Summary
Since the early days of industrialization, much of the world’s commerce has depended on ships. Millions of tons of commodities are transported annually between countries by ships. They transport food, clothing, and large quantities of grain, coal, and oil. They also transport substantial pieces of process equipment and complete offshore modules. The modern ship is a vast, strong, self-propelled craft that transports cargo across lakes, seas, and oceans.
Paying close attention to a company in the mining industry, specifically one that mines iron ore and ships it, is crucial to the success of global mining trade and the global mining business. It is crucial to carefully and thoroughly prepare the entire shipping process for mining products, personnel, and equipment. This will allow the management to consider all relevant elements and make informed decisions.
Budgeting and compliance with any set industry guidelines and standards are among the most critical phases of the planning process. This paper further examines the budgeting phase of a mining company entering the shipping business. Additionally, it highlights the significance of the International Convention on Standards of Training, Certification, and Watchkeeping for Seafarers (STCW).
Budget
Governments, companies, and individuals use budgets to estimate their income and outlay for a given future period. Budgets are essentially financial plans for a specific period, typically a year, and are known to significantly increase the efficiency of any financial endeavor (Wedyan, Jaradat, and Bshayreh, 2017, pp 381). It can help with resource allocation, goal-setting, outcome evaluation, and emergency preparedness (Ganti, 2022).
In the case of a mining company planning to purchase a small fleet of ships to improve its efficiency, budgeting and collecting accurate information are central to its success. A fleet purchase can be a challenging decision with long-lasting consequences. As a result, stakeholders must take the time to carefully consider, assess, and select the vessels that will adequately meet the organization’s capacity needs and supply chain requirements.
There is a significant difference concerning the purchase of ships and other assets. Their economic worth is what distinguishes them. Collaboration is essential when considering ship acquisitions, as it is not a task that a single person can complete. These activities involve financiers, buyers, and sellers. When prospective buyers and sellers select agents for the purchase and sale of a vessel, respectively, a conventional offer and purchase transaction occurs (Park et al., 2018, p. 10). The shipbrokers serve as a bridge between the two parties.
When purchasing an asset, such as a ship, the buyer must consider several key criteria. Inspecting the ship before buying is one of the most crucial elements that can help the potential buyer make the right decision. It is essential to inspect the ship’s condition. The primary aspects of a ship inspection include examining submerged structures, examining all ship structures before purchase, and examining the vessel in its natural operating environment.
The management must also decide the new asset’s capabilities, technology, and possessions. Decision-makers should consider fuel efficiency and GPS integration possibilities. They should consider their budget and needs before deciding whether buying fuel-efficient ships with GPS and telematics integration is the best course of action (Park et al., 2018).
Safety is one of the most essential criteria that management should consider when buying new ships. To ensure the safety of ship operators and others during their travels, management should ensure that the assets they acquire have functional and up-to-date safety features. They must also ensure that the boats they purchase can be adequately maintained and that its replacement parts are generally accessible (Goldrein, Hf, ord and Turner, 2013). Budget may be the deciding factor in the purchase. Management must purchase ships that they can afford in terms of both initial cost and ongoing maintenance over the asset’s lifetime.
Costs Included in a Budget Estimate
An estimated cost refers to the amount of money required to complete a project or program. It entails taking into account each project component and calculating a sum that is necessary for budget development. Depending on the project, this could encompass labor costs, material and equipment expenditures, and managerial costs.
Operating costs are associated with an organization’s daily maintenance and management. Direct costs of items sold and other running costs, also known as selling, general, and administrative costs, are included in operating costs. These costs include rent, payroll, and other overhead expenditures, as well as raw materials and maintenance costs. Non-operating financing costs, such as interest, investments, and currency exchange, are excluded from operating costs (Murphy, 2022). Companies must keep track of running expenditures and expenses related to non-operating activities, such as interest payments on loans.
Crew salaries and related charges, insurance and vessel registration fees, repair and maintenance costs, spare part and consumable store costs, cargo taxes, professional management fees, regulatory fees, lubricants, and other ad hoc expenditures are all included in a vessel’s operational expenses. Daily vessel operating costs are calculated by dividing vessel running costs, excluding pre-delivery costs, by the number of ownership days for the relevant time periods.
