The Shipping Business

1
The Shipping Business

• Tramp Liner Trade
• Chartering Brokering
• Freight Rates

2
Tramp Shipping

• -- shipping service where carriers contract to
  haul cargo in shipload lots between ports
  designated by charterer.
• Tramp ships provide convenient, timely economic
  transportation for many goods needed in a complex
  industrial society.
• In established trades (i.e., grain from US,
  Canada, Argentina Australia to N. Europe, Med,
  Africa, Japan S. Asia
• On new routes to alleviate temporary critical
  shortages

3
Tramp Shipping

• Moves 4.5 billion tons of basic agricultural,
  forestry, mining products manufactured raw
  materials (steel, cement, etc) world-wide
• Depends on a global network of brokers, agents
  representatives to market services, and procure
  contract cargoes
• Post WWII
• Surplus Liberties Victories dominated the
  general service (bulk break-bulk) fleets
• 70s-80s larger SD-14s (UK) Fortune Class
  (Japan) predominate

4
Tramp Shipping

• Smaller general purpose Tramps face fierce
  competition from
• Larger bulkers 30-50,000 DWT Handi-Max very
  large (100-159,000 DWT) special purpose, ore
  carriers
• Container ships
• Tankers outfitted for grain transport (pneumatic
  vacuators for quick unloading)
• STILL (1996) 50 of all dry-bulk ships 20 of
  all dry-bulk cargo carried by 10-30,000 DWT
  vessels to service
• Cargoes that cannot be placed in containers
• Transportation of small (10-15,000 T) lots
• Shallow depth ports and/or
• Ports with low to moderate facilities requiring
  self-unloading vessels

5
Liner Shipping

• -- shipping service that operates on an
  established route and has published sailing dates
  and published tariffs
• Private carriers transport only the goods of a
  single shipper (more typical of tramp trade)
• Common Carriers transport for any and all goods
  offered between the specified ports it serves
  (typical of Liner Service)
• Basically, a vessel carrying the property of 2
  more shippers is a common carrier

6
Liner Shipping

• Conference An association of common carriers
  operating on the same ocean route and using a
  common tariff
• Closed Conference limits membership to the
  specific number of carriers that will be
  sufficient to to provide transportation for the
  proffered cargo
• Open Conference admits membership to any common
  carrier prepared to serve the trade routed
  covered by the conference
• There are about 300 Conferences world-wide, most
  unite 10 or less Liner Companies, a few as many
  as 50

7
Liner Shipping

• Examples of Conferences
• United States Atlantic and Gulf Ports/Eastern
  Mediterranean and North African Freight
  Conference
• TRADE From U.S. Atlantic, Gulf and Great Lakes
  ports, and inland and coastal points and ports in
  Greece, Egypt, Turkey, Algeria, Cyprus, Lebanon,
  Malta, Morocco, Syria, Tunisia and Yugoslavia
• MEMBERS Farrell Lines, New York, NY Lykes Bros.
  Steamship Co., Tampa, FL Waterman Steamship
  Corp., New York, NY
• Israel Trade Conference
• TRADE Between U.S. Atlantic, Gulf, Great Lakes,
  Pacific (including Alaska and Hawaii) to and from
  Israel.
• MEMBERS Zim Israeli Navigation Co. Ltd., Haifa,
  Israel Farrell Lines, New York, NY Lykes Bros.
  Steamship Co., Tampa, FL

8
Liner Shipping

• Liner companies may have a variety of structures,
  but all encompass the following functions

9
Liner Shipping

• Traffic Department
• Inbound Freight Division
• Delivery Orders
• Inland Routing
• Customs Brokers
• Warehousing
• Tracing and Claims
• General Freight Agent
• Sales Staff
• Outbound Freight Division
• Booking Clerk
• Manifesting Section
• Chartering Department
• Charters ships in out of fleet

10
Liner Shipping

• Vessel Operations Department
• Marine Superintendent
• Port Captains
• Supervision of Deck Personnel
• Deck maintenance Inspections dry-docking
• Seaworthiness, Safety Voyage Instructions
• Superintendent Engineer
• Port Engineers
• Supervision of Engine Personnel
• Machinery maintenance Inspections dry-docking
• Seaworthiness, Safety Voyage Instructions
• Commissary Superintendent
• Supervision of Steward Personnel
• Ships Stores Acquisition
• Terminal Manager
• Facilities (equipment stevedoring)
• Administrative (receiving delivery, security)

