Part C Further Reading

Passage One Shipping Markets and Shipping Routes

Shipping markets

The shipping market is the whole market in the shipping industry that determines the sale and purchase of ships, how the ships are chartered and the way the prices of this is established. The parties that move this market are shipowners, shipbuilders, charterers, and shipping companies. This market is formed by four closely related markets: the freight market, the sale and purchase market, the newbuilding market, and the demolition market.These four markets interact to form and are each part of the overlapping market. Firstly, the freight market covers the trading of freight and the means to transport this freight. The better known origin of this market lies in the Baltic Exchange which has now become a website, and most of this trade now goes by the Internet. The freight market consists of shipowners, charterers, and brokers. Transport of goods over sea can be regulated in different types of chartering and they use four types of contractual arrangements: the voyage charter, the contract of affreightment, the time charter, and the bareboat charter. Shipowners contract to carry cargo for an agreed price per tonne while the charter market hires out ships for a certain period. A charter is legally agreed upon in a charter party in which the terms of the deal are clearly set out. The freight derivatives market is a relatively new part of the freight market, and its idea is to minimize the future risks of trading goods. This is necessary because a trader may buy a commodity which he wants to ship in the future and sell on another place. However, if the freight rate would rise to a higher point by the time he wants to ship, he will have to calculate for this unexpected expense and he may very well lose a lot of money when selling the commodity again. The freight derivatives market handles this problem by giving an estimate of what the future of the freight market will be. So the shipowner and the trader can agree a price that will most likely be close to the freight rate at that future time thus limiting both their risks. That is, the freight derivatives market allows charterers and shipowners to hedge their freight risk or speculate by making forward freight agreements (FFAs) which are financial contracts settled against the value of a base index on the date specified in the agreement. Secondly, in the sale and purchase market, second-hand ships are traded between shipowners. The administrative procedures used are roughly the same as in the real-estate business, using a standard contract. Trading ships is an important source of revenue for shipowners, as the prices are very volatile. The second-hand value of ships depends on freight rates, age, inflation, and expectations. Shipbrokers usually act as middlemen in these sales,but now the Internet replaces more and more of them. The price of the ship depends on many factors, and the most important is the momentary demand for transport which that type of ship could deliver. Thirdly, the newbuilding market is set by the shipbuilders and the brokers who act as mediators between shipowners and shipbuilders. The largest difference between the newbuilding market and other markets is that the product traded in the newbuilding market does in fact not yet exist. Contract negotiation can be very complex and extend beyond price because it also covers the specification of the vessel, the terms and conditions of the contract, and the newbuilding finance offered by the shipbuilders. In a weak market purchasers will seek to extract the maximum benefit from their negotiating position in each area, and conversely in a strong market the shipbuilders will negotiate for the maximum price possible on a standard vessel with favorable stage payments. The prices on the newbuilding market are very volatile and sometimes follow the prices on the sale and purchase market. Payment is usually done in parts as the new ship is being completed. Newly built ships are not necessarily more expensive than similar second-hand ships. It is because of the time it takes for the ship to be available and the current fluctuations of offer and demand. Fourthly, on the demolition market, old or obsolete ships are sold for scrap. After a ship's lifespan is exceeded, it will be demolished and its steel and components will be dismantled and sold. The transactions happen between shipowners and demolition merchants, often with speculators acting as intermediaries who purchase the ships for cash and sell them on to the demolition merchants in the demolition yards. Prices are volatile and determined by negotiation, depending on the availability of ships for scrap and the demand for scrap metal. On completion the purchaser takes delivery of the ship and, if he is an intermediary, makes the arrangements for delivering the ship to the demolition yard.

Shipping routes

A shipping route is a trade route used by merchant ships, and main shipping routes are composed of oceans, coasts, lakes, rivers and channels. As the knowledge of navigation, mapmaking, and latitude determination from the heavenly bodies increased, shipping routes became less dependent on coastal landmarks and spanned to larger seas and oceans. When exact positions could be fixed, the effects of prevailing winds and currents began to be taken into consideration in determining routes. In modern global commerce, merchant shipping follows the most time-efficient route between available ports. The size of the ship is a key factor in determining the best route, for example a ship designed to fit through the Suez Canal in Africa with a maximum of cargo will not fit through the Panama Canal in Central America. Ships which are too large for a given route must necessarily seek an alternate pathway. There are potentially an infinite number of maritime shipping routes but the configuration of the global system is relatively simple. The main axis is a circum-equatorial corridor linking North America, Europe, and Pacific Asia through the Suez Canal, the Strait of Malacca, and the Panama Canal. Maritime routes are a function of obligatory points of passage, of physical constraints (coasts, winds, marine currents, depth, reefs, ice, etc.), and of political borders. As a result, maritime routes draw arcs on the earth water surface as intercontinental maritime transport tries to follow the great circle distance. Main shipping lanes are those supporting the most important commercial shipping flows servicing major markets, and secondary shipping lanes are mostly connectors between smaller markets. Primary passages are the most important passages since without them there would be limited cost-effective maritime shipping alternatives which would seriously impair global trade, and secondary passages are passages that have alternatives, but would still involve a notable detour. Bulk shipping routes largely begin wherever the commodity is produced. For example, oil routes largely begin in the Persian Gulf, where most of the oil producing nations are located. These shipping routes typically end at the ports of countries where the demand is the highest or where the facilities for processing the oil are located. The costs involved in this type of shipping are quite predictable and most major shipping companies openly advertise what they charge. Direct shipping routes can be found to all the major world economies. Because the demand to move goods in or out of the major commerce hubs is so great, many shipping companies have designated permanent routes with ships that depart on a regular basis. In case shipping is needed to one of the smaller economies of the world, a direct line of route will probably not exist. In this situation, cargo will be transferred on to another ship bound to the correct destination as soon as one becomes available. Costs may be higher since storage could be needed during the transfer interval. Due to the location of economic activities, maritime circulation takes place on specific parts of the maritime space, particularly over the North Atlantic and the North Pacific.

Passage Two International Maritime Organization (IMO)

Foundation of IMO

Shipping, serving nearly 90 percent of global trade by carrying huge quantities of cargoes cost-effectively, cleanly, and safely, is perhaps the most international of all the world's great industries and one of the most dangerous. It has always been recognized that the best way of improving safety at sea is by developing international regulations that are followed by all shipping nations, and from the mid-19th century onwards a number of such treaties were adopted. The ownership and management chain surrounding any ship can embrace many countries and ships spend their economic life moving between different jurisdictions, often far from the country of registry. Thus there was a need for international standards adopted and accepted by all to regulate shipping, and a permanent international body established to promote maritime safety more effectively.

In 1948, an international conference in Geneva adopted a convention leading to the formal founding of the Inter-Governmental Maritime Consultative Organization (IMCO)—the predecessor of IMO, and IMCO first appeared in 1959 and was finally replaced by IMO in 1982. Headquartered in London, IMO is a specialized agency of the United Nations (UN) with responsibility for the safety and security of shipping and the prevention of marine pollution by ships and has 172 member states and three associate members.

Events of IMO

IMO celebrates a number of specific events during the year.

1. World Maritime Day. IMO made a decision to celebrate World Maritime Day at the tenth session of the IMO Assembly in 1978. The exact date is left to individual governments, but is usually celebrated during the last week in September each year and its theme is promoted throughout the year. China National Maritime Day is celebrated on July 11 each year from the year of 2005. Some years' themes both in English and in Chinese for World Maritime Day and China National Maritime Day are presented in Table 1.6 and Table 1.7 respectively.

2. The International Maritime Prize. This prize is awarded annually by the IMO Council to the individual or organization judged to have made the most significant contribution to the work and objectives of IMO.

3. The IMO Award for Exceptional Bravery at Sea. This prize was established by the IMO to provide international recognition for those who, at the risk of losing their own life, perform acts of exceptional bravery, displaying outstanding courage in attempting to save life at sea or in attempting to prevent or mitigate damage to the marine environment.

4. The Day of the Seafarer. The Day of the Seafarer has been set on June 25 each year.

Tasks of IMO

From the very beginning, the improvement of maritime safety and the prevention of marine pollution have been the most important objectives of IMO. The main tasks of IMO have been to develop and maintain a comprehensive regulatory framework for shipping and its remit today includes safety, environmental concerns, legal matters, technical cooperation, maritime security, and the efficiency of shipping. In order to achieve its objectives, IMO has promoted the adoption of around 40 conventions and protocols and adopted well over 800 codes and recommendations concerning maritime safety, the prevention of pollution, and related matters.

1. Maritime safety. The first task of IMO was to adopt a new version of the International Convention for the Safety of Life at Sea (SOLAS), the most important of all treaties dealing with maritime safety. IMO has also developed and adopted international collision regulations and global standards for seafarers, as well as international conventions and codes relating to search and rescue, the facilitation of international maritime traffic, load lines, the carriage of dangerous goods, and tonnage measurement.

2. Maritime security. Maritime security is an integral part of IMO's responsibilities. A comprehensive security regime for international shipping entered into force on July 1, 2004. The mandatory security measures, adopted in December 2002, include a number of amendments to the 1974 SOLAS Convention, the most far-reaching of which enshrines the new International Ship and Port Facility Security Code (ISPS Code), which contains detailed security-related requirements for Governments, port authorities, and shipping companies in a mandatory section (Part A), together with a series of guidelines about how to meet these requirements in a second, non-mandatory section (Part B).

3. Marine environment. Since its foundation, IMO has adopted a wide range of measures to prevent and control pollution caused by ships and to mitigate the effects of any damage that may occur as a result of maritime operations and accidents. These measures have been shown to be successful in reducing vessel-sourced pollution and illustrate the commitment of the Organization and the shipping industry towards protecting the environment. The most important convention regulating and preventing marine pollution by ships is the International Convention for the Prevention of Pollution from Ships (MARPOL 73/78). The International Convention on Oil Pollution Preparedness, Response and Co-operation (OPRC 1990), provides a global framework for international cooperation in combating major incidents or threats of marine pollution.

4. Human element. The safety of life at sea, the marine environment and over 90 percent of the world's trade depends on the professionalism and competence of seafarers. The human element is a complex multi-dimensional issue that affects maritime safety, security and marine environmental protection involving the entire spectrum of human activities performed by ships' crews, shore based management, regulatory bodies and others. All need to cooperate to address human element issues effectively. The International Convention on Standards of Training, Certification, and Watchkeeping for Seafarers (STCW 1978), was the first internationally-agreed convention to address the issue of minimum standards of competence for seafarers. After the amendments in the years of 1995, 2006, and 2010, the latest revised STCW Convention—the Manila Amendments will provide enhanced standards of training for seafarers now and for years to come, and enter into force on January 1, 2012.

5. Technical cooperation. IMO adopts international shipping regulations but it is the responsibility of governments to implement those regulations. IMO has developed an Integrated Technical Cooperation Programme which is designed to assist governments which lack the technical knowledge and resources that are needed to operate a shipping industry safely and efficiently. The World Maritime University in Sweden is the most ambitious and exciting of all IMO's technical assistance projects. The university opened in 1983 can provide advanced training for the people involved in maritime administration, education, and management.