Nazery KhalidNazery Khalid

South East Asia Seminar, South East Asia Seminar, UniversitiUniversiti Malaya, Kuala LumpurMalaya, Kuala Lumpur28 September 200728 September 2007

From To Shore To Ships: From To Shore To Ships: The Principles Of Maritime EconomicsThe Principles Of Maritime Economics

PRESENTATION OUTLINEInternational trade and seaborne tradeShipping economicsPort economicsThe logistics sector Global trends and impacts on seaborne trade and shippingOutlook on seaborne trade Challenges for shipping players and ports

INTERNATIONAL TRADE AND SEABORNE TRADE

INTERNATIONAL TRADE

Growth of global economy increasingly dependent on international trade.World merchandize export grew 6% in 2005 largely due to economic growth in developing countries.Globalization, liberalization, advent of shipping technology and logistics sector, trade agreements contribute to growing international trade volume.

ASIA-EUROPE & ASIA-N. AMERICA(ANNUAL % TEU GROWTH)

5.0

7.7

6.9

7.4

2008F

5.6

9.4

5.9

12.6

2006F

5.6

12.1

7.1

14.5

2005

7.95.5Europe–Asia

1.35.1N.America-Asia

12.58.1Asia-N.America

17.610.3Asia-Europe

20042007FTrade

Global Insight, World Trade ServicesGlobal Insight, World Trade Services

SEABORNE TRADESeaborne trade (good loaded) reached 7.11 bil. tons in 2005, growing 3.8%. Total maritime activities increased to 29 tril. ton-miles in 2005 (UNCTAD 2006). Volume of trade in tanker cargo, dry bulk, container segments on the rise.Asian trade, especially in and out of China, has grown tremendously.Volumes set to grow in coming years.

TRENDS IN TRADE TRANSPORTHigher degree of containerization.Focus on multimodal transport.Sophisticated supply chain management. Intensive use of IT in cargo handling, processing and tracking.One-stop shipping, Free Trade Zone, distripark concepts.Ports as catalysts of trade & economy.

SHIPPING ECONOMICS

SHIPPING ECONOMICS 101Ships carry 95% of global trade.Demand for shipping services depends on demand for the cargo they carry.Investing in ships depend on prospects of trade / route, condition / cost of vessels, competition, financing, shipyard capacity, regulatory policies, depreciation of vessels. Balance b/w newbuilding & scrapping.

TYPES OF SHIPS

Tankers (petroleum, chemical, palm oil)Bulk carriers (break bulk / dry bulk)General cargoContainer shipsGas carriers (LNG / LPG)Ferries / passenger shipsRoll on – Roll off (RO-RO) vesselsOffshore support vessels (OSV)

WORLD TONNAGE BY SHIP TYPE *

5.597.282.8300.1304.4

Jan 2003Jan 2003

5.694.890.5307.7316.7

Jan 2004Jan 2004

5.692.098.0320.6336.1

Jan 2005Jan 2005

5.7Passenger 94.1General cargo 120.5Container353.2Bulk carriers396.9Tankers

Jul 2006Jul 2006Ship typeShip type

Source Source : UNCTAD, Lloyd: UNCTAD, Lloyd’’s Register / s Register / FairplayFairplay

* in mil. DWT* in mil. DWT

LEADING SHIPPING NATIONS (JUL 06)*

3.50.1

1.00.5

13.66.73.72.37.98.0

PassengerPassenger

1.41.4

4.46.0

1.82.410.43.420.723.0BulkBulk

2.73.7

2.84.8

7.86.93.44.711.718.6

TankersTankers

3.32.7

1.91.3

2.30.45.735.58.15.2

ContainerContainer

2.41.2

2.02.0

3.910.110.17.38.85.0

Gen. CargoGen. Cargo

2.5S’pore2.3UK

3.2Korea4.5HK (SAR)

4.6USA4.8Norway6.9China8.3Germany14.2Japan17.2GreeceTotalTotalCountryCountry

Source Source : Lloyd: Lloyd’’s Register / s Register / FairplayFairplay* in mil. DWT* in mil. DWT

TOP 10 FLEETS (JULY 06)

22UK24Singapore31Korea

44HK (China)45US46Norway67China81Germany

138Japan166Greece

Mil. DWTMil. DWTCountryCountry

Source Source : UNCTAD: UNCTAD

KEY AREAS IN SHIPPING MARKET

Economic role of shippingInternational transport systemDemand for shipping servicesWorld merchant fleetSupply of vesselsRole of ports in transport systemPlayers in the shipping industry

SHIPPING INDUSTRY FEATURES

Moves in cycles Volatile and risksHigh capital expenditure CompetitiveHighly regulatedDependent upon many external factorsSubject to production, consumption and trade pattern

BULK CARGO TRADE

Bulk cargo* Liquid bulk (crude oil, oil products,

LPG, LNG, chemicals)* Dry bulk (iro ore, coal, grain,

bauxite, alumina, phosphate)Refrigerated or ‘reefer’ cargo (dairy products, meat, fish).

