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The 8^th Asia-Pacific Manning & Training Conference

Wednesday  November 14^th, 2007

Hotel Philippine Plaza, Manila,

Addressing the Major Issue of Manning Shortages & Training Requirements

The example of InterManager

Presentation by:

Mr Ole Stene

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Good morning Ladies and Gentlemen.

I would like to thank Lloyd’s List Events for inviting me here today to talk about InterManager’s perspective on the crucial issue of manning shortages and training needs. If you want to talk about manning and training you have to come to Manila and judging by the size and quality of the attendance today and the seriousness of the topics listed in this year’s manning & training programme, the industry obviously has a lot to talk about. But maybe not just talk. Maybe the time has come for us to finally act to resolve the dilemma facing us all today. We all have a role to play in resolving this problem if we are to safeguard the industry’s future for years to come.

The maritime economy is spread over 360 million square kilometers of oceans and seas which connect the world’s five continents. Shipping - a direct consequence of this geographical reality - has become the lifeblood of the global economy. It has grown fourfold in the last 40 years and has still to reach its peak. This boom translates into full order books for shipyards with ensuing benefits for their suppliers and customers in the wider maritime cluster.

The value of the huge potential of the maritime economy, can perhaps be best described in the words of Themistocles when in ancient Greece he said: “We will have a land and a homeland as long as we have ships and seas”.

But neither Themistocles nor the industry in general, could have foreseen the growth in importance that the homelands of India and China would play in the escalation of today’s shipping markets. Massive over ordering of dry cargo, tanker and containership tonnage has reached unprecedented levels as owners chase the lure of the escalating freight rate dollar. Record demand in the dry sector, fuelled by record iron ore shipments to China have pushed cape size spot rates to nearly $200,000 per day while tanker owners are still earning healthy returns despite a lack of scrapping and an overactive newbuilding spending spree especially on the larger VLCC sector.

Fears are beginning to grow about the oversupply of tonnage but owners have even managed to sidestep the 2010 deadline for the phasing out of single hulled tanker tonnage by converting at least the younger post-1990 units into very large ore carriers in an ambitious bid to take advantage of soaring freight rate levels in the booming dry cargo sector. One dominant LPG owner very recently announced that he was switching an LPG order already booked at a Far Eastern yard into one for a large bulker to take further advantage of the rising market conditions. So strange market conditions indeed.

We have never had it so good, say the market pundits and there is no end in sight to this surge in cargo demand. As long as China, India and growing economies like Brazil continue to demand their raw materials, the shipyards will continue to pump out the ships. One after another – a conveyor belt of the like that has never seen before.

But what goes up must come down. I am not talking plummeting freight rates, although that will happen eventually: I am talking about the massive deterioration in the number and competency of crews able to man the existing global fleet, let alone the more than 8,000 new ships expected out of the world’s shipyards between  now and 2010. With little scrapping going on, the number of seafarer berths is rising and they are not being filled.

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The lack of a pan-industry approach to long-term seafarer recruitment and nurturing has colluded with the short term attitude towards the valuing and development of traditional seafarer recruitment grounds to create a sort of pillage mentality to the training and recruitment of seafarers into today’s industry. Over the years, individual owners and managers have adopted an ‘I’m alright Jack’ attitude to crewing matters that has severely damaged the industry. The chickens have come home to roost but strangely there are not as many as first thought. You only need to scan the pages of Lloyd’s List to read articles about ship owners starting to invest in recruitment colleges around the world. This is significant because it smacks of desperation by the individual companies as well as hardly scratching the surface when it comes to meeting the training needs of the industry at large.  Here in the Philippines only a handful of academies, seven to eight at that, can provide graduates with the necessary qualifications to become cadets. This means that only a fraction of the 10,000 personnel who graduate annual are adequately qualified.

The shipping market largesse has also attracted the attention of the asset players as well as the traditional operators. These are companies and individuals who see shipping as a way of making money. They are not in it for the long haul and are certainly not interesting in investing time and money in developing the crewing aspect. As their order books grow, there is only one thing open to them, use third party managers and their managed crews to run their ships for them. If it costs a bit more to pay them, then so be it. The rate of return is there and the ROI is definitely helping.

So the lessons are there and they should have been learned. Shipping markets are cyclical and owners order more tonnage more easily than they scrap. We have all known that crewing shortages would happen, but we have been taken aback by the real seriousness of the problem, and now we are all suffering. But despite all this, there is still no cohesion in the industry towards solving the manning issues in order to move forward. There is too much talk and no action.  Ship owners think nothing about investing $120 million in a new ship. But you look at their eyebrows rise when you ask them to increase the management fee or worse still, pay for a cadet berth of one of their ships being delivered out of a shipyard into third party management.

Ship management companies are not national in characteristic but global in approach, ethos and location. Companies are no longer restricted to doing business with local partners but can choose the most suitable partner – wherever they may be based. The partner must be proactive, innovative and flexible in serving the needs of its clients.

