Economics of Shipping Practice and Management

BOOKS BY THE SAME AUTHOR:

(1981) Elements of Shipping. 5th edn. Chapman and Hall London. (1984) Elements of Export Marketing and Management. 1st edn.

Chapman and Hall London. (1984) Dictionary of Commercial Terms and Abbreviations.

1st edn. (6000 entries). Witherby and Co. London. (1985) Elements of Export Practice. 2nd edn. Chapman and Hall

London. (1986) Dictionary of Shipping/International Trade Terms and

Abbreviations. 3rd edn. (9000 entries). Witherby and Co. London.

(1986) Elements of Port Operation and Management. 1st edn. Chapman and Hall London.

(1988) Export, Import and Shipping Documentation. 1st edn. Chapman and Hall London.

(1988) Dictionary of Multilingual Shipping/International Trade/ Commercial Terms in English - French - German - Spanish 1st edn. (10000 entries). Witherby and Co. London.

Economics of Shipping Practice and Management

Second edition

Alan E. Branch F.C.I.T., F.I.Ex.

Shipping Executive, Lecturer, Chief Examiner Shipping and Export Practice, Shipping and Export Consultant

Chapman and Hall LONDON NEW YORK

First published in 1982 by Chapman and Hall Ltd

II New Fetter Lane, London EC4P 4EE Published in the USA by

Chapman and Hall 29 West 35th Street, New York, NY 10001 USA

© 1982, 1988, Alan E. Branch

This paperback edition is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, resold, hired out, or otherwise circulated without the publisher's

prior consent in any form of binding or cover other than that in which it is published and

without a similar condition including this condition being imposed on the subsequent

purchaser.

All rights reserved. No part of this book may be reprinted or reproduced, or utilized in any

form or by any electronic, mechanical or other means, now known or hereafter invented,

including photocopying and recording, or in any information storage and retrieval system,

without permission in writing from the publisher.

British Library Cataloguing in Publication Data

Branch, Alan E. Economics of shipping practice and

management. --2nded. 1. Shipping

I. Title 387.5 HE571

ISBN-13: 978-0-412-31030-0 e-ISBN-13: 978-94-009-1227-4

DOl: 10.1007/978-94-009-1227-4

Library of Congress Cataloging in Publication Data

Branch, Alan E. Economics of shipping practice and

management. Bibliography: p. Includes index. I. Shipping. I. Title

HE571. B669 1988 387' .0068 87-24233

To Jeremy and Linda

Contents

Preface to the second edition Xl

Acknowledgements Xlll

Diagrams xv

1 Services rendered by sea transport to international trade

Function of shipping and its relationship to international trade. Balance of trade and balance of payments. Relationship between world seaborne trade and world mercantile fleet. International trade in the 1990s. Provision of shipping services in the 1990s. Flagging out.

2 Economics of international trade 19 Function of international trade. Survey of international trade. Commodity trades. Flow of manufactured goods. Multinational companies. Freight forwarding. Major trading areas of the world. Preferential trading groups. International exchange rates. Currency options. London International Financial Futures Exchange (LlFFE).

3 Economics of ship design 43 Influence of cost, construction and safety factors. Ship design criteria. Economics of ship propulsion.

4 Ship investment criteria 57 Ship finance: crisis and remedy. Economics of new and second-hand tonnage. Methods of finance. Factors

V 111 Contents

determining investment criteria. Changes in ownership and financial structure of the vessel. Analysis of national mercantile fleet investment policy.

5 Economics of containerization 79 Development of containerization. Development of container fleets.

6 Roll on/roll off (Ro/Ro) vessels and their features 90 Factors influencing development of RoiRo. Development of RolRo market between UK and Europe. RolRo vessels.

7 Economics of ship operation 101 Economics of ship manning. Factors to consider in planning sailing schedules. Surveys and maintenance. Survey methods. Problems caused by fluctuations and imbalances in trade. Fleet planning. Speed, frequency, reliability, cost and quality of service. Port operation. Offshore transhipment of bulk cargoes.

