International Ocean Shipping

Current Concepts And Principles

Bernhard J. Abrahamsson

• Publisher: Routledge
• Year: 2019
• eBook ISBN: 9780429728426
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Transportation Industry
• Index: Politics & International Relations

Intended as a basic text on ocean shipping, this book provides a basis for understanding how the industry functions and the problems and issues that arise because of its international character. Dr. Abrahamsson makes no attempt to judge the relative merits of various developments, arguments, or positions; rather, he explains concepts and principles

1
Merchant Shipping in Transition: An Overview

International ocean shipping constitutes a highly significant aspect of world economic and political relationships. The rapid growth in world trade and the emergence of new national entities in the last thirty years have further emphasized the role of international shipping. Because of the generally free environment in which it has operated, the industry is highly mobile and flexible–factors that, together with technological progress, have facilitated the rapid growth in world trade.

In recent years, however, there have been several technological and institutional developments that are likely to have major effects on the industry. One of the latter is the aggregation of conventions and practices known as the Law of the Sea, which has been discussed in the United Nations Conference on the Law of the Sea (UNCLOS) since 1958. A new legal structure governing the oceans appears to be evolving, with traditional principles giving way to new concepts. Since the environment in which an industry operates determines its structure and mode of operations, international shipping has been molded by the conventional principles governing the use of the oceans as highways and will be strongly affected by shifts in the international climate and changes in the Law of the Sea.

Ocean shipping, as we know it today, has developed under the concepts of "freedom of the seas" and limited territorial waters with the right of "innocent passage." The "rules of the game" were formulated mainly by the maritime powers operating within private commercial relationships subject to specific national regulations governing fleet registration and corporate activities and to various international conventions. Clearly, a new Law of the Sea derived from a reinterpretation of these concepts will significantly change the atmosphere in which the shipping industry operates and, accordingly, dictate revised policies and practices for both industry and public authorities. A changing Law of the Sea will have an impact on all uses and users of the sea, but there are other technological and institutional developments that have already specifically affected the shipping of dry and liquid cargoes and will continue to do

In this overview, terms and concepts will be used with minimal explanation of their meaning. Further explanations and definitions will be given in the main body of the text.

Dry Cargo Shipping

Ocean shipping is divided into the carriage of liquid and dry cargoes. This is reflected in most maritime trade journals, which provide separate analyses and reporting of the tanker and dry cargo markets and the liner and tramp markets. For analytical purposes it is important to bear in mind that the first category of markets refers to the general kinds of cargo carried, while the latter refers to the types of service contracts and the terms on which the cargo is carried.

For example, dry cargo is carried in liners, tramps, bulk carriers, and specialty ships. Liners are operated as common carriers and are engaged on fixed routes according to published schedules. Most liner operators belong to international cartels known as shipping conferences. These conferences are formal agreements to control competition and avoid price wars through such means as fixed freight rates. The agreements can be of several kinds, from outright pooling arrangements–allocations of numbers of sailings or sharing the total volume of trade–to controlling the kinds of services offered. Because of the frequency, regularity, and reliability of liners, they primarily carry goods that move in relatively small lots –heterogeneous general cargoes, including manufactures and semimanufactures.

Tramps, on the other hand, go wherever and whenever their services are needed. Their freight rates are largely established by market forces and they carry primarily goods that move in large lots–homogeneous bulk cargoes such as coal, cereals, and ore. For various reasons (mainly general economic growth, economies of scale, and technological progress in shipbuilding), tramps carrying bulk cargoes have grown substantially in size. It is common to refer to these larger tramps as "bulk carriers." As the needs for raw materials increased, importers and exporters formed, respectively, purchasing and marketing organizations that have strongly affected the tramp market. To create a "countervailing" power, bulk carriers began in the late 1960s to pool their resources in order to coordinate the supply of tonnage and the freight rates.¹ This constituted a major development in a market that traditionally had been considered a "textbook example" of a free market. We will return to this topic later on.

