WORLD SHIPPING: STRUCTURES AND TRENDS

SUBMITTED TO: DR. USHA KIRAN RAI

SUBMITTED BY : PRACHI PRABHA CHAUHAN MBA-IB ROLL NO. 31

Around 90% of world trade is carried by the international shipping industry. Without shipping the import and export of goods on the scale necessary for the modern world would not be possible. Seaborne trade continues to expand, bringing benefits for consumers across the world through competitive freight costs. Thanks to the growing efficiency of shipping as a mode of transport and increased economic liberalization, the prospects for the industry's further growth continue to be strong. There are over 50,000 merchant ships trading internationally, transporting every kind of cargo. The world fleet is registered in over 150 nations, and manned by over a million seafarers of virtually every nationality.
The various shipping structures are as follows: 1. Unitized Container This mode of shipment is sued for GI coils. The cargo is packed in containers in order to protect it from becoming disfigured or dis-shapen. This mode is also used when we have very little cargo for shipment and it is not feasible to go for break bulk shipment or chartering. Types of containers: Closed Open top Open side Open side open top Open top open side open end Twenty feet flat rack containers Fourty feet flat rack containers 2. Break bulk shipment One may break down shipment in to small units or may book goods along with others 3. Chartering The word chartering means hiring. Under this mode of shipping a particular vessel is hired for shipping cargo from port of loading to port of discharge. In a voyage or time charter the charterer charters the ship (or part of it) for a particular voyage or for a set period of time. In these charters the charterer can direct where the ship will go but the owner of the ship retains possession of the ship through its employment of the master and crew.

Types of chartering: Voyage chartering Time chartering Trip time chartering Bare bottom chartering Contract infringement

The most popular are listed below: Voyage Charter: Under this method of chartering the ship is chartered for specific voyage. The following are the usual features in voyage charter: The vessel: Accurate description of vessel including her tonnage, class and particulars of the port or ports at which the vessel is to load and discharge should be there. Readiness: Date by which the vessel must be ready to receive cargo failure to comply gives the charterer the right to repudiate the contract. Usually the charterer must be given 24 hour notice of the vessels readiness to receive cargo. Cargo: The type and Quantity of cargo to be carried should be specified. Freight: The freight to be paid and how it is payable. Dead Freight: The charterer undertakes to compensate the ship owner for nay loss arising out of his failure to load the agreed amounts of cargo. Cesser Clause: This provides that the charterers liability is to cease on the cargo being loaded and after the payment of advance freight, if any, dead freight and demurrage load if any. In return the ship owner has lien upon the cargo for his freight and other charges payable at destination and can refuse delivery until these have been paid by the receivers of the cargo. Lay days: The number of days allowed by the charter party for the loading and unloading of the cargo . Demurrage: In a charter party, demurrage is the sum payable by the charterers as a penalty for every day occupied in loading and discharging in excess of the lay days allowed in terms of the charter party. Voyage expenses : It is usual to stipulate that all loading expenses, port charges and the like are for account of the owner Exceptions clause: This clause provides that the ship owner shall not be liable for any damage arising to cargo from natural calamities. General Average Clause: This usually stipulates that general average should be payable according to York Antewerp Rules.

Arbitration Clause: This clause provides that any dispute arising out if the interpretation of the contract shall be submitted to arbitration. Penalty for non Fulfillment of Contract: This clause provides that if either party fails to carry out the terms of the charter party is entitled to recover the proved damages. 2. Time charter: Under this method of chartering a vessel can be chartered for a specific period of time instead of a voyage. In such a case the charterer can use the service of the vessel according to his convenience for own use during the period of charter ship. The main features of time chartering are: The vessel: Accurate description of vessel including her tonnage and class and particulars of the port or ports at which the vessel is to load and discharge has to be specified. Period of hire: The time period for which the vessel is chartered has to be specified. Place of delivery: Dock or wharf where the vessel is to be delivered to the charterer. Cargo and the trading limits: The type of cargo the vessel can carry may be restricted the trading limits may be stipulated. Expenses: The respective charges which the ship owner and charterer have to meet should be specified. Hire money: How much the charterer should pay for hiring the vessel and when and where should he pay the amount, it is usually paid monthly in advance. Break down clause: In the event of loss of time through deficiency of crew or stores, breakdown of machinery standing, fire or damage, preventing the working of vessel for more than 24 consecutive hours, the payment of hire money ceases until the vessel is in efficient state to resume her service. Exceptions to ship owners liability clause: the charter party contains the customary Exceptions clause, viz; undertake all the sub charters and the bill of lading for lading for cargoes shipped by the vessel shall contain all the provisions of the Exceptions clause. Lien: Owner of the vessel has lien on all the cargoes for the charter hire due under the charter. Missing Vessel: If the vessel is missing the hire shall cease from the date she was last spotted or if not the hire shall cease after an agreed number of days from the date the steamer left her port. Salvage: All Salvage to be for owners or charterers equal benefits after deducting masters and crews proportion, expenses and cost repairing and damage incurred in such salvage operations. General average: Clause to be provided for adjustment of general average. Place of re-delivery: The port at which the vessel is to be re delivered to the owner.

