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CII – IL FUNCTIONAL EXCELLENCE COURSE COMPONENTS

FCS-12: TRADE ROUTES AND SHIPPING OVERVIEW

BLOCK UNIT NOs UNIT TITLE

I INTERNATIONAL SHIPPING SCENARIO

1 Introduction To Shipping
 World trade and role of shipping industry
 Maritime Conventions/Agreements/organizations affecting world
shipping sector
o IMO and its role
2 Conferencing & Alliances
 Conference systems and shipping alliances and their impact on
shipping industry
 Flag of registration and Flag of Convenience for ships

3 Security And Documentation Overview


 Maritime security (piracy and other issues)
 Shipping documentation

II MARITIME GEOGRAPHY

4 Shipping Routes, Canals


 Major shipping routes and canals
 Important ports around the world [and their locational advantage]

5 Ports & Functions at Port


 Concept of hub ports- transhipment ports around the world
 Port operations- basic functions at port

6 Overview of Indian Ports


 Major and minor ports of India
 Comparison of Indian and Foreign ports
 Coastal Shipping in India
 Privatisation of ports in India
 Problems and Prospects of Indian Ports

III SHIPPING MANAGEMENT

7 Types Of Ships & Architecture


 World of ships- types/classification of ships
o On basis of cargo
o On the basis of size
 Basic architecture of ship

8 Operations & Cargo Planning


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 Liner and tramp operations


 Chartering of ships
 Cargo classification
 Cargo planning on ship- stowage, handling pattern
Technology & Shipping Industry
9
 Impact of IT on handling and documentation processing (EDI)
 EDI formats
 Application software overview
PARTIES AND PERILS TO SHIPPING
IV
Stakeholders in Shipping
10
 Stakeholders of shipping industry- organization structure and types of
shipping companies
o Role of Shipping Companies /liners
o Role of Freight Forwarders and CHA
o NVOCC, Port Authorities, ICD/CFS
o Stevedores/Pilots/Quarantines etc.
Transactions, Risks & Pitfalls
11
 Freight Rate calculation and agency commission in shipping
 Negotiation in shipping operations
 Types risks to various parties in shipping operations
 Insurance for covering risks
 Maritime Frauds

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BLOCK I
INTERNATIONAL SHIPPING SCENARIO

UNIT 1 Introduction to Shipping


UNIT 2 Shipping Conferences and Alliances
UNIT 3 Security and Documentation Overview

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UNIT 1
Introduction to Shipping

Chapter Objectives

 To introduce the world of shipping to the reader


 To emphasize the role of shipping industry in the world trade scenario
 To discuss the various maritime conventions, agreements and organizations related
to global maritime industry thereof
 To enumerate the role of International Maritime Organization (IMO) in the global
shipping arena.

Topics Covered

1.1 World Trade Scenario


1.2 Global Shipping Industry
1.3 International Organizations and Conventions affecting World Shipping
Industry
1.3.1 International Maritime Organization
1.3.1.1 IMO Agreements
1.3.2 International Chamber of Shipping
Annexure I
Activity
Review Questions

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1.1 World Trade Scenario

Globalization has connected the world, not physically but economically. Exchange of goods and
services among the nations is a very common phenomenon. In the era of technology, a virtual market
has been created where a consumer is buying products from any country or continent. There is a
continuous flow of goods among nations and every country is dependent on other either for material,
machine or market base. In such a scenario, technology especially transportation and communication
– has been the main driver of global economic integration.

Reasons for Conduct of International Trade

 Domestic unavailability
 Comparative Advantage
 Expand Market
 Earn Foreign Exchange
 Achieve economies of scale
 Improving political relation
 Procure good quality at reasonable rates

Factors Impeding the growth of International Trade

 Protectionism- Tariff and Quotas


 Expropriation
 Lack of proper technological and transportation facilities
 Political Reasons
 Economic slowdown in nations

With the growth of globalization, major trading regions have emerged on the world map. There has
been a constant flow of trade among the southern part (South Asia and South East Asia) and the
western part (North and South America) of the world. There has also been generation of trade blocks
such as European Union with escalating trade among the member nations and outside the block.
Quantum of international trade has increased almost three folds since 2002 to reach about 18 trillion
USD in 20111 . Developed nations have a major role to play though even developing nations show an
active and increasing participation in the world trade. East Asia continues to dominate developing
country trade flows. China has become an increasingly important trading partner for many other

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developing countries, not only in the East Asian region but also in Sub-Saharan Africa and Latin
America. Developed countries such as America and European nations act as both supplier and
customer for various trading nations.

Merchandise exports and imports by region (2011)

Source: WTO Secretariat

With regard to specific products, fuels represent the largest and fastest growing product category in
terms of value of trade. Other significant sectors include chemicals, machineries, communication
equipment and motor vehicles. The importance of agriculture in total merchandise trade is relatively
small with less than 10 percent share among different sectors. While developed countries remain major
exporters of most sophisticated goods (e.g. motor vehicles) and some heavy industry (e.g. chemicals),
developing countries have increased their market share as exporters of commodities and especially of
light manufacturing goods (e.g. apparel and electronics). Not only goods countries are also engaged in
international exchange of services. Service sector has emerged as a major exchange earning sector
for nations. Outsourcing labour intensive services to developing nations is a more cost effective option
for developed countries with high labour cost.

If closely observed, the suppliers and the customers are located all over the world, in different countries
and continents. Reaching the customers on time at lowest possible and in safest form, is the major goal
of suppliers all over the world. To ensure fulfilment of this goal suppliers arrange for the safest, fastest
and most reasonable mode of transportation.

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Top 10 players in International Trade Scenario Top 10 Commodities in International Trade

1. China 1. Mineral fuels, oils, distillation products, etc.


2. US 2. Electrical, electronic equipment
3. Germany 3. Machinery, nuclear reactors, boilers, etc.
4. Japan 4. Vehicles other than railway
5. Netherland 5. Plastics and articles thereof
6. France
6. Optical, photo, technical, medical, etc.
7. Korea apparatus
8. Russian federation 7. Pharmaceutical products
9. Italy 8. Iron and steel
10. Hong Kong 9. Organic chemicals
10. Pearls, precious stones, metals, coins, etc.

Source: International Trade Centre

Transportation allows physical movement of goods and resources from one place to another. In case
of international transportation, it is across a nation or even continent. Geographical legal and physical
disparity amongst the nations makes international transportation a complex issue. Various modes are
used in international transportation like ocean mode, air mode, land mode and auxiliary modes such
as pipeline. Ocean mode has prominence over these modes.

Activity

 List the 10 major commodities of export and import from India and also the 10 major trading
partners.
 Enumerate the factors behind the negative balance of payment position of India.

1.2 Global Shipping sector

Transportation through sea is one of the oldest forms of transportation and has evolved, technologically
and functionally, over decades. Today Ocean mode of transportation forms the most important means
of international trade and development around the world. It accounts for almost 90% of international
trade in terms of volume and about two-thirds in the value terms. The shipping industry is massive in
size of operations. Almost 90% of the world trade is carried through this mode. According to data
released by The International Chamber of Shipping, over 7.7 billion tons of cargo was transported
through ocean in 2008, generating roughly $380 billion in freight charges alone. Small steamers

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have been replaced by huge vessels with voluminous carrying capacity. Today gigantic ships with a
carrying capacity of more than 18000 Twenty Foot Equivalent Unit (TEU) has come into usage.

Specialized ships are used to carry specific cargo such as perishable foods articles, gases and ores.
As per the data given by Lloyd's Register Fairplay during January 2005, the world trading fleet
was made up of 46,222 ships, with a combined tonnage of 597,709,000 gross tonnes. The breakup of
different types of ships is as follows:

General Cargo ships (18,150)* Tankers (11,356)

Bulk Carriers (6,139) Passenger ships (5,679)

Container ships (3,165) Other (1,733)

Total 46,222 ships


*data in brackets represents number of ships.

According to Lloyd's Register/Fairplay, the world’s cargo carrying fleet has reached a count of 54,897
ships of 1,349.4 million Dwt (910.1million GT)) and the average age is 19 years.

Ships are technically sophisticated, high value assets (the largest hi-tech vessel can cost over US $150
to build and the operation of merchant ships generates an estimated annual income approaching US
$500 billion in freight rates, representing about 5% of the total global economy.Throughout the last
century the shipping industry has seen a general trend of increase in total trade volume. Increasing
industrialization, liberalization of national economies, advancement in technology have fueled free
trade and made shipping an increasingly efficient and swift method of transportation. Over the last four
decades total seaborne trade estimates have nearly quadrupled, from less than 6 thousand billion
tonne-miles in 1965 to 25 thousand billion tonne-miles in 20032.

Ability of a ship to carry large volumes provides an edge to sea mode over other modes of
transportation. Lower cost of transportation, efficient port operations and advent of information
technology in the sector; have made ship a preferable option over other modes. There are various other
factors making ship the most acceptable option for carrying cargo world over. Some of the factors are
discussed as under.

Why Ocean Transportation?

1. Ability to carry different classes of cargo

Ship can carry different classes of cargo, ranging from containerized cargo, bulk cargo, palletized
cargo to live stocks. Mainly the goods to be carried can be divided into 3 categories:

a. Containerized cargo- Goods stored into big metal boxes for easy handling and safe transit.

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b. Break bulk- Any non-bulk cargo which is not containerized but stored in bags, pallets,
crates or drums and are loaded directly on ship.

c. Bulk cargo- Voluminous goods such as coal, ore, wheat or oil are carried in bulk, without
being packed.

There are specialized ships which can carry different types of cargo. Tankers, container ships,
bulk ships and livestock carriers are mainly used on international trade scenario.

2. Huge carrying capacity

Ships have higher carrying capacity as compared to other modes such as trucks or aero plane.
There are small feeder vessels which can carry cargo to the tune of 1200 to 3000 TEUs and there
are mega carriers with a capacity of 18000 TEU (twenty foot equivalent unit). The biggest
container ship, MSC Oscar of MSC Switzerland has the highest container carrying capacity of
almost 19224 twenty-foot equivalent units (TEUs).

Crude-oil and petroleum-product tankers vary in size from small coastal vessels about 60 metres
(200 feet) long, carrying from 1,500 to 2,000 deadweight tons (dwt), up to huge vessels that reach
lengths of more than 400 metres (1,300 feet), carry as much as 550,000 dwt, and are the largest
ships afloat. Ultra large crude carriers (ULCCs) have a length of 415 metres (1,350 feet) and a
capacity of 320,000 to more than 550,000 dwt. They carry from two million to well more than three
million barrels of crude.

3. Optimum for long distances

Ship is a better option to transport goods over longer distances as compared to land mode or
pipeline as it can carry higher volumes over longer distances and also provides the facility of inter-
continental transportation. Higher carrying capacity over longer distances makes ship a more cost
effective medium of transport.

4. Low cost of operation

As ships can carry huge volumes over longer distances, the per unit cost of carrying goods works
out to be much lesser as compared to other modes. With continuous improvement in technology
the cost of shipping is becoming more competitive. Transportation cost by ship occupies a
marginal share in the total shelf cost of the product. For example a the share of shipping cost in
the shelf price (USD 700) of a TV set is only $10, similarly for a vacuum cleaner costing $150, it
is only $1. The cost of transporting a twenty foot container carrying 20 tonnes of cargo from any
Asian nation to Europe is almost equal to the airfare of one passenger. This amount is very
economical when measured for one unit of product.

5. A little Slow but safe mode of transportation

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Due to huge volume and limitations imposed by the medium of transportation, ship takes longer
time to reach to the destination. But, this weakness is nullified by the fact that no other mode
provides services for such longer distances at such reasonable cost.

As the cargo has to travel for longer time over longer distances, it requires sound packaging to
avoid any kind of risk of damage or pilferage. This makes ship one of the safest modes of
transportation for goods. Shipping was amongst the very first industries to adopt widely
implemented international safety standards. Safety regulations for shipping industry are
formulated by the International Maritime organization (IMO) and all countries have to abide by the
rules to achieve safe shipping standards.

6. Most environment friendly medium

Shipping is the least environment damaging and most environment friendly mode of commercial
transportation. Maritime transport is only responsible for some 12% of the total marine pollution
generated as compared to the 77% accounted by land based discharge such as sewage,
industrial effluent and river run.

Shipping sector also contributes very small to harmful atmospheric emissions as compared to
land mode of transportation. With advent of newer and bigger vessels the fuel consumption as
well as atmospheric emissions are expected to go low.

7. Natural route

Ships do not require any tracks to be laid down or any roads to be constructed for travelling.
Natural sea routes are marked in the ocean for movement of ships. Thus, no investment is
required in building or maintaining sea routes.

Despite of all these benefits there are some disadvantages attached with the sea mode of
transportation which create limitations while choosing this mode. Some of them are listed here:

1. Slow in speed.

2. Highly dependent on weather and sea conditions.

3. Initial infrastructural set-up cost is high.

4. Door-to-door delivery is not possible. But containerization makes it possible.

5. More prone to damage.

6. Goods require special packaging to be safe at sea.

7. Specialized handling equipments for loading and unloading of cargo are required.

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Despite of few drawbacks, it can be said that Shipping is truly the spine of the global economy. Without
shipping, intercontinental trade, the bulk transport of raw materials and the import/export of affordable
food and manufactured goods would not be possible.

Ten Interesting facts about Global Shipping Sector

1. Shipping sector is ages old rather one of the oldest form of transportation for mankind. But it got
revolutionized only after introduction of containerization which has started only during mid 90’s.
2. At least 20 million containers are currently travelling across the oceans and approximately 55,000
merchant ships carrying cargo around the world.
3. Piracy is a problem even in modern times. In 2010, Somali pirates were holding 544 seafarers
hostage.
4. A container ship travels the equivalent of three-quarters of the way to the moon and back in one
year during its regular travel across the oceans.
5. The largest ships can cost over 200 million dollars to build.
6. Around 1.5 million seafarers are employed by the global shipping industry. Females constitute
only about 2% of seafarers.
7. People from the Philippines make up more than a third of all crews worldwide.
8. The 3 Biggest Fleets in the World are Owned by Japan (3962 ships), Greece (3032 ships) and
Germany (2321 ships). China and USA stand 4th and 5th respectively.
9. The largest shipping company in the world is Denmark’s A.P. Moller-Maersk, which reported a $
5,195 million profit in 2014.
10. The average container ship travels the equivalent of 75% of the way to the moon and back in a
single year, during its regular travel across the oceans. In its lifetime, a large container ship travels
the distance of the moon and back about ten times.

Source: “Ninety Percent of Everything: Inside shipping, the invisible industry that puts clothes on your back, gas in your car,
food on your plate” by Rose George, Picador Publications- 2014

Activity

1. List the 10 best shipping companies in the world along with their parent country.
2. Which is the biggest class of vessel used for transportation presently?

1.3 International Organizations and Conventions affecting International Shipping

As shipping is an international issue, it is governed by the global laws laid down by various international
organizations. The basic motive of these international organizations is to provide a harmonious and

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development oriented platform for international shipping sector. Various areas of concern such as
labour laws, safety regulations, life of sea farers, environmental regulations are addressed in these
forums. Some major organizations and there scope of work is discussed in the section below:

1.3.1 International Maritime Organization (IMO)

IMO, as it is called, comes under the purview of United Nations. It is the apex organization formulating
regulations for the sector and overseeing the fair and universal implementation of the same. Major
areas of concern for IMO are safety, security and environmental performance. It determines through
its regulations that none of these matters are compromised during commercial competition in the
shipping sector. IMO measures cover all aspects of international shipping – including ship design,
construction, equipment, manning, operation and disposal.

In 1948 an international conference in Geneva under United Nations adopted a convention formally
establishing IMO (the original name was the Inter-Governmental Maritime Consultative Organization,
or IMCO, but the name was changed in 1982 to IMO).The Organization is the only United Nations
specialized agency to have its Headquarters in the United Kingdom. It currently (June 2013) has 171
Member States and three Associate Members. Members of the United Nations may become Members
of the Organization by becoming parties to the Convention in accordance with the provisions of Article
71.

The Organization consists of an Assembly, a Council and five main Committees

1. the Maritime Safety Committee; the Marine Environment Protection Committee;


2. the Legal Committee;
3. the Technical Cooperation Committee and the Facilitation Committee and a number of Sub-
Committees support the work of the main technical committees.
4. Its governing body, the Assembly, meets once every two years.

Slogan of IMO shows its major purpose of work: safe, secure and efficient shipping on clean
oceans.

Role of International Maritime Organization, HQ- :

1. Formulating agreements and regulations regarding shipping


2. Provide assistance to members for implementing these regulations
3. To provide consultation services to the member nations
4. To provide a forum for discussing and sharing the problems and feedbacks of the member nations
5. To provide training facility to the member nations for developing skilled manpower in the field of
shipping.

IMO has promoted the adoption of some 50 conventions and protocols and adopted more than 1,000
codes and recommendations concerning maritime safety and security, the prevention of pollution and

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related matters. IMO has adopted a comprehensive framework of detailed technical regulations, in the
form of International Diplomatic Conventions which govern the safety of ships and protection of the
marine environment. Member countries are responsible for overseeing the implementation of the
regulations of IMO by the ships registered under their flags. Any foreign port can also inspect the ships
entering into its limits for implementation of IMO rules.

1.3.1. Major IMO Agreements

Dealing with the ship

SOLAS (International Convention for the Safety of Life at Sea, 1974) lays down a comprehensive
range of minimum standards for the safe construction of ships and the basic safety equipment (e.g.
fire protection, navigation, lifesaving and radio) to be carried on board. SOLAS also requires regular
ship surveys and the issue by flag states of certificates of compliance.

MARPOL (International Convention for the Prevention of Pollution from Ships, 1973/1978) contains
requirements to prevent pollution that may be caused both accidentally and in the course of routine
operations. MARPOL concerns the prevention of pollution from oil, bulk chemicals, dangerous
goods, sewage, garbage and atmospheric pollution, and includes provisions such as those which
require certain oil tankers to have double hulls. Annex I suggests requirements for regular monitoring
of oil discharges into sea water, and made Governments responsible to provide shore reception and
treatment facilities at oil terminals and ports. Other five annexes of MARPOL cover chemicals,
harmful substance packages, sewage, garbage, and air pollution in their respective spheres.

COLREG (Convention on the International Regulations for Preventing Collisions at Sea, 1972) lays
down the basic "rules of the road", such as rights of way and actions to avoid collisions. These are
designed to maintain discipline of marine traffic to prevent collisions between two or more marine
vessels. They form the basis of safe marine navigation by fixing issues like speed restrictions, lights,
and sound signals. They represent traffic rules related to approaching, passing, giving way and
overtaking to avoid collisions between two vessels. The rules are equally applied to all categories
of marine vessels irrespective of their size or purpose.

LOADLINE (International Convention on Loadlines, 1966) sets the minimum permissible free board,
according to the season of the year and the ship's trading pattern. This Convention provides for the
terms of ship's surveys, issuance, duration, validity and acceptance of International Load Line
Certificates, as well as relevant State control measures, agreed exemptions and exceptions.

ISPS (The International Ship and Port Facility Security Code, 2002) includes mandatory
requirements to ensure ships and port facilities are secured at all stages during a voyage. The ISPS
Code is a set of measures to enhance the security of ships and port facilities. It was developed in
response of the perceived threats to ships and port facilities after the 9/11 attacks. The ISPS Code

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is part of the Safety of Life at Sea Convention (SOLAS) and compliance is mandatory for the 148
Contracting Parties to SOLAS.

Dealing with the Shipping Company

ISM (The International Safety Management Code, 1993) effectively requires shipping companies to
have a licence to operate. Companies and their ships must undergo regular audits to ensure that a
safety management system is in place, including adequate procedures and lines of communication
between ships and their managers ashore.

Hague-Visby Rules

Drafted at the 1924 International Convention at Brussels, Hague-Visby Rules are basically a set of
rules governing the international carriage of goods by seagoing merchant ships. The official title of
the Convention was "International Convention for the Unification of Certain Rules of Law
relating to Bills of Lading”. These rules were created as a result of growing dissatisfaction among
shippers and their insurers due to arbitrary restrictions imposed by carriers to limit their liability in
case of damage or loss of cargo. The Hague rules primarily aimed to solve this problem by
establishing standard basic obligations and responsibilities of the carrier and shipper for goods
covered under a bill of lading.

Hamburg Rules

Adopted in March 1978 at Hamburg, the Hamburg Rules are basically improved version of Hague-
Visby rules governing the international shipment of goods. It was an attempt to create a level
playing field for developing countries in the area of international shipments of goods. The developing
countries believed that Hague Rules were colonial in nature, and were created for the sole benefit
of colonial maritime nations. They demanded for a full re-examination of these Rules to address the
existing imbalances between carrier and shipper interests. The Convention came into effect in
November 1992 when pre-requisite number of countries (which was twenty) ratified the Convention.
As of May 2011, a total of 34 nations had ratified the convention. However, none of developed
nations including the USA, UK, and Russia have ratified the Convention yet.

Dealing with the Seafarer

STCW (International Convention on Standards of Training, Certification and Watchkeeping for


Seafarers, 1978/1995) establishes uniform standards of competence for seafarers. As the name
suggests, the Convention has been created to set training and certification standard for masters,
officers, and watch personnel on seagoing merchant ships. The Convention came into effect in 1984
after the ratification by pre-requisite number of countries. At the behest of US Coast Guard, IMO had
to make a major amendment to STCW Convention in 1995.

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ILO 147 (The ILO Merchant Shipping (Minimum Standards) Convention, 1976) requires national
administrations to have effective legislation on labour issues such as hours of work, medical fitness
and seafarers' working conditions.

1.3.2 International Chamber for Shipping (ICS)

It was established in 1921 as a principal international trade association for the shipping industry,
representing ship-owners and operators in all sectors and trades. It includes the national ship owner’s
associations from Asia, Europe and America as members. ICS also develops best practices and
guidance, including a wide range of publications and free resources that are used by ship operators
globally. It acts as a platform for discussion between national ship-owners and international forums
such as IMO for formulation of best policies for shipping sector. It represents almost 80% of the world
merchant fleet.

ICS is actively engaged with the following intergovernmental bodies that impact on shipping:

• International Maritime Organization (IMO)

• International Labour Organization (ILO)

• United Nations Division for Oceans Affairs and the Law of the Sea (DOALOS)

• United Nations Conference on International Trade Law (UNCITRAL)

• United Nations Conference on Trade and Development (UNCTAD)

• United Nations Framework Convention on Climate Change (UNFCCC)

• Asia Pacific Economic Co-operation Forum (APEC)

• Organization for Economic Co-operation and Development (OECD)

• World Customs Organization (WCO)

• World Trade Organization (WTO)

The work of ICS is overseen by a Board of Directors, comprising senior shipping company executives
who are elected to represent the collective interests of their national shipowners’ association.

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Source: http://www.ics-shipping.org

ICS has played an influential role in the development, implementation and subsequent revisions of the
SOLAS, MARPOL and STCW Conventions. ICS is provides for the co-ordination and representation
on most of the issues affecting shipowners and operators such as:

• Atmospheric emissions • Ballast water • Best practices • Bridge procedures • Canal tolls • Cargo safety
• Competition rules • CO2 reduction • Construction and equipment • Customs • Employment standards
• E-navigation • Facilitation • Flag state performance • Free trade principles • Industrial relations •
Insurance • Liability • Maritime law • Market access • Pollution prevention • Port state control • Safety
management • Security • Ship recycling • Shipping and trade policy • Training standards • Work hour
regulation

Activity

1. List the various other international organizations having impact on the shipping industry.
2. Visit the website of IMO and collect beneficial information about various aspects of
shipping.

References

UNCTAD ,”Key Trends in International Merchandise Trade”, New York and Geneva 2013
1

Raja Simhan T.E. “Global shipping: Challenges ahead”, Business Line, November 21, 2005
2

Lun, Yuen Ha (Venus), Lai, Kee Hung, Cheng, Tai Chiu Edwin, “Shipping and Logistics Management”,
3

McGraw-Hill, 2010.

Stroh Michael B., “A practical guide to transportation and logistics”, The Logistics Network,2 nd
4

edition,2001.

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Review Questions

1. Write a short note on World Trade Scenario. Analyze the position of India as a global player.
2. What is the importance of ocean mode of transportation in world trade?
3. “Although more than 50% of the world cargo travels by ocean mode still it is not the best medium”
discuss your view on this statement.
4. Elucidate the role of International Maritime Organization in development of International Maritime
Sector.