A third party manager must be a trusted full service provider - able to provide a cradle to grave service across a range of disciplines. From managing newbuilding projects to managing crews, the range of disciplines that a good ship manager can provide is huge.

Ship management as an industry does, however, need better recognition. All too often the ship manager is seen as a cost centre and not a provider of added value. We are very much part of this chain of operational responsibility and centres of excellence. A well run ship adds real value to the company and an assessment of the services offered by a ship manager should not be based on cost alone.

In trusting the manager to do his job, the owner must allow the manager to do his job. Given the right tools for the job, a competent manager will deliver on his promise.

Adding value for the ship owner is fundamental and you can only get higher fees if you can differentiate yourself, which isn’t easy in this business. With the weakness of the dollar, there is a trend in the shipping industry to reevaluate the level of fees to more acceptable levels.

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But are management fees realistic? No they are not. It does not take a certified accountant to calculate that the level of fees is not adequate to maintain the manpower, infrastructure and technologies required to exceed customers' expectations.  The fee level is also under tremendous pressure from aggressive competition in the shipmanagement sector.  There is a threshold to the number of ships one manages before it starts to make a difference on the bottom line.

Management fees have not really moved over recent times in comparison to increases in items such as charter rates and fuel costs. They have not risen in proportion, even though the work expected of the manager has increased with the implementation of ISPS and ISM. Ship earnings have never been higher but vessel operating costs which include the management fee,  remain at the same level. You may think I am being mercenary by suggesting that if owners earn more then so should managers. That is not the case but I do believe strongly that owners should be willing to share some of their fortunes with the managers and crew and place some of the earned funds into maintenance costs as well as into the Human Capital side such as through training and competence building. I have argued many times that crew costs, training and competence building should not be placed on the operating budget but on the balance sheet as an investment: the same as the investment in the ship itself.

By linking remuneration to our management performance, the vessel’s operational performance and, as a consequence of the two, the owner’s commercial performance, the quality manager can feel he is justly rewarded as will his principal. But rather than offer a quality manager the carrot of performance-driven bonuses, I believe ship owners should acknowledge the returns they are getting for this hike in shipmanagement quality and accept that an increasingly invaluable industry like shipmanagement is worth investing in for the future.

While some companies complain about the lack of crew competency other companies still brazenly defend their position that you can always get crews if you need them. That may be the case but at what cost to your wage budgets and more importantly, to your safety records. Pressure is increasingly being put on third party managers to step in and solve the industry’s problem. Well I have some bad news for the owners out there. Third party managers do not have the magical touch when it comes to conjuring a ship’s complement out of a top hat. Despite what you think seafarers do not grow on trees but, like a precious plant, the seeds of desire for a career in the shipping industry need to be carefully planted, trained and nurtured so the end result is a crewing force to be proud of.

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The diminution of available seafarer numbers first from the developed economies of Europe, Japan, South Korea etc to The Philippines, Former Soviet Union and Eastern European states and the switch to new recruiting grounds such as China is a worry in itself. There appears to be no real consolidation and development of seafarer resource in these traditional areas but a mass exodus from one part of the globe to another when available sources run out. How long can this continue I ask myself.

We are already suffering the consequences of the shortage of qualified and competent crew numbers. Poaching is rife and wages are spiralling out of control. Signs of panic are emerging and unless we step in quickly and effectively to stop the rot, then we are in danger of destroying the market.

It's not often we turn to the 'beautiful game' to garner inspiration and advice on how to solve problems of a maritime bent but I believe we could learn quite a bit from the soccer transfer market when it comes to resolving the staff poaching issue and we could boost global training of our raw recruits to boot!

You see it all boils down to accepting that your seafarer, just like your centre forward, is a highly prized asset to your team and while you may not physically own him, you should be able to benefit from the time and effort you have invested in training him to the position of demand he enjoys today.

That means that if your competitor attempts to poach him to join his team, the 'deal' can only go through if the competing 'manager' pays a transfer fee into a central fund that could be partly paid out to the losing ship owner and partly paid out to a central ‘industry’  to help finance global recruitment and training of much needed seafarer numbers. If the transfer fee was low enough to enable owners and managers to continue to trade profitably but high enough to make 'poachers' think through the consequences of their actions, then everyone is a winner, surely.

Carrying on the soccer analogy, a good soccer manager knows the true worth of his team and of the value of his star player. Just like a striker with 22 Premiership goals on his season's strike tally will have a higher price on his head that a defender sitting out most of his third division matches on the substitute's bench, is it fair to assume that your highly experienced and highly trained LNG Captain may demand a higher transfer fee that his younger equivalent, fresh from the training colleges with his master ticket neatly tucked into his belt. How much would you pay to avoid a costly collision that is the question you have to ask?

