Lessons learnt ? Aus Schaden wird man klug ! We have ... - VHT

Lessons learnt ? Aus Schaden wird man klug !
Start-up-Speech
within the Framework of the VHT-Speech Series: Training Camp V (2011)
We have undertaken to precede our respective speeches with a motto. I
have chosen Confucius for mine, who allegedly said: "One who makes a
mistake and doesn’t fix it, makes the next mistake". What a wonderful
transition to our topic – Lessons Learnt – question mark.
We have placed this question mark there as we have serious doubt that we,
who earn money "from seafaring", have learnt our lesson. Why? Because
the volume of damage claims – that is, the number of damage cases per ship
and year - as well as the costs from remedying the damage cases – have
been rising unremittingly and dramatically. In our market and elsewhere,
the volume of damage claims has risen from 0.25 to over 0.5 damage cases
per ship and year in a very short time – they have, in essence, doubled. In
other words, while years ago one ship had on average one case of insurancerelated
H&M damage every 4 years, the average occurrence has now been
reduced to only every 2 years.
And, having said that, one may truly ask oneself the question 'Lessons
Learnt?' as, by far, the major portion of these damage cases can be directly
traced back to human error – whereby I am not referring to the fault of the
crew. In every possible development as well as in the press, in this
connection, you will run into the figure of "80% human error" over and
over again. It remains to be seen as to whether it is actually a question of 80
or even 90 or 'only' 70% of the cases. At any rate, the VHT can confirm
from its own experience the accuracy of the magnitude.
One could perhaps take the point of view, "what’s the difference? – that’s
why I’m insured". This is true and, on the other hand, it is not true – but
Herr RA Wölper will say some words about this later. But, at this time, I
would like to point out the following:
� From the costs of remedying the damages of the approximately 1,000
cases that the VHT processes every year, the Ship Owners hold a
share of approximately 50 Mio. Euro in form of their franchises.

� For Ship Owners approx. 10,000 days of loss of income are arising.
� The costs of remedying the damages for cases that remain under
franchise are carried, as a rule, by the Ship Owners in full. Two cases
of damage per ship and year – each loss totalling to 50% of the
deductible – cost the Ship Owners in our market the unbelievable
sum of 100 million Euros per year.
� In addition, the loss of reputation with the charterer stemming from
repeated days of loss must be added to this figure, which can lead to a
refusal of the ship, in the end.
What really hits closer than avoiding damage cases for economical reasons
and, above all, avoiding the repetition of damage cases?
As every reasonable method of resolution presupposes the recognition of
the cause, of course, the first question to be asked is whether 80% human
error is God-given (well, let’s go back to the time of the caveman and
continue in such a fashion) or, whether we might possibly have not yet
learnt our lesson. We all know the answer: God is only guilty to the extent
that he equipped us humans with a certain laziness and the ability to
suppress things – the rest remains once again with us humans.
So, where does the 'root cause' lie? – the root of all evil, so to speak, or,
respectively, the 'causa proxima', as the insurance experts among us would
say. To answer this question, a comparison of today’s situation in seafaring
to that of what it used to be – let’s say from 40 years ago – would certainly
be helpful.
And to come straight to the conclusion – seafaring has experienced a drastic
change in the last 40 years – away from the classical shipping company
business and directly to total industrialisation. Away from "making-money
in-the-shipping business" to "making-money-out of-the-shipping business".
Unfortunately, it seems that a major portion of what one once called "good
seamanship" has got left behind. The good news is: today’s ships equipped
with their technically mature machinery and excellent technical aids are
able to do a great job in overcoming the dangers at sea – if it weren’t for
this 80% human error.

