SHIPPING OPERATIONS

SHIPPING OPERATIONS BY VIKAS AND ANIL MUNDAY
The shipping operations policy formally sets out the Bank’s strategy in this sector. Previous to the approval of the policy, there was a Shipping Guidelines document, approved by the Board in December 1994 (BDS 94-161). The shipping operations policy was approved by the EBRD board on 31 October 2001.
Since the early 1990s, the Bank has been active in financing the Shipping Sector and has been catalytic in introducing western financial institutions to shipping companies in the region. The Bank’s role continues to be relevant because many banks are still unable or reluctant to consider investing or providing long-term finance directly to companies operating in the region without the comfort and involvement of the Bank. This is demonstrated by the fact that out of a cumulative commitment to-date of Euro 664 million, assisting a total investment cost of Euro 1.19 billion, the Bank has mobilized more than 50% of its total financing, involving 22 commercial banks, in its co-financing efforts.
The Bank’s involvement has so far concentrated on debt financing for the acquisition and construction of various types of cargo vessels. The Bank will continue to finance deep-sea ship-owners, including its existing clients, in their on-going efforts to modernize their fleets. However, the Bank will also seek to diversify its portfolio to finance the renewal of other types of vessels including passenger and river ships. The majority of the shipping fleet (including river vessels) in the region is in imminent need of replacement and this renewal process is critical for the sector if it is to maintain or improve its competitiveness, and eliminate sub-standard vessels in order to improve crew safety and address environmental concerns. All Banks financed shipping projects should comply with IMO standards for safety and protection of the environment and ships should be operated in open and commercial markets.

Although the Bank has reviewed several proposals from a number of shipyards, it has not completed any operations in this sub-sector to-date. The Bank is intensifying its efforts to develop appropriate structures for projects in the shipbuilding industry.
Besides acting as a catalyst in channeling long-term financing to the region, the Bank’s involvement will provide the opportunity to achieve its transition goals. For the Bank’s future operations in the Sector, the following transition objectives have been identified:

Promotion of competitiveness through fleet renewal

Promotion of privatization and restructuring

Transfer of technical know-how and management skills

Promotion of good corporate governance and best business practice

Promotion of safety and environmental consciousness

Development of appropriate regulatory and legal framework

Facilitation of regional trade

These objectives will be appropriately adapted depending on the transition stage of the relevant country. Russia, where most of the Bank’s existing shipping projects have been located, will continue to be an important country for the Bank's operations. However, in order to expand and diversify the country profile in this Sector a new focus is being developed in other countries of operation, notably in the BAL tics, Caucasus and Caspian regions.

The Bank will face a considerable challenge in the river shipping sub-sector in which companies operate along many of the large inland waterways located in the region. This is because domestic legislation governing mortgagees’ rights in this sub-sector has still to be fully developed.


In shipbuilding, the Bank will continue to explore and structure projects that are not only sustainable, but also encourage the much needed and invariably difficult restructuring process. In shipbuilding, including conversion and repair, the Bank will not finance projects which receive state subsidies in excess of levels permitted under any applicable (EU, WTO and OECD) guidelines. In this sub-sector the Bank will seek to identify shipyards which have either benefited from strategic investors, have proven strong management or where the relevant national government has a clear commitment to the restructuring and privatization of their shipbuilding activity.

Service Routes

Currently, shipping lines operate three general types of deep-sea itineraries: end to end, pendulum and round the world service routes, End to end services schedule vessels back and forth between two continents. Pendulum services schedule vessels back and forth between three continents with one of these continents as a fulcrum, with the points at either end of the pendulum swing linked only through the fulcrum. This type of service offers a way to fill container slots four times on the same voyage and to eliminate certain overlapping port calls in the fulcrum area. The merging of separate end-to-end services into a pendulum or round the world service serves the two main purposes of broadening the range of through services and reducing the number of ships required to provide the same coverage. This gives a major cost saving by merging the previously duplicated port calls in the central region of the pendulum. Also round the world services can overcome the problems of end-to-end operations, by accommodating the needs of global corporations.



The world’s three principal trade corridors are tied together into one and this type of service can move in either direction, moving westward or eastward or in both directions. Intense competition in container markets not only makes it necessary for ship owners to offer high quality services between major trading regions but also makes it imperative for them to optimize fleet utilization. Such pressures have led to the development of multi-route operating patterns, notably ‘Round-the-World’ and ‘Pendulum’ services, enabling carriers to maximize vessel employment and slot utilization. North America-Europe-Asia, with vessels continually circling the globe in an eastbound or westbound direction. ‘Pendulum’ services, operated by a large number of carriers including Hanjin and Yang Ming, typically operate over all or some portion of the route linking the East Coast of North America, via Europe and Asia to the West Coast of North America, returning via the same route. Since vessels employed on ‘Pendulum’ services, unlike those employed in RTW services, are not required to transit the Panama Canal, post-Panamax vessels may be used.
A ship routing and scheduling problem for the industrial shipping industry is far from unique, and this review will give us an overview of the variety of problems. The objective of a classical industrial ship scheduling problem is to minimize the transportation costs for each ship in the fleet while ensuring that all cargoes are lifted from their loading port to their port of discharge. Normally, a cargo consists of a designated number of units of a product.




