Budget
Main Information About the Vessel
Ships transporting dry cargo from one port to another are called bulk carriers or dry bulk ships. Special care must be taken with dry bulk carriers, as they transport unpackaged cargo over vast water distances. The bulk ships vary in size and are modified to meet their specific needs. Thus, a ship transporting iron ore should have all the necessary modifications to ensure that the cargo is not contaminated during loading, that there is no water leakage, and that the ship’s surface is also clean to avoid contamination from the previous cargo (Tunçel et al., 2022).
As noted, the primary concern when transporting iron ore over vast distances by water is its damage by water. Thus, the hold should be watertight, and the hatch must be sealable and watertight to prevent water from sipping into the cargo. Additionally, fittings should receive special care to ensure they are securely installed and in good condition. This special care is necessary because loose fittings might damage a conveyor system, causing delays that inadvertently increase the cost of sea transportation.
Dry bulk carriers are designed to load maximum deadweight, but the loading, carriage, and discharge are not as straightforward as one would assume. Incorrect loading can easily damage the ship. Consideration should be given to the loading process and machinery to ensure that the conveyor systems operate efficiently. A conveyor system that is not functioning properly could lead to the formation of a cone by the ship with iron ore loads, helping to form steeply angled cones (Tunçel et al., 2022).
A ship should also be able to accommodate a bulldozer that spreads the dry cargo evenly to avoid shifting during the passage. For cargo discharge, dry bulk carriers are dependent on seaside facilities. However, a ship could be modified for self-unloading using on-deck cranes or a conveyor system below the cargo hold. Generally, loading and unloading iron ore is done at 10,000 tonnes an hour with very little chance of damage to a ship during the loading process. However, a ship could receive extensive damage if proper care is not taken when unloading.
Thus, when deciding to purchase a bulk carrier to transport iron ore, it is necessary to consider the following factors: the size of the bulk carrier, the loading and unloading equipment, and the availability of maintenance facilities. The size of the bulk carrier determines its cost. The availability of maintenance facilities determines when the ship will require relocation, thus incurring heavy maintenance costs. Finally, the availability of loading and unloading equipment determines the time required to load or unload a ship. This is a critical factor because any delays due to equipment failure or lack of equipment lead to further costs to a company.
Typical Costs Included in a Budget Estimate
A budget estimate includes estimates of projected revenues and expenses. These costs and revenues are usually numerous but are grouped into categories and condensed to form a neat and easily understandable budget. A budget is part of a company’s effort to prepare for the future by using estimates of revenues and expenses. The typical costs included in a budget estimate, especially the fixed and operating costs, include the cost of sales, overhead costs, labor costs, and administration costs.
The cost of sales is a line item that incorporates direct labor costs, direct material, and other variable costs that can be directly attributed to a product (Lawson, 2016). Thus, the cost of sales is the accumulation of costs expected to be directly incurred when preparing products for sale. It can be obtained by multiplying the number of products sold by the cost of producing one product.
The second item in a budget is labor costs, which are not directly related to producing a finished good. Labor costs make up a considerable percentage of a company’s expenses because even machines require human operators. Furthermore, labor specialization means that organizations require thousands of employees to perform production and other critical functions. Administrative costs are the cost line item that must appear in a typical budget. This category includes insurance, depreciation, rent or lease costs, and other fixed costs incurred periodically, regardless of production level.
Finally, the last cost item in a typical budget is overhead costs. Overhead costs are indirect labor and material expenses that cannot be directly attributed to a specific product. Thus, they are costs related to the production of a product, but they cannot be directly attributed to the product. Overhead costs are necessary because they are incurred to enable an organization to remain in business.
In the case of the management of the expected purchase of bulk ships for the transportation of iron ore, typical budget costs would include insurance for the ships and the cargo it will be transporting, the labor costs, and for the crew and anyone else working onboard the ship, loading, and off-loading costs, costs associated with the docking of a ship in a harbor (Kretschmann, et al., 2017). Other costs include ship maintenance, heavy-bunker fuel costs, vessel depreciation costs, and a provision for contingent expenses. These costs comprise line budget items, such as the cost of sales, labor, overhead, and administrative costs.
Monitoring the Associated Costs
Profit and non-profit-oriented businesses must monitor costs to ensure they do not exceed the budgeted cost. For a profit-oriented entity, monitoring costs ensure that the projected bottom line is attained, while for a non-profit entity, monitoring costs ensure that limited resources are prudently applied for the company’s benefit. Thus, regardless of the type of organization or its business model, the company should continually monitor its costs to ensure optimal efficiency. In the context of bulk carrier operations, costs can be managed by employing cost management techniques commonly used in business. These business cost monitoring techniques include reducing fixed expenses, planning for the unexpected, utilizing a budget, and resource planning (Sitepu et al, 2017).
