Introduction
The competitive edge that has rapidly continued to advance in the market today makes different companies cautious while making decisions regarding factors such as transportation. For a shipping division, there are primary factors and main information that are essential to be considered while a company is purchasing small fleets of vessels to start a shipping division. These factors are vital to enable the company to have a smooth operation time in its services and minimize costs. The company should focus on cost, quality, time, safety, capacity, carrier stability, and reliability while considering purchasing a vessel.
Budget
Main Information and Important Factors
The cost of the ship is one of the main expenses of the organization, which can be managed by minimizing costs. The company must evaluate the budget, which involves fixed and daily operating costs. Considering these factors helps the company achieve the core objective of every business, which is to make profits and avoid losses throughout its operation.
Ros Chaos et al. (2021) argue that costs are detrimental to the profit accumulation of a company through maintenance practices, insurance, and administrative costs. Company stakeholders need to prioritize the needs and expectations of shippers by ensuring that they choose a vessel that can provide required services at a lower cost. This approach will ensure that the company is benefiting while enjoying its services.
Information about the financing options for the vessel will be significant to be considered by the company. Some financing options prompt expensive and cause extra costs that derail the company’s operations. The company should use different mortgages and rates for loans and bonds. Rice and Hughes (2019) say that sound financing is achieved by setting up processes for transferring rights and credits after contingencies. This helps the company to keep capital and stock from total loss by avoiding a crisis.
The quality of the vessel is another factor that the company should investigate. Quality is the basal foundation that predicts the durability and purposes of sea vessels. Dzionk, Przybylski, and Ścibiorski (2020) highlight that a carrier’s quality in the seas is attributed to improved performance and components such as advanced fatigue durability. Utne, Schjølberg, and Roe (2019) found that a reasonable LOS rate proves trustworthy in service provision, which enhances reliability during the transportation of iron ore. Cost control can be achieved through negotiations with various suppliers and bulk purchasing. The company can adequately save as it prepares to upgrade to an improved version of sea fleets or accumulates maintenance costs.
The company will be required to evaluate time factors such as speed and delivery times of the vessel to avoid delays and inconveniences in its transportation division. According to Slack et al. (2018), the vessel should have the ability to fit into the company’s schedule by delivering orders on time without loss and damage. Time should be the priority if the company needs to create value and maintain a high competitive advantage in production (Kaliszewski et al., 2020). The timeliness of delivery guarantees the organization that customers will continue to buy their goods in the future. By choosing a proven delivery service and spending money on it, the company will no longer waste money on costs and errors of poor delivery.
Safety in sea transport is subject to the controversial discussion that might result in losses. The company will need preliminary information to inspect whether the new vessel has up-to-date insurance practices and log-keeping arrangements. Legal supply operations promote proper protocols and clear accountability for accident prevention in the sea (Vujičić et al., 2020).
de Vos, Hekkenberg, and Banda (2021) found that safety is the most critical factor in any sea shipping that companies consider in protecting their reputation in service provision. Vessel stability is the company’s guarantee that the goods transported will not be lost and will be delivered on time. A decrease in stability can lead to breakdowns and additional costs over budget and significantly reduce capital.
The company should avoid saving a few dollars because it causes more harm than good in its operations. According to Igder et al. (2020), reliability is a factor that ensures the building of trust and reputation for the transporters in the company. Choosing a reliable vessel helps the company to achieve its objectives without constraining. The best way to gather information about reliability is by looking for the vessel’s level of service (LOS) rates. High rates of LOS imply that the vessel can be highly reliable to the company.
The vessel’s capacity is a factor that the company should consider to ensure that it has a secured capacity in future services due to the widening gap in demand and supply. A vessel with sufficient capacity will allow the company to conveniently transport large enough quantities of iron ore as raw materials and resultant products. A sufficient number of vessels with high transport capacity is an opportunity for the company to control costs. By adequately organizing vessel occupancy and scheduling transportation, the company maximizes benefits and reduces costs for additional shipments.
