ERM- Session 3

Material : Case Study The Titanic Disaster: An Enduring Example of Money Management Vs. Risk Management (Refer page no. 16-18A of the reading material Set I)

Why Risk Management in Shipping? Speech by Mr. W.A. O'Neil, Secretary-General of IMO

Group members are also expected to contact shipping

company officials and procure additional literature

including research articles to gain an insight into the

operations of shipping industry

Learning objective : This case aims at: (a) understanding risks encountered in

shipping industry, and (b) providing an opportunity to the

participants to deliberate the contentious issue of money

management versus risk management

Suggested issues to be

addressed

: Brief on Shipping Industry

Identification of risks (physical and business risks) in

shipping industry

What went wrong with the Titanic?

Reasons as to why money management wins out over risk

management?

Lessons learnt from the Titanic Disaster

Changes brought about in shipping industry after the

Titanic Disaster

Delivery

: Written report and class presentation by members of Group-3

Evaluation method

: Quality of information and evidence that thought was given to the case and group members ability to engage students during class presentation.

Why Risk Management in Shipping?

Speech by Mr. W.A. O'Neil, Secretary-General of IMO

Executive Session on Maritime Risk Management, Malm (Sweden),

Mr. Chairman, Ladies and Gentlemen,

Thank you for inviting me to be with you today and to speak at this Executive Session on Maritime Risk

Management. I am delighted to do so, first because the location has special resonance for me as this hall

is named after Mr. C. P. Srivastava, my distinguished predecessor in the post of Secretary-General of

IMO and, second, because this event comes just a day after what for me is always one of the highlights of

the maritime industry year, the graduation ceremony at this excellent centre of maritime education, the

World Maritime University.

Graduation day at the WMU is one occasion where I know the atmosphere will be positive, something

which I believe ties in very well with the theme of todays meeting. I consider risk management also to be a very positive undertaking, being as it is a pro-active process that involves anticipating potential problem

areas and then planning and working to avoid them.

Yesterday I presented Masters' degrees to the new WMU graduates of the year 2000, most of whom are,

themselves, about to become engaged, in one way or another, in maritime risk management as they return

home to take up positions in the maritime sector of their own countries. Very few of them will have the

words "risk management" in their job title. But I believe risk management as a discipline is beginning to

move out of the province of the specialist and into the mainstream of many activities. By this I mean that

everyone involved in the shipping industry needs to be aware of risk and of how to manage it, if the

industry is to thrive.

When I was asked to address this group, the organizers requested that I take as my theme: "Why Risk

Management in Shipping?" I dont think anyone need look further for the answer than the terrible tragedy that befell the Express Samina in the Aegean Sea two weeks ago, or the Erika incident which we were

debating with considerable passion in IMO at the Marine Environment Protection Committee just last

week. Here were two cases in which the risks involved in the operation were clearly not identified and

managed properly. The outcomes were tragic.

The overall objective of a shipping operation might be defined as "to transport cargo or passengers safely

and cost-effectively from origin to destination." You cannot do this unless you identify and manage the

risks inherent in the process. But, as these incidents so graphically remind us, in shipping, the potential

downside of not managing the risk effectively goes far beyond financial loss: people die and our

environment is damaged.

I should make it clear from the outset that I am not a specialist in Risk Management and others will

doubtless speak to you about the intricacies of hazard identification, of ranking risks as intolerable,

tolerable or negligible, of risk reduction and of cost/benefit measurement. I am, instead, going to offer

you some thoughts on how risk management has become a key factor in a whole new approach to the

culture of safety that we in IMO are striving to promote. What I would like to stress is the importance of

understanding instinctively what it means to develop and implement a "safety culture" which, by its very

nature, incorporates a consideration of risk.

So, what do we understand by the term "risk"? It is undoubtedly one of those elusive words that means

different things to different people, even though they might be operating within the same industry. A

shipping banker, for instance, will understand risk as the level of his investment exposure in a shipping

venture. To an insurer, risks are those occurrences that he has given cover against. Academics, and I

know that several of you here today fall into that category, balance the likelihood of an event taking place

against the severity of its potential outcome in other words, its probability versus its consequence. And an officer-of-the-watch on a ships bridge sizing up just when and by how much to reduce speed in gradually worsening visibility has an altogether different and perhaps more tangible understanding of

what risk means. But, whatever particular field we may specialise in, all of us share an intuitive

understanding of what the concept of risk means to us.

