Maritime Economics

90. What is the hub&spoke system?

(THINK AIRPORT HUBS AND SMALLER AIRPORTS, SAME DEAL) In a hub and spoke system of containerized seaborne trade, cargo to a region is delivered first to a primary hub port and then transported to its final destination, whether by sea, rail, road or inland waterways. · Characterized by combining the advantages of mainline and feeder services, which are operated in an integrated manner to ensure transportation between ultimate origin and destination ports · characteristic of primary ports: o geographically central to the region o can accommodate larger vessels than other ports in the region · Advantages: o Few ships o Cost savings o Flexibility; react to cargo opportunity by removing hub · Cons: o Complex scheduling o More transshipment o Additional handling cost o Low reliability

77. Why has the container been so succesful?

· Containerization has been so successful due to multiple reasons: o Unitization - putting the cargo into a unit - a container is 1 unit o Standardization - the unit is one standard of dimension that enables you to handle the cargo and move it (TEU, FEUS) o Containers can save but also lose space - with containers being stacked on each other, you can transport more cargo, however, containers are not always entirely full. Most of the containers mostly contain air. o Cellular ships - general cargo ships are not designed for containers. Specialized ships have been designed to set up to move containers and the cargo and maximize the space used. o Specialized cargo equipment to handle and move containers at the port and terminals o Reliability and safety - against stealing and weather conditions o Roll on/ Roll off - type of cargo used in liner shipping for a small quantity of cargo o Gantry cranes o Ship-to shore productivity - improved loading and unloading

6. How can shipping companies reduce ship costs?

-Fleet optimization - Ensuring right mix of vessels to effectively meet demand without incurring too many costs e.g. poorly optimized ships that are moving air -Maintenance and repairs - Old ships generally use more fuel, removal of barnacles also slow ships down and incur greater fuel costs -Fuel efficiency - Optimize voyage planning and use slow-steaming -Third party management - Outsourcing crew to companies that have connections to cheaper work forces(lower wages) -Also terms of wages (choice of flag)- flag states and taxation, lower labour costs - Marshall Islands, Panama

13. How can shipping companies manage risks?

1. Diversification (e.g. Maersk expanding into logistics and IT) 2. Insurance (Hull and machinery failures and breakages, Protection against piracy etc.) 3. Lobbying against political risks that might affect profitability - change to green fuels 4. Traditional risk management for shipping companies: Mix of chartering contracts for diversification and mix in contract durations 5. Risk assessments: Using logicality systems and data sampling and control to manage and predict future issues to reduce possible incurrable costs

100. Discuss the importance of the blue economy and shipping for Denmark and Europe

1. Economic Foundation: Shipping serves as a key economic driver in Denmark and Europe, contributing significantly to GDP and employment, with well-developed port infrastructure supporting trade and commerce. 2. Environmental Responsibility: Denmark and Europe prioritize sustainable shipping practices, including reducing emissions and investing in green technologies, in alignment with global efforts to protect the marine environment. 3. Renewable Energy Leadership: Denmark's expertise in offshore wind energy and the growth of offshore wind farms in the North Sea contribute to Europe's renewable energy goals and energy security. 4. Innovation and Research: Investment in research and innovation in the maritime sector fosters technological advancements, enhancing competitiveness and ensuring the continued growth of the blue economy. 5. Security and Cultural Significance: Shipping and maritime sectors are integral to Europe's security and defense, safeguarding trade routes, as well as cultural heritage and tourism, generating revenue and preserving cultural importance.

22. What issues are important for ship-owners to address, when ordering new ships?

1. Market Analysis: Understand current market conditions and cargo demand. 2. Regulatory Compliance: Ensure the vessel complies with environmental and safety regulations. 3. Environmental Sustainability: Consider eco-friendly technologies and emissions reduction. 4. Financial Planning: Develop a funding strategy for the new vessel. 5. Ship Design: Work on vessel design aligned with cargo and market trends. 6. Shipyard Selection: Choose a reputable shipyard that balances cost and quality. 7. Operational Efficiency: Optimize fuel consumption and maintenance. 8. Risk Assessment: Evaluate and mitigate potential risks. 9. Customer Requirements: Tailor the vessel to meet customer needs. 10. Competition Analysis: Understand the competitive landscape and position the new vessel effectively.

21. What are the key dilemmas ship-owners face, when ordering new ships?

1. Vessel Type: Choosing the right vessel type based on market demand and cargo requirements. 2. Size and Capacity: Deciding on vessel size and cargo capacity, considering economies of scale and port limitations. 3. Environmental Compliance: Balancing compliance with environmental regulations with the cost of eco-friendly technology. 4. Fuel and Propulsion Technology: Selecting the most suitable propulsion technology, taking into account fuel costs and emissions standards. 5. Shipbuilding Location: Weighing cost savings against quality when deciding where to build the ship. 6. Financing and Investment: Finding appropriate financing options to fund the new vessel purchase. 7. Market Timing: Timing the construction and delivery of ships in line with market demand. 8. Operational Costs: Minimizing operational costs by considering fuel efficiency and maintenance. 9. Resale Value and Depreciation: Anticipating vessel resale value and depreciation factors. 10. Risk Management: Mitigating risks associated with market volatility, geopolitical factors, and operational challenges.

5. What are the costs of running a ship?

ALL COSTS ARE VARIABLE -Operating Costs: Crew wages, maintenance and repairs -Voyage costs: Fuel, port charges (Port dues levied on the use of facilities provided by port calculated in 4 ways: volume of cargo, weight of cargo, Gross weight tonnage or net registered ship tonnage) -Administration: Office expenses, insurance -Depreciation and amortization (Depreciation of ship value)

86. What determines logistics value?

The value of maritime logistics is reflected in how well maritime operators can provide efficient and effective service for the smooth flow of logistics - how well the system fulfils the customers needs What is maritime logistics value? How can it be measured? · Value is the perceived worth in terms of the economic, technical, service, and social benefits received by a customer firm in exchange for the price paid for a product offering. · Maritime logistics value - how well the maritime logistics system responds to the customer demands by successfully managing the flow of goods, services, and information in maritime logistics. How should strategy be directed to address maritime logistics value? · Companies should identify who their customers are and what their demand is · Customer are essentially shippers, who are in demand for shipping and freight forwarding services or port/ terminal operators are demanded by shipping lines. Customers seek a service, which is quick, reliable, flexible, and lowest in price. Reduction of lead time and business costs and improvement in service quality.

7. Explain the relationship between international shipping, trade and GDP

Trade is the heart of the economy, international shipping substantially helps facilitate trade by opening buyers to sellers from across the globe therefore increasing trade. The resultant increase in trade and demand for products means there is an incentive for local producers to create a greater supply resulting in a greater increase in the gross domestic product. Moreover, job creation from both direct and indirect sources in the local economy boost GDP

38. Explain the challenges encountered by traditional maritime nations since 1950.

Traditional maritime nations have encountered several challenges since 1950, which have significantly impacted their maritime industries. These challenges include: Labor Costs and Mechanization: Rising labor costs in the mid-20th century forced the maritime industry to mechanize and automate various processes, replacing traditional labor-intensive methods. This shift was a challenge for maritime nations that relied on a workforce that was no longer cost-competitive. Transition to Business Segments: The shift from liner and tramp systems to business segments like bulk, specialized, container, and air freight required adapting to new operational models and market dynamics. Traditional maritime nations had to navigate these changes while ensuring competitiveness. Containerization: The introduction of containerization, while revolutionizing the industry, posed technical challenges in terms of developing container ships and port facilities to accommodate containers. Traditional maritime nations had to invest in infrastructure and adapt to this new transport system. Political and Geopolitical Factors: Various political developments, such as the nationalization and closure of the Suez Canal in 1956, the second Suez closure in 1967, the oil crisis in 1979, and the Gulf War in 1990, led to fluctuations in the demand for shipping services. These events required traditional maritime nations to adjust to changing trade routes and patterns. Economic Shifts: Economic factors like the 1958 recession and the reopening of the Suez Canal influenced shipping demand and shipbuilding output. The availability of cheaper ships due to overcapacity was both an opportunity and a challenge for maritime nations. Environmental Regulations: The maritime industry has had to adapt to evolving environmental regulations and policies, including emissions regulations like those from the International Maritime Organization (IMO). Compliance with these regulations has been a significant challenge.

76. What is the difference between tramp and liner shipping?

Tramp Shipping is engaged in the tramp trade, which does not have a fixed schedule, nor published ports of call and trades on the sport market, it is available at a short notice. · I hire an entire ship, I load the ship with the cargo and it sails to port. It is a single transaction and single transportation service. Longer term contracts - time-charters, are possible. · Anyone that has a ship, is able to offer their ship on the market as a tramp ship Liner Shipping has a set time-schedule and published ports, which they go to. Even if the vessels aren't fully loaded, they still must arrive at port. · They have a regular network around shipping ports based on preplanned schedules and timetables · Ability to transport a variety and diversified cargo Anyone can be a tramp but not everyone can be a liner ;)

82. What role does transport play in the national economy?

Transport allows global trade and globalisation through imports and exports of goods. are linked to a level of output, employment, and income within a national economy Trade and Commerce: Transport facilitates domestic and international trade, reducing production costs and enabling businesses to access wider markets. Job Creation: The transport sector generates direct and indirect employment opportunities, supporting economic growth. Infrastructure Investment: A well-developed transport infrastructure attracts investments, both domestic and foreign, and contributes to economic development. Quality of Life: Efficient transport systems enhance the quality of life by reducing congestion, improving air quality, and providing efficient mobility. Global Competitiveness: A strong transportation network is essential for a country's global competitiveness, as it enables participation in international trade and supply chain optimization. Allows mass production, minimization of unit costs and international competitiveness Facilitates regional development

80. What are the main cost elements in shipping?

· Destination of Origin - more transportation involved o For your product to be shipped from point A to B, there'll be one or more means of transportation involved o most carriers will define shipping zones that determine how much one pays o The further the gap between zones, the higher the shipping fees. · Weight or dimensional weight o Carriers will charge your shipment based on the item's weight or dimensional weight o Dimensional weight pricing is based on the box's length, height, and weight. · Delivery speed · Packaging materials · Shipping distance · Surcharges · Taxes and duties · Warehouse and distribution centres · Bunker, hire payments, freight, port disbursement, cargo handling, Maintenance and repair, drydocking, class, crew, flag, insurances, surveys,

85. What is maritime logistics?

Maritime logistics is referred to as a process of planning, implementing and managing the movement of goods and information which are involved in the ocean carriage. · Maritime logistics is concerned with not only individual functions relating to sea transportation, but also an effective logistics flow as a systematic entity of the logistics integration system. · the process of managing the flow of raw materials, inventory, finished goods, services and related information from the point of origin to the point of consumption. · Maritime logistics consists of 3 key parts of maritime transportation: 1. Shipping 2. Port operation 3. Freight forwarding · Primary activities by maritime operators; shipping, port operation, freight forwarding · Secondary activities support the primary activities by helping them to run more effectively · Additional logistics services of the maritime operators and their organisational capability (i.e. human resource management, information system, administrative skill and financial support) are essential in supporting the primary activities

12. What are the main risks that shipping companies face?

Market risks: fluctuations in demand, overcapacity and freight rate volatility, commodity prices (affect how much will be transported e.g. high prices push buyers away) Economic risks: Downturns, currency volatility and financial market instability Operational risks: Piracy equipment failures can impact operations Environmental risks: Environmental accidents, oil spillages, and extreme weather events can affect companies operations and profitability Geopolitical risk: Trade disputes (Tariffs etc), sanctions and environmental policies on emissions can greatly disrupt operations and business capabilities of shipping firms

78. What is a classification society and what does it do?

The purpose of a Classification Society is to provide classification and statutory services and assistance to the maritime industry and regulatory bodies as regards maritime safety and pollution prevention. 'enhance the safety of life and property at sea by securing high technical standards of design, manufacture, construction and maintenance of mercantile and non-mercantile shipping'. · The objective of ship classification is to verify the structural strength of the ship's hull, the reliability and function of the steering systems and machinery, etc. · The vast majority of commercial ships are built to and surveyed for compliance with the standards laid down by Classification Societies · IACS - International Association of Classification Societies · Their regulatory activity: o Technical plan review o Survey during construction o Issuing of classification certificated o Periodic survey

