Ship Manager: Why it is a good idea to carry out pre-management audits

The dry bulk market may be struggling, but more and more ship managers are taking on vessels which fall back to the banks as distressed tonnage.

This brings opportunities to ship managers to scale up their fleets, however it also comes with the danger of being held accountable for the ship’s possible bad state of maintenance. As it lays in within its nature, such vessels may have not have received maintenance and supervision as one would expect from best practice management. This lack of care may result directly in both the hull and the equipment degenerating into an unfavorable condition, causing high initial maintenance catch up costs – and thus tightening the budget.

It is therefore essential for every ship manager to undertake surveys before a vessel is accepted. Without carrying out such a pre-management survey no proof of the ship’s original condition is available. In an example, a ship manager had to settle an owner’s claim of several hundred thousand dollars in damage despite managing the vessel for less than 10 months. For a number of reasons, the new ship manager was not able to visit the vessel, and when the owner inspected the ship later he found it in an unpleasing condition and opened the claim.

It is quite likely that that the bad condition had been caused by the replacement ship manager, however the company had no proof and had to settle the claim in a private negotiation.

Use of pre-management contracts as ship manager

A re-management survey occurs naturally prior to taking on the vessel as the new manager, however ship management contracts often start at the date the vessel joins the ship manager. To avoid conflicts and legal uncertainties, ship managers would be well advised to use a separate agreement with its own terms to carry out initial audits. However, such terms and conditions only come into consideration if the other party has been made aware of them (not necessary in any legislation). Should a dispute occur, or negotiation become necessary, the ship manager would be much safer and could feel reasonably confident of settling claims in his favor.

Ways to ensure extra terms for pre-management contracts:

• Put a link in your email foot note leading to a request form or directly to the terms and conditions
• Publish them on your website
• Bring the terms to the attention of all parties before any papers are signed, e.g., by sending a copy
  • Optionally have them underwrite the terms
  • Or request acknowledgment of receipt

Thus ensuring the other party cannot claim to have no knowledge of the extra terms.

This good advice was formulated by Robert Hodge, senior account executive with International Transport Intermediaries Club (ITIC) and published by Ship Management International, issue May/June 2017.