Objective Type Questions

1. Which of the following is a factor impeding the growth of International Trade:


a. Competitive Advantage
b. Expropriation
c. Regional economic Integration
d. Economic Union
2. WTo stands for:
a. World Trade Organization
b. West World Trade Organization
c. World Trade Office
d. World Transport Organization
3. TEU stands for:
a. Transport Equivalent Unit
b. Two Foot Equal Units
c. Twenty Foot Equivalent Units
d. Two Equal Units
4. IMO was established in :
a. 1947
b. 1995
c. 1948
d. 1963
5. Bill of Lading is Governed by:
a. ISM
b. COLREG
c. Hague-Visby Rules
d. ILO 147

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Annexure I

MEMBER STATES OF IMO

(AS on OCTOBER 2013)

Albania, Algeria, Angola, Antigua and Barbuda, Argentina, Australia, Austria, Azerbaijan, Bahamas, Bahrain,
Bangladesh, Barbados, Belgium, Belize, Benin, Bolivia (Plurinational State of), Bosnia and Herzegovina, Brazil,
Brunei Darussalam, Bulgaria, Cambodia, Cameroon, Canada, Cape Verde, Chile, China, Colombia, Comoros,
Congo, Cook Islands, Costa Rica, Côte d’Ivoire, Croatia, Cuba, Cyprus, Czech Republic, Democratic People’s
Republic of Korea, Democratic Republic of the Congo, Denmark, Djibouti, Dominica, Dominican Republic,
Ecuador, Egypt, El Salvador, Equatorial Guinea, Eritrea, Estonia, Ethiopia, Fiji, Finland, France, Gabon, Gambia,
Georgia, Germany, Ghana, Greece, Grenada, Guatemala, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras,
Hungary, Iceland, India, Indonesia, Iran (Islamic Republic of), Iraq, Ireland, Israel, Italy, Jamaica, Japan, Jordan,
Kazakhstan, Kenya, Kiribati, Kuwait, Latvia, Lebanon, Liberia, Libya, Lithuania, Luxembourg, Madagascar,
Malawi, Malaysia, Maldives, Malta, Marshall Islands, Mauritania, Mauritius, Mexico, Monaco, Mongolia,
Montenegro, Morocco, Mozambique, Myanmar, Namibia, Nepal, Netherlands, New Zealand, Nicaragua,
Nigeria, Norway, Oman, Pakistan, Palau, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland,
Portugal, Qatar, Republic of Korea, Republic of Moldova, Romania, Russian Federation, Saint Kitts and Nevis,
Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Sao Tome and Principe, Saudi Arabia,
Senegal, Serbia (Republic of), Seychelles, Sierra Leone, Singapore, Slovakia, Slovenia, Solomon Islands, Somalia,
South Africa, Spain, Sri Lanka, Sudan, Suriname, Sweden, Switzerland, Syrian Arab Republic, Thailand, the former
Yugoslav Republic of Macedonia, Timor-Leste, Togo, Tonga, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan,
Tuvalu, Uganda, Ukraine, United Arab Emirates, United Kingdom of Great Britain and Northern Ireland, United
Republic of Tanzania, United States of America, Uruguay, Vanuatu, Venezuela (Bolivarian Republic of), Viet Nam,
Yemen, Zimbabwe.

Associate Members

Faroes; Hong Kong, China; Macao, China.

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UNIT 2
Conferences and Alliances in Shipping

Chapter Objectives

 To discuss the concept of conference system with reference to shipping


 To elucidate the reasons for formation of conferences and alliances
 To understand the concept of Flag of Registration and Flag of Convenience

Topics Covered

2.1 Meaning of Conference System

2.2 Shipping Alliances: The most prevalent form of co-operation

2.3 Major Shipping Alliances of the world

2.4 Concept of Flag of Registration and Flag of Convenience

Review Questions

Objectives

Case Study

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2.1 Conference System in Shipping

With the increase in quantum of business the demand for transportation to certain sectors has increased
manifolds. Also with the optimistic view about shipping sector’s future many big and small players have
entered into this sector.

There are different shipping methods followed in the industry:

Liner Operations – These follow a fixed schedule of sailing. They touch the defined ports on the given
date and sail out as per the schedule. These generally offer uniform freight rates to parties and carry
heterogeneous cargo. A number of ports are touched during a shipment.

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

Tramp Operations- Unlike liner operations, these follow flexible routes and schedules as per shipper’s
requirements. Shipping voyages are planned depending upon the availability of cargo and the freight
rates are also based on market conditions. Tramp ships usually carry homogenous type of cargo (usually
bulk cargo) like ores, grains, coal etc. Tramp operations are generally opted by big shippers who have
huge volumes of cargo. They hire the complete vessel and run it as per their needs. This process is
termed as “Chartering” or “Charter Party”.

Liner services operate in a more transparent environment. They are highly driven by the market factors
such as demand and supply. There is immense competition and pressure to achieve profitability. One
peculiar feature about shipping is the high fixed cost involved. This implies that the cost of sailing, with
or without load remains fixed and is very high. Thus profits are ensured when ship runs with full load.
Every customer has different requirement regarding type of cargo, destination and origin port etc. So as
to increase their rate of return, shipping companies have to focus on increasing the operating rate from
each vessel. This means that it very important to determine the routes and frequency of their service so
as to meet shippers’ various needs as closely as possible. But, to fill complete slots liner ships can’t wait
for long hours at the port as fixed schedules have to be met. Therefore, in order to use maximum of
their fleet capacity on time and to cover most of the port of calls, liner shipping companies form a group
termed as consortium or conference system.

Shipping conference is defined as- “Shipping conferences refers to shipping companies that have formed
an association to agree on and set freight rates and passenger fares over different shipping routes. There
are different shipping conferences for different regions of the world. Shipping conferences, aside from
setting rates, adopt a wide number of policies such as allocation of customers, loyalty contracts, open
pricing contracts, etc.” The first conference emerged in 1875 in UK and was called as Calcutta

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Conference. Historically, eastern bloc country shipping lines have not joined these conferences.” This
system of conference has some peculiar features:

a. Companies belonging to this group frame common freight rates and other terms and conditions.
b. Members may make a common policy on the discounts or rebates, which may be offered to shippers
in the geographical area covered by the conference. In addition, conferences fix surcharges (E.g.
bunker adjustment factor, currency adjustment factor, congestion surcharge and war risk surcharge)
and ancillary charges (those charges triggered by or associated with the operation of moving
containers) per trade, country, port or direction as relevant. Furthermore, conferences discuss
capacity utilisation, volumes lifted by each member line, evaluate members’ market shares and carry
out market forecasting through the elaboration of a business plan.
c. They offer regular rates for all the customers but lower rates for special customers who make
patronage contract with the conference line.
d. Vessel operators within the same conference are allowed to maintain their own rate structures. That
is internal price competition prevails within conferences because individual rate fixing between
carriers and shippers is allowed. In these cases the conference tariff is not applied but used as a
benchmark to fix the price of individual or multicarrier contracts.
e. Mostly similar types of vessels are part of any conference so as to supply scheduled service. This is
due to the fact that uniformity of schedule has to be followed in the liner service. Thus liner services
follow fixed route with a particular demand pattern.
f. The market condition in both the direction (forward and backward) can be different. Thus there could
be difference in rules of conference for the to and fro journey.
g. Conference had various consortiums as its members, with each consortium having shipping
companies as its member in turn.
For e.g. Southeast Asia-Australia Service is a consortium of major international shipping lines UASC,
Hapag-Lloyd, Hanjin, CSCL, RCL, OOCL and Hyundai. They operate five ships of between 4,200
and 4,700 TEU capacity on the weekly service; running Singapore, Malaysia, Brisbane, Sydney
Melbourne and Adelaide.
Though the terms consortium and conference seem similar but there is thin line of difference between
the two. Unlike conferences, consortia do not price fix but carry out extensive co-operation. This co-
operation ranges from vessel sharing, exchange of space or slots in vessels, equipment interchange,
joint operation or use of port terminals and related services, temporary capacity adjustments to the
participation in revenue or a cargo pool, joint marketing and the issuing of a joint bill of lading. Whereas
Liner shipping conferences are groups of vessel operating carriers which engage in price fixing and
capacity regulation.
Conference system operated only till end 90’s. The inefficiency of conferences to secure stable revenues
in the long term as well as economic efficiency to their members, unfair pricing practices, and dominance

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of some conferences members over other and changing market requirements, conference system was
discontinued.

Various other form of co-operation arrangements emerged after conference system such as alliances,
consortiums and joint ventures. Consortiums did exist along with conferences also.

Different co-operative arrangements in shipping industry

An association of shipping lines, all travelling the same route in the same
Conferences
(from 1875 to direction; members explicitly and formally agree to common prices, a set
1998)
schedule, and renegotiation and dispute settlement procedures.

Consortia (late
Aimed primarily at sharing fixed costs on a maritime route through various
1960s to 1990s)
technical, operational or commercial arrangements such as joint use of
vessels, port installations, marketing organisations. They do not contain
price-fixing provisions and generally involve lower market shares than
conferences. Members of a consortium may be independent lines or they
may be members of the same conference.

Strategic
Formed amongst two or more leading container carriers, who attempt to
alliances (mid-
1990s to today) enhance their competitive advantages collectively vis-à-vis competitors on
a global marketplace. Members are not involved in price setting but in the
rationalisation of their services in a global basis and optimisation of each
carrier’s assets through schemes such as sharing of vessels, ports,
charters, terminals, joint scheduling and, where permitted, coordination of
inland services. They do not include joint management and marketing
functions or revenue pools.

Joint ventures
Equity joint venture (“traditional joint ventures”), created when two or more
partners (“parents”) join forces to establish a newly incorporated company
in which each has an equity position, thereby each expects a proportional
share of dividend as compensation and representation on the board of
directors

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2.2 Shipping Alliances: The most prevalent form of co-operation

Alliances are similar to conference systems and consortiums in broader sense but it differs in the
objectives. Conferences were forms solely around the motive of freight stabilization but the objectives of
alliance extends at reaping both scale economies by rationalising space on board, pooling vessels and
sharing comparative advantages and scope economies by operating in wider areas. Despite of these
participants can exercise complete autonomy on their freight structures. Partnership of members in
alliances might also include some of the activities such as:

 co-ordination of sailing schedules and itineraries worldwide and common use of joint
terminals

 chartering in vessels, slot sharing, pooling containers, and information sharing

 joint equipment management, inland transport and logistics, joint purchasing and
procurement and other activities, not restricted to vessel operations

Objectives of Alliances in Shipping Industry

Objectives Details

Financial Profit maximisation, increase in shareholder wealth, capital


investment sharing and financial risk reduction

Economic Cost reduction, economies of scale

Strategic Entry in new markets, wider geographical scope, increase


in purchasing power

Marketing Satisfy customer requirements better, e.g. higher


frequency, flexibility, reliability, network expansion, i.e.
offering a greater variety of routes and destinations

Operational Increase in frequency of services, vessel planning and


coordination on a global scale

Sources: (Midoro and Pitto 2000; Panayides and Wiedmer 2011)

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Benefits of Alliance

There are various benefits attached with alliance system.


 Risk Sharing
 product rationalisation and economies of scale
 Transfer of Complementary Technology/ Exchange of Patents
 Shaping competition – external and internal

 Facilitate International Expansion

 Rationalize service routes

 Increase market share

 Increase the utilization of container boxes, benefit from economies of scale

 Reduce firm’ s financial burden on equipment investment

 Reduce capital cost of purchasing or supplying ships

 Link into partner’s established marketing network

 Extend service coverage

 Maximize financial synergy

 Stabilize freight rates

 Develop a liner service for specific market niches

 Share the risks of providing new liner services

 Provide total container logistics service

 Provide intermodal service

 Provide more frequent sailings

 Faster entry to new trade routes

 Gain access to general management skills

 Conform to shipping policy of foreign government

 Conform to shipping policy of national government

 Acquire access to ports where allies are strong


 Introduce a new service and Suspend a service

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2.3 Major Shipping Alliances in the World

With advent of containerized trade, emergence of new market centres such as Asia- North Europe and
Asia-North America new alliances have come into existence. Recently some new powerful alliances have
come into existence on the shipping industry. Maersk and MSC began joint operations in mid-January
2015 under the 2M alliance. The O3 alliance between CMA-CGM, UASC, and CSCL also began
operations in January 2015, competing with the CKYHE, G6, and now 2M. Other major alliances have
been mentioned in the table below.

Major Alliances in Shipping Industry

Source: Neil Davidson, Senior Analyst – Ports & Terminals, Container Supply Chain Conference, TOC
Europe, Rotterdam, June 2015

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Alliance market shares of East-West trades, July 2015

Source: Drewry Maritime Research (www.drewry.co.uk)

Although there are number of benefits attached with alliances, but still growing competition among the
members and dominance of few players are still topics of concern. Over powering of some of the
alliance members, fast growth of some members and also size-age of members are big issues affecting
the stability of alliances. With induction of mega vessels such as Triple E vessels by Maersk, full
capacity utilization is a big issue. Alliances are going to be a simple solution for this issue also.

OCEAN- 3 Alliance- A case in focus

O-3 alliance comprising of CMA-CGM, CSCL and UASC covers the Asia-Europe, Asia-
Mediterranean, trans-Pacific and Asia-US East Coast trades involving a combination of vessel-
sharing agreements, slot exchange deals and slot charter arrangements. All three carriers have
ultra-large container vessels on order that will allow them to maximize economies of scale on their
combined services. UASC has six 18,800-TEU ships on order and China Shipping is awaiting
delivery of five 19,000-TEU units, which will be the largest container vessels afloat. CMA CGM has
six 17,700 to 17,800-TEU units on order, scheduled for delivery in 2015.

Ocean Three will operate four weekly trans-Pacific services to California ports and one service to
the Pacific Northwest. It will run one service via the Suez Canal on the Asia-U.S. East Coast trade
and a separate service dedicated to the Gulf of Mexico. There will be four weekly services on the
Asia-Europe trade and four on the Asia-Mediterranean route.

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Ocean Three will compete head on with the 2M, G6 and CKYHE alliances on the major east-west
routes, which are facing mounting pressure on freight rates as ever larger ships are flooding markets
at a time of modest traffic growth.

The new alliance’s strongest presence will be in the Europe-Asia trade where it is estimated to have
a 20 percent market share, ahead of 13 percent and six percent shares in the trans-Pacific and
trans-Atlantic, respectively.

This contrast with the 2M’s estimated 35 percent share of the Asia-Europe trade, 15 percent in the
trans-Pacific and a dominant 40 percent across the Atlantic.

Source: Bruce Barnard, “'Ocean Three' Alliance formed by CMA CGM, China Shipping, UASC”, Sep
09, 2014, www.joc.com

Activity

1. List the major consortia along with their members and the trade routes they cover.
2. On the line of above case, make a detailed note on 2M,G6 and CKYHE alliances.

2.4 Concept of Flag of Registration and Flag of Convenience

Registry of ship is similar to the concept of registration of automobiles. International law requires every
ship to be registered in a country before permitting the international voyages. The country of registration
is called the flag state and the ship sails under the Flag of registration of the Flag state. Registration
determines that ship and its crew are governed by law of which country. Registration is a mandatory
requirement for ships sailing across national borders. Flag State has the responsibility of inspecting the
ship, crew and equipments as per the safety standards and issuing the document related to environmental
safety and pollution control. The organization which registers the ship is called as Registry and can be
private or Government. Registry is of two types:

 National Registry- registry which can register vessel of its own nations only.
 Open Registry- registry which are open to register the ships of foreign nations also.

Under the open registry system, ships have the option to get registered with the nation other than its own
nation. It is termed as Flag of Convenience.

Flag of Convenience is resorted by ships due to following reasons:

 Less working expenditure

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 Relaxed regulations of foreign state


 Lower crewing costs since there can be an unrestricted choice of crew in the international market
and there is no compulsion to follow enormous national wage scale.
 Overcome boycott of its parent nation by other port countries
 Maximum number of friendly ports on list of foreign country
 Good reputation of the Flag State
 Major source of revenue for countries such as Panama.
Drawbacks of Flag of Convenience
 The safety standards of many of the flag states is not up to the international standards
 Working conditions on the FOC (Flag of Convenience ships) is affected adversely due to poor
human resource standards
 Loose legal framework of the registry nation can lead to vessels entering into illegal trade

Panama is the largest registrant of ships by far, accounting for 23% of the world’s registered fleet. The
second in the list is Liberia 2771 ships registered, out of which 93% are foreign ships. Marshall Islands
stand third with fastest growing registry in the world. There are number of landlocked countries that have
ship registries such as Mongolia. The table below gives a complete account of the Flag States offering
Flag of Convenience to ships.

Top Flags of Convenience

Country of registry Registered Foreign- % foreign- Largest client


owned owned country (# of ships)
Panama 6,413 5,162 80% Japan (2 372)
Liberia 2,771 2,581 93% Germany (1 185)
Marshall Islands 1,593 1,468 92% Greece (408)
Malta 1,650 1,437 87% Greece (469)
Antigua and Barbuda 1,257 1,215 97% Germany (1 094)
The Bahamas 1,160 1,063 92% Greece (225)
Cyprus 838 622 74% Greece (201)
Cambodia 544 352 65% China (177)
Saint Vincent & the
Grenadines 412 325 79% China (65)
Gibraltar 267 254 95% Germany (123)
Belize 247 152 62% China (61)
Bermuda 139 105 76% United States (26)
Cayman Islands 116 102 88% United States (57)
Curaçao 120 101 84% Netherlands (52)
Source: The World Fact book, 2012

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References

Lydia Komini, “ The rise and dominance of Shipping Alliances in the Liner industry”, Coursework 2015,
Cardiff Business School.

Midoro, R. and Pitto, A. 2000. A critical evaluation of strategic alliances in liner shipping. The flagship
journal of international shipping and port research 27(1), pp. 31-40.

Khanna, T. et al. 1998. The Dynamics of Learning Alliances: Competition, Cooperation, and Relative
Scope. Strategic Management Journal 19(3), pp. 193-210.

Review Questions

1. Write a note on Conference Systems in the Shipping sector.


2. Discuss the different co-operative arrangements in the shipping sector.
3. What are the major alliances in the World Shipping Industry? Point out the benefits of forming
alliances.
4. What are Flag of Registration and Flag of Convenience? What are the drawbacks attached with the
flag of convenience?
5. Is the alliance system a good strategy to improve market presence? Comment.
Objective Type Questions
1. ________ has maximum number of Flag of Registrations to its credit:
a. Malta
b. Cambodia
c. Panama
d. Liberia
2. A fixed shipping schedule is followed in which of the following system:
a. Tramp Operations
b. Liner Operations

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c. Alliance
d. Charter
3. When 2 or more partners join forces to establish a new entity, it is termed as:
a. Consortia
b. Partnership
c. Strategic Alliance
d. Joint Venture
4. Which is the World’s biggest Alliance today:
a. 2M
b. O3
c. G6
d. CKYHE
5. _______________registry is open to register the ships of foreign nations also:
a. National
b. International
c. Open
d. Closed

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UNIT 3
Maritime Security and Documentation

Chapter Objectives

 To discuss the major threats affecting the Maritime sector


 To comprehend the impact of piracy on global shipping sector and the ways to
safeguard against it
 To understand the major documents involved in the global maritime trade

Topics Covered

3.1 Maritime Security- A major issue of Concern

3.2 Terrorism and Maritime Trade

3.2.1 Container Security Initiative (CSI)

3.3 Piracy- Meaning, Effects and Safeguard

3.3.1 Reasons for Piracy

3.3.2 Regions of Piracy

3.3.3 Cost of Piracy

3.4 IMO and Maritime Security

3.5 Maritime Documents

Annexure II

Review Questions

Objectives

Case Study

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3.1 Maritime Security – Major issue of concern for global shipping sector

Safe delivery of the goods in right time and right place at the lowest possible cost is the basic motive of
any supply chain. Ensuring safety of goods during the haulage is one of the most important concerns for
the logistics operator. Although ships are the most reliable modes in 21st century still there are some
issues which plague the cargo movement. Hazardous and unpredictable working environment have made
the shipping industry one of the first amongst the industries to adopt international safety standards. Thus
efficiency and safety are two major features of shipping sector.

There have been various international agreements such as MARPOL, SOLAS, COLREG etc. which look
into the issues related to safe movement and safety of people at sea. Member nations of IMO including
India are following these rules so as to ensure a safe environment for shipping.

Maritime security has been an issue of concern since years but the instances such as terrorist attacks and
piracy incidents have made it one of the most important topics on international agenda. It becomes
necessary to understand these aspects of maritime security and understand the cost involved with them.
Terrorism and piracy not only leads to loss of cargo but also has considerable amount of hidden cost
associated with them. Some of this are-

 Cost of delay in supply in the event of hijack of the ship


 Additional cost of insurance premium in form of surcharge
 Cost of communication and negotiation
 Cost of ransom which is paid to pirates
 Cost of re-routing to avoid the risk prone areas
 Cost of losing the entire cargo at times
 Cost of lost sales due to inability to reach to the customer on time

3.2 Terrorism and Maritime Trade

This issue came into limelight after 11 September 2009. The attack on World Trade Centre (WTC) alarmed
the world regarding the effect terrorism can have on the social as well as economic life of the world.
International trade has also been affected to a major extent by this issue. The security and safety of
goods entering or leaving the harbour is a prime concern not only for the exporting country but also for the
importing country. To ensure that legitimate goods and no undesirable or item of threat is entering inside
the port (air or sea) is responsibility of port authority. Additional screening and testing and of cargo have
been added by the port authorities’ world over. X-rays, RFID and other detectors have been installed at
various major ports. It has surely added to the cost of operations but has become necessary procedure
for exporter as well as importer country. A major initiative has been launched by USA in this regard-
Container Security Initiative (CSI) and Customs-Trade Partnership Against Terrorism (C-TPAT).

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C-TPAT is for the individuals importing in U.S. but CSI has international implications as number of
countries has become signatories to this treaty.

3.2.1 Container Security Initiative

CSI was formally launched in 2002 by U.S.A to improve detection of sea-bound import of weapons of
mass destruction inside U.S. ports. The main aim is to safeguard the global trade by terrorist activity which
might take place through containers moving around on ships. It proposes that all the US bound containers
are identified and inspected at foreign ports before they are placed on vessels sailing to the United States.
It involves the posting of Customs officials at foreign ports to allow for the screening of high-risk U.S.
bound cargo containers before they even leave their foreign ports of origin. In some cases, a country
participating in the CSI program may enter into agreement with the United States in order to station
their own inspection teams in specified U.S. ports. For e.g. Canadian Customs and Revenue Agency
agents inspect Canadian bound containers in Seattle and New York, and Japanese agents have begun
screening containers in California.

With the increasing containerized trade, CSI is a useful tool to improve container security. Initially it CSI
was implemented on the 20 international ports (in order of their transaction with U.S.). CSI is now
operational at 58 ports spread over North America, Europe, Asia, Africa, the Middle East, and Latin and
Central America. Almost 80% of the containerized imports in U.S. are covered by CSI now. India is also
signatory to CSI and is greatly benefited by it in terms of security and trade.

The three core elements of CSI are:

 Identifying high risk containers based on the advanced information and strategic intelligence
received using automated targeting tools.
 Screening and evaluating containers at the early stage of supply chain, at the port of departure
even before they are shipped.
 Using technology such as X-ray, gamma ray machines and other radiation detection devices to
pre-screen high-risk containers with the aim of ensuring faster movement of trade.

CSI has strategic as well as commercial dimension. It ensures national security as well as promotes
international trade of countries with U.S. and among themselves. Participation in CSI aims at ensuring
unhindered movement of items across the globe, particularly those having genuine technological use but
suspected by some of them having dual use.

3.3 Piracy- Meaning, Effects and Safeguard

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Under the influence of globalization, international trade has increased manifolds in past few years. With
the increase in trade, other problems related to trade have also increased. A new issue has cropped up
in recent years which have become an issue of international concern. It is piracy. Although piracy was
present in past also but now it has become a more sophisticated practise. Pirates today are equipped
with more advanced arms, ammunition, huge vessels and a well-developed communication system.
Although globalization has resulted in overall development, economic as well as social, of nations but
some nations still suffer from economic slowdown, political unrest and social backwardness. Piracy is
practised by nationals of these nations as a source of generating funds. During 1990’s and start of this
century, pirates were more active in the South China Sea and the Straits of Malacca and Singapore. With
progression of this century, though the cases of piracy in these areas but action has shifted to new areas
viz. off the coast of Somalia, Gulf of Aden and the wider Indian Ocean. Pirate attacks in the Gulf of Aden,
Red Sea, and the waters far off Somalia’s eastern coast, including the Arabian Sea, have increased in
past decade, mainly due to strengthening of Somali pirates. Attacks on merchant vessels have been
continuously rising since 2011 and almost 60% of these hijack incidents are attributable to Somali pirates.
Somali pirates have increased in numbers, become sophisticated in operations and have also expanded
their reach. Somalis have been traced as far as Indian coasts in one direction and till Mozambique Channel
down south.

3.3.1 Reasons for Piracy


Maritime piracy is a global issue. There is a trio of factors which have catalyzed the problem-
 weak economic opportunities for the local populations,
 a lack of security/enforcement by officials, and
 the geographic locations all provide ample opportunity for piracy.
There are various other reasons for piracy. Some of the major issues are discussed as under:
 Economic reasons- due to economic slowdown and lack of concentration of international
community, instances of piracy have soared continuously since 2005. Piracy fetches good money
to the people. For instance the annual income in Somalia is estimated at US $650 whereas a single
act of piracy can yield US$10,000 or even more.
 Escalating Ransom- the ransom amounts have increased by a huge margin during past years. As
per the data released by IMO in its report, the ransom paid in 2005 was USD1, 50,000 for an oil
tanker which grew to USD 5.4 million and USD 9.5 million by 2010 for similar class of ship.
 Support from other antisocial elements- pirates are getting supplies (arms, auxiliary materials) as
well as training from various other anti-social elements such as terrorists in turn of a share of
ransom to them. This factor has promoted the pirates to expand their reach and operations.
 Lack of legal mechanism- even though the pirates are caught by the forces deployed at sea, they
are released or no strict action is taken due to lack of some stern law on it. Political will may be

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present in some countries, but several governments lack sufficient laws and judicial capacity. Also
lack of prison capacity restrains many countries from prosecuting these pirates. Due to this a
sense of impunity exists among the pirates and the financers.

3.3.2 Regions affected by Piracy

In 21st century, termed as century of Asia, Indian Ocean has emerged as a favourite destination for pirates.
It is due to its prominent geographical locations, busiest maritime trade route, and house of major ports in
the world and provides passage for big bulk as well as container vessels mainly oil tankers. The Indian
Ocean today carries half the world’s container ships and two-thirds of the world’s oil tankers. The Indian
Ocean stretches from the east coast of Africa to the archipelago of Indonesia and Australia in the East; it
extends in the north up to the Persian Gulf, with its southern borders stretching to the waters of Antarctica.
It has 38 littoral states along with number of small islands. The region is rich in marine and energy
resources as well as mineral wealth. The most vulnerable regions in the IOR are along the Horn of Africa,
off the Somalia coast, Gulf of Aden and near Indonesia in South East Asia.

