Update Jan 2003

One should never lose ones fear of the sea

Background:

  • Incidents due to bad weather have been occurring since the industry began.
  • Technology has yet to eliminate them. Battle ships with double bottoms and armoured plating have foundered in bad weather.


How do our clients see this "inevitable" risk?

  • Our clients who let us carry their cargoes and operate their vessels will be asking themselves, how good will we look if we are next?
  • How diligent will our choice of vessel be, how diligent will our choice of manager be?
  • Finally they will ask themselves, what kind of maritime company would "look good" in an inevitable accident?

So we the operators have to in turn ask ourselves, how would we revise our management ideas so as to look good in an incident in today''s media environment?

Well let's look at equally scrutinized industries:
Lets take the medical industry:

  • Is a surgeon scrutinized after an operation that inevitably has a poor result? Absolutely.
  • Is the surgeon liable? Absolutely.
  • Is the liability way beyond his or her individual earnings capability and does the insurance carried have limitations? Absolutely.
  • Does the surgeon rely on his or her previous record to determine the degree of due diligence practiced in the past and during the operation? Absolutely.

So we could plausibly make the assumption that in an industry where failure is unacceptable and success is taken for granted, records demonstrating due diligence are the only way to stand up to scrutiny in an inevitable incident. Any audit taken in the interim must scrutinize the continuous application of diligence.
And last but not least the operation must stand up to the mother of all procedural audits, the class action claim.
If we ignore this, we risk handing our business on a plate to other ship operators who can show that they will look good in a class action claim.

So how does one "look good" in a class action claim?
It is very hard to describe something as extensive as a diligent management operation in such a complex distributed business such as tanker operation. This is an attempt and of course it is a tremendous simplification in an attempt to be concise.

Example
A tanker is scheduled to discharge with normal discharge port options for Atlantic trading. The unlikely discharge options are not excluded such as North of George Washington bridge, because they are rarely exercised for the type of cargo on board, (low sulphur straight run FO) and the chartering manager has more important fights to pick in his midnight negotiation with the charterer who are in the US.

It is late November however:
In late November before the cold spell in the US it may be unusual for the vessel to discharge such a valuable cargo to be used in a generating plant in Albany NY. And of all the discharge options this is the least likely, as such cargos normally sell to refineries for reprocessing. The vessel embarks on the transatlantic voyage and in December there is an unexpected cold spell in the US NE. The Port of NY is at 10 degrees C and the FO prices FOB NY have risen substantially such that the cargo can be sold profitably to a power utility.

The vessel receives orders to discharge in two stages in NY and in Albany.
The discharge is quite problematic:

  • a) because of the need to stop discharge many times to lighter into barges in NY,
  • b) the cargo is highly viscous and cannot flow over long pipe length at 135degres F, the normal contractual heating temperature.
  • c) Due to the extreme cold it is impossible to flush deck-lines in time to resume discharge without blockages.

The result is slow discharge, ROB's and claims. How could better risk management have avoided this situation?

Lets say there was a company policy to discuss new risks in the voyage as soon as the voyage began to be fixed in chartering: This is a possible checklist for new risks in approximate order of diminishing importance

Risk Discussion:

  • Voyage in relation to defects, and vessel in general. (by vessel in general we mean the vessels specific design equipment and condition).
  • Voyage in relation to crew, and vessel in general.
  • Voyage in relation to cargo, and vessel in general.
  • Defects in relation to crew, and vessel in general.
  • Defects in relation to cargo, and vessel in general.
  • Crew in relation to cargo, and vessel in general.
  • Crew team-work and communication, and vessel in general.
  • Bunker quality in relation to voyage, and vessel in general.
  • Spares inventory in relation to Voyage, and vessel in general.
  • Spares inventory in relation to cargo, and vessel in general.
  • Spares inventory in relation to bunkers, and vessel in general.


As soon as the chartering manger nears completion of his terms negotiation, he sends a copy to the operations manager. The operation manager as a part of the risk analysis team and commences circulation of a form outlining the above risk criteria.
He questions the discharge range as a standard part of his risk assessment and is told that the likelihood of a discharge in the northernmost ports is unlikely.
From this point on it is clear that the chartering manager is taking a calculated risk, and in business this is not unusual. However it is also clear form the way this process is carried out that risk is well understood because there is documented evidence of the discussion on a checklist covering the above issues.

The voyage commences and the vessel is ordered to discharge in NY.

The checklist continues its circulation and is enriched with new information about anticipated risk form various departments: Chartering, Operations, Technical, Master, Chief Engineer etc.

Finally the checklist collects information about how the combination of weather conditions, as they deteriorate in NY, and the vessels design, combine to introduce new risk unexpected heretofore. (The vessel is a multi grade vessel with lots of deck pipes and deep-well pumps)

Hypothetical Risk mitigation:

  • Assess situation:
  • Identify new risk:
  • Apply risk mitigation measures or warnings.
  • Fill in any missing background knowledge of key participants.
  • Maintain records of measures in due diligence.


Problems with hypothetical Risk mitigation:

  • Assess situation: How can you assess if you take hours to collect: defects data, crew data, bunkers data, weather data, voyage data, cargo data, bunker data spares data etc, so as to do a standard assessment of newly introduced risk?
  • Identify new risk: How can you identify new risk without convenient and fast co-ordination of information so that you can quickly arrive at a list of new risks in order of likelihood and seriousness? This exercise requires the input of almost all company departments.
  • Apply risk mitigation measures or warnings. How can you apply risk mitigation warnings unless you disseminate the information and make messages stand out when the recipients attention is ready to absorb them? Ie. make sure warnings hit target role at time of need.
  • Fill in missing background knowledge of key participants; You cannot know what detail of data or process is not known by an officer on board; (e.g. Eursian Dream where the master was not aware of function of hydraulic doors in a fire drill) if the background knowledge is in one of 1000 pages of on board manuals. Will it be noticed by the required party at the time on need?
  • Maintain records of measures in due diligence: Unless one maintains records, one cannot prove standard due diligence, therefore in the event of a mistake there is not differentiation of a diligent operation form a non-diligent operation. How can we handle the burden of co-ordinating and recording due diligence measures?


Conclusion
Although the above mentioned scenario of discharging fuel oil in NYC and Albany is not material for a class action claim, it is an example of the need for risk management in everyday ship operation.
In the event of an incident that will be the material of a class action claim, like a good surgeon a ship operator must be able to show that in the events leading to the current case, and in all events prior to this case, proper risk anticipation was practiced.

Proper risk anticipation by the surgeon or ship operator can get better results in routine operations, and at the same time show demonstrable competence in a class action claim.

Even if there is a possibility for an isolated omission or mistake, if proper due diligence is customarily practiced, it will not be possible to claim gross negligence or limit insurance coverage for the operator.