Maritieme economie

3de Bach NW Samenvatting Maritieme economiep. 1/23

Introduction and historyIntroduction and history

Introduction

Sea transport and the global economy

Old industry History of continuous change

Role of sea trade in economic development

Shipping more efficient than land transport Earlier start of trade Increased productivity => need to access wider markets Westline Theory

o

o Centres of sea transport moving westwards


History

1700 BC: Babylon first super city 1000 – 333 BC: Tyre becomes main port; first Suez Canal? 375 BC: Mediterranean busier; ringed by major towns Roman empire: Romans control coasts of Mediterranean, Black Sea & southern

Britain; special grain ships; bill of lading 390 AD: Byzantine empire with Constantinople as centre of sea trade 1000: economy North Europe booms Hanseatic League = economic alliance of trading cities and their guilds

o Established & maintained trade monopolyo Coast of Northern Europe

15th century: 4 developed areas (China, Japan, India, Europe); few links 1433: Chinese emperor forbids building ocean-going ships => European seafarers

develop sea transportation system End 15th century: Europe discovers sea route to Asia; compass & astrolabe; Columbus

discovers America (1492); Vasco da Gama finds sea route to Indies (1497) Early modern period

o Trading triangle Europe -> Africa => manufacturers Africa -> America => slaves America -> Europe => sugar, rum, tobacco & cotton

o Antwerp Bruges silting up New maritime capital Financial centre 1585: Antwerp sacked by Spanish, Scheldt blocked by Dutch

o Amsterdam Shipbuilding & shipping at lower costs 1585: protestants from Antwerp -> Amsterdam East India Company (VOC) Ships with average 800 dwt

18th century: English & Dutch East India Company monopolies; Atlantic trade many small traders; roles trader & shipowner grew apart

19th century: Industrial revolution => steam engines, iron hulls, screw propellers, deep sea cable network; passenger liners; cargo liners with regular services; tramp shipping; immense growth; more efficient use of coal

o 1865: first successful transatlantic cableo 1869: opening Suez Canalo 1880: first reefero 1886: first tanker

1912: first diesel vessel 1914: few sailing ships in merchant service Today: very fast growing sea trade; special vessels; passenger liners => cruise ships;

containers; growing capacity of tankers


The organisation of the shipping marketThe organisation of the shipping market

Overview of the maritime industry

Vessel operations Shipbuilding Marine resources Marine fisheries Other Demand & supply

o


International transport industry

Zoneso Inter-regional: deep-sea & airfreight

Airfreight High value, high speed Growth 6% per year 111 billion ton miles in 2005 0,4% interregional transport

Deep-sea High volume interregional cargoes Growth 4,2% per year 28,9 trillion ton miles in 2005

o Short-sea: coastal Smaller ships Cargo flexibility Many ports Sometimes political restrictions

o Land: river, canal, road, rail Pipelines

Characteristics of sea transport demand

Customers mostly multinationalso Buying raw materials where cheapesto Producing in low-cost countrieso Selling manufacturers everywhere

Commoditieso Energy (44%)o Agricultural trade (10%)o Metal industry (18%)o Other (28%) of which 50% is containerised

Parcel size distributiono Bulk cargo => whole ship same cargoo General cargo => many small consignments

Other factorso Transport priceo Speedo Reliabilityo Security


The sea transport system

Streamso Bulk parcels

Dry bulk: steel, aluminium, fertilizers, coal, grain Liquid bulk: oil, chemical products, fruit juice Major

Iron ore Grain Coal Phosphates Bauxite

o Specialised parcels Specific handling different type of cargoes

o General cargo parcels Any cargo too small to fill a ship Can be loosed, containerised, palletised or pre-slung Also liquid / refrigerated / heavy, awkward cargo Unitisation & standardisation for faster cargo handling

o


The world merchant fleet (supply side)

1 010 million dwt or 42 900 cargo carrying vessels in 2007 39 100 non cargo carrying vessels in 1995 (mostly fishing ships) Lloyd’s states there are 16 main categories of ships Ownership

o 54% tonnage controlled by Greece, Japan, Germany, China & Norwayo 1/3 tonnage registered in Panama & Liberiao > ½ Panama registered fleet controlled by Japano Registry Liberia mostly used by Germany, Greece, Russia & Saudi Arabia

