The Shipping Business

Tramp & Liner TradeChartering & BrokeringFreight Rates

Tramp ShippingTramp Shipping -- shipping service where carriers contract to

haul cargo in shipload lots between ports designated by charterer.

Tramp ships provide convenient, timely & economic transportation for many goods needed in a complex industrial society. In established trades (i.e., grain from US, Canada,

Argentina & Australia to N. Europe, Med, Africa, Japan & S. Asia

On new routes to alleviate temporary critical shortages

Tramp ShippingTramp Shipping Moves 4.5 billion tons of basic agricultural,

forestry, mining products & manufactured raw materials (steel, cement, etc) world-wide

Depends on a global network of brokers, agents & representatives to market services, and procure & contract cargoes

Post WWII: Surplus Liberties & Victories dominated the

general service (bulk & break-bulk) fleets 70’s-80’s: larger “SD-14’s” (UK) & “Fortune Class

(Japan) predominate

Tramp ShippingTramp Shipping Smaller general purpose Tramps face fierce

competition from: Larger bulkers: 30-50,000 DWT “Handi-Max” & very large

(100-159,000 DWT) special purpose, ore carriers Container ships Tankers outfitted for grain transport (pneumatic “vacuators”

for quick unloading) STILL (1996): 50% of all dry-bulk ships & 20%

of all dry-bulk cargo carried by 10-30,000 DWT vessels to service: Cargoes that cannot be placed in containers Transportation of small (10-15,000 T) lots Shallow depth ports and/or Ports with low to moderate facilities requiring self-unloading

vessels

Liner ShippingLiner Shipping -- shipping service that operates on an

established route and has published sailing dates and published tariffs Private carriers transport only the goods of

a single shipper (more typical of tramp trade)

Common Carriers transport for any and all goods offered between the specified ports it serves (typical of Liner Service)

[Basically, a vessel carrying the property of 2 more shippers is a common carrier]

Liner ShippingLiner Shipping Conference: An association of common

carriers operating on the same ocean route and using a common tariff Closed Conference: limits membership to the

specific number of carriers that will be sufficient to to provide transportation for the proffered cargo

Open Conference: admits membership to any common carrier prepared to serve the trade routed covered by the conference

[There are about 300 Conferences world-wide, most unite 10 or less Liner Companies, a few as many as 50]

Liner ShippingLiner Shipping Examples of Conferences:

United States Atlantic and Gulf Ports/Eastern Mediterranean and North African Freight Conference

TRADE: From U.S. Atlantic, Gulf and Great Lakes ports, and inland and coastal points and ports in Greece, Egypt, Turkey, Algeria, Cyprus, Lebanon, Malta, Morocco, Syria, Tunisia and Yugoslavia

MEMBERS: Farrell Lines, New York, NY; Lykes Bros. Steamship Co., Tampa, FL; Waterman Steamship Corp., New York, NY

Israel Trade Conference TRADE: Between U.S. Atlantic, Gulf, Great Lakes, Pacific (including

Alaska and Hawaii) to and from Israel. MEMBERS: Zim Israeli Navigation Co. Ltd., Haifa, Israel; Farrell

Lines, New York, NY; Lykes Bros. Steamship Co., Tampa, FL

Liner ShippingLiner Shipping

Board of DirectorsChairman President, Secretary, Treasurer

other members

President

Executive VP

Administrative Traffic Dept Chartering Dept Vessel Ops

Secretary Comptroller

Treasurer Financial Dept.