Monitoring Operational Costs During Vessel Management
The total profit generated by a business’s operations is known as operating income. It is accomplished by subtracting operating expenses from total receipts. Due to the scope of various enterprises, a healthy operating income is comparative and doesn’t always provide a reliable measure of financial health. The operating cost ratio, however, does reveal a company’s financial stability. Regardless of how big or modest an organization is, comparing a firm to others in the same industry is simpler when efficiency is measured as a percentage.
While vessel managers and owners find it simple to control costs on land through ongoing monitoring and open bidding, they struggle to achieve the same results on board.At times, they may have to rely on the crew’s morals and attitude because, generally, it is difficult to scrutinize the ship’s day-to-day operations. As such, the sailors must accept the task of helping the ship owners manage costs by effectively utilizing the supplies, stores, and services provided on board. The onboard technicians can contribute by ensuring due diligence is executed when ordering spare parts and supplies.They can use their experience and insight to effectively manage the requisitions so that unwarranted items are excluded and anticipated future requirements are satisfied, eventually managing costs and preventing urgent requirements.
Lowering a company’s operational costs enables it to outperform its industry competitors. Adopting contemporary technology is one approach to reducing these costs. Technology is beneficial because it encourages productivity and efficiency, resulting in lower operational expenses, especially for direct labor. Robots and automated systems can complete work more accurately and quickly than humans. If automation is not possible, hiring an outside expert to work for the business is another way to increase productivity.
Another option to reduce operational costs is to incorporate internship programs into a business’s operations. Technician interns are an excellent method to cut costs. Interns are recent graduates with scant prior work experience. They engage in internships to acquire practical work experience and beneficial business skills. The corporation also benefits since interns are compensated less than permanent employees and receive fewer perks. Everyone wins from the intern/business connection. Internships can cut down on hiring expenses.
A further strategy for reducing operating costs is through competitive bidding. If a mining firm with a fleet of vessels frequently engages in business with vendors, it may decide to set up a tender process for tasks and projects. The business can make vendors compete to determine who is prepared to deliver the job at the lowest price by requiring at least three distinct vendors to submit quotations.
STCW Convention
The Key Requirements and Importance of the STCW Convention
STCW is a global convention ensuring that all nations attain a minimum training standard.As standards, STCW serve various purposes, including ensuring a person’s safety as a seafarer. The standards were initially adopted in 1978, and 25 nations had to ratify them to enter into force, under the requirement that these nations held a minimum of 25% of the global gross tonnage of ships that were 100 gross tons or larger. When the requirement was satisfied in April 1984, the standards took effect.
In 1995, changes were made that were effective in February 1997. Additional changes were approved in 2010 and went into effect in January 2012. As of 2018, 164 countries had ratified the STCW, accounting for 99.2 percent of the world’s maritime tonnage. In compliance with the STCW agreement, a Captain from Africa, Europe, or America would have to undergo equivalent training (What is STCW and who needs it? no date). Before looking for employment, anyone who wants to work on commercial vessels longer than 24 meters must first receive STCW certification.
Since shipping is a worldwide sector, there must be a global regime to control the certification standards and competency criteria for the two million seafarers working in the global merchant fleet.This is because most seafarers work on vessels whose flag state is distinct from the nation in charge of regulating their training and awarding certificates of competence. The IMO STCW, which has been in effect for more than 40 years, provides this international framework.
The International Maritime Organization (IMO), which was founded in 1948 and came into effect in 1958, is responsible for enforcing the standards. The International Mobile Satellite Organization (IMSO), the International Convention for the Safety of Life at Sea (SOLAS), the International Convention for the Prevention of Pollution from Ships (MARPOL), and the Convention for the Suppression of Unlawful Acts (SUA) Against the Safety of Maritime Navigation are just a few of the sea-related international agreements that the IMO has created and/or overseen (STCW Convention Explained – History and Overview, no date).
