TOLANI MARITIME INSTITUTE

ISO 9001:2015 CIP Grade1 (Outstanding)

COURSE NOTES
SHIPPING MANAGEMENT

Course Code: UG 21 T 4505 Prepared for Academic Year: 2021 – 2022

Compiled by: Capt. I. Banerji Reviewed by: Capt. M. Hirkane

TOLANI MARITIME INSTITUTE

Talegaon Chakan Road, Induri. Taluka Maval, Pune -410507
Table of Contents

Sr. No. Contents Page No

1 International Trade and Shipping 3
2 Basic Structure of the Shipping Industry 12
3 Organization of Shipping Companies 15
4 Liner Trade Characteristics 23
5 Ship Chartering 32
6 Role of Ports 38
7 Contract of Affreightment 45
8 Marine Insurance 52
9 General Average 60
10 Syllabus 63

(1) These notes are solely for the purpose of guidance and students are to refer to text and reference
books available.

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List of Figures:

Fig. No. Title Page

01 Flow chart of a typical shipping company 16
02 Flow Chart of Major Ports Administration 40
03 Flow Chart of Maritime Board Administration 42

List of Tables:

Table No. Title Page

01 Comparison – Liner / Tramp 13
02 List of Certificates 22
03 Development of Ports 44

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 Chapter I– International Trade and Shipping
Seaborne trade of the world. Composition and direction of cargoes – Commodity groups-
different types of ships which carry them – Technological developments. Measurement of
shipping transport in ton-miles. Demand and Supply of ships. Shipping is a derived demand.
How do Lay-up, scrapping, new-buildings and slow-steaming affect supply and demand.

International trade is the result of a combination of many factors, though one or a few conditions
may be primarily responsible for international movement of goods. The exchange of goods in
international trade is due to demand and supply imbalance existing in various parts of the world. As
stated earlier, the uneven distribution of natural resources which are again unevenly exploited is the
main reason for the growth of international trade. The production of goods, therefore, varies from
place to place and so also its consumption.

Factors governing trade:

1. Capital / Labour Intensive
2. Maritime Location
3. Climate / Soil / Vegetation
4. Weather Conditions
5. Cultural and Technological progress
6. Political Conditions
7. Comparative Cost

Sea Borne Trade:

Trade between people must be the oldest civilized human activity. This is because others have skills /
things we want and haven’t got them.

There are different means of transport: (Main use)

1. Road – Inland and Coastal trade
2. Rail - Inland and Coastal trade
3. Air – Passenger traffic
4. Sea – Supreme in international carriage, as much as 90% of worlds international trade moves
on the sea – less than 1% by Air.
5. Pipelines – Mainly for Oil and Gas over select areas

Trade can be measured either as by volume or by value. In shipping we are more concerned about
trade by volume but even the economics of trade by value is very large

Sea transport is slow, approximately 12-25 knots only but is popular because
1. Cheap: This is possible because of the following reasons -

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  Economics of scale ------ cost per unit carried

 Most energy efficient means

2. Limited option when land is separated by water- by air is the only competition if bridges/
tunnels not possible.

3. Worldwide costs are on the increase, but shipping rates are under control due to 2 technical
revolutions -

 Containerization – The single largest revolution in transportation of packaged goods

 Bulk shipping – Larger ships / Improved cargo handling facilities / More efficient
engines

Types of Cargo:
Merchant Ships transported about 11 Billion tons of Cargo. Cargo is of many types such as
1. Raw Materials (Oil, Iron Ore, Bauxite, Coal)

2. Agricultural Products (Grain, Sugar, Refrigerated Food)

3. Industrial Material (Rubber, Cement, Chemicals / Consumer Goods, Machinery)

Many Commodities Are Inter-Related such as Oil & Products / Iron & Steel etc.

There Are 6 Major Groups of Trading

1.Energy trade – Energy dominates bulk trade with 45% of seaborne trade. Major
cargoes are crude oil (30%), oil products (8%), liquefied gas (2%), thermal coal
(5%)

2.Metal industry – contributes to 25% of sea borne trade. It consists of raw materials
and products of steel and non-ferrous metals primarily Iron ore (12%), coking
coal (5%), steel products (4%) others (4%)

3.Agricultural- 12 commodities account for 13% of seaborne trade including

products or raw material from the agricultural industry including Wheat, barley,
corn, sugar, animal foodstuff, refrigerated food. Grain (6%), Fertilizer (2%),
others (5%)

4.Forest product- 5% of sea trade is primarily used for the manufacture of paper,
paper board and used in the construction industry where the cargoes are Timber
(3%), Wood pulp (1%) others such as plywood and newsprint accounting for 1%

5.Other industrial material consists of 9% of sea trade with cargoes such as Cement,
salt, gypsum, mineral sand, asbestos, chemicals

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 6.Other manufactured products such as Textile, machinery goods, Vehicles etc.
consist of 3% of sea trade by volume. These are all high value cargo.

Impact on shipping much higher than the 3%, as the value is close to 50% of sea
trade. It is the main stay of liner trades

70% of tonnage of the seaborne trade is associated with the energy and
metal industry. So shipping industry is vitally dependent upon the
development of these industries

Types of Ships

1. Passenger Ships 8. Pure Car and Truck Carriers

a. Cruise Ships 9. Pure Car carriers
b. Ferries 10. Timber Carriers
c. Hovercrafts 11. Oil Bulk Ore carriers
2. General Cargo Ships 12. Heavy lift ships
3. Tankers 13. Gas Carriers
a. Crude Oil Tankers a. LNG carriers
b. Ultra Large Crude Carriers b. LPG carriers
c. Very Large Crude Carriers 14. Specialist ships
d. Suezmax Tankers a. Refrigerated vessels
e. Aframax Tankers b. Fruit Carriers
f. Panamax Tankers 15. Off shore Supply vessels
g. Product Carriers 16. Dynamic Positioning Vessels
h. Parcel / Shuttle Tankers 17. Fishing Vessels
i. FPSO 18. Cable Ships
j. Chemical Tankers 19. Research Ships
4. Container Ships 20. Dredger
5. Ro/Ro Ships 21. Survey ships
6. Barge carrying ships 22. Tugs
7. Bulk Carriers
a. Panamax Bulk Carriers
b. Capesize Bulk Carriers
c. Very Large Ore Carriers
d. Handymax Bulk Carriers
e. Handysize Bulk Carriers

a) General cargo ships – Usually had a deadweight of 12000 to 15000 tons. They had their own
cargo handling gears such as Cranes and Derricks. They were also called as tween deckers as
they had other decks below the main deck. The ships were suitable for general cargo. The
cargo space was divided into separate tiers and deck allowing for easy segregation. It also
eliminated the risk of cargo damage due to crushing and contamination. The most popular
general cargo ships were the Liberty class which were built post World War II. These were

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 followed by the SD14 and the Freedom class vessels. After the advent of containerization,
these ships were also called as Multi-purpose vessels

b) Container ships - The whole philosophy behind containerization is packing of cargo into
uniformly sized boxes (containers)and then designing all the carrying vehicles (road, rail,
ship) for the swift, safe and efficient transport of these boxes from “door to door”. These
ships attained a faster turnaround. Size of ships became bigger. Accommodation usually at
2/3 distance.

c) Ro-Ro vessels – These were developed from the concept of tank landing crafts used in World
War II. The term RO/RO covers car ferries, specialist vehicle carriers and also general cargo /
container vessels having RO/RO capability. The ships are very expensive. Although wasted
spaces are considerable, these ships are extremely flexible and virtually anything can be
rolled on.

d) Bulk carriers – are large single deck ship which carries unpackaged cargo. The cargo is
simply poured or tipped into the holds. They are the work horse of the industry. They have
large hatchways, shoulder tanks (trimming), strong tanktops, and the bottom is carried
upwards at the bilges. Types of Bulk Carriers are –

a. 20000 – 45000 DWT - Handy size

b. 600000 – Panamax class

c. 100000 + Capesize vessels

The largest ore carrier built earlier was the Berge Sthal (1986) which could carry 3,64,768
Tons. Today we have the Vale Class vessels carrying over 400,000 tons. These large bulk
carriers are also called Very Large Ore Carriers (VLOC)

e) Tankers - 39% of the world’s trading deadweight are carried on these vessels. The cargoes
can be pumped on / off at great rates. In the late 50s / early 60s there was a great leap in
tanker sizes. In 1972 the Globtik Tokyo having a DWT of 500,000 tons was delivered. In
1980 the Seawise Giant after extending could carry 5,50,000 Tons. The rise of crude oil price
has reduced the popularity of such large ships. Special types of tankers are –

a. Ultra Large Crude Carriers – (ULCC) – having a DWT in excess of 300000 Tons

b. Very Large Crude Carriers – (VLCC) – having a DWT of 250000 Tons

c. AFRAMAX – DWT around 120,000 metric tonnes and with a breadth not greater
than 32.31 m and therefore would have been able to pass through the original panama
canal. The term is based on the Average Freight Rate Assessment (AFRA)

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 d. Smaller tankers used to carry products main difference is the number of tanks, larger
number of tanks on a product carrier.

e. Chemical Tankers

f. Liquefied Gas Tankers

i. LNG carriers

ii. LPG carriers

Tankers will have a pump room just forward of the E/Room, Smaller opening on deck and lesser
freeboards.

f) Other types of ships are –

a. Oil /Ore,

b. Oil / Bulk / Ore,

c. Reefers,

d. Cement Carriers, F

e. Fruit Juice Tankers,

f. Molten Sulphur Tankers,

g. Phosphoric Acid Tankers,

h. Lash / Seebees / BaCo /

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Demand & Supply of Ships:

Supply and demand are integral components of shipping market

Shipping ton – mile: Demand for sea transport depends upon the distance over which the cargo is to
be shipped. A ton of oil transported from the Middle East to Western Europe generates more demand
for shipping then a ton of oil for a trans-Mediterranean run. This distance effect is generally called
'average haul'. To take account of 'average haul' – we measure the sea transport demands in terms of
'ton miles'. 'Ton miles' is defined as the tonnage of cargo shipped multiplied by the average distance
over which it is transported

Derived demand: The demand for shipping is a derived demand as the product being consumed is not
the transport itself (except in passenger transport), but the goods that are being transported.
The shipping demand of the car industry is a very good example. Cars are produced all over the
world in a wide variety of makes and models. Not every country produces each make or model and
so cars need to be transported to satisfy customer demands. When demand for cars increases,
demand for transport increases. For example, if more American families decide to order cars
produced in Japan, Japanese cars will need to be transported from Japan to the United States. To
transport these cars more ships will have to be chartered. Therefore, the transport by ship is a derived
demand from the purchase of the car.

Variables effecting demand are:

1. The world economy: The world economy generates most of the demand for sea transport. It
could be as import of raw materials for the manufacturing industry or as trade in
manufactured products. There is always a very close relationship between the growth of sea
trade and industrial production

2. Sea borne trade commodities: Can be better understood when taken in two parts – Short
term and Long term

Short -Some trades are seasonal such as agricultural products. Grain export is minimum
in the summer in US and max in September. Energy consumption of oil / coal is
more in the winters. Difficult to plan so the shippers of these commodities
generally rely on the spot market.
Long - Tonnage requirements for trades such as iron ore are largely met through long
term contracts. It is best identified by studying the economic characteristics of
the industries that produce or consume the traded commodities.

Relocation of processing can also play a role. It takes 3 tons of bauxite to produce 1 ton
of alumina and 2 tons of alumina to produce 1 ton of aluminum. A decision to refine
bauxite to alumina prior shipment reduces the cargo volume and switch from larger
vessels to smaller vessels. Similar is the case of – crude / product, logs / sawn timber etc.

3. Average haul: Demand for sea transport depends upon the distance over which the cargo is
to be shipped as explained earlier. For example, in the Iron Ore trade, in 1960 importers
drew their supplies from Scandinavia. As demand increased, distance suppliers were
identified. The extra costs were to some extent offset by the economics of scale using large
bulk carriers

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 4. Political events & Climatic Factors: Impact of politics makes a large difference to the sea
transport demand. Closure of Suez Canal increased the demand in shipping. In the 1982
Falkland war the British government chartered vessels of UK owners only. In the 1960
Cuban crisis the US importers of sugar required further markets and thus more ships.

Similarly, a season of bad harvest or less severe winter will also have an effect on demand of
ships.

5. Transport costs: Raw materials will be transported from distant sources if the cost of
shipping operations can be reduced to an acceptable level or major benefit is obtained in
quality of product. Thus the transportation costs become a very significant factor. This has
been brought about by improved efficiency, bigger ships and more effective shipping
organization. The cost of shipping a ton of coal trans-Atlantic & trans-Pacific have not
changed since 1950

Variables effecting supply are as follows –

Compared to the changes in demand, the changes in supply are much slower. Ships take a couple of
years to build and this introduces a time lag. Further once delivered, it has a life span of 15-25 years,
during which time if the demand falls then there will be a surplus of tonnage.

Supply of ships is controlled by 4 groups of decision makers

 Ship owners – primary decision makers who decide for new buildings, scrapping and
laying up of tonnage

 Shippers / Charterers – can influence the shipowners by issuing of time charters

 Bankers – as they influence the investments it is often the banks that exert the financial
pressure that leads to scrapping in a weak market

 Regulatory authorities – regulators effect the supply by through safety or environmental

legislations which effect the transport capacity, for example the requirement of double
hull tankers.

