Management of Shipping Companies

Ioannis Theotokas

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781317279570
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The maritime sector is dynamic and volatile, creating the need for continuous monitoring of the latest developments and their effects on the organisation, management and strategies of shipping companies. This book analyses the business environment of these companies and the approaches they adopt in organising and managing their activities.

Management of Shipping Companies aims to facilitate the learning and understanding of the fascinating world of shipping business. It examines the organisation and management of companies which manage ocean-going ships, emphasising the special characteristics of the industry and the framework created by these. This textbook offers a detailed account of the companies' processes and functions, the structural and contextual dimensions of their organisation, as well as an analysis of human resources, safety management and the outsourcing of shipping operations. Written in an easily digestible and critical manner, it includes case studies and analysis of best practices implemented by companies worldwide.

This unique and accessible book is an ideal text for students in maritime studies programs as well as readers interested in learning about maritime businesses' organisation and management.

CHAPTER ONE

The shipping company

CONTENTS

Introduction

Basic distinctions in the shipping industry

The shipping company

The categorisation of shipping companies

Framework for the analysis of the organisation and management of shipping companies

Shipping in the nature of things is no easy matter. You have 20–25 people on a ship with their own problems. Your vessels constantly operate with dangerous cargoes in difficult weather conditions, you have to negotiate with charterers from all over the world … Briefly put, shipping is one of the most complicated of jobs.

(Tsakos, N., 2010:32)

There are not many industries where can one pick up the phone and in five minutes hire a vessel for USD 5 million, with a USD 100 million cargo on a USD 130 million asset, and with USD 1 billion of insurance, without lawyers and lengthy contract negotiations.

(Sohmen-Pao, 2005:15)

Introduction

A company is a totality of interlinked and interdependent parts which co- ordinate their action in order to achieve a number of aims. It functions in a dynamic environment, seeks opportunities for profitable activation, undertakes business risks, combines productive factors in order to produce products and to provide services and tries to respond to the conflicting expectations of various groups related to or affected by its operation. In order to achieve the above, co-ordination of the interlinked and interdependent parts of the company and, at the same time, communication and interaction with the environment in which it operates are required. Changes in the external environment may constitute opportunities or threats for the company. It is likely, then, that adjustments either in its strategy or in its manner of organisation will be called for, in order to make the best of the opportunities or to deal with the threats.

In this introductory chapter, an account is given of certain basic concepts having to do with shipping, and the kinds and categories of shipping companies are described. A systems approach to the organisations is then analysed; this may contribute to a better understanding of the manner of organisation and operation of shipping companies. The chapter closes with a presentation of the framework of analysis of the organisation and management of shipping companies on which the analysis carried out in the subsequent chapters of the book is based.

Basic distinctions in the shipping industry

The shipping industry is not a single whole, but is made up of a totality of markets/sectors. The criteria for distinguishing the individual markets are multiple. Nevertheless, a first general distinction of the markets can be based on the type of the vessel and the cargoes which it can carry. In the light of these characteristics, the following markets/sectors can be distinguished:

A. Bulk shipping

deadweight tonnage: unit of measurement of the weight which a vessel can convey, that is, of its carrying capacity. The total carrying capacity of the vessel is measured in dwt when it is loaded to its load line, which differs depending on the zone and the season at which it is sailing. For this reason, the measurement is usually taken on the basis of the summer load line. Also calculated in the carrying capacity are the weights not connected with its productive task, such as fuels and supplies.

Deadweights are, in effect, the difference between the load displacement, that is, what the vessel and the cargo together weigh, and the light displacement, that is, the weight of the vessel when it is empty of cargo.

Bulk shipping consists of vessels transporting bulk liquid and dry cargoes. These are cargoes which can be loaded in large quantities, the bulk of which, as a rule, occupies the whole of the transporting capacity of the ship. Included in the category of bulk cargoes are principally raw materials transported mainly in large quantities (oil, grain, iron ores, coal, phosphates, fertilisers, cement, etc.). The definition of bulk cargoes is based on their characteristics, which permit their handling and transportation in the same way and in large quantities which take up the whole of the vessel, with a view to reducing the unit cost of transporting them.

