Partially smooth
waters.
Few Examples of manning of certain ships are as follows

Kilowatt Area of Category Certificate Numbers
operation Manned UMS
>3000 International Chief Engineer Class I 1 1
Second Engineer Class II 1 1
W/K engineers Class IV 2 1
Watchkeeping Rating W/K COP 3 2
Other Rating Nil Nil Nil
350 to International Chief Engineer Class I 1 1
3000 Second Engineer Class II 1 1
W/K engineers Class IV 1 Nil
Other Rating Nil 2 Nil
>6000 NCV Chief Engineer Class I 1 1
W/K engineers Class IV 2 1
Other Rating Nil 2 Nil
>6000 Indian Coast Chief Engineer Class I 1 1
W/K engineers Class IV 1*** 1***
Other Rating Nil 1 1
15
* - For ships other than tankers, the second engineer may hold class IV COS with one year
experience
** - For ships with machinery of power 3000 to 6000 KW, the chief engineer may hold class II COS,
with two years experience
*** - For ships with machinery of power 3000 to 6000 KW, Having voyage duration of <= 24hours,
Watchkeeping engineer is not required
ENGAGEMENT AND DISCHARGE OF CREW:

• ARTICLES OF AGREEMENT
 Master of a ship, other than Home Trade (HT) ship of GT < 200 tons, shall enter into
an agreement with every seaman.
 It shall be signed by the owner or agent and the Master, before a seaman signs it
 At the commencement of a voyage, Master shall post a copy of the agreement and a
certified translation of the same, in the language of the majority of the crew, at a
readily accessible place on the ship.
 Any erasure, interlineations or alteration of the agreement shall be inoperative
unless it is made with the consent of the interested parties and the same is attested
by the SM, customs collector or Indian Consular Officer (CO).
• CONTENTS OF ARTICLES OF AGREEMENT

– Name of the ship.
– Either nature and duration of the voyage or engagement, or the maximum period of
the voyage or engagement, and the places of the world to which the voyage will not
extend.
– Number and description of crew of different categories in each department.
– Time to board the ship or to start work.
– Capacity of each seaman.
– Wages of each seaman.
– Scale of provisions to be furnished to each seaman as fixed by the Central
government.
– Scale of warm clothing and additional provisions to be furnished to each seaman
during periods of employment in specified cold regions.
– Regulations regarding conduct of seaman and fines or other punishments for
misconduct as sanctioned by the Central government.
– Payment of compensation for injury or death caused by an accident arising out of
and in the course of employment.
– A stipulation that, if service of seaman ends at a foreign port then he shall be
provided either a fit employment on some other ship bound for an agreed Indian
16
port or a free passage to India.
– A stipulation that, in the event of a dispute arising out of India, on matters of the
agreement, the same shall be referred to the CO and his decision shall be binding on
all parties until the ship returns to the Indian discharge port.
– Facilities for seaman to remit wages to a bank or near relative subject to certain
conditions.
– Payment of advance ≤ 1 month’s wages.
– Allotment of ≤ ¾th of his wages to his family member, relative or any purpose
approved by Central government
– Any other stipulations as may be prescribed.
• ENGAGEMENT ON AND DISCHARGE FROM INDIAN SHIP

– All the terms and conditions of engagement and discharge of seaman are compiled
in a separate document called the Collective Bargaining Agreement (CBA) which is
specific to the shipping company. A copy of CBA shall be available with SM, Seaman’s
union, shipping company and the Master.
– The new Articles of Agreement is a single sheet of paper which is prepared
separately for each seaman. It contains the following information :
– A statement that all the terms and conditions of service of the seaman shall be
governed by the relevant CBA applicable for the shipping company and the ship.
– Full particulars of the employer/shipping company.
– Full particulars of the agent of the employer/company.
– Full particulars of the ship.
– Rank of the seaman, his wages, allotment, provident fund and gratuity.
– Amount of allotment.
– Complete data about the seaman, including the certificate of competency and
endorsements held by him.
– Particulars of next-of-kin of the seaman.
• PROCEDURE:
– 5 original copies of the above new articles of agreement shall be prepared, and shall
be signed by employer/employer’s agent and the seaman, in the employer’s office
(Signed-on ashore).
– The 4th original copy shall be retained by the employer/employer’s agent for their
record.
– The 5th original copy shall be sent by employer/employer’s agent, within 48 hours of
engagement, to SM nearest to the place of engagement or nearest to its head office,
along with the prescribed fees.
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– Seaman shall carry the first 3 original copies to the ship and these shall be signed by
the Master and again by the seaman (Signed-on ship).
– On completion of engagement, all the first 3 original copies shall be signed by the
Master and the seaman (Signed-off ship).
– 1st original copy shall be retained by the Master for his record.
– Seaman shall carry the 2nd and 3rd original copies ashore and these shall be signed
by the employer/employer’s agent and again by the seaman, in employer’s office
(Signed-off ashore).
– The 2nd original copy shall be retained by the seaman for his record.
– The 3rd original copy shall be sent to the same SM to whom the 5th original copy
was sent by the employer/employer’s agent at the time of signing-on ashore.
– Photocopies of the 3rd original copy shall be sent to the following organisations :
– Seamen’s Provident Fund.
– Seafarers’ Welfare Fund society.
– One photocopy shall be retained by the employer/employer’s agent.
– Master shall keep on board the following documents :
– Copy of the applicable CBA.
– Provisions of the ILO conventions ratified by India.
– Merchant Shipping Act 1958.
– Rules/notices/circulars/orders issued by the Central government.
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• ENGAGEMENT ON FOREIGN SHIP
– Master of a foreign ship, having an agreement with his crew in accordance with the
law of the Flag State, may engage in India an Indian or foreign seaman holding a CDC.
In such a case the Indian seaman may sign the foreign agreement in lieu of the
Indian agreement.
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– Except as stated above, Master shall engage Indian seaman in India in accordance
with this Act as applicable to Indian Foreign Going (FG) ships.
– Master or the ship’s agent in India shall give to the SM a bond with security of some
approved person in India, for an amount fixed by the Central government, in respect
of each seaman engaged.
• ECONOMIC FACTORS:
– Change of crew exchange involves travelling to different places and has several costs
to the company as follows:
– Documentation cost: This is a fixed cost as a salary to the person executing the task.
– Travel tickets and Visa fees: It is the major cost element in crew exchange (sign On
sign OFF) depending upon the port of discharge and destination/home port and of
course it is for per person travelling from/to ship.
– Agency fees: This is the service charges being paid to the agency to help ship staff co-
ordinate with local authorities and local travel expenses etc. This is something which
now a day companies have started to control by exchanging crew in a group.
– Hotel Stay: Sometimes because of availability of flight to the destination, crew might
have to stay in hotel and that adds extra cost, though same is mostly avoided by the
companies to sign of crew at the last moment from ship and directly take them to
the airport.
Dock Labour Board and Seaman's Welfare:In 1947, Parliament introduced the "Dock Workers’
(Regulation of Employment) Scheme". The scheme was administered by the National Dock Labour
Board, and by local boards, made up of equal numbers of "persons representing dock workers in
the port and of persons representing the employers of such dockworkers", the Scheme was
financed by a levy on the employers. Each local board was responsible for keeping a register of
employers and workers, paying wages and attendance money, controlling the hiring of labour, and
responsibility for discipline.
Scheme for ensuring regular employment/welfare of workers: -
1. Provision may be made by a scheme for the registration or dock workers and employers
with a view to ensuring greater regularity of employment and for regulating the
employment of dock workers whether registered or not in a Port.
2. In particular, a scheme may provided