"Safety culture" is one of those terms that tends to slip through the fingers when you try to pin a formal

definition on it. It is perhaps far easier to agree on a definition of what a safety culture is not. It is not a

culture of unthinking compliance. It is not a culture in which the principal objective of a shipping

companys safety manager is simply to ensure that his ships meet all the prescribed standards and all the necessary certificates are up-to-date and in place. It is much, much more than that.

Compliance is, of course, a pre-requisite a starting point, if you will. But, beyond mere compliance is a mindset in which safety managers plan and set their own performance standards and goals actively managing safety as a routine part of their everyday work rather than just responding to external events.

This is the beginning of a safety culture. If risk awareness and risk management can also be embraced by

those who do not necessarily have those words in their job title, then real progress can be made. In a

safety culture, every small action to minimise risk is part of a cumulative process that ends in a safe and

efficient operation.

At IMO, the value of this form of management culture has been recognised for some time and is now

being embodied not only in the legislation currently coming into effect, such as the International Safety

Management Code which seeks to provide a blueprint for the way shipping companies manage and

operate their fleets, but also in proposed new methods for shaping the way in which we frame future

regulations and standards.

A process known as Formal Safety Assessment is now being applied to IMOs approach to rule-making. FSA was originally developed, at least in part, as a response to the Piper Alpha disaster of 1988 when, as

you will recall, an offshore platform exploded in the North Sea and 167 people lost their lives. Interim

guidelines for the application of FSA in the context of the IMO were adopted in 1997 and IMO Members

have been invited to carry out trials on its use and to report the results back to the Organization.

It consists of five steps: identification of hazards, assessment of risks, risk control options (in this case,

devising regulatory measures to control and reduce the identified risks), a cost/benefit assessment to

determine the cost effectiveness of each risk control option and, finally, recommendations for decision-

making determining which risk control options should be selected. Application of FSA will be particularly relevant to proposals for regulatory measures that may have far-reaching implications in

terms of costs to the maritime industry or the administrative or legislative burdens that may result.

FSA can be used as a tool to help evaluate new regulations or to compare proposed changes with existing

standards, enabling a balance to be drawn between the various technical and operational issues, including

the human element, and between safety and costs. It has been described as a rational and systematic

process for assessing the risks associated with shipping activity and for evaluating the costs and benefits

of IMO's options for reducing these risks.

It is appropriate to speak about safety regulations in terms of cost benefit because we cannot overlook the

fact that if legislation is to be effective, it must be seen to add something to the value chain. I recognise

that safety requires an investment, and that people naturally want to see a return on the time, effort,

expertise and, yes, money, that they invest. I believe that principle needs to be more widely recognised.

The worlds consumers of raw materials and finished products who, quite rightly, demand that shipping continues to develop and improve its safety culture, must understand and be prepared to accept that doing

so costs money. That cost must, eventually, be shared by the consumer.

The economic consequences of safety legislation must always be thoroughly weighed. Never has this

been more apparent than in the debate about the accelerated phasing out of single-hull oil tankers in the

aftermath of the Erika sinking. The principle that this type of ship should be phased-out has long been

established and a timetable for doing this was built into MARPOL. When it became apparent that some

IMO Member States wanted to see this timetable brought forward, there was a very real possibility that, if

the wrong decision should be taken, the ability of the worlds tanker fleet to move the crude oil and oil products required by the global economy could be severely compromised. That is why I commissioned a

study into the full effects of certain proposals that had been placed before MEPC, so that delegates would

have the information they needed to make a properly informed decision. The study focussed on four

points - the number of tankers that would be taken out of service annually; the ability of the worlds shipbuilding industry to cope with any consequent sudden upsurges in demand; the impact of both these

measures on the world tanker fleets continued ability to carry the oil demanded by the global economy and, finally, the ability of the ship-recycling industry to absorb the extra demand created by the

accelerated phase-out. The evaluation of the consequences was instrumental in helping delegates reach

their decisions.