Business sustainability is the driving force behind every company’s current global efforts towards environmentally friendly practices. So, the company will focus on sustainable practices that are environmentally conscious when it comes to transportation solutions (Álvarez, 2021). The vessels should have features that promote efforts toward environmental sustainability, such as reduced emissions and zero pollution due to leakages and spillage in the water bodies (Christodoulou & Fernández, 2021). It can help the company build a supply chain brand name and image that leads to a positive public reputation (Ülker et al., 2021). A company’s environmental awareness is essential in securing third parties’ interest in business development.
The Typical Costs
Typical costs included in the budget estimate of the fixed costs or vessel capital costs include insurance, loan repayments, and utility bills. Other fixed costs will comprise taxes such as business licenses (Vukić & Kraemer, 2021). Insurance is an essential requirement the company will need to purchase to provide comprehensive cover that protects shipment from different perils and natural disasters (Vukić & Kraemer, 2021). Loan repayment arises when the company purchases a vessel on installment payments. Servicing the loan is a fixed cost that the company will be obligated to while conveying its transportation services. Utility bills will include fueling and salaries to the technical team in the vessels.
Daily operating costs will include all costs that are the primary responsibility of the vessel manager, which are considered semi-variable. These costs comprise crewing, maintenance, administration of the vessel, and storage (Vierth & Merkel, 2022). The company uses operating costs to calculate charter or voyage profitability. This category of expenses is governed by the company’s goals, so it can change the amount of goods it needs to increase its budget.
Cost Management
Monitoring of fixed costs and daily operating costs during the management of the vessel can be done through methodological calculations in accounting books. Monitoring the company’s costs will help identify excellent price levels for its services and products (Ghaderi, 2019). For instance, fixed costs will be treated with a business’ overhead costs and basic operating costs. Total fixed costs are obtained by subtracting variable costs from the total operations costs multiplied by units produced. However, these costs can be easily monitored throughout the vessel’s management.
One way to reduce the fixed costs will be by reducing the number of salaried employees on the vessel (Ghaderi, 2019). Lowering the number of employees will cut the cost incurred on paying employees, which accumulates daily expenditure. Other fixed costs, such as insurance, can be monitored through negotiation by providers and seafarers.
Fixed and daily operating costs can be monitored by involving everyone in the company. This objective can be reached by challenging employees throughout the company to identify means and ways through which the business can save time and money. The management of the vessel will be able to monitor these costs by working with interim professionals. Interim professionals are significant in challenging and monitoring fiancé and accounting staff. Daily operations will be monitored through adequate planning of the company’s budget to get cost estimations and locate resources effectively.
Outsourcing to ship management companies will manage the organization’s budget because it will incur additional costs outside of core funding. The organization will not need recruitment and onboarding activities if a third-party management company performs these duties. In addition, outsourced logistics processes allow the organization to reduce the time and financial costs of scheduling ships, resolving conflicts on board, and planning mode. Outsourcing allows one to fix the price limits that are available to the organization and reduce the additional costs of self-assessment.
Budget Key Performance Indicator (KPI) reports are another tool for budget status management, as they allow for a comparison of the organization’s goals and current financial level. An acceptable range of goals is a budget fork for assessing whether the budget aligns with the organization’s cost intent. KPI reports allow the organization to develop strategic thinking regarding budget planning. The metrics of such a report allow for an assessment of how well-organized the most costly aspects of a company are and how they can be optimized.
Benchmarking in budgeting allows for establishing quality metrics that a company should achieve when analyzing current assets. In ship management, benchmarking helps to predict the potential profit from the number and quality of shipments and then compares them with the results obtained. Benchmarking will allow the company to thoroughly assess the risks that may arise from deviations from budgetary targets if the vessel is underfunded. Combining benchmarking strategies, such as alpha and index searches, will help a company overcome overfunding if a critical situation requires it.
Budget status monitoring can be achieved by connecting software or developing the company’s own IT strategies. The software will allow budgeting based not only on the proposed parameters, common for any business but also on the specific parameters for the management. Due to the flexibility and relevance of the application’s functionality, companies greatly benefit when they use them for budgeting. This is justified by the breadth of IT tools that can be integrated into cash flow management.