Unitization

In the liner trade, the last twenty years have seen the introduction of new cargo handling methods and facilities, referred to as "unitization." This development, caused by the same factors affecting the tramps, led to the introduction of containerships, ranging from ships that carry containers in their holds to the LASH (lighter aboard ship) and SEABEE (sea barge ship), in which the containers are loaded into lighters and barges that are then stowed in their respective ships. At the same time, other special kinds of vessels like refrigerated ships and carriers of fruit, automobiles, lumber, news-print, chemicals, and other so-called neo-bulk cargoes have been developed. Therefore, although ships engaged in tramp and liner services may have similar technical characteristics that might allow them to move from one type of service to another, recent innovations and modifications actually tend to make ships uniquely suited to only one type of service.

The containerization movement in the liner trade has had far-reaching effects. It is generally accepted that one containership can do the work of four to ten conventional vessels, depending on trade route and size, Because of this larger operational capacity, larger cargo volumes are needed in each port of call, and it is expected that in the future trade will be concentrated in a few ports on each route, with other ports being served by feeder ships. The fact that the container can also be used in truck and rail transportation has resulted in an integration of various modes into a truly international "transportation system." This integration movement has had inevitable effects on trade routes and shipping operations, facilitating the development of the so-called land bridges. Cargo from Europe and Japan, for example, can move in containers via the trans-Siberian railroad to the Pacific coast of the USSR, then by ship to its destination. Alternatively, it might move by ship to the United States or Canada, by rail across the continent, and on to Japan by ship again. In cases where the destination of the shipment is on the rail segment, a "mini-bridge" has been used.

These rapid developments raise numerous problems and issues for both the carriers and shippers. First, most shippers may benefit from containerization, but what about those whose commodities cannot be put into containers and cannot be moved as neo-bulk, or those who want utilization in the form of pallets or pre-slings? Although there are special pallet ships and a large number of conventional vessels, such a shipper may one day pay higher rates as he becomes an exception. This is particularly relevant to low-value cargo that now, under the principle of "what the traffic will bear," moves at rates lower than average cost. Second, although services in general are faster, more regular, and more reliable, there are fewer ports served by containerships than by conventional services, and the use of feeder lines may cause hardships in particular cases. Third, in door-to-door service, the containers are loaded by the shipper and unloaded by the consignee, causing increases in labor costs that may offset some of the savings on rates. The responsibility for proper stowage in the container to prevent damage is shifted from the carrier to the shipper with added costs and manpower requirements. Finally, the shippers must adapt their whole distribution network to the use of containers. If this network involves areas that cannot be serviced by containers, the resulting mixing of container and conventional shipping methods detracts from the benefits of containers.

Through Transport

From the carrier's point of view, containerization poses problems of coordination of services. To derive the full benefits of containers, containers should move from door to door–the so-called through service concept of transportation. This necessitates interchangeable containers, a tracking system, new rates, a system for the division of rates between different carriers and modes of carriage, and a uniform "through bill of lading." Most of these problems have been at least partially resolved, but much remains to be done. For example, although the International Standards Organization (ISO) has published standard dimensions for containers, and most ship classification agencies have formulated construction specifications, containers are still not completely standardised. While several international legal conferences have been held on the subject, no agreement has been reached on a uniform through bill of lading.

Marine Insurance

These various problems carry over into the insurance field. Insurance rates are based on actuarial experience, and it appears that this experience has not been sufficient to affect rates as much as was once expected. Also, before insurance rates can be assessed on container cargo, the containers must be uniformly classified as to their insurable characteristics and acceptable methods must be agreed upon to verify the containers' declared content. The legal aspects of who is liable, when, and where, for the cargo must be settled under a through bill of lading since commercial terms–free on board (FOB), free along side (FAS), and the like–become ambiguous when containers are used. There are further problems in finding a method to assess each shipper's share of general average² and salvage charges. Similarly, the Hague Rules pertaining to the carrier's liability need to be revised to include containers.

Effects on Labor

Labor also feels the repercussions as containerization makes a port capital intensive while conventional port handling is labor intensive. Thus, problems arise as port labor becomes redundant.³ It is doubtful that overall land-based labor requirements in the transportation system decrease as much as the immediate impact on ports indicates. Since containers must be loaded and unloaded at points of origin and destination, labor requirements at these points increase compared to previous methods. Thus, to some extent, the demand for labor shifts from the intermediate points in the transport process (ports) to the beginning and end of that process.