Liner Operation

Agreement between two or more shipping companies to provide scheduled cargo and/or passenger service on a particular trade route under uniform rates and common terms also called shipping conference. Cargo and/or passenger carrying shipping line operating a scheduled service between fixed points (ports) on a trade route.

Liner service is the backbone of international trade in manufactured goods. Liners, sailing on regular schedules along established ocean trade lanes, move vast quantities of consumer, industrial and military commodities ranging from video cameras to night-vision scopes, perfume to paint, jeans to milling machines.


Tramp Operation
Charter shipping is a tramp service. The term tramp, as used in the ocean shipping, refers to a cargo ship not operating on regular routes and schedules, and picking up cargo only when it is chartered (hired) from the ship operator.
While conference and non-conference shipping are for general cargoes, charter shipping usually is for bulk cargoes like oil, coal, ore, and grain. Charter shipping has the lowest freight rate per unit of weight or measure.

A charter party is required in charter shipping. A charter party---charter party contract---is a written contract between the ship operator and the charterer (shipper). The contract normally includes the ports, freight rate and time involved in the voyage(s).
The ship operator issues a charter party bill of lading. Unless a letter of credit (L/C) permits or calls for a charter party bill of lading, the bank will reject such transport document in the L/C negotiation

In tramp shipping, tramp ships are being used. As the name indicates, this branch of the shipping industry is very irregular in its activities. Tramp ships are sent in where the most paying freights are available. Therefore, tamping is very unstable and very little organized.

Tramp ships are, in accordance with the demand, contractually put at the disposal of charterers, to carry, for one or more voyages, a quantity of goods between named harbors (in voyage charter) or to carry out a number of transport assignments in a certain period of time (in time charter). In the broadest sense of the word, tramp shipping is the activity that is done with ships in voyage charter. Usually, under a charter agreement, they have to perform only one voyage so that each voyage stands completely apart from the other. The vessel is an independent operating and competing unit and its operation is highly individual. The sailing schedule of a tramp ship is consequently very irregular. The ship operator must see to it that his ship is rarely idle and in the port of discharge - or in a harbor as close as possible to the port of discharge - he must always try to get a new charter for the ship.


Tramp ships vary considerably in size and are sometimes of lesser quality than the liner ships. Because the cargoes usually don't have to be transported at a high speed and the ship doesn't need highly sophisticated equipment, tramp ships are relatively slow and cheap. However, the present-day tramp fleet counts numerous modern bulk carriers suitable for different sorts of cargoes, including tankers and specialized ships. Owners of modern and cost-effective tramp ships have a better chance than their competitors who offer inferior and less flexibility in the freight market.
Liner conferences are tolerated in other jurisdictions. What if the EU changes its regime and others do not?
The Commission is particularly aware of the international dimension of this dossier and of the fact that up to now conferences have been tolerated worldwide. That is why it has taken the initiative to establish close and frequent contacts with our major international partners (US, Canada, Australia, Japan). The outcome of those contacts is positive. We intend to keep up these bilateral contacts throughout discussions in Council.
If the EU were to repeal the present EU liner conference block exemption regulation this would mean that carriers (EU and non-EU) that are presently part of conferences operating on trades to and from the EU would have to stop their conference activities on those trades (namely price fixing and capacity regulation). Nothing would stop them from continuing being part of price fixing conferences on non-EU trade routes.
To give a concrete example, an EU carrier like Maersk, member of the Trans-Atlantic conference Agreement (TACA), could no longer be involved in price fixing and capacity regulation on the North Atlantic-EU and EU-North Atlantic trades, but could still do so on the US-Pacific trades. The same applies to non-EU carriers.

This is a logical consequence of the fact that there is not an identical competition regime in force world-wide. In fact, already today there are differences in what liner shipping companies are allowed to do in different jurisdictions. For example, today US law allows carriers to fix prices jointly on inland transport, while EU law does not. A conflict of law does not arise. This would only be the case if one jurisdiction were to require carriers to participate in conferences, whereas another was to prohibit it. This is not the case today.

The liner shipping industry is asking for a new regime to replace the conference block exemption. What will the Commission do about that?

Industry is divided on the need for a substantive alternative to Regulation 4056/86. The European Liner Affairs Association a carrier association representing roughly 80% of world capacity has proposed that the conference block exemption should be replaced with an exchange of information system.
The
European Shippers Association representing over 100,000 exporting companies, and generating around 90% of the EU's international maritime traffic, considers that a replacement regime is not necessary because carriers are already allowed to co-operate extensively under the consortia block exemption Regulation. This co-operation results in the provision of reliable liner services by groups of shipping lines in consortia and alliances. The European business organizations UNICE and consumer associations back this position.
To be acceptable, any new system for information exchange must respect the competition rules. Some elements of the current ELAA proposal appear to be in line with these requirements. However, others are problematic notably because they do not differ in effect from what conferences do today. Accepting the ELAA proposal as it is today would remove all the pro-competitive effects of the abolition of the conference system.