In an ideal world, a safety culture embracing properly managed risk should not be seen as a cost but rather

as a way of improving efficiency. The line "if you think safety is expensive, try having an accident" has

been attributed to many people, but it has currency because it embodies a truth. Take the ISM Code, for

instance. Although it is too early to assess the full impact of the implementation of the Code on the first

tranche of ships it applies to, there are signs that it has already been effective, especially in making

shipping company managements more aware of their responsibilities. But, more than that, there are clear

indications that ISM certification is providing real commercial value, too. I saw a claims analysis which

shows that vessels which were required to comply with the ISM Code by 1 July 1998 now have around 30

per cent fewer claims than vessels covered by the second deadline of 2002. And, in the months after the

Erika sinking, the daily rates for chartering younger oil tankers reached new highs clear evidence that, even in the cut and thrust of the commercial market, people do understand that quality costs money and

are prepared to pay for it when they see the benefits.

One of the things that has been highlighted by many of the high profile marine casualties in recent months

has been that, in shipping, no one can stand in isolation. Everyone who is party to a shipping enterprise,

be they the shipscrew, shipowners, charterers, cargo interests, classification societies or any of the many other groups of people involved, form what might be described as a risk chain. Failure to identify, manage

and reduce risks in any part of the chain will inevitably have consequences elsewhere. Everyone from a

seafarer on board a ship, to a director in the boardroom of a shipping company and the administrators of a

national registry share a responsibility to play their part.

Seafarers used to have an instinctive way of managing their part of the risk chain. It was called old-

fashioned seamanship. It took years to develop, could not be measured or certificated, was passed on from

"hand to mouth" and often required the possessor to go through many experiences, both bad and good, in

order to learn it. When traditional seamanship works and most of the time it does it works very well, notwithstanding advances in technology. Nowadays, of course, there is a requirement to move on from

this largely experienced-based method to something more structured: something which embodies all the

qualities of old-fashioned seamanship but builds on them and puts them in a context that befits todays

highly specialised shipping industry. This requirement is met in the risk-based approach to safety and risk

management and is therefore at the heart of modern as opposed to traditional seafaring. Nevertheless, there is something in the ethos of traditional seamanship, something in its attention to

detail, in its weather eye for troubles ahead, in its innate understanding of what any given situation

demands and in its measured, unruffled response to circumstances that I believe would be beneficial in all

sectors of the shipping industry. Shipping needs to manage its risks, because the worlds economy and the global environment depend on it to do so. The application of good seamanship, in the widest possible

sense of the word, in all our undertakings, is a very effective way of ensuring that we succeed.

Ladies and gentlemen, thank you.

10 amazing facts about the ship Titanic

By Shaiwan September 21, 2008

Do you remember the famous 11 Oscars winning movie Titanic? The ship which killed 1503

people. Here are 10 real astonishing facts about the Titanic Ship.

1. The cost to build Titanic was US$ 7.5 millions. It was build by 3000 men and it took 2 years for them to build it.

2. To put the magnificent ship together more than 3 million rivets (bolts) were used! 3. The price of the finest first class suite on board the Titanic in 1912 was US$ 4,350 for the

voyage! A third class ticket cost just US$ 30!

4. The Titanic carried 7,500 pounds of bacon and ham, 2,200 pounds of coffee, 11,000

pounds of fresh fish, 16,000 lemons, 40 tons of potatoes and 20,000 bottles of beer! 5. On board the Titanic were 13 couples, celebrating their honeymoon! 6. The Titanic used up 14,000 gallons of drinking water and 825 tons of coal everyday! 7. There were 6 iceberg warnings received by Titanic on the day of collision. they were all

ignored by the wireless operator who was preoccupied with transmitting passenger

messages.

8. The collision occurred at 11:40 PM on Sunday, April 14, 1912. A total of 1503 people died, 705 survived the accident and out of those 4 are alive today.

9. It was rediscovered on July 14, 1956, 76 years after the accident. The ship lies 12,600 feet below the water.

10. Did you know that cats were often brought abroad in ships as sign of good luck? They also kept rats on the bay. There were no cats on the Titanic!

www.extreme10.net/