 for the application of the scheme to such classes of dock workers and employers as
may be specified therein;
 for defining the obligations of dock workers and employers-subject to the fulfilment
of which the scheme may apply to them and the, circumstances in which the scheme
shall cease to apply to any dock workers or employers;
 for regulating the recruitment and entry into the scheme of dock workers, and the
20
registration of dock workers and employers, including the maintenance of registers,
the removal either temporarily or permanently, of names from the registers and the
imposition of fees for registration;
 for regulating the employment of dock workers, whether registered or not, and the
terms and conditions of such employment, including rates of remuneration, hours or
work and conditions as to holidays and pay in respect thereof;
 for securing that, in respect of periods during which employment, or full
employment' is not available for dock workers to whom the scheme applies and who
are available for work, such workers will, subject to the conditions of the scheme,
receive a minimum pay;
 for prohibiting, restricting or otherwise controlling the employment of dock workers
to whom the scheme does not apply and the employment of dock workers by
employers to whom the scheme does not apply; ft) for creating such fund or funds as
may be necessary or expedient for the purposes of the scheme and for the
administration of such fund or funds;
3. A scheme may further provide that a contravention of any provision thereof shall be
punishable with imprisonment for such term as may be specified but in no case exceeding
three months in respect of a first contravention or six months in respect of any subsequent
contravention, or with fine which may extend to such amount as may be specified but in no
case exceeding five hundred rupees in respect of a first contravention or one thousand
rupees in respect of any subsequent contravention, or with both imprisonment and fine as
aforesaid.
21
COURSE NOTES


Table of Contents
Contents

7 30 – 49
Practice)
1
List of Figures:
Fig. No. Title Page
List of Tables:
2
Chapter IX– Merchant Shipping Act
What is MSA?
An Act to foster the development and ensure the efficient maintenance of an Indian mercantile
marine in a manner best suited to serve the national interests and for that purpose to established a
National Shipping Board and a Shipping Development Fund, to provide for the registration of Indian
ships and generally to amend and consolidate the law relating to merchant shipping.
Application of Act:
1. Unless otherwise expressly provided, the provisions of this act which apply to:
a. Any vessel which is registered in India; or
b. Any vessel which is required by this act to be so registered; or
c. Any other vessel which is owned wholly by persons to each of whom any of the
descriptions specified in clause (a) or in clause (b) or in clause (c), as the case may be,
of section 21 applies, shall so apply wherever the vessel may be.
2. Unless otherwise expressly provided , the provisions of this act which apply to vessels other
than those referred to in sub-section (1) shall so apply only while any such vessel is within
India, including the territorial waters thereof.
Indian Ships– For the purposes of this Act, a ship shall not be deemed to be an Indian ship unless
owned wholly by persons to each of whom 3[any] of the following descriptions applies:--
(a) a citizen of India; or
(b) a company or a body established by or under any Central or State Act which has its principal
place of business in India; or
(c) a cooperative society which is registered or deemed to be registered under the Cooperative
Societies Act, 1912 (2 of 1912), or any other law relating to cooperative societies for the time being
in force in any State.
Obligation to register–
(1) Every Indian Ship, unless it is a ship which does not exceed fifteen tons net and is employed
solely in navigation on the coasts of India, shall be registered under this Act.
(2) No ship required by sub-section (1) to be registered shall be recognized as an Indian ship unless
she has been registered under this Act.
Provided that any ship registered at the commencement of this Act at any port in India under any
enactment repealed by this Act, shall be deemed to have been registered under this Act and shall
be recognized as an Indian ship.
(3) A ship required by this Act to be registered may be detained until the master of ship, if so
required, produces a certificate of registry in respect of the ship.
Explanation– For the purposes of this section “ship” does not include a fishing vessel.
3
Procedure for registration
23. Ports of registry –
(1) The ports at which registration of ships shall be made shall be the ports of Bombay, Calcutta and
Madras and such other ports in India as the Central Government may, by notification in the Official
Gazette, declared to be ports of registry under this Act.
(2) The port at which an Indian ship is registered for the time being under this Act, shall be deemed
to be her port of registry and the port to which she belongs.
24. Registrar of Indian ships---- At each of the ports of Bombay, Calcutta and Madras, the Principal
Officer of the Mercantile Marine Department, and at any other port such authority as the Central
Government may, by notification in the Official Gazette, appoint, shall be the registrar of Indian
ships at that port.
25. Register book– Every registrar shall keep a book to be called the register book and entries in
that book shall be made in accordance with the following provisions:--
(a) the property in a ship shall be divided into ten shares:
(b) subject to the provisions of this Act with respect to joint owners or owners by transmission, not
more than ten individuals shall be entitled to be registered at the same time as owners of any one
ship; but this rule shall not affect the beneficial interest of any number of persons represented by
or claiming under or through any registered owner or joint owner;
(c) a person shall not be entitled to be registered as owner of a fractional part of a share in a ship;
but any number of persons not exceeding five may be registered as joint owners of a ship or of any
share or shares therein;
(d) Joint owners shall be considered as constituting one person and shall not be entitled to dispose
in severalty of any interest in a ship or any share therein respect of which they are registered.
(e) a company 1[or a co-operative society] may be registered as owner by its name.
26. Application for registry– An application for the registry of an Indian ship shall be made–
(a) in the case of an individual, by the person requiring to be registered as owner or by his agent;
(b) in the case of more than one individual requiring to be so registered, by some one or more of
the persons so requiring or by his or their agent; and
(c) in the case of a company [or a co-operative society] requiring to be so registered, by its agent;
and the authority of the agent shall be testified by writing, if appointed by an individual under the
hand of the person appointing him and, if appointed by a company 2[or a co-operative society],
under its common seal.
27. Survey and measurement of ships before registry–

