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1.
What is shipping?
Shipping is an enormous industry that
has been created by a demand for
commodities (goods). Commodities are
moved from an area where the value is
low to an area where the value is
considerably higher. For example, Palm
Oil in Malaysia does not command the
same price as it does in India.
Shipping is largely but not entirely the
carriage of goods but it also extends to
Passenger Liners, Fishing Fleets and as
well as to sail boats and yachts.
2. A brief historical background.
Until the nineteenth century ships were
predominantly owned by merchants who
used them to import necessities such as
spices. The sudden surge of industrial
activity in Europe (during the
Industrial Revolution) created a much
greater demand for varied goods and that
same activity also developed the
technical means for supply and this
resulted in the making of the steel ship
and the steam engine. Merchants had the
reliability of supply to fuel this
expansion and to keep pace with the
growing demand. From that moment on,
shipping became a business of supply and
demand and no longer was it speculative
in its venture.
This resulted the beginning of regular
scheduled shipping services between all
nations around the globe known as
‘Lines’ and the beginning of the Liner
companies as we know of them today.
Shipping was now out rightly an industry
of its’ own.
3. Today’s shipping world.
Today, international trade with the
assistance of heavy financial backing
from certain governments and the private
sector has further encouraged the
continued development of ship design
from the steam engine to the incredibly
fuel efficient diesel engines used in
ships currently. Previously ships were
ships, whilst they came in all different
shapes and sizes from a cargo carrying
aspect they were all very much the same.
Currently vessels are built, to a
greater extent to not only with stand
the perils of the sea but also with an
eye for flexibility to employ the ship
in as many different trades as possible.
Different trades require different
strengths of a ship and hence that is
the reason for the diversity of shipping
into Liner routes and Tramp shipping.
4.
Types of ships and how they are
employed.
Liner Routes
These are operated by companies that
place their vessels in a regular
scheduled services between groups of
ports. They advertise their sailing’s
and expected arrival times at the
destination and offer cargo space to any
party who requires it. They will sail
the ship at the advertised time whether
she is full of cargo or not. It is the
regularity that shippers demand and pay
for that make it vital that the ship
keeps to her schedule and the service is
maintained otherwise the Liner risks
loosing it prestige and its customers.
Liners crisscross the globe in many
forms and they all controlled by medium
or large ship owning companies and by
agreement in consortia with several
companies operating on the same route or
line. With the development of Containers
in the late sixties, giving the ships a
faster turnaround in port, the majority
of liner companies, these days, are
container carriers. In the major trades
to and from Singapore, Hong Kong, Japan
(the Far East) and the Americas these
can be very sophisticated ships having
speeds of up to 22 knots1 and carrying
4000 and 5000 TEU2. Naturally the
shipowners try to govern the number and
size of ships used to any specific run
in order to keep it as economical as
possible while still maintaining a
viable service to its’ shippers.
In practice, the merchant who uses the
liner system is likely to be someone who
has regular, high value consignments of
cargo of insufficient volume to enable
him to make use of an entire ship.
Tramp Shipping
The tramp ship is the complete opposite
of the liner, inasmuch it does not
advertise a sailing schedule but takes
whatever employment it can find. The
freight is negotiated by the merchant or
charterer, normally via a shipbroker,
and the amount paid is governed by
prevailing market conditions. Tramp
ships can be employed anywhere carrying
any goods but primarily their owners
will try and load a full cargo therefore
the cargo quantity available will be
much greater than that offered to the
Liner. The goods carried on a Tramp ship
usually are Raw products such as coal,
mineral sands, salt, logs, fertilisers
and iron ore; Foodstuffs such as
agricultural products, grain and sugar;
AND Finished goods for example steel
shipments.
The Tramp ship can be booked or fixed
either on a voyagecharter party or
timecharter party. The former is where
an agreement between the charterer and
the ship owner to carry ‘X’ tons of
material from ‘A’ to ‘B’ for a specific
voyage at a certain freight rate per
tonne with a given number of days to
load and unload the cargo, the owners
bear all the costs of the voyage; and
the latter is another form of agreement
where the ship is hired on a daily basis
from one point to another but not for a
specific voyage and the charterer takes
over the costs relating to his
employment of the vessel for this
duration, this can be further extended
by agreement but on the basis of ‘a
period of time’.
The true ‘Tramper’ such as those
operated by many Greek shipowners and
Scandinavian operators will sail the
globe looking for literally whatever is
profitable, provided the ship is
adequately compensated in the form of
freight, she will carry anything and go
anywhere and everywhere. Other owners
will do likewise but will be more
discriminating in what they carry,
refusing cargoes they fear will cause
long term damage to their ship such as
salt or sulphur and it has even been
known that certain owners will take this
to the extreme and refuse anything other
than grain.