Cost of sea transport

Booming shipping market between 2003 & 2008 Cost transport smaller proportion of total cost Unit cost = ( capital cost + operating ships cost + cost of cargo handling ) / parcel size Differences liner & bulk

o Bulk = minimizing unit costs Large companies often own fleet Chartering on long term Often single cargo trip Long term arrangement with shipowner

o Liner = speed, reliability & quality of service

The role of ports

Typeso Small local ports

Basic facilities Often short sea vessels In developing countries & rural area’s

o Large local ports High cargo Special investment

o Large regional ports High volumes Deep sea vessels Specialized terminals

o Regional distribution centres Very large ships Distribution to smaller ports Specialist terminals


Shipping companies running the business

Not much similarities between bulk & liner shipping Every company own structure Shipping pool

o Fleet similar vessel typeso Different ownerso Central administrationo Owner pays capital costs, manning & maintenance

Role of governments in shipping

Regulations in maritime industry Political influences on costs, prices & free market competition

The shipping market cycleThe shipping market cycle

Baltic Exchange Dry Index

BDI Check before exam

Characteristics of the shipping market cycles

Many cycles in economy as result of removing imbalances Length of cycles incidental & irregular Extreme elasticity of tramp shipping Shipping = most speculative business Shortage ships => rise freights => construction new ships => collapse freights Stages

o Evidence of surplus capacity Ships queue up Slow steam Freight rates fall to operating cost Negative net cash flow

o Recovery Balance in supply & demand Freight rates increase above operating costs

o Peak High freight rates Second hand prices boom Order books expand

o Collapse Supply overtakes demand Freight rates fall Speeds reduced


Conclusions short shipping cycleo Coordinates supply & demando Cycle has four stageso No rules on each stageo Not predictable at all

Shipping cycles and shipping risk

Volatile market Cycles present central part Uncertainty Shipper takes shipping risk Shipowners take risk Long cycles

o Explanation of long cycles found in technological innovationo Increased efficiency => downward spiral of freight rateso Statistically not predictable

ROI = return on investment Shipping = low return business with high risk factor

Supply, demand and freight ratesSupply, demand and freight rates

The shipping market model

Two jobso Operating shipso Buying & selling ships


Key influences on supply and demand


The demand for sea transport – world economy

Development world economy = main element Business cycle: fluctuations in rate of economic growth External factors

o Warso Sudden oil price changes

Internal factorso Dynamic structure of world economy

World trade elasticity = % growth sea trade / % growth industrial production Causes of cycle

o Multiplier & accelerator: GNP spent on investment / consumption creates demand

o Time lag: delay between decisions & implementation sharpen fluctuationso Stockbuilding: recovery => sudden rebuilding, recession => less stockso Mass psychology: people act dependently

The supply of sea transport

Decision makers who control supplyo Shipownerso Shippers / chartererso Bankerso Authorities

Merchant fleet developmento Scrapping: 4%o Escalation of ship sizes

Fleet productivityo Function of

Speed: average speed under design speed Port time: reduced by use of containers Deadweight utilisation: capacity lost to bunkers, stores, ballast Loaded days at sea

o Unproductive periods Shipbuilding production

o Takes 1 – 4 yearso Output = variable

Scrapping and losses Freight revenue

o Ultimate regulatoro Pricing system central to supply of transporto Supply adapted to prices with changing of speed & lay up (short term)o Scrapping / ordering of ships (long term)


The freight rate mechanism

Mathematical relationship between speed & freight: s = √( R / ( 3 p * k * d )o s = optimum speed per dayo R = voyage freight rateo p = price of fuelo k = ship’s fuel constanto d = distance

Short run equilibriumo

Long run equilibrium

o


The four shipping marketsThe four shipping markets

The freight market

Primary mechanism for shipping investors Only source of wealth Baltic Shipping Index Types of transaction

o Freight contract: shipper buys transporto Time charter: ship hired

Broker puts shipowner & shipper / charterer together Owners / charterers often use one or more brokers Types of contractual arrangement

o Voyage charter Transport specific cargo Fixed price / ton Terms set out in charter-party

o Contract of affreightment Carry series of cargo parcels Fixed price / ton

o Time charter Charterer operational control of ship Single voyage / period Shipowner pays operating costs, charterer directs commercial

operations & pays voyage expenses & handling costso Bare boat charter

Full operational control of ship Charter party protects position of contracting parties Worldscale Index measures freight rates per barrel