(1) The owner of every Indian ship in respect of which an application for registry is made shall cause
such ship to be surveyed by a surveyor and the tonnage of the ship ascertained in the prescribed
4
manner.
(2) The surveyor shall grant a certificate specifying the ship’s tonnage and build and such other
particulars descriptive of the identity of the ship as may be prescribed and the certificate of the
surveyor shall be delivered to the registrar before registry.
28. Marking of ship-

(1) The owner of an Indian ship who applies for registry under this Act shall, before registry, cause
her to be marked permanently and conspicuously in the prescribed manner and to the satisfaction
of the registrar and any ship not so marked may be detained by the registrar.
(2) Subject to any other provision contained in this Act and to that provisions of any rules made
there under, the owner and the master of an Indian ship shall take all reasonable steps to ensure
that the ship remains marked as required by this section, and the said owner or master shall not
cause or permit any alterations of such marks to be made except in the event of any of the
particulars thereby denoted being altered in the manner provided in this Act or except to evade
capture by the enemy or by a foreign ship of war in the exercise of some belligerent right.
29. Declaration of ownership on registry– A person shall not be registered as the owner of an
Indian ship or of a share therein until he or, in the case of a company 1[or a co-operative society],
the person authorised by this Act to make declarations on its behalf has made and signed a
declaration of ownership in the prescribed form referring to the ship as described in the certificate
of the surveyor and containing the following particulars:--
(a) a statement whether he is or is not a citizen of India; [or in the case of a company or a co-
operative society, whether the company or the co-operative society satisfies the requirements
specified in clause(b) or, as the case may be, clause (c) of section 21];
(b) a statement of the time when and the place where the ship was built or if the ship is built
outside India and the time and place of building is not known, a statement to that effect; and in
addition, in the case of a ship previously registered outside India a statement of the name by which
she was so registered;
(c) the name of her master;
(d) the number of shares in the ship in respect of which he or the company [or the co-operative
society], as the case may be; claims to be registered as owner; and
(e) a declaration that the particulars stated are true to the best of his knowledge and belief.
30. Evidence on first registry--- On the first registry of an Indian ship, the following evidence shall
be produced in addition to the declaration of ownership:--
(a) in the case of a ship built in India, a builder’s certificate, that is to say, a certificate signed by the
builder of the ship and containing a true account of the proper denomination and the tonnage of
the ship as estimated by him and the time when and the place where she was built, and the name
of the person, if any, on whose account the ship was built; and if there has been any sale, the
instrument of sale under which the ship or the share therein has become vested in the applicant for
registry;
5
(b) in the case of a ship built outside India, the same evidence as in the case of a ship built in India
unless the declarant who makes the declaration of ownership declares that the time and place of
her building are not known to him, or that the builder’s certificate cannot be procured, in which
case there shall be required only the instrument of sale under which the ship or a share therein has
become vested in the applicant for registry.
31. Entry of particulars in register book– As soon as the requirements of this Act preliminary to
registry have been complied with, the registrar shall enter in the register book the following
particulars in respect of the ship:--
(a) the name of the ship and the name of the port to which she belongs;
(b) the details contained in the surveyor’s certificate;
(c) the particulars respecting her origin stated in the declaration of ownership; and
(d) the name and description of her registered owner or owner’s, and if there are more owners
than one, the number of shares owned by each of them.
32. Documents to be retained by registrar--- On the registry of the ship, the registrar shall retain in
his custody the following documents---
(a) the surveyor's certificate
(b) the builder's certificate
(c) any instrument of sale by which the ship was previously sold ;
(d) all declaration of ownership.
PORT PROCEDURES:
Before Entering a Port
The master of the ship will inform well in advance the “time of arrival” of the ship to the chief
officer and the chief engineer. If needed, a meeting would be arranged with the senior officers or
the officers in charge to discuss all matters necessary for ship’s arrival at the port.
Once this is done, the officer-in-charge would check the conditions of all the items mentioned in
the “checklist for entering ports”. The results of the checking procedure would be mentioned in the
deck log book.
All officers including deck cadets and crew members are assigned duties during berthing of the ship.
According to the orders of the master, all those involved with the berthing procedure would be
assigned a “position” to carry out the duties and to guide the ship operations.
Deck Department
6
A general plan involving stations for entering the port would involve
 Master taking the control of the vessel at the bridge, accompanied by the third officer
 Chief Officer at the ship’s bow to command and guide the forward station
 The second officer at the aft to command the aft station.
 Deck crew members will be asked by the second or chief officer to assist in the berthing
procedure
 Additional deck crew members can be asked to carry out the job of a lookout by the master
whenever necessary
 The Bosun would generally assist the chief officer
Engine Department
A general plan for engine room department for entering port would involve
 Chief engineer taking the control of the engine room

 Second engineer can also be asked to be in the engine room and command subordinates for
operating machinery systems
 Third and fourth engineer can be asked to be stationed at particular places in the engine
room according to the orders of chief or second engineer
 Junior engineer would assist senior engineers and would take rounds of the engine room
according to the orders of second engineer
 Motorman/Pump man would assist in engine room operations under the supervision of
senior engineers
 Other engine room ratings can be assigned duties by the chief engineer if required
It is to note that the main engine astern testing should be carried out every time before entering
any port. The testing is generally done before the pilot board the ship.
7
Apart from the above mentioned procedures, all important machinery systems such as steering
gear, generators, important navigation equipment etc. must be tried and tested before the actual
manoeuvring process begins.
PILOTAGE:Marine pilotage plays a vital role in marine safety and accident prevention.Pilots with
local knowledge have been employed on board ships for centuries to guide vessels into or out of
port safely - or wherever navigation may be considered hazardous, particularly when a shipmaster
is unfamiliar with the area.
In addition to local knowledge and expertise, pilots are able to provide effective communication
with the shore and with tugs, often in the local language.
Qualified pilots are usually employed by the local port or maritime administration and provide their
services to ships for a fee, calculated in relation to the ship's tonnage, draught or other criteria.
The importance of employing qualified pilots in approaches to ports and other areas where
specialized local knowledge is required was formally recognized by IMO in 1968, when the
Organization adopted Assembly resolution A.159(ES.IV) Recommendation on Pilotage. The
resolution recommends Governments organize pilotage services where they would be likely to
prove more effective than other measures and to define the ships and classes of ships for which
employment of a pilot would be mandatory.
Around the world, many maritime countries use specialized marine pilots to navigate ships through
domestic waterways. Pilots are professionally licensed mariners whose role is to board and assume
the conduct of a vessel and guide it along the safest route to its port of call.
A pilot’s role is equally important as that of a captain. Although captains are experts at navigating
their vessels, they are not experts on the regulations and specific environments of each port at
which their vessels call. Therefore, captains require the local expertise of a marine pilot to ensure
that their vessel and its crew, passengers and cargo arrive at their next port of call in a safe and
efficient manner.
FLAGS OF CONVENIENCE:Flags of convenience or FOC is a business practice under which ship’s