8 The freight market 133 Tramp and liner freight rates. International road haulage freight rates. Maritime container rates. International train ferry rates. Inland waterway freight rates. Short sea and estuarial passenger trades. The constituents offreight rates. Factors influencing the level of freight rates. Piracy and maritime fraud.

9 Economics of chartering 146 The determination of fixture rates. The charterer's requirements. The Baltic Mercantile and Shipping Exchange. The Baltic International Freight Futures Exchange (BIFFEX). The Baltic and International Maritime Conference (BIMCO). Worldscale. Average freight rate assessments (AFRA).

10 Finance of international trade 170 Export and import prices. Payments on 'open account'. Bills of exchange. Documentary credits and allied

Contents IX

documents. Transferable credits. Back to back credits. Revolving credits. Red clause credits. Acceptance credits. Factoring. Bank finance for exports. Finance guaranteed by the ECGD. Less common forms of trade. Changing methods of payment. Forfeiting.

11 Counter-trade 186 Forms of counter-trade. Counter-trade markets.

12 Combined transport operation 192 Combined transport concept. Containerization. International road haulage. Piggy back operation. Train ferries. Inland waterways.

13 Ship management and marketing 202 The shipping company. Shipping company consortia. Ship management companies. Shipping company mergers and acquisitions. Staff appraisals. Planning. Revenue, expenditure and investment budgets. Traffic and economic forecasts. Marketing. Market pricing. Market analysis. Market structure. Market share. Market research. Market forecasting. Media plan.

14 Shipboard management 245 Essentials of shipboard management. Organization of shipboard management. Operation of shipboard management. Advantages of shipboard management.

15 Computerization 252 General areas of software application. Cargo selectioll. Balancing of cargo flows. Inland transport. Pro forma voyage control. Sensitivity analysis. Case study. Negative aspects of data processing. Cargo (Ro/ Ro) and passenger reservation systems. Types of available software program. Conclusion.

16 Role of British and international shipping organizations 270 Council of European and Japanese National Shipowners' Associations (CENSA). General Council of British Shipping (GCBS). International Maritime

x Contents

Organization (IMO). International Association of Independent Tanker Owners (INTERTANKO). International Cargo Handling Co-ordination Association (ICHCA).

17 Role of other national and international organizations 288 International Chamber of Commerce (ICC). International Labour Organisation (fLO). International Monetary Fund (1M F). Organisation for Economic Co-operation and Development (OECD). Organization of the Petroleum Exporting Countries (OPEC). Simplification of International Trade Procedures Board (SITPRO). United Nations Conference on Trade and Development (UNCTAD). United Nations Commission on International Trade Law (UNCITRAL).

18 Political factors 318 The international trade scene. Flag discrimination. Liner conferences. Flags of convenience. Subsidies. The future.

Appendix A Further recommended textbook reading. 341

Appendix B Addresses of organizations and institutes engaged in the fields of shipping and international trade. 342

Appendix C Ship diagrams 345

Index 353

Preface to the second edition

It is appropriate that the second edition of this established textbook­sold in over 150 countries and regarded by many as the standard work on the subject - should be published at a time of great change in the international shipping industry. This edition reflects such change. It also places considerable emphasis on the need for a professional approach in all areas of shipping practice and management in order to provide the high quality service required to sustain and expand international trade, and will help to establish that professionalism.

The book is ideal not only for students preparing for shipping examinations but also for persons employed in shipping companies, ashore and afloat. In short it is an aide-memo ire to those engaged in the industry throughout the world and is regarded by many as the shipping executive's handbook. Readers who wish to know more about the basic elements of the subject should also study the com­panion volume Elements of Shipping (fifth edition). In addition, the sea port operator or executive should study my recently published book Elements of Port Operation and Management.

The opportunity has been taken to widen the scope of the book. New chapters have been included on the economics of container­ization, computerization, roll on/roll off (Ro/Ro) vessels and their features, and counter-trade. In addition, a number of existing chapters have been expanded in the areas of marketing, budgets, political factors, ship finance, BIFFEX, ICHCA, IMO, GCBS, and shipping company mergers and acquisitions.