The change that I’ll be reporting on is irreversible, and we’ll have to live
with it, which certainly requires that we recognise our new reality and learn
our lessons from such. My portrayal is now and then somewhat exaggerated
and certainly does not refer to every ship and every shipping company.
Each one of them may certainly find – if the shoe fits, then they'll wear it.
40 years ago, there were, of course, occasionally cases of major damage,
collisions and even total losses – however, only occasionally and not as the
case is today – having roughly 0.5 cases of damage per ship and year. There
were shipping companies that had only insured their ships against total loss
– and for good reason: It paid off because it had shown that the risk was
"calculable".
So, we must ask ourselves why cases of H & M damage did not occur as
often back then as they do today.
To this end, let’s consider the shipping companies round the year 1970:
At that time, seafaring was conducted exclusively by shipping companies,
which (according to definition) had earned their money in seafaring. "Ship
management" (thus, the making of money out of seafaring) had not yet
been discovered as a sector of industry. The shipping companies, who had
conducted their business since the days of sailing ships, were forced to look
after all of the needs of their range of services, themselves.
And, the seaman also belonged to this group. They were employed by the
shipping companies – in any case, all of those above the crew ranks – and,
as a rule, throughout the course of many years, sometimes a life long, they
were very close. Promoted were those that had learnt demonstrably so
much that they had risen to the occasion of the next level of promotion –
thus, 'survival of the fittest'.
The ship’s command faced the challenges of the sea to the greatest possible
extent on their own, and their seamanlike decisions were based on years or
decades of work experience and nearly exclusively on nautical / technical
necessities.

Let’s consider the ships round the year 1970:
Shipping companies had their ships built at their home shipyards for
exactly their needs and ran their ships for many years up until they were
sold – in many cases, even up to the point when they could be scrapped. The
shipping companies and the crews cared for their ships as it was in their
own best interest to keep the ship in good condition – amongst other things,
so that they could reliably serve their lines (thus, they could earn money in
seafaring). Thereby, the companies could run their ships over the longest
possible time and, later, could obtain high sales proceeds.
And now, the machinery round the year 1970:
The technical development on ships has been proceeding rapidly over the
past few decades.
Back then, large diesel engines achieved a rate of approximately 15,000 HP
– in the mean time, it is 130,000 HP and even more.
At first, the engine room was 24 hours attended. Then, slowly but surely,
the engines became more and more automatised and, at first, they operated
16 and then 24 hours unattended, which came along with a continuous
reduction of the engine crew.
Engines and systems weren’t often fully developed or not "seaworthy"
when they were installed on board, which, in the 70’s/80’s, led to substantial
problems in ship operations – catchword: medium-speed engines and heavy
oil operations. These problems could, however, be mastered with a
relatively large number of well-trained crew members, respective to that
time.
In summary, it may be said that the ship and its operation, at that time, was
a cog in "shipping company machinery". I think that the comparison with
machinery paints a nice and fitting picture: All of the parts in such an
assembly work together, grab on to each other, are dependent on each other
and take care of what they should without any major friction.

Then came the years of change: containerisation and industrialisation of
seafaring as well as Europeanisation and then globalisation of ship
operations. And we ask ourselves where we stand today?
Let’s consider the shipping companies in 2011:
Except for few exceptions, there aren’t any anymore – at any rate, not in
the sense of the above. Since the 80’s, having been made more favourable
by German tax legislation and containerisation, ships are financed by
investment companies at locations where it is cheap to contract ship
construction and subsequently, made available to the market. In other
words, the interests of the ship owner (that is the limited partner in the
German KG) in their ship are purely commercial and totally dissociated
from the needs of the ship operation.
The market, that is "shipping lines" chartering ships for their purposes.
The interest of the charterers exclusively serves its line and its clients. The
ship must "perform", otherwise, there is a charter deduction or "it is
thrown out of the charter". In addition, the interests of the charterers are,
thereby, totally dissociated from the needs of the ship operation.
As ships cannot be run without a shore-based, technical / nautical support,
these are given to the technical management of ship management
companies by the investment companies. The manager receives a
"management fee" for its services, which, as a rule, is independent of
whether the ship "performs" or not, and, furthermore, he provides the KG
with an invoice containing the accumulated operation expenses. Since the
manager is required to follow the wishes and, above all, the budget
guidelines of its principal, the KG, he may and will only consider the needs
of the ship operation in a limited measure.
As the manager of the managed ship, as a rule, doesn’t have any of his own
seafaring personnel, such uses the services of crew management companies
(of a so-called crew manager), whose task it is to make a ship crew available
according to the wishes of the principal. In doing so, the number of crew
members is kept at a minimum owing to financial reasons. And so, as ship
management companies don’t have any of their own ships, crew managers
don’t have any of their own crews, either. Rather, in turn, they use the