54. What is a shipping cycle?

The shipping cycle is an economic cycle that helps to identify the effects of changes in supply and demand on freight rates as well as on shipping assets, in other words the ships themselves. Cycles are irregular - driven by an undercurrent of economic fundamentals of supply and demand which determines the 'market tone' at any point in time a. Prosperity - rapidly growing demand coincided with a shortage of shipbuilding capacity b. Competitiveness - competitive activity characterized by growing trade and shipbuilding capacity that expanded fast enough to keep up with demand. c. Weakness - growing demand was damped by overcapacity in the shipbuilding market. d. Depression - falling trade coincided with shipbuilding overcapacity. Has both short and long term cycles. These can also be ordered in the following way: 1. Rock bottom (Trough or market through) 2. Recovery (Upturn period) 3. Peak (Boom , bubble) 4. Collapse (Downturn, depression)

40. How does the oil price affect shipping?

· Due to the shipping industry and the vessels being reliant on fuel · When fuel prices are low, the earnings go up whilst the costs stay low · Wen oil prices increase, this makes profits smaller and the demand for such vessels and the shipping containers they carry tends to lessen. · Fuel costs can represent up to 50-60% of the total ship operating costs, depending on the size of the vessel · For example, if one cargo ship ends up paying less in fuel than the others, this means those other cargo ships have to pick up the cost · For countries, who are oil's major commodity exporters (Russia and Brazil) have a reduced purchasing power and negates the benefit of the lower fuel prices if they deal with weaker currency · dropping oil prices will necessarily translate into a stronger market demand · he drop in oil prices will all have a different effect on inter modal transportation and oil freight: some will benefit more than others · Lower fuel prices means lower operating costs and therefore, more money to be made in spite of the weak demand.

88. Explain the imbalance problem in container shipping?

· The imbalance is a shortage of containers · there are too many empty containers sitting in some places and not enough to be loaded in other parts of the world · A container imbalance will force manufacturers and producers in other cities and countries to stock pile finished goods until container to arrives in their yards ·Imbalance occurs in containerizations when the cargo only flows in one direction, the cargo has been emptied and the return is without any load. · The aggravation of such stockpiling is threefold: o Suppliers can't fill orders on time o Stockpiling eats up cash flow as orders remain unpaid o Manufacturers start running out of storage space. As a result, they either have to slow production (causing layoffs) or rent more space which is an unnecessary expense.

70. What are the determinants of second hand prices for ships?

· What determines the value of a ship at a particular point in time? o Freight rates o Age § negatively correlated with the ship's value o Inflation § long-term impact on the prices o Shipowner's expectations for the future § driven by the sentiments of shipowners § Present value of the vessel's expected future cash flows which will depend on expectations for future freight rates § Present values of expected future second hand/recycling value of the vessel (vessel age (proxy for vessel maintenance) and steel prices (vessels light weight)) ALSO THE SUPPLY AND DEMAND***

11. How does commoditization affect shipping companies?

· With commoditization, companies will then be driven by cost efficiency - their cost advantage will be based on price only. Thus, the only way companies can compete to each other is by being cheaper. · ships are commoditised assets, and like any commodity, the cost to produce is the long-term driver of price o Reduced opportunities for service/product differentiation (Which can be done only through: price, speed, reliability and security) o Strong focus on price competition o Emergence of spot market o Emergence of Liquid second hand market Market saturation: May lead to an oversupply of segments in the market which can depreciate freight rates and profitability.

53. What determines the supply of shipping services?

· World Fleet · Fleet productivity · Shipbuilding production · Scrapping and losses · Freight revenue · The supply model (B); in the short term, the world merchant fleet provides a fixed stock of transport capacity. When demand is low only part of this fleet may be trading and some ships will be laid up, or used for storage. The fleet can be increased by newbuilding and reduced by scrapping. · 4 groups of decision makers, who control or influence the supply of ships 1. Shipowners 2. Shippers/charterers 3. Bankers, who finance shipping 4. Regulatory authorities, who make rules for safety

64. Please relate the cost structure in shipping to the different types of charter parties.

· the allocation of port charges differs for different types of charter o Voyage charter: all port dues and charges related to the vessel are charged to the shipowner o Shipowner pays all the costs (except cargo handling) - also responsible for managing the running of the ship and for the planning and execution of the voyage o Cargo charter: all charges are paid for by the charterers - except for cargo-handling charges o Trip/time charter: all port charges are carried by the charterer o Under this arrangement, the owner still takes the operational risk, since if the ship breaks down he does not get paid · Bare boat charter o a financial arrangement in which the charter hire only covers the financing cost of the ship o The owner finances the vessel and receives a charter payment to cover expenses o All operating costs, voyage costs and cargo-related costs are covered by the charterer, who takes both the operational and the shipping market risk

84. What are the main ways in which ships are financed?

- Investment funds - Investors and lenders - Private placement of debt equity - Financial markets - Institutions providing ship finance - Mezzanine financing · Analysis; market, company, financials, syndication prospects · Negotiation; terms, security, pricing, duration · Proposal to credit committee · Term sheet · Execution legal documents · Drawn-down Institutions providing ship finance: JP Morgan, Nordea, China Exim, DNB, Mizuho Bank, Citibank, Fimbank, Sumitomo Mitsui, Danske Bank Private Placement of Debt Equity · Widely used method of investing or lending money · 'fund managers' place the funds directly with the companies who need finance Private Placement of Debt Equity · Widely used method of investing or lending money · 'fund managers' place the funds directly with the companies who need finance Capital Markets · trade in long-term debt financial instruments named bonds or debentures · The holder of the bonds is repaid a specific amount of money on prescribed maturity date Money Markets · short-term debt with a lifetime of less than a year is traded · market is made of a loose network of banks and dealers connected by telex, telephone and computers Mortgage-Backed Loans A mortgage-backed loan relies on the ship for security, allowing banks to lend to one-ship companies which would not otherwise be creditworthy for the large loans required to finance merchant ships Mezzanine finance structures Mezzanine finance - usually refers to high-yielding debt, typically priced at several percentage points above LIBOR, often with some form of equity 'kicker' attached - for example, equity warrants

79. What are strategic and global alliances?

· typically cover operating joint services on the major liner routes, chartering in vessels, slot sharing, shared terminals, pooled containers, coordinated feeder and inland services where permitted, and information sharing. · They retain their own corporate identity and executive management (sales, marketing, pricing, bills of lading and vessel ownership, maintenance) · Primarily in liner shipping. In bulk commodities there aren't alliances but 'pools': · Wider geographical scope: global alliances enable lines to broaden the range of routes, setting up a world-wide network of services and offering their customers `one-stop shopping' · Risk and investment sharing, as the capital investment requirements can be met by the joint financial resources of a wide group of companies · Entry in new markets; multi-trade alliances allow a line to enter a trade even without the deployment of additional tonnage, simply by using slots on its partners' existing services; · By combining purchasing power and volumes, alliances can drive down the cost per unit of container handling, intermodal and feeder services. · Possibility to perform vessel planning and coordination on a global scale, whereas separate tie-ups on individual routes can lead to unproductive conflicts of interest and suboptimal fleet deployment; · Economies of scale, as larger alliances help to justify investments in the new generation of larger ships and to reach satisfactory utilization rates; · Increase in frequency of services; as global partnerships offer great potential for enhancing overall frequency and allow multiple fixed-day of-the-week sailings; ALLIANCES HAVE NOTHING TO DO WITH PRICING! PRICES ARE SET BETWEEN COMPANIES AND CUSTOMERS INDIVIDUALLY

20. What are the typical aims and tools for national shipping policies?

Aims of national shipping policies: 1. Economic Growth and Trade Facilitation: National shipping policies often aim to promote economic growth by facilitating trade. This includes supporting the export and import of goods, boosting the shipping industry's contribution to the national economy, and creating jobs. 2. Safety and Security: Ensuring the safety and security of maritime operations is a fundamental aim. Policies seek to prevent accidents, reduce pollution, and protect lives, property, and the environment. 3. Environmental Sustainability: National shipping policies increasingly focus on environmental sustainability. This involves reducing emissions, minimizing the environmental impact of shipping, and complying with international regulations related to pollution prevention. 4. Maritime Infrastructure Development: Policies may target the improvement and expansion of maritime infrastructure, such as ports, terminals, and navigation channels, to enhance efficiency and competitiveness. 5. Competitiveness and Innovation: Policies aim to enhance the competitiveness of the national shipping industry. This can involve encouraging innovation, technological adoption, and efficiency improvements in maritime operations. 6. Training and Workforce Development: Encouraging education and training in the maritime sector is important for cultivating a skilled workforce. Policies often aim to ensure the availability of qualified seafarers and other maritime professionals. 7. Cargo Diversification: Encouraging diversification in the types of cargo carried can be an aim. This minimizes risk and reliance on specific markets and products. 8. National Security and Defense: Shipping policies may contribute to national security and defense by ensuring the availability of a viable domestic shipping industry during times of crisis. Tools of National Shipping Policies: 1. Regulation and Legislation: Governments use laws and regulations to set standards for vessel safety, environmental compliance, crew training, and more. These regulations help maintain order and safety in the maritime sector. 2. Financial Incentives: Governments may provide financial incentives, such as tax breaks or subsidies, to encourage shipping companies to

32. How do cycles in shipping and shipbuilding markets interact?

At the beginning of the cycle freight rates rise and cash starts to pour in, allowing shipowners to pay higher prices for second-hand ships. As prices are bid up, investors turn to the newbuilding market which now looks better value. With the confidence created by bulging wallets they order many new ships. A couple of years later the ships arrive on the market and the whole process goes into reverse. Falling freight rates squeeze the cash inflow just as investors start paying for their new-buildings. Financially weak owners who cannot meet their day-to-day obligations are forced to sell ships on the second-hand market. As more ships are scrapped the supply falls, freight rates are bid up and the whole process starts again. 1. Demand strengthens 2. Charter rates increase 3. Second-Hand value increases 4. New building more viable 5. New building Boom 6. Overcapacity 7. Charter rates decrease 8. Second-Hand value decreases 9. Newbuilding stops 10. Scrapping increases 11. Supply and demand Ration decreases

43. Explain the main relations between the four shipping markets.

At the beginning of the cycle freight rates rise and cash starts to pour in, allowing shipowners to pay higher prices for second-hand ships. As prices are bid up, investors turn to the newbuilding market which now looks better value. With the confidence created by bulging wallets they order many new ships. A couple of years later the ships arrive on the market and the whole process goes into reverse. Falling freight rates squeeze the cash inflow just as investors start paying for their new-buildings. Financially weak owners who cannot meet their day-to-day obligations are forced to sell ships on the second-hand market. As more ships are scrapped the supply falls, freight rates are bid up and the whole process starts again. · Freight market is the one the others follow · New building increases when the freight rates are high as companies have spare money during that time · Demolition decreases when freight market is high and increases as it gets lower · Second-hand market increases as the higher freight rates are as the ships are directly available in comparison to newbuildings and shipping companies want to get a slice of the pie

89. What is a berthing window and why is it used?

Berthing window means a time period allocated to a vessel to berth, to carry out cargo working and to undock and sail from the berth. · Ports are incredibly complex industries that thrive on efficient operations and supply chains · By ensuring that there is no lag between the vessel entering the port, having its cargo loaded or unloaded, refuelled and inspected, cleared to depart, and finally pushed out of the berth, these ports allow countries all around the world to bring in vital trade and commerce to the region. · Most ports these days have the logistics systems in order to reduce this turn around time · They allow the port operations to function smoothly while also keeping a lookout for possible shipping bottlenecks and other problems. · Objectives of Berthing windows: o Minimization in vessel service times, o Optimization in arrival and departure times o Minimization in early or delayed arrivals or departures, and o Optimization of fuel, berthing, and emission costs. Reduction in an unexpected arrival or departure of a ship