The factors effecting the supply are:

1. World Fleet - This is the total market available. If number of vessels available is large then
the freight will fall. If there is a shortage of vessels, ships have been known to be sold off
the stocks at double the price.

2. Fleet Productivity - The fleet size is fixed. The flexibility is achieved by the productivity
with which the ships are used. Carriage of cargo is only one small part of the story. In 1991
an average VLCC spent only 137 days carrying cargo, a little more than 1/3rd of the time.
Ballast passage accounted for 111 days, 40 days were spent in cargo handling activities and
the rest of the time was spent in repairs, lay ups, waiting etc.

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Productivity of a fleet of ships depends upon 4 main factors -
 Speed – Lower speeds reduce the supply of vessels. Also as a vessel ages, the hull
fouling will gradually reduce the maximum operating speeds.

 Port time – Introduction of containerization dramatically reduced the time for liner
operators. Port congestions reduce the number of ships available for trading

 Deadweight utilization – It refers to the cargo capacity lost owing to bunkers, stores
etc. This does not allow full cargo from being carried. When part cargoes are carried
the deadweight is further reduced and once again reducing the supply

 Loaded days at sea – A reduction in the unproductive days (ballast, in port, off hire)
allows an increase in the loaded days at sea. Vessels designed for cargo flexibility
can improve their loaded time at sea as they are able to switch cargo for backhauls.

3. Ship building - The ship building industry plays an important part in the fleet adjustment
process. It keeps changing. Ship building output accounted for 12% of the merchant fleet in
1974 but only to 4.7% in 1996. More so ever the changes are very slow since the time lag
between ordering and delivering can be anything from 1-4 years depending upon the order
book of the shipbuilder.

Orders have to be placed on estimate of future demand which has often proved to be wrong

4. Scrapping and losses - The rate of growth of the merchant fleet depends upon the balance
between deliveries of new ships and deletions from the fleet in form of ships scrapped or
lost at sea. Scrapping depend upon factors such as-

 Age: Primary factor determining the tonnage of the vessel scrapped. As they grow
older the cost of routine maintenance increases, heavier costs are involved and also
there is more off time. Average scrapping age is 25 years.

 Technical obsolescence: Vessel may be scrapped because it is superseded by a more

efficient type ship. Tween-deckerships were made obsolete by containerization.
Steam turbines were the first to go to the scrap yard when the oil prices rose in the
70s.

 Scrap prices: Scrap ships are sold to ship breakers who demolish them and sell the
scrap to the steel industry. Scrap prices themselves depend upon the demand and
supply of the steel industry. A period of extensive scrapping would also depress the
prices of scrap metal

 Current earnings / market expectations: Scrapping of a ship is a business decision.

Depends upon the owner’s expectations of the future operating profitability of the
vessel and his financial position. If during a recession, he believes that there is
freight market boom in the near future, he is unlikely to sell, because the possible
earning then would be so great that he may justify incurring a small operating loss

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 till such time. May sell for scrap as a 'distress sale' – if urgent cash is required.
Scrapping will occur when the industry's reserve of cash & optimism has run down

5. Slow steaming indicates that there is a lesser demand for ships.

6. Freight rates: Supply of sea transport is guided by the freight rates. There are two main
pricing regimes -

a. Liner shipping provides transport for small quantities of cargo for many customers
which can be compared to a retail business

b. Bulk shipping on the other hand is similar to a whole sale operation. It sells its
services in large quantities to a smaller number of industrial customers.

In both the cases the pricing system is central to the supply of transport.
It is the freight rates that contribute to the investment decisions which result in scrapping and
ordering of ships.

Freight rate mechanism is the adjustment mechanism linking supply and demand. Ship owners and
shippers negotiate to establish a freight rate. This reflects the balance of ships and cargoes available
in the market. If there are too many ships the freight rate is low and vice versa. Once freight rate is
established – the shippers and the ship owners adjust to it and eventually this bring the supply and
demand into balance

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Chapter II – Basic Structure of Shipping Industry
Type of Shipping Services - Liner and Tramp –Types of ships and cargoes in Liner and Tramp
shipping. Freight brokers, Clearing and Forwarding Agents- Bunker and Stores suppliers, shipping
Agencies.

Types of Shipping Services

There are two essential ways in which a vessel can be operated, Liner and Tramp

Tramp -
 Do not operate on a fixed sailing schedule
 Trades in all parts of the world searching for cargo
 These are engaged under a document called the charter party
 Freight rates are determined by the economics of demand and supply
 Usually carry bulk cargo – usually one Bill of Lading.
 Types of ships – Bulk Carriers / Tankers.
 Tankers are specialized tramp vessels wherein they may be under charter or be owned by the
tanker companies themselves

Liner -
 Liner vessels operate on a fixed route between two ports or two series of ports
 They operate on a regular scheduled service
 They sail on scheduled dates and times whether they are full or not
 They have fixed tariffs
 Bills of Lading are usually non negotiable
 Documentation is very extensive as a liner vessel may have thousands of bills of lading and
large number of shippers to deal with.
 Usually carry finished cargo
 Types of ships – Containers / Ro-Ro.
 Liner vessels usually operate either as Individual lines or as Conference lines

Comparison Between Liner and Tramp Trades

Objectives Liner Tramp

Cargo Finished Goods, General Cargo, Small Raw Materials, Bulk Carriers,
Individual Quantities Tankers – Large Quantities

Routes Fixed – Like A Bus Service Not Fixed – More Like A Truck

Trading Areas One Sector – With Identified Ports Global – Must Have World Wide
Within Sector Market Knowledge

Port Types Traditionally Fixed General Cargo Cargo Specific – Ore / Oil / Coal
Ports To Be Visited / Container Terminals
Terminals

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 Load/ Discharge Ports Many Load and Discharge Ports 1+1 Or 2+2

Cargo Availability Cargo Is Available Both Ways One Way Voyage Is The Loaded
Passage And The Next Is The Ballast
Voyage

Users Of Service Remote Shippers And Consignee – Few Or Single Shipper Per Ship Load
Large Numbers – Quantity Is Large, Users Are Less

Info Available By Advertisement Through Brokers ( No Adv.)

Securing Of Business Through Marketing Department 'Chartering' System Exists – Through

Brokers
 Soliciting
 Convincing
 Promotion
Freight Rate Fixed- Tariff Fixed By The Conference Negotiated Every Time – Market
Line Administration Is Usually Revised Forces Of Supply And Demand
Once Every 6 Months Govern The Freight Rate

Bills Of Lading Usually Straight & Non Negotiable Always Negotiable

Table 01: Comparison – Liner / Tramp

Freight: It is the reward payable to carrier for carriage and safe arrival of goods.
The goods should be in recognizable and in working condition ready for delivery to the merchant.
The charges are usually charged as follows –

 General cargo - $/ton or $/ cu. m

 Containers - $/TEU

 Bulk - $/ton

Freight is a major factor that determines the supply of sea transport

Freight Broker is an intermediary between the shipper and the shipping company. He makes known
about the details of the cargo available to the shipping company. He informs the shipper about the
details of the shipping space opportunities and assists in booking shipping space. In each port there is
an association of freight brokers whose services are offered free to the shipper, the brokerage being
paid by the shipping company

Freight Forwarder is a multi-function agent/operator who undertakes to handle the movement of

goods from point to point on behalf of the cargo owner.
A well established and experienced freight forwarder is expected to have below capabilities (either
owned or outsourced)

 experienced in all modes of transportation, especially road and rail.

 able to provide cost effective and efficient cargo shipping solutions based on the customer’s
requirement
 able to book cargo with the shipping line as per the requirement of the client or under their
own contract
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  have the capability to negotiate freight rates with the shipping line
 able to arrange storage for the cargo (usually all big forwarders have their own warehouses)
 have the capability to negotiate freight rates with the shipping line
 process all relevant shipping documents

Clearing Agent: Essentially takes care of the customs clearance aspect of the business.
 is a company accredited with the local customs authorities, border agencies, port etc.
 arranges to pass the relevant documents at customs
 arrange for customs inspections as required
 check and process Duty and VAT payments as applicable
 apply for refunds etc. where applicable

Larger organizations which can handle the function of the Freight Forwarders and Clearing agents
are called Clearing & Forwarding (C&F) agents.

Bunker Suppliers: Bunkering is the supplying of fuel for use by ships, and includes the shipboard
logistics of loading fuel and distributing it among available bunker tanks.
The term originated in the days of steamships, when the fuel, coal, was stored in bunkers.
Nowadays the term bunker is generally applied to the storage of petroleum products in tanks, and the
practice and business of refueling ships.
Bunkering operations are located at seaports, and they include the storage of "bunker" (ship) fuels
and the provision of providing the fuel to vessels

Stores suppliers: Purchase of stores and supplies other than spare parts are made from the
manufacturers or from the Ship Chandlers.
Paints, Greases, Gasses, Lubricating Oils are usually procured directly from the manufacturer.
For the variety of items needed, often in small lots, the purchasing department turns to the ship
chandler, a merchant who specializes in supplying ships with almost anything they might need, in
any quantity at any time.

Shipping Agencies (Agents): Can be on behalf of the owner or the charterer. There should be
absolutely no ambiguity as to the identity of the principal concerned.
He shall advise his principals regarding –
 The port details,
 Prepare for the port operations of the vessel
 Arrange for inward – outward clearance of the vessel
 Notify the shippers and the consignee
 Complete the financial accounts and
 All other written formalities.

Additionally, the agent in a liner service also has to book cargo from the shippers and arrange for
delivery to the consignee.
This work is further increased in the container field as it involves Stuffing, Stripping and
transportation over land of the container. A daily report about the status of containers in the port to
be sent to the principal.

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 Chapter III – Organization of Shipping Companies
Role of Shipping Companies; Types of Shipping Companies - Manning –Business and cargo
management; Statutory regulations affecting Shipping. Various departments in shipping
company’s office and their functions. Role of superintendents and Designated person in supply of
stores, spare parts and other requisites to ships. Control of maintenance, surveys and inspections of
ships.

Shipping Companies can be of two types

1. Ownership Companies
2. Management Companies
In the Ownership companies all functions required for safe and efficient operation of the vessels
was carried out by the owners themselves.
Since 1970 recession set into shipping and it became difficult for ship owners to perform all the
functions especially as most owners were based in Europe and the manpower was from Asia.
This brought about the advent of a new entity – SHIP MANAGEMENT

Ship Management -The professional supply of a single or range of services by a management

company separate from the vessels ownership

Today management companies are substantially large – (V Ships – 700, Anglo – 240 etc.). They
do not own – but manage ships (any of the functions). Today a company doing both, the Owning
and Management of its ships is called a Traditional Shipping company – Maersk, Tolani, etc.

SHIP MANAGEMENT can be of three types:

 Technical Management
 Crew Management
 Commercial Management

There is an agreement between the Ship Owner and the Ship Manager that one or more of the above
will be carried out -
 Technical Management would deal with the 'Technical' function and some of the 'Support'
functions such as Purchase and Insurance
 Crew Management deals with the 'Fleet Personnel' support function – The manpower to supply
the manpower on board the vessel
 Commercial Management deals with the ‘Getting the Business' and the ‘Operations' part.
Although it is not compulsory, usually the Commercial Management is kept by the owner to
himself only

Some of the departments in a shipping company are listed below, (Also see figure 1):
1. Finance – Usually headed by a Finance Director
2. Crew – Headed by the Crew Director / Manager / Superintendent who Supervises Deck / Engine
Personnel
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3. Operations - The Operations Director / Manger works along with the Marine Superintendent whose
primary concern is the vessels deployment including voyage instructions. If no separate Chartering
division exists, they handle that too.
4. Technical Department which is controlled by the Director / Manager and includes the Technical
Superintendent who are responsible for the maintenance of the vessel and includes Maintenance &
Repairs of Machinery, Dry Docking. Stores and Spare Parts Requisitions and Purchase of the same
may be under this department or under the Operations department.
5. Safety & Quality Department is headed by the Designated Person Ashore who along with the
Safety Superintendents are responsible for the Safety and compliance with the ISM code
6. Traffic Department may be separate or under the Operations department whose primary focus
is on Freight

Fig. 01: Flow chart of a typical shipping company

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Functions in detail: (Description in Italics apply only to the Management Companies)

TECHNICAL MANAGEMENT -
1. Repairs & Maintenance
1. The difference between Repair and Maintenance is that repairs are carried out
when an equipment is not performing or performing below its standards.
Maintenance is the work carried out to avoid repairs – Most sea board jobs are of
the Maintenance type.
2. Dry Docking – To be carried out twice in 5 years of which one can be an
underwater survey subject to certain provisions.
3. Purchasing – Added from the support functions for simplicity
4. Certification – Ensure the validity of all certificates both for the Flag State and
those of the Classification Society
5. (Vessel Inspection – In an ownership company the vessel is inspected in given
period by the technical department. Here the ship owner tells the ship manager
the period in which the vessel has to be inspected and a formal report is made out
by the ship manager and forwarded the ship owner.)
2. Performance Monitoring - It means to check the performance of the vessel. This is done by
means of daily noon reports, cargo loading and discharging rates, ballast rates,
loading status etc. Weekly or monthly maintenance reports are taken from the
vessel advising the ship and ensuring that the required action is taken to rectify
any defects.
3. Reporting - On the basis of the vessel inspection and the performance reporting a full vessel
condition report is made out to the owners – the duration of the report is
mentioned in the Management Clause. It includes off hires, delays, Status of holds,
Certification status
4. Budgeting - It is the job of the ship manger to prepare a budget which would include the cost
of repairs, maintenance, purchase etc. The ship owner goes through the budget of
different Ship managers and awards the management contract to a manger for a
year. This means that the ship manager’s hands are now tied. If the budget is
exceeded, then the Ship owner will not be happy. All cost will be reimbursed by
the Ship Owner. If the expenses are less than the budget, then the benefit is to the
Ship Owner and not to the manager. In addition, the ship owner pays the ship
manager a Management Fees.
5. Safety and Quality Management - Responsible for the implementation of the ISM Code. It
becomes the responsibility of the Technical mangers for compliance with the
International Safety Management Code. The responsibility of this is always with
the Designated Person Ashore (DPA).

