Ship Management’s Effect on Profitability

By Peter Wallace

The technical ship management function is critical aspect to maintaining a profitable and well respected shipping venture. Ship managers control or influence a large part of shipping expenses, but ship managers have the most dominant influence on overall expenses. This team also affects the quality of charters, the quality of crew, the quality of suppliers and the owner’s reputation. The owner’s reputation affects the cost of capital.

Ship Management Business Proposition

In order to understand the ship manager’s invoice, it is important to understand what the technical ship manager’s business proposition is and how the ship manager is compensated. This brings to light what the ship manager can legitimately charge and the areas that an owner must be vigilant to avoid overcharging or fraud.

A typical ship manager can basically only sell their time and services and subsequently charge an annual fee plus extraordinary costs on a standard contract such as the BIMCO Ship Management form. They have essentially no risk when it comes to liability: The ship manager has limited liability–even in cases of gross negligence. Ship managers that have an equity position has a different perspective on the business proposition and have much greater liabilities than “pure” ship managers. Vessel operating costs and costs associated with managing the vessel above the ship manager’s standard services are usually charged to the vessel/vessel owner. Thus, ship managers that have no equity position or not otherwise tied to the performance of the vessel are competing against other ship managers for quality of service. The true operating costs of the vessel are of little consequence because they are passed through and paid with the owner’s funds (it is virtually unheard of for a manager to front an owner funds for any operating costs).

This is only an excerpt of Ship Management’s Effect on Profitability

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