 Malacca Strait- This is a prominent area affected by marine piracy. It is due to the heavy traffic of
vessels it carries. Malacca strait is situated between Singapore and Malaysia and forms a
commercial gateway for the Suez Canal, Egypt and Europe. Besides, it is also the most important
route for Indo-Sino trade.
 Somalia- Somali pirates have been the biggest threat for marine trade in this region. They are
expanding their reach far beyond the eastern African region. It the data given by IMO observed
closely, it is seen that that piracy incidents in this region has declined considerably in this are- 80
incidents in 2009 to 7 in 2013. One of the major reasons is presence of number of naval ships in
this area for surveillance and patrolling in this area. Apart from that declining traffic at this route is
also one of the reasons.
 Gulf of Aden: it is a very important trade link leading the way into Suez Canal and forms the
entrance to the Red Sea. The incidents have also been controlled in this region in recent years
due to active participation of military in this region. This route witnesses the movement of large
crude carriers and oil tankers.
 South China sea- it falls in Pacific Ocean encompassing an area from the Singapore and Malacca
Straits to the Strait of Taiwan. This area is important because one-third of the world's shipping fleet
transits through its waters. It has huge oil and gas reserves beneath its seabed. States and
territories with borders on the sea (clockwise from north) include: the People's Republic of
China (including Macau and Hong Kong), the Republic of China (Taiwan),
the Philippines, Malaysia, Brunei, Indonesia, Singapore, and Vietnam. While pirate attacks in the
South China Sea are spread across the entire area, the majority happen around Indonesia. If the

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data in the table is observed closely, it can be seen that piracy incidents in this area has also been
decreased due to combines efforts of Malaysia, Singapore and Indonesia.
 Indonesia: Indonesia has emerged as a major centre for piracy in recent years. With the diverted
attention from Somalia and Strait of Malacca, pirates have increased their operations in Indonesian
waters. Piracy incidents were just 15 in 2009 which have touched a striking figure of 106 in 2013.
Some of the areas that are targeted by the sea pirates are the Anambas, Natuna and the
Merundung Islands, where pirates have been reported to attack ships during night-time as opposed
to in the daylight. Now the Government of Indonesia has started devising mechanism for controlling
piracy though.
 India- Though India has been actively involved in the military operations with various nations such
as China for combating against piracy in South Asia but still Indian waters are becoming new
targets for pirates. 13 incidents of piracy had been noted in 2013. According to the report given by
International Maritime Bureau (London) of International Chamber of Commerce, 2,386 ships from
over 97 countries were attacked between 2006-12. The seas and oceans around Africa top the
chart with 1,228 cases, and Indian waters come third after Southeast Asian waters.

Piracy incidents in the Indian Ocean area (numbers)

(Jan-
June)
Countries 2009 2010 2011 2012 2013 2014
Egypt 0 2 3 3 7 0
Gulf of Aden 117 53 37 13 6 4
Kenya 1 0 1 1 1 0
Somalia 80 139 160 49 7 3
Tanzania 5 1 0 2 1 1
Indonesia 15 40 46 81 106 47
Malaysia 16 18 16 12 9 9
Myanmar 1 0 1 0 0 0
Philippines 1 5 5 3 3 2
Singapore Straits 9 3 11 6 9 6
Thailand 2 2 0 0 0 0
China 1 1 2 1 0 0
South China Sea 13 31 13 2 4 0
Vietnam 9 12 8 4 9 1
Malacca Strait 2 2 1 2 1 1
Bangladesh 18 23 10 11 12 10
India 12 5 6 8 14 4
Source: International Maritime Organization

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Other areas affected by the acts of piracy are Benin (Africa), Nigeria (Africa), Gulf of Oman (Arabian Sea)
and Gulf of Guinea. Incidentally, Gulf of Guinea has replaced Gulf of Aden as most dangerous shipping
routes in recent years.

3.3.3 Cost of Piracy

According to this 2013 World Bank report, maritime piracy by Somalian pirates costs $18 billion a year.
There are two types of costs involved with piracy- Direct and Indirect costs. Both these make piracy a
very expensive issue.

The Direct Economic Costs of Piracy

a) The Cost of Ransoms The indirect cost of piracy includes:

b) The Cost of Insurance a) Costs to Regional Trade

c) The Cost of Re-Routing b) Cost to Food Price Inflation

d) The Cost of Deterrent Security Equipment c) Cost of Reduced Foreign Revenue

e) The Cost of Naval Forces

f) The Cost of Piracy Prosecutions

Direct Costs

1. Cost of Ransom- Ransoms costs have been escalating with increasing number of piracy incidents. In
2005, ransoms averaged around $150,000. By 2009, the average ransom was around $3.4 million. In
2010, ransoms are predicted to average around $5.4 million.
According to the report of World Bank named “Pirate Trails”, from 2005 to 2012, the Somali pirates
have been paid around USD 360 million in ransom. The report shows that the pirates cost the world
around USD 18 billion every year. Ransom cost does not only means the amount paid to the hijackers
but the cost of negotiations, psychological trauma and counselling, repair to ship damage caused
while it is held captive, and the physical delivery of the ransom money, often done by helicopter or
private plane.

2. Cost of Insurance- There is an overall increase in the insurance premium when any ship is crossing
the war or piracy affected area. There are 4 categories of additional surcharges which can be added
to the total premium-

a. War risk- War Risk insurance is an excess charge for a vessel transiting a ‘war risk area.’ The
risk of war may increase insurance rates, cause charter parties to be cancelled, and change
the ports of discharge or places of delivery designated in charter parties, bills of lading, and
service contracts. It will probably increase freight rates. A carrier may have questions regarding

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whether its vessel may avoid certain ports or whether it may increase its freight rates to cover
the additional war risk insurance premium.

b. Kidnap and ransom- this covers the crew against ransom demands, but not the vessel or
cargo.

c. Cargo- Cargo insurance covers goods transported by a vessel.

d. Hull insurance- It covers physical damage to the ship, including harm from heavy seas,
collision, sinking, capsizing, grounding, fire or piracy.

3. Cost of Re-routing- To avoid the piracy affected area vessels go from an alternative route even if it is
longer. This is called as re-routing. Re-routing adds to the total cost of operation of the ship. Instead
of going through Gulf of Aden and Suez Canal ships choose to go via Cape of Good Hope. For
example, a re-routing from Europe to the Far East will add almost six extra days to a journey for a
liner and up to 15 to 20 days for a cargo ship. This excess duration of transit time reduces a vessel’s
annual voyages from six to five, equal to a 17% reduction in its yearly delivery capacity.

Estimated Costs of Rerouting the Vessel

Ship Cost: Hire and Fuel Cost per Excess Cost for Cost is 10% of
day 10 day voyage ships re-route

300,000 DWT VLCC Charter Hire $30,000 $300,000 $900 million

300,000 DWT VLCC Fuel $48,500 $480,000 $1.44 billion

Total Cost Per Day: 300,000 DWT VLCC $955,000 $9,550,000 $2.34 billion

10,000 TEU Containership Charter Hire $40,000 $400,000 $1.2 billion

10,000 TEU Containership Fuel $58,200 $582,000 $1.75 billion

Total Cost Per Day: 10,000 TEU $100,000 $1,000,000 $2.95 billion

Source: “The Economic Cost of Maritime Piracy”, One Earth Future Working Paper, Dec. 2010

4. Cost of Deterrent Security Equipment- To face the attack by pirates and safeguard the cargo as well
as crew many companies propose to deploy weapons and security staff on cargo ship. This amounts
to be very expensive for the shipping companies.

5. Cost of Naval Forces- Considerable cost is spent on deploying the war ships in the piracy affected
areas. For e.g. As per the report of Accountability Office (GAO) report on Maritime Security one U.S.

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navy vessel costs around $82,794 to operate per steaming day. If the ship goes for a mission of 10
days the total cost of operation would be $8, 27,940.

6. Cost of Piracy Prosecution- any state can prosecute the crime of piracy under the international law.
Generally the states which are affected by piracy related crimes lack sufficient funds to execute the
trials and prosecute the offenders. In such an event, monetary aid is provided by the developed
nations to do so. It helps the developed nations by providing a safer environment of trade. For example
in recent years, Kenya and the Seychelles have signed Memorandums of Understanding (MoUs) with
the European Union, United States, United Kingdom, Canada, Denmark, and Australia, stating their
willingness to accept pirates for trial.

Indirect Costs

1. Costs to Regional Trade- Piracy not only affect the nation directly involved in it but the whole region
is affected in terms of trade and tourism. For e.g. Kenya has suffered economically due to the
Somali piracy incidents. The costs of imports have gone up thereby increasing the cost of living
for the consumers. Domestic industry and tourism also stands affected due to piracy in
surrounding region. In 2009, the then Prime Minister Al Mohammed Mujawar of Yemen announced
that the Yemeni fishing sector had lost $150 million as a result of piracy and armed robbery against
vessels in Gulf of Aden. Fishing and Tourism- two main sectors of Seychelles have also been
badly hit due to piracy in the region.

2. Cost to Food Price Inflation – Mainly pirates target the bulk or crude vessels. These carry food
items, perishables or oil. Loss or delayed supply of these materials leads to food price inflation in
the importing countries which are mainly dependent of these supplies. Rapid food price inflation
in such nations may also lead to social unrest, riots, and potentially, conflict.

3. Cost of Reduced Foreign Revenue- A major loss to the nations located in the piracy affected region
is the loss of foreign revenue. The foreign investments are major source of economic and social
development for countries. But due to presence of piracy threats, foreign investors look for
alternative option (other regions) to invest. Another important setback is experienced by the
tourism industry especially the water related tourism such as cruise and water sports. For example,
cruise ships are intentionally avoiding Mombasa. The Kenya Tourist Board estimates that the
number of tourists visiting Mombasa by cruise ships between January and April 2010 declined by
95% Apart from these two the revenue earned by ports or canals by the ships entering/crossing
the harbour is also lost. Egypt registered a loss in the revenue earned through Suez Canal as
number of ships have re-routed around Cape of Good Hope.

3.4 IMO and Maritime Security

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IMO has set up Maritime Security Committee (MSC) for dealing with matters related to safety and security
of ship. It is the highest technical body of the IMO, and consists of all member states. The function of the
MSC is - to consider any matter within the scope of the Organization concerned with aids to navigation,
construction and equipment of vessels, manning from a safety standpoint, rules for the prevention of
collisions, handling of dangerous cargoes, maritime safety procedures and requirements, hydrographical
information, log-books and navigational records, marine casualty investigations, salvage and rescue and
any other matters directly affecting maritime safety. Apart from all these points, it has also added the
urgent security of ports as an important issue after 9/11.

Assembly of the MSC has made it a point to revisit all its legal and technical matters to prevent and
suppress terrorist acts against ships at sea and in port and improve security aboard and ashore.

Its major initiatives have been:

 An accelerated implementation schedule for Automatic Identification Systems on existing cargo


ships of 500 gross tonnages and above or the ones on international voyages.
 Amendments to SOLAS chapter XI, for including a new proposed International Code for the
Security of Ships and Port Facilities.
 New requirements for ship security plans, Ship Security Officer and Company Security Officer
 New requirements for Port Security Officer, port facility security plans and port
vulnerability assessment. Establishment of stronger at-dock security measures.
 Urgent action on a revised seafarer identification document by ILO
 The desirability of transparency of ownership and control of the ship addressing the need to
publish information on a vessel's cargo, and crew.
 Providing a capability for seafarers to activate an alarm in the case of a terrorist hijacking
 Inspection of containers and other units of cargo transport
 Maritime security equipment to prevent unauthorized boarding in ports and at sea
 Technical Cooperation/Capacity building for maritime security by establishing an international
infrastructure for the sharing of specific information and technology designed to protect against
terrorism.

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3.5 Maritime Documents

Due to global nature of trade, the documentation for maritime trade is universally accepted. These
documents generally have similar formats, details and rules of handling all over the world. Some of the
common documents involved in shipping trade are discussed as under.

Export General Manifest

It is filed by the person in charge of the vessel before the departure of the vessel or craft. This is known
as Export Report in case of export by land, and Export General Manifest in case of export by sea .This
declaration is a statutory declaration and every ship, which leaves Indian waters with the intention of
carrying cargo is bound to deliver this document. The purpose of filing EGM is:

i. To ensure that all the goods which leaves territorial waters of India has been duly accounted
for

ii. To ensure that all the obligations imposed on the master/Shipping Agents of the vessel have
been duly fulfilled.

Invoice, packing list, insurance document, inspection certificate and all other documents along with
transport document, like bill of lading are sent to the importer to initiate the import clearance process. It is
generally required in most of the foreign nations.

Import General Manifest (IGM)

It is filed by the person in-charge of the ship before enters in the port i.e. before arrival of the vessel. If the
same is not submitted prior to arrival, it has to be submitted within 12 hours of arrival into the port area. It
includes all the details about the goods, containers or materials carried on board the vessel. It is just
reverse of export manifest. When manifest is filed by the vessel in-charge, importer can file bill of entry for
getting the import clearance.

Mate’s Receipt

This is not a transport document directly, but is an integral part of sea mode of transportation. It is issued
and signed by the ship’s chief mate as an evidence of receipt of goods onboard the vessel. On the basis
of the information (regarding condition of the goods when received) given in the mate receipt, bill of lading
is made by the shipping company. Mate’s receipt is non-negotiable in nature and does not represent the
title of goods. It acts as an evidence of export and the exporter or his agent pays all the port dues after
presenting the mate receipt to the authority.

It is made on the format of the shipping company. It is made in triplicate where original is given to the
person delivering the goods on the ship, second copy for the agent and one copy is retained on the ship.
Mate’s receipt states the quantity and condition of goods when accepted on board the vessel. Any damage

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to the goods is clearly stated like “torn bags”, “stained bales”, “rusty drums” etc., so that the clause can be
added on the bill of lading.

Bill of Lading

Bill of lading is issued by the shipping company to the shipper as evidence that goods have been received
on their vessel for transportation as per the contract with the shipper. It is made on the basis of the
information given in mate’s receipt. It is a negotiable document and represents the title of the goods i.e.
ownership of the goods. Thus, the person carrying the bill of lading is liable to get the delivery of the goods.
Bill of lading serves 3 purposes:

1) It acts as the contract of carriage between shipper and shipping company

2) It represents the ownership of the goods.

3) It acts as an evidence of receipt of goods on board the vessel.

Marine bills of lading bring additional requirements:

 The ports of loading and discharge as indicated on the Credit must be shown.

 Goods must be shown to be on board a named ocean vessel.

 If the bills of lading indicate an intended ocean vessel, there must be a separate endorsement
showing the actual ocean vessel used (even if it is the intended ocean vessel).

 If the bills of lading indicate intended port of loading, there must be separate endorsement showing
the port of loading (even if the port has already been shown elsewhere).

Different kinds of bill of lading in use:

 Bearer bill of lading - A bill of lading, which does not identify a consignee but is merely marked 'to
order'. When a bearer bill is transferred to a third party, constructive possession can be transferred
without the need for endorsement of the bill.

 Charter party bill of lading - A bill of lading, which incorporates the terms of a charter party.

 Claused bill of lading - A bill of lading that contains adverse remarks regarding the apparent order
and condition of the goods.

 Clean bill of lading - A bill of lading that notes the loading of goods in apparent good order and
condition

 Combined transport bill of lading - A bill of lading issued for carriage which will involve more than
one mode of transport, for example, road and sea carriage

 Freight Forwarder’s bill of lading - A bill of lading whereby the contractual carrier will be a freight
forwarder, although he has no physical role in the actual carriage of the goods

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 Freight prepaid bill of lading - A bill of lading shows the condition that freight has been paid by the
shipper.

 Freight Collect Bill of Lading- A bill of lading that implies that freight has to be collected from the
consignee/ importer, at the port of unloading.

 Ocean bill of lading - A bill of lading under which the carrier’s responsibilities for the cargo start
with its loading and end with its discharge

 Ocean through bill of lading - A "pure" ocean through bill of lading is a bill of lading whereby the
issuer undertakes to be responsible for the carriage of goods by successive ocean carriers from
the point of reception to final destination

 Received for shipment bill of lading - A bill of lading which records receipt of the goods by the
carrier at a time prior to that at which they are loaded onto the carrying vessel

 Shipped bill of lading - A bill of lading which records receipt of the goods by the carrier at the time
they are loaded onto the carrying vessel
 Through bill of lading - A bill of lading that is issued when the carriage will involve transhipment.
Depending on the terms of the bill, the initial carrier may continue to be liable after transhipment.
 Seaway Bill - It works in same manner as bill of lading but does not represent the title of the goods.
In a seaway bill, the consignee at destination need not produce a copy of seaway bill duly endorsed
by him to the carrier to deliver goods. The carrier can deliver goods to the consignee by identifying
and confirming as the claimer is the consignee mentioned in the documents. In other words, in a
seaway bill, the responsibility for identifying the consignee is vested with the carrier. Since it does
not represent the title of the goods, it is not used where Letter of Credit transactions are involved.
It has no legal strength.

References

 MARAD, “Economic Impact of Piracy in the Gulf of Aden on Global Trade”, November 2008

 Unterreiner, Ben, “The Cost of Piracy in the Gulf of Aden”, Montana State University, Department of
Economics, 2009.

 IMO Maritime Knowledge Centre: Shipping Facts and News

 Nabhi Board of Editors, “Exporters Manual and Documentation”, Nabhi Publication, 28th edition, 2009.

 Aserkar R., “Logistics in International Business”, Shroff Publishers and Distributors Pvt Ltd, 2nd
Edition, 2007.

Annexure II

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Format of Bill of Lading

Source: http://www.morethanshipping.com/bill-of-ladings/

Review Questions

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1. What is CSI? How is it affecting the container transportation?

2. How has piracy affected the Global Shipping Industry?

3. Discuss the costs involved in Piracy. What are the safeguard measures for mitigating the risk of
piracy?

4. Write a note on IMO & Maritime Security.

5. Discuss the different documents directly related with maritime trade.

6. What is Bill of Lading? Write the various types of Bill of Lading.

Objective Type Questions

1. CSI stands for:

a. Container Safety Initiative

b. Container Security Initiative

c. Container Security Issue

d. Container Safety Issue

2. Expand the following:

a. MSC ________________________________________

b. TEU _________________________________________

c. C-TPAT _______________________________________

d. MARPOL ______________________________________

e. SOLAS ________________________________________

f. COLREG _______________________________________

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BLOCK II
MARITIME GEOGRAPHY

UNIT 4 Shipping Routes and Canals


UNIT 5 Port and Functions at Port
UNIT 6 Overview of Indian Ports

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UNIT 4
Shipping Routes and Canals

Chapter Objectives

 To read about major shipping routes in the world.


 To know about the most commercially used canals of the world
 To read about the major ports around the world and understand their advantage

Topics Covered

4.1 Major Shipping Routes of the World


4.1.1 Major Shipping Routes
4.1.2 Busiest Shipping Routes of the world
4.2 Major Shipping Canals of the World
4.3 Major ports of the world
Annexure I
Activity
Review Questions

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4.1 Major Shipping Routes of the World

Shipping has been the most used mode of transport since historic times. Trade among nations has been
a well-accepted phenomenon since 1st century. There was a constant exchange of goods especially from
India to Egypt, East Africa, and the Mediterranean between the 1st and 2nd centuries. The trade links
extended till Arab and Roman Empire. With the advent of British Raj in India, the scope of trade increased
from India. Big cargo ships started travelling from Indian subcontinent to Europe for supplying spices,
textiles and tea. Thus there was a good network of ocean route between these nations. With advent of
globalization, the scope of inter-continental trade has expanded and new trading areas have emerged.

Currently, there are three major trading areas in the world:

 North America- United States, Canada, and Mexico


 the Pacific Rim - Japan, South Korea, Taiwan, Hong Kong, Malayans, Singapore, Thailand,
Indonesia, Brunei, Philippines, Australia, and New Zealand
 the European Community- Belgium, Denmark, France, West Germany, Greece, Ireland, Italy,
Luxembourg, Netherlands, Portugal, Spain and the United Kingdom.

These 3 together are termed as “Triad” and account for 80 percent of the World's Gross Domestic Products
(GDP) and 75 percent of the world's exports and imports. With reference to shipping the world map is
divided into 4 parts in a different manner:
 Trans-Atlantic- includes both the sides of Atlantic Ocean, namely parts of North America,
South America, Europe and Africa.
 Asia-Europe – Includes the countries of Asia and Europe
 Trans-Pacific – includes countries on sides of Pacific Ocean, namely Japan, North America,
South America, Australia, Singapore.
 Inter- Asian Region – Includes India, Southeast Asian Nations-Singapore, Indonesia,
Malaysia, Middle Eastern Region.

Various Bilateral and Multilateral arrangements have been signed among nations in these regions and
the trade is continuously increasing. This is because of a well-connected network of shipping route in
these regions. There is a web of shipping routes developed across these regions to make the trade and
travel easy. There are number of major ports located on these shipping routes. Several ports connect to
the major shipping routes through the minor shipping lanes. In this pattern whole world operates in form
of a big single business unit.

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Trans-Atlantic Region
Trans-Pacific
Region Europe-Asia Regio

Inter-Asia Region

4.1.1 The Maritime Routes

Shipping routes represent the world trade flows. These are close knit network of lines representing the
sea route and the nodes representing the ports. Although, the global shipping network looks complex yet
it is simple as it is based on a main axis which is the circum-equatorial corridor linking North America,
Europe and Pacific Asia through the Suez Canal, the Strait of Malacca and the Panama Canal.

The shipping lanes connecting the major ports of the most active markets are the primary passages
whereas those which are connecting the smaller markets and ports are the secondary passages. Panama
Canal, the Suez Canal, the Strait of Hormuz and the Strait of Malacca, are the examples of primary
passages. Secondary passages, for which alternate routes are also available, include the Magellan
Passage, the Dover Strait, the Sunda Strait and the Taiwan Strait.

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Sailings are most numerous and most frequent on routes where trade volumes are largest and demand is
therefore greatest. For example, in liner trades to and from the UK, the busiest routes are to the Far East
(especially China and Japan), passing through the Mediterranean, the Suez Canal and the Malacca
Straits. The North Atlantic route, linking Western Europe and the USA and Canada, is also busy, and there
are well-established routes to the Middle East, India, Australia and New Zealand, Central and South
America, as well as to East and West Africa. For smaller markets there may not be direct shipping routes
available. In such a scenario transhipment takes place i.e. goods reach the destination port through a
transhipment port.

Generally for bulk products the trade routes starts and ends at the point of dispatch and delivery. For
example, many of the main oil routes begin in the Middle East and end in developed countries where
demand for oil is greatest. There could be multiple routes reaching the destination port. The best route
has to be selected on the basis of price, speed, safety and contractual stipulations. Generally the shipping
routes are fixed by the shipping lines in case of the liner operation. In case of chartering of ship also the
ship owner can have a say over choice of route.

Main Maritime Routes

The major shipping routes around the world are discussed as under:

 Northern sea route- connects Asia and Europe.


 North Atlantic Route- connects Western Europe, Eastern Canada, and USA. One of the busiest
routes.

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 Mediterranean Route- connects North-western Europe with the Mediterranean, Eastern Europe,
southern and eastern Asia, Australia and New Zealand.
 Panama Route- the Panama Canal connects the eastern North and South America to the western
parts as it lies in the Central America. The Panama Canal links the Pacific Ocean, the Caribbean
Sea and the Atlantic Ocean.
 Baltic Sea Route- it is located in Northern Europe. It connects the Scandinavian Peninsula and the
main lands of northern Europe, Eastern Europe, central Europe and the Danish islands. It is man
trade route for Russian oil export.
 Indian Ocean Route- it connects southern Asia, the Arabian Peninsula, Malay Peninsula, the
Sunda straits, Australia and Antarctica.
 Cape Route- connects western Africa and Australia by the way of Cape of Good Hope.
 South Atlantic Route- connects South America, north-western Europe and the Mediterranean area.
 North Pacific Route- connects West coast of North America and Far East.
4.1.2 Busiest Shipping Routes
As discussed earlier there are primary and secondary shipping routes. Primary routes are those which
carry most of the cargo traffic between major ports. Some of the most prominent shipping routes are as
follows:
1. Dover Strait

This is the busiest routes in the world. It is a narrow strait marking the difference between English
Channel and North Sea. This narrow Strait connects the Great Britain rest of European continent.
Most maritime traffic between the Atlantic Ocean and the North Sea and Baltic Sea passes through
the Strait of Dover, rather than taking the longer and more dangerous route around the north
of Scotland. Almost 500-600 ships pass through this channel on daily basis. A cargo such as oil is
transported from Middle-East to European ports through this strait. Various other commodities are
also transported from North and South America to European customers.

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2. Panama canal
This is one of the most important shipping routes. It is located in panama and between North America
and South America It links the Atlantic Ocean to Pacific Ocean via the Caribbean Sea and reduces
the distance considerably when shipping between west coast to East coast of North America. It is one
of the largest man-made canals. As per the data given by the Statistics and Models Administration
Unit (MEEM) of Panama Canal witnessed 13,482 transits during 2014. Maximum passage is
accounted by containerized ships and the bulk vessels.

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3. Malacca Strait

It is a narrow strait between the Malay Peninsula and the Sumatra island of Indonesia. It is a major
shipping route joining Indian ocean and Pacific ocean and form a passage between major Asian
economies such as India, China, Japan, Taiwan, and South Korea. About 94,000 vessels pass through
this region every year. About one-fourth of the worlds traded goods, including oil, Chinese
manufactured products, and Indonesian coffee and a quarter of all oil carried by sea passes through
the Strait Piracy is a major issue affecting this area. It is not very deep and so huge vessels such as
ULCC and VLCC have to detour and take a longer route. The maximum size of a vessel that can pass
through the Strait is referred to as Malaccamax.