STCW
STCW is an international convention acronym for standards of training, certification, and watchkeeping. It is an official website that sets minimum standards and qualifications for officers, masters, and watch personnel on seafarers and large seagoing yachts (Gundić et al., 2020). The first STCW convention was held in 1978 to establish the basic requirements for the certification and watchkeeping for seagoing merchants on an international level. Previously, STCW ratings and officers were being regulated by individual governments without considering the practices of other countries (Álvarez, 2021). STCW Convention and rules help the company to adhere to the rules and regulations provided by sea authorities, such as sustainability, while being protected against unethical acts in the business. Therefore, STCW prescribes minimum standards related to training, certification, and watchkeeping seafarers, which every sea user is not expected to violate.
The Key Requirements of the STCW Convention
The STCW Convention’s rules control adherence to the minimum age required to work on a vessel, medical certification, credentials and training, and recruiting and placement. Training and certification in line with the International Maritime Organization’s obligatory instruments shall be regarded to satisfy the criteria of the 1978 Convention.
Seafarer recruiting and placement services operating on a Member’s territory must adhere to the Convention’s criteria of IMO (Kenton & Estevez, 2019). Furthermore, in the case of seafarers working on vessels flying its flag, each member shall require ship owners who use seafarer recruitment and placement services based in its countries or territories where this Convention does not apply to ensure that those services meet the requirements outlined in the Code.
Importance of the STCW Convention
The STCW Convention offers various advantages that contribute to the objective of a sustainable ocean and marine environment while regulating seafarers’ activities. It ensures that officers will be competent in their duty even when presented with new equipment they would not have used otherwise through proper training and qualification (Ringbom, 2019). The Convention is crucial in promoting and improving commercial ship technology in marine transit (Chae, Kim, M. and Kim H., 2020). The STCW provides uniform minimum training standards for maritime officers (Muirhead, 2021). According to the Convention’s rules, all seafarers must be qualified and undergo shipping training before they may cruise the ocean.
Effectiveness of the STCW Convention in Achieving its Aim
The STCW Convention and rules are commended for their success in marine transport across all water bodies worldwide. Before 1978, when the International Maritime Organization (IMO) agreed on the initial standards, different nations had varying laws regarding the minimum amount of training a seafarer had to complete before being engaged onboard a commercial ship (Parry et al., 2018). Given the worldwide nature of commercial ship employment, this variation was impracticable and caused trouble owing to inconsistency. Officers from various nations had difficulty working with each other and the ports in which they docked due to varying training levels. Creating clear and uniform minimum training rules has enabled marine officers to be more proficient in at least fundamental safety procedures and higher qualifications when at sea.
Limitation and Weakness of STCW
Among the limitations of the current version of STCW is its irrelevance, given the technological advances made over the past decade. STCW does not provide guidelines for the modern equipment seafarers have to deal with on a ship. STCW has not been reviewed for a long time for the competencies seafarers on board must possess to perform their duties. In particular, it is expressed in ignorance of standards due to the irrelevance of programs that STCW implements. Centers that can grant accreditation to employees select only a portion of the STCW requirements that are already outdated. Gaps in training are related to communication skills, basic practical skills, and technology management.
The weakness of STCW is not only related to its low relevance but also the limitations of its application due to revised international laws. STCW has not fully organized its revision mechanisms and conditions, so it is difficult to perceive it as a benchmark for guidance. STCW does not fulfill its unification and development function, which are stated as its goals. Instead, STCW is showing a threatening decline in its influence on shaping the professional image of seafarers.
Changing the current state of STCW requires a complete overhaul of the quality standards that shipowners must follow when organizing crews on board. Quantitative compliance is not enough; recruitment according to competencies and skills must also be implemented. STCW must be improved through hands-on training focusing on future outcomes, not just exams and ongoing assessment in training. Formal education should be strengthened and aimed at developing more complex and relevant skills.
Conclusion
The company will need to assess sufficient information on the vessel’s quality, reliability, capacity, and sustainability to start its shipping division. These factors are significant for adequate service provision and reduced cost while increasing the business objective of profitability. These costs include taxes, insurance, bunkers, and port charges while the vessel operates. STCW will play a significant role in regulating sea transport standards that are internationally required to be observed by every seafarer. These regulations require that sea merchants receive adequate training and meet requirements that bring uniformity to the international standards of sea transit.
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