15. What determines the environmental and labor protection standards of shipping?

International agreements: The IMO, under the UN, sets international shipping regulations National Laws: Trade blocs and individual countries will set regulation surrounding taxation and tariffs, environmental protection and labor standards Industry initiatives: Various industry organisations and in some areas of the world, unions will help to promote and push for better regulation surrounding labour Public pressure and perceived brand reputation: Pressure from public around environmental concerns can damage the reputation of a brand and lead to reduced sales ILO (International Labour Organization) : To promote rights at work, encourage decent employment opportunities and enhance social protection and strengthen dialogue on work-related issues

60. Who are the important participants in the international shipping industry?

Cargo owner A company with a need to transport its cargoes. In tanker shipping, the main cargo owners are oil majors and commodity traders. In some cases, oil majors own ships, but in the vast majority of cases they charter in vessels in the freight/charter markets to perform transport work. Ship owner A company, which owns ships. It makes money by chartering out its ships in the freight/charter market or through asset play in the second hand markets for ships. Some ship-owners have in-house commercial and technical management for the ships, while others choose to outsource these activities to third parties Charterer A company, which charters in (i.e. leases) ships in the chartering market. A charterer may be an oil major in need of transportation for its cargoes, or a ship-operator in need of ships to perform transport work, for which it has committed itself on behalf of a cargo-owner. Ship Operator A company, which provides transportation services to cargo-owners. It does not own ships, but charters in these in the freight/charter markets. It subsequently charters them out, and makes a profit from the margins between the charter-in and charter-out rates. Commercial ship manager A company, which provides commercial management for ships on behalf of shipowners. It finds employment for the ships in the freight/charter markets, and earns a profit from the management fee that it receives from ship-owners. It is also known as a pool manager. Ship broker A company, which matches ships and cargoes. It holds market knowledge and industry contacts, which enable it to find cargo for 'free' vessels and vessels for 'open' cargoes. It does so on behalf of ship-owners and charterers and earns a fee for its service National governments , Trade blocs and IMO and other organisations also play a big role*

10. How does competition in industrial shipping differ from commodity shipping?

Commodity Shipping · Fragmented industry · No scale in fleet · Homogenous service · Little direct customer contact (brokers) · Liquid sale-purchase market o dry bulk shipping o crude oil tankers o product tanker · Small fleet size may give them some advantages: o Organizational agility and fast decision making (important for segments with very high market volatility) o Some companies frequently scale up or down their fleet (dry bulk shipping companies with asset play strategies) · They can achieve EoS by outsourcing of technical management o Dry bulk ship-owners withs mall fleets can achieve EoS on fleet level through outsourcing of technical ship-management to third party professional technical ship managers, who operate large fleets on behalf of several ship owners · Reduced opportunities for service differentiation · Strong focus on price competition · Emergence of sport market · Emergence of liquid second hand market Industrial Shipping · Concentrated industry · Scale effect in fleet · Specialized service · Difficult sale-purchase market · Tailor-made customer service · High competition - low costs are also important, but companies also compete on the quality of their services. They aim for providing unique value propositions (service quality) to cargo-owners/shippers · Companies care about market share to grow their market cost · Typically develop a long term relationship with customers (car-companies) and offer unique services

68. Please characterise shipping segments according to potential for service differentiation

Container Shipping: High Potential for Differentiation: Container shipping offers a high potential for service differentiation. Companies can provide various value-added services, including advanced tracking and monitoring, schedule reliability, specialized equipment for different cargo types, and integrated logistics solutions to meet customer needs. Liner Shipping: High Potential for Differentiation: Liner shipping, which includes scheduled services for containerized cargo, can differentiate through schedule reliability, transit times, port coverage, container tracking, and integrated logistics solutions. Customer service and support can also be a key differentiator. Dry Bulk Shipping: Moderate Potential for Differentiation: Dry bulk shipping involves the transportation of homogeneous cargoes like grains, ore, and coal. Differentiation is primarily based on cargo quality preservation, efficiency of cargo handling, and the quality of bulk carriers. While there is some potential for differentiation, it is more limited compared to other segments. Liquid Bulk (Tanker) Shipping: Moderate Potential for Differentiation: Tanker shipping can offer differentiation through a focus on safety, compliance with environmental regulations, and cargo quality preservation. Companies specializing in chemicals or liquefied natural gas (LNG) transportation can provide specialized solutions. Specialized Shipping: High Potential for Differentiation: Specialized shipping segments, such as those for reefers (refrigerated cargo), LNG, chemicals, and project cargo, offer extensive opportunities for differentiation. Companies in these segments can focus on cargo-specific handling, specialized equipment, safety protocols, and environmental compliance. Industrial Shipping (Breakbulk and Project Cargo): High Potential for Differentiation: Industrial shipping involves the transportation of irregular, oversized, or project cargo. Differentiation comes from expertise in handling unique cargo, specialized equipment, project management capabilities, and tailoring services to the specific needs of customers.

2. How to design a container shipping liner network?

Container liner service design · Trade route analysis: supply profile, demand profile and market profile · Liner service design: number/size of vessel, frequency and speed · Port selection: possible port calls, port substitutability, port efficiencies (TEUs per hour) and port selection · The task of a liner market is to sort out a route network which cost-effectively meets the changing needs of the shippers in the coastal regions. · When designing a liner network, there are three categories which need to be considered. · Strategic considerations o Trade volumes and rates. § Is the size of the market such, that a reasonable share can be taken without repercussions from active parties? (Can your company, fit in the market?"). Can the market be entered or left without generating sunk costs? (money that cannot be recovered). § Port selection and infrastructure. Infrastructure of the ports directly influence the type of vessels to be deployed. For example, berth length, draught, and shore crane availablity. § Geophysical and nautical restrictions. Ice and storms need to be taken into consideration as potential delay causers. · Tactical considerations o Market potential. What is the size and growth of the given market? Characteristics of the cargo and possible seasonal swings in volume/demand. § Do inbound flows match with outbound ones? Are there differences in container sizes and types for import and export flows? § Who are the established players and what is their cost effectiveness? Analyze competition and identify their possible weak points. o Level and stability of the rates. Are rates volatile in this route? Can premiums be charged on this market? § Preferred market share as entrant and possible repercussions. What happens when we enter this market? · Operational considerations o Should you outsource logistic to a third party? (3PL) Should you purchase your own ship or charter one

94. What type of covenants are often used in shipping finance?

Covenants are the terms and conditions with which the borrower has to comply in order to obtain the loan. · Types of covenants: a. Affirmative and Negative covenants · a clause in a loan contract that requires a borrower to perform specific actions · include requirements to maintain adequate levels of insurance · compliance with applicable laws, etc · A violation of an affirmative covenant ordinarily results in outright default. · Negative covenants are put in place to make borrowers refrain from certain actions that could result in the deterioration of their credit standing and ability to repay existing debt - restrict or forbit something from happening (issuing dividends to shareholders) b. Financial covenants · Often monitored closely over time · evaluate operating performance to ensure the overall health of the entity c. Insurance covenants · a promise by one party to obtain insurance expressly or implicitly for the benefit of the other contracting party d. Operational covenants · an agreement by the shipowner/company to continuously operate its vessel for a set number of months or years and for a designated number of hours and days each week

81. What is the difference between deep-sea shipping and short-sea shipping?

Deep-sea shipping and airfreight · For high-volume inter-regional cargoes deep-sea shipping is the only economic transport between the continental landmasses · Traffic is heavy on the routes between major industrial regions of Asia, Europe and North America · Competes with the liner services for premium cargo - electronic goods, processed textiles, fresh fruit, vegetables, automotive spare parts · Its contribution has been to widen the range of freight transport by offering the option of very fast but high-cost transport. Short-sea shipping · provides transport within regions · distributes the cargo delivered to regional centers such as Hong Kong or Rotterdam by deep-sea vessels · provides a port-to-port service, often in direct competition with land-based transport (rail) · smaller ships; small tankers, bulk carriers, ferries, container-ships, gas tankers and vehicle carriers · cargoes include grain, fertilizer, coal, lumber, steel, clay, aggregates, containers, wheeled vehicles, and passengers. · requires a knowledge of the precise capabilities of the ships involved, and the a flexibility to arrange the disposition of vessels so that customers' requirements are met in an efficient and economic way · cabotage - the practice by which countries enact laws reserving coastal trade to ships of their national fleet

48. How to forecast freight markets?

Different types of forecasting · it is important to choose which kind of forecast to do since decision-makers have different timescale and have varies needs. · Even if the forecast turns out to be wrong in the end it gives the decision-makers value and a better understanding of the decision they're making. 1. Market report · is a written survey which is designed to provide the client with enough information to form his own views about what might happen in the future. · It contains questions like how does the business work now? · And what might happen in the future (future trends and risks? It would also involve some statistical analysis and forecast tables but not necessarily with an integrated model 2. Forecasting models · this is an approach to model a segment of the maritime business mathematically. · It is a sensitivity analysis based on changes in key assumptions. · Several companies offer forecasting models of the world shipping market and shipping companies sometimes develop their own sector models fx oil trade, dry bulk trade or the shipbuilding market. 3. Scenario analysis · it takes a different approach · Instead of looking at preconceived scenarios it focuses on identifying critical issues the decision-maker might face in the future · Then works backwards to analyze the forces which lie behind each issue, evolving a scenario. Examples: · A ship-owner forecasting spot rates next three weeks to determine whether time or voyage charters are preferable for their vessel at the moment. · A charter forecasting time charter rates within the next half year to decide whether to enter into time charters now or to wait.

72. What is demand elasticity?

Elasticity determines if price will drastically affect quantity demanded. If it is elastic, price will drastically affect quantity demanded. If it is inelastic, price will not significantly affect quantity demanded. Elastic goods include luxury items and certain food and beverages as changes in their prices affect demand. Inelastic goods may include items such as tobacco and prescription drugs as demand often remains constant despite price changes. % change in quantity / % change in price where x > 1 = elastic where x < 1 = inelastic

96. What is the difference between financing a ship purchase through equity and a loan?

Financing Ships with Bank Loans · Bank loans are the most important source of ship finance. · They provide borrowers with quick and flexible access to capital while leaving them with full ownership of the business Mortgage backed loans (Relies on the ship for security, usually for smaller companies with less cash) Corporate bank loans · For large shipping companies, borrowing against individual ships is inconvenient because any change in the fleet involves a time-consuming loan transaction · Advantages: o company does not give up ownership o lender does not have control over business, once loan is paid back the relationship is over o big amount · Disadvantages: o Banks basis their decision on credit rating, potential growth of the market and the state of the market Private placement of debt and equity · instead of borrowing from a bank it may be possible to arrange a private placement of debt or equity directly with financial institutions such as pension funds, insurance companies or leasing companies · Advantages: o no obligation to repay the money o no additional financial burden · Disadvantages: o have to give a certain percentage of your business o have to share a certain percentage of your profit

51. What are the roles of flag states and port states, respectively?

Flag State · Flag state is when the ships are registered in that country and the ship carries the flag. · Each member (=flag state) from the IMO who is the administration of a port state has to install Port State officers, who inspect the ship according the international legislation and not according the national legislation. o an inspector from the flag state Hong Kong will inspect a ship which is in Singapore according the legislation of Hong Kong. · Every merchant ship needs to be registered to a state of its choice. · The ship is then bound to carry the flag of that state and also follow the rules and regulations enforced by the same. · About 73% of ships sail under a flag of convenience, and the top three flag states are Panama, Liberia and the Marshall Islands. Port State · Port State is any state with an international port. o A ship registered in Hong Kong and is in the port of Singapore o Hong Kong is the flag state and Singapore is the Port State · A port state is a nation that allows Port State Control (PSC) at its ports. · The PSC is responsible for inspecting ships that dock in their harbour to ensure they are up to international codes. · Port State Control Officers can check any ship at their port, regardless of whether they fly the flag for their dock country.