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 6. Contingency - Should something go wrong the technical mangers will be informed first.
They will provide advice to the vessel – deal with the classification society and
the insurance and arrange for help.

CREW MANAGEMENT -

The Crew Managers are obliged to ensure that the crew selected are suitably qualified, are medically
fit, comply with flag state requirements and have sufficient command of English. It is also a
mandatory requirement to implement the Drug and Alcohol Policy
The responsibilities of a Ship management company given the job of crew management are given

1. Selection and Engagement - Selecting the seafarers and thereafter placing them on board
the ships of their principals. This is done for all ranks, not just limited to the selection of
cadets from various institutes. Contracts are made out for the selected candidates before
placement on board the ships. The guidelines will be given by the Ship Owner.
2. Performance Appraisal - Monitor the work / performance of the crew. Every vessel will
have a mechanism of appraisal or confidential reports made out of the ratings and the
junior officers by the Master / Chief Engineer.
3. Payroll - The actual calculation of the wages and payment of these are done including
allotments. The wages are paid by the Crew Management Company but reimbursed by the
Ship Owner
4. Travel - All expenses for joining and repatriation including Air Fare, Hotel expenses,
arranging through the agents for airport pick up / drop
5. Training - STCW training is usually the responsibility of the seafarer himself. Companies
arrange for training which are over and above the STCW requirements
6. Welfare - Includes medical treatment while on board and also Organizing get together &
Seminars.
7. Reporting - The Crew Management company will report to the ship owner periodically
with respect to the manning. For example, a change of Master or the Chief Engineer
COMMERCIAL MANAGEMENT -

The two main functions of commercial management (From the Operations Department) are
1. Securing the business &
2. Conduct of business.
Usually kept by the ship owner himself but may be given to a management company also. The main
jobs entailed are -

1. Marketing - This is in case of liner shipping only. They have to convince the customers to use
the service and also to book the cargo. They have to deal with other modes of transportation.

2. Chartering - This is in case of tramp shipping where the Commercial Manager needs to be in
contact with the charterer and the broker.
18
 3. Voyage Operation - This involves employing the optimum vessel and to ensure no delays in
the cargo operations

4. Post Fixture Activities - 'Fixture' or 'to fix' is a chartering term. When a vessel is chartered,
we say that the vessel is fixed. Once a charter is finished some follow up actions will be
required such as Collection of freight, adjustment foe Demurrage etc. In Bulk cargo the
freight is paid once the B/L is signed. In Tankers freight is payable upon delivery of cargo. In
a TIME charter the Speed and Fuel consumption are the responsibility of the Ship owner
which need to be settled if required.
5. Voyage Accounting - keeping a full account of the voyage such as the detailed account of all
the money coming in from the freight, especially applicable in case of containers where there
will be thousands of shippers
6. Disbursements - Payments made by the Master / Agents etc. for commercial and not for
technical reasons
7. Agency - Dealing with the agents for berth / tug / gangs availability. Check on any delays in
cargo operations

Role of Superintendents: Mostly Master’s & Chief Engineers, employed in the Technical /
Operations Department of the company. They work closely with the Master’s and Chief Engineers,
to ensure –
1. Vessel is maintained at all times
2. Vessel is operated in accordance with the International regulations and Companies policies
3. Timely arrival of stores and spares
4. Visit vessel for routine inspections
5. Visit vessel during dry dock
6. Liaise with ship yards
7. Liaise with class and administration for surveys
8. Available at all times to respond to emergencies
9. Organize the shore set up for quick response to provide external assistance in case of a major
emergency
The DPA’s responsibilities are to -

1. Ensure the safe operation of each vessel,

2. Monitor the safety and pollution-prevention aspects of the operation of the vessel and
ensuring that adequate resources and shore-based support are applied, and
3. Provide a link between the Managing Company and those on board, with direct access to the
highest level of management.

Repairs (also Maintenance) can be broadly classified under two categories -

1. Voyage Repairs
2. Lay-up Repairs or Dry Dock Repairs

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Voyage repairs: These repairs are carried out during a vessels voyage including port stays.
There are always items requiring attention on board and these are mostly carried out by the ship’s
crew itself.If there are major repairs which cannot be done as the vessel does its business and they
can be attended at a later date, then those are kept pending for the next dry dock. Subject any shore
help required then for certain jobs workshops are called in port. Sometimes workshops or repair team
sails with the vessel. The use of such teams depends upon the company policy, number of crew,
existing workload on the crew as well as the competency of the crew.

Lay Up repairs or Dry Dock Repairs: Usually planned well in advance unless of some emergency or
contingency occurs. During this period the vessel is out of commission. Dry dock is required by
class, two dry docks in an interval of not more than 5 years, with the interval between two
subsequent ones should not exceed 3 years. One of these can be an underwater survey subject to
certain conditions. In this case repairs are carried out with the vessel afloat.

Spares: Parts identical to the parts of the machine which need replacement. The Technical
department is responsible for the supply of spares to the vessel. These spares could be for the Engine
/ Deck / or Electrical departments. Spare parts have a substantial cost. The vessel themselves have
many spare parts on board at any given time and a proper inventory of all spares is maintained up to
date at any given time.

Stores: Items required for the normal upkeep of the vessel. These are not fitted on board but are
the additional items required. These could be 'Consumable' such as Paints or Gasses nor could be
Non Consumable such as tools. The stores are requisitioned for each department such as Deck,
Engine, saloon, Electrical, LSA/FFA etc. Lubricating Oils form a separate class of store requisitions.

Surveys: The Technical managers have to organize the various surveys which the vessel has to
undergo. Primarily the surveys are classified under two groups – Class & Flag. For surveys of class
the charges are paid per survey and transportation costs if any are charged extra. The charges then
vary from place to place. Also sometimes the contract is made out on an annual basis and a lump sum
figure is agreed upon, depending upon the surveys due. Even for the flag state surveys there are
two ways – either the flag state charges an annual registration fees with no survey charges or it does
not charge a registration fees but charges for each survey.

Vessels are also subject to random inspections, most common are the Port State Control Inspections
and in case of Tankers they are subject to Tanker Vetting Inspections.

All the above that is Voyage Repairs, Dry Dock repairs, Spares, Stores, Lubrication Oils, Surveys
and Inspections involve considerable costs which need a considerable degree of planning to ensure a
safe and profitable business.

The paramount reason for the above is to maintain the seaworthiness of the ship. To assess the same
various surveys are carried and certificates are issued upon survey. The vessel needs to carry valid
Certificates which are checked including subsequent inspections. Important certificates to prove
vessel’s Seaworthiness are –

20
 LIST OF CERTIFICATES

No. Certificate Issuing Under Instrument Validity

Authority

1 Certificate of Registry Flag State UNCLOS / M.S. Act P

2. Minimum Safe Manning Document Flag State SOLAS P

3. Ship Radio Station License Flag State M.S. Act P

4. Tonnage Certificate Flag State Tonnage Convention P

Statutory Certificates

5 International Load Line Certificate Flag State Load Line 5 Years

Convention

Passenger Ship Safety Certificate Flag State SOLAS 1 Year

(Record of Equipment – Form P)

6 Cargo Ship Safety Construction Certificate Flag State SOLAS 5 Years

7 Cargo Ship Safety Equipment Certificate Flag State SOLAS 5 Years

(Record of Equipment – Form E)

8 Cargo Ship Safety Radio Certificate Flag State SOLAS 5 Years

(Record of Equipment – Form R)

9. International Oil Pollution Prevention Flag State MARPOL 5 Years

Certificate
(Record of construction and Equipment -
For Oil Tankers – Form B
For other ships – Form A )

9. Safety Management Certificate Flag State SOLAS 5 Years

10. Document of Compliance Flag State SOLAS 5 Years

11. ISPS Certificate Flag State SOLAS 5 Years

12 Continuous Synopsis Record Flag State SOLAS 5 Years

ISPS – Initial verification – Renewal verification at intervals not exceeding 5 years. At least one
intermediate verification. If only one intermediate verification is carried out then it shall take place
21
between the second and the third anniversary date

DOC – Issued to the company after initial verification – DOC is valid for the type of ship – Can be
extended to cover other types of ships after verification – valid for Max 5 years – Subject to annual
verification within 3 months before or after the anniversary date – Copies given to the offices and
ships

SMC – Initial verification (including Verification of DOC for the TYPE of ship) - Valid max 5 years –
At least one intermediate verification – if only 1 then between 2nd& 3rd verification.

Others

13 Certificate of Class Class. SOLAS 5 Years

Society

Continuous Survey Machinery

Table 02: List of Certificates

22
 Chapter IV – Liner Trade Characteristics
Liner Conferences – How Freight rates are fixed - Components of Liner Freight – Non Conference
lines – competition. Procedures of Shipping cargoes and related documentation: Mate’s receipt,
Bill of Lading. Unitization. Containerization. Consolidation business. Consortiums of container
ship companies. Multi-modal transport.

Liner Conference is an association of Shipping Companies catering to a general cargo trade within a
defined geographical region. It has a constitution which lays down the membership, number of ships
of each member will ply and his share of entitlement. The agreement would cover items such as
freight rates, number of sailings, working conditions etc. The first conference was established in
1875 (UK Calcutta conference) & presently there are more than 350 conferences worldwide.
Conferences can be ‘Closed’ or ‘Open’.

Advantages of Conference System are that they allow -

1. Relatively Fixed Stable Rates

2. Regular Services

3. Ships of optimum size and speed – Equipped to deal with the trade concerned

4. Avoids mutual competition between members

The disadvantages of conference system are that they

1. Are monopolistic organization like cartels

2. Restricted freedom for shippers to choose their shipping lines

3. Tend to keep the freight high in favour of shipping lines

4. Are complacent and reluctant to accept changes

Rate Making - the process of deciding on the liner freight is called rate making. One of the important
activities of the conference is the preparation, publication and revision of the conference tariff.
Rate Making Is a Complex Process and Is Determined After Considering Several Factors Such As
i. Availability of Cargo
ii. Character of The Cargo
1. Susceptibility to Damage
2. Susceptibility to Pilferage
iii. Competition with Goods Coming from Other Sources
iv. Competition from Other Carriers
v. Cargo Via Competitive Ports
vi. Cost of Handling
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 vii. Canal Tolls
viii. Distance (Direct Fuel Cost)
ix. Extra Lengths
x. Heavy Lifts
xi. Insurance
xii. Lighterage (Barges Required to Reduce the Draft)
xiii. Port Facilities
xiv. Port Regulations
xv. Port Charges and Port Dues
xvi. Port Location
1. Delays / Berth Dimensions / Out of The Way for Small Quantity???
xvii. Possibility of Securing Cargoes
xviii. Relationship of Weight to Volume -----Very Important
1. Heavy Cargo On a Weight Basis
2. Light Cargo On Volume Basis

Terms Associated with Liner Freight –

1. Basic Rate - it is the tariff for carriage between two identified ports for that commodity. Liner
tariffs are quoted in US $ for the purpose of price stability and guarantee a fixed rate for a
certain period effective from a particular date. So say a basic rate of US$ 30 per / MT has
been agreed from 01.02.19 between ports Alpha & Bravo. The Conference is free to provide
promotional freight rates if it desires.
2. Currency Adjustment Factor (CAF) - this is also known as the currency surcharge. A tariff is
always quoted in US $. The expenses incurred however are in the local currency. Thus
exchange rates would lead to changes in the operational cost as well as the revenue of the
shipping lines. Hence CAF is established to compensate the ship owners for fluctuation in
currency values on a no gain / no loss basis so that the "real" value of the freight remains the
same. It could be + or - and denoted as %age of the Basic Rate.

3. Bunker Adjustment Factor (BAF) - this bunker surcharge is the compensation to the ship-
owner for the sudden and extra-ordinary rise in bunker prices, as bunkers is one of the major
costs for the ship-owners. Bunker surcharge is expressed as a percentage, positive or negative
of the basic rate or as an amount per freight ton. If it is expressed in terms of an amount per
freight ton, then the volume of the cargo movement also becomes important for computation
of the bunker surcharge.

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 4. Port Congestion Surcharge - this is imposed to compensate the ship-owners for abnormal
delay being suffered at an individual port by way of berthing delay or by way of extremely
slow turn around due to inefficient operation. Port congestion surcharge is always added to
the Basic Rate. Presently port congestion is not being levied due to strong opposition from all
quarters

The shipper will have to pay a total of the “Basic Rate + CAF + BAF + PCS”

If this was too high for a certain commodity, the conference will critically examine it on the
application by the shipper for that certain commodity, and if found ok will grant a reduction in
the basic rate. Thus it may be remembered that freight rates are adjustable- they are not rigid.
When basic rate is reduced the surcharges also come down proportionately.