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4. Strait of Hormuz
Strait of Hormuz is a strait between the Gulf of Oman and the Persian Gulf. It connects Arabian Sea
with Persian Gulf. Huge tanker vessels carrying crude from Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi
Arabia and the United Arab Emirates pass through this strait. Much of this oil is transported to Japan,
Western Europe, and the United States. It has a strategic importance not only for trade but for military
also. It is one of the major military choke points in the world.

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5. English Channel
English Channel separates southern England from northern France, and joins the southern part of
the North Sea to the Atlantic Ocean. It provides passage to the traffic of both UK-Europe and North
Sea-Atlantic routes. It is one of the busiest trade routes in the world with traffic of 500 vessels per day.
The narrowest part of the English Channel is the Strait of Dover.

6. Strait of Magellan
Strait of Magellan in South America is named after Ferdinand Magellan, the first Portuguese explorer
and navigator to navigate the strait in 1520. It provides connectivity between Atlantic Ocean and Pacific
Ocean. But it is not considered a very safe

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7. Florida Strait
This channel separates Florida from the Cuba and connects Gulf of Mexico with the Atlantic Ocean. It
is also called as New Bahama Channel. It measures more than 300 miles.

8. Strait of Gibraltar
Strait of Gibraltar connects Atlantic Ocean to the Mediterranean Sea. It divides part of Europe from
Africa. On the northern side of strait if Spain and Gibraltar whereas on the southern side is Morocco.
The Strait's depth ranges between 300 and 900 metres. Ferries cross between the two continents
every day in as little as 35 minutes. Due to its location, the Strait is commonly used for illegal
immigration from Africa to Europe.

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9. The Bosphorus
Bosphorus is a part of boundary that separates Asia and Europe. The Bosphorus, the Sea of Marmara,
and the Dardanelles strait to the southwest together form the Turkish Straits. The Bosporus is
approximately 19 miles (17 nautical miles/31 km) long. The waterway is heavily congested with tanker
traffic to and from Bulgaria, Romania, Georgia, Ukraine and southern Russia. It is an
important chokepoint. As per the data released by maritime authorities, the ships carry a total of 139m
tons of oil, 4m tons of liquefied petroleum gas and 3m tons of chemicals through the Bosphorus each
year. With 50,000 vessels, including 5,500 oil tankers, passing through the straits annually it is also
one of the world's busiest chokepoints. With the increase in exports from Azerbaijan and Kazakhstan,
Traffic through the Bhosphorus canal is increasing. The largest oil tankers that can pass through the
Bosporus Straits are the Suezmax class tankers (120,000-200,000 dead weight tons). An ambitious
project of Istanbul Canal is proposed on similar route to minimize the load on the Bosphorus Strait.

Activity

1. Take a world map and mark the important shipping routes and canals of the world.
2. Make a list of other ancillary shipping routes and canals used in International Maritime
Scenario.
3. Understand the impact of Panama Canal using web videos in the world trade scenario.

4.2 Major Shipping Canals of the World

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Canals are the man-made routes made for easy passage of ships in oceans whereas straits are naturally
formed. Various canals have been built over the years which have great economic and strategic
importance in maritime geography due to their location, connectivity and the passage of commercial
vessels.

The White Sea- Baltic Sea Canal: The White Sea-Baltic Sea Canal is an important waterway
that regularizes traffic internally along the Russian waterways starting from the White Sea in the north and
extending to the Baltic Sea down south.

Rhine-Main-Danube Canal: Linking three important rivers in the heart of Western Europe, the Rhine-
Main-Danube Canal or the Europa Canal was originally built as early as the 1938s. Over the years there
have been several constructional extensions that have been made to the canal, the last one being carried
out in the early 1990s.

Source: http://corinthianmters.com/

Suez Canal: The Suez Canal is an extremely crucial and famous shipping canal allowing the passage of
vessels between the Mediterranean and the Red Sea.

Kiel Canal: Connecting the Baltic Sea with the North Sea, the Kiel Canal passes through the German
province of Schleswig-Holstein. The constructional aspect of the water route dates back to the 1700s,
though the construction of the present-day Kiel water conduit began only during the late 1890s.

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Houston Ship Canal: Mainly utilised to provide passage of ships entering the Houston harbour into the
Gulf of Mexico, the Houston Ship Canal, is a vital water conduit in the internal United States.

Panama Canal: One of the most crucial maritime gateways in the western region, the Panama Canal
provides connectivity between the Pacific and the Atlantic Ocean through the Panama isthmus.

Welland Canal: The Welland Canal joins two major Canadian river networks – the Ontario River with the
Erie River. The necessity of the ship canal is further emphasized by the fact that it allows vessels’ passage
through the embankment of the Niagara Falls and completely avoids the Niagara Falls’ route.

4.3 Major Ports of the World

Sea ports are the areas which provide a place for arrival and departure of vessels. Ports are major
commercial activity centers for the countries today. Economic develoment is higlhy dependent on the
infrastructure of the country and sea ports are important components of infrastructure. Ports have become
a source of revenuegeneration for countires such as Sri-Lanka and Singapore whose economy are
dwelling through port activity on large scale. The developing nations are building up state-of the art port
infrastructure to increase the pace of their development. This statement is justifieed by the fact that as per
the Forbes survey list Out of the world’s top 20 container ports, only one is in the United States, three are
in Europe, and the rest are in the emerging markets. And within that group, China and Asia in general
dominate container shipping worldwide.

Source: www.mapsofworld.com

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Various ports in the world contest to be the busiest ports in the world. There is no fixed standardised
means of evaluating port performance but generally the tonnage handled is the factor considered
(measured in TEUs and Metric Tonnes). Port of Singapore, Shanghai and Rotterdam have been in race
to be world’s busiest ports over the years.

According to Wikipedia, the following ports have made claims to be largest world port: Port of Shanghai,
Port of Singapore, Port of Rotterdam, Port of Hong Kong, and Port of Ningbo-Zhoushan. The following
tables give a list of top performing ports of world.

Top 10 Ports - Container Traffic wise (2013)

Rank Port Name Country


5 Busan South Korea
8 Guangzhou China
4 Hong Kong China
Jebel Ali United Arab
9
(Dubai) Emirates
Ningbo-
6 China
Zhoushan
7 Qingdao China
1 Shanghai China
3 Shenzhen China
2 Singapore Singapore
10 Tianjin China

Top 10 Ports Cargo Handled (MT)

Rank Port Name Country


South
9
Busan Korea
8 Dalian China
6 Guangzhou China
Ningbo-
1
Zhoushan China
10 Port Hedland Australia
7 Qingdao China
5 Rotterdam Netherlands
2 Shanghai China
3 Singapore Singapore
4 Tianjin China
Source: Wikipedia.com

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Port of Shanghai (China) – located in Shanghai (China), this port overtook the Port of Singapore to
become the world's busiest container port in 2010. It is a Deep-water seaport/Riverport. The total cargo
handled during 2014 was 755 million tonnes and the total containerized cargo handled was 35.285
million TEU.

Singapore Port (Singapore)- It is the second largest port in terms of tonnage handled and biggest
transhipment port in the world. It is a major source of economic growth for Singapore as it lacks natural
resources. It has 52 container berths with a quay length of 15,500 m spread over an area of 600 hectares.
There are 190 quay cranes available for effective port operations. Singapore port also berths cruise ships.

Shenzen (China) – It is of the fastest growing ports in the world. There are 560 ships on call at Shenzhen
port on a monthly basis. It has 140 berths.

Busan (South Korea) – It is the largest port of South Korea. As per the report of American Association of
Port Authorities, Busan is the fifth busiest port in terms of container traffic in the world and biggest
transhipment port in North East Asia. The Busan Port has four fully equipped modern ports - North Port,
South Port, Gamcheon Port and Dadaepo Port - an international passenger terminal and six container
terminals. It can berth 169 vessels simultaneously though it handles nearly 130 vessels every day. Port of
Busan handles nearly 40% of the country's total marine cargo, 80% of its container cargo, and 42% of
national fisheries production.

Jebel Ali (UAE) – It is located in Persian Gulf. It has 67 berths and spread over 134.68-square-kilometer
(52.00 sq. mi). Jebel Ali is the world's largest man-made harbour and the biggest port in the Middle East.

Ningbo-Zhoushan (China) - It is world’s busiest port in terms of cargo tonnage. It is one of a growing
number of ports in China with a cargo throughput volume exceeding 100 million tons annually. There are a
total of 191 berths including 39 deep water berths. It has been merged with the neighbouring Port of
Zhoushan in 2006 to form a combined cargo-handling centre. Ningbo-Zhoushan Port handled a total cargo
volume of 744,000,000 metric tons of cargo in 2012 making it the largest port in the world in terms of cargo
tonnage, surpassing the Port of Shanghai for the first time.

Rotterdam (Netherlands) - It is the largest port in Europe stretching over a distance of 40 kilometres. It
has five distinct port areas and three distribution parks. It serves as major point if transhipment of cargo for
European continent. It has robotic handling operations guided by the unmanned Automated Guided
Vehicles.

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References

 http://www.marineinsight.com/marine/marine-news/headline/10-famous-shipping-canals-of-the-
world/

 http://www.insidermonkey.com/blog/the-10-busiest-shipping-lanes-in-the-world-332112/

 http://www.portshanghai.com.cn

 www.dpworld.ae/en/home.aspx

 http://www.nbport.com.cn/en/001.php

 www.portofrotterdam.com

 Note: All the images and maps have been searched through Google images.

Objective type questions

1. Trans-Pacific route includes:


a. Japan, North-America, South-America, Australia and India
b. Japan, North-America, South-America, Australia and Singapore
c. Japan, North-America, South-America, Australia and Middle East
d. None of the Above
2. Strait between Malaysia and Sumatra is called:
a. Panama Canal
b. Suez Canal
c. Strait of Hormuz
d. Malacca Strait
3. Northern sea route connects
a. Asia-Europe
b. Asia-Africa
c. Asia-Australia
d. North America- South America
4. Which of these is the busiest routes in the world:
a. Strait of Magellan
b. Dover Strait
c. Strait of Hormuz
d. English Channel
5. Name the country these ports are located in:
a. Ningbo Zhoushan _____________________
b. Rotterdam ___________________________

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c. Qingdao ____________________________
d. Port Hedland ________________________
e. Jebel Ali ____________________________

Review Questions

1. Discuss the Major shipping routes used for maritime trade around the world.
2. Write short notes on any 5 straits having significant importance in the International Maritime Trade.
3. Write a note on Panama Canal and its importance in international Trade.
4. Which are the ports of prominence on the world map? Write a note.
5. Discuss in details the economic as well as the political importance of Strait of Hormuz.

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UNIT 5
Ports and Functions at Port

Chapter Objectives

 To understand the concept of hub and transhipment ports


 To know about the various parties involved in port operations
 To elucidate the various functions carried out at port during any export procedure

Topics Covered

5.1 Ports- Meaning and Types


5.1.1 Importance of ports
5.1.2 Evolution of Ports
5.1.3 Types of Ports
5.1.4 Transhipment and Feeder ports around the world
5.2 Functions of Port
5.3 Parties involved in Port Operation
5.4 Measuring the Port Efficiency
5.4.1 Port Efficiency Factors
Activity
Review Questions

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5.1 Ports- Meaning and Types

Ports are generally defined as areas located near sea/river, providing passage safe passage of goods
using ships (big or small). It is also defined as a place on a waterway with facilities for loading and
unloading ships. Ports are generally located on the edge of an ocean, sea, river, or lake. They have
facilities such as cranes, forklifts, and container yards for easy handling as well as storage of containers.
Ports act as important source of revenue generation for economies. These not only provide passage to
containers routed for the parent country but also provide a transhipment/transit point for containers
heading further to other ports. Ports also have the custom clearance facilities for export/import cargo. Thus
any port has various component attached to it.

Ports and harbours conduct four important functions:

 administrative - ensuring that the legal, socio-political and economic interests of the state and
international maritime authorities are protected
 development- ports are major promoters and instigators of a country’s or wider regional economy,
 industrial - major industries process the goods imported or exported in a port, and
 Commercial - ports are international trade junction points where various modes of transport
interchange; loading, discharging, transit of goods.

With time ports have emerged not only as transport facilitation centre but as a centre of economic
development. Ports in modern world act as

 distribution centres
 industrial zones
 energy supply bases
 mercantile trading centers with banks, brokers, and traders
 life activity bases in rural ports
 urbanization and city redevelopment centers

5.1.1 Importance of Ports

There are different aspects of importance of ports.

Infrastructural Importance- developed port services indicate well developed infrastructural condition of any
country. The turnaround time will be lesser (time between entry of the ship, loading, unloading of the cargo
and exit of the ship) for a port indicates the port efficiency. Lesser will be the turn-around time, more will
be the number of ships entering the harbour.

Economic Importance- Establishment of ports requires huge investment and thus they have considerable
impact on the economy of any nation. Ports are major source of revenue generation. Each ship entering
the harbour adds to the revenue. Thus more is the frequency of ships at a port, more is the money
generated for economy. Ports provides opportunity development various other service sectors such as

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shipping companies, stevedoring, inspection agencies, custom agents etc. Ports provide a way for
domestic products to reach to other nations, thereby promoting industrialization. Ports generate
employment in the economy.

Operational importance- ports provide place for ships to berth, load and unload. They have a dedicated
place for placement of empty and laden containers in the form of Container Freight Station. They provide
the dry dock facility for repair and maintenance of ships. Surveying of ships is done at port. They provide
required equipments for handling and movement of cargo. They provide connectivity to dry ports through
rail or road.

Social Importance- Development of ports leads to development of the areas around. It is a medium of
exchange of culture among nations.

5.1.2 Types of Ports

The facilities and characteristics of port vary depending upon the geographical location, product handled,
depth of the berths as well as the type of water at the port. There are different types of ports in existence:

 International Sea port- These are located at sea coast and generally provide passage to
import/import cargo. JNPT port, Kandla, Kochi and Vishakhapatnam ports are examples of
international port. These can also be termed as major ports. They have state of the art facilities for
handling cargoes as well as provide value added services such as custom clearance, warehousing
and container yards. These can handle multiple commodities but generally every port specializes
in a certain commodity, For example, though JNPT port mainly handles containerized cargo but
also has facilities for handling break bulk and bulk commodities.

 Inland/Minor port- These are located on rivers, lakes or sea and provide connectivity services for
major ports. Domestic shipping/Coastal shipping is generally done through these minor ports.
These are usually cargo specific and have limited facility for handling the cargo. These are shallow
and thus only small ships, barges or scows are used for transporting goods. Bedi, Dahej and Okha
(Gujarat), Gopalpur (Orissa), Calicut (Kerala) are some examples of minor ports.

 Dry port- These are located in hinterland or any area far from sea. It acts as an intermediate port
having direct rail or road connectivity to seaport. These can also have the custom clearance facility
and container yards for faster processing. These are also called as Inland Container Depot (ICD).
Tuglquabad (Delhi), Pithampur, Madideep and Dhannad (M.P.) are some examples of ICDs in
India. Even Private parties can establish ICDs in India now.

 Warm water port- These ports are of high economic and geopolitical importance. These are called
as warm water port as these do not freeze during winters and provide clear passage to ships during
cold days also. Generally these are located in regions having extremely cold climates. Murmansk
in Russia is an example of warm water port.

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 Port of call – These are intermediate port for ships established to collect supplies, fuels or loading
unloading cargo. These can also be termed as transhipment/Hub ports. These provide facilities
for loading and unloading of cargo, refuelling and maintenance of ship. These are generally deep
enough to berth big vessels as well as small feeder vessels. Colombo and Singapore are examples
of Transhipment ports.

 Cruise ports- These provide berth facility for cruise ships and have the facility for
embark/disembark of passengers. They have custom clearance facilities with green /red channel.
Supplies are also provided to cruise ships at such ports. Refuelling, Maintenance, inland
connectivity and ground staff facilities are provided by these ports. Kochi port provides cruise port
facilities. Vishakhapatnam port offers facilities for cruise ships to/from Andaman Nicobar islands.

 Cargo ports- Like cruise ports berth cruise ships, cargo ports are meant for cargo ships. These
have facilities for loading/unloading cargo from the ship. These can be product specific such as
container port or bulk port or can be multi-purpose port with different berths for different type of
goods. . The handling equipments vary according to the nature of the cargo being handled.
Example: Gantry cranes or mobile cranes for containers as pipelines for liquid cargo. JNPT port,
Kandla, Kochi and Vishakhapatnam ports are examples of cargo ports.

 Public port- these are managed by the state or central governments. These could be developed
by Government of by private parties on BOT basis. Major ports in India are all public sector ports.
Though some ports have given certain number of berths for operation / maintenance to
private/foreign companies.

 Private port- These are developed managed and maintained by the private parties. Krishapatnam
port (A.P.) and Mundra (Gujarat) are best suited examples of private ports in India. These are
giving tough competition to major ports and gradually overtaking them in competition. Private ports
offer state-of the art infrastructure, faster clearance facilities and are more technologically
advanced than the public sector ports.

Activity

1. Make a list of major cruise ports and cargo ports in India.


2. List out the operational private ports in India.

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5.1.3 Transhipment and Feeder Ports

Transhipment is the process of shipment at the intermediate port for further transportation to the final port.
There are number of reasons for transhipment of cargo:

 For change of mode of transportation

 For consolidation of cargo to final destination

 Deconsolidation

 Increase the coverage of market by the shipping companies

 Lack of traffic at the final port of call

 Congestion at the port of call

 Inability of any port to berth big vessel creates the ships to deviate to other big ports

Trans-shipment ports are made to break the bulk cargo from bigger ships for further transportation.
Nowadays there are huge ships like post-panamax vessel with a capacity of 18,000 TEUs and even
greater tonnage. These require a draught of more than 16 meters for berthing. Deep draughts are
artificially created at trans-shipment ports for allowing berthing of these vessels. Indian ports fall short in
providing deep draughts to the bigger mother vessels. This results in diversion of big ships (like VLCC
and ULCC) to trans-shipment hub ports like Dubai, Singapore and Colombo.

The big vessel coming to the intermediate port is called as mother vessel and the vessel collecting goods
from intermediate port to final port of call is termed as feeder vessel.

Mother Vessel

Final port of
unloading

Feeder Vessel

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Though it is fully legal and prevalent process of transportation, there are certain problems attached with
transhipment.

 Leads to increased time of travelling

 Adds to the total distance travelled

 Leads to extra cost of operation

Trans-shipment ports charge heavy amounts as trans-shipment fee from vessels berthing in thereby
adding substantially to their economy. For example, charges for breaking bulk at Colombo port was to the
tune of $150, and $130 in Dubai and Singapore during 2007-08. According to data, out of the total cargo
handled at Singapore port, 85% of the cargo is for transshipment purpose, whereas 15% of the cargo is
for domestic purpose. This makes maritime industry an important revenue generator for Singapore’s
economy.

An international container trans-shipment port has been developed in Kochi. It is presently run by Dubai
Ports World (DPW). The first phase of the terminal has been already operational since 2011 and has a
capacity to handle cargo up to one million TEUs (twenty-foot equivalent units) per annum. Apart from
Cochin there is no other transhipment port in India. Major products from India are transhipped through
Colombo port in Sri-Lanka. As per the data provided by Colombo port trust, total throughput during 2012
was 4,320,984 TEUs. Out of this only 20% is the origin/destination cargo. Rest is the transhipment cargo
i.e. 3,240,738 TEUs. 60% out of this transhipped cargo is shipped from/to India. Most of the cargo
transhipped through Colombo originates from Chennai, Cochin, Goa, Tuticorin and Mangalore.

In this case the Port of Colombo is the


Transshipment Hub port and the Indian ports
are Feeder port.

If Cochin port’s International Transshipment


Hub port project is used instead of Colombo
there would be overall saving of time and Cost
for Indian Cargo.

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5.2 Functions of Port

1. Providing Infrstructural support- Ports provide infrstructure for berthing of ships. Proper tugging and
piloting facilites are provided at the port for ensuring safe entry of veesels into harbour. Berths are provided
for proper placement of vessels in the port. Specialized equipments such as mobile cranes, RTG cranes
and pipelines are provided for loading/unloading of cargo in/from the vessel. With time the infrastructure
facilities at port has also evolved. As the world is heading towards containerization, modern cranes are
being installed to handle containerized cargo efficiantly along with break-bulk items such as LNG/LPG and
crude.

2. Internal Transportation- Ports provide faciltities such as trailers and huge mobile cranes for movement
of container/cargo from ship to the nominated storage place in the port. Such place is generally called as
Container Freight Station (CFS). There are marked areas for stacking of laden and empty containers.
Stevedores and crane operators are appointed for this task of internal movement and handling. Dedicated
pipelines have been laid down at ports for direct transfer of liquidized material from ship to storage tankers
or processing points.

3. Inspection and Custom Clearance- specialized agencies such as Customs & Central Ecise and
Quaratine offcials are located at port for insection of the containers both export and import. With the
increasing threat of terrorism and sabbotage new eqipments such as RFID and X-ray machines have been
intalled at ports to provide a thorough check facility.

4. Local Transportaion- There are deidacated rail and road connectivity to various dry ports and
hinterland areas from port. This helps in faster movement of cargo meant for export/import from/to ports.
There are various local transport compnaies providing their services at port for safe transfer to local
markets.

5. Transhipment- Many ports act as transhipment hunbs for cargo destined for foreign ports. There are
warehouses, storage areas mantained by the port authorities for transhipoment cargo. Goods are
consolidated or deconsolidated at ports for further shipment to the final destination. Thus port provides an
intermediate resting point to the goods meant for transhipment.

6. Maintenace of ships- Ports provide facilities such as fueling and maintenance for the ships entering
the harbour. Dry docks are also provided for rework of the ships in case fo any major repairs requirment.

Activity

1. On the basis of your knowledge of EXIM operations make a flow chart of functions performed at
port. Start from the arrival of laden container in port. End at issuance of empty container to the
importer.
2. Compare the transshipment port of Colombo and Cochin in terms of their facilities and
efficiency.

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5.3 Parties Involved in Port Operations and their Roles

Customs

 Assessment and collection of Customs duties on import and export cargoes as per Customs
laws (Customs Act, 1962 and Customs Tariff Act,

 1975), Prevention of smuggling including

 interdiction of narcotics drug trafficking; and

 International passenger processing.

Port Trusts

 Provide infrastructure facilities like berths, equipment, storage space, navigational channels
and road / rails network within the port area;

 Perform vessel operations like berthing /un-berthing of vessels,

 container / cargo handling operations like landing of containers/cargo from vessel, movement
to storage yard, stuffing/destuffing of containers

 facilitating the process of examination through movement of containers to CFSs,

 delivery / aggregation of containers/cargo;

 Provide berthing facilities, cargo handling facilities including manpower and equipment,

 cargo storage space in the form of open land or shed space etc.,

 assessment and recovery of port related charges and documentation

 formalities for import / export goods.

Port Health Organization

 Inspection of hygiene in the ship and amongst the crew to control the spread of infectious
diseases from incoming vessels and aircrafts;

 Inspecting food/agricultural products entering the port, for wholesomeness, fitness and
compliance with Indian legislation;

Plant Quarantine Organization

 To prevent the entry, establishment and spread of exotic pests in India.

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 The authorized officer of the PQ department has to inspect timber and grains in the ship hold
before permitting discharge.

 Inspection of empty ship holds is carried out immediately upon arrival of vessel at the
designated port before granting permission for loading of the grain into the vessel.

 Inspection of import cargo before allowing discharge of the same.

 They also supervise fumigation of cargo on board the ship, in the shed and subsequent
degassing.

Immigration Authority

 applying the immigration laws of the country and providing the needed documents for foreign
crew and passengers to disembark and embark.

Terminal Operator

 Managing terminal operations at wharf and at yard.

Vessel Operating Agent (Main line Operator)

 Act on behalf of a steamship line or lines and attending to all matters relating to the vessels
owned by his principals.

 They compile the vessel plan and co-ordinate with the stevedores and the port operator for
loading / discharge operations.

Container Operating Agent

 They represent the container Lines and provide the steamer agent with details of the
containers belonging to them in the vessel.

 Charge detention charges.

Stevedores

 A Stevedore manages the operation of loading & unloading a ship. A stevedore owns gears
and equipments used in the loading or discharge & engage labor.

CHA

 They are license holders for entering customs area and completion of customs formalities at
port on exporters/importers behalf.

Freight Forwarder: Essentially secures the business of various exporters and importers and has
the ability/facility to

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 storage the cargo belonging to the clients at their warehouse (usually all big forwarders have
their own warehouses)

 arrange the distribution or “forwarding” of the cargo as per the instructions of their client...
This could be a regular routing or various routings

 negotiate freight rates with the shipping line to cover the interest of their clients

 book the cargo with the shipping line as per the requirement of the client

 prepare bills of lading and associated shipping/negotiating documentation (F178, Certificate


of Origin, etc.)

 issue their approved house bill of lading as applicable

 may not do Customs Clearance

 may or may not be accredited to customs, port etc. and cannot do customs clearance if not
accredited

 almost viewed by clients as an alternative shipping line

Clearing Agent: Essentially takes care of the customs clearance aspect of the business...

 is a company accredited with the local customs authorities, border agencies, port etc.

 arranges to pass the relevant documents at customs

 arrange for customs inspections as required

 check and process Duty and VAT payments as applicable

 apply for refunds etc where applicable

 cannot issue own bills of lading if not registered or acting as a freight forwarder

Container Freight Station/ICD

 Receipt and dispatch / delivery of cargo;

 Stuffing and stripping of containers;

 transit operations by rail / road to and from serving ports;

 Customs clearance;

 consolidation and dis-aggregation of LCL cargo;

 temporary storage of cargo and containers;

 reworking of containers; and

 .maintenance and repair of container units.