9. What are the four shipping markets and how do they relate to each other?

Freight market, sale and purchase market, newbuilding market and demoltion market. All linked by cash flow and push the market traders in the direction they want. e.g. Shipowners may put in ship orders when prices are low and sell through the sale market when prices are high, in inter periods ships are often chartered out, before being sold for scraps when their value becomes low. OVERVIEW OF MARKETS: -The Freight Market 1. The Freight market sets the tone for the other three markets 2. extremely volatile and exhibits cycles 3. Timing is crucial for a ship owner's business success 4. Has charterers, ship brokers, owners, operators, ship managers and cargo owners all in one happy family -The second hand market: · How can the second hand market affect the freight market? -If price of second hand ship to high, buyers will prefer to contract new ships instead - Delivery of new ships increases supply and depreciates freight rates The Newbuilding Market · Newbuilding prices depend on supply and demand in the shipbuilding market, labour costs and shipyard subsidies, exchange rates · How do freight and newbuilding markets relate? -The shipbuilding market moves quite slow compared to the freight market -The building of ships can take years -There is a high level of government intervention in shipbuilding The Demolition Market -Why and when should a ship owner recycle a ship? -When the freight market outlook is so depressed that he/she does not expect that the ship will never return profit again -When the vessel is significantly less efficient or fit for purpose than competing ship in the market - High recycling prices, can't match environmental regulations etc etc

8. How do shipping companies make money?

Freight rates: The flat rate cost that companies charge to transport goods from A to B Chartering: Leasing vessels to other companies through charter agreements, either on: -time-charter (Fixed daily or monthly where owner takes operational risks) -voyage charter (Freight rates per unit of cargo transported where shipowner pays all costs apart from cargo handling) -bareboat charter agreement (Ship owner finances the vessel and receives a charter payment to cover incurred costs) Asset Sales: Selling some old rusty boat (for secondhand market or recycling), shipping containers (can also be leased)

55. What determines the demand for tanker shipping?

Generally speaking demand is driven by supply, but here are the main points: Oil and Gas Production: The level of crude oil and natural gas production. Energy Consumption: The global demand for energy, particularly in large economies. Crude Oil Imports and Exports: The need for oil imports in oil-dependent nations and the volume of oil exports from producers. Refining Capacity: The capacity of refineries to process crude oil into petroleum products. Geopolitical Factors: Events, conflicts, and sanctions that disrupt oil trade routes. Economic Growth: The state of the economy, affecting oil consumption. Price of Oil: International oil prices and their impact on production and trade. Strategic Reserves: Countries maintaining strategic petroleum reserves. Weather and Seasonality: Seasonal variations and weather disruptions in shipping routes. Trade Agreements and Policies: International trade agreements and government policies influencing oil trade.

71. What are the characteristics of demand in shipping?

· Demand in shipping is influenced by: o World economy § The most important influence on demand § The world economy generates most of the demand for sea transport § World industrial production creates most of the demand for commodities traded by sea o Seaborn commodity trades o Average haul o Random shocks § upset the stability of the economic system § e.g. weather changes, wars, new resources, commodity price changes § Differ from cycles due to uniqueness - severe impact on the shipping market o Transport costs § Raw materials will only be transported from distant sources if the cost of the shipping operation can be reduced to an acceptable level § Improved efficiency, bigger ships, more effective organization of the shipping operation = steady reduction in transport costs, higher quality of service

52. What determines the environmental protection standards of shipping?

IMO: · responsible for measures to improve the safety and security of international shipping and to prevent pollution from ships · focused on trying to ensure that adopted conventions are properly implemented by signatory countries · SOLAS (International Convention for the Safety of Life at Sea) o Concerns the safety of merchant ships. o SOLAS regulations specify minimum standards for the construction, equipment and operation of ships. · International Convention on Load Lines o Limits the draught to which a ship may be loaded, taking into account the potential hazards present in different zones and different seasons for the crew's safety. o Conventional on the International Regulations for Preventing Collisions at Sea o States the rules for navigating and preventing collisions at sea (vessel conduct, signals, etc.) · International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW) o Establishes basic requirements for training and certifying seafarers. · International Convention for the Prevention of Pollution from Ships (MARPOL) o Concerns prevention of pollution of the marine environment by ships · MLC - Maritime Labour Convention o protect the seafarers' rights. o governments, shipowners, and ship operators must provide the latter with decent working and living conditions. way to create fair competition on the market. Sub-Committee Pollution Prevention and Response (PPR) Prevention and control of pollution of the marine environment (including air pollution) -evaluation of safety and pollution hazards of liquid substances -control and management of harmful aquatic organisms in -pollution preparedness -response and cooperation for oil

97. Briefly outline the main phases of the shipbuilding process

IN ORDER: 1. Contract signing; Contract with a ship-owners includes the type of vessel, date of delivery, price, etc. 2. Design; A pol experiences naval architects design the vessel 3. Steel Plate Storage in Warehouse; Store the steel plates and sort them 4. Cutting steel; Cut in accordance to the design and make the block 5. Assembling block; Assemble block in the dock and make the body of the vessel 6. Installing engine; Install the engine manufactured in the engine shop 7. Erecting accommodation; Assemble the accommodation on the ground and erect onto the ship 8. Vessel building; Outfitting is done inside the vessel while the body of the vessel assembled 9. Launching; The vessel is pulled out of the dock by filling water into the dock 10. Christening; Name the vessel hoping for safe sail 11. Delivery; The vessel will be delivered after performance tests at sea

45. How is shipping regulated?

ISM - International Safety Management Code - requires shipping companies to have a licence to operate. Companies and their ships must undergo regular audits to ensure that a safety management system is in place, including adequate procedures and lines of communication between ships and their managers ashore The IMO - International Maritime Organization · specialized agency of the United Nations · responsible for measures to improve the safety and security of international shipping and to prevent pollution from ships · focused on trying to ensure that adopted conventions are properly implemented by signatory countries SOLAS (International Convention for the Safety of Life at Sea) · Concerns the safety of merchant ships. · SOLAS regulations specify minimum standards for the construction, equipment and operation of ships. International Convention on Load Lines · Limits the draught to which a ship may be loaded, taking into account the potential hazards present in different zones and different seasons for the crew's safety. Conventional on the International Regulations for Preventing Collisions at Sea · States the rules for navigating and preventing collisions at sea (vessel conduct, signals, etc.) International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW) · Establishes basic requirements for training and certifying seafarers. International Convention for the Prevention of Pollution from Ships (MARPOL) · Concerns prevention of pollution of the marine environment by ships MLC - Maritime Labour Convention · protect the seafarers' rights. · governments, shipowners, and ship operators must provide the latter with decent working and living conditions. way to create fair competition on the market.

62. What characterises specialised and industrial shipping?

Industrialized shipping · Concentrated industry · Scale effect in fleet · Specialized service · Difficult sale-purchase market Specialized shipping · Local monopolies · Regional market · Limited scale effect on fleet · Specialized market · You must differentiate yourself from competitors to do well in the industry - specializing services: Chemical parcel tankers - specialized liquid cargoes (chemicals, vegetable oils, oil products) Gas tankers - liquefied gases at very low temperatures, particularly LNG, LPG, and chemical gases such as ammonia and ethylene which must be liquefied for transport. Refrigerated ships (Reefers) - perishable commodities including frozen meat, fruit, vegetables and dairy products Unit load vessels - large general cargo units which cannot travel by container, including forest products, cars and heavy lift items Passenger vessels - carry people for transport or pleasure

87. What are the advantages of intermodal transport?

Intermodal transport is the transport of goods in a single unit or vehicle using two or more means of transport to move the load from its origin to its destination where it is not handled when moved from one vehicle to another. Advantages: · ensuring faster and more efficient transshipment · prevents loss, theft, damage · door-to door transport · flexibility, punctuality · lower costs - an exporter who does not require an entire container can resort to intermodal transport thanks to how it allows the combination of full-load and groupage regimes. -Agile logistics operations. Using loading units reduces the handling of goods, involves less labour, simplifies the transfer from one means to another, and reduces loading and unloading times. -Load monitoring and risk reduction. As the goods are not separated, they can be very easily located even when changing from one vehicle to another. And because the cargo units are sealed, the cabin also is not opened until it reaches its destination, making accidents such as breakage, loss or theft very rare.

3. Which forces shape competition in bulk shipping?

PORTERS FIVE FORCES WOOOO -Threat of new entrants: The extent to which new competitors may decide to enter the industry and reduce the level of profits being earned by incumbent firms. Newcomers do not enjoy supply-side economies of scale/a cost advantage (the incumbents do not have lower costs than new firms) It is easy to get into the dry bulk shipping industry as there are multiple ships from a second-hand market available and enter the dry bulk market. Further knowledge, money and network within this industry is needed. If you have network, you do not need to buy the ships, you can charter the ships on a time-charter for a duration. The prediction of the freight market is important. Newcomers do not enjoy demand-side benefits of scale (In the buyers' eyes the desirability of the service does not depend on the number of users) -The bargaining power of buyers The extent to which buyers can affect the industry e.g. to force down prices, bargain for higher-quality or play competitors against each other. Bargaining have a high bargaining power when: · There are only a few buyers, who buy large volumes · The products or services in question are standardized/undifferentiated Buyers face · Low switching costs in changing vendors · Buyers can (threaten too) integrate backwards · Buyers are price sensitive -The bargaining power of suppliers Extent to which suppliers can exert power over participants in the industry by raising prices or reducing quality of goods and services. The power of suppliers (Shipyards) is high when: · Suppliers are more concentrated than the industry it sells to · Suppliers do not depends on the industry for its revenue · It is difficult for buyers to switch suppliers (face supplier switching costs) · Buyers cannot play suppliers out against each other · The power of shipyards depends on the shipping cycle: -Threat of substitute products and services The threat from products and services which can meet similar needs ( transporting via plane, train and trucks rather than maritime shipping) In general threat of substitution is low. -Competitive rivalry Extent of competition and the overall profitability of the organisations within the industry. Competitors are numerous and roughly the s

56. What are the sources of competitiveness in container shipping?

Porters 5 Forces is the main answer, here are other important factors: Operational Efficiency: Streamlined logistics processes, efficient cargo handling, and quick turnaround times. Vessel Fleet: Modern, well-maintained vessels with varying sizes to cater to diverse customer needs. Network Connectivity: Extensive global networks connecting a wide range of destinations and offering end-to-end logistics solutions. Technological Advancements: Use of advanced technologies for route optimization, operational efficiency, and customer service enhancement. Customer Service and Support: High-quality customer service, reliable scheduling, and efficient problem resolution. Environmental Responsibility: Adoption of green technologies and adherence to environmental standards to attract environmentally conscious customers and promote sustainability.

34. Discuss the effects of regulation on competition in international shipping

Positive Effects: 1. Safety and Environmental Standards: Regulations ensure that all shipping companies adhere to minimum safety and environmental standards. This creates a level playing field, as all companies must meet these requirements, enhancing safety and environmental performance across the industry. 2. Consumer and Cargo Owner Protection: Regulations that govern issues such as liability and compensation for passengers or cargo owners can foster confidence in the industry, encouraging more people and businesses to use shipping services. 3. Fair Competition: Regulations can prevent unfair practices, such as price fixing or market manipulation, that might harm competition. This ensures that all companies have an equal opportunity to compete. 4. Infrastructure and Efficiency: Regulatory bodies may invest in infrastructure and navigational aids, which can benefit all companies. Efficient ports, waterways, and terminals can reduce costs and improve overall competitiveness. 5. Standardization: Regulations often promote the standardization of procedures and technologies. This can lead to cost reductions and greater efficiency for all industry players. Negative Effects: 1. Compliance Costs: Meeting regulatory requirements can be expensive, especially for smaller shipping companies, increasing their operational costs 2. Barriers to Entry: Stringent regulations, particularly related to safety and environmental standards, can discourage new entrants from joining the market, reducing competition. 3. Overregulation: Excessive or complex regulations may create bureaucracy and administrative overhead, reducing the efficiency and competitiveness of shipping companies. 4. Emission Control Costs: Regulations targeting emissions can raise operational expenses, impacting the competitiveness of companies that need to invest in greener technologies. 5. Regulatory Arbitrage: Companies may exploit regulatory differences by registering vessels in countries with more lenient regulations, creating an uneven competitive landscape.

