(updated page 29 and deleted the previous page 30) maritime economics-module 7 general cargo...

8/15/2019 (Updated Page 29 and Deleted the Previous Page 30) Maritime Economics-module 7 General Cargo Shipping

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MARITIME

ECONOMICS

Module 7

General cargo shipping


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Vera 2

Review: bulk shipping

Characteristics of bulk cargo and bulk shipping1

Market structure and its effect on competition2

Impact factors impacting freight rate3

Key issues affecting the efficiency4


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Vera 3

Module 7: focus questions

What are the main characteristics of general cargo and how

do they affect the operation of the shipping of general cargo?1

What is the market structure of liner shipping and what are the

effects of the market structure on competition?2

What are the key issues in liner shipping?

3 How are freight rates set in the liner market?

4


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Vera 4

General Cargo

General cargo can be classified into the three

categories:

Final consumer and producer goods

Intermediate goods

Primary products and raw materials

Dry

Goods of various sizes and weights shipped as packaged cargoes

Goods of uniform sizes and weights shipped as loose cargoes

Dry or liquid or liquefied gas

Neither packaged nor of uniform sizes and weights

Break bulk

Neo bulk


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Vera 5

General Cargo

Characteristics of general cargo:

heterogeneous

high valuesmaller quantities

Liner shipping is more suitable for the transport of

general cargo.

Unitisation is important to cargo handling and transport

productivity, and multi-modal transport.


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General Cargo

Characteristics of general cargo handling:

Break bulk cargo handling is generally labour intensive.

The cost of cargo handling used to be high, about one totwo thirds of the total freight.

Containerisation contributes largely to solving the above

problems. Palletized Cargo


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Liner shipping

Facts about containers:

If all containers in the world were lined up, it would have a length of

108,000 km.

1/3 of the way to the moon

18 times the length of the Great Wall of China

2.7 times around the earth at the Equator.

A serial number for each container, i.e. XXX-U-123456-1

Watch a video on the

afterlife of a shipping

container here

https://www.porttechnology.org/news/the_afterlife_of_sunken_containershttps://www.porttechnology.org/news/the_afterlife_of_sunken_containershttps://www.porttechnology.org/news/the_afterlife_of_sunken_containershttps://www.porttechnology.org/news/the_afterlife_of_sunken_containers


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Liner shipping

Facts about liner shipping

The largest container carrier is MSC Oscar (19,224 TEU)

The largest liner operator is Maersk – 13.45% market share % TEU, 1 May

2015

Maersk > MSC > CMA CGM

The busiest container port in the world is Shanghai, China

>30m of Shanghai v.s.


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Facts about liner shipping

Trade volumes in the main trade routes

Source: Elaboration from Drewry (2014)

The main trade lanes can be categorised in: East-West (71.7 million TEUs), North-South

(30.3 million TEUs) and intraregional (74.5 million TEUs).

Note: Inside intraregional trade, intra-Asia routes play a dominant role as they generated

in 2013 almost 60 million TEUs of cargo volumes.

Liner shipping


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Liner shipping

Brief history about liner shipping

Cargo liner era (1870-1950s)

Improvement in steamship technology facilitated offer of scheduled services

Multi-deck, versatile and with own cargo-handling gearCan carry a mixture of manufactures, semi-manufactures, minor bulks and

passengers

Similar in size, design and speed to tweendecker used by tramp operator

More sophisticated cargo liners were built to match trade growth in 20th

century

Though flexible, it was labour and capital intensive

Passenger-Cargo Liner

Retractable Tweendeck


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Liner shipping

Brief history about liner shipping

Containerisation era (1950s – present)

1

st

container made its maiden journey in 1956 (invented by Malcolm McLean) Carried 58 containers from Port Newark, New Jersey to Port of Houston, Texas

Standardization of container size by ISO, e.g. 20’, 40’ in 1961

High handling productivity and cost efficient

Evolve to


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Liner shipping

Characteristics of liner shipping

Liner shipping accounts for only a minor proportion of total

ton miles but a large contribution to total freight revenue.Liner shipping is vulnerable to imbalance between inward

and outward cargo flow, trade volatility, and seasonality.

Liner operators need to be able to provide a regular

service to the ports on the itinerary.

There are high barriers to entry.


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Liner shipping

The recent structural changes

The direct deep-sea connections replaced by the hub-and-spoke system

Ports logistic hubs

Larger ships

Massive investment in container ports and terminals

Vertical integration (value-added services)

Horizontal integration (merger and acquisition; alliance)

What are the impacts of these?


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4


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Market structure

Market structure: Oligopoly

Major characteristics

Limited sellers Little difference in service, i.e. homogeneous services

High ability to set price, normally set by price leader,

which leads to more stable price

High entry barrier


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Market structure

Market concentration -

Top 20 liner companies

Market share of 20

largest liner is over 80%

Market share of (Maersk

+MSC + CMA CGM) is

about 35%, and it is

increasing

Merger and acquisition

are accelerating this

process.

