(Updated Page 29 and Deleted The Previous Page 30) Maritime Economics-Module 7 General Cargo Shipping
(Updated Page 29 and Deleted The Previous Page 30) Maritime Economics-Module 7 General Cargo Shipping
(Updated Page 29 and Deleted The Previous Page 30) Maritime Economics-Module 7 General Cargo Shipping
ECONOMICS
Module 7
General cargo shipping
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What is the market structure of liner shipping and what are the
effects of the market structure on competition?
General Cargo
General cargo can be classified into the three
categories:
Break bulk
Neo bulk
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Dry
Goods of various sizes and weights shipped as packaged cargoes
Goods of uniform sizes and weights shipped as loose cargoes
Dry or liquid or liquefied gas
Neither packaged nor of uniform sizes and weights
General Cargo
Characteristics of general cargo:
heterogeneous
high value
smaller quantities
General Cargo
Characteristics of general cargo handling:
Break bulk cargo handling is generally labour intensive.
The cost of cargo handling used to be high, about one to
two thirds of the total freight.
Palletized Cargo
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Liner shipping
Facts about containers:
If all containers in the world were lined up, it would have a length of
108,000 km.
1/3 of the way to the moon
18 times the length of the Great Wall of China
2.7 times around the earth at the Equator.
A serial number for each container, i.e. XXX-U-123456-1
Watch a video on the
afterlife of a shipping
container here
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Liner shipping
Facts about liner shipping
The largest container carrier is MSC Oscar (19,224 TEU)
The largest liner operator is Maersk 13.45% market share % TEU, 1 May
2015
Maersk > MSC > CMA CGM
The busiest container port in the world is Shanghai, China
>30m of Shanghai v.s. <5m of all Australian ports
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Liner shipping
Facts about liner shipping
Trade volumes in the main trade routes
The main trade lanes can be categorised in: East-West (71.7 million TEUs), North-South
(30.3 million TEUs) and intraregional (74.5 million TEUs).
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Note: Inside intraregional trade, intra-Asia routes play a dominant role as they generated
in 2013 almost 60 million TEUs of cargo volumes.
Liner shipping
Brief history about liner shipping
Cargo liner era (1870-1950s)
Improvement in steamship technology facilitated offer of scheduled services
Multi-deck, versatile and with own cargo-handling gear
Can carry a mixture of manufactures, semi-manufactures, minor bulks and
passengers
Similar in size, design and speed to tweendecker used by tramp operator
More sophisticated cargo liners were built to match trade growth in 20th
century
Though flexible, it was labour and capital intensive
Retractable Tweendeck
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Passenger-Cargo Liner
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Liner shipping
Brief history about liner shipping
Containerisation era (1950s present)
1st container made its maiden journey in 1956 (invented by Malcolm McLean)
Carried 58 containers from Port Newark, New Jersey to Port of Houston, Texas
Standardization of container size by ISO, e.g. 20, 40 in 1961
Evolve to
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Liner shipping
Characteristics of liner shipping
Liner shipping accounts for only a minor proportion of total
ton miles but a large contribution to total freight revenue.
Liner shipping is vulnerable to imbalance between inward
and outward cargo flow, trade volatility, and seasonality.
Liner operators need to be able to provide a regular
service to the ports on the itinerary.
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Liner shipping
The recent structural changes
The direct deep-sea connections replaced by the hub-and-spoke system
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What is the market structure of liner shipping and what are the
effects of the market structure on competition?
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Market structure
Market structure: Oligopoly
Major characteristics
Limited sellers
Little difference in service, i.e. homogeneous services
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Market structure
Market concentration Top 20 liner companies
Market share of 20
largest liner is over 80%
Market share of (Maersk
+MSC + CMA CGM) is
about 35%, and it is
increasing
Merger and acquisition
are accelerating this
process.
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Market structure
Liner conferences origin
The arrival of steam ships by the end of 19 century and more and more
advanced technologies introduced increase the supply rapidly
intense competition
Vulnerability to trade imbalance, seasonality and volatility, and very
high fixed operational costs liner shipping is a risky business
Severe excess capacity of shipping services a drastic and long-lived
decline in fright rate is inevitable the incentive for liner shipowners to
get organised was particularly strong Creation of the first
conferences can be attributed to this severe slump.
Example: time charter rates for different sizes of ships
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Market structure
Liner conferences what is it?
An agreement between two or more shipping companies to cater regular cargo and/or passenger service
on a particular trade route
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Market structure
Liner conferences some notes
The main argument has been that without conferences,
freight rates would frequently bid down.
A serious problem facing both shipowners and shippers is
the un-profitability of the former would lead to the
discontinuity of liner services.
Every government considers it to be a national interest that
vital trade connection are not jeopardised.
Another purpose of conferences is to prevent competition
from outsiders, which is considered as harmful to liner
shipping.
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Market structure
Liner conferences main features of strengthening
the market power of the members:
Agreement to reduce harmful competition including that
from outsiders.
Conditional on the loyalty to the conference, shippers
are entitled to extensive concessions, e.g. rebates,
discount rates, to shippers.
Agreement to fix the tariffs.
Avoid overlapped routes and reduce the number of sailings.
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Market structure
Liner conferences impacts and operations:
Generally conferences work toward two main effects:
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Market structure
Liner conferences good or bad?
Advocates say that they prevent the liner shipping market from
being crashed as a result of highly volatile demand which would
create prolonged damage to the market and interruption of liner
services because of the sluggishness of the liner service supply.
On the opposite side, critics say liner conferences deprive
consumer surplus and create economic inefficiency as a result of
dead weight loss.
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What is the market structure of liner shipping and what are the
effects of the market structure on competition?
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Basic Clothing
about 16,000USD per ton
Designer Clothing
about 60,000USD per ton
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Motorcycle
about 22,000USD per ton
Electronic Goods
about 30,000USD per ton
Scrap Materials
about 300USD per ton
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What is the market structure of liner shipping and what are the
effects of the market structure on competition?
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Issues
Issues in liner shipping:
Strategic alliances and cooperation among liner companies
Market regulation
Vulnerability to demand fluctuations
Trade/cargo imbalance
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Issues
Issues in liner shipping:
Strategic alliances and cooperation among liner companies
Consortia: sharing administrative and operating costs and
revenue.
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Issues
Issues in liner shipping:
Strategic alliances and cooperation among liner companies
alliances
To achieve economies of scale larger ships
To fill these ships and frequent
global services alliances
Vetoed
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Issues
Issues in liner shipping:
Strategic alliances and cooperation among liner companies
Alliance port and
terminal choices involve
many trade-offs for
each carrier
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Issues
Issues in liner shipping:
Vulnerability to demand fluctuations
Large-size container ships mean the sector is more
vulnerable to demand fluctuations.
Seasonal variation
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Issues
Issues in liner shipping:
Trade imbalance
It is inevitable as a result of production relocation to
countries where resources are abundant and cheap.
It raises challenges in container transport, especially in
relation to:
Management of empty containers
Unequal freight rates for inbound and outbound routes.
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So, what are the key strategic decisions for liner companies
to make?
what is the difference between liner shipping and tramp
shipping?
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MARITIME
ECONOMICS
Back
Market structure
Lower freight rates/time charter rates due to
increased ship sizes
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Source: BIMCO
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Liner shipping
East-West trade routes (examples)
Asia North America (Transpacific Trade)
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Source: http://www.maerskline.com/
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Liner shipping
Intra regional trade routes (example: Intra Asia)
Intra Asia
Source: http://www.maerskline.com/
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