61. What happens if shipping companies lose money?

· Depending on the market cycle, shipping companies can sell their assets to the demolition or second-hand market · Reduce costs - Voyage costs can be reduced by investing in modern tonnage with the latest fuel-efficient machinery or by reducing the design speed - Firing staff and crew (layoffs) · Increasing and squeezing as much revenue out of what you have o Spot market § Spot earnings have to cover operating and fuel costs - for any given spot rate the old ship generates less cash than the new ship o Long-time charter · Try to differentiate the service that the company offers and find alternative uses for ageing vessels as demand declines - cruising, hotel, accommodation, etc.

25. Why have open and secondary ship registers emerged?

Reasons for choosing a register: · Tax, company law and financial law o is subject to the country whose flag they are using commercial laws. They determine tax and can also have regulations for company organization, auditing of accounts, employment of staff and limitation of liability · Compliance with maritime safety conventions o the ship is subject to the safety regulations of the country whose flag they are registered under. Some states are under the IMO regulations (safety of life at sea), which have some standards which the ships would have to enforce (like safe navigation, safety and life saving equipment, rules for carriage of dangerous goods). · Crewing and terms of employment o some flag states have regulations on the selection of crew (some insist on employing nationals), terms of employment and working conditions · Naval protection and political acceptability o by being under a flag you benefit from their protection Secondary register (international register for shipping): · International registers were set up by some national flag administrations to offer their national shipowning companies an alternative to registering under open registries. They treat the shipping company in broadly the same way as an open register, generally charging a fixed tax on the tonnage of the ship (tonnage tax) rather than taxing corporate profits. The aim is to provide a national flag environment which offers shipowners the commercial advantages available under an open register. In 2005 there were eight international registers, of which Singapore, Norwegian International Registry, Hong Kong, Marshall Islands and the Isle of Man were the biggest. - Enables shipping companies to employ foreign seafarers at local salaries. - Used to prevent a total loss of national fleets stopping reversing out-flagging · Open registers (flags of convenience) offer shipowners a commercial alternative to registering under their national flag, and they charge a fee for this service. The terms and conditions depend on the policy of the country concerned. The success of an open register depends on attracting international shipowners and gaining the acceptance of the regulatory authorities. In 2005 there were 12 open registries, the main on

73. What are economies of scale?

Reductions in unit cost resulting or attributed from/to increased size of operations. Michelle's definition: Output (in shipping the output is the movement of cargo over a distance between two specified points and two specified points in time). As we increase the scale of production, the output increases but the cost per unit of output goes down. As we increase the size of the output, the cost per unit decreases. Overhead costs do not increase proportionally with firm size · Head quarter functions (e.g. number of offshore employees per dwt.) · IT costs (e.g. IT costs per vessel) · Information costs (price for market knowledge, transaction costs) = % Change in Cost / % Change in output

91. What is relay traffic?

Relay traffic in shipping refers to the practice of transferring cargo between multiple vessels during a single voyage, often in a hub-and-spoke manner at key transshipment ports. This optimizes vessel capacity, reduces costs, and allows for efficient distribution of goods to various destinations using a network of interconnected vessels. A relay network is an integration of multiple mainline services to enhance service coverage with the minimum ports of call. · Form of a liner shipping network structure · Came into practice for optimizing service coverage · shipping lines can maintain the minimum number of ports of call without limiting service coverage · Absence of feeder segment (in comparison to hub and spoke) - the shipping line's expectations of hub ports in relay networks could differ · relay network cannot be used independently in many cases without counting on feeder lines due to the capacity limitations of minor ports.

99. What is SOLAS and why is it important?

SOLAS, 'Safety of Life at Sea' is an international maritime treaty (Solas Convention) which establishes the least safety measures in the construction, equipment and operation of merchant ships. · the SOLAS Convention applies to cargo ships of 500 gross tonnage or more and passenger ships on international voyages · The first version of SOLAS was accepted in 1914 due to the sinking of the RMS Titanic. It outlined various safety measures onboard vessels, including numbers of lifeboats and other emergency equipment. - Also has regulations for the storage of cargo, dangerous goods on board

92. What is vertical integration in container shipping?

STREAMLINING Vertical integration in the shipping industry involves a company owning or controlling various stages of the supply chain, from ship ownership and operation to logistics, terminal handling, and even retail distribution. This strategy aims to optimize efficiency, reduce costs, and enhance control over the entire transportation process, allowing a company to provide end-to-end solutions to customers and gain a competitive advantage. Upstream VI: When a company owns/directly controls upstream processes to shipping service provision Operations that occur before your firm; activities performed by the suppliers and the raw material used by your company e.g., shipbuilding, crewing. Downstream VI: When a company owns processes that are downstream to ocean transportation e.g., terminal handling, hinterland transport, logistics. Vertical Integration Disadvantages and risks: Different business structure and characteristics: capital intensive VS virtual capital Traditionally liner shipping has been more concerned with cost control (homogenous product) while logistics adds a necessary extra customer dimension Less flexibility - difficult to reverse You may end up losing money on your investment Fewer economies of scale

17. How does regulation affect competition in shipping?

Shipowners find that regulation often conflicts with their ROI, in the sense that some regulations put them at an unfair competitive advantage. However, contrary to land, the shipping industry has more opportunities to bypass the regulation and gain economic advantage. The goal of regulatory bodies is to close the net and ensure that companies operate within the same standards of safety and environmental responsibility which applies on land. Main examples of increased costs from regulations: Safety & security, operational standards, tariffs and taxation, environmental protection and waste dumping standards. Examples of regulations & their influences: o SOLAS § Increase cost of labour § Trainings § Documentation o MARPOL § Sulphur content 0,5% - to comply either Scrubber, switch to LNG engine or use high-quality bunker - they all cause massive costs (Scrubber, LNG) or increase costs dramatically (bunker) § Ballastwater Convention - extra documentation and training costs (deployment only in special zones and same is documented closely, costs to upgrade your ballast water treatment system § Hong Kong Convention (regulations for sip recycling) § energy efficiency design index (EEDI) - Extra costs for new buildings § ship energy efficiency management plan (SEEMP) - complying causes extra costs for training

4. How and why do the liquid and dry bulk shipping markets differ?

The primary difference between these bulk methods is that liquid bulk transportation uses a whole vessel while dry bulk uses the hold of a ship for transportation. Crude oil and oil products require different types of handling terminals. Carriage of crude oil: Uses very large tankers loading and discharge terminals are generally found in deep-water locations with draft of up to 22 m. Storage tanks on land are linked by pipeline to the piers where tankers are berthed Cargo is loaded by pumping oil from the storage tanks to the ship using the terminal's own pumping capacity More difficult to join the liquid market - more specialized investment as it is more dangerous and needs more care AUSTRALIAN IRON OREE Handled using single-purpose terminals The grab unloader is used: iron ore, coal, bauxite, alumina and phosphate rock. Other commodities handled by smaller mobile grabbing cranes: raw sugar, bulk fertilizers, petroleum coke and various varieties of bean and nut kernels.

44. How have developments within shipping affected the growth of the world economy?

Shipping connects the world and enables trade between countries. All countries have comparative advantages, and trade to exploit these. 1. Differences in manufacturing costs 2. Differences in natural resources 3. Temporary imbalances · Ability for on time, fast and container liner shipping networks enable inter-dependence of global economies, now you can buy a Walmart T shirt made by child labour for just $5 - GLOBALISATION Around 80% of world trade in goods is carried by the international shipping industry and EU shipping companies are large players in this global industry. · Shipping and the world economy are dependent on each other, if one grows the other one will also benefit. · Rich countries with high GDP usually also have a higher level of imports: 1. Larger economy = greater needs for raw materials shipped by sea (Ex, China, USA, Germany) 2. Mature economies with plenty of resources will use them up eventually 3. A country with high GDP can afford to purchase imports and has more to export in return · Provides employment for a lot of people in all parts of the supply chain. The supply doesn't change that much but the real factor is that demand can change very quickly

1. What is the relationship between shipping and globalization and how is it changing?

Shipping is closely intertwined with globalization as it serves as a critical enabler of global trade. Ships transport goods and raw materials across international waters, facilitating the exchange of products between countries and continents. The relationship between shipping and globalization is evolving in several ways: -Technological advancements: modern containerization and efficient logistics systems have accelerated the globalization process by making it easier and more cost effective to transport goods worldwide. -Supply chain integration: Shipping plays a crucial role in integrated supply chains, allowing for just-in-time inventory and efficient production methods that are integral to global business operations (Think Maersk and inter modality) -Economic shifts: As emerging economies like Vietnam continue to grow, there is an increasing demand for shipping services to connect production centers with consumer markets -Environmental concerns: The shipping industry is under pressure to reduce its environmental footprint, with a growing focus on sustainability, fuel efficiency and emission reduction

67. What are the causes for volatility in the spot and time charter markets?

Spot Market · Spot pricing is based primarily on whether there is an excess or shortage of capacity at any given moment, and that capacity changes daily · major economic shifts as witnessed with the 2020 boom of e-commerce and import demand, or by natural disasters and weather events, which create unexpected and dramatic rate fluctuations that ripple throughout the carrier network · traded more frequently and more frequently than other contracts Time charter market · Port congestion is critical because ships will be queuing at ports, which technically reduces the active fleet · Vessel´s history, lifespan, right star rating, specifications, trading history · Fleet Growth (Measures year-on-year percentage changes in the size of the fleet) · Fleet Development (FLEETD). Measures the size of fleet in dead-weight tonnes

39. Explain the freight rate mechanism.

Supply and Demand functions · Supply curve; provided the market is perfectly competitive, the shipowner maximizes profit by operating the ship at the speed at which marginal cost equals to the freight rate · The relationship between speed and freight rates defining the shape of the supply curve · The optimum speed depends on the freight rates, price of fuel, the efficiency of the ship, the length of the voyage · The fleet supply function; works by moving ships in and out of service in response to freight rates · old ships generally have higher operating costs so the lay-up point will occur at a higher freight rate · bigger ships have lower transport costs per ton of cargo than small ships · The demand function; how charterers adjust to changes in price · The supply and demand curves intersect at the equilibrium price = buyers and sellers have found a mutually acceptable price · market, prices are a blend of the present and the future expectations, the short run and the long · price at which buyers and sellers are prepared to trade depends on how much time they have to adjust their positions 1. Momentary Equilibrium · describes the freight rate negotiated for 'prompt' ships and cargoes. 2. The Short-run · more time for owners and charterers to respond to price changes by moving ships in and out of lay-up 3. The Long-run · the size of the fleet can be adjusted by ordering new ships and scrapping old ones · balances supply and demand through the three other markets; sale and purchase market, the newbuilding market, demolition market · As freight rates fall during recession, the profitability of ships and their second-hand value falls - ships are scrapped, removing them permanently from the market and reducing the surplus · Shipowners tend to base investment on the current state of the market - they order more ships when freight rates are high and fewer when freight rates are low · It takes 2-3 years for new orders to be delivered, 2-3 years for scrapping to catch up, and 2-3 years for the market to build up a head of steam for the next round of ordering

95. What is loan syndication?

Syndication is a method whereby a number of banks get together and each enters into contractual relationship directly with the borrower. · the process of involving a group of lenders that fund various portions of a loan for a single borrower - takes place by splitting large loans into small packages that can be distributed out to other banks · occurs when a borrower requires an amount that is too large for a single lender or when the loan is outside the scope of a lender's risk exposure levels · Allows banks and lenders to mitigate their risk in case of default on the loan

