Copyright: Univan Ship Management Ltd.

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2 Outsourcing Ship Management Should Owners Do It? Technical management may be : An in-house function for a Ship Owner OR Out-sourced to a third-party Ship Manager.

3 The Owner s Musts : 1. Anticipate operating risks such as perils of the sea, piracy, strikes and environmental pollution. Avoid penalties imposed by various jurisdictions in event of casualties. 2. Comply with Flag, Class, port state rules and regulations (which are constantly being revised). 3. Maintain your ships on hire and deriving maximum earnings. Meet the flawless standards required by Oil Majors. Anticipate these standards being applied to dry and container sectors so understand the regime facing tanker owners. 4. Maintain the right safety standards for your people whilst keeping your ships operating budgets economical. 5. Recruit a team that keeps you, as the Owner, constantly appraised of what is relevant but does not deluge you with information you don t need. 6. Remain alert to changing vessel freight rates and asset values. If you are swamped with too much operating data, you may miss crucial sale and purchase decisions.

4 What type of Owner are you? 1. Private or Public? Do your shareholders care whether you outsource technical management or not? 2. Asset Trader who looks to make money from capital gains rather than charter income. 3. Long Term Owner who may often put his ships on long term charter for steady income. 4. Industrial Owner who owns ships as part of a cargo supply chain. 5. Shipyard seeking to warehouse excess production pending sale or to provide a ship-owning arm for diversified risk. 6. Financial Owner seeking tax benefits such as KG/ KS. 7. State-Owned Owner seeking to fulfill their country s import-export requirements. 8. Banks etc. who are forced to become owners to recover their debts. 9. Some combination of the above! 10. GNOTHI SE AUTON -- Know your motivations and what you are good- and, crucially, not-so-good- at.

5 What size of Owner are you? Large Owner: Fleet above 50 ships Your fleet is large enough to give you scale in house but you may outsource to maintain your commercial flexibility Small Owner: Fleet less than 20 ships Outsource more attractive Medium Owner: Fleet ships Decision more balanced. Seek to JV with a reputable manager?

6 Outsourcing: Pros Cost savings -- especially for smaller Ship Owners. Owners can concentrate on freight earnings and the asset cycle. Owners do not have to employ staff and bear redundancy costs in the event of deciding to play the cycle. Managers are often better equipped to deal with liabilities and claims. Officers / crew often have more career options with a manager than an Owner.

7 Outsourcing: Pros (continued) Managers may be better aware of new rules / regulations and have broader experience of handling crises. Managers may be better placed to implement OCIMF / TMSA requirements, which pose major barriers to some Owners. Manager can shield the Owner from blame in case of an incident.

8 Outsourcing: Cons Communication may go awry and Owners become too remote from the real position on board their ship. Very large managers face difficulties in maintaining personal service to Owners at the top level. Some charterers may not approve certain Ship Managers. Ship Manager may manipulate the books and cheat the Owner Ship Managers may not perform to Owner s satisfaction.

9 Are you in the right place to manage ships? 1. Seek out a location with an attractive tax regime and / or double tax treaties to minimize your tax exposure. 2. Seek out a location where experienced ex-sea farers want to live with access to maritime lawyers, insurers, banks and other key infrastructure. Foreigners also need to be able to easily immigrate and purchase / hire office premises. 3. A plug for Hong Kong! Great airline connections Very hard working local support staff Easy to employ expatriates e.g. from India and China and the Philippines A very favourable tax regime A very attractive Flag backed by a friendly and hands on Marine department Many Class societies, insurers, law firms, shipbrokers, commercial operators established in Hong Kong Next door to China which imports and exports more cargo than anywhere else in the world and will soon be the biggest shipbuilder in the world

10 Conclusion What type of Owner are you? What are your commercial objectives? Can you cope with the demands of managing the mass of operating and technical data as well as focusing on your commercial objectives? Gnothi Se auton! Are you in a location where you can easily choose the in-house option? Do you know a manager whom you can trust? Weigh up your options. Consider some of these pros and cons.

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