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5.4 Measuring the Port Efficiency

Port efficiency is an important requirement in order to survive in the competitive world of shipping industry.
A seaport is a complex structure comprising of various elements. Full utilization of the available resources
and efficient management of operations are two major goals to be achieved for efficient port performance.
Achievement of these two goals would help in increasing the port throughput and utilization of resources
(berths, cranes, quay, yards, etc.), reducing handling time, minimizing port congestion, minimizing
disruptions, demurrage and operating costs.

The efficiency of port lies in proper utilization of port resources. Underutilization would lead to higher cost
of operation and higher processing time for ships.The efficiency of any port may be judged by the time
taken by a ship to enter, load/unload and exit a port. The lesser is the time taken by any ship to complete
the operation, the more efficient is the port.

5.4.1 Port Efficiency Parameters

- Pre-Berthing Detention Time (PBD)-This is the time taken by a ship from its arrival at the anchorage
(reporting station) till it starts its movement to the working berth, i.e. operational berth.

- Non-Working Time at Berth (NWT)-Non-Working Time is defined as sum of the idle time from the
time of berthing to start of work, idle time during ship operations and idle time taken from the time
of completion of operations to sailing from berth together.

- Turn Round Time (TRT) -Turn Round Time of a vessel refers to the time vessel reports at the
anchorage to the time it sails out from the berth.

- Output per Ship Berth Day -The average Output per Ship Berth Day is defined as the ratio of the
aggregate cargo to the total number of berth days.

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Source: http://saiindia.gov.in/

References

 KPMG International (2010), “Logistics in India” (Part 1).

 Ray, Amit S. (2004). “Managing port reforms in India: case study of Jawaharlal Nehru Port Trust
(JNPT) Mumbai”, background paper prepared for World Development Report 2005: A Better
Investment Climate for Everyone (Washington, D.C., World Bank; New York, Oxford University
Press).

 Tungatkar Sandhya,”Indian Logistics Industry”, ISEINDIA, www.iseindia.com.

 Aserkar R., “Logistics in International Business”, Shroff Publishers and Distributors Pvt Ltd, 2nd
Edition, 2007.

Note : All the images and maps have been searched through Google images.

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Objective Type Questions

1. _________ are made to break the bulk cargo from bigger ships for further transportation:
a) Bunkering terminal
b) Transhipment Port
c) Container Freight Station
d) Inland Container Depot

2. Time between vessel reporting at the station/anchorage and vessel readying for berthing is
termed as:
a) Pre-berthing detention time
b) Idle time
c) Non-working time
d) Turn round time
3. Freight forwarder can perform all the functions of the Custom House Agent
a) Always
b) Except for the custom clearance
c) None of the tasks
d) They are same
4. Collaboration with other ports- domestic as well as foreign is found in:
a) 1st generation port
b) 2nd generation port
c) 3rd generation port
d) 4th generation port
5. Murmansk in Russia is a:
a) Fresh water port
b) Warm water port
c) Military port
d) Frozen port

Review Questions

1. What are ports? write a note on various generations of ports.


2. What is a transhipment port? How it is important for a nation’s economic development.
3. Write a note on the various parties involved in port operations and their functions.
4. On the basis of what factors the efficiency of ports is measured?
5. Discuss the various types of ports available for operations.

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UNIT 6
Overview of Indian Ports

Chapter Objectives

 To undertake a detailed study about port of India


 To recognize the major and minor ports of India
 To compare the major Indian port with a Foreign port and evaluate the drawbacks
 To understand the impact of privatization on private ports
 To discuss the problem and prospects of Indian Ports

Topics Covered

6.1 Indian Maritime Industry


6.1.1 Major Ports at the Western Coast
6.1.2Major Ports at the Eastern Coast
6.2 Indian Vs Foreign ports
6.3 Coastal Shipping in India
6.4 Privatization of Ports in India
6.4.1 Private Ports of India
6.5 Problems and Prospects of Indian Ports
Activity
Review Questions

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6.1 Indian Maritime Industry

India has a long coast line of 7517 kms with almost 200 ports- 12 major ports and 187 minor. Ports are
the facilitators for international transportation, thus promoting economic development in India. 90% of the
international cargo is handled through the sea mode of transportation. Thus, maritime industry has
strategic importance for the Indian economy. India is ranked 15th in the world, with a shipping tonnage of
around 11,5 million gross tonnage (GT) in 2011. Today, India has around 1071 ships with 722 coastal and
349 overseas ships. Several private ports have come up which are giving tough competition to the major
ports in operations.

A long coastline and geographical location in the world map are the two most important factors for
development of Indian maritime sector. Majority ships carrying cargo between America and East Asia,
East Asia and Africa and between Europe and East Asia pass via Indian territorial waters. Apart from
these factors, growing industrialization, increasing quantum of exports and imports and rising foreign
investments have made the Indian maritime industry grow by leaps and bounds. Privatization of ports,
reduction in taxes, disinvestments, construction of new container terminals and plans to promote better
connectivity from the hinterland have aided in the development of this sector.

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Source: www.tkmglobal.net

Major Ports of India (12) Minor Ports of India

West Coast States/Union Territories No. of Minor Ports

Kandla (Gujarat)
Gujarat 40
Mumbai (Maharashtra)

JNPT (Maharashtra) Maharashtra 53

Marmugao (Goa)
Goa 5
New Mangalore (Karnataka)

Cochin (Kerala) Karnataka 10


East Coast
Kerala 13
Tuticorin (Tamil Nadu)

Chennai (Tamil Nadu)


Diu & Daman 2
Ennore (Tamil Nadu)

Visakhapatnam (Andhra Pradesh) Lakshadweep Islands 10

Paradip (Orissa)
Pondicherry 1
Kolkata, Haldia (West Bengal)

Tamil Nadu 15

Andhra Pradesh 12

Orissa 2

West Bengal 1

Andaman & Nicobar 23


Islands

Total 187

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6.1.1 Ports at the Western coast of India

There are six major ports on the western coast of India, viz;

 Kandla (Gujarat)

 Mumbai (Maharashtra)

 JNPT (Maharashtra)

 Marmugao (Goa)

 New Mangalore (Karnataka)

 Cochin (Kerala)

 Mundra

 Pipavav

Most of the containerized cargo is transported through the ports at western coast mainly JNPT
(Maharashtra). The cargo directed towards the western countries and Middle-East is generally exported
from this side. One of the major reasons for container concentration around the West coast ports is their
proximity to the major consumption centres of India. Also, the busiest shipping routes from Europe, USA,
Middle East and Africa are closer to the western coast ports.

Apart from these factors, India’s most mechanized and 3rd generation port is JNPT, Mumbai. It is largest
container port of India. 40 percent of the nation's overall containerized ocean trade is handled by JNPT. It
has well developed hinterland connectivity. Major exports from Jawaharlal Nehru Port are textiles, sporting
goods, carpets, textile machinery, boneless meat, chemicals and pharmaceuticals. The main imports are
chemicals, machinery, plastics, electrical machinery, vegetable oils and aluminium and other non-ferrous
metals. Most of the exports and imports from the north and central India are done from this port. Due to
over concentration of cargo, congestion is a common problem faced by this port. It hinterland connectivity
includes- Mahrashtra, Madhya-Pradesh, Himachal, U.P., Delhi and parts of Gujarat. It is fully automated
port with well-established EDI network.

Kandla in Gujarat has been developed to share the traffic of Mumbai port. It is a prominent port in Gujarat
having good rail and road connectivity with large parts of Gujarat, Rajasthan, Haryana, Punjab, Delhi,
Himachal Pradesh, Jammu and Kashmir and Uttaranchal. Major commodities of export from Kandla are
Rice, Salt, Fertilizers, Minerals, castor oil etc. Recently its performance has been affected by the tough
competition by Mundra Port, a well-equipped private port operating in the region.

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Marmagao near Goa is another port on western coast mainly handling export of iron-ore from Goa.
Currently the major items of exports are iron ore, manganese, coconut and other nuts, cotton etc. Imports
through this port are very few. It has a comparatively small hinterland covering the whole of Goa and parts
of north Karnataka coastal region and southern Maharashtra. With the opening of the Konkan railway, the
importance of this port has increased significantly and it is fast emerging as a multi-commodity port. Four
new harbours are being constructed in the Vasco Bay for handling container traffic and general cargo.

New Mangalore port in Karnataka was earlier built for small ships but with advancement, it has now been
opened for large ships also. It services to areas of Karnataka and Northern part of Kerala. The port is well
linked through broad gauge rail line and NH-17 with Mumbai and Kanniyakumari. Tea, coffee, rice, cashew
nuts, fish, rubber etc. are exported through this port. The major items of import through this port are crude
oil, fertilizers, edible oils etc. Its main importance lies in export of iron ore from the Kundremukh mines.

Kochi (Kerala) is another major port on the western coast of India. The port is located close to Suez-
Colombo route and enjoys the proximity of a trunk maritime route. It handles the export of tea, coffee and
spices and imports of mineral oil and chemical fertilizers. Its hinterland lies mainly in Kerala, Karnataka
and Tamil Nadu. It is served by a well-developed network of transport routes. It receives crude oil as import
for Kochi oil refinery. It is a ship building centre and thus has a strategic importance in Indian maritime
scene. Establishment of a container transhipment terminal at Vallarpadam, construction of a liquefied
natural gas (LNG) terminal at Puthuvypen; and an international bunkering terminal have made Kochi an
important port on the western coast. It is India’s largest container transhipment terminal. It is the first port
in India to launch ERP package.

6.1.2 Ports at the Eastern coast of India

The major ports along the east coast of India are:

 Tuticorin (Tamil Nadu)

 Chennai (Tamil Nadu)

 Ennore (Tamil Nadu)

 Visakhapatnam (Andhra Pradesh)

 Paradip (Orissa)

 Kolkata, Haldia (West Bengal)

Though the ports at the western coasts have dominated the cargo traffic charts but the scene has changed
in recent times. With emergence of China as a major trading partner of India, increasing congestion at the
western coast and the “Look East” policy of Government of India, traffic at the eastern ports has been
increasing steadily. In the Maritime Agenda 2010-20, GOI aims to boost the cargo handling capacity at

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the eastern ports. The aim is to add 900 MMT cargo handling capacity by investing INR 1126 Billion in
these ports, both major and minor.

Eastern coast ports mainly handle bulk commodities due to their proximity to coal/ore deposits, power,
steel and fertilizer plants. In contrast ports at the western coast have been handling more of containerized
cargo, petroleum, oil and lubricants. But the container handling capacity on the eastern coast is expected
to increase to reach 10.8 million TEU by 2020 (33% of India’s total containerized cargo).

Kolkata-Haldia port is called as the gateway of Eastern India and located 128 km inland of the Bay of
Bengal. It connects the sea route from Australia, New Zealand and South-East Asian Nations. Its main
items for export are- jute products, tea, coal, steel, iron ore, copper, leather and leather products, textiles,
manganese and machinery, crude oil, paper, fertilizers and chemical products form the import basket. It
has a huge problem of silting, and bending at places which makes difficult for ships to enter. Thus piloting
is a difficult process at this place. Dredging is often required and thus maintenance of this harbour is also
expensive. But it has huge hinterland connectivity. It connects West Bengal, Bihar, Jharkhand, Uttar
Pradesh, Uttaranchal, Sikkim, Assam, Arunachal Pradesh, Nagaland, Manipur, Mizoram, Meghalaya,
Tripura and northern parts of Chhattisgarh and Madhya Pradesh. Haldia port is developed in later stages
to divert the traffic of Kolkata port. It has more depth and bigger ships can easily berth. Main items traded
from here are minerals, petro products and fertilizers.

Paradip port in Orrisa handles big bulk vessels up to 60,000DWT due to its deep draught. Exclusive oil
jetty to handle about 6 to 8 million tonnes of petroleum products and crude tankers of 85,000 DWT have
been made operational for berthing of big vessels. Large quantity of iron ore is exported to Japan through
this port. The imports through port are only half of its exports. Hinterland connectivity of Paradip mainly
covers Orissa only.

Vishakhapatnam port is a major bulk commodity port at the eastern coast of Andhra Pradesh. It mainly
handles coal, oil, fertilizers and petroleum products. Other products include spices and wood. It has huge
ship building and ship repairing facility. It has a good hinterland connectivity covering A.P., parts of
Chattisgarh, M.P. and parts of Maharashtra. It has dedicated jetties for container operations and bulk
operations.

Chennai in Tamil Nadu is a major port for automobile exports from India. Thus lot of RORO vessels berth
at Chennai port. Other products handled at this port are fertilizers, petroleum products, iron-ores and
general cargo. The major items of exports are rice, textiles, leather and leather goods, tobacco, coffee,
manganese ore, fish and fish products, coconut, copra etc. The imports consist of coal, crude oil, paper,
cotton, vehicles, fertilizers, machinery, chemical products etc. It does not have a natural harbour and an
artificial harbour has been created. The hinterland of the Chennai port encompasses the large part of
Tamil Nadu, southern part of Andhra Pradesh and some parts of Karnataka.

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Ennore now called as Kamarajar Port Limited port has been developed to reduce the burden on Chennai
port. It is country’s first corporate port and has been registered as a company. It has two coal berths, one
iron ore berth, one LNG berth, two POL/liquid chemicals berths and one crude oil berth for handling very
large crude carriers. Construction of a car export terminal with a capacity of handling 400,000 cars annually
at the port has been completed. The major items of traffic on the port are coal, iron ore, petroleum and its
products, chemicals, etc. Its hinterland is a part of the hinterland of Chennai port.

Tuticorin is another port in Tamil Nadu which has an artificial deep sea harbour and can berth a vessel
up to 8mts draught during any time of the year. The port handles the traffic of coal, salt, food grains, edible
oils, sugar and petroleum products. Its hinterland is formed mainly by southern Tamil Nadu comprising
districts of Madurai, Kanniyakumari, Ramnathpuram, Tirunelveli and southern part of Tiruchchirappalli. It
mainly trades with Sri-Lanka which is very close from here.

Table X

Containers Handled at Major Ports of India

2013-2014 2012-2013
PORT UNIT TOTAL TOTAL
TONNAGE 7062 6960
KOLKATA TEUs -449 -463
TONNAGE 2202 2869
HALDIA TEUs -114 -137
TONNAGE 99 171
PARADIP TEUs -9 -13
TONNAGE 4916 4554
VISAKHAPATNAM TEUs -263 -247
TONNAGE 28330 29708
CHENNAI TEUs -1468 -1540
TONNAGE 10129 9372
V.O.CPT TEUs -508 -476
TONNAGE 4785 4607
COCHIN TEUs -351 -335
NEW TONNAGE 747 692

MANGALORE TEUs -50 -48


TONNAGE 235 213
MORMUGAO TEUs -22 -20
TONNAGE 450 829
MUMBAI TEUs -41 -48
TONNAGE 55234 57911
JNPT TEUs -4,161 -4,259
TONNAGE 452 1935
KANDLA TEUs -114641 -118

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TONNAGE 114641 119821


TOTAL TEUs -7,465 -7,704

Source: http://www.ipa.nic.in/

Table Y

TRAFFIC HANDLED AT MAJOR PORTS


(DURING APRIL TO MARCH, 2015* VIS-A-VIS APRIL TO MARCH, 2014)

(*) TENTATIVE (IN ' 000 TONNES)


PORTS APRIL TO MARCH % VARIATION
TRAFFIC AGAINST PREV.
2015* 2014 YEAR TRAFFIC
1 2 3 4
KOLKATA
Kolkata Dock System 15282 12874 18.70
Haldia Dock Complex 31010 28511 8.77
TOTAL: KOLKATA 46292 41385 11.86
PARADIP 71011 68003 4.42
VISAKHAPATNAM 58004 58503 -0.85
KAMARAJAR (ENNORE) 30251 27337 10.66
CHENNAI 52541 51105 2.81
V.O. CHIDAMBARANAR 32414 28642 13.17
COCHIN 21595 20887 3.39
NEW MANGALORE 36566 39365 -7.11
MORMUGAO 14711 11739 25.32
MUMBAI 61660 59184 4.18
JNPT 63802 62333 2.36
KANDLA 92497 87004 6.31
TOTAL: 581344 555487 4.65

Source: http://www.ipa.nic.in/

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ACTIVITY

1. Closely observe the data of Table X & Y and analyze the situation of Indian ports.

6.2 Indian ports vs Foreign ports

With time Indian maritime industry is making a mark globally. With plans to open more transhipment ports
and cruise operations, Indian shipping sector seems to open gates for foreign vessels as well as foreign
investments. Despite of the fact that India is world’s third largest economy, it has a very minimal share in
global trade (appx2.5%). Indian ports handled 9.7 million TEU in 2011, which represents just 8% of the
global benchmark ratio for economic output. The average cost of freight is relatively high and India’s
inadequate transport infrastructure is holding back economic growth. Lack of sufficient infrastructure-
road, rail and port leads to slow movement, improper handling and congestion at ports.

As per the data released by Indian Port Association, Cargo throughput at the 12 major ports has been
rising at a compound annual growth rate of 9.5% over the past three years. The productivity of ports in
terms of Average Ship Turn Around (ASTA) and Average Ship Berth Output (ASBO) has also improved in
past years. ASTA has decreased from 8.1 days in 1990- 91 to 7.8 days in 1996-97, to 4.72 days in 1999-
2000 and further to 3.87 days in 2008-09. The average ASBO increased from 3372 tonnes in 1990-91 to
9745 tonnes in 2006-07 and has touched 10,076 tonnes during 2007-08. Similarly the vessel traffic at
each port is also increasing every year. Throughput per port has also increased in recent years and is
expected to touch new heights in the coming years.

Source: Indian Ports Association

Although there seems to be a growth in port performance during the last years, still Indian ports are way
behind the foreign ports in terms of facilities, turnaround time and cargo handled. For example, average
turnaround time for a ship at Shanghai port is 8 hours, whereas at Indian ports it is 3-4 days. During 2005-

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06, major ports of India (all 12 ports) collectively handled cargo equivalent to 423.3 mn tonnes, whereas
Singapore port alone handled 423 mn tonnes of cargo during the same period.

In the maritime policy vision, Government aims at transforming Indian ports into world class facilities
suited to the requirements of the future economy of India”. To accomplish this vision there has to be
a comparison of Indian ports with the best foreign ports and understand the factors weak factors.

A comprehensive comparison of Indian and International ports has been conducted by various research
agencies such as KPMG. For conducting the comparison, few parameters have been selected such as
Turnaround time at ports, number of containers handled, depth, quay productivity etc. Comparison is not
only restricted to the physical features of the ports. There are also points comparing the “technology
readiness” of the ports. Thus an overall scene can be summarized.

Parameters Indian Ports International Ports Analysis of Reason


Indian Status

Turnaround time at
84 Hong Kong & Poor turnaround Slower and
ports
Singapore: 7 time inefficient
(hours)
process at
ports, longer
idle/waiting time

Average number of
15-23 Colombo:25 Low container Unavailability of
Containers handled
per ship per hour handling cranes on time,
Singapore:30
capacity suitable cranes
not available

Draught Depth
9-14 12-23 Wharfs are Lack of
(meters)
shallow to berth dredging,
in big vessels natural factors,
no transhipment
port

Annual container
JNPT: 4.3Million Singapore :35 Million Very poor Congestion,
throughput capacity
TEU TEUs lack of
mechanization,
Hong Kong: 25
lengthy
Million TEUs
procedures,

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poor handling
facilities

Throughput density 45,000 TEUs 170,000–220,000 Poor utilization Improper space


(maximum) per TEUs per of space at planning, lack
hectare Indian ports of equipments
Hectare
to stack and
retrieve
containers

Maximum crane NSICT: 188,000 Hong Kong terminal: Inadequate Lesser traffic,
productivity – per TEUs 272,700 TEUs utilization of slower
quay Hamburg: 252,200 capacity movement
crane per annum TEUs

Maximum quay JNPT: 2,000 Hong Kong terminal: Inadequate Poor planning,
productivity TEUs per 3,050 space utilization less
meter TEUs per meter of quay space mechanization

Electronic Data Minimal Rotterdam: Lack of  Lack of


Interface (EDI) mature(including technology and investment
payment process) Mechanization on
Singapore Mature at Indian Ports technology
(using Portent)  Reluctance
ERP System Partial Rotterdam and to shift from
Singapore: use an manual
integrated ERP work
system, along with  Difficult to
port community implement
systems such as the system
Portnet, Port Infolink due to
etc) involvement
Workflow Processes Manual Rotterdam and of number of
Singapore: parties.
Mechanized Easier to
adopt in
single
window
clearance
format.

Source: KPMG India Analysis (2014)

Note: the shaded area in the table is added later on as an analysis of table prepared by KPMG India
and is based on the author’s assumptions.

Another comparison is conducted between the Indian ports- ranging from Kandla to Kolkata (KK range)
and ports of North Western Europe ranging from Hamburg to La-Havre (HH range) by the authorities of
Port of Rotterdam. The detailed comparison is as follows:

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Source: “Co-ordination of business plans for major ports in India- Consolidated port development plan”,
Vol.1, Port of Rotterdam Authority, Sept 2007.

In general it can be said that Indian ports are way behind in terms of capacity, productivity and efficiency
to some of the world’s most modern ports. The major reasons for inefficiencies of Indian ports can be
attributed to:

6. Improper resource planning


7. Lack of implementation of technology
8. Low mechanization
9. Poor hinterland connectivity
10. Lack of competition among the public sector ports
11. Over concentration on few ports like Mumbai (containerized cargo) and Vishakhapatnam (break
bulk)
12. Lack of skilled labor and high rate of absenteeism
13. Slow pace of progress
14. Lack of transhipment ports leading to diversion of traffic to other ports such as Colombo, Dubai and
Singapore.

Activity

1. In your opinion, which Indian port can be the first to touch the global standards of operations?
2. Make a list of some factors which can help that port become at par with the foreign port.

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6.3 Coastal Shipping in India

Coastal shipping in India is still in a very nascent stage with only 7% share in overall cargo movement. It
is a very effective medium of inland transportation due to environment-friendly, cost-effective and fuel-
efficient nature. European countries have successfully used coastal shipping as a medium for transport
internally as well as internationally. Indian coastal shipping can be developed very well due to the fact that
India has a long coastline and there are almost 180 minor ports which can provide an efficient coastal
shipping service. Apart from this there is a well spread network of rivers across the Indian subcontinent
which is a favourable reason for Inland water transportation and coastal shipping further. The coastal
shipping i.e. shipping of goods from port within a country is termed as “Cabotage”. Small boats, barges,
scows and even small ships are used at times for this purpose.

Development of coastal shipping is being promoted by the GOI. It is due to the fact that:

1. It is less accident prone as compared to road and rail medium


2. Cost effective medium of transport- lower fuel consumption per tonne of cargo.
3. Increasing traffic on road and rail making the transportation of goods slower and costlier.
4. Coastal shipping is a great way to boost tourism especially water tourism.
5. Less polluting medium - CO2 emission is much lesser than rail and road medium.
Mounting pressure on rail and road carriers leads to congestion. This results in slow movement of cargo
traffic and often delays in the despatch of final consignment. Coastal shipping would help in mitigating this
risk of delayed shipment by providing a timely delivery of goods to the port of loading. Until now GOI has
not been very proactive in promoting coastal shipping. Coastal shipping has been a very successful and
well accepted phenomenon in European and North American countries. European Union had introduced
a Marco Polo scheme for promoting coastal shipping. Under this scheme, traders adopting coastal
shipping instead of road and rail mode are given incentives. The basic aim of this scheme is to decongest
rail and road mode of transport. But it has not been a very well accepted medium in India due to following
reasons:
1. Cost of transportation by road/rail is cheaper than the cost of transportation by coastal vessels.
2. High procurement and maintenance cost for the coastal vessels.
3. Inadequate facilities such as no dedicated berths for coastal vessels on major ports leading to
delayed operations and increasing operational cost.
4. Lack of concessional funding for the coastal vessel operators. Due to less traffic the operators are
unable to meet the loans on time.

Some of the State Governments in India are putting efforts to promote coastal shipping. Kerala has been
a forerunner in promotion of coastal shipping both for cargo movement and tourism development. The
scheme for coastal shipping is already launched and operational since 2013 in Kerala. The objective of
the scheme is to divert 40% of the cargo transported by road to coastal shipping by 2020. The government

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has identified four types of cargo for coastal shipping — construction materials, food grains, LPG and
vehicles. As of now these products are transported from other states by road or rail but now focus is to
receive them by ship. Incentive of INR1 per tonne per km will be provided to the party using this mode.
The commodities that coastal shipping currently handles includes bulk and break bulk cargo such as
tiles, chemicals, marbles and category of white goods. But there is a huge scope for transportation of
containerized cargo and project cargo by coastal mode. Agricultural products from the western coast can
also be carried by coastal shipping. Increase of costal shipping would also provide opportunity to the
coastal industrial clusters to develop. A detailed study of potential costal routes for commodities has
been conducted by KPMG-India.
Commodity Key routes

Cement Fertilisers
Mundra – Cochin Kandla to Mangalore
Cuddapah - Krishnapatnam - Haldia- Burdwan Haldia to Vizag
Cuddapah - Krishnapatnam - Cochin Paradip to Chennai

Grains Steel
Panipat – Kandla – Mangalore Jamshedpur - Chennai
Panipat – Kandla – Kochi Rourkela - Chennai
Panipat – Kandla – Chennai
Guntur – Vizag - Haldia
Tiles
Morbi – Mundra - Chennai
Morbi – Mundra – Mangalore - Bangalore

Marble Salt
Udaipur – Kochi Gandhidham – Kandla – Mangalore
Udaipur – Chennai Gandhidham – Kandla - Kochi
Tuticorin - Haldia
Tuticorin – Paradip

Sugar Automobiles (Parts of cars)


Vellore – Chennai – Paradip – Bhubaneswar Pune - Chennai
Vellore – Chennai – Haldia – Kolkata Pune – Kochi
Belgaum - Mangalore – Kandla - Ahmedabad Gurgaon - Kochi

Source: KPMG-India

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With increasing focus of state and central Governments on coastal shipping, investment in improvement
of infrastructure and mapping of coastal shipping routes, this sector has a promising future. Development
of coastal shipping would prove to be an effective option for international consignments. There would be
an overall saving of time, cost and effort if coastal shipping is implemented in the right format.