93. What is a liner shipping conference?

THINK CARTELS A liner shipping conference is a collaborative agreement among multiple shipping companies that jointly manage and set rates for specific trade routes to stabilize competition and pricing within the container shipping industry. · They were originally intended to provide stability to the liner trade and allow shippers looking to transport freight to have a reliable and predictable service, as the lines agreed together, on the basis of historic demand, the capacity to be offered and the conference rate which should apply. Considered price fixing, which is illegal. · Conferences have now been replaced with alliances, which are also cooperative agreements between carriers. They mainly try to regulate competition through shipping lines allocating vessels and making slots available to alliance members on their respective ships. · Common features of liner conferences: o Uniform tariff rates, terms and conditions o Control of supply of shipping space through regulation of trade participation of each member such as sailings, tonnages and port restrictions o Loyalty arrangements with shippers such as contractual discounts, deferred rebated and service contracts

37. Compare cargo owners in dry bulk and tanker shipping.

Tanker shipping · Business to business environment · Cargo owners are oil majors - National and International oil companies (e.g. Unipec, Petrobras, Shell, Total), large refiners and trading houses · Can be crude oil, oil products, chemicals, liquid gases, and specialist cargoes · Often only one type of cargo on vessel to avoid cross-contamination · More dangerous and harder to clean from the vessel Dry Bulk shipping · Cargo owners are dry bulk owners such as: iron ore, grain, coal, etc. · Special bulk vessels distinguished by hulls designed for the carriage of specific cargoes such as gas, iron ore, forest products and cement · Traded in large quantities · physical character which makes it easy to handle and transport in bulk · Generally carried in bulk carriers = 'bulk cargo' · If shipped in a container = 'general cargo' · Easy to dispatch

36. Compare cargo owners in tanker and container shipping.

Tanker shipping · Business to business environment · Cargo owners are oil majors - National and International oil companies (e.g. Unipec, Petrobras, Shell, Total), large refiners and trading houses · Can be crude oil, oil products, chemicals, liquid gases, and specialist cargoes · Often only one type of cargo on vessel to avoid cross-contamination · More dangerous and harder to clean from the vessel · Oil majors own tankers to ensure shipping service during booming freight markets. · However, oil majors have increasingly outsources ship-owning to independent ship-owners. · Today, the vast majority of tankers are owned by independent ship-owners. But oil majors still exercise considerable power over ship-owners. · Sometimes oil majors own a shipping company. They would do this to secure that no oil spills would happen and for the ships to be specialized for their needs. If they choose to get the sea transport from an outside business, they so a lot of quality control of the ships to make sure an oil spill wouldn't happen. Container Shipping · Containers are either owned by a shipping line, container leasing company, or by the shipper · Cargo is owned by any company who needs their goods to be shipped from one destination to another · Can be steel mills, paper and pulp manufacturers, etc. · Utilization; standard packaging into boxes of standard units · dry bulk - mostly high value products · Containers offer reliability, are sealed and prevent from damage or theft · organized by logistics companies or any other business (Apple, etc.) · Shipping companies offer ships to more than just one cargo holder - thus many companies can have cargo on the vessel

98. What is MARPOL and why is it important?

The International Convention for the Prevention of Pollution from Ships/MARPOL is the main international convention dealing with issues relating to the marine environment and preserving it from pollution from ships · It gives standards for stowing, handling, shipping and transferring toxic waste and pollutant cargoes. · The main purpose of the convention is to eliminate intentional marine environment pollution through hydrocarbons and other toxic substances and to reduce the accidental discharge of such substances · it lays down rules regarding the disposal of ship-generated hazardous waste like cleaning agents and cargo hold washing water. · It ensures that the marine environment is preserved by the elimination of pollution by all harmful substances discharged from the ship.

59. Why does the duration of charters vary?

The duration of charters in the shipping industry can vary widely and depends on several factors, reflecting the flexibility and specific needs of the parties involved. a. Voyage charter · Used in the voyage-charter market, the specialist bulk market, liner trades · One time shipment · If the freight rate is high and you do not want to lock with a time-charter, you can use a voyage charter in the meanwhile instead · Freight rate is paid per unit of cargo transported b. Time charter · specified as a fixed daily or monthly payment for the hire of the vessel · Under this arrangement, the owner still takes the operational risk, since if the ship breaks down he does not get paid c. Bare boat charter · a financial arrangement in which the charter hire only covers the financing cost of the ship · The owner finances the vessel and receives a charter payment to cover expenses

31. What is value and how does it help explaining why cargo moves?

Value, in the context of cargo movement and logistics, refers to the worth or economic significance of goods being transported from one location to another. Understanding the value of cargo is crucial in explaining why it moves, as it directly influences the motivations and decisions of various stakeholders in the supply chain. Here's how value helps explain why cargo moves: Market Demand: Cargo moves because there's a demand for valuable goods at their destination. Economic Exchange: Businesses transport cargo to engage in economic transactions and benefit from the exchange of valuable products. Cost-Benefit Analysis: Cargo moves when the potential profit exceeds transportation costs. Seasonal Variations: Value of certain cargoes changes seasonally, impacting when they are transported. Perishable Goods: Fast transportation is crucial for highly perishable, valuable goods to maintain their worth. Just-in-Time Inventory: Cargo moves in line with production or sales needs and working capital considerations. Global Markets: Cargo moves across long distances to reach consumers seeking specific products with unique values. Market Trends: Evolving consumer preferences and market trends influence cargo movement patterns based on product value

24. Should a shipping company outsource technical management to a third party?

What do technical ship-managers do? Technical operations of ships Maintenance of ships Crewing Newbuilding supervision Which benefits do third party technical managers offer to shipowners? May reduce costs Leverage economies of scale and may have lower transaction costs: Access to cheaper crews, higher bargaining power vis-à-vis suppliers, crews, shipyards, ship chandlers etc. Easy to benchmark of individual vessel costs in large fleet Provide organizational flexibility: Easier for owners to quickly up or down scale fleets (avoiding complex and time-consuming HRM tasks associated with layoffs or hirings) Easy entry into new segments with help of technical managers (without major recruitment work) Enable ship-owners to focus on core competencies: By reducing complexity in shipping company organization Ship-owners without technical management capacity (such as banks) Advantages: · Specialization o some companies are good at one thing, and put all their energy into this. Therefore, they outsource the rest instead of having to focus on something they're not good at. For example, outsourcing your technical management and focus on the commercial side. · Cost reduction -access to cheaper spareparts, higher bargaining power vis-a-vis suppliers, shipyards etc. -Benchmarking of vessels -Organizational flexibility -easier for owners to quickly up or down scale fleets. Easy entry into new segments with help of technical managers (without major recruitment work) Disadvantages: · Would oil majors accept third party technical ship-managers? (they want to be sure no accidents happen that would lead to oil spills due to their reputation) · If everything isn't specified in the contract they might use more fuel, since they might have no incentives to save · Ship-shore communication could suffer

57. When, where and why are ships scrapped?

When are ships scrapped? At the end of their lifecycle, when costs become too high, environmental regulation or they become inefficient Where are ships scrapped? shipbreaking occurs in low-wage countries in Asia where shipbreakers have a local market for their product and cheap labour to dismantle the ships - Bangladesh, Pakistan, India Industry gravitates towards countries with low labour costs Ship demolition takes place at the most basic level. Ships are driven on to the beach where an army of workers dismantle them Much of the scrap material is moved manually, with the assistance of king-post trucks, blocks and pulleys, but the more profitable plots have now moved into mechanization and are using fork-lift trucks and mobile hydraulic cranes Western Europe does now carry shipbreaking as much due to high labour costs, the lack of a ready market for recycled material, health and safety legislation and environmental protection The IMO is currently developing a convention providing global ship recycling regulations for international shipping. Why are ships scrapped? Ship-breaking allows the materials from the ship, especially steel, to be recycled and made into new products This lowers the demand for mined iron ore and reduces energy use in the steel making process. Ships provide very high-quality steel scrap (tankers) Sometimes the scrap is heated and remade into reinforcing rods for sale to the construction industry A large portion of the costs can be recovered through sale of the scrap steel, equipment and engines, generators etc.

58. Why are freight rates so volatile?

· Demand and supply drive the freight rates o Reduced global manufacturing reduces the demand and reduces the shipping rates o Unexpected alterations to the route will most likely hike the shipping rates o Lack of container ships result in higher neglected demands and hence increased costs o The more desirable or essential a product is, the more demanded it becomes - the demand for space aboard vessels increases · Driven by business cycles in the world economy o economic shocks, misjudgements by shipowners, shipyard overcapacity, and sentiment o Shipping cycles are irregular; aren't driven by a single economic model - produced by the interaction of five separate models o Shipping is about sea transport, and the main purpose of the shipping cycle is to adjust the fleet to changes in the volume and composition of world seaborn trade · Fuel prices o Represent 50-60% of the ship's total operating costs o When oil prices increase, so does freight rate · Global exchange rates o For weaker currency countries, imports and exports become more expensive o stronger domestic currencies are able to increase their international shipping activities to benefit from cheaper rates

50. What are the main types of tanker shipping?

a. Crude oil tankers · Largest fleet of specialist bulk vessels · Subdivided into: § Small tankers § Handy - mainly used for oil products, crude oil § Panamax § Aframax § Suezmax § VLCC · Each of these segments operates as a separate market and has its own specific requirements · rely on shore-based facilities for loading · Cargo pumps for discharge · Cargo tanks coated with tar-free epoxy b. Product tankers · Similar to crude oil tankers but smaller · Divided into: § Clean product tankers - carry light products (naphtha, gasoline) § Dirty product tankers - carry black oils (fuel oil) · Tank coating to prevent cargo contamination and reduce corrosion c. Chemical tankers · Chemical parcel tankers, chemical bulk tankers, chemical/product tankers · Many different types of chemicals are shipped, including products such as vegetable oils, lube oils, molasses, caustic soda, BTX, styrene and a whole range of specialist chemicals · products transported are sensitive to cargo contamination · Some chemicals are subject to the IMO regulations on the transport of hazardous cargoes · Some chemicals are corrosive and require special cargo handling and tank characteristics · Heating coils, tank coating, special valve operating gear, safety systems · chemical tankers tend to load and discharge at several ports, and often different berths within the port · Separate cargo-handling systems - enabling flexibility d. Combined tankers · Niche markets · Oil/Bulk/Ore carriers ('OBO's) designed to carry a full cargo of dry bulk or crude oil · Difficult to clean the cargo holds when switching between oil and dry cargo · Difficult to charter e. Gas tankers · Transporting liquid gas by sea presents many complexities; the number of different cargo systems which are currently in use · Containment system: o Use 'self-supporting' tank system o 'membrane' system - able to cope with extreme temperature changes o 'prismatic system' - hybrid · Gas is liquefied onshore prior to loading · Ways to keep it in liquid form during transport: o By pressure o By insulating the tanks o Reliquefying any gas f. Liquid Petroleum gas tankers (LPG tankers) gas tankers carry a mix of petroleum gases such as propane, butane and isobutene and chemical gases

33. Explain the cost structure in relation to ownership and operation of ships.

· 3 key variables which shipowners have to work are: 1. the revenue received from chartering/operating the ship 2. the cost of running the ship 3. the method of financing the business · Revenue is received from trading the ship - revenue can be increased with increasing cargo capacity, increased productivity by operational planning, reducing backhauls, minimizing time off hire, improved deadweight tonnage utilization and cutting cargo-handling time · Costs which are deducted (running costs) include: operating, voyage and cargo- handling costs, while capital repayments cover interest and periodic maintenance of the ship · Further taxes are withdrawn - the residual is paid out in dividends or retained within the business · The choice of ship influences the running cost - day-to-day cash costs are higher for old ships with ageing machinery requiring constant maintenance; a rusty hull requiring regular steel replacement; and high fuel consumption. · Modern vessels with fewer crew, more reliable fuel-efficient machinery and negligible maintenance cost less to run.