The freight derivatives market

Baltic Freight Index Baltic International Freight Futures Exchange hedges against sudden changes in

freight rate Now: Forward Freight Agreement in stead of futures Principle BIFFEX

o Shipowner Price goes down

Profit on BIFFEX Compensates for losses on chartering at lower freight rate

Price goes up Loss on BIFFEX Compensated from additional profits by chartering at higher

rateo Shipper

BIFFEX higher => profit BIFFEX lower => loss, recup by chartering ship at less than anticipated

rate

The sale and purchase market

Trades second hand ships Annually 1000 deep sea merchant ships being sold Most transactions through shipbrokers Immense volatility Sale procedure

o Putting ship on marketo Negotiation of price & conditiono Memorandum of agreemento Inspectionso Closing

Price dynamicso Freight rates: primary influenceo Age: depreciation down to scrap valueo Inflationo Expectations

The new building market

Worldwide 250 shipyards Shipbuilding contract: letter of intent Prices volatile & correlated to second hand prices


The demolition market

Resource of cash during recession Usually by broker Most demolition yards in Far East Demand depends on local steel market

Costs, revenue and financial performanceCosts, revenue and financial performance

Financial performance and investment safety

By individual company Based on

o Revenue receivedo Cost of running shipo Financing the business

Costs concerning ships

Operating costs: crew, maintenance, stores, consumables… Periodic maintenance & surveys Voyage costs: fuel, port charges… Capital costs: financing, dividends, interests… Cargo handling costs

Revenue

Elementso Optimising speed

At low freight rates => reduce speed Optimum speed for any level of freight rate & fuel cost

o Maximizing loaded days at sea Ship’s time = productive loaded days at sea & days in ballast / port LD = 365 – OH – DP – BAL

o Deadweight utilisation Extend to which vessel travels with full payload Bigger ship => more time in ballast Combined carrier = high utilisation

Computing the cashflow

Voyage cashflow: used to make operational chartering decisions Annual cashflow: of ship or fleet, evaluating business as a whole Required freight rate analysis: needed revenue to cover costs Discounted cashflow: inclusive time value of money (NVP & IRR!!)


Valuing merchant ships

Ship type Ship size Age Year of build Specification Scrap value

Financing ships and shipping companiesFinancing ships and shipping companies

Ship finance and shipping economics

Capital cost = important cost

How ships have been financed in the past

Before 1850 owned by one person 1862: Limited Liability Act 1950s & 1960s: chartering 1970: asset 1980s: financing asset Shipbuilding credit by shipyard / government

The world financial system and types of finance

Comes from private or corporate savings Money that needs to be invested

Financing ships with private funds

Owner equity & cashflow finance Public offering of equity, listing on stock exchange Partnership structures Ship funds


Financing ships with bank loans

Term loanso Most commono Interest rate = mostly floating + spreado Repayment schedule with balloon payment at endo Syndication

Debt finance for new buildingso Pre-delivery finance can be problemo Government guaranteeo Interest rate subsidyo Moratorium

Financing ships and shipping companies in the capital markets

Public offering of equity Raising finance by issuing bonds

o Credit ratingo Placement by bank

Financing ships with special purpose companies

Leasing of ships

Analysing risk in ship finance

Standard deviation of return is high Economic risk Operating risk Shipping market risk

The geography of maritime tradeThe geography of maritime trade

The value added by sea borne transport

Central role in globalisation More than 3000 major ports

World sea borne trade by region 2005

Distribution 7 billion ton North Atlantic 50% mature economies with slow growth rate Pacific & Indian Oceans rapid growth to 50% Logistics deals with complex transport problems Military : planning supply chain


The maritime trading network

Link Atlantic => Pacific & Indian Oceanso Cape Horno Cape of Good Hopeo Suez Canalo Panama Canal

Pacific maritime areao 2x Atlantic area => greater distanceso West Coast America: little heavy industry => little bulk tradeo Industry concentrated in Asiao Oceania main supplier of raw materials & energy

Indian Ocean maritime areao East African coast: few deep sea ports, no strong economies, not much raw

materialso Red Sea = busy highwayo Pakistan, India …: import crude oil, export iron ore

Europe’s sea borne trade

One of worlds biggest trading regions Import 2,1 billion ton, export 1,2 billion ton Main areas

o Western Europeo Baltic Seao Mediterranean Sea

Developed economy with large population Water on almost all sides Originally endowed with almost all major raw materials Owns 42% of world fleet

North America’s sea borne trade

Worlds largest economic region Sea borne trade only 12% of world Areas

o Hilly eastern: heavy industryo Flat central: farmingo Mountainous West

St Lawrence Seaway to Great Lakes Mississippi-Missouri Export grain & coal


South America

Export 974 million tono Oilo Coalo Iron ore

Import 368 million ton

Asia

Habitants > 2 billion Import 2,9 billion ton Export 1,6 billion ton Importers energy, raw material & food Exporters steel, vehicles, cement & general cargo