11
Ships Compliment
Deck Dept. Engine Dept Stewards Dept.
Modern Tanker (Compliment of 14-20) Modern Tanker (Compliment of 14-20) Modern Tanker (Compliment of 14-20)
Licensed Captain Chief Mate 2nd Mate 3rd Mate Licensed Chief Engineer 1st Engineer 2nd Engineer 3rd Engineer
Unlicensed ABs (2-3) Unlicensed DEMacs (2-3) Unlicensed Steward/Cook Messman/BR (1-2)
Passenger Ship (Compliment of 500-1500 QM2 1250) Passenger Ship (Compliment of 500-1500 QM2 1250) Passenger Ship (Compliment of 500-1500 QM2 1250)
Licensed Captain Staff Captain Chief Mate (1-2) 2nd Mate (2-3) 3rd Mate (3-6) Licensed Chief Engineer Staff Chief 1st Engineer (1-2) 2nd Engineer (2-3) 3rd Engineer (3-12) Unlicensed Chief Steward Galley Staff Dinning Staff Housekeeping Staff Chief Purser Cruise Staff
Unlicensed ABs (6-12) OSs Deck Maint Staff Unlicensed DEMacs (6-12) Engr Maint Staff Unlicensed Chief Steward Galley Staff Dinning Staff Housekeeping Staff Chief Purser Cruise Staff
12
Vessel Management Companies

• Companies offering full management services or a
  combination of specialized expertise including

• Terminal Requirements
• Feasibility Studies
• Vessel Selection
• Vessel Activation
• Route Proposals
• Weather Information
• Local Regulations
• Hotel Operations

• Crewing
• Regulatory Compliance
• Condition Surveys
• Purchasing
• Chartering
• Brokering and Insurance
• Shipyard Selection

• Layers of corporate structure proliferate
• Vessels individual corporations with single
  owner, multiple operators
• Single operator of ships with different owners
• Owner/operators wholly owned subsidiaries of
  conglomerates

13
Chartering

• CHARTER-The hiring of a vessel for either
• a specified period of time or
• a specific voyage or set of voyages.
• A chartered vessel is technically a private
  carrier which predominates in tramp trade, but
  liner companies often charter vessels or lease
  vessels to charter depending on cargo demand
• CHARTERER-The entity hiring the vessel from the
  shipowner.
• CHARTER-PARTY-The contract between the owner and
  the charterer, stipulating in detail each partys
  responsibilities in the transaction.
• Charta Partita is Latin for a letter divided.

14
Chartering

• There are three basic types of Charter Parties
• Voyage Charter
• Contract of carriage in which the charterer pays
  for the use of a ships cargo capacity for one,
  or sometimes more than one, voyage.
• the ship owner pays all the operating costs of
  the ship (including bunkers, canal and port
  charges, pilotage, towage and ships agency)
• while payment for cargo handling charges are
  subject of agreement between the parties.
• Time Charter
• The hire of a ship for a specified period of
  time.
• The owner provides the ship with crew, stores and
  provisions, ready in all aspects to load cargo
  and proceed on a voyage.
• The charterer pays for bunkering and all voyage
  related expenses including canal tolls and port
  charges.

15
Chartering

• There are three basic types of Charter Parties
• Voyage Charter
• Time Charter
• Bare-Boat Charter
• The leasing of an empty ship for a specified
  period of time for a specific fee in this
  arrangement,
• the ship owner virtually relinquishes all rights
  and responsibilities in respect of the vessel and
  the charterer becomes the de facto owner for this
  period.
• The charterer is generally responsible for all
  operating expenses including crewing and
  insurance.
• Also called a Demise Charter

