Arka breakbulk shipments

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LARSEN & TOUBRO

2009

MBA SUMMER INTERNSHIP REPORT[ANALYSIS OF BREAK BULK SHIPMENTS]ARKAPRAVA GHOSHPGDIB 02

Analysis of break bulk shipments

ACKNOWLEDGEMENT

The training in break bulk shipments I undertook in Larsen & Toubro at Powai works (Mumbai) was a unique experience for me. The theoretical knowledge coupled with practical knowledge gave me an excellent opportunity to understand the nuances of management.It gives me immense pleasure to express my profound gratitude towards,

Mr. G. Kannan-Head, Logistics Management Centre Mr. Jay Desai- assistant manager , Logistics management centre Mr. J Subramanium –assistant manager , Logistics management centre Mr . M.B Tikle – logistics executive Mr. Sanjeev Ahuja – AGM logistics Mr . Swapnil Nikharge – Assistant manager , logistics management center Ms. Viveka Joshi

for providing and facilitating an opportunity in the form of this project, mentoring and motivating me throughout the project.I would express heartfelt thanks to Mr. M. Nachimuthu-Head Welding Department, for his valuable guidance and encouragement extended during the entire course of the summer training. In the end, I would like to thank all those people who are left unmentioned here but have contribution to my successful training in the company.

I would also like to thank the Globsyn Business school CRP cell for giving me an excellent opportunity to go to L&T and experience the work culture in Mumbai. I am grateful to Mr. Bikramjit Sen and Mr. Krishnendu Ghosh , my mentors for providing me with guidance, help and support.

Lastly I would also like to thank my parents and friends for being by my side during the whole training and providing me with constant encouragement.

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Larson & Toubro - An Introduction

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Larson & toubro is a techonology, Engineering , Construction and

manufacturing company. It is one of the largest and most respected

companies in India’s private sector.

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Seven decades of strong , customer focused approach and the

continuous quest for world class quality have enabled it to attain and

sustain leadership in all its major lines of business.

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The company’s businesses are supported by a wide marketing and

distribution network , and have established a reputation for strong

customer support.

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L&T has the following operating divisions :-

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Engineering and construction projects (E&C)

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Heavy engineering(HED)

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Engineering construction and contracts(ECC)

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Electrical and electronic(EBG)

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Machinery and industrial products(MIPD)

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IT and engineering services

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Logistics management centre(LMC)

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My training was mainly in the logistics department regarding breakbulk

shipments.

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The operation workflow of the same is further discussed in the form of

a flowchart :-

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TABLE OF CONTENTS

1. THE INDIAN SHIPBUILDING INDUSTRY……………..................9

1.1 advantages india vs global

2. BREAK BULK CARGO : AN INTRODUCTION………………….14

2.1 break bulk cargo handling

2.2 Loading and discharging operations

3. APPLICATION OF PORTER’S FIVE FORCES……………………24

TO A BREAK BULK TERMINAL

3.1 Break bulk vs container terminals

4. FREIGHT STRUCTURE……………………………………………29

4.1 Liner shipping and Tramp shipping-an overview

4.2 Liner shipping in detail

4.3 Sea freight calculations

5. TIME FUNCTION ANALYSIS OF A BREAK BULK TERMINAL…. 39

OPERATIONS

6. REDUCING DWELL TIME AND INCREASING EFFICIENCY AT

PORTS..43

6.1 Indian vs Rotterdam ports-a comparison

6.2 Benefits of IWT

7. APPROACH FOLLOWED FOR A BREAK BULK SHIPMENT……..51

7.1 The Cargo

7.2 Sea Route Planning

7.3 Carrier selection

7.4 Port selection

7.5 Transport route survey to the port

7.6 Loading operations

7.7 Terms of Payment

8. INDIAN PROJECT CARGO MARKET……………………….58

8.1 An overview

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RECEIVE ENQUIRY FROM BUYERS

PURCHASE ORDER BEING SENT TO THE BUYERS AFTER BEING VERIFIED BY THE OPERATIONS DEPARTMENT

REQUEST FOR QUOTATIONS SENT TO 5-8 FREIGHT FORWARDERS IN A STANDARD FORMAT

FROM THE RECEIVED QUOTATIONS, THE QUOTES ARE TAKEN AND QUOTATION STATEMENT IS PREPARED.

ALL QUOTES ARE COMPARED AND NEGOTIATED WITH THE FREIGHT FORWARDERS

TALK WITH THE BUYERS TO NOMINATE AND FINALISE THE FREIGHT FORWARDER

LMC DECIDES ON THE FREIGHT FORWRDER

FREIGHT FORWARDERS ALONG WITH THEIR CONCERNED FOREIGN COUNTERPART START PLANNING FOR THE FREIGHT FOREWARDING

LMC MONITORS THE WHOLE FREIGHT FORWARDING PROCESS TILL IT ARRIVES AT THE PORT AND LOADS MIT BASED ON THE INCO TERMS STATED

BUYERS INFORMED FROM TIME TO TIME ON THE STATUS OF THEIR SHIPMENTS

ALL REQUIRED DOCUMENTATION SENT TO THE BUYER FOR PROCESSING OF PAYMENT

ARKAPRAVA GHOSHGLOBSYN BUSINESS SCHOOLKOLKATA


8.2 Problems faced for ODC shipments in India

9. FREIGHT RATE DECISION MODEL………………………….74

10. RECESSION AND BREAK BULK……………………………..79

10.1 Effect of recession on the break bulk industry

10.2 Effect on the Shipping Lines

10.3 Proposed solution

11. BIBLIOGRAPHY………………………………………………...86

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ANALYSIS OF BREAK BULK SHIPMENTS

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Pipavav Shipyard, Larsen & Toubro, Shipping Corporation of India, Reliance Group,

Ruia Group, Adani Group, Tutocorin Port Trust, Tata Group, Mercator Lines and

Dolphin Offshore. Entry of these players would lead to growth of shipbuilding industry in

India.

ADVANTGES INDIA VS GLOBAL

India enjoys cost advantages…

India has abundance of qualified manpower availability, which is cheaper than largest

hubs for shipbuilding in the world, Korea and Japan. China is another country where

labour cost is lower than Korea and Japan. Labour cost, as a percentage of total cost of

building a ship, is approximately 21-23% in Europe and Japan, whereas it is 19% in

Korea. The Indian shipyards enjoy an edge over their global counterparts where pricing

of the ships is concerned as they incur costs as low 8-10% to build a ship.

The Indian shipyards enjoy an edge over their global counterparts where pricing of the

ships is concerned

…possesses requisite talent

India has well qualified manpower in heavy engineering including maritime engineering,

naval architecture, port management and other ancillary education. Indian professionals

also have a good command over spoken and written English compared to their

counterparts in the other Asian countries, particularly China and Singapore. Good

communication skills facilitate the Indian professionals in maintaining good relations

with their existing clients as well as in generating repeat business.

Indian shipbuilders ensure quality and faster delivery of vessels

The quality of ships delivered by the Indian shipbuilders is also at par with the ships built

by the Korean shipyards. Pertinently, the Indian shipyards are also able to execute the

orders and deliver the ships faster than their Korean and Japanese counterparts, as they

are setting up new capacities. Thus, the ship buyer stands to benefit buying a vessel from

an Indian shipyard as he is ensured of faster of delivery of similar quality ships and at a

cheaper price. Indian shipbuilders, Bharati Shipyard and ABG Shipyard in particular,

enjoy an absolute advantage where bagging of orders from the global ship buyers is

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concerned and are well placed to maintain their orders book position/backlog going

ahead.

Earlier timeslots available which can be sold at a premium

The Indian companies are currently in the process of ramping up their shipbuilding

capacity. India has a long coastline with several locations for setting up large shipyards

advantageously. When these capacities get commissioned, these companies would be in a

position to give earlier delivery slots to the ship buyers.

Currently, most of the viable shipyards across the world are fully booked for the next

few years. Hence, early delivery slots of ships would command a premium to later

deliveries.

Good communication skills facilitate the Indian professionals in maintaining good

relations with their existing clients .Early delivery slots of ships would command a

premium

LABOUR RATES IN ASIAN COUNTRIES:-

Promotion of Domestic shipping routes to spur additional demand for ships

The Government of India is also in the process of implementing a Maritime Policy,

which would lead to several new ports and shipyards coming up across the coastline. This

would also lead to development of domestic water (coastal) transport system in the

country, which would in turn lead to demand for additional vessels.

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Capability to manufacture Off-shore rigs, a technological breakthrough

The Indian shipyards are also foraying into the manufacture of off-shore rigs, success of

which would place them among the elite list of yards having the capability to

manufacture offshore rigs.

Currently, there are only 9-10 yards in the world which manufacture off-shore rigs.

Among the Indian players, Bharati Shipyard is already in the process of manufacturing an

off-shore rig for Great Offshore, which is expected to be delivered by the end of FY2009

or beginning of FY2010.

Meanwhile ABG Shipyard is in negotiation with Essar Shipping for procuring a contract

to manufacture two off-shore rigs. We believe that further orders would start flowing in

to manufacture off-shore rigs once the current orders have been executed and the buyers,

particularly when the overseas players, are assured that the Indian shipyards have the

capability to manufacture sophisticated off-shore rigs.

Indian Shipping fleet small and due for Replacement

India's current shipping fleet is small compared to other countries and tax havens, which

have large registries. However, over 40% of the Indian shipping fleet is over 20 years old

and would be due for replacement over the first half of the next decade. The general

cargo, bulk carriers and other miscellaneous class of ships are due for replacement on a

priority basis. The Indian shipyards have the capability to manufacture most of these

ships and the players expect a large part of the replacement demand to be diverted to the

Indian shipyards.

Approximately, 63.5% of the Indian shipping fleet constitutes Oil tankers while Bulk

carriers make up 26.0%. Total size of the Indian merchant fleet was approximately

14.2mn dead weight ton (DWT) at the beginning of FY2007. The replacement market

would translate into 6.1mn DWT over the next decade on a conservative basis.