Arbitration Clause: This clause provides for the settlement of disputes. 4. Open Hatch General Cargo (OHGC) A vessel-type designed to transport forestry products, bulk, unitized cargoes, project cargoes and containers. The vessel is typically fitted with two Gantry cranes for self loading and unloading, with a typical SWL (safe working load) between 30 and 80 tons. Different equipment is connected to the gantry crane depending on cargo type as vacuum clamps for paper, unihook for unitised cargo, container frame and grab for bulk cargoes. Cargo holds are box shaped to fit containers and some holds can be equipped with tween decks to improve flexibility of cargo mixture in same hold. Holds are typically equipped with dehumidifier for sensitive cargo. Hatch covers for holds are opened and closed by mean of gantry crane. Space on those hatch covers can also be used to carry containers, lumber or project cargoes.

5. Bareboat charter It is an arrangement for the chartering or hiring of a ship or boat, whereby no crew or provisions are included as part of the agreement; instead, the people who rent the vessel from the owner are responsible for taking care of such things. In a bare-boat or demise charter, the owner gives possession of the ship to the charterer and the charterer hires its own master and crew. The bare-boat charterer is sometimes called a "disponent owner". The giving up of possession of the ship by the owner is the defining characteristic of a bare-boat or demise charter. In a bareboat charter no administration or technical maintenance is included as part of the agreement. The charterer obtains possession and full control of the vessel along with the legal and financial responsibility for it. The charterer pays for all operating expenses, including fuel, crew, port expenses and P&I and hull insurance. 6. Demise charter It is a form of bareboat charter in which the charter period may last for many years; and may end with the charterer acquiring title (ownership) of the ship. In this case, a demise charter is a form of hire-purchase from the owners, who may well have been the shipbuilders. Demise chartering is common for tankers and bulk-carriers.[1]

TRENDS:

Top 20 largest shipping flags (October 2010)

Figures in brackets are millions of gross tonnes of shipping registered in the countries listed. Source: IHS Fairplay.

Numbers and nationality of world's seafarers

The worldwide population of seafarers serving on internationally trading merchant ships is estimated to be in the order of 466,000 officers and 721,000 ratings.

The OECD countries (North America, Western Europe, Japan etc.) remain an important source for officers, but growing numbers of officers are now recruited from the Far East and Eastern Europe. The majority of the shipping industry's ratings are recruited from developing countries, especially the Far East and South East Asia. The Philippines and India are very significant maritime labour supply nations, with many seafarers from these countries enjoying employment opportunities on foreign flag ships operated by international shipping companies. China has also seen a large increase in the number of seafarers, but at the moment most of these work on the Chinese fleet, meeting domestic requirements. Eastern Europe has recently become an increasingly large supplier of seafarers with high numbers from countries including the Ukraine, Croatia and Latvia. Other major labour supply countries include Greece, Japan, Russia and the United Kingdom.

Source: BIMCO/ISF estimates

Number of ships (by total and trade)

As of 31st October 2010, the world fleet was made up of 50,054 ships.

Different sectors as percentage of total number of ships in world fleet

Figures in brackets are numbers of ships, by sector. General Cargo Ships (16,224) Bulk Carriers (8,687) Container ships (4,831) Tankers (13,175) Passenger ships (6,597) TOTAL (50,054)

Value of volume of world trade by sea

It is difficult to quantify the value of volume of world seaborne trade in monetary terms, as figures for trade estimates are traditionally in terms of tonnes or tonne-miles, and are therefore not comparable with monetary-based statistics for the value of the world economy. However, the United Nations Conference on Trade and Development (UNCTAD) estimates that the operation of merchant ships contributes about US$380 billion in freight rates within the global economy, equivalent to about 5% of total world trade. Shipping trade estimates are often calculated in tonne-miles, as a way of measuring the volume of trade (or "transportation work ", as it is sometimes referred). In 2008, for example, it is estimated that the industry transported over 7.7 thousand million tonnes of cargo, equivalent to a total volume of world trade by sea of over 32 thousand billion tonne-miles.