The natural characteristics of each cargo determine the type of the vessel which will be used for transporting it, the equipment required for handling it and the overall structure of the transporting system. As regards the characteristics connected with loading, bulk cargoes can be divided into three basic categories (Stopford, 2009):

❚ Liquid bulk cargoes, of which crude oil, oil products (clean, principally kerosene and gasoline and dirty), vegetable oils and liquid chemicals are the main.

❚ The five basic bulk dry cargoes, that is, iron ore, coal, grain, phosphates and bauxite, which constitute basic raw materials, are the largest group of bulk dry cargoes.

❚ Minor bulk dry cargoes, that is, raw materials and semi-processed products, such as steel products, forestry products, cement, sugar, soya flour, scrap iron, coke, salt, sulphur, and chemicals.

For the carrying of bulk cargoes, differing sizes of ships are used (Box 1.1), categorised on the basis of their transport capacity in deadweight tonnage.

B. Liner shipping

Liner shipping includes vessels which carry general or unitised cargoes. This, that is to say, accounts for a large number of cargoes, the majority of them products of manufacturing, the demand for which evolves smoothly over a long period. A liner shipping vessel can transport many different cargoes at the same time, but the quantity of each of these cannot account for the whole of its carrying capacity. Included among general cargoes are goods of particularly great value or sensitivity which call for a special carrier service for which their owner prefers to pay a predetermined freight rate, rather than a freight rate in force on the free market. This characteristic of the cargoes leads to approaches on the part of liner shipping which differ from those of bulk shipping. Whereas the latter is interested in the reduction of the unit cost, the former focuses more on the reliability, speed and quality of the transportation service which it offers. For this reason, bulk shipping companies provide, as a rule, homogenised services, whereas liner shipping businesses put greater emphasis on the differentiation of their services.

bill of lading: the document by which the loading of the merchandise to be transported is certified and the obligation to transport it to a specific place and to deliver it to a specific recipient is undertaken by the ship manager.

Liner shipping vessels transport general cargoes at times of departure and arrival which are known in advance on predetermined maritime routes (lines) at charter rates known in advance. The liner operator is responsible for the whole of the cost of transportation, whereas the terms of carriage are determined by the bill of lading.

The above characteristics significantly differentiate liner shipping from bulk shipping. The transportation of many small cargoes of small volume presupposes a large and complex administrative infrastructure, while the obligation of observing a time schedule for arrivals and departures at predefined ports limits the flexibility of the company. Whereas the bulk shipping owners can apply methods which allow them to deal with the imbalance between supply and demand, such as the laying up of the vessels, liner shipping companies are obliged to observe undeviatingly the time schedule of voyages, regardless of short-term changes in demand (Stopford, 2009). In addition, liner shipping service is a link in the total supply chain. Thus efficiency in the supply chain depends on co-ordination and punctuality, which limits the flexibility of line operators (Strandenes, 2012).

twenty-foot equivalent unit (teu): the teu unit is employed for measuring the carrying capacity of vessels which transport containers and corresponds to a typical container with a length of 20 feet (6.1 metres), a width of 8 feet (2.4 metres), and a height of 8 feet. There are also containers of larger dimensions, of a length of 40 or 45 feet, but, as a rule, as a unit of measurement of the carrying capacity of container vessels, the teu is used.

Distinguishing general cargoes, because of their great number, is based on the way in which they are handled and loaded. The most basic ways of handling and loading general cargoes are as follows (Stopford, 2009):

❚ Loose cargo: This includes individual items, boxes, accessories, etc., each of which has to be loaded and stowed separately. In the past, all general cargoes belonged to this category.

❚ Containerised cargo: This is a matter of standardised containers used for the unitising of the cargo. The unit of measurement of the carrying capacity of containers is the twenty-foot equivalent unit (teu). Containers are the basic type for the transporting of general cargoes.

❚ Palletised cargo: In this category, the cargo is packaged on pallets, so as to facilitate its handling and stowage.

❚ Pre-slung cargo: This consists of small pieces, such as wooden planks, which are tied together in order to form packages of the same size.

❚ Liquid cargo: A cargo in liquid form, transported in deep tanks, containers, or dru...