The Commission remains committed to continuing the dialogue with the ELAA with a view to assisting it in developing an alternative system compliant with EU competition rules. It has acknowledged that exchanges of information leading to greater market transparency may contribute to the improvement in the way liner services are provided, in the interest of carriers, transport users and the public in general.
Discussions will be focusing on the details of the various elements of the ELAA proposal. Thereafter, the Commission intends to issue guidelines on the application of the competition rules apply to liner and tramp shipping. The guidelines would treat issues such as an independent data warehouse, the creation of a trade association and of trade fore, the publication of a price index and common formulae for charges and surcharges. The guidelines would explain how the competition rules apply to the liner sector in general, including exchange and publication of capacity utilization information. As an interim step, the Commission will publish an issues paper on liner shipping in September 2006.


What is the impact of the proposal on small liner shipping carriers and on small short sea trades?

The European Community Ship owners’ Associations (ECSA) and the European Parliament have drawn the Commission’s attention to the needs of specific services, particularly short sea services and services to smaller trades. Since such trades generally do not require a large number of vessels to be serviced, relatively small carriers might be able to operate side by side with large carriers on these trades. ECSA and the European Parliament, therefore, questioned whether these relatively small carriers would be more affected by repeal than large ones.

The Commission is not aware of any liner shipping carrier that would fall with the scope of the Commission Recommendation concerning the definition of small and medium sized enterprises.1
After significant research, the Commission did not find that relatively small EU carriers would be adversely affected by a repeal of the conference block exemption. To the contrary, liberalization creates a market environment that allows for quicker growth than a regulated environment, in particular for small companies. It creates more new services and new niche markets which especially small companies are able to quickly enter. These market niches usually allow for rapid growth. Hence, small innovative companies are able to grow much quicker in a competitive environment – see for example the rapid growth of Ryan air that started as a small company with a new innovative business model in the recently deregulated aviation market. The success of small carriers depends on their ability to adapt to a competitive environment and not on their actual size.

















the difference between the two…??
Some of you might have heard the terminology Tramp service or Tramper or Tramp vessel and also the terminology Liner Service. What is the difference between the two..??

Liner Service– Liner Service is a service that operates within a schedule and has a fixed port rotation with published dates of calls at the advertised ports. A liner service generally fulfills the schedule unless in cases where a call at one of the ports has been unduly delayed due to natural or man-mad causes.

Example: The UK/NWC continent service of MSC which has a fixed weekly schedule calling the South African ports of Durban, Cape Town and Port Elizabeth and carrying cargo to the UK/NWC ports of Felixstowe, Antwerp, Hamburg, Le Havre and Rotterdam..

Tramp Service: Tamper on the other hand is a ship that has no fixed routing or itinerary or schedule and is available at short notice (or fixture) to load any cargo from any port to any port.
Example: A ship that arrives at Durban from Korea to discharge cargo might carry some other cargo from Durban to the Oakland in the West Coast of USA which in an entirely different direction. From Oakland say for example it could carry some cargo and go to Bremerhaven.
Liner shipping is distinct from tramp shipping. Liners operate as common carriers:-
1. They publish a freight tariff, operate on scheduled routes, and leave at scheduled times regardless of whether the ship has a full load of cargo. They usually carry a large number of smaller packages for a number of different shippers.
2. Tramp vessels, as distinct from liners, are usually chartered in some form by a shipper to carry a full shipload of cargo.
3. Both liner and tramp shipping have been subjected to a variety of different kinds of government regulation other than the self-regulation of the conference system (Fox and White, 1997).

It is useful to distinguish bulk from general cargo. Bulk cargo does not have to be packaged before loading; it is simply poured into holds in tramp ships specialized to bulk cargo. General cargo is anything that would be packaged in bags, bales, or boxes, and frequently comes from many small shippers. Since the late 1960s, general cargo has come to be carried largely in containers in specially designed container ships.








F.I.
(Free In)
The word "free" as used in the charter shipping term means not including. FI is a pricing term indicating that the charterer of a vessel (i.e., the shipper) is responsible for the cost of loading goods onto the vessel.
F.O.
(Free Out)
FO is a pricing term indicating that the charterer of a vessel (i.e., the shipper) is responsible for the cost of unloading goods from the vessel.
F.I.O.
(Free In and Out)
FIO is a pricing term indicating that the charterer of a vessel (i.e., the shipper) is responsible for the costs of loading goods onto the vessel and unloading goods from the vessel.
The dominant flows in the containerized trades are found on East-West arteries, such as those between Western Europe and the US. East Coast, and between Asia and the U.S. West Coast. The North-South lanes are of lesser density and, in some carrier networks, consist of feeder services linked to the East-West lanes at specific hub port locations.





Conclusion
Tramp/bulk shipping cannot effectively and appropriately be brought under an ETS scheme, due to its structure and operation.