World seaborne trade 1969-2010

Source: Fearnley's Review

Throughout the last century the shipping industry has seen a general trend of increases in total trade volume. Increasing industrialization and the liberalization of national economies have fuelled free trade and a growing demand for consumer products. Advances in technology have also made shipping an increasingly efficient and swift method of transportation. Over the last four decades total seaborne trade estimates have quadrupled, from just over 8 thousand billion tonne-miles in 1968 to over 32 thousand billion tonne-miles in 2008. As with all industrial sectors, however, shipping can be susceptible to economic downturns. Indeed, following several years of incredibly buoyant shipping markets, for many trades the best in living memory, much of the international shipping industry has

fallen prey to the worldwide economic downturn. Shipping is inherently the servant of the economy, so the contraction in trade, following the beginning of the credit crunch in late 2008, has translated into a dramatic and abrupt reduction in demand for shipping. Notwithstanding the current gloom and doom, the longer term outlook for the industry remains very good. The worlds population continues to expand, and emerging economies will continue to increase their requirements for the goods and raw materials that shipping transports so safely and efficiently. In the longer term, the fact that shipping is the most fuel efficient and carbon friendly form of commercial transport should work in favour of an even greater proportion of world trade being carried by sea.

Strategic Issues: A) Trends in International Shipping Key Issues High Volatility & Declining Profitability of Shipping industry Major global shipping majors as also Indian shipping companies are at the receiving end market volatility. Worldwide shipping industry is in the throes of a transitional phase of readjustment and restructuring and is likely to witness significant level of consolidation through mergers and acquisitions and expansion to new regional trade hubs. Environmental Safety & Standards in International Shipping Poor monitoring and compliance with international safety standards by Flag of Convenience (FOC) countries, coupled with recent ship accidents, the case of "Erika" and MT "Prestige" incident, off the Spanish coast still fresh in mind the issue of environmental safety and standards is likely to be a major issue of concern to all national ship registries and is likely to make new stringent demands. Tanker shipping, which has major share of global fleet and seaborne cargo is going to be particularly affected International Transport Workers Federation (ITWF), Green Peace International and World Wildlife Fund have stepped up their campaign against what they call "substandard" shipping and have sought urgent UN intervention. The European Union has recently published a 'blacklist' of ships to be barred entry into the European ports. The incremental costs of a stringent international safety regime, administered on a multilaterally by a number of countries, is bound to further impact the operations of global shipping companies through added costs of redundancy and renewal of fleet.

The US Terrorism Act & Implications for Shipping Following the September 11 happenings, the worldwide concerns about national security have resulted in unprecedented demands on national ship registries and ocean liners to fall in line with series of new regulations and norms for port clearance of cargo. This is likely to substantially increase legal and insurance costs and other indemnity obligations and liabilities and build greater pressures on reorganization of terminal loading operations, which will affect shipping. The US Terrorism Act, which seeks to tightly regulate cargo movements into and out of the United States, a major partner in world trade, now comes into force from December 2002 and is likely to seriously impact US bound cargo logistics and trade supply chains across the world. Economic Recession & Shifting Global Trade Patterns Economic recession in the developed economies and important shifts in global trade that have come about since the formation of WTO have thrown up a number of surprises for international shipping. Despite global merchandise trade volumes having increased, the shipping freight rates have come down, mainly due to many structural changes in the world trade. While developed industrial economies of Europe and North America still continue to drive the global merchandise trade, there has been significant growth of merchandise trade, especially in the Asian region led by countries like China and India. Restructuring of the world trade flows is leading to concomitant effects on the global shipping patterns. Future Prospects Shipping fleet to become more niche oriented Shipping industry worldwide is increasingly becoming globalised, notwithstanding the importance of national ship registries. While shipping tonnage will certainly carry national flag for purposes of international maritime administration, the fleet operations will be purely driven by global market dynamics. Shipping companies that have established themselves in different commodity and service trades and trading regions will however, have greater option to pursue their specialization and penetration, both vertically and horizontally in terms of niche marketing position. Tanker trade, major dry bulk trade, minor bulks, LNG, coastal trade, feeder service, container trade etc will grow into sizeable business and niche market opportunity in themselves. Integration of shipping in logistics and global supply chains