Currently, there are only 9-10 yards in the world which manufacture off-shore rigs

Over 40% of the Indian shipping fleet is more than 20 years old and would be due

for replacement

Age distribution of the Indian Merchant fleet (% of DWT, 2007)Type 0-4 yrs 5-9 yrs 10-14 yrs 15-19 yrs 20+ yrs Average

ageBulk carriers 1.6 7.9 15.2 5.3 70 19.8

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Containerships

0 0 52 25.1 23 15.9

General cargo 5.9 12.6 18.8 17.1 45.7 16.9Oil tankers 31.6 8.4 15.6 15.5 28.9 12.5Other types 3.3 5.8 1.1 26.3 63.5 20All 20.5 8 14.7 14 42.8 15.2

Export led demand

Majority of the orders with the Indian shipyards pertain to exports. For example, 65% of

Bharati Shipyard's order book and 85% of ABG Shipyard's order book constitutes

exports. The Indian shipyards have carved a niche for themselves in the manufacture of

Off-shore Support Vessels (OSV) and Platform Support Vessels (PSV) and majority of

their order book pertains to this class of vessels.

GROWTH OF INDIAN FLEET:-

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CHAPTER 2

2.1 BREAK BULK CARGO HANDLING :-

"Break-bulk" cargo handling is the method employed since the earliest days of shipping.

A bulk of cargo is broken down into groups that can be handled by the equipment

available. Break bulk cargo is cargo that may be affixed to a pallet. Palletized cargo is

organized in such a way as to facilitate the loading into the ship by crane or derrick. The

ship may carry some bulk cargo, some break bulk and some containers.

For deep draft trades, domestic and international, dry bulk goods use bulk ships.

In this kind of system the high-value cargo was packaged in cases or pallets for shipment

and loaded and unloaded on a piece-by-piece or pallet-by-pallet basis.

In the shipping industry, profit is made by keeping the ships on the move without

significant delays in docking time for loading and unloading of goods which are being

transported. When a ship comes to port, depending on the harbor, pilot tugs or the like

may be employed to bring the ship to dock. Once docked, it is relatively impractical and

inefficient to move the ship until it is ready to depart for its next destination.

The four largest segments in the shipping industry are tankers, which carry such

cargo as crude oil and petroleum products; bulk carriers, which carry iron ore, coal and

grain; containerships, which carry only containers; and gas tankers, which carry mostly

liquefied petroleum gas (“LPG”) and liquefied natural gas (“LNG”). According to the

latest available figures, total annual world seaborne trade in 2007 almost reached

8.0 billion metric tonnes, of which dry bulk cargoes accounted for 3.0 billion metric

tonnes. The following table illustrates the evolution of the various categories of cargoes

that comprise world seaborne trade.

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World Seaborne Trade

1997 2002 2007

Million tonnes

Crude oil 1,554 1,667 1,986

Oil products 505 543 771

Break Bulk 2031 7441 9995

Dry Bulk 741 811 1,029

Container 470 718 1,246

L LNG 119 150 210

Ttotal 5,419 6,208 7,973

Conventional ships have on-board crane systems to assist in the loading and unloading of

cargo. Due to the limited reach of such crane systems, after a ship is docked, there is a

relatively fixed embarkation/debarkation area on the dock defined by the reach of the

ship's crane.

The shipping of break bulk goods such as cocoa beans from third world nations to the

United States provides an example of the conventional shipping process. The cocoa beans

are grown abroad, harvested and packed into 150 pound sacks. The sacks are transported

to the dock area where they are placed on pallets having lifting slings attached,

commonly referred to as a sling and/or sling load of cocoa beans.

The slings of cargo are arranged in groups adjacent to each other, the number of slings

per group preferably equalling the capacity of the on-board crane which the ship

employs.

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Typically, for a ship with a large capacity crane, only one or two groups of slings can be

positioned on the dock in the embarkation area for the ship. As the ship's crane lifts the

first group of slings and transfers the group into the ship's cargo hold, more slings of

cocoa beans are assembled in the space vacated by the first group. The loading process

continues until a desired number of sling groups are aboard the ship. As the groups of

slings are placed in the hold of the ship, the groupings of slings remain intact to facilitate

off-loading without any unnecessary handling.

Break bulk ships are mainly classified into 3 ship types:-

Handy (15-49,999dwt), Panamax (50-79,999dwt) Capesize (80,000+)

Marine terminals can be categorized

into five fundamental terminal types (refer to Figure 2). These terminal types

are described as follows:

1) Break bulk cargo; includes palletized, bagged and loose-stowed cargo.2) Neo bulk cargo; generally steel, lumber and autos.3) Containerized cargo; includes containers and ro-ro truck trailers.4) Liquid bulk cargo; includes crude petroleum, petroleum products and chemicals.

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Maritime cargo

General cargo Bulk cargo

Break bulk

Neo bulk containers Liquid bulk Dry bulk


5) Dry bulk cargo; generally consists of grain or coal, includes other dry cargo.

2.2 OPERATIONAL REQUIREMENTS FOR BREAK BULK AND HEAVY LIFT

CARGOES:-

The objective of this section is to provide an overall picture of an industry sector which is

an essential part of cargo handling and general shipping practice. It does not have such a

high profile as the container or Ro-Ro movement, but it is, nevertheless, an indispensable

arm to the practice of shipping.

HATCHWORK-

Weather deck hatch covers

Steel weather deck hatch covers now dominate virtually all sectors of general, bulk and

container shipping. Conventional wooden hatch covers have been eclipsed by the steel

designs which are much stronger as well as being

easier and quicker to operate

Better watertight integrity is achieved and they are labour saving, in that one man could

open five hatches in the time it would take to strip a single conventional wooden hatch.

The disadvantages are that they are initially more expensive to install, and carry a

requirement for more levels of skilled maintenance.

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Folding hydraulic operated, steel hatch covers, seen in the vertical

open position.

Folding (hydraulic operated) hatch covers

The more modern method of operating steel hatch covers is by hydraulics, opening the

sections in folding pairs.

-:LOADING AND DISCHARGING HEAVY LIFTS:-

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Prior to commencing the lift, the derrick and associated lifting gear needs to be

prepared. Where a load is outside the SWL of a ship’s gear, either a floating crane

or a specialized heavy-lift vessel would be employed.

Preparation time for the derrick can vary depending on the type, but a period of up

to 2 h would not be unusual. Man-management of the rigging crew and advance

planning with regard to the number of lifts and in what order they are to be made,

in relation to the port of discharge and order of reception of cargo parcels, would

be the expected norm.

Stability detail

It must be anticipated that the vessel will go to an angle of heel when making the

lift with the derrick extended. This angle of heel should be calculated and the loss

of metacentric height (‘GM’) ascertained prior to commencing the lift. Clearly,

any loss of positive stability should be kept to a minimum .

Operation

Adequate manpower should be available in the form of competent winch drivers

and the supervising controller. Winches should be set into double gear for slow

operation and steadying lines of appropriate size should be secured to points on

the load to allow position adjustments to be made.

Slinging arrangements

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Use of heavy duty lifting beams. Two Huisman shipboard cranes (each at 275-tonne

SWL) hoist the new ferry load Fiorello, by means of two heavy duty lifting beams .

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JUMBO DERRICKS

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Tandem lifting

It is not unusual these days to encounter specialized vessels, fitted with heavy lift, dual

capacity speed cranes. Such ships have the ability to work conventional loads but have

the flexibility to load containers or project heavy-lift cargoes.

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Heavy-lift floating crane

When the load is too great to be handled by the ship’s own lifting gear, the floating crane

option is usually the next immediate choice. Most major ports around the world have this

facility as an alternative option for heavy specialist work. The type of activity is two-fold,

because, if loaded by this means at the port of departure, the same load must be

discharged at its destination by similar or equivalent methods.

The construction of these conventional cranes is such that the crane is mounted on a

pontoon barge with open deck space to accommodate the cargo parcel.

Having gained now enough knowledge about break bulk shipments let us now try to measure what forces affect the break bulk industry?

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CHAPTER 3

3.1 APPLICATION OF PORTER’S FIVE FORCES TO A BREAKBULK TERMINAL

The above chart offers an overview of the forces that affect the industry.

The effect that each force has on the industry is discussed below.

THREAT OF NEW ENTRANTS:-

The threat of entry in a break bulk terminal industry is low due to a number of factors.

1. First of all , starting a terminal is difficult. There are many hurdles and barriers to

clear even before a company can begin to design a terminal. A new entrant

usually occurs because existing terminals cannot meet the demands required of

them.

CAPITAL INTENSIVE INDUSTRY:

All terminals are large heavy industrial sites , requiring a large amount of capital

to build, the largest among them being the equipment infrastructure costs.

TIME INTENSIVE INDUSTRY:

Few companies in the world design and manufacture machines capable of lifting

millions of tons, and they can take a year or more to assemble which occurs on

location.

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Owning or leasing land in a port is very expensive due to its geographical

limitations.

2. EXPERIENCE MATTERS:

Another barrier to entry is the learning curve associated with the industry.

Maximizing efficiencies out of the equipment takes time. Experience is gained by

running the equipments, making mistakes and learning from them. It can take

years for operational personnel to maximize efficiencies out of machinery and for

the maintenance personnel to learn proper routines for maintenance of these

complex machines.

3. Lack of space also creates a barrier to entry in the industry. The existing

infrastructure ensures that ports exist only in a few highly industrialized areas. A

new competitor must buy large parcels of land in these areas to build a terminal.

4. Even after investing in a terminal; it should have a required partnership with inter

modal transportation facilities to enable product to arrive and leave the site.

5. Government policies can be a deterrent to new entrants. Port authorities are

mostly governmental agencies that administer the working of the ports. Any new

entrant must satisfy the terms and conditions associated with the government

mostly relating to environmental concerns, pollution, and safety of the workers.

Satisfying these conditions and getting a government approval can take a huge

amount of time.

6. Another important factor is that other terminals are facing an unprecedented

growth. Container traffic has risen on an average of 10% over the years and is

expected to grow. The huge profits and surge in demand distracts investors and

creates difficulty in raising necessary funds to open and operate a bulk terminal.