owners register their ships in a nation that they do not necessarily belong to. This practice
especially helps them evade rules and regulations of their home nation, sometimes for not so good
reasons.
The direct impact of this practice occurs on the seafarers who ultimately have to work on such
vessels. Here are some dangers of FOC that all seafarers must absolutely be aware of.
Working conditions
8
FOC vessels have been reported to have much lower standards of working conditions as compared
to other vessels. This is mainly due to lesser regulation of such vessels. With ships functioning under
FOC, there is always a dispute of nation of jurisdiction and rules that apply.
This means much lower standards are likely to be maintained on such vessels. Seafarers always run
the risk of having to work under dangerous conditions without proper insurance and compensation
for the same.
Basic rights
The most important of the drawbacks of FOC is that it does not necessitate a seafarer’s basic rights.
Right to form or join trade unions, demand suitable pay and working conditions, pay scales etc that
come under the seafarers rights may not be available on ships functioning under Flag of
Convenience.
This can make working on such ships much more dangerous and lesser worth the effort that goes
into a seafaring job.
Regulation of legal trade
FOC vessels run under jurisdiction of the nation of ship’s registration. However, the many
manipulations that can be done in records and legal documents can make it extremely easy for such
ships to be involved in illegal trade. FOC vessels have been reported to be involved in everything
from drug smuggling to human trafficking.
Seafarers maybe unknowingly dragged into such a business, while doing their job on such a ship.
This is one of the reasons that make awareness about FOC extremely crucial in this industry.
Pay scale
Depending on the nation of ship’s registration, the rules followed on a FOC vessel can vary greatly.
These can include things like pay scale of ship’s crew. In name of rules of nation of flag of the ship,
the ship owners can dupe their employees for their rightful salary. Many cases have been reported
where seafarers weren’t paid their rightful salary or at the required time. Under both
circumstances, it is only the employee that suffers, with no means to find any solution whatsoever.
Insufficient compensation
A grave violation of seafarers rights would be to not offer him due compensation in case of an
unfortunate accident while on board. Working under extremely dangerous conditions of ships, even
more so on ships which lack necessary regulation for the same means these mariners always run a
risk of an accident. In case of such an accident, a vessel running under flag of Convenience may
refuse to pay the necessary compensation to the mariner and/or his family.
Improper work schedule
9
A mariner may not be allowed the necessary rest period between consecutive shipping assignments
as per the standard guidelines.
These guidelines are set taking into view the health of mariner from continuous exposure to sea
conditions. Inability to do so can harm the mariners’ health in long term. But this right may be
denied to workers of FOC vessels.
Future prospects
Seafarers on FOC vessels are always in kind of an uncertain area, where they never know what they
might be thrown into next. Mostly, they have no major protection against any injustice being done
to them. However, seeking some justice can also prove injurious to a seafarer’s marine career in
some cases.
It is important to note that Flag of convenience is not necessarily a bad thing. But it invariably leads
to outcomes that have not so good implications. Seafarers, no doubt, always run all these risks, no
matter where they work. Being aware of dangers of working on such a vessel is the only way
mariners can comprehend the real risk they face.
FLAGS OF DISCRIMINATION:Flag discrimination consists of a wide variety of acts and pressures

exerted by governments designed to direct cargoes to ships of the national flag, regardless of the
commercial considerations which normally govern the routing of cargoes. Restrictions are either
imposed on all foreign vessels or discriminate against ships which are registered in certain
countries. Flag discrimination thus places impediments in the path of the free flow of international
trade, disturbing trade between all countries and all sectors of the economy.
CONTIGENCY PLANS:
10
• Collision at Sea
Immediate Actions:
• Call the Master
• Check for personal injuries, damage to ship and cargo. Check for possible leakages,
take soundings of tanks and bilges.
• Crew ‘stand-by’
• Prepare life-rafts and life-saving equipment
• Keep the radio station or ‘stand-by’ – with current and updated position available
Show applicable signal from the International Code of Signals. (VHF could also be used to indicate
distress)
• Fix time for and position of the collision
• Take necessary actions to minimize further damages to personnel, environment and
ships. (SOPEP Manual to be used in case of oil spill)
• Contact the other ship:
• State your ship's name, call sign, port of registry
• Nationality, owners name and your destination
• Request the same information from the other ship
• If interlocked – agree with the other ship whether you should separate the ships or
not, considering the risk (for any of the two ships) of, oil spill, sparks, ignition of fire,
fire spread between the ships, sinking and maneuverability
11
• Maintain contact on VHF as long as needed
Enter continuously any actions taken in ship's log book.
• Spills of dangerous goods

Immediate Actions:
• Activate the alarm.
• Stop all cargo operations and close valves and hatches.
• If alongside a berth, notify the terminal staff of the chemicals involved and possible
risk posed to personnel.
Notify local port authorities, usually through the terminal staff. Keep in mind that water supplies,
other water intakes local fishing, public amenities etc can be affected with enormous human and
economical consequences unless immediate counteractions can be taken.
• Prohibit smoking and use of naked lights throughout the ship.
• Clear all non-essential personnel from the area.
• Close all accommodation access doors, and stop all non-closed circuit ventilation.
Arrange for main engines and steering gear to be brought to stand-by.
Fire on board:
Actions to be taken:
As soon as a fire is detected, several actions should be taken to ensure the safety of the vessel and
the personnel.
• General alarm should be sounded
• Bridge team should be informed
• Fire party should muster
• The fire should be isolated, by closing ventilation system, skylights, doors, boundary
cooling, etc
• Before entering the fire space, crew should wear the appropriate PPE and use the
proper fire extinguishing system, regarding the type of fire
• Interested parties should be notified
SHIPPING CASUALITIES AND PENALTIES:

 If a person causes a ship to go out to sea without the required certificated personnel he may be
imprisoned for 6 months or fined Rs.10000 or both. Sec. 436(17a)
 If a person is engaged as an officer without being duly certificated he may be imprisoned for 6
months or fined Rs.5000 or both. Sec. 436(17b)
12
 Master of a ship, other than Home Trade (HT) ship of GT < 200 tons, shall enter into an
agreement with every seaman. If it is not done, fine Rs.100 per seaman. Sec. 100
 Scale of provisions to be furnished to each seaman as fixed by the Central government. Fine for
non-compliance Rs.200.
 Facilities for seaman to remit wages to a bank or near relative subject to certain conditions. Fine
Rs.100 for not doing so. Sec. 131
 Payment of advance ≤ 1 month’s wages. Fine Rs.100 for not providing this facility. Sec. 135(1). If
a seaman fails to join or deserts the ship after receiving the advance he may be imprisoned for 1
month or fined Rs.100 or both. Sec. 135(3)
 He shall be registered with and supplied by the Seaman’s Employment Office and shall be
engaged by owner, Master, mate or agent of the ship, or by the Director of seaman’s
employment office or by the SM. Fine Rs.100 per seaman wrongly engaged. Sec. 96
 He shall possess a valid medical fitness certificate. Fine Rs.100 for each unfit seaman engaged.
Sec. 98(2)
 For engagement on any ship, other than HT ship of GT < 200 tons, he shall possess a valid
Continuous Discharge Certificate (CDC). Fine Rs.100 for each seaman engaged without CDC. Sec.
99
 On being discharged, Master shall grant to seaman a CDC specifying following : Sec. 119(1)
 Name of the ship and its main particulars.
 Date and place of engagement and discharge.
 Name and signature of the Master.
Fine Rs.200 for non-compliance.
 If any person forges, alters or fraudulently uses the CDC, he may be imprisoned for 6 months or
fined Rs.500 or both. Sec. 436(35)
 Master shall return the COC to the officer. Fine Rs.200 for not doing so. Sec. 119(2)
 Master shall prepare an account of wages and give it to the seaman before he leaves the ship,
at least 24 hours before discharge. Fine Rs.50 for not doing so. For this purpose Master shall
maintain a record of deductions made for the seaman or for other reasons, which shall be
shown to any competent authority and to the seaman at the time of payment of wages. Sec.
125 to 127
 Master shall not discharge seaman without his consent, before the expiry of the agreement,
and shall not leave him behind, without the authority of the officer appointed by the Central
government. Fine Rs.1000 for doing so. The officer shall grant permission if he is satisfied that
the seaman has failed or refused to join the ship, or has been absent without leave for more
than 48 hours, without reasonable cause. Sec. 121
13
 If seaman is left behind, Master shall take following actions : Sec. 122
 Enter in the Official Log Book (OLB) a statement of wages due to him and his property left
behind.
 Take charge of his property.
 Within 48 hours of arrival at an Indian port where the voyage terminates, deliver following
items to the SM :
 Wages and property of the seaman, and obtain a receipt for the same.
 Statement of expenses incurred, supported by vouchers, in case absence of the seaman
is due to desertion. If the SM is satisfied, expenses incurred shall be reimbursed from
the wages or property of the seaman.
 Fine Rs.200 for not taking any of the above actions.
 If service of seaman is terminated at a foreign port, without his consent, and before the expiry
of the engagement period, Master shall make adequate provision for his maintenance
according to his rank, and for his repatriation to the engagement port. Sec. 123
 In case he is left behind at a foreign port due to unfitness or inability to proceed on the voyage,
he shall be entitled to wages from date of termination of service till he arrives at his
engagement port. Sec. 141(1)(b)
 If a ship is sold abroad, all seamen shall be discharged at that port unless they agree to continue
the voyage on the same ship. They shall be entitled to maintenance, repatriation expenses to
their engagement port and wages as if they have been wrongfully discharged before
termination of their agreement. Sec. 124
 If he is discharged prematurely without his fault or consent, including discharge due to sale of
the ship, he shall be entitled to compensation, in addition to wages earned, as decided by the
SM, maximum as follows : Sec. 143
 1 month’s wages if he is discharged before the voyage commences.
 3 month’s wages if he is discharged after the voyage commences.
 In case of premature termination of service due to wreck, loss or abandonment, he shall be

entitled to following emoluments : Sec. 141(1)(a)
 Wages from the date of termination till he returns to his engagement port, minimum 1
month wages, unless he was or could have been suitably employed, or he did not apply to
the proper authority for relief as distressed seaman.
 Compensation for loss of his effects equivalent to minimum 1 month wages for HT ship and
minimum 3 months wages for FG ship.
 In case of wreck or loss of the ship, if he did not exert himself to the utmost to save the ship,
cargo and stores, then his claim for wages shall be barred. Sec. 140(1)
Disciplinary matters
 Master or seaman of an Indian ship or of any ship in India shall not do following : Sec. 190
14
 Cause any loss or damage to the ship, or endanger the life of or cause injury to any person
on board.
 Refuse to do any act to prevent the above.
 Imprisonment for 2 years or fine Rs.1000 or both, for doing so.

 Seaman shall not do the following : Sec. 194
 Quit the ship without leave on arrival and before it is secured.
 Disobey any lawful command.
 Neglect his duty.
 Assault the Master, officer or seaman on the ship.
 Impede navigation of the ship or progress of the voyage.
 Damage the ship, stores or cargo.
 Commit criminal misappropriation or breach of trust.
 Penalty for the above faults may be one or more of the following :
 2 days to 1 month wages.
 Rs.500.
 1 to 3 months imprisonment.
 6 days pay for each day of continued disobedience.
 Reimbursement of expenses incurred for engaging a substitute.
 If he is convicted of smuggling, causing loss to the ship, then the amount of loss shall be
deducted from his wages. Sec. 195(1)
 If he is convicted of smuggling drugs then the D.G. Shipping may cancel or suspend his CDC. Sec.
195(2)
 If a seaman commits any of the above acts then Master shall take following actions : Sec. 196
 Make an entry in the OLB duly signed by himself, mate and one crew member.
 Give a copy of the entry to the seaman and read it out to him.
 Record the above actions, alongwith reply, if any, given by him, in the OLB and sign it as
stated above.
 If any fine is imposed on the seaman for misconduct, as per the agreement, it shall be dealt with
as follows : Sec. 202
 If he is discharged in India, and the SM is satisfied about his offence, then the fine shall be
deducted from his wages and given to the SM.
 If he is discharged outside India, then the fine shall be recorded in the OLB, duly signed by
the CO if he is satisfied, and given to the SM at the discharge port.
 Master shall be fined 6 times the amount of fines retained by him.
 All fines collected by the SM shall be used for the welfare of seamen.
 If a seaman engaged outside India is imprisoned for a period ≤ 1 month, no substitute shall be
engaged in his place. Imprisonment for 3 months or fine Rs.1000 or both, for engaging a
substitute. Sec. 206(a)
 Central government may convey the above convicted seaman on board the ship. If the Master
refuses to accept him then he will deposit with the SM the wages due to the seaman and the
15
cost of his repatriation to the engagement port. Fine Rs.500 for not depositing the money. Sec.
206(b)
 If he is imprisoned for a period ≤ 3 months then, at the request of the Master, the Magistrate
may convey him on board the ship. Sec. 207
 On being relieved for any reason, the Master shall deliver all documents in his possession to his
successor who in turn shall enter the same in the OLB. Fine Rs.500 for not delivering the
documents. Sec. 208
 If a seaman is transferred to another ship under the agreement, Master shall send all his
documents to the Master of the latter ship. Fine Rs.500 for not doing so. Sec. 209xv
Desertion
 Seaman shall not do the following : Sec. 191(1)

