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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
3de Bach NW Samenvatting Maritieme economiep. 2/23
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
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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
3de Bach NW Samenvatting Maritieme economiep. 4/23
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
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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
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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
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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
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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
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Key influences on supply and demand
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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)
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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
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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
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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
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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!!)
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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
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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
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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
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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
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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
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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
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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
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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
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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
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