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BARGAINING POWER OF THE CUSTOMERS:

Customers have a moderate amount of power in the breakbulk industry.

Customers are defined as parties that are invoiced by the terminals for the services

performed. They may be either buyer or supplier of the commodity.

Factors which increase customer power:-

1. CHOICE OF MULTIPLE TERMINALS

Customer power increases in the scenario that they have choices of

multiple terminals to ship their products. This allows them to play the

terminals against each other in contract negotiations.

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2. Existing break bulk terminals have an advantage in the sense that they are

integrated with various buyers , suppliers in the form of long term

contracts etc...

Factors which decrease customer power:-

1. There are a few terminals within geography available to the shippers. The

transportation cost and limited number of terminals lessen the power of

the customer.

2. Customers need to keep the product moving. They don’t have the time to

wait for better terms to have the product shipped. A disruption in supply

waiting for better terms can be very costly for their manufacturing

processes. Also, once a manufacturing process starts it is very costly to

stop.

3. Terminals mostly enter into a long time contract with the logistics

companies. Customers not owning terminals have to go through logistics

companies to ship their products and agree to their terms and conditions as

per their contract.

BARGAINING POWER OF THE SUPPLIERS:-

The power that suppliers exert on the industry is high. Terminals must focus on labour

and specially equipment suppliers which are very few in number.

1. The most important factor is organized labour which mainly exists in the form of

unions. These unions are mainly involved in loading, unloading to and from these

vessels and storage of the cargo in the warehouses. The union has the capability to

shut down activity in the entire terminal. Therefore, they must be handled with

care.

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2. Equipment suppliers provide homogenous and specialized products to terminals

for their day to day operations. While terminals form a major customer base; they

are not the only customers. Equipment suppliers can stand losing out a terminal.

THREAT OF SUBSTITUTE PRODUCTS AND SERVICES:-

The threat of substitutes as a replacement for break bulk terminals is very low . currently

there is not much evidence that substitutes exist.

Air transport can come close to as a substitute but it is only valid when high value

delivery and / or immediate delivery is required.

RIVALRY AMONG EXISTING COMPETITORS:-

There is a moderate to high degree of rivalry among the existing competitors.

All terminals offer homogenous services i.e. the operation procedures are the same

everywhere . the main distinguishing factors are:

Price

Port infrastructure in the form of Heavy equipments, loading capacities etc.

Berth depth

Space can also be a major factor. It can give terminals the advantage to take on

cheaply more products.

The relationship that a terminal with labour union. A poor relationship can make a

terminal non – productive.

3.2

Break-bulk terminals Container terminals

Small terminal surface Large terminal surface

Less transshipment possible More transshipment

Limited mechanization and automation Advanced mechanization and automation

Improvisation in terminal operations Organization and planning

Conventional break-bulk terminals are mainly focused on direct transshipment from the

deepsea vessel to inland transport modes. Direct transshipment is associated with very

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short dwell times (the average time the cargo remains stacked on the terminal and during

which it waits for some activity to occur), requiring only a small temporary storage area

on the terminal. Transshipment is very labor intensive with operations managed on an ad-

hoc basis. It is common due to the lengthy loading or unloading process to have goods

move directly from the land mode (trucks or rail) to the ship or vice-versa and ships

staying at berth for several days.

The introduction of container vessels meant larger cargo volumes per port call and

shorter handling times per ton. Both factors made direct transshipment no longer feasible

as this would require a large amount of trucks, barges and trains to be in place during the

vessel’s short port stay. Due to congestion, capacity and availability of inland

transportation containerization contributed to a modal separation on terminals and the

setting of a significant buffer in the form of large stockage areas. Each transport mode

received a specific area on the terminal, so that operations on vessels, barges, trucks and

trains could not obstruct one another. This modal separation in space was a requirement

for setting up a system of indirect transshipment whereby each transport mode follows its

own time schedule and operational throughput, implying a modal separation in time.

Under the indirect transshipment system, the terminal stacking area functions as a buffer

and temporary storage area between the deepsea operations and the land transport

operations that take place later in the process. As a consequence, and in spite of higher

turnover levels, the space consumed by container terminals increased substantially. In

turn, these space requirements changed the geography of ports and the migration of

terminals to new peripheral sites.

But the break bulk still rule the over dimensional cargo department where containers are

not possible and feasible

CHAPTER 4

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FREIGHT STRUCTURE:-4.1 Definition:-“The price paid to a ship owner for the transportation of goods or merchandise by

sea from one specific port to another. The word "freight" is also used to denote

goods, which are in the process of being transported from one place to another. The

cost to transport supplies, materials, or equipment via a commercial carrier; also

may include packing, crating, and handling costs”

Freight rates quoted – either per ton of 2240 lb (weight) or on 40 ft (cubic

measurement) per ton - whichever produce greater revenue

With spread of metric system - many freight rates - quoted per 1000 kg or m3

(35.3 ft)

4.2 TYPES OF SEA FREIGHT RATES:- Advance freight - Payable in advance, before delivery of goods - used in liner

cargo trade and tramping

Lump sum freight - Payable for use of whole or portion of a ship.

Dead freight- damage claim for breach of contract by the charterer to furnish a

full cargo to a ship

Back freight – Goods on arrival are refused then the freight charged for the return

of the goods constitutes back freight.

Pro-rata freight – circumstances make it impossible to continue the voyage

further - accept delivery at an intermediate port

Ad valorem freight: - Arises when cargo is assessed for rate purposes on a

percentage of its value

The ocean transport industry provides a wide range of shipping services which may be

broadly split into

two main categories:

Tramp shipping

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Liner shipping

There are six distinct markets which are served, namely

1. the dry bulk trades

2. the oil and refined products trades

3. the gas and chemical trades

4. the general cargo trades

5. the container trades

6. the reefer (i.e., refrigerated cargo) trades

Liner vessels are those which call regularly on specific ports under fixed schedules,

and cater to the transport requirements of the public at large without discrimination

(known as common carriers), charging fares/ freights which are already fixed and

specified for the reference/ guidance of the public.

Tramping vessels on the other hand, operate without any regular ports of call nor

schedules, providing transport services only on the basis of negotiations. The

environment in which tramp shipping takes place is close to the model of perfect

competition, and pricing is fully governed by the law of supply and demand.

Ships are chartered under different terms and conditions, including

single voyage or consecutive voyage charters

contracts of affreightment, period

time charter,

trip charter,

Bare boat charter.

The composition of the charter rates under each of the above arrangements is

depicted in the table below.

Voyage Affreightm. Time/trip Bareboat

Capital Costs x x x x

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Operating Costs x x x

Voyage Costs x x

Cargo Handling Costs x

The major elements which influence the fixing of a specific rate are:

(a) Ship specification

(b) Trade and route

(c) General market conditions

(d) Terms of charter party, i.e., distribution of costs between ship owner and charterer

(e) Duration of charter

(f) The urgency of the charter

(g) The convenience of the charter to the ship owner

Typical monthly charter rates (US$/DWT) at the beginning of 1990 were:

bulk carriers (time charter):

25,000 DWT - 10.15;

60,000 DWT - 6.35;

120,000 DWT - 4.70;

Tankers (time charter):

30,000 DWT - 9.70;

80,000 DWT - 5.35;

250,000 DWT - 2.00;

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4.3 LINER SHIPPINGLiner shipping takes place in an environment which is totally different from tramp

shipping in that liner services are provided on the basis of fixed schedules and itineraries.

Until recently, the liner shipping sector was largely oligopolistic in that these services

were controlled by cartels, called shipping conferences.

A conference exists for each major trade route, and it is the conferences that draw up

tariffs, scheduling freight rates at which goods will be transported.

Conventional breakbulk (general cargo) liner tariff rates are assessed on :

cargo weight

or

measurement

or

value.

Goods measuring

< 40 cu.ft. per 1,000 kg are charged on a cargo weight basis

>40 cu ft measured by the measurement tariff scale.

If goods are of very high value, they are charged irrespective of weight and

measurement on an ad valorem basis.

Listing of some of the fees and surcharges that you might see in a quotation from

a forwarder or customs broker or ocean carrier:

Currency Adjustment Factor,

Bunker Adjustment Factor,

Origin and Destination Terminal Handling Charges,

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Peak Season Surcharge,

Automated Manifest Security Surcharge,

Congestion Surcharge,

Bill of Lading Issuance Fees,

Detention/Demurrage Fees, and

Others, as applicable.

4.4:SEA FREIGHT CALCULATIONS:

Introduction

Seafreight calculations can broadly be divided into two main components: breakbulk and

containerised. In this section we deal with only break bulk cargo calculations.

Break bulk cargo calculations

Break bulk cargo, is cargo that is unitised, palletised or strapped. This cargo is measured

along the greatest length, width and height of the entire shipment. The cargo is also

weighed. Shipping lines quote break bulk cargo per "freight ton", which is either 1 metric

ton or 1 cubic metre, which ever yields the greatest revenue.

Example:

A case has a gross mass of 2 Mt.

The dimensions of the cargo are:

2.5 X 1 X 2 meters

The tariff rate quoted by the shipping line is: USD 110.00 weight or measure (freight ton)

Step 1

Multiply the meters 2.5 X 1 X 2 = 5 meters

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Step 2

Calculate the freight with the greater amount either the mass or the dimension. 5 X USD

110.00 = USD 550.00

Freight would be paid on the measurement and not the weight. All shipping lines carrying

cargo in a break-bulk form insist on payment based on a minimum freight charge which

is equivalent to one freight ton, one cubic metre or one metric ton.

SURCHARGES:-

From time to time, abnormal or exceptional costs arise in respect of which no provision

has been made in the tariffs. For example a shipping line cannot predict the movement of

the US Dollar or the sudden increase of the international oil price. These increases have

to be taken into account by the shipping line in order to ensure that the shipping line

continues to operate at a profit. These increases are called surcharges.

All shipping lines accordingly retain the right to impose an adjustment factor upon their

rates taking into account these fluctuations. All surcharges are expressed as a percentage

of the basic freight rate. Surcharges are regularly reviewed in the light of unforeseen

circumstances, which may arise and bring cause for a surcharge increase.