Such enrichment to the second edition should further its popular­ity in institutes, technical colleges and universities throughout the world. The book will be useful for students taking shipping, export, international trade and transport examinations at degree/diploma level and also under the aegis of the Institute of Chartered Ship­brokers, the Institute of Freight Forwarders. the Institute of Export , the Institute of Transport Administration, the Institute of Materials Handling and the Chartered Institute of Transport.

XI1 Preface to the second edition

The book is ideally suited not only for university and polytechnic courses in the United Kingdom, but also for courses offered in Hong Kong, Nigeria, Australia, Malaysia, Jamaica, the USA, the Middle East and third world countries. It will also assist students or shipping executives taking a short shipping course, or the 'Foundation Course in Overseas Trade'.

The subject is treated in a practical way, providing the reader with an overall understanding of the economics of shipping practice and the management of a competitive profitable shipping company. The increasingly important role of management is given more emphasis, especially in the area of budgets, finance, personnel and marketing. The book reflects the author's many years of experience in ship and port management and international trade both in the UK and over­seas.

I am greatly indebted to the various organizations listed in the acknowledgements for the assistance they have so enthusiastically given me. The fact that an increasing number are situated overseas is reflected in the international content and market of the book.

At my request Mr A. J. Rogan BSc, CEng, FRINA and Mr O. R. Norland FIB, a former director of Hambros Ltd, contributed to Chapter 3 on the economics of ship design, and Chapter 4 on ship investment criteria, respectively. Similarly Danish Seaways-DFDS contributed to Chapter 14 on shipboard management. I am most grateful to all for their significant additions to the book.

Finally I would particularly like to acknowledge with grateful thanks the generous secretarial help from Mr and Mrs Splarn, my friend Maurice Hicks with proof-reading; and as always my dear wife Kathleen for her forbearance, encouragement and help in this task, especially with proof-reading.

19 The Ridings, Emmer Green, Reading,

A.E.B. Senior Lecturer

Course Director - International Trade/Shipping Basingstoke Technical College

Berkshire RG4 8XL Worting Road

Basingstoke Hampshire November 1987

Acknowledgements

The author wishes to acknowledge the generous assistance provided by the foIIowing companies and institutions:

Baltic and International Maritime Conference Baltic Exchange Baltic International Freight Futures Exchange (BIFFEX) BarcJays Bank (International) PLC British Shipbuilders Ltd Bureau Veritas Council of European and Japanese National Shipowners' Associa­tions Danish Seaways (DFDS) Data-Ship Department of Trade and Industry General Council of British Shipping International Association of Independent Tanker Owners International Cargo Handling Co-ordination Association International Chamber of Commerce International Labour Office International Maritime Organization International Monetarv Fund LEP (Transport) " London International Financial Futures Exchange (UFFE) Midland Bank (International) PLC Nigerian National Shipping Line Ocean Shipping Consultants Organisation for Economic Co-operation and Development Organisation of the Petroleum Exporting Countries Overseas Containers Ltd (OCL) Sea Containers Ltd Simplification ofInternational Trade Procedures Board SiwerteII United Nations Commission on International Trade Law United Nations Conference on Trade and Development Walford Cargo Wallenius Lines Ltd Worldscale Association (London) Ltd

Diagrams

I Ro/Rovessel: PCTC 92 II Non-harmonized ship survey programme 121

III Harmonized ship survey programme 122 IV A liner company organization 203 V Marketing and sales plan of a liner shipping company 230

VI Media or campaign plan of a liner shipping company 243 VII Shipboard management -shore organization 247

VIII SD 14 Mark IV 15 000 dwt general cargo vessel 345 IX Freedom-type ship with 'tween deck accommodation 346 X Bulk carrier, 30 OOOdwt 346

XI Liquefied natural gas carrier 347 XII Oil tanker 348

XIII Containership 348 XIV Container vessel engaged in the UK - Mediterranean

- Middle East trade 349 XV Omni carrier - roll onlroll off -lift on/lift off

and side-loading vessel (combi carrier) 350 XVI Ro/Rovessel 351

The cover photograph shows the m/s Faust - a pure car/truck carrier. Reproduced by kind permission of Wallen ius Lines.