 Desert his ship.
 Neglect or refuse to join his ship.
 Be absent without leave from his ship or from duty.
 The above shall not apply if he has made prior complaint to the Master or the officer appointed
by the Central government that the ship is unseaworthy. Sec. 191(2)
 If he has committed the above offence his CDC shall be withheld by D.G. Shipping. Sec. 192.
 He may be arrested and conveyed to the ship. All expenses in this regard shall be deducted
from his wages. Sec. 193
 If he deserts his ship, his property and wages due shall be forfeited by legal procedure. Sec. 199
and 201. In addition he may be imprisoned for 3 months and pay the expenses incurred for
engaging a substitute.
 If he neglects or refuses to join the ship, or is absent without leave, he will be fined 2 days pay
and in addition will give 6 days pay for every day of absence or pay the expenses incurred for
engaging a substitute. He may also be imprisoned for 2 months.
 If a seaman engaged on an Indian ship outside India, deserts his ship in India, Master shall
report to the SM within 48 hours of discovering the same. Imprisonment for 1 month or fine
Rs.100 or both, for not reporting. Sec. 197
 If he deserts outside India, Master shall make an entry in the OLB, have it certified by the CO,
and send a copy to the SM of engagement port. Sec. 198
 Any wages forfeited shall be used to reimburse the expenses incurred by the owner and the
balance given to the Central government. Sec. 200
 If a person entices a seaman to desert, he may be fined Rs.100. Sec. 203
 Fine Rs.100 for harbouring a deserter. This does not apply to his wife. Sec. 204
MARINE FRAUDS:Fraud in commerce is as ancient as commerce itself, with examples going back
to the Roman world and before.
The International Maritime Bureau defined maritime fraud as:
“An international trade transaction involves several parties – buyer, seller, shipowner, charterer,
ship’s master or crew, insurer, banker broker or agent. Maritime fraud occurs when one of these
parties succeeds, unjustly or illegally, in obtaining money or goods from another party to whom, on
the face of it, he has undertaken specific trade, transport and financial obligations.”
16
Maritime fraud is becoming more common due to a number of reasons: Criminals are increasingly
turning to new methods such as computer hacking, ports are adopting new technologies that in the
worst case can enable new types of fraud (such as automatise container operations) and as
shipowners are under pressure to win new business, many have disregarded due diligence when
dealing with new business partners.
Given that Shipping is a global business, with many players and jurisdictions involved in any single
shipment of cargo, even a simple A >>> B voyage, there are a myriad of potential pitfalls where the
unscrupulous seek to take advantage of the unprepared. As parties are often based in multiple
jurisdictions, and necessarily deal with each other at “arm’s length” and / or through Brokers and
Financial Institutions, there may be little or no opportunity to make “physical checks”.
Everything comes down to reliance on documents, most importantly the Bill of Lading, as a key
facilitator to fast trade with a low transaction cost. That is also the inherent weakness, the trust in a
key document that can be adulterated and issued in multiple originals, which is the root of many of
the frauds being perpetrated today.
It may be “minor” cheating or a multi-million dollar scam, but being prepared is the key to avoiding
both.
TYPES OF FRAUD
The following is an overview of the kinds of fraud that may be experienced, but it is far from an
exhaustive list.
BUNKERING FRAUDS
Fuel can be the single greatest expense in the daily running cost of ships. Fuel prices rose over the
last 10 years and never really fell significantly. Such values may provide a strong incentive for
criminal designs to commit fraud, the incidence of which is said to be on the increase.Commonly,
disputes and alleged misdealing are in respect of:
a. quantity consumption by the vessel
b. quantity of deliveries
c. quality of deliveries
CARGO AND DOCUMENT FRAUDS

These frauds can come in many different forms. It can involve the sale of cargoes that do not exist,
fraudulent misrepresentations on Cargo Documents, the attempt to illegally claim on Letters of
Credit, fake Letters of Indemnity, as well theft of cargo and / or cheating over quantity and quality.
CHARTERING FRAUDS
The key here is usually the involvement of unknown or numerous intermediaries and an overly
trusting approach to representations made by or on behalf of first time counterparties.
PORT RELATED FRAUDS

In some parts of the world, Vessels are at risk of Fraudsters seeking to use a vessel’s call to Port as
17
an opportunity to obtain payment for services and goods that were never provided.
BLACKMAIL FRAUDS
This crime is not new at all, but modern technology makes it very simple to perpetrate, yet very
difficult to track down the guilty parties.
The attack and effect is against a Victim’s fear of reputational loss, and a desire to “not be in the
spotlight”.
CYBER FRAUD
This is a rapidly developing area of risk for all companies across all Industries. The key to successful
fraud is having enough convincing information and knowledge to make the target believe that a
transaction is genuine. Information theft is therefore a key element in fraud, and Cyber-attacks can
facilitate the wholesale theft of vast amounts of confidential information.
FAKE JOB FRAUD

Unfortunately fraud is perpetrated even against individual Seafarers, often coming from developing
nations, who may find it difficult to detect fraud or do anything about it when it happens.
INFORMATION PHISING
The Association will repeatedly advise that one of the key elements to fraud is information.
Fraudsters will seek to “phish” information from various sources, and it is known that in some Ports
the Criminal Element actively targets Shipping Agents as sources of information.
FRAUD - LEGAL OVERVIEW