66. Why are spot market freight rates so volatile?

· Supply and demand, are the largest driver of spot market freight rates. · Some market conditions are foreseeable - think rate increases during produce and peak holiday seasons. · Others are unforeseeable, as witnessed in the wake of COVID-19 with sudden shifts in consumer habits and demand for imported goods. · major economic shifts as witnessed with the 2020 boom of e-commerce and import demand, or by natural disasters and weather events, which create unexpected and dramatic rate fluctuations that ripple throughout the carrier network · traded more frequently and more frequently than other contracts

23. How are shipping companies organized?

· A shipping company is a kind of firm which is involve in courier services, shipping of various products and logistics services · a lot of documentation, communication and coordination involved in running such a company - thus in need of involvement of various department and employees · hierarchical structure according to jobs and responsibilities 1. Top Level Executives - Top Management · Individuals who are responsible for running the organization, looking after the operations · Make sire the finances and accounts are handled well · Chairman, board of directors, general manager, owner, etc. 2. The various departments · The IT o Team of workers who handle the technical aspect of the business o Fleet manager, technical staff, repair men, auto maintenance · Finance and accounting o Take care of the balance sheets and financial aspects of the company · Legal and insurance 3. Sub-departments · Operations department o Responsible for ensuring that all operations in shipping take place smoothly · Among the biggest companies are the national shipping companies such as: o China Ocean Shipping Company (COSCO) o China Shipping Group o The Indian government o MISC · Then there are large corporates such as: o The Japanese trading houses Mitsui OSK, NYK, K-Line o The Korean shipping groups · Independent companies: o Maersk, Teekay, Ofer Group Join Ventures and Pools: · Shipping pool - a fleet of similar vessel types with different owners, in the care of a central administration · The pool manager markets the vessels as a single fleet and collects the earning which after deducting overheads, are distributed to pool members under a pre-arranged 'weighting' system reflecting each ship's revenue-gathering characteristics

69. Do freight rates in different shipping markets correlate?

· Are different markets correlated? o Yes, markets are often correlated to some extent since they're all subject to the global economic fluctuations. However, some markets are more strongly correlated. Some markets may also have a negative correlation (crude oil tankers vs. Dry bulk carriers for coal because coal is a substitute for oil) o All freight markets reflect the global economic development (high GDP growth translates into high demand for shipping) o Combination carriers are capable of shifting between dry bulk and tanker market (but generally combination carriers have lost popularity) o Conversions of existing tonnage fx from crude oil tanker to bulk carrier o Conversion of tonnage on order (change of new-building specifications during construction phase) · Alternative employment: this is when a ship changes its primary job to another market. For instance, a crude oil tanker converted into a floating production, storage and offloading unit

19. Can shipping companies gain competitive advantages from green investments?

· Considering the gradual expansion of the International Maritime Organization (IMO) environmental regulations, eco-friendly vessels are recognized as a new competitive advantage because of both fines, and incentives. · Companies adopting a proactive approach and anticipating regulatory requirements are better placed to retain a competitive advantage over peers, as environmental requirements will continue to represent their biggest operating challenge for the next decade which can account for the largest portion of operating costs in the shipping industry. · Customers are more interested in 'sustainability' and the environment · Green investments provide a competitive advantage for those who invest int them · bunker costs could lower by either being more energy efficient and fuel saving measures. · Society's expectations -> compliance regulations which are regulations on reducing air emissions. The regulations could be command and control measures like the EEDI. They could also be market-based measures where you leverage the market mechanism to reduce air emissions (like bunker tax), which would not be possible today, since it doesn't actually address the root of the problem. o Investments (Share price, Attractive for investors) o Being able to recruit staff that cares about the environment o Being able to reduce fuel consumption · Brand image & Reputation

83. What are the effects of containerisation on transport costs?

· Containerization has drastically brought down the transport cost element in the pricing of goods · Further transport costs are required for dockside cranes and other terminal equipment · Containerization does not just save transport cost, but it has an impact on packaging costs and cargo-handling costs as well. · Increased capacity per vessel reduced the cost per TEU, so shipping lines strove over the last few decades to enlarge their vessels · Speed o With bigger and more powerful cargo ships and modern container handling equipment, transhipment times have reduced drastically. Loading and unloading are faster these days, at ports as well as at modern warehouses. · Economies of scale o The cost of transporting goods by containers is said to be 20 to 25 times less than the cost of transporting the same goods as loose bulk or LCL. Containerization has drastically brought down the transport cost element in the pricing of goods. o Economies of scale is a major factor here. In general, economies of scale is the advantage companies get as a result of producing or dealing in bulk · Flexibility o Containers can transport a very large variety of goods ranging from food grains or food products to machinery. Out of gauge cargo can be easily transported on flatbeds or platform containers. Cargoes that are of abnormal sizes and shapes that do not fit into the normal containers are called OOG cargo.

27. Discuss factors that influence the duration of the shipping cycle

· Cycles fluctuate up and down Shipping cycles have a Darwinian purpose: they create an environment in which weak shipping companies are forced out, leaving the strong to survive and prosper, fostering a lean and efficient shipping business. · the build-up of a cycle is triggered by the world business cycle or random events such as wars which create a shortage of ships. · Each cycle is different · Cycles are irregular - driven by an undercurrent of economic fundamentals of supply and demand which determines the 'market tone' at any point in time a. Prosperity - rapidly growing demand coincided with a shortage of shipbuilding capacity b. Competitiveness - competitive activity characterized by growing trade and shipbuilding capacity that expanded fast enough to keep up with demand. c. Weakness - growing demand was damped by overcapacity in the shipbuilding market. d. Depression - falling trade coincided with shipbuilding overcapacity. · Cycles are not cyclical and are never the same · There are economic shocks, they generally produce major changes of trend, and extreme changes in shipping demand. Wars, political crisis, and sudden changes in the economics of some major commodity such as oil have all contributed to major shifts in the demand for sea transport a. Demand strengthens b. Charter rates increase c. Second-Hand value increases d. New building more viable e. New building Boom f. Overcapacity g. Charter rates decrease h. Second-Hand value decreases i. Newbuilding stops j. Scrapping increases k. Supply and demand Ration decreases AND REPEAT

47. What are the challenges that ship-owners face in relation to new building contracting?

· Fluctuation of freight rates in the shipping industry · Volatility of the shipping cycle · The duration of receiving a new ship · Insolvency of the shipyard · Refund guarantee · Disputes between the buyer and contractor · Under the law, the buyer must inspect the vessel within a reasonable time after the contractor has indicated that the vessel is ready for delivery · Negotiations: o Often Broker in between, consider existing relationships with the shipyard and expert resources to handle the negotiation § can be verry time-consuming o One common procedure is to invite tenders from a selection of suitable yards - the tender documentation is often very extensive, setting out a precise specification for the ship · 2 problems to overcome: o The capital cost of a new ship is generally too high relative to its likely spot market earnings to be financed from cashflow. Unless a time charter is available, arranging security can be difficult, especially if a one-ship company structure is used. o the finance is needed before the ship is built, so there is a period before delivery when part of the loan is drawn but the hull is not available as collateral · Pre-delivery finance; shipyards require their customers to make 'stage payments' to the shipyard to pay for the material and labour required to build the ship · Involves a down payment to the builder for the purchase of materials on signing the contract · Patter of stage payments is negotiable · With no ship to act as collateral, additional security is needed, and this is generally covered by a 'refund guarantee' issued by the shipyard's bank · Pre-delivery finance is drawn on delivery of the vessel o Obtained from 3 sources: § Shipyard credit scheme § Commercial bank credit § Leasing

16. How to define and measure the quality of shipping?

· Generally, quality refers to reliability, efficiency and good performance and seeks to reach all stakeholders' satisfaction, as this is the major factor that defines the requirements on which the organization will focus on. · The implementation of a Quality Management System should be a strategic decision to define and measure quality. QMS include the following: 1. Level #1- Inspection · At this level inspections are taking place in order to ensure compliance to requirements. This level of quality management includes audits that aim to detect errors and faults in the management system. 2. Level #2 - Quality Control · At this level the correction of errors is followed by an additional investigation to find out the root causes of occurred incidents. 3. Level #3 - Quality Assurance · A company is at the quality level three or the "quality assurance level" when quality management has been adopted and demonstrated in written standards 4. Level Four - Total Quality · At this level, company's efforts to meet quality requirements are mainly about learning how to improve performance and provide high quality services not only by searching for errors to be corrected but especially by creating opportunities for improvement. · Companies can prove their quality by acquiring certifications to prove the quality of the service · White, Grey, and Black flag countries - measured by their minimum safety standards - Black Flag below IMO standards very cheap but you won't fix a vessel under black flag since your clients and the end-consumer care about the quality of shipment · Background checks - on recent voyages - especially if you haven't worked together before (Bulk Shipping = pay in time, quality of the operational side, communication between charterer and owner especially) · RightShip rating - database of information on the vessel o Based on this information, RightShip provides a 1- to 5-star rating, which indicates whether the vessel is acceptable for the voyage or requires further review · Triple-E rating - is a voluntary environmental rating scheme for ships that provides a rating from 4 to 1 (where 1 is the highest), based on independent verification of a ship's environmental performance

28. Discuss technological improvements in shipping.

· Hyperloop Transport System: o Hyperloop, an idea conceptualized by Elon Musk, is a transport system that is designed to carry people or cargo from one destination to another via a tube at a speed more than 700 mph. Smart Ships o Ships are set to become smart, tech-savvy, and autonomous Blockchain Technology: o It is being explored by various industries to manage, transfer, and store data in a safe and secure manner. Shipping is also among the industries exploring technology to add efficiency to processes and integrate the supply chain from start to end. The system based on blockchain technology will make it easy to transfer data and track cargo in real-time till it reaches the final destination. · Artificial Intelligence - Digital Cargo And Bay Arrangement Optimization o ensure that goods with an urgent requirement are given priority over other items and are loaded onto the container vessels reaching the destination at the earliest o In addition, by having goods properly distributed between the hundreds of vessels passing through a port, terminal traffic and congestion can be reduced o empty space can be reduced below 15 - 20 % · Digital Route Management of Ships o Real-time route management can play a major role in improving the journey duration and efficiency - ocean conditions can vary drastically over the matter of a few hours, it is important that real-time data is available for ship operators to use. · Smart Manoeuvring Control / Autonomous Control o Integrating smart technology (e.g. AI) - Integrating machine learning into the manoeuvring systems would enable vessels to stay accurately on course without requiring constant input from the helmsman or captain. This reduces the chances of human error, and allows real-time route information to be implemented immediately. o To be able to safely berth without colliding, smart ship technology can be used to aid the captain in navigating the vessel · Smart Propulsion System o smart technology was also developed to provide a greater degree of control to the captain of the ship. This enabled the pitch, angle, rack, and speed to be controlled to exceedingly high tolerance values. o With a higher degree of control comes a higher risk of damage to equipment or

42. Explain the different sources of risks for shipping companies

· Interest rates o The changes in interest rates - may reduce the market value of a bond you hold o May reduce the value of other fixed-rate investments o Minimize loans · Cyber risk · Operational risk o Compliance with all mandatory regulations on a nautical and technical level (ISPS, Marpol, MLC, SMS, Solas etc.) o Insurance (Hull & Machinery, Protection and Indemnity, Special Insurances) · Exchange rates o a company's operations and profitability may be affected by changes in the exchange rates between currencies · Investments o If investment timing is not right o Volatility of market o Cost of investing into newbuildings in comparison to second-hand ships · Legal and Policy risk · Freight rates o Volatile earnings caused by freight volatility o Volatility is higher for large vessel than for small more flexible vessels o Spot rates are more volatile than time charter rates o Diversify fleet - Smaller and more flexible ships as it is less volatile · Bunker prices o Risk management for bunker price risks are choosing time charters or bare boat charters since the charterer then will being the one paying the bunker prices o Forward bunker agreement § A contract on future fuel price certain delivery location at an agreed price · Commodity prices o Unexpected increase in commodity prices o Inflation, weather, war, political unrest, etc. can increase commodity prices · Accidents · Political events o E.g. war Russia and Ukraine · Asset-price risk o the volatility in second-hand values

49. What are the main characteristics of dry bulk shipping?

· The foundation of bulk shipping are economies of scale · Dry bulk consists of mostly unprocessed materials that are destined to be used in the global manufacturing and production process. Dry bulk shipping characteristics: Ø Uniform or homogenous material Ø A wide number of cargoes Ø Loaded directly into the cargo spaces Ø Shipped unpackaged Ø Traded in large quantities Ø Physical character which makes it easy to handle Ø Generally carried in bulk carriers = 'bulk cargo' Ø If shipped in a container = 'general cargo' Other main factors: 1. Volume 2. Handling and stowage 3. Cargo value 4. Regularity of the trade flow

