The market of liner shipping

1
The market of liner shipping

• Claudio Ferrari

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Organization of maritime transport

• 18th century - colonies
• military and commercial
• sailing vessels
• industries
• international maritime trade
• raw materials and finished products
• sea adventure
• uncertain duration of voyage
• no possibilities of communication

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• INVENTIONS
• steam engines
• wireless telegraphy
• FORMS OF OPERATION
• liner shipping stipulations
• tramp shipping chartered vessels
  characteristics
• use of liner shipping and tramp shipping

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Evolution of ships types

• general cargo vessels units, port, efficiency
• bulk vessels raw materials, distances
• specialized vessels scale increase / Suez Canal
  - higher costs
• mainport concept / distribution centre
• consortia - liner shipping - expensive vessels /
  transmission of information / acquisition
• intermodal transport

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World merchandise trade by major product group,
1950-01
Source WTO, 2002
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Which goods are transported by sea?
Raw material oil, iron, coal Agricultural
grain, sugar, refrigerates Industrial material
rubber, forest, concrete, textiles, chemical
products Manufactured products plants,
machinery, cars, appliances, consumption
goods Industries Energy steel/metal 70 ca.
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World seaborne trade (billion ton-miles)
Source Fearnleys, Review 2001
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Quantities and transport service
Parcel Size Distribution (PSD)
Whole ships Bulk c.
Demand (tramps)
Big quantities
Parts of ships General c.
Smaller quantities
Liners

• Many goods are partly transported bulk and
  partly general
• Half 90 2/3 bulk e 1/3 general
• differences

Unitization
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Transport supply in maritime transport bulk vs.
line
Differences in management Bulk different
forms of availability of the ship for the
shipper ownership l.t., s.t. chartering spot
Liner much more complex (overhead, holds,
timetables, routes, etc.) higher fixed costs
agreement to limit competition (conferences, then
strategic alliances)
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LINER SHIPPING (1)
TRAMP SHIPPING - CHARTERED VESSELS (1)

• fixed departures to fixed regions (goods follow
  vessel)
• fixed freight rates conditions (liner terms)
• specialization
• container vessels
• general cargo vessels
• ro/ro vessels
• multi-purpose vessels
• expensive vessels owing to specialization
• information processing is expensive
• goods acquisition in own hands
• gigantic investments
• shipping companies co-operate - creation of POOLS
  and CONSORTIA
• shipping companies involved - now FINANCIAL GROUPS

• vessel follows the goods
• freight to be discussed and depends on market
  conditions (supply demand)
• specialized vessels for a cer-tain type of goods
  are used between regions where there is a demand
  for vessel space
• transport of
• bulk goods
• cereals derivatives
• coal
• ores
• gases
• frozen products
• oil
• cars
• wood

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TRAMP SHIPPING - CHARTERED VESSELS (2)
LINER SHIPPING (2)

• owner of goods determines UNLOADING PORT
• VOYAGE CHARTER for one single voyage
• TIME CHARTER for a certain period
• BARE BOAT CHARTER for longer periods
• TECHNICAL EVOLUTION
• scale increase 300 to 500,000 t
• reasons
• demand
• long distances, such as Suez ...
• in the ports need for specialized terminals

• liner conferences formal / informal
• freight tariffs
• number of sailings
• working conditions
• why necessary ?
• reduction of freight costs
• protection of investments
• freight war
• ADVANTAGES/DISADVANTAGES

OUTSIDERS INTERMODAL TRANSPORT DOOR-TO-DOOR
SERVICE
DISTRIBUTION TERMINALS
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Growth of container trade
Source Stopford
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Effects of containerisation.1. Market widening
Source Stopford
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Effects of containerisation.2. Price reduction
an example
Source Stopford
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Liner shipping the leading actors
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New trades
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The present scenario (1)
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The present scenario (2)
Source Erasmus University, Rotterdam
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Empty container volumes and imbalances on the
East/West trades
Source Drewry, 2004
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Freight rates
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Factors influencing the rate movements

• Shape of the supply curve (S)
• Shape of the demand curve (D)
• Changes in supply
• Changes in demand

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Shape of the supply curve

• Shipping costs may be divided in
• Capital costs (depreciation, interests)
• Voyage costs (bunker, port/cargo handling)
• Operating costs (crew wages, insurance, repair
  maintenance, classification)
• Voyage and operating costs are variable costs.
• If a ship does not operate, shipowner bears
  lay-up costs (crew to look for the vessel, port
  fees, etc.)
• Shipowners sign a charter rate if the earnings
  equals
• E O V L
• Since most shipowners have the same costs they
  all start to offer their ships at the same
  minimum rate

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Shape of the demand curve
Demand for shipping services is rather
inelastic. It is so because demand for shipping
is a derived demand, so in the short term even a
great increase in shipping rates have not effects
on the production functions of firms. In the long
run, firms may consider alternative means of
transport, but sea transport is much less
expansive than overland means of transport (road,
rail).
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Economies of scale
Source Stopford
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Economies of scale - draft
Source Stopford
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Scale economies

• They depends on savings per TEU on
• Capital
• Operating expenses
• Port terminal costs
• Bunker costs

Cost/TEU
Ship size
If the ship load factor is below 80 vanishes
any potential benefit of size scale
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Scale economies in practice
Source Stopford
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Trends in liner shipping

• Growth in worldwide and Asian container shipping
  market
• Larger Vessel Sizes
• Fewer port calls
• Leads to fewer and larger ports
• Hierarchy of ports in distribution system
• Concentration/cooperation
• Slot chartering carriers charter each others
  capacity
• Consortia coordinate schedules on particular
  route
• Alliances coordinate all schedules
• Mergers and acquisitions
• 18 companies control 71 of container slot
  capacity
• Expanding activities into Southern Hemisphere,
  but east-west movements still dominate
  north-south movements by far

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The growing size of containerships
Source Stopford
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The challenge of growth
Source Stopford
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Is the growth sustainable?
Source Stopford
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Containers what we are speaking of?
Dry container
Open top
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Refrigerated
Flatrack
Tank container