Economics of Shipping Practice and Management

To Jeremy and Linda

Economics of Shipping Practice and Management

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

Sh~ping Executive/Lecturer/Chief Examiner Shipping and Export Practice/Shipping and Export Consultant

Author of Elements 01 Shipping, The Elements 01 Export Practice and A Dictionary 01 Shipping/lnternational Trade Terms and

Abbreviations

Springer-Science+ Business Media, B. V.

© 1982 A. E. Branch Originally published by Chapman & Hall in 1982 Softcover reprint of the hardcover 1 st edition 1982

Typeset by Inforum Ltd, Portsmouth

ISBN 978-0-412-16350-0 ISBN 978-1-4757-3967-1 (eBook) DOI 10.1007/978-1-4757-3967-1

This title is available in both hardbound and paperback editions. The paperback edition is sold subject to the condition that it sha\1 not, by way of trade or otherwise, be lent, re-sold, hired oat, 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 inc1uding this condition being

imposed on the subsequent purchaser. Ali 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, inc1uding photocopying and recording, or in any

information storage and retrieval system, without permission in writing from the Publisher.

British Library Cataloguing in Publication Data Library of Congress Cataloging in Publication Data

Branch, Alan E. Economics of shipping practice and management. 1. Shipping I. Title 387.5 HE571

ISBN 978-0-412-16350-0

Branch. Alan E. Economics of shipping practice and management.

Bibliography: p. 1. Shipping. 1. Title.

HE571.B669 387'.0068 82·6438 ISBN 978-0-412-16350-0

Foreword BY

Sir Frederic Bolton, M.C. Chairman 0/ F. Bolton Group Ltd, Director 0/ Sealink Ltd

and a past President o/the General Council 0/ British Shipping

The shipping industry has always lacked a body which can confer professional status on would-be practitioners: in that sense, unlike those closely allied to his responsibilities - the marine engineer, the shipowner or manager is obliged to remain an unqualified amateur.

The latest addition to Mr Branch's list of titles goes a long way towards correcting this position: a proper study of the material in his book would clearly go far to confer the status of 'complete ship operator' upon anyone who was examined on its contents. Know­ledge as comprehensive as that acquired through Mr Branch's book must provide a sound base on which to build the experience of practice.

Contents

Foreword v

Pre/ace xi

Acknowledgements xiii

Diagrams xiv

1 Services Rendered by Sea Transport to International Trade 1

Function 0/ shipping and its relationship to international trade. Balance 0/ trade and balance 0/ payments. Relationship between world seaborne trade and world mercantile fleet.

2 Economics of International Trade Function 0/ international trade. Survey 0/ international trade. Commodity trades. Flow o/manu/actured goods. Multinational companies. Freight /orwarding. Major trading areas o/the world. Pre/erential trading groups. International exchange rates.

13

3 Economics of Ship Design 31 Influence 0/ cost, construction and sa/ety /actors. Ship design criteria. Economics 0/ ship propulsion.

4 Ship Investment Criteria 44 Economics o/new and second-hand tonnage. Methods 0/ finance. Factors determining investment criteria.

5 Economics of Ship Operation 55 Economics 0/ ship manning. Factors to consider in planning sailing schedules. Surveys and maintenance. Problems caused by fluctuations and imbalances in trade. The relative importance 0/ speed, frequency, reliability and cost 0/ sea transport. Port operation.

viii Economics of Shipping Practice and Management

6 The Freight Market 77 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 of freight rates. Factors injluencing the level of freight rates.

7 Economics of Charte ring 87 The determination of fixture rates. The charterer's requirements. The Baltic Mercantile and Shipping Exchange. The Baltic and International Maritime Conference (BIMCO). Worldscale.

8 Finance of International Trade 98 Export and import prices. Payments on 'open account'. Bills of exchange. Documentary credits and allied 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.

9 Combined Transport Operation 114 Combined transport concept. Containerization. International road haulage. Piggy back operation. Train ferries. Inland waterways.

10 Ship Management 129 The shipping company. Shipping company consortia. Ship management companies. Planning. Revenue, expenditure and investment budgets. Marketing. Market pricing. Computerization.

11 Shipboard Management 149 Essentials of shipboard management. Organization of shipboard management. Operation of shipboard management. Advantages of shipboard management.

Contents ix

12 Role of British and International Shipping Organizations 156

Council 0/ European and Japanese National Shipowners' Associations (CENSA). General Council 0/ British Shipping (GCBS). Inter-Governmental Maritime Consultative Organization (IMCO). International Association 0/ Independent Tanker Owners (INTERT AN K 0). International Cargo Handling Co-ordination Association (ICHCA).