Africa

Import 258 million ton Export 602 million ton

o Oilo Coalo Iron ore

Middle East, Central Asia & Russia

Together > 70% oil reserves Pipelines

Oceania

Export of iron ore, coal, bauxite & grain Export doubled in 10 years

The transport of bulk and specialized cargoesThe transport of bulk and specialized cargoes

Definition of bulk

Exists already 2000 years Physical definition: homogeneous character Transport economies: any cargo transported in large quantities to reduce transport cost


Five main groups of bulk

Liquid bulk Homogeneous bulk Unit load cargo Wheeled cargo Refrigerated cargo

Transport system

Logistics Storage very important Principles to reduce costs

o Economics of scale => using bigger shipso Efficient cargo handling => specialised bulk terminalso Integration transport modeso Optimising stocks acceptable for producer & consumer (size vs JIT)

Specialised cargoeso Chemicalso LPG & LNGo Refrigerated cargoo Unit load cargo

Liner shippingLiner shipping

Definition of a liner service

Provides fixed service Regular intervals Between named ports Offer transport to any goods in catchment area served by those ports Obligation to accept cargo from all corners Obligation to sail whether filled or not on date fixed by published schedule

Major differences with bulk transport

Large administrative overhead Capacity = inflexible

The origins of liner service

From 1870s: steamships => possibility for scheduled services 1956: first container vessel 1966: first Transatlantic container service

Containerisation


Less time in port Door-to-door service Driven by & driver of global trade growth Main trade lanes

o East – Westo North – Southo Regional

Trends

In 1995: balance in trades Now imbalance Growing south – south trade In containerisation

o Global coverageo Shipping companies => global logistics providerso Owned terminalso Increase in ship size

The ships that provide the transportThe ships that provide the transport

What type of ship


7 questions that define a design

How tradedo Long-term charter: optimisedo Spot market: standard ship

What cargo How cargo stowed

o Stowage factoro Density index

How cargo handledo Cargo handling gearo Hatch designo Cell guideso Cargo access rampso Tank segregations

How bigo Economies of scale vs flexibility

How fasto Faster ship => more expensiveo Transit times: cost of inventoryo High value cargoes <-> low value cargoes

How flexible

General cargo

Roro Multi-purpose Heavy lift Cargo liner Tweendecker tramps Barge-carrying vessels Ships for dry bulk

o Handy: 10 000 – 40 000 dwto Handymax: 40 000 – 60 000 dwto Panamax: 60 000 – 100 000 dwto Capsize: > 100 000 dwto Single deck, double bottomo Vertical cargo access through hatcheso Speed: 13 – 16 knots


Liquid bulk

Small: < 10 000 dwt Handy: 10 000 – 60 000 dwt Panamax: 60 000 – 80 000 dwt Aframax: 80 000 – 120 000 dwt Suezmax: 120 000 – 200 000 dwt VLCC: > 200 000 dwt

Gas tankers

Fully pressurized Semi refrigerated Fully refrigerated

Externe effectenExterne effecten

Definitie

Sommige economische activiteiten veroorzaken nadelen / voordelen voor derden die daar niet voor vergoed worden / niet moeten betalen

Negatiefo Vervuilingo Roken

Positiefo Tuin van buurmano Ontwikkeling van nieuwe technologie

Gevolgen

Falen van marktwerkingo Te grote productieo Aanbod

Belasting gelijk aan sociale kosten Externe kosten internaliseren is niet gelijk aan productie stilleggen Optimale verdeling van de middelen => kost van externe effect exact bepalen

o Welke & hoeveel vervuilingo Welke activiteiten zijn de oorzaako Geldwaarde op schade

Verhouding tussen productie en schade blijft niet noodzakelijk gelijk

Externe voordelen

Falen markt leidt tot productie kleiner dan sociaal werkelijk Overheid geeft subsidies gelijk aan externe effect Prijs die consument betaalt lager dan prijs die producent krijgt


Particuliere oplossingen

Overheidsingrepen niet altijd nodigo Sociale controleo Zelfdisciplineo Liefdadigheido Milieubewegingo Beperkt aantal betrokkenen

Theorema van Coase = particuliere economische deelnemers kunnen probleem van externe effecten onderling oplossen

Transactiekosten

Kosten verbonden aan totstandkomen van overeenkomst Dikwijls geen particuliere oplossing omdat transactiekosten te hoog zijn

Voorbeelden

Handel in vervuilingvergunningen Kyoto-protocol

Documents

Maritieme economie