New SHIPMAN 2024 Agreement

Dr., Capt. Vivek Jain,

Barrister (England & Wales), Master Mariner, Arbitration specialist

PhD (Int. Law) (China), LLB (Hon.) (Lon.), LLM (Maritime Law) (Lon.), MBA (Norway), B.Sc. (N. Sc.) First Class with Distinction (India), TS Rajendra alumni

Former Associate Professor on tenure of Maritime Law in UK

SHIPMAN is a ship management agreement that may comprises of crew, technical and commercial management as well as insurance arrangements in respect of a merchant vessel. Shipmanagement agreement that has been use in the maritime industry was drafted in 2009. However, the industry has gone through many changes, foremost being compliance & regulatory requirements and the new risks that are affecting the management of ships.

A few of the prominent changes that needed the modifications in SHIPMAN 2009 agreement are as follows:

a)     IMO's has recommended following index to decarbonise shipping is the following:

a.    Energy Efficiency Design Index (EEDI): new ships must meet energy efficiency standards.

b.    Existing ship energy efficiency index (EEXI): existing ships will have to obtain a technical design approval from 2023.

c.    Ship Energy Efficiency Management Plan (SEEMP): is an operational measure that establishes a mechanism to improve the energy efficiency of a ship in a cost-effective manner.

d.    Data Collection System (DCS): all ships over 5000GT must report their CO₂ emissions.

e.    Carbon Intensity Indicator (CII): is a rating system which will tighten the score and require improvement actions if a certain score is not achieved.

However, EU has gone one step forward and did not wait for more enhanced IMO regulations. EU decided that polluters must pay and thought of incentive-based system to motivate polluters to curtail pollution. This means maritime industry must buy emission allowance. In April 2023, EU came up with EU Emission Trading Directive. Ships above 5000 GT and transporting cargo or passengers for commercial purposes (“Maritime Transport”) will be covered from 1 January 2024, while ships between 400 and 5000 GT fall outside of the EU ETS. The EU ETS will be extended to cover Maritime Transport in respect of (i) 100% of the emissions from intra-EU maritime voyages; (ii) 100% of emissions from ships at berth in EU ports; and (iii) 50% of emissions from voyages which start or end at EU ports, where the other destination is outside of the EU.

The “shipping company” is responsible for compliance. It is defined widely as the shipowner or any other organisation or person, such as the manager or bareboat charterer of a ship, that has assumed (contractually) the responsibility for the operation of the ship from the shipowner and that, on assuming such responsibility, has agreed to take over all the duties and responsibilities imposed by the International Management Code for the Safe Operation of Ships and for Pollution Prevention. This is usually the entity responsible for the choice of fuel, route and speed of the ship – i.e. the factors affecting the emissions of the ship – however arrangements may vary depending on what has been agreed in the ship management services agreements and/or the charterparties applicable to the ship. This necessitated a need for arrangement between owners and ship managers to manage this aspect. The managers manage ships from various owners and therefore managers also needed a protection from being blacklisted in EU due to inaction of one of the owners.

Shipping companies must surrender (use) their first ETS allowances by 30 September 2025 for emissions reported in 2024. The share of emissions that must be covered by allowances gradually increases each year:

·         2025 - 40% of emissions reported for 2024 must be covered by emission allowances;

·         2026 - 70% of emissions reported for 2025;

·         2027 and beyond - 100% of reported emissions.

Any further details about the scheme are beyond the scope of this article.

b)    There has been increase in sanctions world-wide and due to it some vessels, stakeholders are caught by it. This necessitated a need for parties to contemplate a clause terminate the contract to avoid dealing with sanctioned entity. It is included in the new ship man agreement. Also, another clause specifically dealing with sanctions clause was required by the parties to indemnify the other if they breached the sanctions. It is becoming very necessary, in particular, after the advent of Russia-Ukraine war.

c)    From 2009, there is an advent of the digitalisation in the shipping industry. The way the data of the Owner’s vessels are stored created a need for specialist clause in any new SHIPMAN agreement 2024.  