Liner companies may have a variety of structures, but all encompass the following functions:

Liner ShippingLiner Shipping Traffic Department

Inbound Freight Division Delivery Orders Inland Routing Customs Brokers Warehousing Tracing and Claims

General Freight Agent Sales Staff

Outbound Freight Division Booking Clerk Manifesting Section

Chartering DepartmentCharters ships in & out of fleet

Liner ShippingLiner Shipping Vessel Operations Department

Marine Superintendent Port Captains Supervision of Deck Personnel Deck maintenance – Inspections & dry-docking Seaworthiness, Safety & Voyage Instructions

Superintendent Engineer Port Engineers Supervision of Engine Personnel Machinery maintenance – Inspections & dry-docking Seaworthiness, Safety & Voyage Instructions

Commissary Superintendent Supervision of Steward Personnel Ship’s Stores Acquisition

Terminal Manager Facilities (equipment & stevedoring) Administrative (receiving & delivery, security)

Ship’s ComplimentShip’s ComplimentDeck Dept. Engine Dept Steward’s Dept.

Modern Tanker (Compliment of 14-20)Licensed:

CaptainChief Mate2nd Mate3rd Mate

Licensed:Chief Engineer1st Engineer2nd Engineer3rd Engineer

Unlicensed:AB’s (2-3)

Unlicensed:DEMac’s (2-3)

Unlicensed:Steward/CookMessman/BR (1-2)

Passenger Ship (Compliment of 500-1500; QM2 ~ 1250)Licensed:

CaptainStaff CaptainChief Mate (1-2)2nd Mate (2-3)3rd Mate (3-6)

Licensed:Chief EngineerStaff Chief1st Engineer (1-2)2nd Engineer (2-3)3rd Engineer (3-12)

Unlicensed:Chief Steward

Galley StaffDinning StaffHousekeeping Staff

Chief PurserCruise StaffUnlicensed:

AB’s (6-12)OS’s & Deck Maint Staff

Unlicensed:DEMac’s (6-12)Engr Maint Staff

Vessel Management CompaniesVessel Management Companies Companies offering full management services or a

combination of specialized expertise including: Crewing Regulatory Compliance Condition Surveys Purchasing Chartering Brokering and Insurance Shipyard Selection

Terminal Requirements Feasibility Studies Vessel Selection Vessel Activation Route Proposals Weather Information Local Regulations Hotel Operations

Layers of corporate structure proliferate Vessels individual corporations with single owner, & multiple

operators Single operator of ships with different owners Owner/operators wholly owned subsidiaries of conglomerates

CharteringChartering CHARTER-The hiring of a vessel for either:

a specified period of time or a specific voyage or set of voyages.A chartered vessel is technically a private carrier which

predominates in tramp trade, but liner companies often charter vessels or lease vessels to charter depending on cargo demand

CHARTERER-The entity hiring the vessel from the shipowner. CHARTER-PARTY-The contract between the owner and the

charterer, stipulating in detail each party’s responsibilities in the transaction.Charta Partita is Latin for a “letter divided.”

CharteringChartering There are three basic types of Charter Parties

Voyage Charter Contract of carriage in which the charterer pays for the

use of a ship’s cargo capacity for one, or sometimes more than one, voyage.

the ship owner pays all the operating costs of the ship (including bunkers, canal and port charges, pilotage, towage and ship’s agency) …

while payment for cargo handling charges are subject of agreement between the parties.

Time Charter The hire of a ship for a specified period of time. The owner provides the ship with crew, stores and

provisions, ready in all aspects to load cargo and proceed on a voyage.

The charterer pays for bunkering and all voyage related expenses including canal tolls and port charges.

CharteringChartering There are three basic types of Charter Parties

Voyage Charter Time Charter Bare-Boat Charter

The leasing of an empty ship for a specified period of time for a specific fee in this arrangement,

the ship owner virtually relinquishes all rights and responsibilities in respect of the vessel and the charterer becomes the de facto owner for this period.

The charterer is generally responsible for all operating expenses including crewing and insurance.