Bunker Adjustment Factor (BAF)

"Bunkers" is the generic name given to fuels and lubricants that provide energy to power

ships. The cost of bunker oil fluctuates continually and with comparatively little warning.

Example:

Freight rate: Port Elizabeth to Singapore

Suppose,

Freight rate: US Dollar: 1 250.00 per tone + BAF 5.2%

US Dollar 1 250.00 X 5.2% = US Dollar 65.00

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Add the two amounts together

Freight rate: U S Dollar 1 315.00

Currency Adjustment Factor (CAF)

The currency adjustment factor is a mechanism for taking into account fluctuations in

exchange rates, these fluctuations occur when expenses are paid in one currency and

monies earned in another by a shipping company. The currency adjustment factor is a

mechanism for taking into account these exchange rate fluctuations. It is always

expressed as a percentage of the basic freight and is subject to regular review.

Example:


Freight rate: US Dollar: 1 250.00 per tone + CAF 6.3%




War Surcharge

The outbreak of hostilities between nations can have a serious effect upon carriers

servicing international trade even though they may sail under a neutral flag. Carriers

sailing within the vicinity of a war zone may impose a war surcharge on freight to

compensate for the higher risks involved and the higher levels of insurance premium,

which they may be obliged to pay.

Example:


Freight rate: US Dollar: 1 250.00 per tone + WAR 5%

US Dollar 1 250.00 X 5% = US Dollar 62.50



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All of the above surcharges may be applied to a single freight rate.

Example:


Freight rate: US Dollar: 1 250.00 per 6-M container

+ BAF 5.2%

+ CAF 6.3%

+ WAR 5%

Total amount of surcharge 16.5%


(add to freight rate)

US Dollar 1 456.25

Port Congestion Surcharge

Congestion in a port for a period of time can involve considerable idle time for vessels

serving that port. When a ship lies idle, this creates a huge amount of loss for the ship's

owner. Shipping lines therefore have the right to impose a surcharge on the freight to

recover revenue lost. Another factor which influences port congestion surcharge would

be labour disputes. Port congestion surcharges are calculated as a percentage of the

freight rate as expressed in the previous examples.

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CHAPTER 5OPERATIONAL ANALYSIS OF BREAK BULK TERMINALS

5.1 The operations that mainly take place in a break bulk terminal are:-

The methodology:-

What we are going to do here is consider a certain element of each operation as the

measure of productivity of that procedure . then all the individual productivities are

compared together and potential bottlenecks are identified.

Procedure:-

1.SHIP TO STORAGE

After the vessel arrives i.e. the vessel arrival notice has been given how long does it

take for the cargo to be moved to the storage area?

The main elements to be considered are ;

Hatch time: due to uneven distribution of cargo among hatches some cargo

might be heavily loaded while others might be not.

Pre berthing time :- the waiting time for the vessel before the cranes are ready

to unload the cargo.

Availability of cranes

Resource allocation:-the number of cranes to be allocated to the hatches

The main element that has been considered here for our analysis is the pre berthing time.

The pre berthing time for Mumbai port has been found out to be 17.28 hours.

Factors contributing to PBT are mainly due to port account factors and non port account

factors.

Factors contributing to Port Account:

1. Non- availability of working berth as the berth is occupied by another working vessel

2. Lack of availability of cranes

3. Non- availability of berth as all other berth are fully occupied

4. Discharging/loading in midstream due to non-availability of berth

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Ship to storage

Storage to Rail/

Documentation and customs examination

Gate passing time


Factors contributing to Non-Port Account:

1. Documents not ready

2. Cargo not ready

3. Lack of storage space in shed/tanks (not/poor clearance)

4. Waiting for barges

5. Mid-stream discharge to meet draft requirement

1. STORAGE TO RAIL / TRUCK

This factor mainly gauges the waiting time of the cargo on the port before it loaded on to some truck / rail and discharged to its destination. This waiting time is also known as the dwelling time of the port.The dwelling factor for break bulk cargo in the Mumbai port has found out to be 7 days.

2. DOCUMENTATION AND THE INSPECTION TIME:-

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Request for berthing of vessel Agencies Involved – Shipping Agent, Port. Documents Required – Berthing application, Payment

receipt for berth hire and stevedoring , Certified hazardous cargo list. Time Taken- 30 min

Berthing of vessel Agencies Involved – Shipping Agent, Port, PHO, Police, Immigration, Customs,

Rammaging (for narcotics). Documents Required- ISPS declaration, copy of P&I cover, Application to DC, Details

about crew, boarding set consisting ship & crew details, PHO form.

Time Taken- 1 to 3 hrs.

Discharging of cargo and movement to storage Agencies Involved – Shipping Agent, Customs, Port, Port’s Transporters. Documents Required- yard Planning form, Tally sheet.

Time Taken- 20 min.Submission of Advance list, IGM and advance payment of container related charges at Port

Agencies Involved – Shipping Agent, Port. Documents Required - Hard copy of IGM, Port Payment Receipts.

Time Taken- 30 min

CUSTOMS INSPECTION Documents required: bill of lading , invoice

copy

Time taken – 1.5 -2 hrs


TOTAL TIME TAKEN:- 5.4 TO 6 HOURS

3. GATE PASSING OPERATIONS:-

The main elements to be considered here are: Presentation of the correct clearance documents Traffic congestion at the gate

Since no quantifiable data was found for gate congestion therefore the average time taken for clearance of documents of the gate was taken into consideration.Movement from CY to Out Gate / ICD, Out Gate Operations

Agencies Involved –Port, Shipping Agent, Port’s Transporters. Documents Required- Advance list, Gate Pass,

Time Taken- 30 min

Summarizing ,

PARAMETER SHIP TO STORAGE

STORAGE TO RAIL/TRUCK

DOCUMENTATION GATE PASSING TIME

HOURS 17.28 7 DAYS 5.4 TO 6 HRS 0.5 HOURS

Thus from the above table we see that most of the time is taken during storage operations leading to low efficiencies of ports

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0PARAMETERS SANGHAI HOUSTON ANTWERP MUMBAIOverall cargo traffic

561000000 225000000 182896788 5024000

CRANES Four 50 metric ton cranesMobile cranes upto 400 tonnesOther heavy cranes available on special arrangement

Two 40.6 metric ton container cranesMobile truck cranes upto 300tons>500 tonnes available on special arrangement

30 dock cranes with lifting capacity upto 100 tonnes3 floating craneswith lifting capacity upto 800 tonnes

Two 30 metric ton cranes

Mobile truck cranes with SWL of 250 tons

No of berths 140Draft (Avg. depth of harbor)

7 mts (too less...at least 14 mts required for deep water port)

14 mts 15 mts 10.5 mts

Average turnaround time of ships

0.5 days 0.5 days 0.7 days 7.96 days

Crane productivity

36 moves per hour

26 moves per hour

36 moves per hour

17.75 moves per hour

Total quay length 11,754 mts can accommodate 41 vessels

845 metres 1250 mts 600 mts can accommodate maximum nine vessels

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CHAPTER 6

:REDUCING DWELL TIME AND INCREASING EFFICIENCY AT PORTS:

Definition of Dwell Time

The duration for which an entity stays in the port for service is called dwell

time of the entity. In the port parlance, the entities are mainly the vessel and cargo /

containers.

Vessel related dwell time

From the time a vessel reports at anchorage to the time it is cast-off

from the berth, is the Turn Round Time for the vessel.

Dwell time of a vessel/shipment broadly reflects the efficiency of the port.

AVERAGE DWELL TIME FOR INDIAN PORTS (IN DAYS):-

PORTS BREAKBULK IMPORT BREAKBULK EXPORTS

KANDLA 7 7

HALDIA 5 6

KPT 5 6

MUMBAI 7 7

AVERAGE 6 DAYS 6.5 DAYS

Including warehousing , the average dwell time at major Indian ports are:

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Import:- 9.87 + 6 = 15.87 days

Export:-10.6 + 6.5 = 17.1 days

It is observed that the port’s role in the entire logistics chain is barest minimum to

provide the infrastructure facilities for handling of vessels, containers and other

cargo. A detailed time study of the actual time taken by the port authority for handling

import and export cargo in the breakbulk terminal was carried out. It revealed

that the total time taken by the port authority, cumulatively, is 3-4 hrs for import

and 3-4 hrs for export.

Thus it can be observed that the rest of the time the cargo/vessel dwells in the port is on

the account of other stakeholders like shipping agents, customs, Clearing agents /

transporters etc who have to play their respective roles in preparing & furnishing the

requisite information to the port authority, arrange for funds for making payment of port

charges, arranging for transport etc.

PORTS PRE BERTHING

TRANSIT TIME (B)

NON WORKING

WORKING TIME

TRT IN DAYS

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Vessel reporting

Vessel readiness for berthing

Pre berthing detention (A)

Vessel berthing

Operations commenced

Transit time

Operations completed

Non working time (C1)

Working time (D) + non working time (C2)Vessel sailing from berth

Non working time (C3)TOTAL TURNAROUND TIME = A

+B+C(C1+C2+C3) +D


TIME (A) TIME (C)KANDLA 1.65 0.083 0.40 2.26 4.39HALDIA 2.16 0.083 0.79 0.97 4.00KPT 0.40 0.083 1.17 2.46 4.12MUMBAI 1.00 0.083 0.70 2.31 4.09

6.1 Comparison of Indian port with Rotterdam port in terms of port efficiency parameters:-Parameters Indian port Rotterdam portEvacuation / Aggregation of cargo

Cargo is predominantly byroad and rail only.

Most of the bulk cargo and thecontainers movement throughbarges accounts for 50-60%transportation because of excellent

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inland water networking.Level of Mechanization The extent of mechanization

is less in Indian Major PortsThe level of mechanization is veryhigh with the latest technologiesapplied in all spheres

Location of Port based Industries

Most of the manufacturingfirms are located away from the ports

Most of the manufacturing units arelocated within the Port, thereby the evacuation is very fast

Availability of storage space

Land is very scarce in Ports.Hence, evacuation has totake place.

