Subchapter M Can Improve Towing Operators’ Bottom Line

July 6, 2016

There is increasing evidence of the relationship between the proposed SubChapter M legislation and positive financial gains.  Still, however, many towing operators believe their bottom line will be adversely impacted by the new rules in relation to safety and risk management.

Historically, workboat owners have perceived Subchapter M as a cost related to accidents, Jones Act compensation, safety prevention through the purchase of personal protective equipment, the investment into crew training and other industry or governmental requirements and regulations.  Prudent towing operators accept accidents as unavoidable but take pains to proactively minimize such events.

In response to Subchapter M and the Responsible Carrier Program, a new safety management culture is emerging within the towing industry.  Vessel owners are beginning to acknowledge that costs associated with accidents far outweigh the costs to implement effective incident prevention through a structured safety management program. It seems the towing industry has begun to appreciate the positive dynamic between Subchapter M compliance and profitable vessel management.  Many believe these two objectives are interdependent.  Some workboat operators will go even farther by suggesting that funding Subchapter M compliance and efficient vessel management simultaneously increases the opportunity for improved profitability.

Tug and barge operators can bolster profits if they consistently apply Subchapter M standards throughout their fleets.  Antiquated paper-based systems are incapable of achieving any real results across any company because they result in more reactive versus proactive handling of company-wide safety management. Manual paper systems generate a false sense of control among senior marine managers as they depend on dedicated shore side staff to track voluminous safety information.  This outmoded management model creates a condition where there is little to no association of data or records spread throughout various company departments.  Consequently, any value this data might have is rendered useless to the towing operator.

Senior managers, Designated Persons Ashore, and Safety Officers need tools that improve processing and analysis.  Disseminating near miss, non-conformity, or incident findings to key decision-makers should improve operations fleet wide.  The failure to engage afloat personnel in the process of performance measurement standards, improvement planning, and execution and follow-up, will ultimately lead to less safe operations.

Towing operators significantly improve both Subchapter M compliance and bottom line figures by adopting proven, efficient reporting systems as provided by MarineCFO through its Vessel 365, Endurance, and Enterprise product lines.

Risk Assessment
The towing industry has used the word “incident” to describe a large number of events. Incidents or accidents have been categorized to include injuries, collisions, groundings, fires, deaths, etc.  Generally, an incident or accident is considered an unplanned operator loss event.

There is a strong relation between Subchapter M compliance and efficient operational performance.  Making this work requires towing operators to establish a sensible model defining Risk Assessment and Risk Management Policy.

Using a Risk Assessment model enables all company personnel to understand why incidents happen, agree on how to measure these losses in a consistent manner and how to follow root cause analysis practices all the way back to the operator’s management control system, thus targeting areas for modification or improvement.  Through the strengthening of management reporting, improved planning, and Risk Assessment modeling, towing operators will find it easier to identify and prioritize necessary improvements in the company’s action plan.  Allocating resources to such initiatives so they will have the most impact on safety and operational performance is the role of senior management.

In order to systematically evaluate and take action to improve safety, towing operators must gather facts about the incidents, near misses and non-conformities across the fleet.  All marine operators, regardless of size or operations, experience any number of such incidents annually.

Unfortunately, a large number of these go unreported.

Due in large part to the US Coast Guard, American Waterways Operators, and countless towing industry sponsored events, knowledge and awareness of safety practices is gradually improving throughout the country. There is, however, a continuing reluctance in the towing industry to report events.   The most compelling reasons for events going unreported are fear of losing a job, fear of retaliation for reporting an event, and lack of time or resources to report an incident.

These reasons can best be attributed to a lack of systemic or technological processes to streamline the reporting process.  There are a number of commonalities found among vessel owners with little to no technology in place:

  1. Lengthy internal process and duplication of documentation
  2. Poor understanding of Risk Assessments practices
  3. Poor management feedback to the event originator
  4. No fleet wide “Lessons Learned” distribution

It makes sense, then, why towing operators should do what they can to ease the making-, sending- and analyzing of reports.  Towing operators should ensure rapid, useful, accessible and intelligible feedback to afloat personnel.  MarineCFO, as a trusted marine solution provider, offers a full range of products that assist towing operators in meeting these goals.