CONTAINER FREIGHT RATES:

It is quoted for a Full Container Load (FCL). The rate is based on the average utilization on the box
e.g. 13 tons in a 20feet box. Usually a FCL moves from the premises of the shipper in one country to
the premises of the consignee in another country. Hence the stuffing and de-stuffing charges are
borne by the shipper / consignee

Freight rates for such FCL containers are of two types:

a) Commodity Box Rate

b) Freight all Kinds

A. COMMODITY BOX RATES: (C.B.R)

Thousands of commodities are itemized or split into few broad classes.
Freight of the container is charged as per the commodity. If the commodity is different, the freight
will also be different. Price is quoted between two ports

B. FREIGHT ALL KINDS: (F.A.K)

One consolidated rate irrespective of the commodity inside except illegal cargoes.
Carrier quotes an amount per 20 feet container - irrespective of what it contains, for transportation
from one place to another, subject to certain restrictions. Shipper takes the advantage of stuffing
cargo which gives him a freight advantage such as high value goods

Procedures for Shipping Cargo and related documentation:

There is an exporter and importer. Exporter is the shipper &importer is consignee. Exporter contacts
a ship owner directly or through a freight forwarder. When a ship owner agrees to carry goods over
water in return for a sum of money to be paid to him – such a contract is called a contract of
affreightment and the sum paid is called – freight. The shipment of the goods is usually evidenced in
a document called the Bill of Lading
Bill – schedule of costs for services supplied or to be supplied
To lade – to load cargo on a ship or other forms of transport.

25
Bill of Lading – (Definition)
1. A receipt of goods shipped on board a ship, signed by the person (or his agent) who contracts
to carry them, and stating the terms on which the goods were delivered to and received by the
ship.

2. B/L is a document issued on behalf of the carrier describing the kind and quantity of goods
shipped, the shipper, the consignee, the ports of loading, ports of discharge and the name of
the vessel

Bill of Lading (Functions)-

There are 3 main functions of the bill of lading. It is
1. An evidence of the terms of the contract of affreightment

2. An Evidence of the shipment of goods

3. A document of title - who so ever owns the bill of lading rightfully, is the lawful owner of the
goods being sent

Bill of Lading (Contents)

1. The Name of the Shipper

2. Ships Name

3. Full Description of the Cargo – Shipping Marks / Individual Package Numbers, Contents,
Cubic Measurement, Gross Weight, Condition Etc.

4. Port of Shipment & Port of Discharge

5. Full Details of the Freight – Payed or Payable

6. Name of The Consignee

7. Number of Original Bills

8. Masters (Or His Agents) Signature and Date

9. Terms of Contract – On The Back Side

Bill of Lading (Types)

One way of differentiating Bills of Lading are follows -

1. Open B/L – if the B/L states that the goods are deliverable to the bearer then the cargo can be
claimed by the person who presents the original document.

2. Straight B/L – if the B/L states that the goods are deliverable solely to the named consignee,
then only he can take delivery of the goods

26
 3. Negotiable B/L – most popular – it states that the goods are deliverable to a named consignee
or order. Can be endorsed to someone else if they buy the cargo. If the original consignee
signs at the back with no remarks – it becomes an open bill of lading. If the endorsement
states – deliver to xyz – it becomes a straight B/L. the endorsement states – deliver to xyz or
order – then xyz can further endorse it for resell.

Bills of Lading can also be classified as ‘Clean’ and ‘Claused’.

1. Clean bills of lading – each B/L states “in apparent good order and condition” - if ship owner
does not modify the statement then the B/L is said to be clean

2. Claused B/L – if the ship owner does not agree with any of the statements of the B/L he will
add a relevant clause.

Yet another way of classifying Bills of Lading are “Shipped” & Received for Shipment”
1. Shipped B/L – it is not signed and returned to the shipper until the cargo is actually loaded on
board the vessel. Most trades, banks insist on this type of B/L

2. Received for shipment B/L – this B/L can be issued by the shipping company as soon as it
receives custody of the cargo at its transit shed, warehouse or at the inland container depot.
Allows the B/L to be issued earlier and thus avoids the situation of the cargo arriving before
the B/L

An important kind of Bill of Lading is the Multi Modal Transport Bill of Lading which will be
discussed later in the chapter.

Mates Receipt:

Another important used is the Mate’s receipt. This is merely a receipt, not a document of title and
cannot be traded commercially. It is prepared ashore, presented by the shipper, signed by the mate.

It gives the details of cargo quantity, grade and quality and the Mate puts his remarks and
acknowledges receipt. The remarks usually are - Said to weigh, said to be, Quantity, Quality
unknown, said to contain etc. Any damage or shortfall is mentioned by the mate in this receipt. The
B/L is usually prepared using the details appearing on the Mate’s Receipt

Understand The System of Documentary Credit -

Once the terms of trade have been decided the exact means of payment are decided which include
1. Cash in advance – is straight forward, cheap but requires high degree of trust by the buyer

2. Open account – goods are manufactured and delivered and payment made afterwards – high degree of
trust required by the seller

3. Collection – basically a mechanism which allows buyers to offer secure terms of payment to the
sellers in which a bank (or more than one bank) gets involved. A common method is the Letter of
Credit or Documentary Credit

27
Individual cargoes have values of millions of dollars and any delay in payment could cause a major
cash flow problem for the shipper. The idea is to shift the risk to a bank. The LC is a payment
undertaking given by a bank to the seller and is issued on behalf of the buyer.
The buyer is the applicant and the seller is the beneficiary.

1. Issue of LC: The buyer and the seller conclude a sales contract providing for payment by a
documentary credit. The buyer instructs the bank (the issuing bank) to issue credit in favour of the
seller (beneficiary). The issuing bank asks another bank, usually in the country of the seller to advise
and add its confirmation to the documentary credit. The advising or confirming bank informs the
seller that the credit has been issued

2. Settlement of LC: The seller sends the documents giving evidence of the shipment to the bank
where the credit is available (Advising bank). After checking that the documents match the credit
requirements, the bank makes payment. The bank then sends the documents to the issuing bank. The
issuing bank, after checking that the documents meet the credit requirements, makes reimbursements
in the pre-agreed manner. The issuing bank then sends the documents to the buyer. Reimbursement is
obtained in a pre-arranged manner.

3. Important points in LC

a. Bank scrutinizes the documents and not the goods for making the payment.

b. This is why the banks will generally only accept a clean bill of lading. If it is claused there
could be a considerable delay

c. Also the bank will not pay if there is any mistake in the bill of lading.

d. The banks are totally unaware where the goods are at any given time.

e. Central to all these transactions is the Bill of Lading

f. This is due to its dual role – Document of Title + Proof of Quantity and Quality

g. The LC is time related and stipulates an expiry date

h. LC describes the goods to be shipped and this description should tally with that on the B/L
totally with no reference to defects

i. LC stipulates documents to be presented and it is against these documents alone that credit is
transacted

28
Unitization: The essential problem when loading packaged / finished products was the time taken to
load / unload the same, thus increasing the port stay of a vessel. Unitization means packing a number
of parcels in one unit and thus saving time by reducing the number of lifts. Some of the methods
used for unitization were-

1. Pre-slinging
2. Palletization
3. Containerization
4. Roll on / Roll off
5. “Lighters Aboard Ships” (LASH) (80 barges / each holding 400Ts of cargo / Loaded by
gantry at the stern)
6. “Seabee” (40 barges / 1000 Ton each / Lifted two at a time with powerful elevators)

Containerization:

1. Shipping Containers – An idea that revolutionized the transportation industry, first conceived
by Malcom McLean in the Mid 1950’s
2. Advantages of Containers –
a. Shipper’s Point of view
i. Saves packaging cost
ii. Reduces insurance premium
iii. Eliminates loss or damage and contamination of individual packages
iv. Reduces theft and pilferage
v. Cargo handling time reduced at all points
vi. Easy Tracking – Container Numbers / Bay Plans / Container Tracking
vii. Makes Multi modal transport possible
viii. Reduced documentation
b. Ship Owner’s point of view
i. Great saving of time in ports (Turnaround time)
ii. Less number of claims from cargo for short handling and over carriage
iii. Standardized cargo securing arrangements – safer for ships
iv. Easier cargo planning and stowage
3. Disadvantage of Containers –
i. Expensive equipment to handle the containers on and off ships (Capital
Intensive)
ii. Loss of employment for work force involved in conventional cargo
iii. More skilled work force required
4. Container Dimensions – Basically of two types
a. ISO (Standard)
i. 20’ x 8’ x 8.5’
ii. 40’ x 8’ x 8.5’
b. Others
i. 45’
ii. 48’
iii. 53’
5. Variations of the Standard Container-
i. Open Top
ii. Tanktainers
iii. Bulk Containers
29
 iv. Refrigerated Containers
v. Flat racks
vi. High Cubes

Less than Container Load: (LCL)

Liner shipping faced a problem in respect to small shippers, where cargo quantity is limited.
Consignments are accepted as break bulk by the liner operators. Different rates would apply and
separate bills of lading issued.

The Carrier stuffs the container to full load and transports them.
The carrier’s agent at the discharge port, upon receipt of the container, releases the cargo to various
consignees against the bill of lading.

This has also led to the business of Consolidation.

Consolidation means the assembly of small parcels of cargo from several shippers at one point of
origin, intended for several consignees at the point of destination and dispatching the consolidated
consignment.

Any Clearing / Forwarding agent or any company could become a principal operator, accepting
responsibilities and liabilities of the cargo by becoming a consolidator. The consolidator contacts the
shipping companies and negotiates FAK rate to different countries.

The consolidator does not own vessels - nor do they represent owners of carriers and often they do
not even own containers or other necessary equipment. They are known as "Non-Vessel Owning /
Operating Common Carrier" operators (NVOCC).

Also known as multi modal transport operators when they assume the further responsibility for the
execution of the multimodal contract.

Multi modal transport means that the cargo can be hauled using more than one mode – truck, rail,
barges, ships.

The NVOCC carries the cargo in ship owned containers or the company owned containers. However,
if he has a sufficient business on a long term basis he will go in leasing or owning containers and
further goes in for slot chartering on common carriers. In other words - they purchase space from the
ocean carriers on a "wholesale basis" and resell the space to the shippers on a "retail" basis.

Today they dominate the LCL business and are increasing their share in the FCL business.

The popular Bills of Lading used for Multi Modal Transport are –

1. Through B/L – carrier only accepts responsibility for the sea carriage while the cargo is being
carried on his own vessel and acts as an agent in respect of sea or land carriage not actually
performed by him

2. Combined Transport B/L – here the MTO, the person on whose behalf the B/L is issued
accepts responsibility for the cargo for the entire period of carriage. He may subcontract all or
part of the carriage will responsible for the acts and omissions of the subcontractor that he
uses.

30
Consortiums:

Liner Conferences are groups or associations of Ship Owners that agree to combine their operations
on a given trade route, under conditions agreed upon by members. Liner Conferences were formed
originally to protect Owners already operating a service from unscrupulous competition which
started following the introduction of steam propulsion in 1865.A Liner Conference, although being
referred to as an entity, is however, a collection of shipping lines that have agreed to carry out some
of their activities under one umbrella. The biggest flaw was that decision making was slow.

Following the container revolution, certain changes came about-

1. High cost of new ships

2. Cost of containers
3. Cost of Cargo Handling Equipment

Problems encountered were-

1. Business pressures kept increasing

2. No one owner was able to supply a regular frequent service by itself
3. No one owner had enough containers to keep the ‘pipeline’ going
4. Economy demanded the largest ship possible
5. Frequency demanded several such ships
6. Economy demanded the largest ship possible
7. Frequency demanded several such ships

Two steps were taken in this regard.

In 1967 4 shipping companies from UK came together to form the Overseas Container Lines Limited
(OCL). In this case a new joint venture shipping company was started, such a company was called a
consortium.

The second was the forming of Tonnage Pool Consortium where a group of ship owners pooled their
ships but did not lose their respective identities. Each participating owner contributed one or more
ships to the group. Each participant’s contribution would determine the portion of ‘Owners Share’. In
some cases, a separate marketing company was set up to sell the cargo space.

Further problems were encountered from the 90’s due to different marketing philosophies and
introduction of improved logistics. This led to mergers of container shipping companies called
Alliances. Today -

 75% slots controlled by 30 companies

 35% slots controlled by top 3 alliances
 50% slots controlled by top 5 alliances

31
 Chapter V – Ship Chartering
Meaning of charter. Types of charters and their relevance to trades – Procedures and
documentation relating chartering – Charter markets of the world – How freight/charter hire is
fixed. Freight Indices of the Baltic Exchange and how they are used. Sighting of common charter
parties. Charter party – various clauses and their interpretation

Chartering means Hiring.

Charterer is a merchant or organization who hires a ship. There are different types of charters - of
which the main types are
 Voyage Charter
 Time Charter
 Bare Boat

Anyone with a small amount of cargo would use a liner vessel, a person who has a large volume of
cargo to ship would rather hire / charter a vessel.
The formal contract between a charterer and a ship owner is called a 'Charter Party'.
It probably comes from the Latin word - ' Charta Partita' which literally means - Divided document.
In Roman times the contract was written out in duplicate on a piece of parchment. This was then torn
into two parts and had to be matched together to test if they were the original genuine documents.
A very old tradition - A charter party written in AD 236 exists in the British Museum.