GENERAL CARGO TRADE

General cargo include parcels / items too small for bulk shipment. Consist of manufactured and semi-manufactured products. High-value cargo : consumer goods, textile, machinery, vehicles.Low-value cargo : steel, forest products, building materials, foodstuff, empty gas canisters.

KEY AREAS IN SHIPPING ECONOMICSRegulatory frameworkShip designShipbuilding / newbuildingScrapping / demolitionSecondhand ship marketShip financing / investmentShip tradingFreight / charter marketShip management / crewing/ bunkering

PORT ECONOMICS

ROLES OF PORTS

Conduit between sea and land transport.Part of the logistics chain linked with other transport modes and supply chain components.Provide shelter and services for ships.Catalyst of growth to industries and businesses.

ROLES OF PORTS

Critical trade facilitators. Vital components of transport network.Interaction points with other transport modes.Link suppliers, producers, manufacturers and consumers.Connected by a complex ‘hub and spoke’ network of ports worldwide.

PORT ECONOMICS 101Port development requires big capital.Demand for port services derive from demand for shipping services and cargo.Users include shipping lines, shippers, ancillary service providers.Ports gain revenue from ships calling and cargo processed. At ports, time is money, hence waiting time for ships must be kept short and cargo processed fast and efficiently .

FACTORS AFFECTING PORT CALLS

Trade / production / distribution patterns.Weather / natural conditions.Type and quantity of cargo.Port services cost / tariff structure. Port and logistics facilities.Quality of trade transportation and ancillary services. Socio-political influences.

TYPES OF PORTS

Container ports General cargo portsPassenger terminals Petrochemical terminalsLNG / LPG terminalsFishing portsNaval ports

TOP MARITIME NATIONS 2005

5.01%Norway6

7.22%China4

1.06%Malaysia21

5.18%US5

7.89%Germany3

14.52%Japan218.02%Greece1

DWT as % ofDWT as % ofworld tonnageworld tonnage

CountryWorld rank

UNCTADUNCTAD

TOP CONTAINER PORTS 2005

5.54Port Klang14

9.47Kaohsiung6

16.20Shenzen4

4.17PTP19

11.84Busan5

18.04Shanghai3

22.43Hong Kong2

23.19Singapore1Throughput (mil TEU)PortRanking

UNCTADUNCTAD

GLOBAL TRENDS AFFECTING SEABORNE TRADE

SEABORNE TRADE TRENDS Greater containerizationGreater trade volumes from developing countries i.e. China, India.Growing volumes, more varied types of cargo and wider markets.Growing focus on multimodal transport to meet shippers’ demand for speed, efficiency and low cost of delivery

SHIPPING TRENDS Bigger vessels being built.Pursuit of economies of scale.Rising price of vessels / operating cost.Manpower shortage.Consolidation of shipping lines.Shipping companies buying into ports and logistics companies.Greater focus on safety and security.

FACTORS INFLUENCING PORTSGlobalization & liberalizationGlobalization & liberalization

Globalized markets, outsourcing and changing production base have boosted trade & demand for maritime transport.More trade means bigger investment in ports to enlarge capacity to facilitate greater trade volume.‘Flattening’ of markets due to liberalization result in greater need for port connectivity.

FACTORS INFLUENCING PORTS

The China factorThe China factor

China’s ‘economic miracle’ has contributed immensely to world economies / trade / port development. More shipping services to and from China and more development at ports expected in the near future to cater to growing trade.

FACTORS INFLUENCING PORTS

Changing ownership structuresChanging ownership structures

Wave of consolidation in ports / shipping affects port business. It has changed the way ports are owned / operated / developed and the way ships are routed.Consolidation brings greater economies of scale and better use of resources.

FACTORS INFLUENCING PORTS

Geopolitics

Peace and stability crucial to economies, maritime trade and port prosperity. Regional initiatives in trade and transport will boost maritime trade and port growth.Opening up of economies i.e. China and Vietnam’s accession into WTO, FTAs, contributes to greater trade.