6.4 Privatization of Ports in India

India is sixteenth largest maritime country in the world. Indian maritime industry plays an important role in
development of the Indian economy. GOI has also been actively devising policies for development of this
sector. One of the most significant moves has been introduction of PPP (public private partnership) in the
port sector in 1997. Under this policy NSCIT operating at JNPT was the first project to be developed by
P&O. It is now operated by Dubai Ports World (DPW). But due to various legal problems the PPP at
major ports has received a cold response.

Private parties have greatly been involved in development of non-major private ports in India. These
private ports are giving tough competition to the major ports. Earlier the share of major ports in cargo
carriage was 90% and that of minor ports was only 10%. But scene has changed during recent years with
the ratio shifting to 65%-35%. The cargo throughput for major ports has declined gradually since 2013
(cargo handled by the 12 major ports shrunk by 2.58 per cent, from 560 million tonnes (MT) in 2011-12 to
546 MT). There has been a gradual increase in the throughput of the private-non major ports though. As
per the data released by port associations minor ports recorded a 7.5 percent year-over-year growth in
cargo volumes for fiscal year 2013-14, which ended in March 2014, versus a mere 1.8 percent increase
at 12 major public ports in the same year. In terms of container handling in 2013-14, minor ports’ volumes
soared a whopping 53.6 percent to 3 million 20-foot-equivalent units, while publicly-owned ports saw
cumulative throughput slide 3 percent to nearly 7.5 million TEUs. It is due to the fact that private ports
have been developed with state-of the art infrastructure, better connectivity with hinterland, value adding
facilities and faster procedural framework.

Source: www.joc.com

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Source: www.JOC.com

Ports at Mundra, Krishnapatnam, Gangavaram, Pipavav, Karaikal, and Dhamra, which were developed in
the last 10- 15 years, have achieved higher growth compared to the major ports and added cargo
capacities ahead of the demand. Mundra port (Adani group run port in Gujarat) which was ranked 13 in
2004-2005 in the port performance list has been promoted to 2nd position (both bulk and containerized
cargo) in 2013-14. Even during the economic slowdown it registered a growth of 25% in cargo throughput.
Though tariff at Kandla port is one of the lowest in the industry but there are certain problems which still
persist:

1. Dependence of single commodity i.e. crude as the major commodity handled at the port
2. Lack of modern handling equipments as compared to the private ports
3. Poor turnaround time- TAT is about two to three days at Kandla. It is less than one day at Mundra due
to mechanization.

Mundra port has various features which can overrun Kandla port in pace of growth: cargo handling
capacity of 184 MT, three container terminals, ultra-modern coal import facility, deep draft, 20 berths and
few more being added, extensive mechanisation and use of IT in operations, well connected rail and road
network, skilled manpower and forward looking management.

Mundra Port can match the best ports in the world in terms of modern infrastructure and various port
parameters, such as turn-around time, berth productivity, growth in business and innovative planning and
projects. Over last five years, APSEZ has put its footprints at Dahej and Hazira Ports in Gujarat & cargo
handling terminals at Visakhapatnam, Goa and Kandla ports.

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6.5 Problems and Prospects of Indian Maritime Industry

India has a long coastline and is connected directly with two major shipping routes. There are ports
specialized in handling container as well as break-bulk cargo. There is a continuous increase in the EXIM
trade of India and with that the cargo traffic is also increasing. It is an opportunity for Indian maritime sector
as more than 75% of the EXIM cargo is transported by ocean mode. Many big shipping companies are
offering connectivity to major shipping routes from India. Bigger and specialized vessels are being added
in the shipping fleet of companies operating in India. Privatization of ports also is increasing the efficiency
of shipping operations in India. There are various projects, under execution by the Government of India to
improve the logistics infrastructure of India. Privatization in port sector, road development and container
handling is an important move to improve the present state. Private ICDs have been opened to make the
EXIM procedure fast.

With introduction of new policies such as privatization, increasing FDI in aviation sector, implementing IT
enabled tools such as EDI, revising the tax structure for service providers, and promoting investments in
ports, aviation, rail and road sector, India is poised to go to a greater level of infrastructural development.
With EDI, RFID technology, GPS and other tools, Indian logistics sector is developing as a sophisticated
and progressive sector. Improvement in infrastructure, continuous reforms and increasing share of 3PL
operators can bring down the cost of logistics in the economy. Indian markets have huge untapped
potential for development of logistics sector.

Some other reasons can be cited for inefficiency of Indian Ports-

 Most major ports were originally designed to handle specific categories of cargo, which has declined
in time while other types of cargo have gained importance. The ports have not been able to adjust to
the categories of cargo which grew the most. There are thus several berths for traditional cargo, which
are under-utilised. There are very few berths for new cargo, thus causing over-burdening.

 There are poor handling facilities at ports. Utilisation of Equipment is poor because of issues such as
obsolescence and poor maintenance.

 Documentation procedures relating to cargo handling such as customs clearance requirements are
unduly complicated and time consuming.

 Electronic document processing is still to be introduced at all the ports. there is a lengthy procedural
framework

 Overload on few ports like Mumbai (containerized cargo) and Vishakhapatnam (break bulk) leading
to heavy congestion

 Port access facilities and arrangements for moving inbound and outbound cargo are inadequate
leading to poor Turnaround time at Indian Ports.

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 Shallow draughts leading to inability to berth huge vessels like VLCC

 Lack of transhipment hub ports in India due to shallow draughts of ports.

 Weak hinterland connectivity

 Lack of skilled labour and high rate of absenteeism

 Slow pace of progress

SWOT Analysis of Indian Maritime Industry

STRENGTH WEAKNESS
 Slow development of ports in India
 More than 7500 km coastline including the
island territories  Low level of automation
 India has access to two major shipping  Slower clearance process
routes
 Insufficient level of implementation of EDI at
 Fleet expansion by major domestic ports
shipping companies
 Shallow berths restricting berthing of bigger
 Sustained rise in the volume of exports vessels
with revival growth in the manufacturing
sector  Poor hinterland connectivity

 Large number of Indian sea farers  Traffic concentration at certain ports

 More than 1 billion citizens to drive the  Excessive procedural and documentation
import demand formalities

OPPORTUNITY THREAT
 Increasing focus on manufacturing and
 Competition from transhipment port of
exports from country
Sri-Lanka
 Focus on improvement of port infrastructure
 Increasing container traffic vis-à-vis
 Increasing private participation limited berthing space
 Launch of new transhipment port at Cochin  Deviation of cargo to private ports due
to better services
 Promotion of cruise services from Indian
ports  Increasing competition with other
modes and also competition among
 Promotion of Coastal Shipping the ports (private & public).
 Private participation in port development

Activity

1. Make a list of private non-major ports operating in India.


2. We have listed the limitation for the India maritime industry. List out the strengths of the sector which
can help us in becoming a forerunner on global level.

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References:

 www.jnport.gov.in

 www.kandlaport.com

 http://www.cochinport.com

 www.ennoreport.gov.in

 www.ipa.nic.in

 Maritime Agenda 2010-20

 “Co-ordination of business plans for major ports in India- Consolidated port development plan”,
Vol.1, Port of Rotterdam Authority, Sept 2007.

 Deshmukh Atul, “Indian Ports-The Current Scenario”, Department of Economics, University of


Mumbai, Working paper No. 14

 IL&FS Infrastructure Development Corp. Ltd., “Indian Port Sector”.

 KPMG (2007). Public Private Participation in Indian Infrastructure: Poised for Growth, a Background
Note (New Delhi).

 KPMG International (2010), “Logistics in India” (Part 1).

 Ray, Amit S. (2004). “Managing port reforms in India: case study of Jawaharlal Nehru Port Trust
(JNPT) Mumbai”, background paper prepared for World Development Report 2005: A Better
Investment Climate for Everyone (Washington, D.C., World Bank; New York, Oxford University
Press).

 KPMG-India (2014), “All Aboard- Insight into India’s Maritime Community”, Prepared during India
Maritime Week.

 Rajeev Sinha, “Rise of Private Ports and Changing Contours of Port Sector”, The Economic Times,
25 May 2013.

Objective Type Questions

1. Which of the port is the first corporate port in India:


a. Chennai
b. Ennore
c. JNPT
d. Paradip
2. Which port handles maximum TEUs per year:
a. Ennore

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b. Chennai
c. JNPT
d. Kolkota
3. Which port handles maximum number of automobiles in India:
a. Mumbai
b. Kolkata
c. Vishakhapatnam
d. Chennai
4. India’s largest private port is:
a. Mundra port, Gujarat
b. Krishnapatanam Port, Andhra Pradesh
c. Gangavaram, Andhra Pradesh
d. Vellarapadam, Kerala
5. There are ___________ major ports and ____________ minor ports in India:
a. 25,160
b. 13, 180
c. 12, 187
d. 19,170
Review Questions
1. Write a note on Indian Maritime Industry. Present a SWOT analysis of the same.
2. Compare the efficiency of Indian ports vis-à-vis foreign ports.
3. What factors are responsible of a low performance of Indian ports as compared to the foreign ports?
4. Has privatization of ports proved to a good decision of GOI? Comment.
5. What is cabotage? Write a note on development of coastal shipping in India.

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BLOCK III
SHIPPING MANAGEMENT

UNIT 7 Types of Ships and Architecture


UNIT 8 Operations and Cargo Planning
UNIT 9 Technology and Shipping Industry

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UNIT 7
Types of Ships and Architecture

Chapter Objectives

 To understand classification of ships used in maritime trade


 To identify the different categories of ships used for trading different types of cargo
 To know the basic architecture of ship

Topics Covered

7.1 Classification of ships

7.1.1 On the basis of cargo

7.1.2 On the basis of Size

7.2 Architecture of Ship

Activity

Review Questions

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7.1 Classification of Ships

Ocean mode of transportation forms the most important means of international trade and development
around the world. It accounts for almost 95% of international trade in terms of volume and about two-
thirds in the value terms. Transportation through sea is one of the oldest forms of transportation and has
evolved, technologically and functionally, over decades. Small steamers have been replaced by huge
vessels with voluminous carrying capacity. Today gigantic ships with a carrying capacity of more than
70000 Twenty Foot Equivalent Unit (TEU) has come into usage. Specialized ships to carry specific cargo
such as perishable foods articles, gases and ores are used.

Ships are classified on the basis of size, types of cargo they carry, length, beam width and even the route
they follow. Ships are generally classified on the basis of two criteria:

a) Size of the vessel

b) Nature of product it carries

7.1.1 Classification of Ships on the basis of size

Before going into the details of each category, it is important to understand the term Dead Weight
Tonnage (DWT). It is defined as the total capacity of the ship. It is the maximum weight of the cargo a
ship can carry. It includes fuel and other consumable used on the ship. It is generally referred as “tonnage”
and unit used to represent it is tons.

Let us read about various types of ships (bulk carriers/tankers/container ships) based on their size and
carrying capacity.

1. Panamax Vessels- as the name suggests, these vessels are designed to pass thought he locks of
Panama Canal. They have to follow the size parameters given by the Panama Canal authority. These
vessels cannot exceed the limit of length - 294,13 m (965 ft), width of 32,31 m (106 ft) and her draught
can't be more than 12,04 m. these have to strictly follow these size dimensions for ensuring safe
passage through Panama canal as the entry and exit of the canal is very narrow. These can be
container ships, bulk ships or tankers. These ships are operational since 1914, along with the opening
of Panama Canal. Panama vessels have the capacity of 5,000TEUs only.
2. New Panamax Vessels- these have come into existence with the construction of the new third lock of
Panama Canal. It is wider than the already existing locks and thus the new panama vessels have
bigger dimensions than the panama vessels. New panama vessel cannot be more than- of 427 m
(1400 ft) long, 55 m (180 ft) wide and 18,30 m (60 ft) deep. New panama vessels have the capacity
of 13,000 TEUs. Ships which do not fall under the size criteria of Panama Canal are called as post
panama vessels.

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Panamax Vessels
3. Handymax Vessels – these are the small size bulk/cargo vessels with a carrying capacity of 50,000-
60,000 DWT. These are the most widely used bulk vessels as can enter and berth into most of the
ports around the world. Handysize vessels are also part of this category of Handymax vessels.
Handysize are small-sized ships with a capacity ranging between 15,000 and 35,000 DWT.
4. Aframax Vessels- these are oil tankers with capacity ranging between 80,000 to 1,20,000 DWT.
These are the medium sized oil tankers much smaller than the giant VLCC and ULCC carriers. Due to
their size, they can berth inside various small ports where big size tankers can’t enter. Aframax name
has been derived from the Average Freight Rate Assessment schematic devised by SHELL in mid
1950’s.
5. Chinamax- these are huge bulk carriers, often termed as Very Large Ore Carriers (VLOC). As the
name suggests these vessels are generally used to trade goods between China and South American
ports of Brazil. Now even other ports of call have been added to the list. Chinamax vessels are not
only special due to their huge DWT but also due to their length. Chinamax ships have a Dead Weight
Tonnage (DWT) of up to 4,00,000 tonnes and measure about 360 meters lengthwise with a breadth
of about 65 meters and a draft of about 25 meters. These are generally made on order and are also
called as Valemax vessels.
6. Capesize vessels- these are huge bulk or ore carriers. Capesize ships are commonly used in
transportation of coal, iron ore and commodity raw materials. These can also be termed as very large
bulk carriers (VLBC) or very large ore carriers (VLOC). These vessels cannot generally pass through

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Panama Canal or Suez Canal and thus have to take a route through Cape of Good Hope and Horn.
Their tonnage varies between 1,50,000 DWT to 4,00,000 DWT. They can serve only the deep water
ports and have limited number of ports of call.
7. Suezmax – Suezmax vessels are bulk carriers and container vessels having a DWT ranging between
1,20,000-2,00,000 DWT. These are designed to pass through the Suez Canal. These have lengths of
about 275 metres stipulated as per the Suez Canal passage requirements.
8. Q-Max ships- these are the biggest LNG tanker ships and are called as Qatar Max vessels. These
are built to enter the Liquefied Natural Gas depot of Ras Laffhan in the middle-east Asian country of
Qatar. These have capacity to carry 266,000 cubic metres (9,400,000 cu ft), equal to 161,994,000
cubic metres (5.7208×109 cu ft) of natural gas. Q-Max LNG tankers have an on-deck re-liquefaction
system to reduce the LNG losses and also protect the environment from toxins. The LNG tankers are
provided with state of the art firefighting system which uses foam and fog water for firefighting instead
of carbon dioxide. A total of 14 Q-Max tankers have been used in transportation of LNG from Qatar to
several countries across the world.

Q-Max ship MOZAH


9. Malaccamax-these are the largest ships which can pass through the Strait of Malacca. These are
generally classified as VLCC. Mostly these are bulk carriers and super tankers. As per the current
permissible limits, a Malaccamax vessel can have a maximum length of 400 m (1,312ft), beam of 59
m (193.5 ft), and draught of 14.5 m (47.5 ft). Nowadays container ships also come under this category.
The new class of container vessel Triple-E launched by Maersk (18000 TEU) falls under this category.
These vessels can only enter the deep water ports.
10. Seawaymax- Seawaymax vessels are big enough to pass through canal locks of the St. Lawrence
Seaway. Saint Lawrence Seaway is an important sea passage between the water routes linking United
States and Canada. It has fourteen locks in the St. Lawrence Seaway that include six locks in St.

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Lawrence River and eight locks in Welland Canal. Seaway vessels are mainly bulk carriers which
carry bulk cargo such as iron ore, limestone, coal and salt from the mines to the industrial areas down
the lakes. These ships are 225,6 m (740 ft) long, 23,8 m (78 ft) wide and 35,5 m (116 ft) high, with a
draught of 7,92 metres (26 ft).
11. Very Large Crude Carrier (VLCC)-These are super tankers with maximum DWT of 3,20,000DWT.
These can carry huge amount of crude oil mainly on the route connecting Persian Gulf to countries in
Europe, Asia and North America. They are capable of passing through the Suez Canal in Egypt, and as a result
are used extensively around the North Sea, Mediterranean and West Africa.
12. Ultra Large Crude Carrier (ULCC)- ULCC are the biggest ships/tankers in the world with a size
between 3,20,000DWT – 5,00,000 DWT. Due to big size and requirement of deep draught, they have
access to a limited number of ports. These are big mother vessels which supply goods to ports using
small feeder vessels.

Classification of Vessel on the basis of size & carrying capacity

Category Carrying Capacity Characteristics


(DWT/TEU)

Panamax 5000 TEU  Barely fits into the locks of Panama canal.

New Panamax 13000TEU  Fits into the 3rd expanded channels of


Panama canal.

Post-panamax More than 75,000  Larger than the size of Panamax size
tons

AFRAMAX 1,20,000DWT  Oil Tankers

CHINAMAX 4,00,000 Tons DWT  Bulk Carriers, VLOC

HANDYMAX 50,000 DWT  Cargo Ships/Bulk Ships

Suezmax 1,20,000-  Maximum size to pass through Suez canal


2,00,000DWT

Capesize 1,50,000DWT  Large dry-bulk carriers

 VLBC,VLOC

Q-Max 2,66,000 Cubic Mtr  LNG Tanker Ships


LNG

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Malaccamax 1,65000DWT  Bulk Carriers and Super Tankers

18000 TEU  Triple E Class Vessels

Seawaymax 10,000-60,000 Tons  Pass through St. Lawrence Seaway

 Bulk Carriers

VLCC (Very large 3,00,000 tons  Large oil carriers


crude carrier)

ULCC (Ultra Large More than 3,00,000  Ships are big mother vessels
Crude Carrier) tons
 Unable to enter into small ports

 Remain in deep sea

 Cargo is removed using feeder vessels

 Largest ULCC is Sea Giant, with 5,55,000


DWT

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7.1.2 7.1.2 Classification of Ships on the basis of type of cargo carried

Trading Purpose

Commercial Non-Commercial

Cargo
Type

Solid Liqui Gas

Bulk Carrier Tankers LPG 1. Navy/Defense

 Unpacked Crude Carrier  Liquefied 2. Leisure/Luxury Craft


Bulk Cargo Petroleum
 Big Lot Size  ULCC-Ultra Gas 3. Scientific Vessels
 Usually Large LNG
Gearless  VLCC-Very  Oceanographic
 Tramp Large  Liquefied  Research
Operations  Oil Tankers Natural Gas Miscellaneous
 Grain, Ore, Product Carrier
1. Tugs
Minerals
 Single Hold  Diesel 2. Off-Shore
Vessels  Kerosene Supply
Break Bulk Chemical Carrier
3. Fishing Trawlers
 Packed Cargo  Solvents 4. Cruise Vessels
 Smaller  Phosphoric
5. Coastal Trading
Parcels Acid
Vessel
 Tween Deck
Design 6. Dredge
 Bags, Cartons, 7. Barge
Drums
 Usually
Geared
Unitised

 RO-RO Vessels
 Pallets
 Container
Vessels
Reefer Ships

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Classification of Vessel on the basis of cargo they carry

1. Container ships

2. Dry bulk carriers

3. Break bulk

a. RORO ship

b. OBO ship

c. SD 14

d. Train Ferry

4. Crude carrier

5. LASH ships

6. Gas carrier

a. LNG carrier- Dinosaur Egg, Membrane Type

7. Combination ships

8. Heavy lift vessel

9. Additional category

a. Expedition ship

b. Dredgers

c. Survey vessel

d. Coasters

e. Livestock carriers

f. Heavy lift vessel

g. Refrigerated vessel

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Container ships

About 60% of the world trade is containerized. Container ships are the most widely used type of ships.
The capacity for container ships is measured in TEU (Twenty feet equivalent unit). TEU is the number
of twenty feet containers which can be placed on the ship. Container ships can carry up to 6600 TEU.
There are multipurpose ships, which can carry containers on the deck and other goods below the
deck. There are special holds for placing containers on the ship deck. Containers are placed as per
the bay plan prepared by the shipping company, such that optimum space utilization can be achieved.
External port cranes are required for loading or unloading the container. Modern ships have inbuilt
cranes.

Container Ship Dry Bulk Carrier

Dry bulk carrier

These are most important category of ships which carry high volume bulk cargo such as ores,
minerals, coal, grains, scraps and other loose cargo. Cargo is loaded in the holds, below the deck,
using specialized cranes. These generally operate on tramp service i.e. full carrier is taken on hire, for
a particular journey or time period. These range from 25,000 DWT to more than 75,000 DWT.

Break Bulk carrier

These transport bulk goods of unusual size, shape, packed in sacks, bags, drums or pallets. These
are multipurpose ships. These require labor intensive loading and unloading as cargo is not unitized.
These generally have inbuilt cranes and can pick up multiple category of goods from a port. There
are different types of bulk carriers:

OBO Ships- ore/bulk/oil carrier are multipurpose bulk carrier exceeding 200,000 DWT.

RO/RO ships- these are designed to carry self-propelled cargo loaded on ship using a ramp.
RO/RO stands for roll-on, roll-off carrier.

SD 14- It is a modern type of tramp vessel, used for carrying bulk cargoes like ore, coal etc.

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Train Ferry vessel- carries freight rolling stock, providing transshipment through rail transits.

RO/RO Vessel

LASH Ships ( Lighter-Aboard-Ship)

These are similar to container ships, but instead of container, it carries huge units. These units are
much larger than containers and are often called as LASH barges. LASH barges are floating
containers with a dimension of 18 x9x 3 mts. These are loaded on LASH mother ships and can be
tugged in any area, with or without port facilities. LASH mother vessels can carry, up to 80 LASH
barges.

LASH Barge and LASH Mother vessel

Crude Carrier

These are specially designed to carry petroleum products in both refined and unrefined forms. These
have huge carrying capacity, ranging from 80,000 DWT (Aframax vessels), 3,00,000 DWT (Very Large
Crude Carriers) and more (Ultra Large Crude Carrier). These can also be termed as tankers. These
are highly affected by the international agreements on pollution such as Maritime Pollution Convention
(MARPOL), due to the nature of products that these transport.

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VLCC & ULCC needs very deep ports for berthing. This creates limitation in the number of ports they
can call. In such a case Lightering process is used to unload these big vessels. Lightering is a process
where huge mother vessels stays anchored in the deep sea and the feeder vessel unload the goods
to transport them to the port.

Very Large Crude Carrier Ultra Large Crude Carrier


Gas Carrier

These bulk carriers are used to carry liquefied petroleum gas (LPG), liquefied natural gas (LNG) and
other types of gases. These have special pressure and temperature controlled compartments for
transporting gases. The carriers have dome shaped structures on the deck called as dinosaur egg
carriers. Vessels having flat deck are called membrane carriers.

Gas Carrier

Heavy Lift Vessels

These are special vessel designed to carry unusual sized products or even small vessels, which
cannot be carried on usual ships. These are generally used during project exports for shifting power
plants, desalination units or even already built civil structure like walkways.

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The loading mechanism is very novel. The ship is ballasted down, goods to be loaded are floated
inside and the vessel is again lifted up.

Heavy Lift Vessels

Livestock Carriers

These are used to carry animals and livestock in secure and humane conditions. A new era vessel
can carry up to 125000 cattle.

Coasters

These are small container ships that run as feeder vessel for getting goods from mother vessel to
the port of unloading. These generally sail across the coast and stop at many ports.

Refrigerated Vessel

These are the special reefers, used for carrying perishable foods items, fruits and vegetables.

Dredgers

A dredger is a ship or boat equipped with a dredge. A dredge is a device for scraping or sucking the
seabed, for the purpose of gathering up bottom sediments and disposing them at a different
location. to keep waterways navigable.

Combination Ships

These are the multipurpose vessels designed to carry various types of loads in a single voyage. These
have several holds in which different products ranging from bulk cargo like grain, to break bulk cargo
like tyres, containers can be placed together. These can be twin deck vessels, having a second deck
below the main deck to carry break bulk articles. These are mostly used for trade in the low-volume
trade belt like Caribbean.

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Combination Ship

7.2 Basic Architecture of Ship

Although it is not required to understand the minute design of a merchant ship for a logistician but certain
aspects are important to be known. Understanding the architecture of the ships helps one to understand:

1. Stowage pattern on the ship and placement of one’s cargo on board the ship
2. Understanding the terms of insurance
3. Makes negotiation with the shipping lines easier
4. Designing Bay plan affectively to ensure the safety of the cargo onboard

The placement of the cargo on board will have impact on safety as well as the price of transportation of
the cargo. Although the basic construction of ships remains the same but there is slight difference based
on the type of cargo carried by the ship for e.g. container vessels have racks top hold containers whereas
bulk ships have holds to store bulk items such as grains. Similarly tankers have insulated compartments
which are double layered at times. This sections gives an idea about the basic terminology about the ship,
expected to be known by the logistics managers.

Hull- it is the body of the ship above which the super structure such as bridge, radar and mast are located.

Radar- apparatus that detects objects through the use of microwaves.

Pilot house- a room in the superstructure containing navigation and steering equipment.

Upper deck- higher deck on a ship. Generally containers are stacked on the upper deck of a container
ship or a combination ship.

Lower deck- the lower and covered portion of the ship'd deck. Below the upper deck and has less
exposure to outer environment. It has cargo holds to carry cargo.

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Cargo Holds- These are compartments for holding cargo, palletized, loose or containerized. These have
a hatch on the top for getting an access.

Hawsehole (hawsepipe)- opening in the front of a ship for anchor cables

Anchor- a mechanical device that prevents a vessel from moving

Bow- part at the front of a boat that cleaves the water

Stern- the rear part of a ship

Flagpole- post used to hoist flags

Crane- equipment used to load and unload goods present on ship as well as at the berth.