International shipping like other segments of the conventional transport industry is increasingly getting integrated in to the emerging global logistics and supply chain dynamics, owing to both external and internal dynamics. Major international shipping companies have themselves now started integrating their services into a broader spectrum of door to door delivery systems, incorporating railroad haulage movements of cargo, thereby substantially supplementing their ocean freight income. Experience of recent freight depression has borne out that shipping companies have in fact more to gain by undertaking logistic integration of their cargo operations than just handling oceanic leg of cargo haulage. With global trade supply chains set to further expand with growing customer demands on cargo turnover time and costs, the shipping industry is bound to go through a major redefinition as a part of a larger maritime logistics web. Expansion and multi-polarity of global trade The expansion of global trade volumes and growing multi-polarity of trade flows is going to impact world shipping as profoundly as did liner shipping and containerized cargo, some fifty years ago. While earlier phase of trade growth, saw Trans Atlantic and Trans Pacific trade grow at a rate much more than any other trade, the future promises to encourage a much more distributed global merchandise trade that can engage not only mega ships but also medium and smaller ships on shorter regional and coastal trade routes. Increasing trade conferences and exchanges among Pacificrim and Indian Oceanrim countries that has gained acceptance promise to dispel any linear forecasts about larger and faster ships alone taking the prime spot eclipsing other segments of shipping trade.

B) Trends in International Ports Key Issues Multiple Cargo, Common User Port to Specialist Terminal based Ports Ports have been historically viewed as one stop omnibus solution for all requirements of shipping, in terms all loading and unloading operations for multiple types of cargo, on a common access basis. However, the worldwide trend in port development is now veering towards terminalisation of ports with focus towards freight specialization. LNG terminals, Container terminals that involve high capital costs and intensive deployment of cargo handling equipment and other facilities are some instances of what is likely to emerge as future trend in port development. Separation Of Port Authority And Port Operator There is a global trend in the port sector towards growing separation of port authority from port operator impinging on all exiting institutional models of port organizations. Port organizations all over the world are experiencing wide ranging institutional reforms, as a part of the adoption to new demands

of shipping and international trade. Port authority is increasingly getting focused on policy and regulatory role while a range of private port operators and port service providers are taking over a range of port related services. Inter-port Competition & Hinterland Access There is an increasing trend towards redundancy of monopolistic structures of port access in regional and national port systems, with the growing trend towards multiple port system. Increasing customer pressures towards logistics rationalization of cargo movement between the cargo hinterland and ports, is leading to new ports being developed with consequent shift in movement of cargo out of the erstwhile single dominant discharge or load ports. The shift of cargo from Mumbai port to Nhava Sheva port, or from major ports to new minor ports in the Indian port sector signifies the trend. A similar phenomenon is seen in international transshipment ports like Singapore, Tanjung Pelepas and Colombo. Growing clout of port users The balance of power in the maritime trade, which traditionally was weighed in favour of the shipping line has now decisively shifted in favour of the shipper, whose cargo is being moved. In turn, the freight service providers have become a significant part of the value chain. Future Prospects Privatization Of Ports And Terminals The port sector all over the world is increasingly veering towards greater involvement of private sector participants in creation and management of various port assets and services. The privatization of ports is taking place in terms of both part privatization of existing public ports and terminals and other port related services as also new terminals and Greenfield port projects. Emergence Of Global Port Developers & Operators With the development of liner shipping and container cargo trade, the demands on port infrastructure have become quite intensive both in respect of level of capital investment as also highly sophisticated technology for container handling. Leading international shipping lines like P&O, Maersk, Sealand and APL have thus, long since diversified into managing the port operations at several locations, especially in regard to container terminal operations, combining the advantage of themselves being in the container line trade. Today, port developers and operators work on a global scale and are likely to dominate much of future port development. Significant Use Of Information Technology Growing importance of information technology promises to make port operations highly cost efficient and substantially improve cargo handling turnaround times. EDI and MIS systems using a range of customized software and network technology make shipping and port operations highly standardized and customer friendly.

Integration Of Ports In Logistics Value Chain Like in case of shipping lines, the port operations too are likely to become increasingly part of a common logistics value chain that extend from point of origin of cargo to the final destination of cargo in terms of a door to door delivery cycle. Ports have to increasingly strive to facilitate in expediting the movement of cargo by ensuring that ships enter their berths to unload cargo and leave them after loading cargoes in minimum possible time and cost. Inability to deliver customer expectations is bound to shift the cargo to another port in the fast emerging competitive market framework.