As so much of land is available atthe Rotterdam Port, the morenumber of days the cargo lies insidethe Terminal, the revenue is high tothe Terminal Operator

Information Exchange EDI implementation is partial.Too many human interfacesand manual exchange ofdocuments.

EDI networking iscomplete and total and hence, thereis no physical movement paperfrom any place. Human interventionis almost nil. All payments are alsodone electronically.

NO. of quay cranes in MBPT the total no of quay cranes is 8 nos. with a quay length of 600 mts covering a total of three terminals

the total quay length is 11,654 mts covering a total of 4 terminals with a capacity of 131 quay cranes.

Summarizing the factors that contribute to the reduced efficiency at Indian ports

are:-

Inadequate port capacity : the growth in cargo has been phenomenal while

concurrent growth in capacity has not been able to keep pace with it.

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Inadequate navigational aids and facilities : Certain Ports like Mumbai are already

equipped with Vessel Traffic Management System (VTMS), whereas most of the

other Ports are not equipped

with such facilities.

channel width restrictions leading to unidirectional vessel movements causing

waiting of vessels for service

insufficient cargo handling equipments/machinery

shortage of storage space on the ports :- As a consequence, cargo

aggregation/evacuation is seriously affected. The lack of storage space affects the

discharge / loading rate of the vessel.

Low IT application in case of documentation

MEASURES THAT CAN BE TAKEN TO INCREASE EFFICIENCY AT PORTS:-

Up gradation of machinery and cargo handling equipment and appointing a

qualified workforce for handling and maintenance purposes.

Development of inland water transportation facilities for smooth aggregation and

evacuation of cargo.

Application of IT extensively in the documentation department.

The concept of IWT is of greatest concern amongst the above three. Let us now

elaborate more on that.

6.2 BENEFITS OF INLAND WATER TRANSPORTATION:-

For increasing efficiency at the ports and reducing the turnaround time , a measure for

implementing inland water transportation was suggested. Now we will check the viability

of that.

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Water based transport is effective as generally speaking, operating costs of fuel are low

and environmental pollution is lower than for corresponding volumes of movement by

road, rail or air. A major advantage is that the main infrastructure – the waterway – is

often naturally available, which then has to be “trained”, maintained and upgraded.

Transport over waterways is especially effective when the source and/or destination are

waterfront locations.

Out of 14500 kms of navigable waterways IWT consists of only 2716 kms consisting of

three national waterways in total. This shows what a huge potential is lying untapped

within our country.

DISTANCE (Kms)

1 National Waterway 1 (Allahabad -Haldia stretch of Ganga -Bhagirathi-Hooghly river system)

1620

2 National Waterway 2 (Sadiya-Dhubri stretch of Brahmaputra river system)

891

3 National Waterway 3 (Kollam-Kottapuram stretch of West Coast Canal along with Champakara Canal and Udyog- Mandal Canal)

205

Total 2716

Operational feasibility of IWT:-

IWT is a capital intensive industry, even for operators, as significant investment is

required in vessels, for a start. Investments required to provide and maintain the

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waterway and terminals are of an even higher scale and can be maintained by government

agencies and few other customers like refineries and steel plants.

Operating costs can be categorized as below:-

• Vehicle costs

• Fuel costs

• Crew costs

• Maintenance costs

• Loading Unloading costs

-:INCOME AND OPERATIONAL COSTS FOR:- Barge Size Tons 750 1000 Draft Meters 2.5-2.6 2.8

INCOME FROM IWT/ANNUMEffective Loading Tons 750 1000 Trips number/annum 200 180 Throughput per barge Tons/annum 150000 180000 Rate Rs/ton 50.5 50.5 Total Rs lakhs 75.75 90.90

OPERATING COSTS/ANNUM

FUEL COSTS

HSD litres/trip 400 500

HSD Rate Rs/litre 24.4 24.4

Lube litres/trip 8 10

Lube Rate Rs/litre 70 70

HSD Cost Rs lakhs 19.52 21.96

Lube Cost Rs lakhs 1.12 1.26

Crew size Number 12 14

WAGE COSTS Rs lakhs 13.30 14.55

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ANNUAL REPAIRS Rs lakhs 12.00 15.00

RUNNING REPAIRS AND CONSUMABLES Rs lakhs 3.00 4.00

INSURANCE Rs lakhs 1.60 2.00

TAXES AND PORT CHARGES Rs lakhs 2.00 3.00

ADMINISTRATION COSTS Rs lakhs 3.00 4.00

TOTAL Rs lakhs 55.54 65.77

FREIGHT RATE COMPARISON OF IWT AND ROADWAYS

DISTANCE ROAD IWT

300-350 1.49 0.68

350-400 1.37 0.66

400-450 1.35 0.64

450-500 1.23 0.63

Above 500 0.94 0.63

Thus we can see that the IWT transportation is much cheaper mode of transportation.

But there are certain problems and issues in IWT:

There are 14 500 km of potentially navigable Inland Waterways, but the modal

share of IWT in organized sector is 0.24%

Till date, there is not a single full-fledged IWT port

The fleet strength in IWT sector is 430 (number) only,of which more than 50% is

obsolete and non-operational

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Infrastructural facilities , night navigational facilities and intermodal linkages are

grossly inadequate.

Investment in IWT modes is grossly inadequate. While investment for

development and maintainance of roads is around 5 crore /km ; for IWT it is only

around 0.11 crore per km which is inadequate.

MOVEMENT OF CONSTRUCTION EQUIPMENT ON BARGE ON RIVER GANGA

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MOVEMENT OF ODC ON BARGE ON RIVER GANGA

CHAPTER 7

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APPROACH TOWARDS BREAK BULK SHIPMENTS ELEMENTS TO BE CONSIDERED INTO CONSIDERATION:

The most important things to be taken into consideration are

The packing list which would contain details of the cargo handled. Its weight and

dimensions, the packaging specifications etc…

The time period basically refers to the The time between the cargo readiness date

and the cargo demand date i.e when the cargo is to be shipped?

The answer to the question will be vital in deciding the mode of transport to be ,

the carrier line and in turn on those factors the total cost of movement would

depend

The INCO terms i.e. based on what terms the transportation would take place ?

this will basically distribute the risks , responsibility and freight costs among the

buyer and the supplier.

The factors are now broken down and then discussed in detail:

7.1THE CARGO:-

What is the cargo to be transported?

Is it ODC , is the material hazardous ?

What would be the ideal transportation mode for transportation of the material?

For all these questions, you need to know the cargo. What is the cargo composed of?

What all special documentation would be required for transportation of the cargo?

All these feasibility factors are to be taken into consideration before shipment of the

cargol?

DIMENSIONS AND WEIGHT OF THE CARGO:-

This is required for the deciding on the mode of transport. Freight rates are also

dependent on a weight/volume measure. The

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PACKAGING OF THE CARGO: ODC load mainly remains unpacked . Wooden

saddles are first placed on the hydraulic trailer in a manner that is load is evenly

distributed over the axles of a hydraulic trailer . Mostly in India , road transport is used

for transporting the material from the manufacturing facility to the port.

7.2.SEA ROUTE PLANNING:

The sea route is mainly planned out by the shipping lines themselves taking into

consideration:

Demand and supply

Weather consideration

Calls made to ports with adequate infrastructure facilities

Width of the gate

Availability of berthing space , route congestion:-

This is an important factor to be taken into consideration . for e.g. in some places like

Italy permission for taking a vessel through that route is available only on weekdays.

Obstructions faced during the sea route like natural calamities are taken care of by the

captain of the ship.

7.3.CARRIER SELECTION:

All enquiries were floated on liner terms, since liner services have a regular schedule

regardless of cargo demand .

FACTORS THAT DETERMINE CARRIER SELECTION

The deciding criterion for mode/carrier selection is based on the selection of either the

lowest total transport cost or the shortest transit time for the cargo. The peculiar nature of

each transport mode, namely; rail, sea, road and air, will definitely earn their own places

when shippers need to make a decision on their shipments. The nature of the cargo will

also affect the choice of carrier/mode when they are transported in break bulk.

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Demand for freight movement is mainly driven by the derived demand from the shippers.

Unless there is a need, it is impossible for carriers to provide their service to just coincide

with need.

Freight modal choice and carrier selection depends not only on the demand for transport

but also on infrastructure and service supply characteristics. The latter will influence

quality of service provision and hence will affect other key logistics variables such as

company inventory levels and the order cycle. Therefore, mode and carrier choice will

hinge not only simply on general transportation costs but on the impact on the total

logistics costs facing the particular shipper.

What we are going to do here is examine the carrier selection process by exploring the

differences in carriers’ and shippers’ perceptions in terms of choice criteria.

Further carrier selection criteria should be further expanded into two major groupings:

• export shipper and carrier

• import shipper and carrier

Import shippers and carrier groups are more concerned about the loss and damage and

equipment availability factors.

For the export shipper and carrier groups, the differences were found to relate to the rate

changes, service frequency, financial stability, service charges and equipment availability

factors.

MODE SELECTION PRINCIPLES:-

Traditional mode selection has been focused simply on determining the mode

which achieves the lowest transportation cost. However, current supply chain

management concepts mean transportation involves multimodal combination and

the goal of mode selection has been stated as obtaining the cheapest option that

meets service requirements as well as production and marketing strategies.

Freight rate, transit time, service interval, service reliability and damage & loss

are major factors in modal choice. Transport users are relatively insensitive to

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small differences in cost between modes but very sensitive to large differences in

relative cost.

Shipper’s perception of the mode of transport. An inverse relationship exists

between satisfaction and information seeking. Once the shipper is satisfied with a

model he tends to stick with that mode or carrier.

The most important factors under consideration by the shippers are:

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Is shipper limited to one carrier by contract?

yes

no

Does consignee specify the carrier?

Does a freight forwarder specify the carrier?

no

no

Shipper1. Develops lists of all possible carries of which decider is aware2. Establishes constraints, destination and port preferred

Chosen Carrier x able to meet the constraints

yesno

Use carrier x

Use carrier y


• The ship’s capacity : whether the ship is capable enough to handle the cargo

safely

• Acceptability of the cargo by the ship :- the cargo to be delivered should be

accepted by the shipping line

• The gear handling capacity of the ship

Equipment availability and condition: ODC cargoes require certain special lifting

equipments like heavy slings and spreaders and heavy cranes with a particular

SWL . The shipping line to be selected should have these facilities in adequate

since Indian ports grossly lack in infrastructure facilities.