Also called a Demise Charter

CharteringCharteringResponsibility VOYAGE TIME DEMISEBasis of charter hire Cargo Tonnage Ship Capacity Ship CapacityDuration of Charter Party Specif. voyage(s) Period of time Period of timeGeographic Limits Port to port By area By areaMaintenance of Seaworthiness owner owner chartererPossession, command, operation & navigation (demise) owner owner charterer

Employer of crew owner owner chartererMaster under direction of owner charterer chartererFuel costs, Port & Harbor fees owner charterer chartererHull & Machinery Insurance owner owner negotiableProtection & Indemnity (P&I) owner owner chartererPayment to shipowner End of voyage Monthly MonthlyLegal term for compensation Freight Hire Hire

Weight & MeasureWeight & Measure There is tonnage and there is tonnage

Deadweight Tonnage (DWT) – The displacement of a fully loaded vessel in Long Tons (2240 lbs) or Metric Tons (1000 Kg) including structure, fuel, water, stores, cargo, passengers & crew.

Light Weight Tonnage – Displacement of “empty” vessel (no fuel, stores, cargo, etc.)

Deadweight Items – The difference between DWT and LWT including Cargo Deadweight

Gross Tons – The entire interior volume of the vessel (including deck houses and excluding certain spaces exempted by statute) in 100’s of cu. ft. (1 g.t. = 100 cu.ft.)

Net Tons – Volume remaining after “non-earning” spaces have been deducted from the Gross Tonnage.

Weight & MeasureWeight & Measure There is tonnage and there is tonnage

Gross & Net Tonnage – are legal terms used to determine port & canal transit fees and classify the “size” of vessels for certain legal activities and regulations. They are intended to be a measure of the “earning capacity” of the vessel. As an analogy consider “Gross Income” which the IRS defines

as the total of what you make but exempting certain items (.e.g, contributions to an IRA) and “Taxable (Net) Income” which is Gross Income minus deductions (either standard or itemized).

Calculation of Gross and Net Tonnage can be as complicated as a 1040 Tax Form and there are “loopholes” for getting certain spaces exempted or deducted that actually may be used to carry cargo.

Originally the “tun” was a cask for carrying 250 gal. of wine. It weighed 2240 lbs and occupied 57 cu. ft. of space.

Freight Rates …Freight Rates … … the prices charged for the services of ocean

carriers. Determined by ship operators to reflect: The cost of providing the carriage including Vessel operation Cargo handling, port fees & tariffs Exchange rates among international currencies The value of this service to the shipper The ability of the merchandise to support the

expense of being shipped Economic conditions in general

… subservient to The Law of “Supply & Demand” including Competition among carriers on the same route Competition among ports

Freight Rates …Freight Rates … Charge carriage by weight ($/100 lbs) or volume

($/cu.ft.)? It depends … If 1 LT (2240 lbs) of cargo occupies less than 40

cu.ft., charge by weight. (deadweight cargo) If 1 LT (2240 lbs) of cargo occupies more than 40

cu.ft., charge by volume. (cubic cargo) The weight (in LT) of 40 cu.ft. is the stowage factor Carriers charge “by weight or measure” whichever

generates the most revenue But what about the type of cargo? (nails vs. oranges

vs. computer parts?)

Freight Rates …Freight Rates … Class Rates – assigned to groups of unrelated cargos that are

found to require approximately the same revenue for their transport Class D (dangerous cargo) is the highest rate followed

by Class 1 through 8, with Class 8 the cheapest There are deadweight cargo and cubic cargo rates in each

class Fuel surcharge computed to reflect fuel price fluctuations

without redefining class rate scales Commodity Rates – negotiated compromise falling between

class rates Applicable to specifically described cargoes (e.g., Paper:

wrapping, not corrugated, other than cellulose film) Commodity rates take precedent when both class &

commodity rates are offered

Freight Rates …Freight Rates … Through Rates – are charged for shipments

originating with one ocean carrier but transferred to connecting carriers at intermediate ports Usually the originating carrier issues the Bill of Lading,

collects all charges, and divides the revenue with the other carrier(s) as per the through rate agreement

Sometimes the Through Rate is lower than the combination of rates of each of the participating carriers Similar to a flight from Chicago to NY via Atlanta being

cheaper than the sum of the legs or, possibly, a direct flight.

However, sometimes through rates are the sum of the connecting carriers’ charges plus a transfer fee.