The Coming Digital Transformation of Ship Repair
As digital transformation is ripping through the maritime industry, there is one field lagging behind: docking and repairs.
Both yards and owners/managers typically manage docking projects using a mix of Excel, WhatsApp and the back-of-envelopes. One argument for the current state of affairs is that docking is so fast-paced, fluid and full of changes and additions that proper control is practically impossible, particularly with the small teams typically trusted with the task.
I would make the opposite argument, that for the same reasons the industry needs to adopt the most efficient methods and tools available to properly control projects that sometimes run into millions of dollars. This must be done while making the superintendent’s life easier, not by adding to his burden.
Traditionally, docking has been considered difficult to control with unpleasant surprises an unavoidable law of nature. In their study “Best practice ship management” DNV GL writes that “Dry dockings are the biggest chunk in a ship manager’s maintenance budget. However, most ship managers report that a 20–30 percent cost overrun to the dry dock budget is rather common than an exception.”
It does not have to be like this. Digital tools are coming to both the yard and the owner’s side of the docking business and they will enable better control in the future. Success or failure will depend largely on how the tools are being used in the greater context of docking management.
Scope of work and risk
The root cause behind every failed docking project is that the owner had not been able to identify the optimal scope of work before assembling the specification. The optimal scope should be aligned with clearly defined objectives for the docking. While it is true that achieving 100 percent certainty before opening up equipment for inspection is difficult, modern methods like vibration measurements are available to identify likely problems early. Such methods complement oil sample analysis and should be used in a systematic way to record trends over time. Surprises below the waterline may be detected by underwater-drone inspections.
On the hull side, ultrasonic thickness measurements (UTM) have to be carried out as required by class. It is still common practice to perform the UTM and the class survey only after arriving at the dockyard. This is too late. The aim should be to assemble a specification that is detailed, precise and complete well ahead of the docking date.
Even with a good specification there will be residual risks of surprises during the docking. Owners should assess and manage these risks systematically for each docking and apply risk response strategies and contingency plans accordingly. For major cost items or issues of considerable uncertainty, it may be advisable to use quantitative risk analysis methods like Monte Carlo simulation. That may sound complicated but doesn’t have to be. It allows the owner to set a rational budget allowance rather than a flat percentage without any basis. It is certainly preferable to the widely used practice of padding the budget with nice-to-have jobs that can be cancelled if need be.
The specification should differentiate clearly between fixed and variable price jobs, as they require fundamentally different follow-up. Be aware that yards like to see every job as a variable price job. For fixed price jobs where the risk assessment has identified uncertainty regarding the final scope of work, it is advisable to specify the basic inspection scope plus alternative repair alternatives. Be careful to note that the more dramatic repair alternatives shall not be included in the yard’s quoted duration as it may lead to an overly conservative schedule. Better to ask the yard to state the price and the impact on the contract period, if any, for each repair alternative. From the owner’s point of view, it is much better to settle these issues during the tendering phase and not when we have no choice in the yard.
Business model of dockyards
Ship repair is a highly competitive industry where the business model of most dockyards seems to be based on winning projects through competitive, but sometimes confusing and incomplete bids with the real cost hidden in footnotes. Yards then hope to recover a healthy profit through changes and additional work and through invoicing the owner according the work done, not according to the contract with variation orders. Docking is possibly the last major, global industry where customers accept such a practice. This model allows for a high degree of flexibility but it does not lend itself to any control of cost or delivery time.
In reality, owners are outsourcing the cost-control to the yard. To the extend cost-control is performed and reported back to management at all, it is carried out by waiting for the yard’s cost updates and then cancelling enough jobs to stay within the budget. With the small teams typically employed to manage docking projects, it is understandable that the focus will be on technical issues, not cost or time.
The problem is that this approach fails both to control the cost and to protect the value of the asset. Cancelling necessary work will incur costs down the line and outsourcing the control frequently leads to unpleasant surprises when receiving the final invoice.
While poorly prepared customers may be a goldmine for a yard, they also represent a coordination headache. Additional resources must be assembled, subcontractors, materials and equipment ordered, and so on, all while the clock is ticking and the owner is pushing to bring the vessel back in service as soon as possible. Yards may use ERP and planning systems along messaging apps to coordinate all of this.
What is maybe missing on the yard side today is an information hub tying all the information and parties together. The next logical step would then be to tie the customers into this orbit as well, finally achieving real-time control of progress and cost on both sides of the table. Such a development will surely be met with some resistance as yards see their business model threatened, but it will also open new opportunities for closer strategic partnerships between yards and owners. For the serious players it would be a win-win.
Owners should recognize that their bargaining power is dramatically weakened as soon as the vessel is dry in a shipyard. Anything not agreed before committing to a yard will tend to be more expensive and take longer time. Realizing this, owners should impose their conditions including a strict project control regime before entering into a docking contract. Bidding for a docking is obviously voluntary for a yard but accepting a balanced standard contract shouldn’t be. BIMCO’s standard docking contract is a good starting point. Unlike most yard’s contracts, it is a fair and balanced document. Used well, a good contract will dramatically improve the superintendent’s ability to control quality, cost and time. It should be seen as a practical management tool, not just food for lawyers.
Most owners use some form of variation order scheme to regulate the price of additional work. Time is a more difficult aspect to control and yards are experts at blaming the weather and the customer for delays. Again, the BIMCO contract, if used well, can be of help. The key is to agree any time implications up front, for each variation order.
Don’t accept any extension to the contract period unless the yard is able to demonstrate that the change affects the critical path of the project. A proper schedule indicating the critical path, presented to the owner well ahead of the docking, should be a contract requirement. Using this contract-oriented approach, the superintendent will be able to excerpt much greater control over the project and avoid having to negotiate over hundreds of thousands of dollars at the end of the docking. Using software able to reflect this approach simplifies the daily management at the yard in general and reporting in particular.
Tying it all together
The contract-oriented approach is widely used in other industries but relies on employing competent project controllers using the methods and tools of that profession. Such resources have generally not been available to the maritime industry. For the first time, modern docking management software with phone-app extensions are available, enabling even small teams from the owners to properly control docking projects. This will be a game-changer. Just buying software and apps will not work, though. Success will require an overall approach geared at managing risks and enhancing control for the owner while simplifying the work of the superintendent.
Digital tools should be seen as essential, but in themselves insufficient, enablers of greater efficiency and control. They must be accompanied by a general shift in perspective from seeing docking as a mainly technical undertaking to a new focus on project management and control. Planning and preparation processes should be standardized and ideally be integral to the systems used. Risk management should be explicit and systematic. Docking contracts must support the project control concept and generally protect the owner’s interest.
The maritime industry may draw on lessons from other industries like oil & gas which is generally better at managing project risk. A fit-for-purpose team with the right mix of competencies, using highly efficient digital tools, should be able to hit the sweet spot between cost-efficient execution and solid control.
Adopting this approach, owners should be able to properly control docking projects and ultimately reduce the uncertainty, cost and time of docking.
Øystein Wikeby is CEO of Cap Marine Consultants and was previously docking director of Meratus Line. He developed the docking management courses of DNV GL and Lloyd’s Maritime Academy and is the owner of the Docking group on LinkedIn.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.