d)    There is a recent trend world-wide in the field of compliance that new rigorous compliance measures are required to protect Personal Data. A key example of such regulations are European Union General Data Protection Regulation (“GDPR”) or Singapore Personal Data Protection Act 2012. These provisions usually cater for how the data must be collected, used, stored, transfer, retained, protected in data base, data protection officer. This required a new Clause in the new SHIPMAN Agreement.

e)    As the maritime economy and ships are becoming digitally savy, it has attracted another kind of threat for which the maritime industry is still preparing. As a result, a new kind clause was needed to cater to cyber security issues arising on board the merchant vessels.

f)     Considering the regulatory changes worldwide, there was a need for standard clauses dealing with confidentiality, anti-corruption, waiver, and an electronic signature clause.

g)    MLC 2006 has gained strength and there was a need to have specific clauses in any further amendments to the SHIPMAN.

Accordingly, there are following news clauses that are introduced in the SHIPMAN AGREEMENT 2024 to cater to the above changes in the way merchant ships are management:

      i.        Part 1 of the agreement, standard boxes layout has been modified to reflect changes;

     ii.        Part 2 of the agreement - the detailed clauses:

a.    New clause 12 specifies that bank account for collecting money by the managers included for EU ETS scheme should be one “nominated” by the owners, not a “separate bank account”.

b.    New Clause 18 to deal with termination issues arising out of sanctions.

c.    New Clause 28 dealing with sanctions issues. Pursuant to this clause, the ship owners warrant that neither themselves nor the vessel are a sanctioned party and managers warrant that neither themselves nor any entity which they subcontract services to are a sanctioned party. If during the term of the SHIPMAN, either party breaches the warranty they have given, the other party may terminate the SHIPMAN and the party in breach must indemnify the other party for all claims, losses, damages, costs and fines incurred; and

d.    New clause 21- manager information system) & new clause 22 vessel’s information and data has been added in light of digitalisation issues as highlighted above in the article; and

e.    New Clause 27 dealing with cyber security issues on board the merchant ships and notifications requirements in case of any such incident; and

f.     New Clause 25, dealing with the MLC 2006 issues and pursuant to this clause, there is a manager’s obligations when hiring crew as Owners’ obligation would be shifted to the manager once they start to start the process to hire the crew.

g.    New Clause 26 dealing with Personal Data protection issues as discussed above.

h.    New Clause 13 with new management fee structure has been added. The management fees are split into an annual management fee (set out in Box 15 of Part I) payable from the delivery of the vessel from the owner to the manager and a predelivery management fee (set out in Box 15 of Part I). If the owner and manager do not include a figure into Box 15 Part I for the predelivery fee, it will automatically be calculated as a twelfth of the annual management fee. 

i.      New Clause 10 as to the division of responsibility between managers and the owners for EU ETS scheme as discussed above in the article

j.      Clause 19 (Responsibility)  has been amended, where clause 19(a) Force Majeure  events have been expanded to included pandemics, radiation, contamination etc; clause 19 (b) managers will be responsible to owners for their affiliate’s negligence and gross negligence and wilful default; clause 19(c) owners indemnity will also be for managers’ affiliates; clause 19 (d), managers’ affiliates are agents of managers for the purposes of this contract.

k.    In light of regulatory changes, as discussed above, new standard provisions are added in SHIPMAN 2024 that were required for – confidentiality, waiver anti-corruption, and an electronic signature clause.

l.      Clause 31 (Termination) has been amended in particular breaches regarding arranging insurances that must now be remedied immediately (unlike within 10-day previously in SHIPMAN 2009), in case of disagreement with change of flag or change of control, the parties may terminate with one month notice, and severance compensation has been slightly amended in the new version in light of experience of parties from 2009.

    iii.        SHIPMAN 2024 has five annexes which detail information on the types of vessels covered by the agreement (Annex A), crew (Annex B), budget (Annex C), associated vessels (Annex D) and the fee schedule (Annex E).