Management agreement

Management agreement. This expression may be connected with the chartering of tankers by the major oil companies on long-term demise charters, combined with a so-called “Management Agreement”.

However, in the modern shipping industry many shipowners give their ships out to independent managers under a management agreement. To provide a service to the maritime industry BIMCO produced “SHIPMAN”, a Standard Ship Management Agreement in 1988.  An original form should be used to obtain the best benefit. The boxes on the front contain a brief description of an item and a reference to the relevant clauses in the second part of the form. The clauses contain the details and are, of great importance.

Demise chartered tankers may be operated by oil companies in exactly the same way as their own tankers. All running expenses, including crew’s wages, repairs, docking, insurance, survey, etc., are for charterers’ account. Charterers undertake to maintain the vessel in efficient condition and to redeliver the vessel to her owners in the same good order and condition as when delivered.

Under the so called “Management Agreement” the owners undertake to operate the tanker on behalf of the charterers in accordance with their instructions all operating expenses being for charterers’ account against annual payment on an agreed management fee. Under a “Management Agreement” the shipowners, acting as managers undertake to make all arrangements for operating the tanker according to charterers’ instruction and at charterers’ expense, which implies inter alia:

To appoint the master and officers;

To engage a full complement of officers and crew;

To equip and supply the vessel;

To arrange for drydocking, repairs, maintenance, survey, etc; briefly, to do all work normally connected with the commercial operation of a ship.

The question may be raised why the oil companies resorted to chartering by demise, combined with a “Management Agreement”. The explanation is that the volume of chartered tanker tonnage has assumed such proportions that a big organisation would be required to deal with all operating matters.

By bringing foreign owners into the picture for tankers chartered on a demise basis, combined with a “Management Agreement”, advantage was taken of already existing organisations with experience in the operating of ships. A great part of the normal work connected with ships’ operation was thus transferred, so that the necessity to expand the oil companies’ own organisation did not arise.


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Written by Ship Inspection

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