• Time in transit :- This is another important factor pertaining to supply and

demand . The shipping line availability should match with the readiness time of

the cargo and the demand date of the supplier

• Port of calls :- in the liner route scheduled by them whether the shipper’s port of

destination falls in their direct liner route

• Willingness to negotiate rate changes,

• On time pick up and delivery

• Carrier response in emergencies,

• Shipment information,

• Computerised billing and tracing ability

• Willingness to improve service quality,

• Quality of despatch personnel,

• Frequency of damage,losses

• Online and e-commerce services

Schedule reliability

. 7.4 PORT SELECTION FACTORS:-

Important considerations have to be made in this process. A poor choice of this place may

result in loading problems and, consequently, problems with the entire operation. The

depth of the place must take into account the draft of the transport ship, the draft of the

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transported vessel, the height of the highest keel block and the following safety distances:

between the keel of the transport ship and the bottom; and between the sleeper and the

keel of the transported vessel – at least one meter each

DRAFT REQUIREMENTS:-

The ships carrying ODC cargoes are mainly over 45000 dwt , which require a draft of at

least 12 metres. So ODC cargoes should mainly be shipped from ports which have a draft

of at least greater than 12 metres.

INFRASTRUCTURE FACILITIES REQUIRED AT THE PORT:-

Port has got electric wharf cranes of maximum lifting capacity of 35.5 tons which is

grossly inadequate. Therefore, either the ships crane has to be used or the floating cranes

available on lease have to be used. This will be an important factor for deciding the

vessel type, since floating cranes are generally very costly.

7.5TRANSPORT ROUTE SURVEY TO THE PORT:

A sample transport route planning is shown below highlighting all the hazards faced en

route. These plans are drawn beforehand and accordingly steps are taken to ensure safe

transportation of the cargo to the port.

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THE TRANSPORTING VESSEL:-

ON ROAD: The lifting operations on the trailers must be carried out in presence of

responsible and qualified personnel and in a proper manner with respect to

manufacturer’s manual, drawing and instructions using proper hooks , slings , spreaders

etc. while loading onto the trucks it should be kept into consideration that the C.G of the

truck and the C.G. of the load are in line with each other ; else the load may topple due to

opposite moment forces

7.6 LOADING:-

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While lifting and loading it has to be kept in mind that balance of the cargo must be

maintained to avoid toppling and internal damages . sometimes internal damage and

change of alignment may be possible with no apparent external damages. In order to

avoid this , throughout the lifting a particular balance and equilibrium should be

maintained with the help of spreader beams , combo cranes etc . with proper lifting

capacity.

The following basic points are to be kept into consideration for overall load planning:-

Obtaining vessel charecteristics:-

Type of vessel

Number of hatches

Deck cargo space

Crane SWL capacity

Weight distribution

How the weight is to be distributed on the ship to maintain stability is determined

by:

VSF(vessel stowage factor)

The VSF, an important measurement in cargo stowage, is usually stated as the number of cubic

feet that one LTON (2,240 pounds) of particular lot of cargo will occupy when properly stowed

in the ship’s hold

Having a proper cargo pre-stowage plan beforehand

The prestowage plan must be prepared before any cargo is loaded.

It should show cargo distributed throughout the cargo compartments in a manner which

preventsundue strain on any portion of the vessel.

It provides a basis for scheduling the arrival of cargo shipside according to priority and

for estimating requirements for cargo-handling equipment.

7.7 TERMS OF FREIGHT PAYMENT(INCO TERMS):

Heavy permit document required (attached)

What inco terms to be used for transportation:-

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we will gauge this issue from two points of view:

THE BUYER POINT OF VIEW:-

What terms should the buyer go for? The mainly recommended terms are

Ex-works

FOB

CIF

But the question arises “doesn’t the buyer have the maximum obligation here?”. Yes true,

but the main advantageous factors are:

The buyer has total control over the shipments, the shipping lines used, the freight rates

offered by the shipping lines , so the buyer can avail of benefits offered occurring due to

the lower freight rates and has total track of his shipments.

The second advantage is that a buyer will not have a cargo from a single supplier only,

there will be various other suppliers from whom various cargoes have to be imported. If

he goes for DDU, DDP etc. then he has to pay for each shipment separately. The

advantage in Ex-works is that he has the advantage of consolidating his cargo in one ship

which will be definitely cheaper when compared to the D,C terms

Therefore the main advantages he gets are of NEGOTIATION, CONSOLIDATION

& CONTROL

THE SELLER POINT OF VIEW:-

The Inco terms mainly used here are mainly

CIF ,

DDU etc.. again the question arises that why to follow these when they have the

Maximum obligation.

The advantages are:

Value addition to the customer: delivery at the doorstep , thus providing convenience to

the customers is a reason why sellers prefer these terms. Is it always economical to pay

for the full transport? Not always , at the beginning the companies follow this strategy

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and once they gain confidence with the buyer bagging frequent orders , a mutual

relationship develops where the terms of delivery can be negotiated then.

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CHAPTER 8

8.1 THE PROJECT CARGO MARKET IN INDIA:-

Traditionally Europe has been the main hub of the project cargo in india. New markets

like south America , china , Middle east and Japan are on the rise in this sector .

Government initiatives towards the project cargo sector in India:-

• With India’s GDP growing at healthy rate and most of the core sectors enjoying

steady growth the Indian freight logistics industry is at an inflection point and is

expected to reach a market size of over $125 million in 2010.

• Increase in spending on Road/Rail and other infrastructure by Government is also

an impetus for growth.

• NMDP investment of $ 13 billion in next 7 years to boost Ports infrastructure.

• Additional Port handling capacity of 530MMTA in major and Minor Ports thru

Public Private Partnerships.

• Development of new Ports like Dahej, Gangavaram and Krishnapattanam etc will

also augment the Project cargo market.

Main sectors of potential cargo growth in india:-

Power

This sector will witness an exponential growth on fast track due to the recent

signing of Indo-US, Indo-French, and other deals with Japan, Canada, Russia etc.

In order to reduce the current shortfall in generation Indian companies like

BHEL, L&T MHI, Jindal Power, GVK etc plan to add approx. 25000MW of

Thermal,10000MW of Nuclear, 6000MW of Hydal power totaling to 40000MW

by 2015 . imports in this sector will be mainly from Europe, North America,

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Japan and China to Mumbai, Kandla in the west coast and Gangavaram,

Krishnapattanam, Haldia, Chennai and Vizag on the east coast of India.

Infrastructure

Govt. of India is now investing in development of new airports and ports, new

metro projects resulting in import of aero bridges, cranes, and other equipments

from Europe and Far East which are essentially project cargoes.

Indian companies are also executing large infra structure projects in Vietnam,

Middle east, African countries which is generating large volumes of project

cargoes from East Europe , Far East etc of second hand cranes, and other ODC

cargoes etc of approx. 50000 frt in next 2 years.

Major players – L&T , Punj Lloyd, Jaypee Group, Shapoorji Palonji, Essar,

Reliance etc

Wind energy

In order to reduce the current shortfall in generation companies like BHEL, L&T

MHI, Jindal Power, GVK etc plans to add approx. 25000MW of

Thermal,10000MW of Nuclear, 6000MW of Hydal power totaling to 40000MW

by 2015. Plans are on anvil to commission 2 ultra mega,4mega and many new

small power plants with Kaiga and Kumbakonam capacity augmentation.

Oil and gas

The market segment is nascent and is witnessing slow growth but will be a major

sector for contributing to generating Project cargoes in near future.

Indian companies like Reliance, L&T, Punj Lloyd etc are executing oil and gas

projects in Far East (Petronas), South America ( Petrobas) etc generating project

cargoes of ODC and heavy lifts.

Steel

Others (machineries etc…)

PERCENTAGE OF MAJOR PROJECT CARGOES IMPORTED AND EXPORTED BY INDIA:-

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From the above graph we see that the imports and exports in machinery equipments like

cranes etc …are the highest which means the Government is investing more in the Indian

infrastructure in the times of recession. This is because there are numerous opportunities

in infrastructure

Infrastructure assets are economic necessities, have highly predictable revenue streams

and require huge capital expenditures to build, they can provide excellent long-term

income with reasonably low volatility.

User fees for businesses such as toll roads or airport parking can be raised, making the

asset class comparatively well insulated from inflation.

Also investment in infrastructure is important since India’s GDP is growing at an

alarming rate and mostly imports and exports contribute to the growth rate in the GDP.

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GDP GROWTH RATE

GDP BREAKDOWN

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IMPORT VS EXPORT VOLUME AT MAJOR INDIAN PORTS:-

8.2 PROJECT CARGO – AN ANALYSIS OF THE HURDLES IN THE INDIAN SUB CONTINENT

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India is investing much larger sums in upgrading its infrastructure than has generally been realised. This wave of spending is fuelling a rapid expansion of the country’s heavy lift sector, but there is still demand for overseas expertise prepared to work in this challenging market.

Across the Indian sub-continent, though on a difficult path, heavy lift and over-

dimensional cargo (ODC) transport offers attractive opportunities with unlimited

prospects. The past few years have seen an unbridled flow of new players wanting to

carve a niche for themselves in this sunrise sector. However, given the lack of uniformity

in the regulatory environment which prevails in various states, as well as the poor state of

the country’s infrastructure, it is mostly those who can think out-of-the-box and who have

expertise, dogged determination and a bit of foresight that can ultimately find their

Place .

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Infrastructural development in India is growing at a scorching pace and heavy lift cargo is

taking centre stage. There is the hectic search for oil and gas; large numbers of power

stations being set up to reduce the gap between supply and demand; refineries being

erected as well as automobile, cement, steel and fertiliser plants under construction across

the country.

THE BIGGEST HURDLE IS THE MOTOR VEHICLE ACT which does not allow

the transport of cargo exceeding 32 tonnes and does not recognise the ‘hydraulic trailer’.