Aboard ships, the increased size of the ship and its increasingly sophisticated automated equipment have resulted in proportionately fewer crew members with higher technical qualifications. This has brought about in many countries a reevaluation of present maritime manpower policies and reorganization of training curricula. A current trend, notably in England and Norway, is toward "general purpose" crews. Modern training and certification is expensive and usually government supported; thus, there is a need for selection criteria to ensure that the trainees spend sufficient time in the field to justify the public expense. Research on this subject is being pursued in many shipping nations.⁴

The problems of labor redundancy did create conflicts throughout the world as unions of both port labor and seafarers resisted the introduction of containers. However, these problems appear to have been surmounted by policies based on principles formulated by the International Transport Workers Federation (ITF).⁵ In essence, these principles stress that every effort should be made to maintain employment at existing levels. Should this not be possible, the labor force should first be decreased by natural attrition, and further reduction should be accompanied by employer-provided retraining schemes and financial assistance to those too old to benefit from retraining. ITF suggested lowering the retirement age of seafarers and providing for their sharing, while aboard ship, the amenities of life ashore.

Customs Clearance

Change has also been necessary for customs clearance procedures as these have not generally been flexible enough for container shipments. Throughout the world, customs inspections have traditionally been made on piers and in ports. Although the arrival of air cargo transportation broke this pattern by requiring customs inspection of exports and imports at inland nonwaterfront locations, inspections are still primarily made in ports. A container, if it is to achieve the utmost efficiency in reducing costs, must be able to go through ports without being delayed for customs inspection and should be opened at the ultimate point of destination. The adjustment of customs procedures to accommodate containers involves, therefore, additional inland inspection facilities. Much has been done in this area in the major shipping countries, but there is further need for action.

Ports

Of great importance is the obvious fact that ports are affected by changes in shipping. Ports require large, long-term investment. At the time the investment is made, the port facilities are adapted to the existing or immediately foreseeable shipping technology. Since no major innovation was introduced in the shipping industry until very recently–the late 1950s–ports were constructed to serve conventional ships. The ships, on the other hand, although requiring large capital investments and having a life of about twenty years,⁶ are, relative to ports, small short-term investments. A shipowner who builds his ships after port facilities have been established, therefore, adapts the ships' design to these facilities. The long life of port investments and the heavy expenditures necessary for major innovation in established ports deter such innovation and this, in turn, holds back innovative shipowners.

This circle was broken by the development that led to modern bulk carriage and containerization as new bulk and container ports have been constructed. Since containers constitute only one possible solution to unitization in shipping and there is no reason to believe that the technological revolution has come to an end, port planning for future developments has become important. Any major port investment must consider the present uncertainties posed by the rapidly changing shipping technology as well as economic and political factors affecting trade flows. It may be of value to establish accelerated depreciation schedules for new port investment, so that the long book-life of existing facilities should not pose an obstacle to innovation. The effects of such a course of action and other port and ship innovations on the structure and level of port fees must be considered. It appears that shipowners and port authorities need to be in closer communication than ever before in order to provide rational bases for decisions.

Conferences

Concurrent with the specific operational problems recounted above, the carriers are faced with numerous other institutional and political developments. The large capital requirements necessary to keep at the forefront of the containerization movement have led to structural changes in liner operations. Since few individual companies have the financial resources or the expertise required to organize container traffic on an international scale in a highly competitive environment, they have depended on cooperation. International shipping consortia, designed to operate joint container services under joint management, have been formed among large liner companies. The step from international consortia to multinational corporations (MNCs) is small and is likely to be taken in the foreseeable future.⁷

These developments have had repercussions on the shipping conference system. In the past, there was a consensus that conferences were precluded from assuming and abusing monopoly power by certain forces, including competition between conferences and real or potential competition fr...

Table of contents

• Cover
• Half Title
• About the Book and Author
• Title
• Copyright
• Contents
• Preface
• List of Acronyms and Abbreviations
• 1. Merchant Shipping in Transition: An Overview
• 2. Transportation Economics
• 3. Basic Concepts and Principles
• 4. Freight Rates and Tariffs
• 5. The Elements of Ocean Shipping
• 6. Functional Types of Ships
• 7. Types of Transport Contracts
• 8. Marine Insurance
• 9. Rate Determination: The Tramp and Liner Markets
• 10. Flags of Registry
• 11. International Organizations
• Appendixes
• Selected Bibliography and Information Sources
• Index