services of crew agencies that are based in the respective homeland of the
seamen. It is actually superfluous to mention that under the circumstances
described neither the crew manager nor the crew agent has any interest
whatever in the needs of the ship operation.
The seamen, in turn, are not, as a rule, employed by the crew agency but
rather are contracted for the respective assignment, such as mercenaries.
The positions are often filled in a north-south arrangement: e.g. a Polish
captain, Philippine officers, Tuvaluan crew. We’ve already experienced 12man
crews having nine different nationalities, in which no consideration
had been taken for ethnic, linguistic or religious affiliation. And so it comes
to pass that the VHT, only in the case of an exception, encounters a ship
with a "homogenous crew" sailing the high seas.
One cannot make any universal statement concerning the quality of
training of the seamen – how then? The seamen come from "the four
corners of the world" and the educational requirements and training
standards are different in the individual countries. Still, a comparison made
to "back then" when predominantly German seamen and large manning
sailed on the ships of our market, would come off badly because our
training standard at that time was unusually high. Most probably, the
Eastern Europeans, today come the closest to this standard. In addition,
most of today’s seamen no longer go to sea out of "conviction", but rather
more often due to economic considerations. For nearly everyone, the job of
a seaman has become a transitional job owing to its low desirability – a
means to an end. Recently, when Grandpa Gehrke was having breakfast
with Stefanie, his crossword puzzle was missing a word meaning
"reputation of seamen with four letters", Stefanie thought that 'poor'
belonged there.
The limited partners, the charterers, the managers, the crew managers, yes,
even the crew agencies regard the seamen, themselves, as a means to an end
– well, someone has got to sail the ship - and if not this seaman, well, then,
another. Nowadays, positions are filled (captain, cook, first mate, second
officer). The qualifications are not often critically scrutinised – certificates
of competence are the decision maker – a 'survival of the fittest' looks
different. And so it comes that ships and their machinery nowadays are

often led and sailed by seamen having little practical experience, little
discipline and little sense of responsibility.
Under the above-mentioned conditions, the seaman won’t stumble upon a
"Happy Ship" when signing up and during his time on board won’t be a
"Happy Seaman", either. He’ll have long working hours, little social
contact and a low pay. He’ll probably not see this ship again, he possibly
won’t sail again on a ship belonging to this manager or this crew manager –
perhaps he’ll sign his next contract with the same crew agent as only the
latter will be able to promote him to the next-higher position (that is to say,
pay group). And so it comes that oftentimes the seaman, himself, has little
or no interest in the needs of the ship operation.
The ships in 2011:
As described above, ships are mostly built for the (container) market,
whereby the price and size (a lot of ship for little money), fuel consumption
and the speed are the main criteria. Quality (that is high dock and shipping
company standards), dependability and longevity often only play a
subordinate role during the conception and construction. Nowadays, ships
are larger than those of 40 years ago (container ships multiplied by about a
factor of 10) and, they are built, as a result of improved calculation
methods, by using less "steel construction safety", which, in deed, make the
ships lighter but also less tolerant to errors in seamanship (e.g. "heavy
weather"/collision/grounding damages). For the H & M Underwriters the
light construction makes itself twice as noticeable as not only the ships are
larger but also the dock prices have risen.
Bridge equipment has nearly experienced a revolution in the past years in
every aspect, and one should not imagine wheresoever our ships would run
aground, if the localisation were only performed with the help of the
sextants, and the stability and the longitudinal strength were only
calculated "by hand".
In light of all of the criticism mentioned, it still remains to be determined
that the ships from the year 2011, from a technical / nautical point of view,
have the best preconditions to overcome the dangers of the sea. As a result