VOYAGE CHARTER: In a voyage charter - the ship is hired for a voyage between two ports - say
'A' and 'B' to carry an amount of cargo.
 The charterer pays the freight.
 Hire is decided as _____$/Ton.
 It can also be decided as a lump sum amount for the voyage.

The ship owner virtually pays for everything, except perhaps for the loading and discharging costs
(Usually FIOT – Free In Out and Trimmed).
 Parties have to agree upon the cargo handling time – LAYTIME

 The charterer also usually has to pay for any delays in the loading or discharging operations
of the ship. This is known as Demurrage
 If the charterer is able to turn the ship around faster than agreed, the ship owner usually
shares the financial gain with him. This referred to as Despatch
 Rate of Despatch is usually half that of Demurrage.

Laytime : Time allowed by the ship owner to the voyage charterer to carry out the cargo loading
and/or discharging operations; Laytime may be expressed as a certain number of days or number of
tons of cargo loaded/unloaded per day

Laycan : a ship chartering term which stands for laydays commencement and cancelling; specifies
the earliest date on which laytime can commence and the latest date, after which the charterer can opt
to cancel the charter party

32
Demurrage : Fee paid by the charterer to the ship-owner when the latter's ship is detained beyond the
specified date agreed in the charter party

Despatch : Compensation paid by ship-owner to charterer as a 'reward' when the latter is able to
complete the cargo operations in less time than the laytime allowed.

Notice of Readiness - This is the declaration given by the Master to say that the ship has arrived and
is ready to load the cargo. The start of the laytime is usually related to this time

SLOT CHARTER -
Voyage charter whereby the ship-owner agrees to place a certain number of container slots (TEU
and/or FEU) at the charterer’s disposal.
A voyage charter party includes a sub-category known as a slot charter, where the owner or operator
‘rents’ or ‘hires’ container spaces or a percentage of the space on the vessel for a hire fee based on
the space rented to the slot charterer, which is payable regardless of whether the slot charterer fills
the space or not. There is no distinction in principle between a slot charter and a voyage charter of a
part of the ship. A Slot charter is simply an example of a voyage charter of a part of a ship.

TIME CHARTER -
In a “Time Charter” the ship is hired as a functioning operating unit for a period of time and the ship
trades to ports and carries cargoes as per the charterers orders. In return the ship owner gets the
Charter Hire per month (The compensation to the owner is called 'hire' instead of 'freight'). It can be
for any period of time - from a few weeks (Short term) to say 15 years (Long Term). Due to inflation
usually the owners do not wish to commit more than 2 years. Fuel costs are on account of the time
charterer.
The ship owner guarantees the fuel consumption and the speed performance.
Hire amount, hire period and trading area will be agreed upon. In general terms the C/P will state the
type of cargo the time charterer is allowed to carry. It is the time charterer who operates the vessel
commercially & has the contact between the shippers, receivers etc.

The C/P is extensive and deals with many clauses such as

1. The Vessel - Description of the vessel is very detailed and precise. During negotiations
itself the charterer should be able to form an opinion about the commercial value of the
vessel. Name / call sign / year build / nationality / GRT / NRT / Draught / Principal
dimensions / Number of hatches / Lifting gear etc. are all mentioned. A copy of General
Arrangement plan is provided sometimes. Two most important aspects are
a. Cargo capacity - Described in Deadweight or the Cubic Capacity. Very important
as wrong information can lead to reduction in hire or even cancellation.
b. Speed and Bunker consumption- Charterer pays the hire per unit time. Both
factors play a very important role. It is declared in relation to the weather
conditions and draught. Economical speed is also agreed upon
"Owners warranty of seaworthiness is implied
2. The Trade- The Charter party may dictate the trading areas in two ways
a. Geographical limits - The hull and war risk underwriters may dictate certain limits
for the vessel.

33
 b. Non geographical limits additional limitations within the geographic limits –
Excluding Epidemic ports, carrying cargo which is legal in the country of load &
country of discharge & country where the ship is registered
3. The Cargo- The ship owner may impose certain restrictions including restriction in
quantity of cargo carried such as explosives, radioactive materials etc.
4. The Period- The basic period is sometimes called 'Flat Period'. Re delivery date has a
built in flexibility. Charterer is not entitled to an extension of the flat period because of
the off hire periods during the charter, unless expressly stated in the Charter Party
5. Delivery & Re-Delivery-
a. When - A certain flexibility is given. If the ship arrives too early, the charterer is
not obliged to take delivery. If the ship arrives too late charterer can claim
damages or even cancel. If the ship is re delivered too late the Ship Owner is
entitled to damages
b. Where - Sometimes a port is mentioned. Sometimes a certain area or range is
mentioned. In such cases the owner chooses the port of delivery and the charterer
the port of re delivery. Need not be when the ship is within a port
c. Condition - Delivered in a sea worthy condition and conforming to the
requirements of the contract. Re delivered in the same good order (fair wear &
tear excepted)
d. Allocation of costs - At the time of delivery and re-delivery, a special on-hire and
off-hire surveys are carried out. Usually it is a joint survey carried out by an
independent surveyor (The cost is usually agreed at 50:50 basis). The survey
reports contain exact time of delivery - re delivery, quantity of Fuel Oil & Diesel
Oil on board, Damages to the vessel and her general condition. The Charter Party
states the prices of fuel to be applied
6. Payment of Hire - Expressed as --$/day or --euros /day. Hire per month is avoided. C/P
usually has a separate clause for the payment of the last instalment (to compensate for the
bunker ROB and other compensations).
7. Off Hire- Delays due to bad weather, strike of stevedores is on charterers account. For
delays attributed to the crew or connected to the vessel, the charterer is entitled to a
compensation called off hire. These could be because of –
a. Dry dock
b. Breakdown of machinery
c. Damage to the vessel such that operations are hindered
d. Strike by ship’s crew
e. Can be pro-rata basis in case of crane / hatch cover breakdown not caused by
carelessness of shore labourer
Compensation is agreed beforehand - entitlement is not on the actual loss suffered

34
 8. Cargo Liability- In case of damage to the cargo the issue rises as to who should be held
responsible. This is because the Owner is the performing carrier while the charterer is the
contractual carrier. Under the 'Demise clause' in the B/L it the responsibility of the
owner. This is considered invalid under many legal systems. Also many large charterers
tend to pay the claims themselves to avoid poor reputation as the B/L is printed in their
letter head. Many a times the charterer and owner make an allocation of liability in the
C/P itself
9. Damage to Vessel - Bad weather, Collision, Grounding, - on owners account unless can
prove that the charterer directed the vessel to an unsafe place. Any damage caused by fuel
Oil will be on charterers account. The specifications & description of fuel to be used shall
be placed in the C/P. Damage caused by cargo if an excluded cargo will be on charterers
account. In case of Stevedore damage, the 'charterers are liable only if the master informs
the charterer immediately when the damage occurs and also obtains a statement in
writing from the stevedores that they accept the liability'. In case of damage by pilots /
tugs only under special circumstances the charterer can be held responsible.

TRIP TIME CHARTER -

A trip time charter is a variation of time charter related to voyage charter. The charterer hires the ship
to carry cargo from A to B but pays on a daily basis rather than tonnage moved basis.

DEMISE or BAREBOAT CHARTER -

The vessel is hired as a hull and the charterer pays the hire usually on a monthly basis.
The charter is usually for longish periods - 5 years and more.

The ship owners only cost are the depreciation, the survey to establish the actual the actual condition
of the ship before the charter and the fees of the broker.

The charterer supplies the crew and operates the ship as if he were the ship owner. He is responsible
for all the daily running costs, the bunkers and all port costs. Usually pays for the survey before
handing the vessel back to the ship owner. This is also called 'Demise Charter'

It sometimes also has a clause stating that the charterer has the right to purchase the vessel at the end
of the contract.

The Bare Boat Charterer pays a hire to the ship owner .......$/day, usually paid monthly in advance.
The charterer indemnifies the owner against liabilities incurred by the ship. There is no off hire.

Usually two types of charter party forms are available - Barecon A and Barecon B

Barecon A is usually designed for a very short time period - (Summer hire of passenger vessels -
owner pays for the insurance)

Barecon B - for longer periods of time - contract usually for new buildings although it can be
modified for older tonnage also.

There are two other common ways hiring of vessels for carriage of cargo
1. Tonnage Contract

2. Pooling
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TONNAGE CONTRACT - is a contract between a ship owner and a bulk cargo charterer and covers
a series of voyages over a given period of time - usually a period of two years. Total quantity of
cargo to be carried, period of contract, name of cargo and the ports are mentioned. Freight is paid as
per voyage. Name of the individual ships are not identified but the size, type and characteristics of
ships are agreed upon.

POOLING - Ship owners form a pool by which they control commercial management &
employment of all ships within the pool management. Each ship owner looks after the crew &
technical management of his own ships. A "Pool Manger" time charters all ships in the pool and
markets all ships as a single entity. Each ship earns from the pool a share in the actual net income of
the pool based on a previously agreed formula. In case of a technical problem on any ship, off hire is
adjusted accordingly. The benefits are
1. To spread the risk
2. Reduce the ballast legs
3. Better income stabilization
4. Reduces competition
There are over 60 bulk carrier and tanker pools.

Chartering of Vessels &Freight Indices of the Baltic Exchange –

The ship owner entrusts his ship with one or more broker to find the best employment for his ship.
(Could be discreet to ' sound' the market or advertise at the risk of getting lower rates). Ship brokers
work and operate at major shipping centers such as London, New York, Hong Kong, Hamburg, Oslo
and Tokyo. The most important one even today is London which houses the 'Baltic Exchange'. In
1993 - 50% of the dry bulk trade was handled here. The share in tanker chartering was even larger. It
was established in 1810 and has been working through out. The 'Baltic' is the center for chartering
ships. It is a meeting place or market where the ship broker and the charterers agent meets,
exchanges information and negotiate quickly and informally. Today in the age of high tech
communication - the Baltic is not so crowded - but still retains the position of being the premier
chartering center.

Essentially a London-based organization, the Baltic Exchange is chiefly constituted of shipbrokers,

ship owners, and Baltic freight charterers, which fulfil the task of supplying daily information and
data, based on the affairs of the maritime market. The Exchange supervises matters concerning
international shipping operations and price fluctuations. This in turn, majorly helps shippers and
investors to purchase freight futures, to decide on financial arrangements, and to finalize the terms of
the derivative contracts.

The Baltic Exchange also serves as a platform for the trading of futures. It can also be considered as
serving as a resource, for the proper guidance for maritime investors across the world. It is an
administrative arrangement for the shippers to have a profound influence on the modern transactions
of the Exchange.

36
he Baltic Exchange diligently observes the publication of daily exponents on various issues,
concerning the shipping industry, this also adds up the registering of detailed statistics, assures
updating, by constant addition of “up-to-minute data”, dealing with various freights and shipping
futures, which guides the investors and shippers, while to negotiating contracts.

The Baltic Indexes are a shipping and trade index created by the London-based Baltic Exchange. It
measures changes in the cost of transporting various commodities.

Members of the exchange directly contact shipping brokers to assess price levels for given shipping
paths, a product to transport, and time to delivery or speed.

The broker having surveyed the market advises the ship owner of the various possibilities and may
include recommendations also. Freight is not the only consideration. Other factors taken into account
will be Cargo such as scrap iron can damage the ship, Long ballast journey required, Quick voyage
charter then a time charter etc.

After receiving suggestions, the ship-owner puts up a firm offer to a charterer with usually a time
limit. The ship-owner will not put up his ship elsewhere till this time or till the charterer rejects the
offer. A firm offer will include - Ship Details /Cargo Details / Load Port / Discharge ports / Freight
rates / Arrival and cancelling dates / Lay time / Demurrage and Despatch / Charter Party / Total
Commissions etc. as applicable
The charterer may accept, reject or propose a counter offer
Once they come to an agreement the Charter Party would be drawn up and signed.

37
 Chapter VI – Role of Ports
Ports locations- functions and range of services. India ports, their organization and administration.
Modernization and development of ports

Introduction:
Countries that have a connection with the sea, all have ports of some form or the other.
Ports greatly enhance a nation's ability to engage in international trade.
This is because waterborne transport is the most cost efficient for the major number of types of
goods - generally those of comparatively lower value and large volume/weight.
Countries that are landlocked are thus obliged to draw on the goodwill of neighboring countries to
allow their goods to pass through as well as face a disadvantage by way of increased costs of their
goods due to having to pay fees/ cess for transport of their goods through the neighbor country.
Ports are thus often of crucial importance to the economic wellbeing of nations.
An extreme example - Singapore, Hong Kong - these are practically "port nations/city states".
The scope of activity and development of a port is related to the needs of a nation's or even a region's
economy. An example of the latter - is the port of Rotterdam. It is often called "the gateway to
Europe" as indeed a vast area of Europe covering several nations is served by it.

Definition of a port:
A port is a town with a harbor that enables goods to be loaded or discharged and/or allows
passengers to embark/disembark from ships.
It can be located on the coast or on a river/lake.
A port can serve the needs of a community and/or that of a commodity.

What a port typically consists of:

A safe area of water for ships to berth at or lie at anchor.
A nearby township either of the general population or of worker's facilities. This ensures availability
of labour.
Availability of basic infrastructure like landing and storage facilities, customs and security, power,
road and/or rail and/or air connections.