Stack (funnel)- conical shaped structure consisting of a shaft for ventilation and the passage of smoke

Navigation bridge: raised platform from which a vessel is controlled

Container: standard sized boxlike object used for transporting goods

Loading crane: apparatus used to lift and operate cargo (containers)

Load line- these are lines are painted on the side of ships to show how low it may safely rest in the water
with loaded goods. These are also called Plimsoll Lines.

Upper Deck

Lower Deck

Hull

Source:https://s3.amazonaws.com/recpass-production
project_files/project_docs/media/000/002/135/original/Final_Report.pdf?1390932383

Basic architecture of Ship represented through Diagram

Activity

1. Search a picture of container ship and try to locate various parts of ship on it.
CIItype
2. Collect the pictures of as many Institute of Logistics
of ships as possible. Closely observe the difference 111
between the hull shape and size of the ships.
3. Collect information about the Triple E class of vessel.
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References

1. David Pierre, “International Logistics”, Biztantra, An Imprint of Dreamtech Press,New Delhi 2003.

2. Aserkar R., “Logistics in International Business”, Shroff Publishers and Distributors Pvt Ltd, 2nd Edition,
2007.

3. Mishra A. and Tayal A., “International Logistics Management”, A.B.Publication,Delhi, 2010.

4. Lun, Yuen Ha (Venus), Lai, Kee Hung, Cheng, Tai Chiu Edwin, “Shipping and Logistics Management”,
McGraw-Hill, , 2010.

5. Stroh Michael B., “A practical guide to transportation and logistics”, The Logistics Network,2nd
edition,2001.

6. http://www.marineinsight.com/marine/marine-news/headline/the-ultimate-guide-to-ship-sizes/

7. http://maritime-connector.com/wiki/ship-sizes/

8. Images and Graphics are sourced from www.googleimages.co.in

9. www.worldshipping.com

Objective Type Questions

1. The water tight body of the ship is called as:


a. Hull
b. Crane
c. 2.Super structure
d. Hold
2. Marks on the ship used to denote that ship is immersed till safe levels when loaded are called as:
a. Star Marks
b. Plimsoll Lines
c. Aft marks
d. None
3. _________________ ships are used to carry projects in completely assembled form:
a. Container vessel
b. Feeder vessel
c. Heavy lift vessel
d. LASH vessels
4. ___________ vessels are also called as Valemax vessels:
a. Malaccamax
b. Chinama
c. Suezmax

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d. Panamax
5. Triple E class vessel falls in the category of:
a. Malaccamax
b. Chinama
c. Suezmax
d. Panamax
6. Total capacity of the ship is termed as:
a. Gross Registered Tonnage
b. Dead Weight Tonnage
c. Net Registered Tonnage
d. Twenty Feet Equivalent Unit
7. Automobiles are generally transported using:
a. Container Ships
b. Ro-Ro Vessels
c. Bulk Carriers
d. Tankers
8. Which type of ships carry small barges on them:
a. LASH Ships
b. Combination Ships
c. Heavy Lift Vessel
d. Crude Carriers
9. Ships are equipped with ______ to scrap the sea bed and keep the route navigable:
a. Crane
b. Forklift
c. Dredger
d. None of the above

Review Questions
1. Write a detailed not on classification of ships on the basis of size.
2. What are Panamx,New Panamx and Post Panamx vessels? How are they different from Suezmax
and Capesize vessels.
3. Discuss the basic architecture of a cargo ship.
4. Write a note on Triple E class of vessel.
5. Discuss the classification of vessels on the basis of cargo they carry.

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UNIT 8
Operations and Cargo Planning

Chapter Objectives

 To understand the liner and tramp operations of a shipping line


 To know about process of chartering and different types of chartering arrangements
 To comprehend the cargo planning mechanism of shipping companies and to study
the stowage patterns followed on ship.

Topics Covered

8.1 Liner and Tramp Operations


8.2 Chartering of Ships
8.3 Cargo classification
8.4 Cargo Planning on ship-stowage, handling pattern
Activity
Review Questions

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8.1 Liner and Tramp Operations

Shipping is an organized industry. There are different forms of shipping companies providing services
based on customer’s requirement. Every time a shipping company cannot get a client with a full ship load.
Generally shipping companies have slots on ships booked by multiple parties. Similarly, shipping
companies seldom have the order for supplying entire ship load to a single destination port. Thus shipping
companies provide services for multiple port of calls en-route the final destination. As the profits are based
on economies of scale and economies of distance, the matrix of consolidated cargo and multiple port of
calls works profitable for the ship operators. In such a case a more organized system has been devised
to fix the route and services of the shipping line and booking different slots on that route. There are
conferences and cartels to take care of the freight and competition issue in this sector.

If the shipping companies have full vessel load for a one destination, they might decide to cater to the
requirement of that single client rather than selling slots to multiple parties. In this case entire voyage will
be planned as per the conditions of the party.

There are different forms of shipping methods followed in the shipping industry:

1. Liner operations
2. Tramp operations

8.1.1 Liner Operations – These follow a fixed schedule of sailing. They touch the defined ports on the
given date and sail out as per the schedule. These generally offer uniform freight rates to parties and carry
heterogeneous cargo. A number of ports are touched during a shipment. Competition among the liner
service operators are governed by conferences or alliances. Generally containerized cargo is shipped
using liner services.

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

To understand the liner operations we can compare it with scheduled bus service. The feature of liner
operations are:

1. Fixed sailing schedule- the ports, dates of sailing, freight rates and terms of afreightment are
predefined.
2. Slots or space are booked for shippers on the ships. Thus there is cargo of multiple parties carried for
multiple (but fixed) ports of call.
3. Liner services operate on common shipping routes. These offer services for port which have maximum
traffic or are in general demand.

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4. Conferences/cartels and alliances are formed to maintain fair competition and transparency in the
cartels.
5. During the peak seasons, when the demand on a certain route is more than the available space, liner
operators hire tramp vessel on contract basis to run on their scheduled routes.
6. Common Bill of Lading is used in case of Liner service. A copy of bill of lading is issued to the shipper
on the pre- printed format of the shipping company when he is shipping his goods through a liner
operator.
7. They can carry bulk/break bulk/containerized cargo. There are different categories of cargoes carried
on the vessel in case of liner operations.
8. Bookings on the tramp vessel are taken through shipping companies or their shipping agents.
8.1.2 Tramp Operations- Unlike liner operations, these follow flexible routes and schedules as per
shipper’s requirements. Shipping voyages are planned depending upon the availability of cargo and
the freight rates are also based on market conditions. For Exmaple- United Maritime Group, Seabulk,
D/S Norden and TORM are major shipping operators providing tramp services.
Tramp ships usually carry homogenous type of cargo (usually bulk cargo) like ores, grains, coal etc.
The cargo consist of unpackaged bulk goods (ore, coal, grain, phosphates, and others) or a massive
amount of general cargo (e.g. saw wood) or seasonal products; with preferably a full cargo which
belong to one shipper. No special care is given to handling and stowage. Speed of delivery is not of
primary importance. Tramp operations are generally opted by big shippers who have huge volumes
of cargo. They hire the complete vessel and run it as per their needs. This process is termed as
“Chartering” or “Charter Party”.

Features of tramp operations:

1. These are controlled by the spot market i.e. the freight, route and the terms of carriage are decided
based on the market requirement.
2. These follow non-standard routes where normal liner vessels do not offer service.
3. These generally book space for single or two or more parties with full ship load.
4. Following the fixed schedule is not important for tramp operators. These decided the next port of call
and the time of sailing based on the receipt of booking.
5. These are slower and take more time to deliver cargo as compared to the liner operators.
6. These carry similar type of cargo, generally bulk cargo.
7. These operate vessels ranging from bulk carriers to tankers. Normally oil, coal, liquid type of items is
carried on tramp vessels.
8. Tramp ships often carry with them their own gear (booms, cranes, derricks) in case the next port lacks
the proper equipment for loading or discharging cargo.
9. Tramp operators rely on brokers to find cargoes for their ships to carry.

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10. Organization structure of tramp shipping companies is simpler than the liner companies as these
need less number of departments and people to manage the operations.. The fewer ships, the simpler
the organization. With only one ship, the company can be reduced to a one-man business.
Documentation in liner shipping is much more in a liner shipping service. Separate B/L is drawn for
each consignment, making a huge pile of documents in the company. Large staff and resources are
needed to make and manage these documents. As tramp ships are exclusively ordained to transport
bulk goods and are usually chartered as a whole in one harbour, the tramping company can operate
without many departments and personnel.
11. The competition in tramp operation is not solely based on price and the operator has to keep the
freight very low. The freights are so low at times that they cover only the basic cost of operation leaving
minimal profit for the operator.
12. At times the crew are appointed and managed by the shipper rather than the shipping company.
Thus, tramp service operator has no pressure to maintain his own crew.
13. Lot of operation of the tramp operator can be outsourced- such as Ship management companies will
manage the ships for a fee; chartering brokers arrange employment, collecting the revenues and
dealing with claims; sale and purchase brokers will buy and sell ships; maritime lawyers and
accountants undertake legal and administrative functions; classification societies and technical
consultants provide technical support.
14. The operating department and in particular the department for inward and outward freights, cargo
handling and stowage, insurance and claims, and agencies will be far less important. The chartering
department will be much more extensive than in the liner trade because it is the main activity of
tramping. There is requirement of highly skilled people with experience or knowledge of chartering.
There is a requirement of continuous exchange of information with the exchange, brokers and the
clients.
15. As it is highly market driven it is not as organized as liner service. The sailing schedule and the freight
rates of the tramp vessels are highly irregular.
16. The quality of tramp vessels is not as good as that of the liner vessel. They do not need to be faster
and carry highly sophisticated handling equipments. These are slower and cheaper than liner ships
often. Owners of modern and cost-effective tramp ships have a better chance than their competitors
who offer inferior and less flexibility in the freight market.
17. Generally tramp vessels carry high volume low value goods.

The Baltic Exchange, in London, is the physical headquarters for tramp ship brokerage. The Baltic
Exchange works like an organized market, and provides a meeting place for ship owners, brokers, and
charterers. It also provides easy access to information on market fluctuations, and commodity prices to all
the parties involved. Brokers can use it to quickly match a cargo to a ship or ship to a cargo depending on
whom they are working for. A committee of owners, brokers, and charterers are elected to manage the

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exchange to ensure everyone's interests are represented. With the speed of today's communications the
floor of the Baltic Exchange is not nearly as populated as it once was, but the information and networking
the exchange provides is still an asset to the tramp trade.

8.2 Chartering of Ships

Chartering involves hiring an entire ship or part of a ship by a single party for a particular voyage or time
period. The party hiring the vessel is called charterer. A chartering broker is the intermediary between the
shipping company and the charterer. Chartering broker has to have a sound knowledge of the chartering
operation, legal and operational formalities, shipping law, geography, port information, charges throughout
the world, facilities at different places, distances between ports, and countless other matters. He engages
space for cargo and arranges the whole of the business details between the principals. He is paid
commission for carrying out this task.
When he fixes a contract of this nature it is known as a charter-party. The arrangement of a charter-party
is known as “fixing” a charter and when this is completed the vessel is termed “fixed”.

Following are the 3 types of charter party operations-

 Voyage charter- Charterer takes the vessel for a particular voyage. Voyage has to be finished
in given time frame. Ship owner is responsible for the condition of the ship, insurance, fuel,
loading/unloading and crew of the ship.

 Time charter- Charterer hires a ship for a particular period of time. The ports to be touched
during this time are defined in the agreement. Again, the ship owner is responsible for the
condition of the ship, insurance, fuel, loading/unloading and crew of the ship.

 Charter party by demise- The vessel is taken on a lease by the charterer for a period of time.
The charterer has complete control over the ship. He has the liberty to decided the route and
ports of call for the ship. He also has responsibility to maintain the ship during the lease period
and give salary to crew members of the ship. After the completion of the charter period the
charterer obtains the ownership in the vessel.

 Bareboat Charter- Charterer hires the vessel and pays for all the operating expenses like fuel,
crew, port charges and hull insurance. Demise charter is a form of bareboat charter.

The responsibilities of charterer and ship owner are clearly defined in charter party agreement .

 Free In (FI)- Charterer is responsible for loading.

 Free Out (FO)- Charterer is responsible for unloading

 Free In & Out (FIO)- Charterer is responsible for loading and unloading.

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In the case of bill of lading shipments standard rates are charged, whereas the rates for chartered ships
fluctuate according to the state of the market. Chartering is done globally but chiefly on London, New York,
Singapore ship breaking exchanges. The Baltic Exchange serves as a type of stock market index for the
trade.

Types of Charter Party Agreements

Type of Features For the account of Owners For the account of charterers
Charter
Voyage Master  Wages  No expenses unless specified in
Charter appointed  Provisions charter party contract
by owners  Maintenance/Repairs  Stevedoring expense can
Owners act  Stores/Supplies/Equipment sometimes be paid in full or
as carriers  Lubricating Oil part.
Full or part  Water
 Insurance/Survey
cargo
 Overhead Charge
Freight
 Depreciation
depends on  Fuel
quantity of  Port Charges
cargo  Stevedoring
 Dunnage
 Ballast
 Brokerage/Commission
 Claims

Time Master  Wages  Fuel


Charter appointed  Provisions  Port Charges
by owners  Maintenance/Repairs  Stevedoring
Owners do  Stores/Supplies/Equipment  Dunnage
not act as  Lubricating Oil  Ballast
carriers  Water  Brokerage/Commission
 Insurance/Survey  Claims
Entire
 Overhead Charge
ship's
 Depreciation
capacity  Brokerage and
Hire  Part of claims
depends on
duration of
charter
Bare Master  Depreciation  Wages
Boat appointed  Insurance  Provisions
Charter by  Brokerage  Maintenance/Repairs
charterers  Stores/Supplies/Equipment
Owners do  Lubricating Oil
not act as  Water
 Insurance/Survey (if agreed)
carriers
 Overhead Charge

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Entire  Fuel
ship's  Port Charges
capacity  Stevedoring
Hire  Dunnage
depends on  Ballast
duration of  Brokerage/Commission for
cargo only
charter
 Claims

8.3 Cargo Clasiffication

Type of cargo is important to understand as it determines the conditions for transportation such as type of
ship, handling, marking and labelling etc. Charges of shipping and handling may also vary depending upon
the type of cargo. Cargo can be classified as follows:

1. Containerized cargo- cargo which is packed and stowed inside a container for transportation. It is
much easier to handle.
2. Break-Bulk- cargo which is packed but not containerized. It can be palletized cargo or loose units.
3. Bulk- cargo which cannot be packed but directly transferred to the vessel for transportation, such as
crude, ore and minerals.
Other way of classifying cargo type is based on its state. State of the cargo determines the type of vessel
to be used:
1. Solid- containerized cargo, which can be packed and transported though container vessels.
2. Liquid- transported using tanker vessels or inside tanker containers.
3. Gas- transported in gas carriers either flat membrane or dinosaur shaped vessel. They require special
controlled conditions for transportation.

There are few other terms used for specifying the cargo type:

1. LCL- Less than container load


2. FCL- Full container Load
3. Hazardous Cargo (Haz Cargo) These are goods which if not stored and handled under controlled
conditions can pose potential threat to living organisms, environment, flora and fauna. The
transportation of dangerous goods is controlled and governed by a variety of different regulatory
regimes, operating at both the national and international levels. Prominent regulatory frameworks for
the transportation of dangerous goods include the United Nations Recommendations on the Transport
of Dangerous Goods, ICAO’s Technical Instructions, IATA’s Dangerous Goods Regulations and the
IMO’s International Maritime Dangerous Goods Code. It includes explosives, gasses, certain liquid
materials, corrosives and toxic substances.

8.4 Cargo Planning- Stowage Pattern on Ship

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Stowage is process of accommodating cargo inside a transport mode so as to economize on space and
ensure safe transport of the goods. Stowage has become an important part of transportation management.
The containerized cargo can be stowed on the ship, in the given slots. But, arranging, loading and
unloading of 8000-10000 TEU is a mammoth task involving great planning. IT tools nowadays help in
planning successful placement of containers on the ship deck. The plan guiding placement of containers
on a ship is called as bay plan. The challenge of stowing the goods comes when bulk/break bulk cargo
has to be transported. Due to irregular shapes, sizes and density these products leads to wastage of
storage space on the ship. Certain points need to be taken care of during stowage:

 There should be optimum utilization of ship’s dead weight tonnage.

 The goods should be properly secured to prevent shifting.

 Fragile cargo should be properly segregated to prevent any kind of pilferage, leakage or reaction.

 Proper segregation of stowage of different consignments for various ports must be done to allow
smooth loading and unloading of cargo.

Following these points, shipper’s goods can be stowed in different parts of ship according to specified
arrangement:

1. On-deck stowage- this is the simplest and cheapest way of shipping the goods. Goods are placed on
the deck of the ship, exposed to weather conditions and therefore have higher chances of damage.
Although the cost of shipping comes to be lower, the cost of packaging and marine insurance is very
high in this case.

2. Regular Stowage- In case when there is no special request regarding stowage, the shipping company
stows goods as per their usual stowage plan. The safety and security of goods is taken care of by the
shipping company while stowing the goods.

3. Special stowage- In certain cases, exporters require special stowage facility for their cargo like
perishable or reactive material. Extra charges are borne by the shipper to get such facilities.

4. Liquid cargo- Each cargo ship has a liquid cargo tank with a capacity up to 40,000 gallons in the
lowest part of vessel. For transporting higher units, bigger tanker ships such as VLCC and ULCC are
available.

5. Containers- shipping in containers is the safest and easiest way to handle transporting of goods.
Containers are stacked as per the plan of the shipping company.

Activity

1. Make a list of hazardous goods permitted for shipping


2. Differentiate between tramp and liner service in tabular form.
3. Make a diagram of stowage of container on ship and denote the rows and tier in it.

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References

 Grant David B., “Fundamental of Logistics Management”, Mc Graw Hill, 2006


 Sople V., “Logistics Management: The Supply chain Imperative”,Pearson Education Singapore Pvt
Ltd,2004.

 Stroh Michael B., “A practical guide to transportation and logistics”, The Logistics Network,2 nd
edition,2001.

Objective Type Questions

1. Tramp vessels are slower than liner vessels. True/False


2. There is a fixed schedule of sailing in case of ____________________ service.
3. On-deck stowage is cheaper than regular stowage. True/False
4. In F-IO the charterer is responsible for loading and unloading. True/False
5. The ___________ serves as a type of stock market index for the trade.
6. Charters serves shippers under which condition:
a. goods need to be shipped ASAP and using reg. scheduled liners would delay the shipment
to an unacceptable level
b. goods to be shipped don't fit into the regular lines flying that route; too heavy or too large
c. goods must be shipped to a location where regularly scheduled airfreight service is not
available
d. All the above
7. ______________ vessels are generally chartered:
a. Liner Vessels
b. Tramp Vessels
c. Private Vessels
d. Conference Lines
8. In ____________ type of charter, Charterer hires the vessel and pays for all the operating expenses
like fuel, crew, port charges and hull insurance:
a. Time Charter
b. Voyage Charter
c. Charter Party be Demise
d. Bareboat Charter

Review Questions

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1. Differentiate between liner and tramp operations.


2. Write a note on Chartering operations in Shipping.
3. How are time, voyage and bareboat charter different from each other.
4. What points should be taken care of during planning stowage on ship? What are the different ways of
stowage of goods on ship.
5. Write important features of tramp operations.

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UNIT 9
Technology and Shipping Industry

Chapter Objectives

 To understand the impact of technology on shipping operations


 To undertake a detailed about the IT tools affecting the shipping operations
 To identify the various EDI formats used in shipping logistics

Topics Covered

9.1 Impact of IT on Shipping Industry


9.1.1 Growing role of IT in shipping Industry
9.2 EDI and Shipping
9.2.1 What is EDI?
9.2.2 EDI and Indian Shipping Sector
9.3 IT and Indian Ports
9.3.1 IT Initiatives by GOI
9.3.2 Future plans
Activity
Review Questions

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9.1 Impact of IT on Shipping Industry

Success of operations in shipping industry is based on following factors:

 Cost effectiveness – completion of operations at minimum cost

 Responsiveness- flexibility to change the schedules and services according to the customer’s
need

 Timeliness- delivery on time

Internet and information technology tools are implemented to achieve all these three Factors in shipping.
To achieve optimum benefits of IT, all the parties- shipper, ports, shipping companies, custom authorities
and the consignee need to implement the IT tools. The co-ordinated efforts of all the parties help in
achieving the maximum benefits. Implementation of IT has transformed the role of shipping companies
onto a service package provider with an added ability to provide value-added services. Transfer of
information, cost effective operations, effective planning, time saving and faster decision process are the
result of the IT implementation.

Implementation contributes to improvement International trade efficiency of a country. The growing usage
of IT tools is reshaping the shipping and port industry. International trade is characterized by highly
complex documentation system, cumbersome inspection process, presence of multiple parties and
intra/intercontinental trade. IT application has made the entire process easier by connecting the parties
to each other, making documentation system by implementing the master documentation system and
making the inspection and testing a more technology based phenomenon rather than physical.

9.1.1 Role of IT in Ports

Ports are the engine for growth of economy of any nation. These are the point of convergence of many
trade-centred activities. It is not only a transportation point but also is a hub for industrial cluster, custom
warehousing and customs procedure. Variety of goods like coal, ore, minerals, agricultural produce break
bulk items and containerized cargoes are handled simultaneously at the ports. Thus we can say port
reflects the state of industrialization and trade environment of a country. These provide various services-
ranging from movement of ships to inland transportation, inspection facility and nowadays also the value
addition centre (rework or packaging) for goods. Due to these complex functions ports face problems of
complex documentation, data over loading, appropriate staffing etc. So it can be understood that ports
have to coordinate, collate and disseminate a huge amount of information with accuracy within a stipulated
time.

Application of e-commerce in ports has made the overall port operations more efficient and speedy. It has
aided ports in many ways:

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 IT system electronically link port administration, terminal operators, truckers, customs, freight
forwarders, carriers, ship agents and other members of port community.

 User can avail the real time data on status of cargo, availability of berths, vessel schedules,
documentation requirements, and availability of port infrastructure such as cranes.

 IT enables ship and the terminals to be the part of an office structure.

 IT has reduced the time of delivering cargo,

 It allows accurate transfer and recording of data,

 Led to reduced manpower requirement by making many process automated like documentation,

 Transfer of updated information on ship and vice versa

 Improve planning and coordination of berths, handling equipments and storage facilities by
collecting information related to ship, barge, truck, wagon, container and cargo movements

 Data communication system has made the handling of customs filings, transmittal of manifest and
processing of documents including Bill of Lading much accurate and faster.

 Inter-port connectivity has improved providing a transparent environment of information sharing.

 Duplication of documents and data redundancy has been controlled.

 Technology makes the storage and retrieval of cargo in storage yards easier.

 Overall streamlining and enhancement of supply chain processes by enhancing cooperation


among various parties, automation of transfer and processing of documents and exchange of
information.

Various packages have been implemented at different ports internationally. For eg.

 INTIS at Rotterdam Port

 ADEMAR+ at Le Harve

 DAKOSY at Hamburg

 SEAGH at Antwerp

 FCP 80 at Felixstowe

PORTNET at the Singapore port is the best example of effective usage of IT at any port. PORTNET was
initially developed in 1984 and has been upgraded several times later on. It is the world’s first e-commerce
network system connecting port and all other concerned parties. It facilitates end-to-end information
workflow and create value for port users in many areas, including the online booking of resources, e-
fulfilment of port services, custom clearance and linkage to the government agencies.

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9.2 Electronic Data Interchange – A revolution in port operations

Effective documentation is the biggest challenge for the parties involved in international trade transaction.
Developing an error free, blockage free system for document transfer is the aim of any organization. There
is a continuous flow of information and documents among shipper, ship owner, port, inland carrier,
customs and bank in case of foreign trade. Unless the accurate information is transferred from one party
to another on time the procedure will not be completed efficiently. Tools such as Electronic Data
Interchange (EDI) have been developed to ensure efficient handling of documents and information among
these parties.

9.2.1 What is EDI?

In simplest form, Electronic Data Interchange (EDI) is the computer-to-computer exchange of business
documents in a standard electronic format between business partners. Basic features of the EDI system
are:

 Computer to computer- unlike fax, posts or e-mails no person is involved in the EDI process. The
System itself processes the information and starts the required process.
 Exchange of business documents which are required to complete the transaction
 Standard electronic format is followed for all the documents to let the computer system understand
and process it. Various platform have been developed and implemented to develop the standard,
system readable formats of the documents such as ANSI, EDIFACT, TRADACOMS and
ebXML. When two businesses decide to exchange EDI documents, they must agree on the specific
EDI standard and version.
 An EDI translator is used for translating the information in a format which can help in internal usage
and dissemination of information.
 EDI is a paper free, people free system

The basic aim of implementing the EDI system is Speed, Accuracy and Economy.

A simple EDI process

 At the start of the implementation of EDI two parties have to agree about the standard to
be used during the interchange of data, the information to be exchanged, the network
carrier (called a value-added network or VAN), and when the information will be sent.

 A document, such as an invoice, is created in the business application of one of the


participating organizations.

 The document is automatically reformatted by the EDI translator into the agreed-upon EDI
standard.

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 The translator wraps the reformatted document in an electronic envelope that has an ID for
the organization that is to receive the document.

 The envelope containing the document is then transmitted to the value added network
(VAN), where the ID on the envelope is read and the document is then placed in the correct
mailbox.

 Documentation is received and decoded by the application at the receiver’s end.

 Information is also translated into a readable format for internal usage using EDI translator.