The first strategy involves reducing fixed resources required for the vessel’s proper functioning. Technically, fixed costs cannot be changed in the short term. However, these costs can be reduced by consolidating operations where possible, outsourcing some operations where feasible, and ensuring energy consumption efficiency by turning off some lights in areas that do not require them during the daytime and even at night.
The second technique to monitor costs in a vessel is planning for the unexpected. In a budget, one of the line items is contingent expenses. Contingent expenses are set aside to cover unexpected issues that may arise during the year (Lawson, 2016). Providing for contingent expenses is prudent because a business is unaware of unexpected expenses. These emergency funds serve as a backup budget, ensuring the smooth operation of a company in the event of an emergency. In this case, cost management may involve securing insurance for the vessel and its cargo, including coverage for unforeseen expenses resulting from a natural disaster.
The third strategy includes utilizing a budget to control and monitor costs. A reasonable budget has a mechanism that allows frequent monitoring and control of various costs. If the costs rise above the budget, they are monitored early, and corrective actions are taken to ensure they conform to the budget estimates (Sitepu et al., 2017).
Finally, resource planning can help monitor costs associated with the vessel’s operations. Resource planning involves dividing costs into individual parts and monitoring them independently to ensure they do not exceed the estimates or the set limit. This method requires knowing all costs associated with operating a vessel and making educated guesses depending on productivity and operations (Cools et al, 2017). While this method is cumbersome, automation and adoption of computerized management accounting systems make it more effective than the rest. Furthermore, it enables management to understand how various costs interact, making it easier to address specific cost issues.
The STCW Convention
The International Convention on Standards of Training, Certification, and Watchkeeping for Seafarers (STCW) Convention was adopted in 1978 but came into force in 1984. This convention has undergone multiple amendments to bring it into conformity with reality. The convention provides rules on general provisions, master and deck departments, engine departments, radio communication, and radio operators, as well as special training requirements for certain personnel, alternative certification, and watchkeeping.
The STWC Convention provides minimum requirements for masters, watch personnel, and officers in a seafaring merchant ship (Kim & Mallam, 2020). Its original intent was to provide minimum training and certification requirements for seafarers. The individual governments had previously established these standards, resulting in a lack of uniformity in certification and training. With globalization and international commerce on the rise, there was an urgent need to create uniformity in the training and certification of seafarers. Thus, teams from multiple nations came together and drafted the STWC convention, which was adopted in 1978 and later came into force in 1984.
Key Requirements and Importance of the STWC Convention
The STWC Convention offers guidelines on the training and certification of masters, officers, and radio operators. In particular, the convention stipulates that they must possess valid certificates, meet the requisite minimum competence, have seagoing experience, and be medically fit and of the appropriate age before working on a merchant ship. Additionally, individuals concerned with the ship’s safety or those working in the safety department must have the necessary training, certification, and experience in maintaining safety on a merchant ship (Dalaklis, 2017). The various chapters in the convention provided the exact qualifications that different types of crew members on a merchant ship should have.
Further, the required certificates must be endorsed by the issuing authority and re-validated at intervals not exceeding five years. Before the re-validation, some certifications are subject to refresher training. There is also a requirement for ship-specific security training and familiarization that masters should undertake (Mindykowski, 2017). A certificate for this training is not issued; however, STWC rules require that a training logbook be kept on board the ship. Thus, the chapters in the STWC convention provide more thorough explanations and descriptions of specific requirements that various categories of workers in a merchant ship should possess.
The adoption of the STWC Convention was intended to ensure that safety was maintained for both crew and the environment. Its proponents argued that having uniform rules on the training and certification of people who work on merchant ships would eliminate many of the maritime accidents. Consequently, they brought together nations and signed the STWC convention, guaranteeing that a ship operator in the UK was subject to the same requirements as ship operators from Asia, the US, and other parts of the world that are signatories to the convention (Čampara et al., 2017).
Additionally, the convention introduced uniformity to the training and certification process for merchant ship workers. Thus, an individual working in one country can easily transition and work on a ship in a different country. The convention has undergone significant enhancements in recent years to ensure integrity and transparency in the training and certification process.
With these amendments, the importance of the STWC convention extends beyond ensuring safety for the crew and the environment to also guarantee uniformity. In particular, the convention eliminates fraud in the training and certification process. In addition, the convention is important because it ensures that the crew of a merchant ship works in a safe environment and that their personal affairs, such as medical fitness and rest hours, are taken seriously when scheduling work. Furthermore, the amendments to the conventions and the convention itself ensure that seafarers continually update their competence, thereby increasing the safety of ships, their crews, and the environment.