The costs associated with incidents can be quite significant, and involve a variety of cost-elements.  While insurance may cover direct costs related to incidents, such items as deductibles, management time, decreased productivity, loss of goodwill and loss of new business eat into a company’s bottom line.

In order to expedite insurance and claims settlements, it is necessary to keep track of the costs of damages and events.   Most towing operators regard this as an accounting issue and this information is not linked with other safety data or used as means to prioritize safety improvement initiatives.

The impact of bottom line results are dramatically affected by the costs of marine incidents. Putting it into perspective, consider how much revenue a towing operator has to generate to compensate for the losses of a marine incident or accident. A towing company operating with a 20% profit margin would need to make $2,000,000 in income to cover a $400,000 marine incident loss. This is a significant a figure when factoring in market utilization and day rates.

When an incident occurs,the towing operator pays the price.   It rests squarely with management to utilize incident data to facilitate future planning and decision-making.   MarineCFO has the expertise to assist towing operators in leveraging incident data to its fullest value, thus creating a company asset from an unforeseen marine loss.

Increasing Return
All companies can learn from incident losses.   First, companies should conduct methodical investigation and careful review of each incident using the Risk Assessment model, including detailed root cause analysis. Most towing operators take this seriously and devote significant time and resources into the analysis of all the information that is available.

Secondly is through trend analysis.  Trend analysis can demonstrate that incidents involving the use of certain equipment or materials, involving people with inadequate levels of experience or occurring in certain type of environments, at certain times of the day, may be subject to a high incident rate. Again, a Risk Assessment model is essential in order to ensure systematic encoding of the information and enabling towing operators to track the incidents from “loss” to necessary improvements in the “management control system”, and use the data in a logical and meaningful manner.

Towing operators should learn to put a price on accidents and measure them in hard cash.  This is not to suggest that towing operators should apply cost models on accidents which result in personal injury or death; however, with the ability to measure and visualize the cost of accidents, it is possible for key managers to allocate resources and finances to implement company-wide and fleet-wide Subchapter M improvements.

The Pareto Principle of 20% of incidents account for 80% of losses seems to make the case for vessel operators’ need to assist Safety Officers in focusing company initiatives, action plans and resources on areas where these efforts will have the largest impact on safety. A well-crafted Subchapter M operation can be an efficient and cost-effective operation.

Managing Improvements
Once incidents are reported, analyzed and appropriate actions taken, how does the operator implement changes to the Safety Management model of the company? Safety Officers will need a practical way to establish action plans, where responsibilities and timelines are assigned to personnel with the skills needed to handle those tasks. This action plan should be part of the operator’s annual performance plan.  It is imperative that action must go beyond the planning stage by insisting that those responsible for actions, sub-actions, status reviews, etc. issue regular progress reports and remain committed to measuring of safety performance.  MarineCFO’s solutions can assist the towing operator in meeting these goals, as well.

Significant gains can be achieved in company performance and financial results if Subchapter M compliance is managed across the fleet and on-shore in a systematic manner. If such proposals are put on the agenda in management meetings, safety managers will soon gain a broader view which can only assist in driving continuous improvement across the fleet and the company.

The towing industry faces significant challenges in improving safety, and these challenges demand a much more systematic and holistic approach than ever before. How can these demands be met without more investment into Subchapter M compliant IT solutions?   Intuitive and affordable Subchapter M systems are required onboard and ashore.  These Subchapter M solutions must enable synchronized data providing operators access to efficient reporting tools and detailed trend analysis, in a logical, cohesive fashion.  Using these tools the vessel owner can develop Subchapter M improvement action plans and lessons learned for the entire fleet. This will improve safety and operational performance, facilitate knowledge sharing across the company and create a healthier bottom line.

About MarineCFO
MarineCFO provides technology leadership and digital transformation solutions to the maritime industry, enabling our customers to operate more safely, securely, and profitably.

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