FACTORS INFLUENCING PORTS

Regional / global economyRegional / global economy

Rising economic prosperity and results in higher income and greater consumer demand.Bright prospect of growing world economy and container trade.Shift into manufacturing / trade among developing economies.Improved trade /transport infrastructures.

FACTORS INFLUENCING PORTSInland transportInland transport

Improvements in intermodal linkages with ports in several developing countries. Supply chain and transport infrastructures in the region has grown in capacity & sophistication.Improvement in logistics & transport sector has boosted seaborne trade.

PORT COMPETITIVENESS CRITERIA Location and physical featuresCapacity and facilities.Connectivity.Productivity and efficiency. Integration with other transport modes.Provision of ancillary services.Utilization of IT / EDI.Customer focus. Safety and security

CHANGING BUSINESS APPROACHPorts must achieve better integration with other transport modes.Global port system adopts a ‘hub and spoke’ model. Ports need to adopt to its dynamics.Ports must offer incentives to attract shipping lines, shippers & other users. Ports must give greater focus on speed, efficiency, safety, connectivity.

CHANGING PORT MANAGEMENT

Ports should no longer be administered but managed.Port authorities must become more business-minded. Free market dynamics demand ports to be competitive.Ports must go out and get clients. The days of ‘build it and they will come’ are long over.

CHANGING PORT OPERATIONS

Bigger, more sophisticated ships need adept handling.Greater pressure to beef up facilities improve productivity.Greater need to improve interaction with other transport modes.Greater need for skilled workforce.More intensive use of IT, EDI.

CHANGING PORT OPERATIONS

Economies of scale in terms of speed and size of ships.Specialization of types of ships.Physical changes in types of cargo and greater focus on containerization.Processing, handling, storage and delivery of cargo need to cater to greater volume at faster turnaround time.

CHANGING PORT OWNERSHIPMore privatization of ports.Changing ownership of private ports has given more business focus on port operations.More ports managing other ports to widen revenue base.More shipping companies buying into ports.More different types of shareholders owning stake in ports.

FOR PORTS TO PROSPER…Trade-dependent nations need good transport system to cater to more trade. Efficient logistics network needed to support regional integration across the supply chain. Huge investment needed to invest in ports and to improve intermodal links to facilitate greater regional trade. Nations must reform archaic maritime regulations and institutional set-up.

LOGISTICS SECTOR

LOGISTICSLogistics is a part of the supply chain process that plans, implements and controls the efficient and smooth flow and storage of goods, services and related information.Logistics facilitate meeting the customer’s need from the point of origin to the point of consumption.

LOGISTICS ACTIVITIESCustoms brokerageCargo consolidationTransshipment.Packaging and repackagingRoad transportationDistribution services Manpower supply

SUPPLY CHAINSupply chain is the network of organizations involved in the upstream (supplier end) and downstream (user end) linkage. The link involves different processes and ancillary activities that produce values in the form of products and services in the hands of the ultimate consumer.

ANCILLARY SERVICE PROVIDERS

HaulageFreight forwardingElectronic Data Interchange Cargo handling Storage and warehousingCustoms clearanceInland Container DepotsMaritime agency services

OUTLOOK AND CHALLENGES

SEABORNE TRADE OUTLOOKProspect of seaborne trade should remain bullish in the near future. Greater emphasis on ports / shipping companies to improve competitiveness and capacity.Plenty of opportunities in growing trade for logistics and maritime ancillary service providers to reap.Competition will become more intense!

CHALLENGES FOR SHIPPING COMPANIESExpand fleet to meet growing demandGet the right balance in fleet composition Raise competitive financing Minimize operating costsImprove ship / shipboard managementGet the right marketing mixConsistently fill up slots on big vesselsMonitor developments affecting trade

CHALLENGES FOR PORTSImprove competitiveness to serve biggervessels and growing trade volumes.Reduce waiting time for ships. Develop human resource along with infrastructures and capacity.Enhance use of technology to boost productivity and efficiency.Provide safety.Offer competitive tariff and incentives. Integrate with other transport modes.

REFERENCES ON MARITIME ECONOMICS

Chrzanowski, I. (1985). An introduction to shipping economics. Surrey, UK : Fairplay.Stopford, M. (1997). Maritime economics. London : Routledge.Branch, A. (1996). Elements of shipping.London : Chapman & Hall.UNCTAD (2006). Review of maritime transport. Geneva : UNCTAD.

THANK YOUTHANK YOU

nazery@mima.gov.mynazery@mima.gov.mywww.mima.gov.mywww.mima.gov.my