As a result, an alarming amount of time is wasted by operators having to seek permission

from the relevant authorities including the PublicWorks Department, National Highways

Authority, Road Traffic Department, the Road Transport Officer, Forest Department,

Environment Department, as well as railways.

To cap this problem, most bridges across the country are not strong enough to take

the weight of many heavy lift shipments and shipping companies need to be innovative

to circumvent these.

The number of road transport companies in India numbers more than 400,000. So far

those handling project cargo and ODC of over 500 tonnes can be counted on one’s

fingers.

The main reason is :-

Most of the time project transportation includes shutdown of power and

telecommunications to allow the consignment

to pass, strengthening of bypasses and bridges, removing obstacles such as trees, wires

and other hurdles as well as the dismantling of railway crossings. In cities, many islands

at road crossings also have to be removed and rebuilt after the ODC has passed. Often

operators find that it is not practical or feasible to handle such heavy cargo considering

the constraints one has to operate within and the distress and disappointment that one has

to put up with having to deal with the bureaucracy.

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e.g getting permission from authorities in Gujarat and Andhra Pradesh poses serious

problems. If the package size exceeds the size of the trailer the fine imposed far exceeds

the transport cost.

99.99 percent of the heavy lift export cargo handled by goes by sea, it is only in

exceptional cases that the cargo is sent by air. Many in the industry indicate there is

insufficient equipment in India’s ports suitable for handling over-dimensional and heavy

lift cargo. Haldia and Chennai each have one crane of 100 tonnes capacity, while

Mumbai port has one of 60 tonnes capacity.

The infrastructure problems in the country leave a lot to be desired. Inland sites have a

problem transporting large-sized machines because of logistical problems.

There has to be a clearcut road map for transportation. In sites such as these, one needs

to make a compromise

between technology and cost. Either assemble the equipment at site or transport it .

There is a need for a standard procedure for heavy lift and ODC. Most agree that the

government is responsible for creating a nightmare for project cargo transport because

every district and state has its own procedures for ODC

cargo transportation. Billions of dollars will need to be invested in transport if the further

development of the country is to be fully realised. And, clearly, while the country’s

massive investment will provide major opportunities for project forwarders and shipping

lines, it is not going to be an easy ride.

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CHAPTER 9

FREIGHT RATE DECISION MODELA shipowner does not invest on a new vessel unless they have a time charter contract in

US $/DWT which would generate a sufficient stream of money to cover his initial

investment costs and annual costs associated with operating of vessel plus a return on

investment.

The aim is to produce a justified investment for costs estimated over the ships life and

produce a charter rate which would produce a NPV equal to zero.

NPV investment = PV revenues – PV operating costs – PV capital costs

All cash flows are discounted at a rate equal to the shipowner’s opportunity capital.

ASSUMPTIONS:-

1. 80% of the purchase price of the vessel would be loaned for 8 years @8% per

annum.

2. 20% will be paid by the owner on signing the contract.

3. 2 year lead time between signing of the contract and actual delivery of the

vessel.

4. Vessel to have zero residual value at the end of its life.

5. Annual operating costs to increase @ 10% per annum over the life of the vessel.

6. Life of the vessel is fifteen years.

7. Owners opportunity cost of capital is 15% per annum

PV CALCULATIONS FOR CAPITAL COSTS:-

Assume the new shipbuilding cost to be I. Of this amount 20% or 0.2I will be paid in

cash by owner at the time the contract is signed and 80% or 0.8I to be loaned for 8

years @ 8% per annum , the principal being paid out in equal installments starting

one year after the ships delivery.

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YEAR BUILDING INSTALLMENTS

OWNER 20%

LOAN 80%

LOAN REPAYMENT

LOAN OUTSTANDING

LOAN INTEREST

CASH OUTFLOW

0 0.2I 0.2I 0.2I

1 0.4I 0.4I 0.4I 0 0

2 0.4I 0.4I 0.8I 0.032I 0.032I

DELIVERY

3 0.1I 0.7I 0.064I 0.164I

4 0.1I 0.6I 0.056I 0.156I

5 0.1I 0.5I 0.048I 0.148I

6 0.1I 0.4I 0.040I 0.140I

7 0.1I 0.3I 0.032I 0.132I

8 0.1I 0.2I 0.024I 0.124I

9 0.1I 0.1I 0.016I 0.16I

10 0.1I 0.0 0.008I 0.18I

PV FACTOR DCF(cash outflow* PV factor)

1 0.2I

0.0

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0.032I

0.164I

0.156I

0.148I

0.140I

0.132I

0.124I

0.16I

0.18I

Formula for PV of annuity A for N years discounted at a rate R per annum is given by:-

Formula for a PV with a discrete cash flow:-

Formula for increasing gradient series of gradient G for N years discounted @R per annum :-

THEREFORE,

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NPV


PV capital costs =

0.2I + 0.032I + (0.1+0.064I) +

PV CALCULATIONS FOR OPERATING COSTS :-Operating costs of bulk carriers can be attributed to factors like;

1. The country of registry of the vessel which has an effect on the wage system ,

the tax system etc…

2. Size of the crew

3. Age and general condition of vessel which lead to expenditure on repairs and

cost of insurance.

We have already assumed that operating costs keep on increasing @ 10% per annum

over the ship’s service life assumed to be 15 years.

Therefore;

PV operating costs = OC

Where OC represents operating costs of the carrier ;

R is the opportunity cost of capital;

g is the annual growth rate of the operating costs assumed to be 10% for the time

being.

Typical operating cost table for a 45000 dwt carrier

CAPITAL COST 16560

INSURANCE 1535

REPAIRS AND MAINTAINANCE 3656

CREW 5216

FUELS AT SEA 8263

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$/DAY


VICTUALISING 1460

TOTAL(OC) 36690

PV CALCULATION FOR ANNUAL REVENUES:-Annual revenues is the unknown quantity whose value we want to determine so that net

present value of our investment equals to zero.

They are usually expressed in

1. $ per payload (DWT)

2. $ per year/month/day

Operating days in this case is assumed to be 350 days per year and the annual revenues

are to be assumed constant with time over the service life of the vessel which is assumed

to be 15 years.

We can call annual revenues to be RFR the required freight rate

Therefore;

PV for annual revenues:-

RFR

NPV Investment now should be equal to zero for determining the RFR(required freight rate).

0= PV revenues – PV capital costs – PV operating costs

0= RFR – [0.2I + 0.032I +

(0.1+0.064I) + ] - OC

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On substituting R to be 15% (earlier assumed) we can determine RFR, the required

freight rate or the charter rate.

CHAPTER 10

10.1 EFFECT OF RECESSION ON THE BREAKBULK INDUSTRY

STEEL SECTOR:

The global economic recession took a huge toll on global production of crude steel, a key

breakbulk cargo, in the month of March and the first quarter of 2009, according to the

World Steel Association, which compiles data from the 66 countries that report

production figures.

Every single country reporting data showed a drop in production in March. Only China

showed a slight increase for the first quarter. Total crude steel production in the 66

countries dropped to 92 million metric tons in March, down 23.5 percent from the same

month last year.

World steel production for those countries in the first quarter of 2009 was down 22.8

percent year over year at 264 million metric tons.

During the first three months of 2009 Asia produced 173 million metric tons of crude

steel, which was a decrease of 8.9 percent from the year-ago period. The EU produced 30

million metric tons of steel in the first quarter of 2009, down by 43.8 percent compared to

the same quarter of 2008.

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North American production dropped by more than half in the first quarter, showing a 2.1

percent decline, with production at16.6 million metric tons. China showed a slight

increase of 1.4 percent while all the other major steel producing countries showed a

decrease in the first quarter of 2009.

Crude steel production in March was down across the board for all countries reporting

their data. China’s crude steel production for March was 45.1 million metric tons, down

only 0.3 percent lower than March 2008. The U.S. produced 4.1 million metric tons of

crude steel in March, a decrease of 52.7 percent compared to the same month last year.

Other countries reported the following decreases for March compared to the same month

last year:

– Japan, 5.7 million metric tons (-46.7 percent).

– South Korea, 3.7 million metric tons (-21.2 percent).

– Germany, 2.1 million metric tons, (-49.8 percent).

– Italy, 1.7 million metric tons (-2.7 percent).

– France, 1.1 million metric tons (-36.7 percent).

– Spain,1.1 million metric tons (-41.2 percent.

– Brazil,1.7 million metric tons (-41.5 percent).

– Russia, 4.6 million metric tons (-30.9 percent).

– Ukraine, 2.4 million metric tons, (- 38.5 percent).

– Turkey, 1.8 million metric tons, (-24.5 percent).

EFFECT ON THE SHIPPING INDUSTRY:

Heavy-lift carriers are still busy transporting cargo for the global engineering projects

that have moved beyond the planning stage, but the frenzied quest for project cargo space

on ships has settled down as vessel capacity has loosened up and freight rates have

softened. This development promises to change the tenor of a shipping sector that has

experienced a severe shortage of capacity over the last five years.

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The softening in demand has taken some of the upward pressure off freight rates. The

bunker adjustment factor has been reduced, but the freight rates have remained pretty

stable. In part, that’s because many liner companies are charging rates set under long-

term contracts with their regular customers.

Vessel operators are cautious about the outlook for breakbulk and heavy-lift cargo

because there are so many unpredictable political and economic factors that can affect

their markets.

Lack of demand of heavy projects due to commodities such as copper down, nobody is

going forward with copper mining or smelting projects.

Case of the oil sands projects up in Alberta. When the price of oil tumbled, the project

companies moved swiftly to shut down everything they could.

In the period of recession, global market outlook for heavy engineering projects will

depend on what kind of stimulus package comes out in different countries

The biggest difference in the breakbulk market has come in terms of commodities and it

has hit the shipping industry to such an extent that they have to decide on their cargo mix

even on breakbulk vessels.

Another effect of recession is that major companies are holding up their projects leading

a further dilemma in the breakbulk vessel sector.

Breakbulk charter rates began rising last September and hit historic highs earlier this

year. They have declined a bit since March with the slowing of China’s economic growth

rate and have stabilized since then. A vessel that cost $6,000 a day to charter a year ago

now costs between $9,000 and $10,000 a day.