Before 1978, many states that maintained merchant fleets established criteria for seafarer certification, watchkeeping, training, and other aspects of seafaring. The standards differed, although the commerce vessels sailed across the same waterways and ports. Ships are frequently crewed by sailors who are not citizens of the nation within which the vessels are licensed, and of course, these seafarers are not citizens of the several nations in which any ship may make port calls. Due to this, there were occasionally problems with ships being held up in ports, disagreements between governments over the application of standards, and safety concerns.
The STCW stipulates requirements for masters, chief mates, officers in complete control of navigational watches (OICNW), ratings comprising of navigational watches (RFPNW), able seafarer deckhands (AB Deck), radio operators (who, along with other things, must show competency in the Global Maritime Distress and Safety System or “GMDSS”), chief engineers, second engineers, officers in charge of engineering watches (OICEW), and ratings forming part of engineering watches (RFP).
The Effectiveness of the STCW Convention in Achieving Its Aim
Parties to the 1978 STCW Convention are expected to provide pertinent information on the actions taken to provide the Convention with a complete and comprehensive effect (Brodie, 2014, p. 230). This is required to fulfill the duties arising from STCW rules I/7 and I/8 and sections A-I/7 and A-I/8 of the STCW Code. A panel of knowledgeable individuals chosen by the Secretary-General from the list routinely authorized by the MSC then considers this information. To help the Secretary-General prepare a report to the MSC for final approval, where necessary, the panel of competent persons submits a written report on its opinions.
Sections of the STCW Code support the rules in the Convention (Merchant Shipping (STCW Convention, 2010) Regulations, 2013). The Convention generally lays forth the fundamental standards, which are subsequently expanded upon and clarified in the Code. Part A of the Code must be followed. A collection of tables provides comprehensive information on the minimal requirements of competence necessary for seagoing workers. For instance, the master and deck department criteria are covered in Chapter II of the Code. To aid Parties in implementing the Convention, Part B of the Code offers recommended advice. The proposed actions are not essential; the examples just suggest how some Convention requirements can be met. The recommendations, however, represent a strategy that has been unified via IMO-wide debates and engagement with other international institutions.
The STCW’s goal is to maintain the safety of the world’s oceans and ships for everyone, including the crew and the environment. The purpose of the STCW is stated in clear terms in Article 1(a) of the IMO Convention, which is the body that oversees its enforcement. It is to “provide machinery for cooperation among governments in the field of governmental regulation and practices relating to technical matters of all kinds affecting shipping engaged in international trade; to encourage and facilitate the general adoption of the highest practicable standards in matters concerning maritime safety, the efficiency of navigation, and prevention and control of marine pollution from ships” (STCW Convention Explained – History and Overview, no date). Every seafarer should feel safe.
Beginning in the twenty-first century, the International Chamber of Shipping (ICS) has been thinking about how the IMO STCW system may continue to serve its intended function.The ICS Board agreed in 2019 with the ICS Manning and Training Sub-advice Committee that ICS would request the IMO to assess the STCW regime thoroughly.Pursuant to the drastic revision of the STCW Convention that had been ratified by IMO Member States in 1995, this has not been done since the early 1990s (A review of the STCW Convention 2020, no date).This begs the question of whether the Convention, as written, still satisfies the sector’s needs at this point.
The ICS members have concluded that a completely revamped STCW system would enable the industry to respond far more successfully to rapid technical advancements, including growing automation (Mejia, 2010). A revised Convention might offer a sufficiently adaptable framework to meet the needs of a fast-changing global fleet and might enable a much more modular design for competency development and certification than currently achievable (Federation, I.T.W., 2010, pp 58). The duties that sailors undertake on board ships and the skills and training they need are already evolving due to the introduction of new technologies in navigation, engineering, and propulsion technologies (including the utilization of alternative energy sources).
Most notably, according to ICS, a thorough review of the STCW Convention could perhaps aim to increase accountability and confidence in deployment oversight in relation to the obligations of IMO Member States that control the caliber of their national training and certification systems (Etman, 2020). Specifically, this entails refining the government clearance procedure for training institutions, especially those engaged in operational-level ship officer training, and guaranteeing strict adherence by individual training institutes to deliver IMO competence standards.
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