Shipping Market Organisation

Shipping, though one economic unit, has important subdivisions which are very
different in character. They are
1. Liner shipping
2. Bulk shipping
These two have different economic and commercial differences. Liner business
carries different cargoes, offers different services and has a different economic
structure from bulk shipping
It must also be accepted that the shipping market is a single unit because some
shipping lines are active in both markets and many ships are designed to operate in
several markets.

Liner and Tramp shipping

A liner service is a fleet of ships, with a common ownership or management, which
provides a fixed service, at regular intervals, between named ports, and offer
transport to any goods in the catchment area served by those ports and ready for
transit by their sailing dates.
A fixed itinerary, inclusion in a regular service, and the obligation to accept cargo
from all comers and to sail, whether filled or not, on the date fixed by a published
schedule, is what distinguish it from the tramp. The liner operator is a common
carrier whereas the tramp operator is a private carrier.
A common carrier holds himself out to take goods of anybody, provided he has room
in his conveyance, at standard, or at least reasonable rate
The private carrier on the other hand reserves the right to carry or not as he chooses
and to make a different bargain every time.
Liner ships and tramp ships are different types of ships, operated in different ways by
increasingly different forms of management. They carry different types of cargo
which are governed by a different pricing mechanism.

Liners should therefore have most of the following characteristics

a)
b)
c)
d)
e)
f)
g)

Cargo general
Ships- general(conventional, RoRo, container etc
Fixed schedules
Fixed routes
Fixed tariffs
Operator responsible for all cost
Contract- Bill of Lading

Liner shipping is for shippers with cargo of small quantity and high value. It is
estimated that more than half of the worlds total sea freight is earned from liner
shipping. Between liners and tramps there are marred differences which can be
grouped under the following:

OPERATIONAL FEATURES
It provides transport services with fixed schedules, fixed routes and in most cases
fixed pricing for services.
To provide such services efficiently, some shipping lines take care of terminal
activities so that they can always have access to it in order to keep to their fixed
schedules. They would also want to be in charge of inland container depots (ICDs)
and inland transport
In the tramp trade every voyage is separate. The ship moves at the availability of
cargo.
ORGANISATIONAL FEATURES
Liner companies are generally large and complex and well-structured. The company
needs several ships of similar specifications to be able to provide regular services.
Traffic services (Agencies) are always needed to ensure a regular supply of cargo.
For the liner operator this becomes a large labour intensive function involving
advertising and organising the thousands of items that make up a general cargo.
Liner shipping makes use of agency networks at all ports of call. They have high
overhead cost and they also need sophisticated information management systems
since ships have to sail on planned schedules whether or not cargo has been found
to fill the ship, bunkering and port charges become part of fixed costs.
The organisation is simple with small number of personnel as well as few vessels
due to the risk involved

CONTRACTUAL FEATURES
The transport contract is called a bill of lading. It is not only a transport contract but
also a cargo receipt and a document of title
As a transport contract the bill of lading defines the responsibilities and duties of the
shipper and carrier
As a receipt of cargo, the bill of lading carries the signature of the cargo recipient and
this is normally the shipmaster/shipowner. It also has a clear description of the cargo
concerned.
As a document of title, it can be transferred or change of ownership can be made
once the document has been endorsed
The tramp is a private carrier. Each contract is privately negotiated. The document
used is the charter party.

COMMERCIAL FEATURES
Pricing: one system is the use of commodity based tariffs. They made use of tariff
book, which has details of commodity classification. Another system makes use of
weight or measurement of the cargo as the bases for freight charges.
Tramp prices are negotiated by a broker

Economic Characteristics of Liner Services

Liner services offer two differences from bulk shipping
First, transporting many small parcels requires a larger and more complex
administrative overhead, and secondly, the obligation to sail to a timetable makes
capacity inflexible. Whereas tramp owners respond quickly to supply & demand
imbalances by moving their least efficient ships into layup, liner campanies must
stick with their schedules. If it takes six ships to run a weekly service, they must
operate six ships. Due to this capacity management has been a key feature in this
business.
In addition to the usual trade cycles which affect all shipping businesses, there are
several reasons why capacity management can be a problem
1. Seasonality occurs on many liner routes where cargo volume is higher at
some times of the year than others

2. Cargo imbalances occur when there is more trade in one direction than the
other, forcing ships to sail part loaded on one leg and virtually empty on the
other
3. Finally, indivisibility arises because the supply of capacity is not continuous
but a series of ship sized increments. This means that when trade is
growing new ships must be ordered in multiples dictated by the service
frequency with sufficient capacity to cater for future growth.
These problems do occur in the bulk market, but they are quickly resolved by market
forces as shipowners negotiate rates and move from trade to trade. Liner companies
lack this flexibility. With so many customers it is not practicable to negotiate a rate for
every cargo. This combination of fixed prices and inflexible capacity, leaves liner
companies with a pricing problem which has dominated the industry.

Characteristics of demand for liner services

Unlike the bulk shipping business where prices dominates the commercial equation,
in the liner business quality of service is often the focus of competition. In practice
there are six aspects of freight service which shippers consider to be important:

Freight cost- the charge from transporting the container from origin to
destination including additionals like surcharges
Frequency of sailing: sea transport is one stage of the overall production
process. Frequent sailings offer the manufacturer the opportunity to service
one-off orders rapidly and enables him to reduce the level of stock held at
each end of the transport operation
Transit time door to door: on long voyages, particularly for high value
products, speed of transit is of essence and therefore may be a major
consideration owing to the cost of inventory. In this context, air freight may be
a significant competitor, particularly where the shipping time of four weeks is
involved as in a Far East to Europe voyage.
Reliability of timekeeping: on deep sea routes the liner service is the
customers only direct link to his export market. Some customers are likely to
value reliability of service. In terms of the transport service adherence to fixed
day schedules and on time pickup and delivery are important
Reliability of administration: customers value prompt and accurate
administration. The ability to provide timely quotations, accurate invoices and
to resolve problems when they arise all play a part in customers evaluation of
the liner companys performance
Space availability: the ability of the vessel to accept cargo, even at short
notice; may be valued by businesses that are not able to plan their transport
requirements in advance

Stages in the shipping market cycle

Trough- characteristics
1. - There will be surplus of shipping capacity
- Ships queue up at loading points
- Vessels at sea slow steam to save fuel and delay arrival
2.
Freight rates fall to the operating cost of the least efficient ships in the fleet
which move into layup
3. sustained low freight rates and tight credit creates a negative net cashflow
which becomes progressively greater
- Shipping companies short of cash are forced to sell ships at distress
prices, since there are few buyers
- The price of old ships fall to scrap value, leading to an active demolition
market
Recovery
1. positive increase in freight rates above operating cost
- Fall in laid up tonnage
- As liquidity improves second prices rise and sentiment firms
Peak
-

Supply and demand are balanced

Freight rates are high, often 2 to 3 times operating costs
Only untradable ships are laid up
The fleet operate at full speed
Owners become very liquid
Banks are keen to lend
Public floatation of shipping businesses
Second hand prices move above book value
Prompt modern ships may sell for more than the new building price
Shipbuilding order book expands