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TWO PAST CASES :

1973:- The outbreak of the oil crisis led to a collapse of the tanker market overnight

because there were no oil shipments to be shipped as the Saudis had turned off the tap.

The world economy suffered its first recession because of high oil prices. But tanker

capacity kept growing @ 20% in spite of freight costs barely able to cover the running

costs. The tanker market did not recover until the late 1980’s.

1981:- The global recession in 1981 brought down the demand for iron and coal

commodities and hence the bulk shipping market suffered.

EFFECT OF THE CRUDE OIL PRICES:

The recent drop in crude oil prices has brought down the freight rates of goods exported

from India to the US and Europe by 30 to 40 per cent. Leading shipping lines operating

between India and Europe and the US said freight rates dropped to $700 from $1,000 and

$1,600 from $1,900, respectively, for every 20-foot equivalent unit (TEU) in the past two

months.

According to representatives of shipping lines, crude prices dropped almost 60 per cent

over the past three months from the record high of $147 a barrel in July to a 17-month

low of a little below $63 per barrel.

This, in turn, has brought down the bunker adjustment factor (BAF) to 12 per cent (on the

freight) from 17 per cent.Industry representatives said the current global economic

downturn had also brought down the exports of goods by 7 per cent.

The global shipping market is sinking. This week, the Baltic Dry Index, which tracks

rates for vessels carrying bulk commodities on the world's busiest 26 routes fell to its

lowest level since July 2006. From the look of it, it is unlikely to recover any time soon.

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THE BALTIC DRY INDEXThe Baltic Dry Index (BDI) is a number issued daily by the London-based Baltic

Exchange. The index provides "an assessment of the price of moving the major raw

materials by sea. Taking in 26 shipping routes measured on a timecharter and voyage

basis, the index covers Handymax, Panamax, and Capesize bulk carriers.

Most directly, the index measures the demand for shipping capacity versus the supply of

dry bulk carriers. The demand for shipping varies with the amount of cargo that is being

traded or moved in various markets (supply and demand).

The BDI factors in the four different sizes of oceangoing dry bulk transport vessels:[3]

Ship Classification Dead Weight Tons % of World Fleet % of Dry Bulk Traffic [4]

Capesize 100,000+ 10% 62%

Panamax 60,000-80,000 19% 20%

Supramax 45,000-59,000 37% 18% w/ Handysize

Handysize 15,000-35,000 34% 18% w/ Supramax[5]

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http://en.wikipedia.org/wiki/Baltic_Dry_Index#cite_note-4



http://en.wikipedia.org/wiki/Supply_and_demand

http://en.wikipedia.org/wiki/Bulk_carrier

http://en.wikipedia.org/wiki/Capesize

http://en.wikipedia.org/wiki/Panamax

http://en.wikipedia.org/wiki/Handymax

http://en.wikipedia.org/wiki/Baltic_Exchange

http://en.wikipedia.org/wiki/Baltic_Exchange

http://en.wikipedia.org/wiki/London,_England


EFFECTSThe crash A sharp one as it took only afew months for the freight rate to fall

95% as is evident from the BDI. This was mainly triggered by global

recession , slowdown in china coupled with lack of trade credits

etc..

What happened

before

Between 2003 and 2005 this particular sector went through a super

boom mainly because demand for commodities could not be

satisfied.

Orderbook Order book for the capsize segment is now about 90% of the total

existing fleet. Many expect that these orders will be cancelled.

Freight rate The freight rate has gone below $ 3000 for now and is expected to

stay at around $ 5000 which is around the operating costs but way

below the break even point.

Ship owners They have the urge to cancel new building orders and scrap older

tonnage.10 capesize vessels have been sent for scrapping over the

last two months versus almost zero in the past few years.

RECESSION AND THE SHIPPING LINES

RICKMERS

Rickmers Linie (America) has adjusted its 2009 budget downward as revenue

expectations decline and tonnage shrinks. In spite of the grim economic climate,

Rickmers expects to get through the year without too much harm, said Jerry Nagel,

president and chief executive at Rickmers.

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Top priorities in 2009 for the carrier include maintaining service levels and preparing for

scheduled deliveries of new vessels. Company executives and sales staff are planning

multiple meetings in coming months with current and prospective customers to find out

what cargoes are out there and in which markets to position the new vessels.

Rickmers has not laid up any ships or changed any routes as a result of the recession and

has no plans to do so.

Commodities and breakbulk cargo such as steel and pipe are not moving in the same

quantities as before. The company has been able to substitute other cargoes such as

bagged fertilizer and to carry more heavy-lift cargo.

Rickmers line has also phased out a new vessel named “Rickmers Houston” from

Houston to south-east Asia thus offering additional capacity to customers and increasing

frequency of vessels from fourteen to eleven days.

BBC CHARTERING

Germany-based BBC Chartering began preparing for the global downturn in project

activity by fine-tuning its business model, according to Ove Meyer, the company’s chief

officer. The company consolidated data and information in a central location and

upgraded its technology to ensure that the information is readily available to company

and customer offices worldwide.

“It’s just a matter of increasing overall efficiency,” Meyer said. “The most money you

can lose is through ineffective internal and external information flows.”

Another key for surviving the recession is the operational flexibility provided by a fleet

of 140-plus multipurpose, heavy-lift vessels, which enables BBC to reroute ships and add

ports of call. Quality of service is a key differentiator in the heavy-lift business even in a

recession. By providing quality of service, the carrier will be well positioned for an

eventual recovery.

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Mining projects in Brazil and Argentina, a key market segment for BBC, are on a

downward trend. A severe economic downturn in the region would impact BBC in all of

its markets including Asia, which as a region has invested heavily in South American

mining projects.

One important trade segment that could remain strong through 2009 is replacement cargo

for Persian Gulf-based energy and infrastructure projects. The key is the price of oil.

“New oil projects need at least $50 per barrel for them to be profitable,” CEO Meyer

said. “If it falls below that, it’s not worth it and projects will be postponed.”

To strengthen its market position, BBC has added services and formed new alliances. The

carrier’s Gulf Line Service offers two monthly sailings from U.S. Gulf ports including

Houston and Mobile to major ports in the Persian Gulf.

Mediterranean Project Chartering, a business alliance formed in 2006 with Genoa, Italy-

based carrier Intermare serves Mediterranean breakbulk and project cargo markets.

CHIPOLBROK , SANGHAI

Chipolbrok, a Shanghai-based Chinese-Polish joint venture with U.S. offices in Houston,

operates an import liner service from the Far East and China to Houston, New Orleans

and Camden, N.J., and a westbound service from the U.S. to Asia. The carrier has a fleet

of 20 triple-decker vessels ranging from 18,000 to 30,000 deadweight tons.

Breakbulk cargoes such as minerals and steel have been hit hard by the recession. In

some cases, rates on westbound services are down by as much as 50 percent.

For the heavy-lift cargo market, the signals are mixed. It’s too early to tell whether there

will be significant declines in volume even if the recession drags on late into 2009. Most

of Chipolbrok’s project cargo is booked far in advance and moved on its liner services.

It’s the charter side that is experiencing the steepest tonnage declines in steel, minerals

and other commodities.

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The carrier is expanding its services by offering direct discharge and transshipments to

new destinations and smaller ports of call. For example, transshipments are available to

Aberdeen, Scotland, through a second carrier via Antwerp.

but we still can see that india is a rising sector for imports/exports of project cargo.hoegh

autoliners , the nowegian car carrier has added services recently to india.

10.2 GLOBAL RECESSION: THE INTERRELATION WITH TRADE

The basic elements required for a trade are:

The main solution from the importer end is to reduce the prices of the commodities. This

is mainly due to reduced buying power of the consumer which results in lower

consumption index. To boost trade , we need to boost consumption , which is possible the

same quality of goods at lower prices.

How is this possible?

By reducing the costs in the supply chain process.

This is also possible since:-

1. Against the background of current financial crisis, prices of raw materials have

decreased

2. Significant reduction in prices of energy products such as petroleum means lower

freight and storage cost

3.With the decreasing and stable amplitude of the financial crisis wave, rate of exchange

will tend to level off and rise.

Low price transmission can be assumed to have a larger trade volume. With increasingly

stable financial community, trade will tend to be active and large in size when consumers

have suitable savings and their purchasing power and consumption confidence index rise.

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RAW MANUFACTUREXPORTERS(TRADE COMPANIES)

LOGISTICS IMPORTERS(BUYERS)


Maybe experts and scholars then will conclude that the crisis has ended and economy

begins a recovery journey.

On the other hand if the sales volume of low priced goods soars in a country it will lead

to international trade friction. Countries will set trade barriers to hold back low-price

goods from exporters, with the purpose to protect its local industries from being hit, to

lower unemployment rate, and to avoid spread of crisis to a larger scope.

Such measures based on individualism will conversely further the depression of global

economy. The measures, aimed at protecting domestic or local companies, are not good

for recovery from a crisis. It will take longer for the economy to recover when it falls to

the bottom.

Under such an economic environment, how do companies on the trade chain face the

situation? After each crisis, there are cheap shares and assets everywhere. It is perfect

time for companies to reconstruct, merge and acquire. Those companies with abundant

cash flow will expand and develop themselves at this time through the measures

mentioned above. Exporters shall seize opportunities to cooperate with international

brand companies. Strength of low cost will play a more important role in future trade.

In view of the current financial condition, shipping companies have decided to trim their

cost bases by taking various steps, TSA Chairman Ronald D Widdows said. These

include consolidating routes and sailings, entering into vessel-sharing alliances, laying up

ships for maintenance and repairs, returning chartered ships, and adding ships to service

strings as part of slow-steaming strategies to conserve fuel.

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BIBLIOGRAPHY:

BREAKBULK DIGEST

HEAVY LIFT MAGAZINE (issue july 2008 to feb 2009)

www.mit.edu

Indian maritime landscape report(2008)-KPMG

Cargo systems by Hans-otto Gunther

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http://www.mit.edu/


Drewry’s shipping statistics

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