of the external circumstances, it still often leads to avoidable H & M
damages.
Engine systems round 2011:
Today’s main and auxiliary engines are technically sophisticated, to a large
extent well-engineered and consistently seaworthy. The low number of crew
members allow for engines to be automated to the greatest possible extent
(and, thereby, unattended – but, however, not free of maintenance). They
also allow for all important parameters to be electronically monitored, the
periodicity of maintenance for the main and auxiliary engines to be
extended and hardly any manual labour to be performed. Aggregates and
plants are, among other things, as a result of their high level of
performance, certainly no longer as robust ('forgiving') as back then.
Thereby, service and maintenance errors lead more quickly to
(consequential) damage, which repairs, owing to the increased costs of
replacement parts and wages, have today become considerably more
expensive. Additionally, the "life blood" of diesel engines, namely, that
heavy fuel is no longer what it once was and often requires complex
preparation, which is fundamentally possible on board, but oftentimes goes
beyond the abilities and skills of (today’s) crew members, regularly leading
to damage cases, which are actually avoidable – Herr Förster will say a few
words on this topic.
Even at this junction it remains to be determined whether engine systems
from the year 2011, from a technical point of view, bring with them the best
preconditions for reliable and, to a large extent, damage-free performance.
As a result of external circumstances, one still ends up, even in this case,
having avoidable engine damage cases more and more frequently.
In conclusion, no one will be wondering that I don’t want to compare
today’s shipping business any more to the wonderful idea of a "cog in the
machinery". It is too obvious that there is often no longer any reasonable
co-operation and any common interest, but rather it is mainly about
making money out of seafaring (which is not per se a bad thing – the VHT
does this, as well).

The answer to the question posed at the beginning of this speech, why H &
M damages occurred less often back then compared to today, is obvious, in
my opinion: in the past decades, seafaring has experienced a major,
irreversible upheaval resulting in a ship owning system (motto: one-stop
shop) having been replaced, to the greatest possible extent, by a diversified
system of service providers, in which each and everyone sails his own ship.
In this system, for the shipping business, responsible parties are rarely or
not at all identifiable, which, on many ships – drastically speaking – has led
to a vast neglect of the "shipping business". Know-how, seamanship, job
experience, discipline, and awareness of responsibility have gone down to
the lowest level. And since there is no adjustment factor (ISM and port state
controls do not fulfill their purpose adequately in this regard), even major
damage cases lead rather seldom to positive and sustainable changes.
The bad news is that the managers (respectively, their technical check-ups)
and the ship crews often do not do (are not able to do) justice to their
professional needs. H.-H. Diestel once wrote that, in his opinion "… a
considerable percentage of the members of the ship direction, today, no longer
satisfy the intellectual requirements of their position." And since a shipping
company back then recruited their inspectors from their inner circle having
the most capable ship commands – catchword: 'survival of the fittest' –
many things remain to be feared for the future.
Additionally, technical innovations, which would be suitable to partly
compensate, at the least, the inadequateness of an inexperienced crew,
currently are thwarted by less experienced seamen and more unfavourable
working conditions. Under the given circumstances, one does not wonder
that it actually comes to avoidable, insurance-related damages in spite of
improved technical ship equipment. A DNV-study came to the conclusion:
"… growing incompetence among crews, possible brought about by new
recruits, poor retention, and overworked seafarers could be the reason behind
an increase in the frequency of serious maritime accidents since the start of
the new century."
The mix of interests in seafaring is vast, and the respective economic
interests often come first. Thereby, it is overlooked that orderly – that is,
reasonable – ship operation, at the end of the day, also serves the economic
interests of all parties involved.

The shipping company and, respectively, the ship managers now have got
the difficult – but also solvable – task to provide for orderly ship operation
in every aspect – namely, conforming to the law and in the sense of "good
seamanship". And then, when a near accident or a real accident happens,
one must get to the bottom of the cause, and such must be seriously
remedied – according to the motto: learn from mistakes. As Confucius said:
"One who makes a mistake and doesn’t fix it, makes the next mistake".