13 Role of other National and International Organizations 168

International Chamber 0/ Commerce (ICC). Inter-national Labour Organisation (ILO). International Monetary Fund (IMF). Organisation tor Economic Co-operation and Development (OECD). Organization 0/ the Petroleum Exporting Countries (OPEC). Simplijication 0/ International Trade Procedures Board (SITPRO). United Nations Con/erence on Trade and Development (UNCT AD). United Nations Commission on International Trade Law (UNCITRAL).

14 Political Factors 194 The international trade scene. Flag discrimination. Liner con/erences. Flags 0/ convenience. Subsidies. The future.

Appendix A 226 Addresses o/Organizations and Institutes Engaged in the Fields 0/ Shipping or International Trade

Further Recommended Textbook Reading 228

Appendix B 229 Ship Diagrams

Index 237

Preface

This book has been written to provide a practical, overall under­standing of the economics of shipping practice and the management of a competitive, profitable shipping company. It reflects the author's many years of experience in ship management, inter­national trade and education. It deals in simple language with the economics of ship operation, the freight market, ship investment criteria, ship management, the economics of design, the finance and economics of international trade, the combined transport concept, marketing and budgetary control, shipboard management, political factors, the role of international organizations, the principles of freight forwarding, the economics of charte ring, the services rendered by sea transport to international trade and many other aspects of this extensive subject. The importance of complete professionalism in all areas of shipping practice as a me ans of providing the viable, high quality service required to sustain and expand international trade cannot be overemphasized. This book will help towards establishing that professionalism.

The material assembled here is intended not only for students preparing for shipping examinations but also for persons employed in shipping companies, ashore or afloat. In short, it is an aide­memoire to those engaged in the industry throughout the world and may be regarded 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 0 f Shipping, the fifth edition of wh ich is now available.

The book is particularly commended to students taking shipping, export and transport examinations under the aegis of the Institute of Charte red Shipbrokers, the Institute of Freight Forwarders, the Institute of Export, the Institute of Transport Administration, the Institute of Materials Handling, the Chartered Institute of Transport and the Society of Shipping Executives. It is ideally suited not only for university and polytechnic courses in the United Kingdom - but also for courses offered in Hong Kong, Nigeria and Malaysia. The book will also assist students or shipping executives ta king a short shipping course, or the Foundation Course in Overseas Trade.

xii Economics of Shipping Practice and Management

I am greatly indebted to the various organizations listed in the Acknowledgements for the assistance they have given so enthus­iastically; the fact that many of them are situated overseas is reflected in the international conte nt and market of the book.

At my request, Mr H. B. Jackson, B.Sc. (Econ), F.I.Ex., F.I.B., former Chief Executive of Barclays Export and Finance Co. Ltd, wrote Chapters 2 and 8 on the economics and finance of inter­national trade. Mr A. J. Rogan, B.Sc., C.Eng., F.R.I.N.A., and Mr O. R. Norland, F.I.B., a director of Hambros Bank 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 11 on shipboard management. Mr D. B. Cox was responsible for the diagrams. I am most grateful to all of them for their very significant contribution, which has enriched the contents of the book.

Finally, I should like to express my grateful thanks for the con­siderable secretarial help given by my lifelong family friends Mr and Mrs Splarn, who have undertaken similar tasks for my other publications. As always, I wish to record with gratitude the help rendered by my wife in proof reading and to pay tribute to her tolerance and enthusiasm during many a lost weekend.

19 The Ridings, Emmer Green, Reading, Berkshire. April 1982

A.E.B.

Acknowledgements

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

Baltic and International Maritime Conference Baltic Exchange Council of European and Japanese National Shipowner's

Associations Danish Seaways (DFDS) European Ferries Ltd General Council of British Shipping Inter-Governmental Maritime Consultative Organization International Association of Independent Tanker Owners International Cargo Handling Co-ordination Association International Chamber of Commerce International Labour Office International Monetary Fund Nigerian National Shipping Line Organization for Economic Co-operation and Development Organization of the Petroleum Exporting Countries Sealink UK Ltd United Nations Commission on International Trade Law United Nations Conference on Trade and Development

Diagrams

I A liner company organization 130 11 Shipboard management - shore organization 150

111 SO 14 Mark IV 15000 dwt general cargo vessel 229 IV Freedom-type ship with 'tween deck

accommodation 230 V Bulk carrier, 30 000 dwt 230

VI Liquefied natural gas carrier 231 VII Oil tanker 232

VIII Container ship 232 IX Container vessel engaged in the UK-

Mediterranean-Middle Bast trade 233 X Omni carrier - roll on/roll off - lift on/lift off and

side-Ioading vessel (combi carrier) 234 XI Ro/Ro vessel 235