The bigger and more important ports also have facilities for meeting the service needs of the
shipping industry e.g. repairs, stores and fresh water, bunkers, medical, banking, legal, commercial
advice. They also have systems for actively maintaining the safety of navigation e.g. pilots, tugs,
traffic control stations, dredgers, rescue and pollution control.

Types of ports:
By type of function -
 Major (usually public sector) - offering a diverse range of services and facilities for all kinds
and sizes of ships.
 Minor (can often be private sector)
 Single commodity - typically oil or gas, grain, coal or some such single commodity.
 Free port
 Bunker port
 Top-off port
 Feeder port

38
 Hub port
 Naval port
 Fishing port
 FPSO: Floating Production, Storage and Off-loading facility.

(Note: ports can carry out more than just one of above types of functions. But they are usually
classed according to their main functional nature.)

By nature of harbour -
 Natural
 Artificial
 Anchorage port
 River
 Tidal (or non-tidal)

A new term has had to be coined due to the advent of the Multimodal transport concept which came
about due to containerization namely....
"Inland port" - act as collection/storage areas well inland where certain procedures and formalities
are completed. This saves time and costs for the cargo's movement by avoiding the need for such
services at costlier rates at the final seaport itself. For example, stuffing/de-stuffing weighing,
measuring and customs inspections, sealing and documentation etc.

Some important words/terms:

A 'harbour' is a sheltered area, either natural or artificial, where ships can lie in safety.
A 'terminal' is an area having one or more berths within a port. It will have facilities dedicated for
the rendering of a specialized kind of service. A port may consist of several terminals serving
different needs/kinds of ships e.g. container terminal, grain terminal, passenger terminal - all could
be contained inside just one port.
A 'berth' is a place allotted to a ship in a port. It can be alongside a 'wharf' (which is aspecially
designed and constructed edge of the shore inside a port where a ship can be made moored. Berths
can be given additional description like 'repair berth', ' general cargo berth', ' container berth' etc.
A berth can also mean a designated position at an anchorage area of a port or harbour where she can
carry out her activities i.e. an 'anchorage berth'.
A ' jetty' or 'pier' is an artificial projection from the shore into deeper waters where ships can safely
be made fast to and work.
A 'dock' is an artificially constructed shelter for shipping. It can be tidal or non-tidal. To overcome
some negative aspects of a tidal effect, a dock may have a system of 'locks'.
'Locks' again are artificial basins at the entrance of a dock that have gates which can be
lowered/raised or opened/shut to maintain a constant level of water inside the dock basin.
'Breakwater' or 'Mole' is a long solid structure built on the seaward side of the harbour, for protection
against the weather, rough seas and swell.
A 'Mooring' is a method of preventing the ship from drifting around on the waters.
A vessel may be tied using 'mooring ropes' to a jetty, pier wharf etc. in a port. It may also be tied to
'mooring' buoys. (Mooring buoys are specially designed floating objects of strong construction and
secured firmly to the seabed using chains. They have rings or shackles to which the mooring ropes
from a ship can be attached. Such 'buoy' moorings typically occur in rivers and large anchorage
harbours that may be affected by swift currents or strong winds). Or the ship could be simply
'moored' using an anchor. For a ship that is moored in this fashion, it is more common to describe her
mooring as being 'at anchor'.
39
SBM (Single Buoy Mooring) - used for loading/discharging crude oil. The buoy acts not only as a
mooring but also as a platform to which a submarine oil pipeline system is attached). SPM (Single
Point Mooring - similar to an SBM in function but different in design).

Indian Ports
India’s 13 Major Ports are administered by the Union Government, while the 200 notified Non-
Major Ports are under the state governments and union territories

MAJOR PORTS India’s Major Ports, with the exception of Ennore, are structured as trust ports
under the Major Port Trusts Act, 1963, functioning as semi-autonomous bodies under the
administrative wing of the Ministry of Shipping. These are Kandla, Mumbai, Jawaharlal Nehru Port
Trust (JNPT), Mormugao, New Mangalore, Kochi and Port Blair on the west coast; and Kolkata,
Paradip, Vishakhapatnam, Ennore, Chennai and Tuticorin on the east. Ennore, a satellite port of
Chennai, has been corporatized with the Government of India holding a two-third stake, and the
Chennai Port Trust the rest.

Board of Trustees: The Central Government shall appoint a Board of Trustees of that port, which
shall consist of the following Trustees, namely: -

 Chairman to be appointed by the Central Government;

 One or more Deputy Chairman as the Central Government may deem fit to appoint
 Not more than nineteen persons in the case of each of the ports of Bombay,
Calcutta and Madras and not more than seventeen persons in the case of any other port who shall
consist of persons, as the Central Government may specify, to be appointed by that Government
from amongst persons who are in its opinion capable of representing any one or more of such of the
following interests as may be specified in the notification, such as labour union employed in the port,
MMD, Customs Department, the Government of the State in which the port is situated, the Defense
Services, Indian Railways; and such other interests as, in the opinion of the Central Government,
ought to be represented on the Board.

Chairman

Deputy
Chairman
Conservator

Vigilance
Secretary

Engineer
Manager

Medical
Deputy

Officer

Officer
Traffic

Chief

Chief

Chief
CFO

Civil /
Administration Finance Traffic Marine Medical Vigilance
Mechanical

Figure 02: Flow Chart of Major Ports Administration

40
Deputy Conservator: The Deputy Conservator's duties include: -
1. Conservancy of the Port, Maintenance of Navigational Channels, berths and Anchorages.

2. The provision and maintenance of Lights, Buoys and Navigational aids & any other
appliances necessary for the safe navigation within Port and Port approaches.

3. The Dissemination of storm warnings, weather reports and hoisting of storm signals.

4. To issue navigational warnings and local Notices to Mariners in the Port.

5. To ensure effective, smooth and efficient functioning of pilotage services, inclusive of

berthing and dredging service. - (Harbour Master / Dock Master / Pilots)

6. To ensure collection of levy of Port Pilotage, Towage and other charges for the services and
facilities rendered by the Port Department

7. Performing the functions of “Receiver of wreck” within specified limits on behalf of Board of
Trustees.

8. To prevent, control, contain and eliminate marine pollution in liaison with Coast Guard and
Oil Companies.

9. To conduct Preliminary Enquiry into Shipping Casualties

Traffic Manager: The traffic Manager’s duties include:

1. Allocation of berths to vessels

2. Planning, organization and execution of discharging / loading operation on cargo vessels.

3. Planning and allocation of resources for cargo operations including man power etc.

4. Management and storage of cargo.

5. Documentation related to receipt and delivery of cargo.

6. Auction sale of un-cleared cargo lying in the Port.

7. Management of Container Freight Stations.

8. Collection of revenue of cargo related charges, container related charges, vessels related
charges and bunker charges.

9. Planning and organization of operations at cruise terminal for handling of international and
domestic cruise liners.

10. Planning, organization and execution of movement of cargo / container through Port Railway
and collection of freight services for services rendered by the Port Railway and Indian
Railway.

41
 States have Maritime Boards. The Members appointed by the State government and includes people
from the Coast Guard, Railways, Industry representatives etc.
The functions of the Maritime board are:

 Development of Minor Ports and Harbours for promoting cargo movement with a view to boost
the economic activity along the coastline and state's hinterland.
 Enforcement of Maritime Rules & regulations for administration and conservancy of ports, for
regulating traffic and tariff structure and licensing of crafts etc.
 Development of Inland Water Transport for cargo as well as for passenger movement in the
inland waterways within the state.
 To carry out Hydrographic Surveys and other allied investigations along the coast
 To carry out various functions assigned to it by the State Government from time to time.

Maritime
Board

CEO

Chief
Marine Nautical Financial Admin. Executive
Ports Hydrographer
Engineer Surveyor Controller Officer Engineer
Officer

Regional Port
Officers

Group A Group B Group C Group D

Figure 03 Flow Chart of Maritime Board Administration

Twenty years ago, minor ports handled just eight per cent of the country’s cargo traffic. Last fiscal,
their share soar to 45 per cent. The primary reason was the Privatization of the ports.

In 1996, the government decided to go for partial privatisation of major ports. The first private
terminal in a major port was set up at the Jawaharlal Nehru Port by P&O Ports Australia in 1999.
After six years, DP World, Dubai, took over it as part of a global buy-out of P&O assets.

In 1998 the first Public Private Partnership port in Gujarat - Pipavav is now run by APM Terminals,
which took over it in 2005.

Other Private ports are Mundra, / Hazira / Dahej / Jaigad / Vizhinjam / Krishnapatnam / Gangavaram

Kakinada / Dhamra / Karaikal

42
Modernization & Development of Ports

Ports have to last a very long time, centuries maybe. Many factors cause ports to change, evolve or
die

 Changes in Inland Transportation Infrastructure – Road / Rail

 Changes in Trade Patterns

 Changes in Ship Size

 Changes to Cargo handling gear

 Changes in Logistical Thinking – Earlier Ports were closer to the city / Bridges in riverine
ports today land being reclaimed and converted to ports / London (Store House) – Rotterdam
(Industrial) – Hamburg (Sophisticated Marketing & Distribution)

Port Development – From a Transport Centre to a Logistical Platform

1st Generation 2nd Generation 3rd Generation 4th Generation

Period Before 1960 After 1960 After 1980 After 2000

Main Cargo Break bulk Break bulk & Bulk & Unitized Unitization of a
Bulk large %age of
Larger ships
the cargo
hence more
space for cargo

Strategy Conservative. Expansionist Commercially More

Development Changing point of Oriented sophisticated
Transport /
transport mode use of
Industrial and Integrated
Automation
Commercial transport node
Centre and logistic
centre

Scope of Ship / Shore cargo Ship / Shore cargo Ship / Shore Standardization
activities interface interface cargo interface of Information

Cargo Cargo
Transformation Transformation

(Industrial Cargo and

Activities ) information
distribution

43
 (Logistic
Potential)

Organization Independent Closer Integrated Globalization of

Characteristics activities relationships to Relationships. Port
port and user Move to communities.
Privatize Greater
Environmental
control

Decisive Labour / Capital Capital Technology Information

Factors Technology

Table 03: Development of Ports

44
 Chapter VII – Contract of Affreightment
Responsibilities, obligations, immunities and liabilities of carrier and shipper and the limitations of
liabilities as per following:
The Carriage of Goods by Sea Act, 1925
The Indian Multimodal Transport of Goods Act, 1993
Hague Visby rules; Hamburg rules, Rotterdam Rules

A Contract of Affreightment is one in which the ship owner agrees to carry or furnish his ship for the
purpose of carrying cargo in consideration of payment of money.
In the 16th century, the Sea carrier was regarded as the insurer of the goods. He was held liable for
damages, whether he was negligent or not. Soon the ship owner became economically more
powerful, thus started enjoying greater bargaining powers. The shipper had negligible power of
negotiating. The exemptions became so complex that it became worthless as a negotiable document.
Great dissatisfaction amongst the third parties – Banks, consignee etc. who were not the original
parties but their interests were being compromised (damage, short landing).
End of 19th century – Many grievances against monopoly of ship owners. No effect in UK as ship
owners were powerful in the Parliament.
In 1893 USA incorporated the Harter Act which made it illegal for the ship owner to insert any
clause relieving him of liability arising from his negligence. Australia – Canada followed
But different countries had different laws, not good for international trade, a call for unification was
made.
In 1921 then Maritime Law Committee of the International Law Association held a meeting at The
Hague to make a code of common international rules relating to the Bill of Lading
The rules were adopted in Brussels in 1924, called The Hague Rules or the Brussels Convention
1924.
Hague Rules 1924 – Salient Features:
 Applies only to Contract of carriage of goods covered by Bills of Lading and not to Charter
Parties
 Only deal with outward bills of lading
 Does not regulate carriage of Deck Cargo
 Does not regulate carriage of Live animals
 Impose minimum responsibilities and Liabilities on the carrier
o Exercise due diligence in providing a seaworthy vessel at the commencement of
voyage
o To properly and carefully load, handle, stow, carry, keep, care for and discharge the
cargo
o Issue a Bill of Lading in a particular form if the shipper makes a demand for it
 Above responsibilities are absolute and irreducible

45
  Any clause in the Bill of lading relieving him of these minimum responsibilities is null and
void and of no effect
 Carrier and the shipper are at a liberty to enter into a special agreement with respect to
responsibilities and liabilities if
o Shipment is of “particular goods” and not an ordinary commercial shipment
o Character or condition of the cargo are reasonable to justify a special agreement
o No bill of lading has been issued
o The terms of carriage are written on a receipt which is non-negotiable and marked as
such
 Liability of the carrier is only for the period while the cargo in on board the ship (tackle to
tackle).
 Nothing in these rules on carrier’s responsibilities in connection with loss, damage care and
handling of cargo prior to loading and on subsequent discharge from the ship
 Liability is limited unless the nature and the value of the goods is entered by the shipper
before shipment and entered into the Bill of Lading
o £ 100 per package or unit
 Specifies the maximum immunities and exemptions that the carrier enjoys

India gave effect to The Hague Rules by enacting the Indian Carriage of Goods by Sea Act 1925
Problems with Hague Rules –
1. When Pound lost its convertibility into gold, it became arguable if the £ 100 referred to £ 100
gold value or £ 100 sterling
2. The expression “package or unit” posed interpretation difficulties, containers added to the
problem later
3. “Duty of carrier to provide a seaworthy vessel” accelerated the process of requiring a change

