Chartering requirements and regulations

20 January 2015By Captain Ken Argent
With its focus on crew welfare, MLC 2006 will affect many charter yachts and new builds.

Regulations and operating costs differ widely depending on whether a yacht is offered for charter or not.
If an owner decides to offer their yacht for charter, whether the vessel actually completes any charters or not, the regulations and associated costs of being available for charter remain constant.

Requirements for chartering

First, the vessel must be certified by one of the seven major classification societies and inspected annually by the appropriate society.

If the vessel was not built to class, the owner could face a costly, lengthy process to bring it into compliance.

Assuming the vessel is in class, operating budgets must allow for annual class inspections/surveys, annual flag inspections/surveys, ISM/ISPS audits, and the cost of hiring a management company to administer some of the regulations.

Insurance premiums may be slightly cheaper for a vessel in class, but not significantly.

Second, charter yachts must meet requirements for a Minimum Safe Manning Document (MSMD), meaning only seafarers who hold the appropriate qualifications under STCW95 will be permitted to crew the yacht. This will likely mean a higher payroll.

The decision to operate a yacht for charter will also impact the choice of the yacht’s flag of registration.

Flag state differences

Some flag administrations have historically offered greater benefits or choices regarding charter operation for tax, employment, wages or even pollution control, but they may have a lesser rating as a flag and consequently be inspected or boarded more frequently by foreign port states.

The major flags are on the so-called ‘White List’, which means that they have a good record with few deficiencies at inspections.

Some of the lesser flags are notorious for badly run ships so they are classified on the ‘Grey List’ or the ‘Black List’.

These designations arose from meetings in Europe in 1982 about the necessity of port states to be able to enforce a code of safety standards. This came about following the sinking of the Amoco Cadiz in 1978 which revealed obvious inspection flaws of some flags of convenience.

The resulting Paris Memorandum of Understanding (MoU), in use by 26 European countries and Canada; the Tokyo MoU (Asia Pacific); the Caribbean MoU; and the US Coast Guard rate flag states on issues of safety, pollution incidents, and whether or not the flag states have ratified various international treaties such as SOLAS, the Load Line Treaty, and ILO 147, which sets minimum worker protection standards.

Bolivia and Sri Lanka, for example, have not ratified SOLAS, MARPOL, Load Line 66 or ILO 147. The end result is that a yacht flying these flags would not have to comply with those rules, and would be subject to fines if a port state the yacht was visiting chose to pursue the issue.

Launches and jet skis are two of the toys many charterers expect a superyacht to have available.

Regulatory effects

Owners should also understand that the regulations are constantly updating and changing to suit the current environment.

The latest major development that will affect all commercially operated vessels, including charter yachts in the next year or so, is the Maritime Labour Convention (MLC), sometimes referred to as the Seafarer’s Bill of Rights. When ratified in August 2013, parts of the convention could potentially hit yacht owners in the pocketbook.

MLC 2006, as it is called, along with the MCA’s LY3 (Large Yacht Code Revision 3), are designed to improve the living and working conditions of seafarers. While directed at merchant ships, yachts are also covered.

Here are some ways the regulations associated with moving up in class would affect a yacht:

Scenario 1: Owner with a boat over 24m and under 500GT

The owner does not charter or operate the vessel for gain, but uses it as a promotional tool. It is strictly a private, pleasure yacht.

This situation only requires that the vessel complies with the basic pollution and safety requirements such as lifejackets, bell, lights etc., and controlled bilge and sanitary systems.

There are no requirements for minimum manning, vessel classification or any of the statutory certificates required for commercial vessels.

Most flag administrations however, strongly recommend that some type of safety management system with operational procedures be used.

An owner wishes to offer the vessel for occasional charters to defray operational costs

The vessel is now required to be in class (meeting requirements of one of the seven major class societies) and comply with certain regulations including the Large Yacht Code 2 (LY2) and Minimum Safe Manning.

Under the International Safety Management Code (ISM) a Safety Management System (SMS) is now a requirement for all vessels over 24m load line length and under 500GT operating commercially. This would include the majority of the charter fleet in operation today.

This is commonly called Mini–ISM because it has lesser requirements than full ISM compliance and the absence of flag administration audits.

A Safety Management System:

States the overriding authority of the master to make decisions regarding the safety of the vessel and personnel,
Provides a statement of safety and environmental responsibility policy. Provides on-board operating procedures and checklists to ensure safe working practices,
Provides a simple diagram outlining the lines of communication and responsibility and authority of personnel both on-board,
Provides procedures and verification documents for training and familiarization of crew,
Provides a health and safety policy, including a policy on prevention of drug and alcohol abuse,
Provides a system and records of maintenance of the vessel and equipment,
Provides reviews, amendments and updates, and
Requires compliance with LY2 (or its successors).

Chartering a yacht mitigates operating costs, but requires meeting costly safety, security and environmental regulations.

Further regulations

In addition to Mini–ISM compliance, other regulations come in into force as the size of the vessel increases to 500GT. Below are the requirements for vessels of various tonnages:

24m, up to 300GT
MCA Large Yacht Code,
Approved classification society,
Certificate of compliance,
Rescue boat,
Stability information booklet, with damage control information,
Vessel must be incline tested,
Minimum Safe Manning Document and appropriate Officers Certificates of Competency,
Life-saving signals and rescue poster,
Crew Employment Agreements,
Mini-ISM,
Full GMDSS radio equipment and GMDSS logbook, and
LRIT
300 to 400GT
As above, plus:

Automatic identification system (AIS),
Immersion suits,
EPIRBs and registration,
IMO numbers visibly displayed to see from air,
In US waters, NOA NOD must be filed by all foreign vessels, and COFR for California, Oregon, Washington and Alaska,
Pilotage may become compulsory in certain ports, and
Cargo Ship Safety Radio Certificate, with a Record of Equipment (form R).
400 to 500GT
As above, plus:

MARPOL Annex I – IOPPC,
Sludge tank,
Standard discharge connection,
Oily water separator,
Oil record book,
Ship oil pollution emergency plan (SOPEP),
MARPOL Annex IV International Sewage Pollution Prevention Certificate (ISPPC),
Approved sewage treatment plant,
Holding tank,
Non-Tank Vessel Response Plan (NTVRP),
Bunker delivery notes and samples retained on board, and
MARPOL Annex V garbage (rubbish) management plan.