Appraisal of the STWC Convention
Unlike in the past, when merchant ships were made of wood and relied on wind for navigation, today’s merchant ships are massive vessels made of steel, powered by powerful engines, and equipped with advanced technology. Furthermore, the cargo that merchant ships can transport is hundreds of times more than that which they transported in the past (Ringbom, 2019). The size of merchant ships today and the widespread use of technology mean that accidents are relatively infrequent. When they happen, they have almost no effect on the crew’s safety or the environment (Komianos, 2018). In addition, adopting the STCW Convention already ensures that individuals working on merchant ships are trained appropriately and possess the necessary qualifications to operate a merchant ship. Thus, the design of modern ships already makes them secure, but the STWC imposed requirements on training and certification to ensure enhanced ship security.
However, in a sign that STWC has not been able to keep pace with industry changes, multiple amendments have been made since its adoption. Some of the changes regarding training are made for formalities, as by the time they are amended and implemented, most employers will have already trained their staff (Vujičić et al., 2020). Furthermore, technological development, particularly the widespread adoption of automation, renders large sections of the STWC convention obsolete (Engtrø, 2022).
In addition, the monitoring systems that ensure shipping companies comply with the provisions of the STWC are weak at best and non-existent in some jurisdictions that are parties to the convention. This could allow the service of individuals who are not certified or trained in accordance with the rules and regulations established by the convention. Furthermore, shipowners are better positioned to identify the training requirements of the crews that operate their ships. Thus, it is not appropriate for the STWC to lead the training and certification of qualified staff, as their recommendations often come after radical changes in staff training have already been implemented.
The design of modern ships, the adoption of technology, and the automation of loading and unloading processes mean that accidents are rare on the high seas or onboard ships (Ringbom & Veal, 2017). Furthermore, shipowners regularly recommend new training for their staff to meet their company’s specific needs. These regular recommendations occur even before the STWC releases new amendments to try to catch up.
Further, the amendments indicate that the STWC has outgrown its usefulness in the industry. At its adoption, there was a great need to keep pace with the rapidly growing international commerce and provide a uniform way to train various cadres of staff who operate merchant ships. Currently, the merchant shipping industry is not keeping pace with internal commerce. Instead, the commercial shipping industry has been able to overcome problems and match service without serious incidents and accidents detrimental to crews or the environment. In conclusion, the STWC achieved its objectives but outlived its usefulness in the process.
List of References
Čampara, L., Frančić, V. and Bupić, M., 2017. Quality of maritime higher education from seafarers’ perspective. Pomorstvo, 31(2), pp.137-150.
Cools, M., Stouthuysen, K. and Van den Abbeele, A., 2017. Management control for stimulating different types of creativity: The role of budgets. Journal of Management Accounting Research, 29(3), pp.1-21.
Dalaklis, D., 2017. Safety and security in shipping operations. In Shipping operations management (pp. 197-213). Springer, Cham.
Engtrø, E., 2022. A discussion on the implementation of the Polar Code and the STCW Convention’s training requirements for ice navigation in polar waters. Journal of Transportation Security, pp.1-27.
Kim, T.E. and Mallam, S., 2020. A Delphi-AHP study on STCW leadership competence in the age of autonomous maritime operations. WMU Journal of Maritime Affairs, 19(2), pp.163-181.
Komianos, A., 2018. The autonomous shipping era. operational, regulatory, and quality challenges. International Journal on Marine Navigation and Safety of Sea Transportation, 12(2).
Kretschmann, L., Burmeister, H.C. and Jahn, C., 2017. Analyzing the economic benefit of unmanned autonomous ships: An exploratory cost-comparison between an autonomous and a conventional bulk carrier. Research in transportation business & management, 25, pp.76-86.
Lawson R. A., 2016. Management accounting case book: cases from the ima educational case journal. IMA the Association of Accountants and Financial Professionals in Business.
Mindykowski, J., 2017. Towards safety improvement: implementation and assessment of new standards of competence for Electro-Technical Officers on ships. Maritime Policy & Management, 44(3), pp.336-357.
Ringbom, H., 2019. Regulating autonomous ships—concepts, challenges, and precedents. Ocean Development & International Law, 50(2-3), pp.141-169.
Ringbom, H.M. and Veal, R., 2017. Unmanned ships and the international regulatory framework. Journal of International Maritime Law, 23(2), pp.100-118.
Sitepu, R., Puspita, F.M., Pratiwi, A.N. and Novyasti, I.P., 2017. Utility function-based pricing strategies in maximizing the information service provider’s revenue with marginal and monitoring costs. International Journal of Electrical and Computer Engineering, 7(2), pp.877-887.
Tunçel, A.L., Beşikçi, E.B., Akyuz, E. and Arslan, O., 2022. Safety analysis of fire and explosion (F&E) accidents risk in bulk carrier ships under fuzzy fault tree approach. Safety Science, 158, p.105972.
Vujičić, S., Hasanspahić, N., Gundić, A. and Hrdalo, N., 2020. Assessment for Ensuring Adequately Qualified Instructors in Maritime Education and Training Institutions. Athens Journal of Sciences, 7, pp.115-126.