26. Describe the main risks facing ship-owners.

· Interest rates o The changes in interest rates - may reduce the market value of a bond you hold o May reduce the value of other fixed-rate investments o Minimize loans · Cyber risk · Operational risk o Compliance with all mandatory regulations on a nautical and technical level (ISPS, Marpol, MLC, SMS, Solas etc.) o Insurance (Hull & Machinery, Protection and Indemnity, Special Insurances) · Exchange rates o a company's operations and profitability may be affected by changes in the exchange rates between currencies · Investments o Volatility of market o Cost of investing into newbuildings in comparison to second-hand ships · Legal and Policy risk · Freight rates o Volatile earnings caused by freight volatility o The ship-owner does not know what the future freight rate will be and is concerned about his future earnings o The cargo owner does not know what the future prices of transporting cargo will be in the future and is concerned about this o FFA - Freight Forward Agreement (Protect both parties from swinging freight rates) · Bunker prices o Risk management for bunker price risks are choosing time charters or bare boat charters since the charterer then will being the one paying the bunker prices o Forward bunker agreement · Commodity prices o Unexpected increase in commodity prices o Inflation, weather, war, political unrest, etc. can increase commodity prices · Accidents · Political events o E.g. war Russia and Ukraine · Asset-price risk o the volatility in second-hand values

65. How do environmental issues affect shipping?

· Marine pollution · Oil spills · Underwater noise · Ballast water o Discharges by ships can have a negative impact on the marine environment o ships discharge wastewater or unload cargo, and discharged at the next port of call, wherever more cargo is loaded o Ballast water discharge typically contains a variety of biological materials, including plants, animals, viruses, and bacteria o Ballast water discharge typically contains a variety of biological materials, including plants, animals, viruses, and bacteria · Climate change o Icebergs o Seasonality changes · Shipping industry is a major source of global pollution Sub-Committee Pollution Prevention and Response (PPR) Prevention and control of pollution of the marine environment (including air pollution) recycling of ships evaluation of safety and pollution hazards of liquid substances in bulk transported by ships

75. What the main cost elements in container shipping?

· Ocean Freight costs cover the cost of movement of the cargo while it is on the water. o Freight costs are charged per container whether 20' or 40' and the cost is calculated from loading at a port till discharging at the other. o Each carrier or shipping line charges their own freight for the same route and these costs are depending on the operating costs of the carrier such as ship operation, container costs, operating costs and more. · Bunker Adjustment Factor (BAF) relates to the cost of the bunker or in other words, the fuel for the ships. o Various shipping lines use various methods of calculating the BAF which in the past used to be a percentage value of the freight, but in recent times is being charged on a per 20' or 40' basis. o Depending on the oil price the BAF fluctuates. · ISPS is the abbreviation for International Ship and Port Facility Security Code (ISPS) and this is charged by the shipping line for the monitoring and protection of the ports and harbors post 9/11. · Low Sulphur Surcharge also relates to bunker but as part of the green initiative and to reduce carbon emissions, a lot of the ships use fuel which has low Sulphur content which is more expensive than the normal bunker fuel and therefore this charge is implemented. · Currency Adjustment Factor (CAF) relates to the cost charged by the shipping line to cover against the exchange losses they may experience when converting costs and revenues from various currencies into US Dollar which is the main trading currency globally. o For example, freight maybe quoted in EUR but the shipping lines costs are in USD. · Terminal Handling Charge (THC) is charged by both the load port and discharge port and that is charged by the port for loading and discharging the cargo from the ship. The shipping line or their agent, in turn, will bill these charges to the shipper/consignee. · Wharfage is also a port charge which is levied by the port directly to the cargo interest for the usage of their facilities and space. · Cartage is the charge for the movement of cargo by road say from the port to the consignee's warehouse or vice versa. · Chassis Usage Surcharge is the surcharge charged by the line for the usage of the chassis for the above-mention

35. How do random shocks affect shipping markets?

· Random shocks which upset the stability of the economic system may contribute to the cyclical process · Weather changes, wars, new resources, commodity price changes, are all candidates. · These differ from cycles because they are unique, often precipitated by some particular event, and their impact on the shipping market is often very severe · These are specific economic disturbances which are superimposed on business cycles, often with dramatic effects. · political events such as a localized war, a revolution, the political nationalization of foreign assets or strikes can disrupt trade · The impact of random shocks on ship demand: a random shock would be an event that changes the stability of the economic system. These differ from the cycle since they're unique and often set off by a particular event. Examples are weather changes, wars, new resources or commodity price changes. · The impact of random shocks on ship demand: a random shock would be an event that changes the stability of the economic system. These differ from the cycle since they're unique and often set off by a particular event. Examples are weather changes, wars, new resources or commodity price changes.

29. Discuss different phases of the shipping cycle.

· Shipping cycles last 7-8 years, sometimes less and sometimes more · Cycles are irregular - driven by an undercurrent of economic fundamentals of supply and demand which determines the 'market tone' at any point in time a. Prosperity - rapidly growing demand coincided with a shortage of shipbuilding capacity b. Competitiveness - competitive activity characterized by growing trade and shipbuilding capacity that expanded fast enough to keep up with demand. c. Weakness - growing demand was damped by overcapacity in the shipbuilding market. d. Depression - falling trade coincided with shipbuilding overcapacity. 1. Demand strengthens 2. Charter rates increase 3. Second-Hand value increases 4. New building more viable 5. New building Boom 6. Overcapacity 7. Charter rates decrease 8. Second-Hand value decreases 9. Newbuilding stops 10. Scrapping increases 11. Supply and demand Ration decreases Note: There are long term cycles (Driven by economic and/or technological changes) and short-term ( Short periodic changes and rapid changes e.g. Ever Given getting stuck in Suez Canal)

46. Why is shipping regulated?

· Shipping is one of the most heavy regulated industries · The purpose of this regulation it to prevent some stakeholders from cutting corners to the detriment of others · Regulations concerning shipping are developed at the international level · Because shipping is inherently international, it is vital that shipping is subject to uniform regulations on matters such as ship construction standards, ship navigational rules and standards of crew competence, etc · Without the international regulation of shipping, there would have been conflicting national regulations resulting in commercial distortion and administrative confusion which would compromise the efficiency of world trade as it was before international the various international regulations or conventions were put in place · Regulations in the global maritime sector are meant to enable smooth cooperation between all market payers worldwide, but also to respond to numerous challenges: -minimize CO2 emissions -cutting costs and increased interdependence

18. How are ships and shipping companies financed?

· The main methods of raising ship finance include private funds, bank loans, the capital markets, special purpose companies SPCs o Private funds include cash generated by the business, which is important during booms, and loans or equity from friends, relatives or venture capitalists o Bank loans are a major source of finance for shipowners and shipping companies; § mortgage loans secured against the ship § corporate loans secured against the company balance sheet § Shipyard credit § Mezzanine finance o Capital markets can provide shipping companies with equity through an initial public offering (IPO) of shares or debt by issuing bonds Examples of bank loans for buying ships: A. Mortgage Backed Loans o A mortgage-backed loan relies on the ship for security, allowing banks to lend to one-ship companies which would not otherwise be creditworthy for the large loans required to finance merchant ships B. Corporate bank loans o Large companies with well-established financial structures often prefer to borrow as a company, using their corporate balance sheet as collateral C. Capital markets o In capital intensive industries large companies use the capital markets to raise finance either by making a public offering of shares or by issuing bonds

63. Why does the shipbuilding market fluctuate?

· The market mechanism uses the volatility to balance the supply and demand for ships, whilst at the same time drawing in new low-cost shipbuilders and driving out high-cost capacity · Basic instability is reinforced due to 2 characteristics of the shipbuilding market: 1. New ships aren't delivered until several years later after they are ordered = investors do not know whether they will need them or not 2. As a result, ordering often peaks at the top of a cycle, but by the time the ships are delivered the business cycle is already driving demand down and the flood of new ships increases the surplus and prolongs the downturn. · Prices swing violently upwards or downwards depending upon the number of shipyards competing for a given volume of orders - Freight rates · if there are more potential orders than berths, the price rises until some investors drop out · if there are more berths than orders, prices fall until new buyers are tempted into the market

14. How, why and by whom is international shipping regulated?

· The shipping industry is regulated by the International Maritime Organization (IMO) based United Nations agency responsible for the safety of life at sea and protection of the maritime environment o adopted a comprehensive framework of detailed technical regulations o international diplomatic conventions which govern the safety of ships and protection of the marine environment o National governments, which form the membership of IMO, are required to implement and enforce these international rules, and ensure that the ships which are registered under their national flags comply. o The principal responsibility for enforcing IMO regulations concerning ship safety and environmental protection rests with the flag states (i.e. the countries in which merchant ships are registered - which may be different to the country in which they are owned). o Flag states enforce IMO requirements through inspections of ships conducted by a network of international surveyors - classification societies o However, flag state enforcement is supplemented by what is known as Port State Control, whereby officials in any country which a ship may visit can inspect foreign flag ships to ensure that they comply with international requirements. o Port State Control officers have the power to detain foreign ships in port if they do not conform to international standards. · shipping is inherently international, it is vital that shipping is subject to uniform regulations on matters such as construction standards, navigational rules and standards of crew competence.

41. How are freight rates determined?

· The supply of sea transport is influenced by freight rates · Subject to some competition · Fluctuates in accordance with market pressure · Sometimes such rates are determined by conferences · The freight rate depends on the final destination, the accountable weight of the shipment and the mode of transport selected · Freight rates are determined by several factors: o Freight density o Stowability o Classification o Handling o Liability o Mode of transportation o Distance o Points of pickup and delivery o Fluctuating fuel cost o Ship capacity o Extra charges for special cargo · In the longer term, freight rates contribute to the investment decisions which result in scrapping and ordering of ships · When the demand increases, so does freight rate, however, the supply stays low

74. What are the characteristics of supply in shipping?

· The supply of ships is affected by four parties, namely: o Shipowners o shippers or charterers o bankers o various regulatory authorities · Shipowners are the primary decision-makers, ordering new ships, scrapping old ones and deciding when to lay up tonnage. · affected by: o world merchant fleet § In the long run, scrapping and deliveries determine the rate of the fleet growth § Supply adjusts when ship demand does not turn out as expected § Fleet is fixed in size - the productivity with which the sips are used adds an element of flexibility o the fleet productivity o the shipbuilding production § Shipbuilding output comprises an enormous range of merchant cargo and service vessels § Orders must be placed on the basis of an estimate of future demand o scrapping and losses · The rate of growth of the merchant fleet depends on the balance between deliveries of new ships and deletions from the fleet in the form of ships scrapped or lost at sea · scrapping depends on the balance of a number of factors that can interact in many different ways: 1. Age 2. Technical obsolescence 3. Scarp prices 4. Current earnings o the freight revenue · The supply of sea transport is influenced by freight rates

30. Explain how container lines can reduce costs.

· Tools to reduce costs as a liner company can be network optimization, fleet optimization and alliance formation. Let's look at them one by one: · Network optimization. Routing and scheduling lines is crucial. Which ports to visit - and in which order? · Economies of scale; costs are reduced with more cargo and shared resources (big ships, ports, networks, etc.) · Frequency of liners and speed and size of the vessels are also important · Utilization of the back haul · Typical aims of liner network design: When planning a voyage, make sure to fill up as much as possible on the way back to minimize the money lost on the backhaul. · Minimize total costs of operating network (Capital cost, Fuel costs, Port costs) o Maximize revenue earned (profit maximization) o Service considerations (Minimize transit time and inventory costs, Provide acceptable frequency) o Fleet optimization involves all kinds of issues related to the ship itself. · Alliances are useful, make slot sharing agreements in order to maximize vessel utilization. Grouping up with other companies can be beneficial in multiple ways. By working together and creating a larger network you can provide better services which are attractive to the shippers.