Yachts close to and over 500GT will face further requirements, particularly if chartering, under new regulations.

Scenario 2: Owner with a yacht over 500GT

A person buys a yacht that is not in class, over 500GT, and does not wish to charter or operate the vessel for gain by using it as a promotional tool. It is strictly a private, pleasure yacht.

There are no requirements for minimum manning, vessel classification or any of the statutory certificates required for commercial vessels.

The exception would be for yachts sailing under a US flag, which requires vessels over 300 tons to be inspected. Most flag administrations, however, strongly recommend that some type of Safety Management System with operational procedures be used.

A person buys a yacht that is in class, over 500GT and does not wish to charter or operate the vessel for gain by using it as a promotional tool.

The classification society would require that appropriate inspections be made to maintain class and also that the statutory certificates be maintained.

There are no requirements for minimum manning. The exception would be for yachts sailing under a US flag, which requires vessels over 300GT to be inspected if engaged in trade.

Most flag administrations however, strongly recommend that some type of Safety Management System with operational procedures be used.

A person buys a yacht over 500GT, but now wishes to offer the vessel for charter.

The vessel is required to be in class and comply with the LY2, the ISM Code, the ISPS Code and Minimum Safe Manning.

In addition to the certificates required for charter yachts under 500GT, the following must also be maintained:

Document of Compliance,
Safety Management Certificate,
Safety Management System,
International Ship Security Certificate,
Ship Security Plan and associated records,
Continuous Synopsis Record,
Cargo Ship Safety Equipment Certificate with a Record of Equipment (form E),
Cargo Ship Safety Construction Certificate, and
Cargo Ship Safety Certificate with a record of equipment.
Yachts cannot be listed as passenger ships, so they must be classed as cargo ships, and ISM and ISPS compliance cannot be obtained if a vessel is not in class. Thus, the vessel cannot charter. Some yachts, due to construction or other factors are restricted to chartering within 60 miles from shore.

The MSMD will provide different manning requirements for different distances from the shore, i.e. 60 miles, up to 150 miles, and over 150 miles.

Since the 9/11 attacks, yacht owners also have a responsibility towards securing their vessels from possible use by terrorists.

Charter yachts are effectively luxury boutique hotels, with a host of safety and manning requirements that must be met.

ISM Code explained

The International Safety Management Code (ISM) was introduced by the International Maritime Organization (IMO) and came into force on commercially operated charter yachts over 500GT in July 2002. It provides an international standard for the safe management and operation of ships, and for pollution prevention.

The code recognizes that no two shipping companies or yacht owners are the same, and that yachts and ships operate under a wide range of different conditions. The cornerstone of good safety management is commitment from the top. In matters of safety and pollution prevention, the commitment, competence, attitudes and motivation of individuals at all levels that determine the end result.

Setting up Safety and Security Management Systems for the first time can be daunting, which is why the use of an experienced professional management consultant is essential. The goal is to provide to the yacht’s owner and captain a cost-effective management system that complies with all aspects of the code while remaining simple and straightforward.

Owners should demand that the system and plan be accepted by all major Flag States and administrations.

ISM clearly defines the responsibilities of the master and manager, including the master’s overriding authority. The owning company (owner) appoints a designated person (company) ashore who is responsible for all safety matters on the vessel.

International Ship and Port Facility Security Code (ISPS)

For years, security at sea has been a concern of governments, port authorities and the owners of every kind of vessel.

The terrorist attacks of 11 September, 2001 provided a catalyst for formalizing new security measures. The IMO subsequently adopted new regulations to enhance maritime security through amendments to SOLAS Chapters V and XI.

This is a set of mandatory security measures and procedures designed to prevent acts of terrorism that might threaten the security and safety and crew, passengers, yachts, ships and ports. It has been adopted into the national law of more than 150 countries.

The requirements currently apply to all commercial yachts of 500GT and up and port facilities serving such vessels engaged on international voyages. They form a framework through which ships and port facilities can co-operate to detect and deter acts that pose a threat to maritime security.

In summary, the ISPS Code:

Enables the detection and deterrence of security threats within an international framework,
Establishes the respective roles and responsibilities for the crew and company,
Enables collection and exchange of security information,
Provides a methodology for assessing security, and
Ensures that adequate port and ship security measures are in place.
It also requires ship and port facility staff to:

Gather and assess information,
Maintain communication protocols,
Control port access to prevent the introduction of unauthorized weapons, etc.,
Provide the means to raise alarms,
Put in place vessel and port security plans; and,
Ensure training and drills are conducted.
Although the ISPS Code is designed to enhance the safety and security of passengers, yachts and ports, it will inevitably have an effect on the spontaneity and privacy that chartering has traditionally enjoyed, as passenger lists must be shared and luggage may be subject to search when entering a port.

Owning and operating a large yacht is just like owning and operating a business, only the views are better. Be prepared to ask questions and determine your priorities and you work through the list of decisions to be made.

Captain Kenneth S. Argent is the principal of Water’s Edge Consulting, a company providing ISM, ISPS, MCA, NTVRP and other regulatory solutions for independent large yachts and yacht management companies.

Originally published: Superyacht Owner’s Guide 2012

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