Fraud can have legal consequences in both civil and criminal courts. For instance an attempt to
make a fraudulent insurance claim can allow the Insurer to deny the claim while at the same time
expose the Claimant to the risk of being prosecuted in the criminal courts for their attempt to
defraud the Insurer.
Equally a fraudulent transaction, say by use of fake Bills of Lading and / or Letters of Credit, can
attract both civil action by the victim to recover their loss as well as criminal proceedings.
LOSS PREVENTION
The key to preventing being a victim of fraud is vigilance. Being alive to the risks, taking due care to
prepare and then ensuring diligent follow up, will mitigate against the worst and helps to ensure
that business reputations and profits are protected.
The following are a number of general guidelines for preparing an organization and its employees
from a “big picture” point of view, as well as giving guidance on specific transactional “red flags”
which should cause a company to pause for further investigation and clarification before
proceedings with a transaction.
Lastly there is advice on what to do when a fraudulent activity is suspected to have taken place or
may still be live & on-going.
18
CASE STUDIES:
Case Scenario: Supplier overstated quantity supplied
The Association has been involved in matters where disputes arose over the quantity supplied. At
times several days after a supply was made. These issues can be difficult to resolve, as the passage
of time makes it more difficult to conclusively determine where fault may be found.
In particular it appears possible by the use of pumping air into bunkers as well as heating them to
increase their volume and create what has been called “the Cappuccino” effect.
Experienced Engineers will be able to closely monitor a fuel supply and check for visible and
physical signs of possible problems, including monitoring the temperature of the supply as well as
checking for signs of air supply.
Lesson learned:
It is important to properly prepare for and monitor the supply of fuel oil to the vessel and not
downgrade its operational significance. Experienced crew, assisted by a Bunker Surveyor, can
significantly assist in the mitigation of this risk scenario. A mass flow meter on board the receiving
vessel can also assist to determine exact quantities supplied, as mass measurement may be more
accurate than volume.
Case Scenario: Forged Bills of Lading with the intention of stealing the cargo
The Fraudsters create a fake set of Bills of Lading that looks sufficiently genuine against which they
seek to take delivery of the cargo in advance of the genuine Receiver.
This fraud may have received some “Insider” assistance, as the Fraudsters will need key information
– if not a copy of the genuine Bill – in order to ensure they can achieve delivery at the discharge
Port.
The Ship-owner and genuine Receiver (or unpaid Shipper) are then left to fight it out as to whose
Insurers will have to cover the loss, or worse who will have to take the direct hit (as some loss
scenarios may not be covered by standard insurance).
Lesson Learned:
Ensuring that there is always a clear chain of custody for any set of original Bills is very important.
Local Shipping Agents, if they want to avoid being held liable, will also have to ensure that they
conduct proper checks against documents presented to ensure their genuine nature. If in doubt, a
phone call can help to clear up many issues and concerns. If, however, serious concerns persist
(such as clear errors or inconsistencies on documents) then callinga “halt” to operations will be a
prudent step to take.
India has a total coastline of 7551 km with 13 major ports trust, approximately
200 minor ports. The country has extensive network of inland waterways in the
form of rivers, canals, backwaters and creeks. Total Navigable length is 14,500
km, of which about 5200 km of rivers and 4000 km of canals can be used by
mechanized craft and cargo moved in financial year 2013-14 and 2014-15 are
respectively 322.63 and 365.37lakh tonnes in India.
19
In India around 61% of the total cargo is carried by road, 30% by rail, 4% by
airways, 1% by waterways and 4% by pipeline [Total Transport system study
on traffic flows & modal costs, Report for planning commission, RITES]
In order to regulate inland waterways in India Government of India constitutes

a Inland Water Authority of India [IWAI] The organisation got functional in
1986 with a mandate to facilitate the commercial and non-commercial use of
channel system . To promote Inland water transport in the country, five
waterways have been declared as national waterways by this authority so far
are-
No Stretch Length Declared in

1 River Ganga Haldia to Allahabad 1620Km 1986
2 River Brahmaputra From Dhubri to sadiya 891Km 1988
3 West Coast Canal From Kottapuram to 205Km 1993
Kollam with Udyogamandal and champakara
canal
4 Kakkinada-Puducherry stretch of canals with 1078 Km 2008
river Godavari and river Krishna
5 East Coast Canal with river Brahmani and 588Km 2008
river Mahanadi‟s delta
Water transport is the most cost effective and fuel efficient mode of transport.
According to estimates, one litre of fuel can move 24 tonne km of freight by
road, 85 by rail and 105 by IWT. Also, government figures establish the fact
20
that a shift of one billion tonne km of freight to IWT will bring down the fuel
coast by about INR 250 million and the coast of transportation by about INR
450 million.
Cargo movement by IWT increased from 32 MMT (1.6 btkm) in 2003-4 to 74

MMT (4.8 btkm) in 2010-11
IWT in India has only 0.5 % share; China has 8.7 %, USA 8.3 %, Europe 7%
(Netherlands 35%)
Infrastructure provided on NW 1, 2 & 3

A. Fairway
NW 1
 2.5 m depth in Haldia -Farakka (560 km)
 2.5 m in Farakka - Barh (430 km)
 2.0 m in Barh - Ghazipur (260 km)
 1.5 m in Ghazipur- Allahabad (370 km)
NW 2
 2.5 m in Dhubri- Neamati (630 km),
 2.0 m in Neamati- Dibrugarh (138 km)
 1.5 m in Dibrugarh- Sadiya (123 km)
NW 3
 2.0 m in 121 km stretch
 1.5 m in 84 km stretch (dredging in 22 km is in progress)
Proposed National Waterway – 6 : River Barak