As for the central transfer fund? Well it could either be run by individual sectoral associations such as Intertanko, InterManager or SIGTTO or by IMO. They could police the transfer of talent while at the same time ensure training resources are up to scratch and that their stakeholders, the owners and managers who populate their membership, cooperate to the highest level when it come to seafarer training through the use of simulators and cadet spaces onboard ship. These policing authorities could also impose fines for illegitimate deals or could close their transfer windows to those owners and managers who choose not to play on this particular level playing field. Its just a thought but one worth pursuing I feel.

We all go on about how important the seafarer is but we need to tackle problems of image and loyalty among our staff immediately if we are to start to resolve this problem. Shipping is no longer the attractive career it once was. Long lonely days at sea clouded with the threat of criminalisation are no alternative to a high flying career in IT or telecommunications. But I’m afraid shipping is not like that, not at all. A life onboard ship is rewarding, it’s still an adventure and it is a valuable stepping stone to high flying management or engineering posts ashore. And you benefit from the highest level of comradeship and teamwork you could imaging and you still see the world. That’s a guarantee.

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InterManager firmly believes in a concerted, cohesive and pan-industry approach to quality seafarer recruitment, training and retention.  InterManager is a professional trade organisation of in-house and third party ship and crew managers dedicated to the development of a strong and quality conscious shipmanagement industry. Our 70 full and associate members control in excess of 3,000 ships and recruit, train and employ well over 100,000 seafarers worldwide. We have taken it upon ourselves to put the seafarer first. That is why we have obliged all new and existing InterManager members to adopt a formal cadet programme onboard ships they manage so that cadets going through this programme will be effectively trained for their future role as officers.

Each InterManager member will be required to offer at least one cadet berth per ship under full management in its fleet. InterManager will also back efforts to convince ship owners to support their managers by investing more in their training and cadet programmes. InterManager is concerned about the tendency for newbuildings to be constructed without appropriate accommodation to train cadets onboard ship which is why we intend to use our influence to reinstate proper requirements for cadet berths onboard ships under construction.

In a radical move, we will also establish minimum standards for nautical schools with a view to these schools being accredited by the trade association and used as reputable and competent sources of future seafarers for its members. Finally, InterManager will approach governments and training schools in the crew supplying countries, to express its intention to work together to develop a long-term solution to the global officer shortage problem.

The crisis, and it is a crisis, needs to be tackled at industry level. All managers and owners, not just InterManager members, need to implement an industry-approved cadet programme that calls for one cadet berth to be offered for every ship that is sailing and owners need to back their managers in ensuring this is happening. We need to be more serious about the quality of out training schools which is why a complete audit of all nautical schools needs to be undertaken to ensure they meet standards laid down by the industry as well as the terms of the STCW convention. These nautical colleges will then be used by the industry as their preferred sources of a future seafarer workforce.

I call on all government and training schools in the crew supplying countries to work with managers and owners to develop long-term solutions to the crew shortages issues in their particular area and I invite the multilateral and unilateral regulators  like the International Maritime Organisation, the European Commission and the USCG to work with, and incentivise, through port state or flag state initiatives, manager and owner associations which pledge through their articles of association to further the training quality and standard of seafarers employed onboard ship.

I would also like to see greater cooperation between owners and managers. We all claim to be part of a team driving forward to increase quality in the industry. Let’s put out systems and procedures where our mouths are and start working together. It can only be a win:win situation for all. If we can stop treating the area aft of the accommodation as nothing more than the cost centre of the ship rather than regarding it as the real driving force behind the ship’s quality performance, then we can start to move forward in the right direction.  As my predecessor at InterManager used to say, it is people not ships that move cargo and he was right.  The seafarer has to be valued not as a commodity to be traded and utilised but as an individual and a vital cog in the intricate machinery that is shipping.

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Today’s ships are becoming more advanced – technically and commercially and as such demand higher levels of competence to run them. Today’s ships are also part of highly sophisticated logistics chains that require delicate management if the cargo is to arrive at the other side of the world ‘just-in-time’ as the importer demands.  You cannot run such a sophisticated transportation system without the right people playing their part and seafaring today has never been more professional.   

But let’s be clear about one thing: if we as an industry fail to put our house in order then rest assured the unilateral regulator will be more than happy to step in an regulate on our behalf. And he will do it his way, not ours, with dire consequences for all. That is why self-regulation is the way ahead. It has become clear that a compliance culture does not lead to the highest standards. Quality comes from self-regulation with verification. International rules and regulations are set by a minimum consensus level which often leaves the door open to cheats. 

Being part of an industry which promotes excellence by self-regulation through the encouragement of innovation, creativity and sharing of knowledge lends added prestige and gives the ship management industry a better image. Guaranteed.

So the problems are clear but the solutions can be found if we look hard enough. And we can start by exploring what we as an industry can do collectively to make shipping the rewarding industry we all know it is.

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Ladies and gentlemen, thank you.