Source: Drewry, 2014


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Market structure

Liner conferences – origin

The arrival of steam ships by the end of 19 century and more and more

advanced technologies introduced increase the supply rapidly

intense competition Vulnerability to trade imbalance, seasonality and volatility, and very

high fixed operational costs liner shipping is a risky business

Severe excess capacity of shipping services a drastic and long-lived

decline in fright rate is inevitable the incentive for liner shipowners to

get organised was particularly strong Creation of the first

conferences can be attributed to this severe slump.

Example: time charter rates for different sizes of ships


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Market structure

Liner conferences – what is it?

An agreement between two or more shipping companies-

to cater regular cargo and/or passenger service on a particular trade route

under uniform rates and

common terms.


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Market structure

Liner conferences – main features of strengthening

the market power of the members:

Agreement to reduce harmful competition including that

from outsiders.

Conditional on the loyalty to the conference, shippers

are entitled to extensive concessions, e.g. rebates,

discount rates, to shippers.Agreement to fix the tariffs.

Avoid overlapped routes and reduce the number of sailings.


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Market structure

Liner conferences – impacts and operations:

Generally conferences work toward two main effects:

More efficiency through better organisation of operations,

Accumulation of market power that allow them to operate as

cartels (oligopoly).

Conferences can contribute toward more efficient operation if

they are well organised as single entities.

Efficiency could be achieved through cooperation between liner

companies to better allocate ports, routes and tonnage, which

help avoid over tonnage and simultaneously extend the route

coverage.


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Market structure

Liner conferences – good or bad?

Advocates say that they prevent the liner shipping market from

being crashed as a result of highly volatile demand which would

create prolonged damage to the market and interruption of linerservices because of the sluggishness of the liner service supply.

On the opposite side, critics say liner conferences deprive

consumer surplus and create economic inefficiency as a result of

dead weight loss.

Questions: what are the advantages and disadvantages of

liner conferences? List at least three points with illustrations.


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4


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Vera 24

Freight rate set (pricing)

Cargo differentiation and pricing

High value and urgent cargoes are likely to have different

transportation demand profiles from low value minor bulk cargoes,

especially over long routes

Price (freight rate) that shippers are prepared to pay depends on the

cargoes to be delivered, i.e. price elasticity

Designer Clothing

about 60,000USD per ton

Basic Clothingabout 16,000USD per ton

Electronic Goods


Motorcycle


Scrap Materialsabout 300USD per ton


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Freight rate is determined by:

Distance via different trade routes

Cargo related factors, e.g. cargo weight, dimensions, value, less than

container load (LCL), full container load (FCL), etc.

Additional charges, e.g. loading and unloading expenses at ports, i.e.

terminal handling charge (THC), carriage of goods by other

transportation modes along the supply chain, storage of goods, customs

clearance, etc.

Currency adjustment factor (CAF)

Bunker adjustment factor (BAF)

A good reference is the Shanghai Containerized Freight Index (SCFI)

measured in USD per TEU/ FEU


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4


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Issues

Issues in liner shipping:

Strategic alliances and cooperation among liner companies

Market regulationVulnerability to demand fluctuations

Trade/cargo imbalance


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Issues



Consortia: sharing administrative and operating costs andrevenue.

Alliances: sharing vessel operating costs.

Sharing agreements in liner shipping can take the form ofspace/slot chartering between participating carriers, settled

by cash cross-payments at pre-determined prices.


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Issues


Strategic alliances and cooperation among liner companies –

alliances

To achieve economies of scale larger ships

To fill these ships and frequent

global services alliances

Vetoed


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Issues



Alliance port andterminal choices involve

many trade-offs for

each carrier


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Issues


Vulnerability to demand fluctuations

Large-size container ships mean the sector is morevulnerable to demand fluctuations.

Seasonal variation


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Issues


Trade imbalance

It is inevitable as a result of production relocation to

countries where resources are abundant and cheap.It raises challenges in container transport, especially in

relation to:

– Management of empty containers

– Unequal freight rates for inbound and outbound routes.


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What are the main characteristics of general cargo andhow do they affect the operation of the shipping of generalcargo?

1

What is the market structure of liner shipping and what

are the effects of the market structure on competition?

2



4

So, what are the key strategic decisions for liner companies

to make?

what is the difference between liner shipping and tramp

shipping?


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MARITIME

ECONOMICS


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Vera 35

Market structure

Lower freight rates/time charter rates due toincreased ship sizes

Back


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Current freight rate: SCFI/ CCFI – Shanghai (China)

Containerized Freight Index measured in USD per TEU/ FEU

Source: BIMCO


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Liner shipping

East-West trade routes (examples)

Source: http://www.maerskline.com/

Asia – North America (Transpacific Trade) Asia – Europe (AE Trade)

Europe – North America (Transatlantic Trade):


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Liner shipping

Intra regional trade routes (example: Intra Asia)

Source: http://www.maerskline.com/

Intra Asia

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