 Length –121 km
 Development cost -Rs 123 cr (at 2012 prices)
21
As per the available data presented in Table 2 in annexure, it is observed that
the ratio of navigable length to the total length is about 96.88% in the State of
West Bengal; by contrast, in case of Gujrat the ratio of navigable length to total
length is a mere 15.62%. Other States with good inland water transport
prospects are Goa, Maharashtra and Bihar where waterways navigable length is
90.84, 73.14 and 62.40% respectively of the total length of rivers/lands/lakes
reported by these states. Fourteen states have reported river length as well as
navigable length for 131 rivers. These 131 rivers have total length of 27962 Km
of which 45.57% is navigable length
CARGOMOVEMENT As perTable 3 in annexure provides a snap view of cargo

moved on the three national waterways, waterways of Goa and Maharashtra
which carry most of the cargo traffic on India’s Inland Waterways. The total
cargo movement on India’s waterways comprising the three national waterways
and waterways in the State of Goa and Maharashtra was 365.37 lakhs tonnes in
2014-15 as against 322.63 lakhs tonnes in 2013-14, reflecting an increase of
13.3 %. In terms of tonnage, Goa and Maharashtra accounted for 2.2 % and
74.9 % respectively of the total cargo volume in 2014-15 with balance 22.9 %
being accounted by the 3 National Waterways. In terms of tonne km
(movement of one tonne of cargo over a distance of one km) there was an
increase of 17 % in 2014-15 over 2013-14. Maharashtra waterways accounted
around 75% of the total cargo movement on inland waterways across India. In
case of Goa and Maharashtra, high volume of cargo movement was carried over
relatively short average distances of about 42.82 Kms and 17.88 Kms
respectively leading to their intensive use. However, in the three National
Waterways the volume of cargo traffic was relatively much small. In case of
National Waterway II (The Brahmaputra) and National Waterway III
(Champakara canal, Udyogmandal canal and West Coast canal) the distance
traversed by cargo was on an average around 20.38 Kms and 10.90
Kmsrespectively in 2014-15. In case of National Waterway I (Ganga-
Bhagirathi-Hooghly) the average distance over which cargo moved was
relatively much longer at around 444.73 Kms. As per Table 4 in annexure Cargo
transportation by inland water transport in India has been steadily increasing.
Movement of National waterways I, II and III has increased from 3MMT in
2005-06 to 7.1MMT in 2015-16, an overall growth around 137 percent.
22
Table 3: Cargo Movement on Waterways
Source: (i) Inland Waterways Authority of India for National
Waterways (ii) Data for Goa Waterways include the data received from
Ports department, Govt of Goa and the data received from the
Mormugao Port Trust (MPT). (iii) Maharashtra Maritime Board for
Maharashtra Waterways
Details of Cargo Moved ( lakh tonnes) Tonne Kms (in lakh )
Waterway 2013-14 2014-15 2013-14 2014-15
National 33.49 (10.4) 50.50 (13.8) 18512 22459
Waterway (76.5) (79.4)
No 1
National 24.75 (7.7) 24.92 (6.8) 594 (2.5) 508 (1.8)
Waterway
No 2
National 10.66 (3.3) 8.44 (2.3) 116 (0.5) 92 (0.3)
Waterway
No 3
Goa 5.99 (1.8) 7.94 (2.2) 270 (1.1) 340 (1.2)
Waterways
Maharashtra 247.74 273.57 469 (19.4) 4892 (17.3)
Waterways (76.8) (74.9)
Grand Total 322.63 365.37 24183 28291
(100.0) (100.0) (100.0) (100.0)
Note : Figure within brackets indicates percentage to the total
Table 4: Cargo Movement on National Wayterways

Year Cargo Movement (In MMT)
2005-06 2.98
2006-07 4.36
2007-08 4.31
2008-09 4.29
2009-10 4.59
2010-11 4.92
2011-12 7.1
2012-13 6.38
2013-14 6.89
2014-15 8.39
2015-16 7.1
CHALLENGES OF INLAND WATER TRANSPORTATION IN INDIA

1. Water Flow:- The basic need for the Inland transportation is sufficient water
flow. Due to Industrial, Agriculture and habitation the water flows has been
23
decreased over the years this also may have decreased due to impact of dams
of on the rivers.
2. Inadequate water channel Depth:-Large vessels cannot traverse without
adequate waters in the rivers. This along with the seasonal dependency of
rivers makes operation of many ports difficult.
3. Storage Infrastructure:-Other than certain governmentrun warehouses
whose main objective is grain storage, most of the warehouse are small in size
and lesser in number. There is inadequate security measure, poor racking
system and most important of all these is lack of cold storage facilities in
majority of the ports.
4. Inadequate Air Draft:-Multiple bridges with low vertical clearance obstruct
the passage of bigger inland water transport vessels on waterways No.3.There
several navigable canal in the states of Uttar Pradesh, Bihar, West Bangal,
Tamil Nadu and Andhra Pradesh: Sarda Canal, Ganga Canal, Yamuna Canal,
The Delta canal system of the Krishna, Godavari, Mahanadi and Brahamani. But
these cannot be utilised for cargo movement due to air draft restriction.
5. Shortage of IWT Vessels:-Vessels buildings is highly capital intensive and
faces difficulties in obtaining project finance from banks and financial
institutions. The private sector is relevant to invest in barges unless long term
commitments for onward/ return trips are made for onward/return trips are
made from users industries.
6. Excessive Siltation:-Deforestation and erosion activity of the river leads of
siltation.
7. Poor Skills and low technology adaption:-Lake of automation in processes
and low multi operation skills affects efficient utilisation of ports.
24

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Tolani Maritime Institute; B Tech ME, IV th Year

Online learning material for subject: Ship Operation and Management

Chapter III – Chartering and Charterparties

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Chapter III – Chartering and Charterparties

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Chapter V - Marine Insurance

Marine Insurance: As defined in MIA 1963:

1) Utmost Good Faith: (Uberrima fides)

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Chapter V - Marine Insurance

Practices of Marine Insurance:

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Chapter V - Marine Insurance

Hull & Machinery Insurance:

Features of ITC Hull 83

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Clause 6.2 covers

Clause 12: Deductible – Done earlier

Clause 13: Sue & Labour

Clause 8 & 9 : 3/4th Collision Liability & Sistership

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Such liability is calculated on principles of cross liability.

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Chapter V - Marine Insurance

ICC- B Covers loss or damage due to 11 Perils

ICC- C Covers loss or damage due to 7 Perils

Clause 8 : Transit Clause (Duration clause):

Clause 14: Increased Value Insurance:

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Chapter V - Marine Insurance

Protection & Indemnity Insurance

Duties of Club are:

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List of Perils covered by P& I Clubs:

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3) TT Club (Through Transport Clubs)

York Antwerp Rules

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Chapter V - Marine Insurance

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Insurance Companies in India

Brief History of Marine Insurance:

1) Followed in India, China, Babylonia & Rhodes in ancient times

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Marine Insurance Act, 1963

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Chapter VI– Shipping Companies

Shipping Companies: A shipping is an economic entity whose principle activity is commercial

The activities of shipping companies are basically two types:

There is a great variation in organization structure of different shipping companies based on

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General Liner Shipping Company will have following Structure:

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Chapter VI– Shipping Companies

Types of Ship Management:

b) Technical Management: Here the managers provide following services: