Chap 7 Overview of Shipping Market

1. Chap 7Overview of Shipping Market

2. What is ‘Shipping Market’. • The international shipping industry can be divided into four closely related shipping markets, each trading in a different commodity: - the freight market, - the sale and purchase market, - the newbuilding market and - the demolition market These four markets are linked by cash flowand push the market traders in the direction they want.

3. The Shipping Markets Shipping market The shipping market is the whole that determines the sale and purchase of ships. How the ships are chartered and the way the prices of this is established. The actors moving this market are shipowners, shipbuilders, charterers and shipping companies. This market is formed by five markets that interact to form and are each part of the overlapping market: The newbuilding market The freight market The sale and purchase market The demolition market FFA-Forward Freight Agreements Market

4. Shipowners & Brokers • This market is set by the shipbuilders and the brokers who act as mediators between first mentioned and shipowners (to be). • The largest difference between other markets is that the product traded does if fact not yet exist. • Payment is usually done in parts as the new ship is being completed. • Newbuild ships aren't necessarily more expensive than similar second-hand ships. • This is because of the time it takes for the ship to be available and the current fluctuations of offer and demand.

5. The freight market • The freight market is the trading of freight and the means to transport this freight. • The better known origin of this market lies in the Baltic Exchange. This has now become a website. And most of this trade now goes by the internet. • As shipping companies sell the use of ships, the way these ship are deployed must be agreed upon, including whether the charter has full control or a certain degree of it. • This is done by the charter. In this contract the obligations of both parties are described. This can be done on basis of time, voyage, freight, etc. • Even the party responsible for maintenance and crewing is hereby settled.

6. The sale and purchase market • The actors are again the same as in previously mentioned markets. • Despite the reason of sale, this is typically done free of any financial obligations tied to the ship and with instant delivery. • Shipbrokers usually act as a middle man in these sales, but the internet replaces more and more of them. The price of the ship depends on many factors. • The most important is the momentary demand for transport which that type of ship could deliver (Derived dd) • Despite any debt that a selling owner may have, or the interest that a third party may have, in a ship being sold, the crew always has first lien to the value of the ship if they are still to be paid

7. The newbuild market • The significant difference with the sale and purchase market is that the ships that are sold here don't exist yet. • Anticipation of the market is crucial for those contracting the construction of a ship. • Payment is usually done in five parts. Ten percent upon signing the contract. The rest in even parts during different phases of construction; cutting of the steel; laying of the keel; launching; delivery. • Prices are determined, as always, by price and demand. • Also resources must be taken into account.

8. The demolition market • After a ship's lifespan is exceeded it will be demolished. • It's steel and components will be dismantled and sold. • Since this work is hard, dangerous and badly paid it is done in the Far East

9. BIMCO BIMCO SHIPPING MARKET OVERVIEW & OUTLOOK – August 2013 – Dry Bulk Shipping • As the Summer heat arrived, Capesize owners found themselves basking in the sun. • Average earnings for Capesize vessels went from USD 6,000 per day to USD 12,000 per day in less than two weeks. The momentum lifted rates as high as USD 15,218 per day on 1 July. • This was a sizeable and very welcome surprise as the combination, once again, of vessels being at the “right place at the right time” proved to be profitable. http://www.carbinetungsten.com.au/FAQRetrieve.aspx?ID=41412

10. BIMCO “As Brazilian iron ore exports in particular jumped after some weaker months, congestion at load ports rose and charterers were left searching for prompt and available tonnage” . “ At the same time, Australian iron ore ports were hit by heavy rainfall which also affected shipping. It is a little miracle that tight situations can still appear and push up freight rates, in spite of tonnage being abundant in the market. Since the 1 July peak, freight rates have slid slowly, as the imbalanced market is smoothed by ballasting tonnage returning to the Atlantic from the Far East. Some of the weakness in most of Q1 is due to the fact that Brazil has been losing some of its share of the iron ore market to Australia” .

12. Besides that, the market is affected by falling commodity prices (iron ore, steel and coal). • This could, in theory, positively affect shipping demand if consumers and traders take advantage of it and stock up, but it may as well mirror a fundamental slowdown in demand. • No slowdown is seen in steel production fortunately, at Chinese steel production went up by 9.2% in the first half as compared to same period last year. • Iron ore imports “only” went up by 4.8% in the same period of time. Both indicators are positive for shipping demand. • Traditionally, Chinese iron ore demand is stronger in the Q2 of the year; this could build a case for stronger rates in the larger segments in Q3 and Q4 if this seasonality is repeated.

13. The larger production of steel and moderate consumption of same has put steel prices under pressure. Falling steel prices are normally quite worrying for the dry bulk sector. • In the wake of several months with record high steel production, prices weakened continuously, getting quite close to the threateningly low levels of August/September 2012. • But has the scare just evaporated with the latest pick up in prices toward the end of July? That is still too early to call despite the optimism in most recent “official” China manufacturing report.

15. Supply: Ships • During the past two months, 10 million DWT of new tonnage has joined the dry bulk fleet, which now totalsat 704 million DWT. • This is up by 3.6% since 1 January. • Looking at future delivery prospect, 70% of all new orders placed during the past two months have been for 2015 delivery. • In addition to some postponements, this has pushed the projected orders for 2015 delivery up from 20 million to 25 million DWT. * For 2013, BIMCO projects new tonnage of 70 million to hit the water, a four-year low, and a gradual return to a lower supply pressure on the market.

16. In total, the dry bulk orderbook has grown by 3.2 million DWT during the recent two months. • It now stands at 126 million DWT. It’s the first time in more than two and a half years that the orderbook has increased, on its way down from 300 million DWT highs at the end of 2010. * As 29 million DWT of new vessels have been ordered so far in 2013, the total has already surpassed that of the full year 2012. * This development seems to have stopped the slide of newbuilding prices, which are now seen to be on a slow rise, with the exception of Panamax newbuilding prices which are still flat, as demand does not support higher prices in this segment yet.

18. Outlook: • As the global and Chinese GDP are now seen lower than earlier in the year, we also have to settle for something that might be the sixth consecutive year of supply outpacing demand. • But the race is still on, as supply is set for 5.7% and demand for 5-6%. • China’s import of agricultural products could provide some upside, as wheat and soybeans could end up falling short of demand due to adverse weather conditions. • If imports of wheat are supplied predominantly by US producers, which is likely, this may bring some growth in demand due to long sailing distances. • * The same effect can be expected by increased Brazilian exports of soybeans in the Q2 of the year following a congestion- affected export level in the January-May period.

19. In recent months, Asian thermal coal prices have nose-dived, as plenty of coal is offered in the market. • Utilities are no longer worried about running stocks low, as supply is excessive. • During the Q2, Russian, Columbian and American coal was also offered into the market, putting further pressure on traditional Indonesian and Australian coal markets – in competition! • FOB thermal coal prices for “Newcastle 5500” or “Richards Bay 5500” were just above USD 66 per Mt coming down from USD 75 per Mt and USD 72 per Mt respectively. • As we know, demand is healthy, the lower prices could prove a catalyst for higher freight rates as we move further into Q3. • Further weakening of the Indian Rupee or the Japanese Yen could dampen the positive effect somewhat.

20. To sum up, our forecast for the coming 2 months: BIMCO holds the view that Capesize TC average rates are expected around USD 8,000-13,000 per day. • Panamax is expected to stay in the USD 6,000-9,000 per day interval. • For the Supramax segment, BIMCO forecasts freight rates in the USD 8,000-11,000 per day interval, whereas • * Handysize rates are forecast to show limited volatility in the interval of USD 6,500-9,000 per day

21. Through Transport • Through transport involves carriage by more than one method of transport where a carrier accepts responsibility for only that part of the total movement performed with its own facilities. • Multimodal transport, involves carriage where a carrier accepts responsibility for the entire movement, and subcontracts performance of some or all the transport to others. The UNCTAD/ICC Rules refer to this carrier as a Multimodal transport operator, or MTO. • It is proposed that a new international convention covering the carriage of goods by sea recognize the right of an actual carrier (sometimes called a performing carrier)to opt out of responsibility for segments of carriage undertaken by others(the Through Transport Provision). • It noted that many ocean bills of lading include a clause giving this right to the issuer of the document.

22. A carrier's right to opt out may be appropriate for bulk shipments, and for or port-to-port shipments. • But should an ocean carrier issuing a bill of lading covering door to door transport be responsible until the container is de-stuffed? Is the Through Transport Provision appropriate for door to door transport of containers? * Shippers would disagree that a carrier who receives freight for a door to door transport should be given such a generous liberty. Ocean carriers would regard the liberty as simply confirming present practice. • Forwarders have a different concern. Under the present wording of the Through Transport Provision, a contractual carrier, or NVOCC, would not have a right to opt out of responsibility for the transport. • If ocean carriers have a right to offer door to door services without full responsibility for performance, forwarders who are subject to that responsibility would not benefit from a back to back commitment from the ocean carrier.

23. Impact of the Intermodal Shipping Container

24. The intermodal shipping container, a large steel box built in a small number of standard sizes to allow transportation of goods by ship, truck, train and, rarely, airplane, is a simple technology whose use has had a profound social and economic impact. That impact was initially felt by actors in the shipping industry, particular port workers and shipping companies. But, as with many extremely effective technologies, the container’s impact became much wider – affecting not only the shipping industry, but local development and the global economy

25. The Need and the Technology * Into the 1950s, most goods transported on water over long distances were shipped by what is called break bulk shipping, in which goods were transported loose or packaged in boxes, bags, barrels, or other relatively small containers that varied depending on the type of good. • A major cost in break bulk shipping is time and labor spentloading and unloading ships at portside in ways that avoid damage to the goods. • * One analysis in the late 1950s concluded that 60-75% of the cost of transporting cargo by sea was made up of portside costs, while another study of a specific ship voyage found cargo handling made up about 37% of total costs (Levinson 21, 33-34). * These costs included not only labor, but losses of time and damage (including theft) to cargo waiting to be loaded onto a ship while other material was unloaded. Cudahy (Container Revolution 5-6) reports that a “cargo ship typically would spend as much time in port being loaded and unloaded as it did sailing.”

26. The exception was in shipping to carry a single type of good, such as oil. For such goods, both ships and port facilities had been specialized to allow more rapid loading/unloading, at lower costs. This specialized bulk shipping had become industrialized, in contrast to break bulk shipping of more diverse or finished goods, the loading/unloading of which had changed little in decades (Broeze 9-11). The high costs of ocean shipping inhibited international trade. In 1961 ocean freight costs made up 12% and 10% of the value of U.S. exports and imports respectively, and were so high for some goods that international sales were impossible. These costs contributed to the remarkable situation of international trade in 1960 making up a smaller proportion of the U.S. economy than in it did in 1930 (Levinson 8-9). Some attempts had been made to overcome these challenges. For example, the U.S. Military had begun using 8'6"x6'3"x6"10" metal shipping containers during World War II and continued to do so into the 1950s (“History & Development”)

27. Commercial attempts, which were to have far greater impact, were made by shipping companies in the United States, particularly those led by a former trucking company magnate, Malcolm McLean. The concept was simple: by using metal shipping containers similar to those used by the U.S. Military but in sizes that were larger yet still capable of being transported by truck or train (thus “intermodal”), the loading of goods onto ships could take place in two locations – one closer to the point of manufacture or assembly (possibly hundreds or thousands of miles away), in which the goods are put into containers, and the second at dockside, where the containers are loaded onto ships. Unloading is similar, with goods removed from containers at a point of distribution or even sale, far removed from the docks. McLean’s companies and another firm, the Matson Navigation Company, successfully used this technology along a number of shipping routes in the late 1950s and early 1960s (Levinson 54-68). The container revolution had begun.

28. Impact on Port Labour – due to containerization. * The impact of expanded use of containers was immediately felt by port workers, with the speed efficiencies in loading/unloading meaning fewer workers were required. Studies found that the amount of goods per worker that could be loaded or unloaded with containers, as compared to break bulk, was so much higher as to “make nineteen in every twenty men redundant,” as Broeze (235-236) puts it. • These changes were naturally met with misgivings by workers and their unions, resulting in major struggles between labor and shipping companies that lasted into the 1980s. • The ultimate result was tremendous drops in the number of dock workers – with examples being the number of registered longshoremen on the U.S. East Coast falling by over two-thirds from 1952 to 1972, and the number of dock workers in the United Kingdom falling from over 70,000 to under 10,000 between the early 1960s and the late 1980s (Broeze 237-238). These changes occurred in spite of worldwide shipping increasing more than 600% from 1950 to 1973 (Brookfield 63)

29. Impact on Other Technology and Business Practices • The nature of dockside labor changed as well, with container operations demanding more technical skills in operating heavy machinery. Standardization of container size and handling attachments meant that the same cargo handling equipment could be used for a huge variety of goods. • * Moreover, ships could be designed from the start to carry containers. • * Uncertainty in shipping was also reduced – it was easier for a shipping company to calculate the speed of loading or unloading containers than for a similar quantity of mixed goods.

30. * These advances resulted in further increased investment in ships and shipping companies in the 1970s (Broeze 72-76) and the of creation ever-larger container ships as efficiencies of scale of big ships, which would be loaded and unloaded rapidly, became evident. As the scale of operations of shipping companies grew, they pursued further integration with land transportation. * A key example is Sea-Land. It had started as a trucking company, and agreed to a friendly takeover by the railway company CSX in 1986 (Cudahy, Box Boats160-166).

31. Impact on Ports and Cities Advances in lowered costs of labor, faster loading/unloading, and increased ship size occurred in parallel with changes in ports themselves. Larger ships required deeper water. But more importantly, containerized trade required more space. Containers are their own storage, so warehouses were not needed at portside. Instead space was needed for the containers themselves and also for the additional volume of trade that lowered shipping costs allowed. In many places, this resulted in shifting of port operations from near city centers to less developed locations. Example are the rise of Tilbury as the main container port for London and the movement of cargo operations from New York City’s piers to Elizabeth and other locations in New Jersey. In some cases, the growth of ports has taken the form not only of direct expansion, but also of consolidation of several facilities in nearby towns or cities. In many cases, the scale of container shipping led to, or at least highlighted, the value of regional cooperation. In California, competition between the ports of Los Angeles and Long Beach for container traffic gave way to more coordination between them in the 1980s, the greater New York City area, the Port Authority of New York and New Jersey has played a key role in such regional coordination. Containerization has contributed to changes in the location of industry and labor within regions as well. The advantage of export manufactu ring taking place dockside disappeared as low-cost intermodal transportation became available. Instead, manufacturing could spread out regionally into the facilities designed to allow easy access for trucks carrying containers, rather than built up along the waterfront. Such changes were dramatic in New York City, for example, with manufacturing in the city dropping precipitously while container shipping to and from inland locations was booming in New Jersey.

32. Global Impact and Future Directions * But the most profound impact of the container ison the global economy as a whole. Worldwide, by the early 2000s, 300 million 20-foot containers were moved by sea each year, with over a quarter of those shipments coming from China . * Globalisation and container shipping enjoy a reciprocal relationship. There is little doubt that the expansion of international commerce and the expansion of global manufacturing systems would have been impossible without the efficiencies and economies that containerisationhas brought. • Container shipping is a facilitator of globalisation. Globalization is rightfully the subject of much debate. We have seen how containers have reduced employment at individual ports. • Beyond that, globalization has resulted in shifting of employment among cities, regions and countries. It has also lowered costs to consumers and enabled delivery of a much wider varieties of goods to many markets. Globalization has affected not only economies but the environment, politics, and culture. The shipping container, a simple technology intended to speed the loading/unloading of goods, has played an important part in those changes.

33. Container shipping is a facilitator of globalisation. • Globalization is rightfully the subject of much debate. We have seen how containers have reduced employment at individual ports. • Beyond that, globalization has resulted in shifting of employment among cities, regions and countries. • It has also lowered costs to consumers and enabled delivery of a much wider varieties of goods to many markets. • Globalization has affected not only economies but the environment, politics, and culture. • The shipping container, a simple technology intended to speed the loading/unloading of goods, has played an important part in those changes.

34. Globalization & Containerization • Container shipping is a facilitator of globalisation. • Globalization is rightfully the subject of much debate. • how containers have reduced employment at individual ports. • The shipping container, a simple technology intended to speed the loading/unloading of goods, has played an important part in those changes • Globalization has resulted in shifting of employment among cities,regions and countries. • It has also lowered costs to consumers and enabled delivery of a much wider varieties of goods to many markets. • Globalization has affected not only economies but the environment, politics, and culture. • .

35. Four Stages of Diffusion in Containerization • i) 1956{1965: innovation and early adoption • (ii) 1966{1974: internationalization • (iii) 1975{1983: worldwide adoption and intensification of use • (iv) 1984{2008: late adoption and growth of usage

36. The Box - How Containerized Shipping Changed the World * Containerized shipping seems like a most mundane and routine activity. But Marc Levinson makes the saga of the adoption and diffusion of this game-changing innovation a memorable experience in The Box(Princeton University Press, 2006 • While it’s extremely difficult to estimate the exact impact of containerization, Levinson convincingly establishes that it revolutionized the carriage of freight and much more. • As he puts it, as a result of containerization, “transportation has become so efficient that for many purposes, freight costs do not much effect economic decisions

37. The BOX • What is it about the container that is so important? Surely not the thing itself. • A soulless aluminium or steel box held together with welds and rivets, with a wooden floor and two enormous doors at one end, the standard container has all the romance of a tin can. • The value of this utilitarian object lies not in what it is, but in how it is used. • The container is at the core of a highly automated system for moving goods from anywhere to anywhere, with a minimum of cost and complication. • The container made shipping cheap and changed the shape of the world economy.

38. Economic Effects • Sleepy harbors such as Busan in South Korea and Seattle moved into the front ranks of the world’s ports, and massive new portswere built in places where none had been before, like Felixstowe in England and Tanjung Pelepas in Malaysia. • Poor countries, desperate to climb the rungs of the ladder of economic development, could dream realistically of becoming suppliers to wealthy countries far away. • * Huge industrial complexes mushroomed in places like Los Angeles and Hong Kong, because the cost of bringing raw materials in and sending finished goods out had dropped drastically

39. * Shipping costs no longer sheltered producers whose advantage was proximity to the customers— even with customs duties and time delays, factories in Malaysia could deliver blouses to Macy’s in Herald Square more cheaply than could blouse manufacturers in the lofts of New York’s garment district. • * Multinational manufacturers—companies with plants in different countries—transformed into international manufacturers, integrating once-isolated factories into networks so that they could choose the cheapest location for making a particular item yet still shift production from one place to another as costs or exchange rates might dictate. • * In 1956, the year the container was introduced, the world was full of small manufacturers selling locally. By the end of the 20th century, purely local markets for goods of any sort were few and far between.

40. Consumers enjoy infinitely more choices thanks to the global trade the container has stimulated. By one careful study, the US imported 4 times as many varieties of goods in 2002 as in 1972, generating a consumer benefit—not counted in official statistics— equal to nearly 3 % of the entire economy. • The competition that came with increased trade has diffused new products with remarkable speed and has held down prices so that average households can partake. • * The ready availability of inexpensive imported consumer goods has boosted living standards around the world . For workers, this has been a mixed blessing. Low shipping costs helped make capital even more mobile, making the wages for less mobile factory workers in the United States and Europe depend on the pay and productivity of their counterparts in Asia. • * Yet the emergence of the logistics industry in the quest for more effective supply chain management has led to the creation of new and often better-paying jobs in warehousing and transportation

41. Container port Efficiencies • A modern container port is a factory whose scale strains the limits of the imagination. Every day at every major port, thousands of containers arrive and depart by truck and train. • Loaded trucks stream through the gates, where scanners read the unique number on each container and computers compare it against ships’ manifests before the trucker is told where to deliver the load. • Tractor units arrive to hook up chassis and haul away containers that have just come off the ship. • * Trains carrying double-stacked containers roll into an intermodal terminal near the dock, where giant cranes straddle the train to remove one container after another. Outbound container trains, destined for a rail yard 2,000 miles away with only the briefest of stops en route, are assembled on the same tracks and loaded by the same cranes.