 The Hague rules of 1924 were amended by the Brussels Protocol of 1968 – the amended rules
called The Hague – Visby Rules came into force in 1977
 Further amended by the Brussels Protocol of 1979, came into force in 1984
 India passed the Multi modal Transportation Act ,1993 which was based on The Hague Visby
rules 1968, amended 1979
Still the following issues remained –
 The rules did not provide for contracts of carriage not covered by Bills of Lading
 Both Conventions favored the carrier over the shipper (Ship Owners belonged to developed
economies, shippers came from developing nations)
Hamburg Rules –
The United Nations Commission on International Trade Law (UNCITRAL) prepared a new set of
Rules which were adopted by the UN at Hamburg in 1978. Hamburg Rules came into force in 1992
 Applies to all contracts for carriage of goods by sea (except charter parties), even if the
carriage is not carried out under a bill of lading
 Regulates carriage of live animals

46
  Regulates carriage of Deck cargo
 The risk of Ocean transport has been distributed between shippers and Ship owners
 Applicable to inward shipments to a contracting state (If either the port of Loading or the Port
of discharge is a contracting state)
India has not ratified the Hamburg Rules
Multimodal Transportation of goods -
Rules which regulate the liability for carriage of goods from they are loaded on till they are
discharged from the ship are hardly suited to container transport. Nor is the traditional bill of lading
an appropriate document for combined transport.
Till recently, transport by containers was usually covered by a through bill of lading issued by the
shipping company and was subject to different rules regulating carriage of goods by road, rail and
sea
In 1993 the Indian Parliament enacted the Multimodal Transportation of Goods Act to regulate
Multimodal transportation of goods from any place in India to a place outside India.
 It provides for movement of cargo by more than one mode of transport under a single rate, by
a single document and through liability up to the place of delivery outside India
 The operator is liable for loss of or damage to goods and/or delay in delivering including
consequential loss unless he proves that he took all reasonable measures to avoid such loss or
damage
The MTD varies from the internationally accepted Bill of Lading and is therefore not acceptable to
the foreign banks. The Act is being amended.
Rotterdam Rules:
An important recent development in the field of transport law was the adoption, in December 2008,
of a new UN Convention on Contracts for the International Carriage of Goods Wholly or Partly by
Sea. The new Convention, to be known as the Rotterdam Rules, provides mandatory standards of
liability for loss or damage arising from the international carriage of goods by sea and is intended to
provide a modern successor to earlier international conventions in the field, namely the so-called
Hague Rules 1924, The Hague-Visby Rules, 1968 and the Hamburg Rules 1978. In contrast to these
conventions currently in force, however, the Rotterdam Rules also apply to multimodal transport
involving an international sea-leg and deal with a range of issues not presently subject to mandatory
international law
Drafted: December 2008
Signed: September 2009
Location Rotterdam & New York
Not yet in Force – Only when ratified by 20 states
Signatories 25
Ratifies: 4 (Republic of the Congo, Spain, Togo, Cameroon)

47
Carriers Responsibilities:
The International conventions impose on the carrier certain minimum responsibilities:
1. To exercise due diligence in providing a seaworthy ship; properly manned, equipped and
supplied; and with holds, chambers and other parts of the ship in which goods are carried, fit
and safe for the reception, carriage and preservation of the cargo
2. To properly and carefully load, handle, stow, carry, keep, care for and discharge the cargo
3. To issue, on demand of the shipper, a bill of lading showing marks, number, quantity or
weight and the apparent order and condition of the goods as furnished in writing by the
shipper
4. Not to deviate from the agreed or customary route
Carriers Liability:
Seaworthiness:
1. Under common law, the duty of the ship owner to provide a seaworthy vessel was an absolute
one. It was not sufficient that he had honestly endeavored to make her fit. He was liable
whether or not negligence on his part could be established.
2. Under Hague, Hague-Visby and Hamburg Rules the implied absolute warranty of
seaworthiness is negative. The carrier’s liability is no longer strict but one of due diligence.
At the beginning of the voyage he must exercise due diligence to
a. Make the ship Seaworthy;
b. Properly man, equip and supply the ship; and
c. Make the holds and other parts of the ship in which goods are carried, fit and safe for
their reception, carriage and preservation.
3. In India MS Act 1958 prescribes the minimum standards for safety of life and property at sea.
If the government officer surveying the ship is satisfied that the carrier has complied with the
standards of safety as laid down in the act, he shall issue a certificate of safety to the vessel,
ensuring it is seaworthy
4. The obligation to provide a seaworthy ship does not mean that the ship-owner guarantees to
provide a perfect ship which will withstand all rough weather
5. A ship is unseaworthy if
a. Not fit to carry the cargo
b. Not properly manned, equipped or supplied
6. Vessel must be seaworthy at the commencement of the voyage
7. There is no understanding that the ship will continue to remain fit after sailing
Carriers Obligations:
1. The obligation of the carrier is to exercise “due diligence” in providing a seaworthy vessel
Burden of Proof:
1. The burden of proving that the ship is unseaworthy is on the person who alleges it
2. The shipper not only had to prove that the ship was unseaworthy but also has to prove that the
loss / damage to cargo was caused because the ship was unseaworthy

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Care of the Cargo:
1. Under common law, the carrier’s liability to take care of the cargo was also strict. He was
liable for loss or damage to the cargo unless it was caused by the common law excepted
perils or it fell under any of the exemption clauses contained in the contract of carriage
2. Under Hague and Hague-Visby rules although the carrier had a liability to carry cargo safely,
there were 17 exonerating clauses providing abundant scope to the carrier to escape his
liability. These were
a) Act, neglect, or default of the master, mariner, pilot or the servants of the carrier in the
navigation or in the management of the ship;
b) Fire, unless caused by the actual fault of the carrier
c) Perils, dangers and accidents of the sea or other navigable waters
d) Act of god
e) Act of war
f) Act of public enemies
g) Arrest or restraint by princes, rulers or people, or seizure under legal process
h) Quarantine restrictions
i) Act or omission of the shipper or the owners of the goods, his agent or representatives
j) Strikes or lockouts or stoppages or restraint of labour from whatever cause, whether
partial or general
k) Rights and civil commotions
l) Saving or attempting to save life or property at sea
m) Wastage in bulk or weight, or any other loss or damage arising from inherent defect,
quality or vice of the goods
n) Insufficiency of packing
o) Insufficiency or inadequacy of marks
p) Latent defects not discoverable by due diligence
q) Any other cause arising without the actual fault of the carrier, or without the fault or
neglect of the agents or servants of the carrier
( *** Running aground, hitting a quay, damage with other vessel are ok. Not closing the hatch while
raining is not ok. While claiming immunity the act must relate to the ship itself & the damage to the
cargo must only be incidental)
3. Under the Hamburg Rules & Multimodal Transportation of goods act - The carrier shall be
liable for loss or damage to goods carried or for the delay in delivery if the occurrences which
cause the loss, damage or delay takes place while the goods are in his charge; unless he
proves that he, his servants and agents took all measures that could reasonably be required to
avoid the occurrence and its consequences
4. The burden rests on the carrier to prove that he has taken sufficient care of the goods carried.
5. Hamburg rules:
a) For the first time expressly imposed liability on the carrier for delay in delivering the
goods
b) The consignee is entitled to treat the goods as lost and to make a claim if they are not
delivered within 60 consecutive days following the expiry of the delivery time
6. Multimodal transportation of goods act:
a) The Multimodal Transport operator is not only liable for loss resulting from delay but
also for consequential loss or damage arising from such delay

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 b) The consignee is entitled to treat the goods as lost and to make a claim if they are not
delivered within 90 consecutive days following the expiry of the delivery time

7. Period of Responsibility:
a) Hague and Hague Visby: Limited to the period from the time the goods are loaded on
to the time they are discharged from the ship
b) Hamburg & Multimodal Transportation of goods act: The responsibility of the carrier
for the goods covers the period during which the carrier is in charge of the goods

Limitation of Liability:
1. Hague Rules: Liability of carrier was limited to £ 100 per package or unit
2. Hague Visby: 666.67 SDR per package or 2 SDR per Kg of the gross weight of the goods
decided by the shipper
3. Hamburg Rules:
a. 835 SDR per package or 2.5 SDR per Kg of gross weight of goods lost or damaged,
whichever is higher
b. Liability for loss due to delay is limited to an amount equivalent to 2.5 times the
freight payable for the goods delayed but not exceeding total freight payable under the
contract of carriage
4. Multimodal act:
a. 666.67 SDR per package or 2 SDR per Kg of gross weight of goods lost or damaged,
whichever is higher
b. Liability for loss due to delay is limited to the freight payable for the consignment
delayed
Notice of Loss:
1. Hague & Hague Visby:
a. Notice of loss to be given by the consignee in writing at the time of removal of goods
into his custody
b. Where the loss or damage is not apparent, this notice to be given within 3 days from
the date of removal of the goods into his custody
2. Hamburg:
a. Notice of loss to be given by the consignee in writing not later than the working day
after the day when the goods are handed over to the consignee
b. Where the loss or damage is not apparent, this notice to be given within 15
consecutive days after the day when the goods are handed over to the consignee

3. Multimodal Act:
a. Consignee to give notice in writing at the time of delivery if the loss is apparent
b. Where the loss or damage is not apparent, this notice to be given within 6 consecutive
days after the delivery

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Special Drawing Rights:
 The SDR is an international reserve asset, created by the IMF in 1969

 The value of the SDR is based on a basket of five currencies—the U.S. dollar, the euro, the
Chinese Renminbi, the Japanese yen, and the British pound sterling.
 The SDR serves as the unit of account of the IMF and some other international organizations.

 The SDR is neither a currency nor a claim on the IMF.

 Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be
exchanged for these currencies.

 The SDR was initially defined as equivalent to 0.888671 grams of fine gold—which, at the
time, was also equivalent to one U.S. dollar.

 The SDR was redefined as a basket of currencies.

 The SDR basket is reviewed every five years,

 The value of the SDR is determined daily based on market exchange rates.

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 Chapter VIII – Marine Insurance
Principles of marine insurance (Insurable interest, indemnity, subrogation, proximate clause).
Application of risk management and risk transfer to marine insurance.
Covers provided by H & M insurers and P & I liability insurers. Various policies and their salient
clauses and warranties.
Marine Insurance Act.

A hazard is everything that can cause harm such as chemicals and electricity, whereas risk is the
rating that demonstrates chances that someone will be hurt by the hazard.
Hazard: A source of potential harm or damage or a situation with potential harm or damage
Risk: Has two elements - The likelihood that the hazard may occur &the consequence of the
hazardous event
Two things are taken into account as far as risk is concerned - Degree of Danger & Frequency of
danger
Risk assessment is the process where you identify hazards and then analyze or evaluate the risk
associated with that hazard
Principle of Risk Management -
A "Risk Assessment" is intended to be a careful examination of what, in the nature of operations,
could cause harm, so that decisions can be made as to whether more should be done to prevent harm

 Identify the Hazard

 Determine Risk
▪ Likelihood of harm (Unlikely / Likely / Highly)
▪ Severity of Harm (Catastrophic / Major / Negligible)
 Decide if the risk is tolerable
 Manage the Risk
▪ Tolerate
▪ Terminate – Do it in a different way
▪ Treat the risk
 Reduce the risk to ALARP
 Have control measures in place
▪ Transfer the risk

Why Marine Insurance

Marine insurance is another variant of the general term ‘insurance’ and as the name suggests is
provided to ships, boats and most importantly, the cargo that is carried in them.

Marine insurance is very important because through marine insurance, ship owners and transporters
can be sure of claiming damages especially considering the mode of transportation used. Of the four

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modes of transport – road, rail, air and water – it is the latter most which causes a lot of worry to the
transporters not only because there are natural occurrences which have the potential to harm the
cargo and the vessel but also other incidents and attributes which could cause a huge loss in the
financial casket of the transporter and the shipping corporation.

Marine Perils means the perils consequent on, or incidental to the navigation of the sea, that is to say,
perils of the seas, fire, war perils (enemies), pirates, rovers, thieves, captures, seizures, restraints and
detainment of princes and peoples, jettisons, barratry and other perils, either of the like kind or which
may be designated by the policy.
12 Marine Perils are:

1. Perils of Sea
2. Fire
3. Man-of-War
4. Enemies
5. Pirates, Rovers, Thieves
6. Jettison
7. Barratry
8. Restraints and Detainments
9. The Free of Capture and Seizure Clause (F.C. & S. Clause)
10. Explosion
11. Strikes, Riots and Civil Commotion Clause
12. All Other Perils

Need & Advantages of Marine Insurance

 Spread the risk
 Aid to security
 Aid to credit
 Loss Prevention

Marine Insurance Act, 1906

Marine Insurance contracts in the UK and in many parts of the world are based on the principles laid
down in the Marine Insurance Act, 1906. This act, which came into force on 1st January 1907, did
not make any new law but codified the existing decisions that had been recorded up to that time.

A prospective assured requiring marine insurance cover has the option of approaching Insurance
Company directly or through a broker.
Majority of merchants and Ship owners prefer to use a broker. The brokers are paid by the Insurance
Companies, so it costs the assured nothing to enjoy the benefits of the service

Principles of Marine Insurance

 Insurable Interest
 Utmost Faith
 Indemnity
 Subrogation
 Proximate cause

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Insurable Interest:
While it may be usual to refer to property as being insured, such property is not the insurable interest.
The property, as such, is the subject matter of the insurance. The insurable interest is the financial
interest in the property.

