Koch Shipping Inc. Intertanko Vetting Presentation The Baltic Exchange London 2 October 2006

How Koch views officer experience: The following guidelines apply to Koch Shipping Inc’s vetting process for tankers: The following guidelines apply to Koch Shipping Inc’s vetting process for tankers: –To be chartered by KSI, or –To carry Koch affiliate owned cargo, or –To call at a Koch owned or term-leased terminal. Each OCIMF member has a different criteria for reviewing crew experience. Each OCIMF member has a different criteria for reviewing crew experience.

How Koch views officer experience: The basic KSI vetting “flag” check for Crew Officer Experience is the total “Time in Rank” (TIR), for all officers on board – Deck + Engine. The basic KSI vetting “flag” check for Crew Officer Experience is the total “Time in Rank” (TIR), for all officers on board – Deck + Engine. Radio Operators and Electricians are not counted. Radio Operators and Electricians are not counted. Koch sets the “bar” at 25 years – total or aggregate for all officers – with “reasonable” distribution. Koch sets the “bar” at 25 years – total or aggregate for all officers – with “reasonable” distribution. Range of TIR experience for vessels reviewed has ranged from 5 to 143 years total TIR. Range of TIR experience for vessels reviewed has ranged from 5 to 143 years total TIR.

How Koch views officer experience: Why : 1963: the Secretary of the Treasury's Committee on Tanker Hazards reported that "safety problems relate more to personnel than to materiel." 1963: the Secretary of the Treasury's Committee on Tanker Hazards reported that "safety problems relate more to personnel than to materiel." 1994: the U.S. Coast Guard recognized that roughly 80% of all marine-related accidents are rooted in the human element---with the majority of these caused by organizational factors. 1994: the U.S. Coast Guard recognized that roughly 80% of all marine-related accidents are rooted in the human element---with the majority of these caused by organizational factors.

How Koch views officer experience: Why? An example: A cadet and a First Assistant engineer are sitting at the control station of a steam tanker underway in confined waters. There is a sudden noise. A cadet and a First Assistant engineer are sitting at the control station of a steam tanker underway in confined waters. There is a sudden noise. The cadet says: “What was …..” The Engineer says: “damn!” and disappears down the ladder to the feed-pump flat.

How Koch views officer experience: Or – to put it another way, we fail ships with low TIR because we think that the officers have not seen enough trouble yet.

How Koch views officer experience: Exceptions: Exceptions: –The officers with low TIR also show high numbers in years of “Time on Same Type Tankers”, and –There are few procedural errors or omissions noted as observations elsewhere in the SIRE report, and –There are no training or certification observations in the SIRE report.

Koch and TIR – some examples:

TIR issues – drilling down: In the last previous example, the owner appealed. We asked for and received the vessel’s: Chief Officer’s records for work and rest hours for the last 4 port calls, and Chief Officer’s records for work and rest hours for the last 4 port calls, and The vessel’s Statement of Facts for the same 4 port calls, The vessel’s Statement of Facts for the same 4 port calls, which revealed:

TIR issues – drilling down: On the face of the records: 2 incidents of breach of STCW work/rest hours requirements, and On the face of the records: 2 incidents of breach of STCW work/rest hours requirements, and In comparison of the work hours to SOF reports: two apparent cases of under- reporting of work hours, and In comparison of the work hours to SOF reports: two apparent cases of under- reporting of work hours, and No non-conformities raised as a result of work hours being exceeded. No non-conformities raised as a result of work hours being exceeded.

TIR issues – drilling down: After considerable discussion and advice to the owners to: “think about it and get back to us.” the owner set an “expectation” of 2 STCW non-conformities per year for his fleet for work/rest violations, compared to: an extrapolated number based on our “sample” of 4 x 12 x 30 = 1440 STCW violations/year for the company fleet.

TIR issues – drilling down: Dealing with N-C’s/year would overwhelm most management systems – so what is reasonable? Accurately recording work/rest hours. Accurately recording work/rest hours. Setting a criteria for submission of N-Cs. Setting a criteria for submission of N-Cs. Using a management of change process to address the causes of the N-Cs. Using a management of change process to address the causes of the N-Cs. One management was noted as doing this and their vessel received vetting approval.

TIR issues – drilling down: Denial is not an acceptable response to the issue of STCW compliance and crew fatigue. Denial is not an acceptable response to the issue of STCW compliance and crew fatigue. Demonstrating the presence of management awareness, and an active management system engaged in correcting causes of STCW non- compliance is acceptable – even if some N-Cs are continuing. Demonstrating the presence of management awareness, and an active management system engaged in correcting causes of STCW non- compliance is acceptable – even if some N-Cs are continuing.

Crew number vs. the vessel trade: Tankers engaged in STS ops need an adequate crew for mooring ops. (not 14) Tankers engaged in STS ops need an adequate crew for mooring ops. (not 14) Tankers engaged in short-sea trading cannot be safely operated with 2 officers. Tankers engaged in short-sea trading cannot be safely operated with 2 officers. Tankers assigned to short-voyage lightering operations need an extra deck officer and an extra engineer. Tankers assigned to short-voyage lightering operations need an extra deck officer and an extra engineer. See: ridge_watchkeeping_safety_study.pdf See: ridge_watchkeeping_safety_study.pdf ridge_watchkeeping_safety_study.pdf ridge_watchkeeping_safety_study.pdf

Crew number vs. the vessel trade: (click on the image below to start the video.)

What is STCW compliance worth? Under OPA-90, a vessel causing pollution of US waters must be in compliance with all laws and regulations in order to limit its liability. Under OPA-90, a vessel causing pollution of US waters must be in compliance with all laws and regulations in order to limit its liability. The Athos 1 grounded in Delaware Bay in November The Athos 1 grounded in Delaware Bay in November The cost of the cleanup (to end 2005) was $150,000,000. The cost of the cleanup (to end 2005) was $150,000,000.

What is STCW compliance worth? The US Coast Guard exhaustively investigated the incident and reported:

What is STCW compliance worth? The Coast Guard reported that the Master, Pilots and Navigating Officer: “had not shown any signs of fatigue and met STCW and OPA90 rest requirements.” ***************** The owners were therefore able to limit their liability to $45,000,000 under OPA90.

What is STCW compliance worth? So the calculation of the value of STCW compliance in the case of the Athos 1 grounding and spill is: Cost to owners if not in compliance: $150,000,000 Cost to owners if in compliance: $ 45,000,000 Value of STCW compliance: $105,000,000 Value of STCW compliance: $105,000,000 “Owners” = vessel owner & vessel P&I Club

There’s more to tanker shipping than meets the eye. Thank you!