But there again there will always be the
human element of decision making and as
well as the limitations imposed by the
size and design of the ship. Shipowners
try to minimise cost by employing ships
to areas where she is likely to be
chartered again easily. Not all tramp
ships sail the high seas forever
searching for business. As defined
earlier a tramp ship does not run to a
fixed schedule. Owners often take a
contract and trade their ships between
the areas of that contract or
timecharter their vessels out for a
number of years, this of course reduces
the element of risk and the return is
likely to be less. On the other hand
this is not always the case as a
shipowner who commits his ship to a long
term business in today’s high freight
may reap the benefit if the rate of
freight falls to lower levels the next
year. The benefits of this longer term
fixture is not only that the fact that
his ship has guaranteed employment and a
guaranteed return but this consequent
income (cash flow) might allow him to
invest further in a another vessel now
that his income is assured and
anticipated.
Having stated that tramp ships do come
in every shape and size from the small
coaster trading largely within home
waters to the 170,000 DWT3 Cape size
that thinks nothing of ballasting from
Europe to South Africa for cargo and
there are many shades in between them
and they also come in every speciality.
Dry – Bulk Shipping
Dry-bulk is a division of the tramp
market and this area is concerned with
the movement of large bulk commodities
such as the five mentioned earlier, iron
ore, coal, grain and fertilisers. This
area of shipping is a huge one and one
that is showing the greatest amount of
growth since the 1990’s. While the
greatest revenue in shipping belongs to
the Liners, the dry cargo volume belongs
to the tramp market and within that
market to the dry-bulk sector.
The dry-bulk market is more defined than
the general tramp market in that iron
ore, coal etc. are only exported from
certain countries and the importers are
generally equally prominent.
The dry-bulk ships are also
non-scheduled tramp ships and again the
owners will place them where they feel
their ships will be most profitable and
the size of these ships range between
20,000 DWT and 200,000 DWT.
There are vague dividing lines between
the sizes of Small bulkers, Handy-size,
Panamax4 and Capes5. These exist because
of various supply and trading
restrictions and these sizes appear, at
the moment to the most economical sizes
to use and that most likely to be
employed. With all the technical
expertise at the hands of the shipyards
these days the sizes are creeping up to
ever larger vessels enabling the ships
to carry even larger cargoes and with
their more fuel efficient engines, at a
lower rate per tonne.
For instance, the Handy-size bracket of
25,000 to 35,000 DWT sizes were
considered large until the early
eighties but now they are the older
ships and their place has been
superseded by the ‘new’ Handy-sizes of
43,000 to 47,000 DWT. They are truly
flexible with shallow drafts and
Panamax’s and Capes have seen
correspondingly similar growth.
The shipowners operating in this sphere
can be of any size from the man with one
ship to huge multi-nationals with
1,000,000 DWT at their command all
compete equally for the single cargo or
timecharter and the one most suitable to
the charterer for whatever reason will
obtain the business but when it comes to
contracts, the charterers look more
closely at whom he is dealing with. In
practice, the owners must be able to
supply the right ships with regularity,
the smaller owners have difficulty in
competing with this and in order to
compete effectively they will band
together and ‘pool’ their ships so they
have the availability of tonnage to take
on larger long term contracts. It must
be understood that even if the owner on
paper does not have a vessel of the
particular type required this will not
necessarily preclude him from operating
a contract satisfactorily, he can always
go back into the market himself and act
as though he were a charterer and fix a
ship to fill the gap in his schedule.
There are companies that do not own
ships at all but merely take them on
long period timecharter taking advantage
of the lower rates obtainable for such
long contracts and fix them out at the
higher spot rates and take the
difference as profit.
Tankers
As the name would imply they are ships
employed to carry wet commodities in
bulk and in tanks. The job functions of
these ships can be categorized into the
following:-
a. Dirty, meaning crude oil carried from
the area it is pumped from;
b. Clean/products, these are chemicals
or refined oil cargoes; and
c. LNG, or liquefied natural gas cargoes
all loaded at the point of discovery.
The same rules apply here as the tramp
market. These ships operate in areas
where employment is best found but like
dry-bulk they are confined to limited
routes. The ship owners and operators in
this market are not only, as one would
expect the oil majors, but a large
number of independent tanker ship owners
who have formed their association known
as Intertanko6. The freight system in
the crude oil sector is not easily
recognisable to an outsider while some
ships are fixed on a US $ lumpsum basis
others are booked on a World Scale rate,
this a figure that can be converted into
dollars and cents by reference to the
World Scale Tariff Book.
The years of poor returns have taken
their toll and these ships in large
numbers of which have been scrapped and
are hardly replaced hence are becoming
in short supply.
Ramesh N. P. Chandran |