Possible types of insurable interest are

1. Ownership of the vessel by the Ship owner
2. Ownership of the goods by the cargo owner
3. Liability of the carrier towards the cargo carried
4. Freight, which may be at risk either by the Ship owner or the cargo owner
5. Commission, which may be due to the agents

Insurable interest is required to support the contract of insurance to make it enforceable by law.

 When effecting a contract of marine insurance, a person must have an insurable interest or an
expectation of acquiring such an interest.
 It is not necessary for the assured to have an insurable interest when the insurance is effected,
but he must be able to prove an insurable interest at the time of loss
Utmost Good Faith:
In Insurance contracts a greater trust is required. The insurer is very much in the hands of the
proposer. The proposer knows all relevant information about the risk proposed whereas the insurer
knows nothing.
 He may not have an opportunity to inspect the risk
 There will be certain facts which no amount of inspection can uncover, unless divulged by
the proposer
Thus insurance contracts are subjected by law to a higher duty of Utmost good faith.

“A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost
good faith is not observed by either party, the contract may be avoided by the other party”

Although the onus of utmost good faith is on both parties, in practice it usually falls on the assured.
If he is guilty of a breach of utmost good faith, the contact may be avoided by the insurer.

The underwriter steps aside and treats the insurance as though he had never accepted it in the first
place

Indemnity:

Meaning:
 Compensation for loss or injury sustained
 Security or protection against loss or damage

The aim of indemnity is to place the assured in the same position after being indemnified for a claim
as if no loss had occurred.
The term ‘Measure of Indemnity’ is the maximum amount that the insurer must pay in respect to a
claim under the policy.

Subrogation & Contribution:

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Subrogation means transfer of rights and duties

If the insured has any rights of action to recover the loss from any third party, who is primarily
responsible for the loss, the insurer, having paid the loss is entitled to avail himself of these rights to
recover the loss from the third party.

Once the claim has been paid, and not before, the insurer is entitled to place himself in the position
of the assured to the extent of acquiring all the assured’s rights in respect of the loss against any third
parties who may be concerned.

Contribution is defined as the right of an insurer who has paid a loss under a policy to recover a
proportionate amount from other insurers who are liable for the loss.

An insured may affect two or more insurances on the same subject matter of the insurance. If in the
event of a loss, he recovers under each of these policies, the total amount recovered would be more
than his loss. Thus the principle of contribution supports the principle of indemnity
Applicable in Marine Insurance in case of double insurance; however, in practice it is very rare.

Proximate Cause:

Proximate cause means predominant cause.

A contract of marine insurance includes in its terms and conditions the perils / risks against which
the subject matter is insured.
If the insured interest suffers loss, or is damaged, as a result of the operations of one of these perils,
the insurer is liable under that contract, to indemnify the assured to the extent of such loss or damage.
If the subject matter insured is lost / damaged by a peril not covered by the policy, no liability is
attached to the insurer.
The onus of proof rests with the claimant, the assured.

Policy:

Earlier the form of the policy was called the SG Policy (Ships and Goods)

1982 this was changed, now it is called the MAR policy (Marine cargo)

Types of Policy

 Time Policy - A marine insurance policy which is valid for a specified time period, say 12
months
 Voyage Policy – A marine insurance policy which is valid for a particular voyage
 Mixed Policy – It offers the client the benefit of both time and voyage policy
 Unvalued Policy – The value of the cargo and the consignment is not put down in the policy
beforehand. Reimbursement is done only after the loss of the cargo & consignment is
inspected and valued

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  Valued policy – The value of the cargo and consignment is ascertained and is mentioned in
the policy document beforehand thus making clear about the value of the reimbursement
 Vessel Policy – For ship owners having one ship
 Fleet Policy – Several ships belonging to one owner are insured under the same policy

Warranties

A marine insurance warranty is a promise made by the assured that some particular thing shall or
shall not be done. In case of breach of warranty, insurer can refuse to pay the claim. Warranties are
of two types
 Implied – Does not appear in the policy. It is understood by law to exist in the contract
without being stated. The two important ones are Seaworthiness and Legality
 Express – Is one that appears on the policy

Exclusions

Losses that are excluded from the policy

 Express – Is one that appears on the policy
 Statutory –
o Willful Misconduct of the Assured
o Wear and Tear
o Ordinary Leakage and Breakage
o Inherent Vice

Deductibles

The insurance deductible is the amount of money you will pay in an insurance claim before
the insurance coverage kicks in and the company starts paying you. When you have a deductible, you
have to come up with the amount of money for your deductible before a claim gets paid in many
circumstances.

Covers provided

 Hull and Machinery – Covers the Loss or damage to the ship and Machinery Equipment
 Cargo insurance - Covers the Loss or damage to the cargo
 F,D&D – Covers the legal costs to recover freight, demurrage and defense
 Strikes – Covers against losses of Ships Crew, stevedores, others going on strike
 War Risks – Special additional cover required in a war zone
 P&I – Covers liabilities including third party damages

Risks covered under H&M Insurance

1. Perils of the sea

a. Stranding

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 b. Sinking
c. Collision or contact
d. Extraordinary heavy weather
2. Fire / Explosion
3. Violent Theft
4. Jettison
5. Piracy
6. Earthquake
(The above are regarded as pure perils. The H&M insurance also covers risks for Perils with Provisio
– Provided that such loss or damage has not resulted from want of due diligence by the assured,
owners or managers)

7. Accidents in loading and discharging & during fuel transfers

8. Damage / loss due to bursting of boilers, breakage of shaft
9. Negligence of Master & Crew
10. Negligence of Repairers
11. Barratry

Important Clauses:

 3/4th Collision Liability Clause / Running down Clause:

o The insurer agrees to pay 3/4th of the collision liability of the assured towards the
other vessel subject to maximum of 3/4th of the insured value
o Many underwriters today agree not to follow the 3/4th liability, clause will not be
mentioned.
o Balance to be paid by ship owner himself or through his P&I club
 Sue and Labour Clause
o The assured should, at all times, act as a “prudent owner uninsured”
o Expected to exercise proper care
o If exposed to danger and the same can be reduced by taking an action, he should carry
out the whatever preventive measures are necessary
o For the sue and labour efforts, the assured need not be successful

Protection & Indemnity Clubs

Many perils for which insurance is not available in the market but the ship owner has a need to
insure against them. Ship owners form a club on mutual insurance. They form an association called a
P&I club where the members are both, the assured and the insurer.Member ship is given to the ship;
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 a ship can be a member of one club only. Members meet annually or once in two years to discuss the
rules and elect a board of directors. The board of directors appoint experts to run the day to day
affairs – controlled by the CEO.

Club operates on no profit no loss basis. Each member has to contribute to the club – called ‘CALL’
Membership is given on an annual basis – not automatically renewable. (20/02 to 19/02). Either can
quit with one month’s notice.

An advance call is paid. As claims arise, members are asked to pay more call. If there were no
claims, no further call is asked for.

Further, the P&I clubs Provide assistance to ship owners, Train ship owners towards loss prevention,
appoint correspondents’ world- wide who act as liaison between the club and the ship. These
correspondents are paid a pre-arranged commission as fees.

Risks covered under P&I Insurance

Some of the benefits offered by P&I clubs in the shipping and marine industries are:
 Personal injury, illness and death claims from the crew or passengers
 Stowaways and their repatriation
 Cargo claims for damage or loss of the same.
 Liability due to a collision.
 Damage to fixed and floating objects (such as a jetty, pier, marine animals, rig, fishery facility, etc.)
 Liability under approved towage contracts
 Removal of wreck
 Salvage operations
 Civil liabilities imposed due to pollution or oil spill
 Other fines

Cargo insurance is covered under the New Institute Cargo clauses which came into force in 1982, in
excess of 20 clauses.

Transit Clause:
Specifies the points at which the risk commences and terminates
 For the commencement of transit: Going to the port of loading
 Continues during the ordinary course of transit:

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  Cover terminates on delivery at the final warehouse or expiry of 60days after completion of
discharge, which ever shall occur first

1. Free on board (FOB) – Seller is responsible for the goods only up to the time they are loaded
on the vessel
2. Cost and freight (CFR) – Seller is responsible for the goods from the time it leaves his
premises until delivery to the buyer. He arranges for the carriage of goods and the freight,
also called C&F
3. Cost, Insurance & Freight (CIF) – Similar to CFR, seller is additionally responsible for
arranging and paying the insurance of the goods.

LOSSES UNDER MARINE INSURANCE

Two types of losses – Total Loss & Partial Loss

1. Total Loss
 Actual Total Loss – Entire property is lost in any of the following three ways
o Destruction – subject matter is destroyed
o Loss of specie – subject matter is so damaged that it ceases to be the thing
insured
o Irretrievable deprivation – Impossible to retrieve the cargo although it remains
in specie.
 Constructive Total Loss –Where the cost to repair the property or the cost of
preventing it from becoming an actual total loss is more than the limit of the policy
o While the assured is entitled to claim a CTL he is not obliged to do so. He can
claim a partial loss up to 100%, in this way retaining the property
o If he claims a CTL he has to unconditionally abandon the property to the
insurer. Once abandonment has been accepted by the insurer it is irrevocable.

2. Partial Loss
Occurs when the loss amount is less than the total amount of insurance and obviously all property is
not lost / damaged.
It is also called Particular average. AVERAGE means LOSS.
Insurance may provide that claims for Particular average are payable subject to deductible or
franchise
 Deductible – It is deducted from the amount of the claim.
 Franchise – percentage fixed by the policy that is applied to the insured value. To be
recoverable a claim must attain the franchise amount and, provided it does, the claim
is paid in full. Does not appear in cargo and H&M, however is used in policies
covering freight at risk

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 Chapter IX – General Average
Particular and General Average. York-Antwerp Rules. Examples of GA and PA Acts

Particular Average Act:

During the course of any maritime adventure there are 3 interests at risk
 The ship
 The cargo
 The freight
In Particular average any loss sustained or expenses incurred by any one of these interests shall be
borne by that interest alone
General Average Act:
Where the ship or cargo are exposed tom a common danger and voluntary extraordinary sacrifice is
made or expenditure incurred by the ship or cargo for the benefit of the whole adventure, then such a
sacrifice or expenditure is a general average act and is subject of a general average contribution.

The process of averaging the contribution of each party (who benefitted) to make up one party’s loss
(Sacrifice as well as expenditures) is called “general average“.

General average is based upon the principle - That which has been sacrificed for the benefit of all
shall be made good by the contribution of all.
Calculation / adjustment s made on the basis of the York Antwerp Rules.

In the perils at sea, in most of the situations it will be ship owner who would make sacrifices and
expenditure to come out of these situations.
The liability to contribute in general average is enforced by the ship owner on behalf of all interests
by exercising his lien over the cargo. In the maritime law a ship owner has the lien on the cargo for
the general average contribution. So ship owner will only release the goods once he receives a
guarantee that he will get his dues.
York Antwerp rules
The first version of York Antwerp rules was issued in 1890. The second version in 1974 and the
latest version of the rules were issued in 2004.
York Antwerp rules has two sections. First section has rules that are identified by the letters (Rule A,
Rule B …….Rule G). These rules give general guidelines on what can be included in the general
average.

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Second section has rules that are identified by numbers (Rule I, Rule II .. …..Rule XXII). These rules
give specific situations, sacrifices and expenditures that can be included in the general average.

Rule Paramount
This is because this rule is paramount to all the rules.
Sacrifices made by ship owners should be reasonable and they cannot over spend.

(Rule A) - defines the limits of general average act. It says

“There is a general average act, when and only when, any extraordinary sacrifice or expenditure is
intentionally and reasonably made or incurred for the common safety for the purpose of preserving
from peril the property involved in a common maritime adventure”
So there are four essential requirements for an action to fall under General average.

1. The expenditure or sacrifice need to be extraordinary

2. The act must be intentional
3. The Action must be for the common safety
4. There must be a peril

(Rule C) -
Only such losses, damages or expenses which are the direct consequence of general average act shall
be allowed as general average.
The costs involved in handling environmental pollution cannot be included in the general average.
Demurrage, loss of market, and any loss sustained by reason of delay shall not be admitted as general
average

(Rule D) –
Rights to contribution in general average shall not be affected, though the event which gave rise to
the sacrifice or expenditure may have been due to the fault of one of the parties to the adventure
It does not matter whose fault it is. Irrespective of the fault which led to the event, all parties have to
contribute to the general average.

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  Only exception is …………… if the ship was unseaworthy.

General average Sacrifices

The numbered rules give the examples of the sacrifices and expenses that can be included in the
general average.
1. Jettison of cargo
2. Extinguishing fire:
3. Voluntary stranding:
4. Salvage expenses
5. Port of Refuge Expenses
6. General Average Expenditures
7. Wages of master and crew during the prolongation period because of port of refuge
8. Etc.

Role of Average adjuster

They are the expert in one field of marine insurance, that is general average.
During general average situations, usually an average adjuster is appointed by one party. The role of
the average adjuster is to:
1. Collect all the information following a general average action
2. Make a statement of general average contribution of each party
3. Collect general average security from each party
4. Assist in effective settlement of the general average
Irrespective of which party has appointed average adjuster, it is the duty of the average adjuster to be
impartial towards general average settlement.

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Syllabus:

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