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Chartering
Responsibility VOYAGE TIME DEMISE
Basis of charter hire Cargo Tonnage Ship Capacity Ship Capacity
Duration of Charter Party Specif. voyage(s) Period of time Period of time
Geographic Limits Port to port By area By area
Maintenance of Seaworthiness owner owner charterer
Possession, command, operation navigation (demise) owner owner charterer
Employer of crew owner owner charterer
Master under direction of owner charterer charterer
Fuel costs, Port Harbor fees owner charterer charterer
Hull Machinery Insurance owner owner negotiable
Protection Indemnity (PI) owner owner charterer
Payment to shipowner End of voyage Monthly Monthly
Legal term for compensation Freight Hire Hire
17
Weight Measure

• There is tonnage and there is tonnage
• Deadweight Tonnage (DWT) The displacement of a
  fully loaded vessel in Long Tons (2240 lbs) or
  Metric Tons (1000 Kg) including structure, fuel,
  water, stores, cargo, passengers crew.
• Light Weight Tonnage Displacement of empty
  vessel (no fuel, stores, cargo, etc.)
• Deadweight Items The difference between DWT and
  LWT including Cargo Deadweight
• Gross Tons The entire interior volume of the
  vessel (including deck houses and excluding
  certain spaces exempted by statute) in 100s of
  cu. ft. (1 g.t. 100 cu.ft.)
• Net Tons Volume remaining after non-earning
  spaces have been deducted from the Gross Tonnage.

18
Weight Measure

• There is tonnage and there is tonnage
• Gross Net Tonnage are legal terms used to
  determine port canal transit fees and classify
  the size of vessels for certain legal
  activities and regulations. They are intended to
  be a measure of the earning capacity of the
  vessel.
• As an analogy consider Gross Income which the
  IRS defines as the total of what you make but
  exempting certain items (.e.g, contributions to
  an IRA) and Taxable (Net) Income which is Gross
  Income minus deductions (either standard or
  itemized).
• Calculation of Gross and Net Tonnage can be as
  complicated as a 1040 Tax Form and there are
  loopholes for getting certain spaces exempted
  or deducted that actually may be used to carry
  cargo.
• Originally the tun was a cask for carrying 250
  gal. of wine. It weighed 2240 lbs and occupied
  57 cu. ft. of space.

19
Freight Rates

• the prices charged for the services of ocean
  carriers. Determined by ship operators to
  reflect
• The cost of providing the carriage including
• Vessel operation
• Cargo handling, port fees tariffs
• Exchange rates among international currencies
• The value of this service to the shipper
• The ability of the merchandise to support the
  expense of being shipped
• Economic conditions in general
• subservient to
• The Law of Supply Demand including
• Competition among carriers on the same route
• Competition among ports

20
Freight Rates

• Charge carriage by weight (/100 lbs) or volume
  (/cu.ft.)?
• It depends
• If 1 LT (2240 lbs) of cargo occupies less than 40
  cu.ft., charge by weight. (deadweight cargo)
• If 1 LT (2240 lbs) of cargo occupies more than 40
  cu.ft., charge by volume. (cubic cargo)
• The weight (in LT) of 40 cu.ft. is the stowage
  factor
• Carriers charge by weight or measure whichever
  generates the most revenue
• But what about the type of cargo? (nails vs.
  oranges vs. computer parts?)

21
Freight Rates

• Class Rates assigned to groups of unrelated
  cargos that are found to require approximately
  the same revenue for their transport
• Class D (dangerous cargo) is the highest rate
  followed by Class 1 through 8, with Class 8 the
  cheapest
• There are deadweight cargo and cubic cargo rates
  in each class
• Fuel surcharge computed to reflect fuel price
  fluctuations without redefining class rate scales
• Commodity Rates negotiated compromise falling
  between class rates
• Applicable to specifically described cargoes
  (e.g., Paper wrapping, not corrugated, other
  than cellulose film)
• Commodity rates take precedent when both class
  commodity rates are offered

22
Freight Rates

• Through Rates are charged for shipments
  originating with one ocean carrier but
  transferred to connecting carriers at
  intermediate ports
• Usually the originating carrier issues the Bill
  of Lading, collects all charges, and divides the
  revenue with the other carrier(s) as per the
  through rate agreement
• Sometimes the Through Rate is lower than the
  combination of rates of each of the participating
  carriers
• Similar to a flight from Chicago to NY via
  Atlanta being cheaper than the sum of the legs
  or, possibly, a direct flight.
• However, sometimes through rates are the sum of
  the connecting carriers charges plus a transfer
  fee.