A typical EDI system transaction

Source: http://www.edibasics.com/what-is-edi/

9.2.2 EDI and Indian Shipping Sector

EC/EDI council has been established in India as an apex body for promotion and propagation of EDI in
India. It looks after training and education of organization for using EDI system, streamlining procedures
and practices, attending to legal issues related to EDI, human resource development and handling any
other issue related with EDI and Electronic Commerce. There are various committees and working groups
operating under EDI council to oversee the implementation of EDI.

ICES (Indian Customs EDI system) have been initiated with an aim to create paperless work environment
in the country. Basic aim of ICES is to promote Trade facilitation rather than control. EDI provides
technology based linkage to customs with other departments:

 Customs to Port Trusts/Airport authority.


 Customs to Customs.
 Customs to DGFT (Min of Commerce).
 Customs to Export promotion councils, like AEPC, HEPC, etc,
 Customs to RBI/Banks.
 Customs to Importers/Exporters

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 Customs to Custom House Agents


 Customs to Shipping Lines/Airlines

The Indian Customs EDI System (ICES) now operational in 19 major Customs Stations.

9.3 IT and Indian Port sector

Indian ports have also changed the way of operation in last decade. Various ports have opted the route of
automation and mechanization to achieve operational proficiency. JNPT and Ennore are the best
examples of ports adapting EDI system. Many ports such as Mundra, Pipavav and Gangavaram have
established mechanized handling systems. Ports have also installed conveyor belt systems, mobile cranes
and advance X-ray systems to match the international port facilities.

New berths are being added and the existing berths are being modernized. Advanced cargo storage
systems, stackers, reclaimers and advanced handling equipments are being deployed at ports. employing
“environmental techniques” of handling is also the priority of ports. Low emission cranes, environmental
friendly storage facilities have been set-up to fulfil this norm. Pipava port has installed water curtains to
prevent the coal dust from spreading in the environment.

Ministry of Shipping has formulated following plan to make Indian ports competitive:

 Ports to use IT for quality performance


 Port Community System (PCS) to be installed and integrated with all the stakeholders
 Non-major ports to be connected with PCS
 Modern security systems like cctv and surveillance cameras in ports
 Vessel Traffic Management system for all ports handling EXIM cargo
 Implementing various e-modules for benefit of sea-farers
With the establishment of Real Time Kinematic (RTK) system in the Gulf of Kutch and Gulf of Khambat,
Indian ports are progressing towards a paperless and computerised working environment. [RTK is a
satellite based vessel tracking system]. Apart from these there are various other initiatives introduced to
make Indian Shipping Industry comparable to global standards.

9.3.1 IT initiative introduced by GOI for the Shipping Sector


1) Vessel Traffic Management System (VTMS)- this system is meant for identification and tracking of
ships passing through a particular region using Auto Identification System and radars. This system is
already implemented at JNPT, Kolkatta port, Chennai Port, Cochin port, New Mangalore Port,
Marmugao Port and the Gulf of Kutch.

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2) Surveillance and Security System- for successful implementation of ISPS code new technological
security systems have been introduced. Biometric based access control management system, CCTVs,
RFID and Optical Charter Recognition is also being used at ports. Container scanning systems are
proposed to be implemented to speed up the movement of the containers.
3) Various other modern day tools have been implemented by ports, namely:
a. Integrated vessel services and control management,
b. Integrated Cargo Management and Accounting system,
c. ERP,
d. Terminal operating System,
e. Hydro graphic survey units etc.
f. Areas such as payroll processing, PF management, Income tax, Materials management have
already been implemented with IT tolls.
4) EDI has been implemented at various ports for ensuring uninterrupted flow of information among the
parties.

9.3.2 Future Agenda


Although all the ports have not been actively involved in the implementation of technology but many ports
have been proactive in introducing IT platforms in their operations. Various initiatives have been taken by
port authorities to ensure technological advancements at their ports. the creation of integrated port
management system (IPMS) by Gujarat Maritime Board and development of IT strategy and Program
Management by JNPT are some cases of the inclination of Indian ports to implement IT tools.

But still Indian ports have to work on various aspects such as web site design (user friendliness and
detailed information sharing), 100% EDI implementation, automated handling systems etc. In the maritime
Agenda, GOI has specifically outlined few points for development of IT usage in Indian Ports:
 Implementation of ERP systems which will allow companies to integrate all their operations and
resources and manage them through one programme. Cochin, Marmugao and New Mangalore
have already implemented ERP systems.
 Computerization of handling processes. More automation in container handling and weighbridges.
E-compilation of all the relevant data of the port so as to make the decision making process faster
and more effective.
 Implementation of Port community system to integrate the flow of information among all the
stakeholders like ports, shipping agents, surveyors, banks, customs, shippers etc. This will be an
integrated system implemented across India. This would help in increasing transparency, faster
processing, improving speed of service and tracking of cargo/documents. All major ports have
been now operating PCS and soon non-major ports will be a part of it.

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Seaports are the gateway for Indian EXIM cargo. Almost 75% of the foreign trade takes place via sea
ports. Thus, it is very important to improve the port capabilities not only in terms of capacity expansion but
also in terms of technology. To become a world class port, any port in India has to undoubtedly resort to
IT tools. These can be outsourced and people can be trained to use these tools. Soon Indian ports will
witness the era of paper less work environment .

References
 “Technological Advancements in Ports”, The Link, Sept 2013.
 www.ipa.nic.in
 www.ices.nic.in

Objective Type Questions

1. VTMS stands for


a. Vessel Traffic Management System
b. Vessel Training Management System
c. Vessel Tracking Management System
d. None
2. ICES is
a. Indian Customs and Excise System
b. Indian Customs EDI system
c. Indian Computer Establishment system
d. Indian Customs and Excise revenue system
3. _____________ has been the first port in the world to implement PORTNET
a. JNPT
b. Newyork
c. Singapore
d. Shenzen
4. _____________ is necessary in EDI process to transfer the data from one end to another
a. Value Added network
b. Cable
c. E-mail
d. Portnet

Review Questions

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1. Write a note on EDI.


2. What is the impact of implementing technology on the shipping sector.
3. What initiatives have GOI taken to improve IT standards of Indian Ports.
4. Write a detailed essay on “Technology and Indian Ports”.
5. Write short notes on:
a. PORTNET
b. VTMS
c. Port Community System

BLOCK IV

SHIPPING MANAGEMENT

UNIT 10 Stakeholders in Shipping Industry

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UNIT 11 Transactions ,Perils and Pitfalls

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UNIT 10

Stakeholders in Shipping

Chapter Objectives

 To recognize the various parties involved in shipping business and their roles
 To understand the legal responsibilities of main parties in shipping
 To know the basic organization structure of a shipping company

Topics Covered

10.1 Organization structure of a shipping company

10.2 Parties involved in Shipping operations and their roles

10.2.1 Parties to ocean trade

10.2.2 Legal responsibilities of parties

Activity

Review Questions

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10.1 Organization structure of shipping companies

There are different form of organization structures which can be followed by any company. It largely
depends on the management philosophy. But most important factor is the profile of the company i.e. the
sector the company is operating in and the kind of service it is providing. A company may wish to deliver
a service in-house or can outsource it. This factor would alter the organization structure of any company
For eg. Some companies have an in-house logistics department whereas some outsource it to 3PL service
providers. In such as case logistics department will be an important part of one organization but will not
be present in other company’s structure. Thus there is no fixed organization structure which applies to
companies in a sector. It all depends on the management and spectrum of services offered by the
company.

For shipping sector also this applies. If a company is liner operator it will have a separate documentation,
marketing and operations department. But for a tramp service provider functions of marketing and
operations will be managed by the broker, thus the difference arises in structure. But chartering
department will be an important part of the tramp operator’s organization structure. Ship owner will also
have a well-organized recruitment, training and maintenance department. But a NVOCC does not need
all these departments in its company. A single person or a team of two can also operate a NVOCC
company successfully. Below is a basic description of departments available in any liner company. The
departments, their names or even the functions might vary from one company to another.

General Departments in Shipping Company

 Legal and Marine Insurance


 Finance and Accounting
 Administrative
 Technical
 Liner Department
 Chartering- Dry Cargo, Tanker
 Marketing
 Quality
 Fleet Personnel Department
 Operations Team

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Legal and Marine Insurance- handles legal issues concerning various legal issues such as taxation and
insurance

The Technical Team- look after the basic functioning of the vessel, technical issue such as repair,
maintenance and ship building.

The Purchase and Procurement Team- communicate with the suppliers and other organizations
concerned with procurement of parts of ship. This team has to take guidance from the technical team,
because all stores and stock items and generally approved by the technical team.
The Operations team- This team works closely with vessel. They plan the stowage on the ship and pass
the information to the next ports regarding the status of vessel. They also look after things like port
clearances, appointment of local agents etc. etc.

The Finance team-They handle the money; both of the employers and of other parties like workshops,
charterers, agents etc. they look after overall finance of the fleet operations

The Fleet Personnel Department: this department looks after the recruitment and concerns of the sailing
staff. They have to be in touch with the ships and the people on land to rotate crew and make sure the
vessels are always manned by competent people. They work in close cooperation with the technical team,
so that the correct person with required experience and knowledge lands up on the vessel.

Quality Department- they look after the implementation of quality process in the organization. They also
handle various quality standards such as HSSE ( Health Safety Security and Environment). They also
deliver training to the people to ensure that competent people reach on-board ship and also to ensure
continuous development of people. They conduct required audits as per statutory requirements.

The Marketing team: Vessels need to be marketed and need to be in charter so that they make money.
The marketing team does that. The owners may directly be involved in this team. They sell the space on
the ship to individual shippers in case of liner operations.

Administrative Department- look after organization’s internal functions, services and internal control.

Chartering Department- looks after the chartering the vessels. They formulate agreement with the
charterer and follow-up with them. These may be looking after dry cargo and tankers both.

10.2 Parties Involved in Shipping Operations

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Sea mode has a number of parties attached to it. This includes Freight forwarders, shippers, shipping
lines, agents and port authorities.

There are 5 major participants in any of the transportation process:

1. Shipper/ Consignee- These are the parties at two ends, interested in physical movement of goods.
Shipper is the exporter who ships goods and consignee is the importer who receives goods.

2. Carrier- Carrier is the medium who provides mode of transportation. These include shipping
company, railways, airways and lorry operators.

3. Government- Government is the most important factor as it frames the legal and political
environment for a transportation. Government can provide conducive environment to the
transportation by making favorable transportation policies relating to taxes, cross-border movement
and cabotage. Generally government aims to improve transportation conditions as it leads to
economic development of the nation. A major portion of any country’s GDP is spent on its logistics
infrastructure.

4. Internet-it provides a network which connects all the parties of the transportation process. It helps in
sourcing of most cost effective fuels, equipment and supplies and finding appropriate transportation
according to customer requirements.

5. Public- This is the most important player in the transportation process. It affects transportation by
creating demand of goods around the world. The quantum of demand created by public, affects the
quantity of goods to be transported and the final cost of transportation.

Apart from these participants, there are a few other parties associated with international
transportation. These include- freight forwarders, custom house agent, container providers and port
authorities.

10.2.1 PARTIES INVOLVED IN OCEAN TRANSPORTATION

Apart from exporter (shipper/ consignor), importer (consignee) and shipping company various other
parties are involved in transportation process to achieve desired results. These are as follows:

1. Inland Carrier- responsible for transporting the goods from the factory premises/ warehouse to the
port of loading. These cover truck, rail, inland shipping or even air mode of transportation in certain
cases.

2. Freight Forwarder- these are specialized parties, who monitor the actual shipment of the cargo. They
arrange for the space on the carrier, call them forward for delivery to the port of loading and handle
the transport documents. In certain cases they even carry out the customs formalities. In such a case,
these are termed as Customs House Agent (CHA). Freight forwarder (FF) can also be appointed at
the importer’s end to complete all the formalities like retrieving the cargo from a carrier, custom

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clearance and inland transportation. FF also acts as a consolidator, by accepting less than container
load (LCL) shipments from various shippers, combining them together and forming a full container
load (FCL). This helps him in getting better freight rates from the shipping company.

In ocean shipments, the forwarders sometimes buy shipping space and sell it to individual shippers.
These operate as independent logistical units in this case and are called as “Non-Vessel Operating
Common Carrier” (NVOCC) or Non-Vessel Owner.

3. Port Authorities- These are responsible for supplying and maintaining the required infrastructure for
loading, unloading and shipment of cargo.

4. Inland Container Depot (ICD)- These are dry ports equipped for handling and temporary storage of
containerized cargo as well as empties. This means that hinterland customers can receive port
services conveniently closer to their premises. These are well connected by railway lines and roads
to allow easier movement to/from the port. All formalities like custom clearance and documentation
can be done at ICDs to enhance the export procedure.

Container Freight Station (CFS) are sometimes confused with ICDs. But, there exists a clear difference
between the two. CFS is an extension to the existing port, providing the facility of loading, unloading
and segregation of containers. Custom’s function relating to processing of import/export documents
that are filed by the exporter/importer and assessment of bill of entry/shipping bill are performed in
the Custom House/Custom Office that exercises jurisdiction over the parent port/airport/ICD. Main
aim of CFS is the decongestion of ports. ICD is an independent entity, with its own custom station.

5. Custom Authorities- Custom authorities keep a check over any illegal transaction taking place, by
keeping due control over the export/import trade. Documents such as shipping bill/ bill of entry are
used for custom clearance of export and import cargo respectively. All the documents filed by a
shipper are checked against the goods packed, in order to safeguard any violations.

6. Insurance agencies- These are the bodies which safeguard goods against any damages, likely to
occur during a voyage, covered under an insurance policy.

Apart from these bodies, various other agencies are involved in the international transportation process
such as stevedores, warehouse operators etc. Nowadays, shippers outsource their logistics function to
specialized agencies called a 3PL (3RD Party logistics providers), who provide one stop solution to the
parties for a certain fee. These parties participate in transportation of goods by other modes like air and
land also.

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10.2.2 LEGAL RESPONSIBILITIES OF PARTIES IN SEA MODE OF TRANSPORTATION

According to the code of maritime law- “ the shipper is responsible to the carrier for the correctness of the
information regarding the cargo which according to his information and according to his demand have
been written into the Bill of Lading (B/L).”
Thus, legally it is a prime responsibility of the shipper to provide correct information to the carrier, so that
Bill of Lading can be furnished with right details. Failing this, shipper might create risk for the carrier and
vessel owner.
Responsibility of the Shipping Line
The shipping line is responsible for:
1. Making certain that the ship is in seaworthy state and is in good condition to carry goods on the voyage.
2. Realize that the ship has adequate and skilled man power to carry out various operations.
3. Determine that cargo hold, cold chambers, refrigerators and all other equipments are in good working
condition to carry out the voyage safely.
4. Ensure that the ship has all the necessary facilities to safely handle, carry, store, and care for the cargo
during voyage.
5. Issue the Bill of Lading containing all details, as furnished by the shipper. It should also carry the
apparent condition of the cargo when received on board the vessel. It should carry all the details about
the marks and specifications on the boxes, container number or any other identification of the cargo.
Also, the B/L issued, should act as a prima facie evidence of receipt of goods on board the vessel.

Objective Type Questions

1. Expand the following:


a. NVOCC:_____________________________________________
b. HSSE:______________________________________________
c. LCL:________________________________________________
d. FCL: ________________________________________________
e. CHA:________________________________________________

Review Questions

1. Write a note on organization structure of a shipping company.


2. What are the various parties involved in the shipping transportation?
3. What are the legal responsibilities of a shipper and shipping company in the shipping world?

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UNIT 11

Transactions, Risks and Pitfalls

Chapter Objectives

 To understand the various freight components involved in ocean trade


 To know the method of calculation of freight rate
 To comprehend the negotiation process in shipping
 To recognize various types of risks involved in shipping mode
 To read about the basic terms of Marine Insurance and Maritime Fraud

Topics Covered

11.1 Freight Rate Calculation in Ocean Transportation

11.1.1 Types of Freight rate

11.1.2 Freight Rate Calculation

11.2 Negotiation in Shipping Operations

11.3 Perils at Sea

11.3.1 Types of Risk

11.4 Marine Insurance

11.5 Maritime Fraud

Activity

Review Questions

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11.1 Freight Rate Calculation in Ocean Transportation

The cost of transportation is formed by two important elements:

1. The ocean freight charged by the carrier

2. Cost of handling and clearing the goods at the loading and destination port

The freight rate in case of liner operations are based on the storage factor i.e. rate of bulk to weight,
on the value of the cargo and on the competitive situation. Generally, the rates charged by the
conference lines are fixed and are published in advance. In case of charter operations freight rates
are fixed on the basis of the supply and demand prevailing in the market.

However, there are many other factors that can impact on the final price, including:

 different rates for specific goods and general cargo

 congestion charges at busy ports

 currency adjustment factor, to take account of exchange rate changes during the journey -
shipping costs are usually calculated and quoted in US dollars

 bunker adjustment factor, to take account of fuel price fluctuation

 Inland transportation charges, if the place of delivery is other than the port of discharge.

11.1.1 Calculation of Freight Rate

Weight is measured in lbs (pounds) or Kilos. Measurement is done in terms of cubic meter (l x
b x h) or cubic feet.

Formulas used calculate W/M:

 L (ft) x W (ft)x H(ft) x # of pieces divided by 1728 = Cubic Feet

 Cubic Feet divided by 35.314 = Cubic Meters

 Pieces x Weight/Piece = Weight in Pounds

 Weight in Pounds divided by 2.2046 = Weight in Kilos ( 1kg= 2.2046 pounds)

Assume that an ocean carrier offers an exporter $80 W/M (weight or measurement) for the
shipment of 665 cartons of product DX. The specified weight is per 1,000 kg and measure is
per cubic meter (m³). The gross weight of each carton is 10.5 kg and the dimensions are 0.45
x 0.30 x 0.30 m (LxWxH) which is 0.04 m³ per carton.

The consignment has a weight of 6,982.5 kg (i.e., 10.5 kg x 665) and a measure of 26.30 m³
(i.e., 0.04m³ x 665)

The freight cost by weight is: $80 x (6,982.5/1,000) = $ 558.56

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The freight cost by measurement is: $80 x 26.30 = $ 2104.00

The volume of product DX is large in relation to its weight; the freight cost by volume gives the
carrier a higher revenue and thus the exporter pays $2104.

This w/m rate applied by the carrier, forms the basic ocean freight. Final freight rate contains two
more components- surcharges and the Inland haulage Charges.

Ocean Freight = Basic Ocean Freight + Surcharge+ Inland Haulage Charges

TOTAL OCEAN FREIGHT-

• Basic Ocean freight (BOF)-Ocean freight is fixed per TONNE or per CBM or per TEU basis,
commonly known as Basic Ocean Freight

• Extra surcharges are also included :

i) Currency Adjustment Factor (CAF)

Whenever a shipping line incurs certain losses or gain certain profit due to fluctuation in the value of
currency, they recover the losses by adding some per cent of BOF to BOF or pass on the share of
profit by deducting some per cent of BOF from the BOF.

ii) Bunker Adjustment Factor (BAF)

The cost of fuel is incorporated in the BOF. On certain occasion, shipping lines incur additional
expenses on purchase of fuel due to sudden escalation in international fuel prices. These additional
expenses are loss to shipping lines. To recover additional cost on fuel, shipping lines impose
surcharge called BAF by adding some per cent of BOF to BOF.

iii) Port Congestion Surcharge (Fixed Amount/TEU)

Port workers’ strike, inadequate harbour and terminal infrastructure facility, sudden change in
demand and supply leads to situation like pre-berthing detention, slower turnaround time, slower
movement of container from/to hinterland. Such situations are beyond control of shipping lines. This
not only hampers the further schedule, but also inflates the standing cost of shipping lines.
Disturbance of schedule and additional standing cost is loss to shipping lines. To recover this loss,
shipping lines impose surcharge by adding some per-cent of BOF or fixed amount per TEU to BOF.

iv) War Risk Premium (Fixed Amount/TEU) - Insurance Charges for passing war affected area.

Inland haulage charges (IHC) are applied when the point of delivery is different from the port of
unloading. For example, if port of unloading is Mumbai and the port of delivery is Delhi, inland
haulage charges are applied for carrying the container from Mumbai to Delhi. Any kind of fluctuations
in the ocean freight are caused due to changes in these surcharges. Basic ocean freight remains

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constant. Apart from total freight, shipper has to bear various other costs for transportation process.
The major component of export transport logistics cost are:

• Labour charges for handling, stowing etc

• Road transport charges (IHC)

• ICD charges/CFS charges

• Port Terminal Handling charges (THC)

• Clearing charges (CHA & FF Charges)

• Consolidation charges

• Liner freight

11.2 Negotiation in Shipping Operations

Negotiation is an important issue on maritime trade. shippers short list many carriers but finally selects the
carriers which offers the most favourable offers after negotiation. Shippers conducted negotiations with
the selected carrier on a variety of aspects, including price, overall service, frequency of service, length of
contract, and trade lanes. Some of the common issues are overall service provided, frequency of service,
price, transit times, liability, reporting capabilities, accessorial fees and surcharges, trade lanes, and length
of contract. Generally the negotiation is on non-price factors such as detention period extension, inland-
transportation handling and warehousing.

Price based negotiations are done only during certain cases, such as:

 long term agreements,

 concentrating on relationship building measures,

 leveraging volume to reduce price,

 floating bids to get a competitive price from the existing base of carriers,

 consolidation of various lanes,

 density factors,

 size of the carrier,

 financial stability,

 alliances the carriers had with other lines.

The negotiation strategies adopted by firms continue to evolve based upon the service requirements of
the shipper and the ability of the carrier to meet those needs.

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1.3 Perils at Sea

Perils include the events of loss or damage that might arise during the transportation of goods by sea.
Any shipment during sea transit is exposed to several kinds of risk of loss or damage due to:

1. Multiple movements and handling points of cargo between point of origin and point of final delivery.

2. Exposure of cargo to rough weather, uncertain sea conditions and irregular ship movements.

3. Long transit period and

4. Human risks such as misconduct by the crew of a ship, port authorities, handling equipments etc.

11.3.1 Types of Risks

1. Water & Weather damage- the goods on board can be washed away or get damaged by water
ingress. This causes huge damage to the goods. Hull may also get damaged because of infiltration
of water or shifting of goods due to storm. “Container sweating”, i.e. when container is too tightly
closed and humidity condenses inside, damages cargo and also the containers.
2. Overboard losses- the containers placed on ship’s deck might slip off the deck and fall overboard.
This happens when the containers are improperly latched or become loose.
3. Jettison- this is a condition when the captain of the ship decides to throw the containers overboard
to lighten the ship or remove any dangerous container, to save the ship or the other goods on board.
4. Fire, Sinking or Stranding of ship- these are most common perils that are caused due to the nature
of goods carried, bad weather, mechanical breakdown or incompetent crew. There are high chances
of damage to the cargo in case of fire or sinking of ship whereas damage is less likely in case of
stranding.
5. Collision of ship with other ship or non-vessels, floating or sunk containers, debris or natural bodies
also form a part of peril at sea.
6. Theft, piracy and contamination by other cargo are other form of risk affecting the goods onboard
the vessel and in dock.
7. Political risk also affects the ship movements and routing decisions. Due to war, strike or civil coup
ships, are sometimes unable to touch a certain port of call. Well-being of goods as well as ships is
at risk in such conditions.
8. Physical risk- involves risk of physical damage to goods while loading or unloading of cargo.
9. Barratry- act of willful misconduct by the crew-members

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11.4 Insurance cover for Ocean Transportation

Marine Insurance Cover

Marine Insurance provides cover against the loss or damage to the goods in transit by sea, air or road.
Goods are often lost or damaged due to various hazards and there is a financial loss to the exporter/
importer. It is this loss that is taken care of by marine cargo insurance. The policy covers damage or
loss to the cargo from the risk of:

 Fire or explosion; stranding sinking etc.


 Overturning derailment ( of land conveyance)
 Collision
 Discharge of cargo at port of distress
 Jettison
 Earthquake lightning
 Washing overboard
 Total loss of package lost overboard or dropped in loading or unloading
 War and SRCC is specifically covered
Three broad types of cover are available-Institute Cargo Clauses “A”, “B” and “C”. Institute
Cargo Clause “A” is the widest cover that is available on an all risks basis.

ICC – ‘C’ Clause

Following are the risks covered under ICC Clause ‘C’-

1.1 loss of or damage to the subject-matter insured reasonably attributable to


1.1.1 fire or explosion
1.1.2 vessel or craft being stranded grounded sunk or capsized
1.1.3 overturning or derailment of land conveyance
1.1.4 collision or contact of vessel craft or conveyance with any external object other than water
1.1.5 discharge of cargo at a port of distress,
1.2 loss of or damage to the subject-matter insured caused by
1.2.1 general average sacrifice
1.2.2 jettison.
ICC – ‘B’ Clause

This clause covers all the inclusions of ICC clause ‘C’ and following additional points:

 Earthquake, volcanic eruption or lightning


 jettison or washing overboard

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 entry of sea, lake or river water into vessel, craft ,hold, conveyance, container, lift van or
place of storage
 total loss of any package lost overboard or dropped whilst loading on to, or unloading from,
vessel or craft.
Exclusions of clause ‘C’ are also excluded from this clause.
ICC – ‘A’ Clause

It includes all the categories of risk for the insurer.

Activity
Activity
Make a note on Marine Insurance Sector in India.

11.5 Maritime Fraud

The International Maritime Bureau defined maritime fraud as: “An international trade transaction involves
several parties – buyer, seller, ship owner, charterer, ship’s master or crew, insurer, banker broker or
agent. Maritime fraud occurs when one of these parties succeeds, unjustly or illegally, in obtaining money
or goods from another party to whom, on the face of it, he has undertaken specific trade, transport and
financial obligations.”

Frauds occur in international shipping due to following reasons:

1. Multiplicity of documents
2. Number of parties involved
3. Lengthy procedural framework
4. Longer distances and more time involved in completion of overall transaction
5. Phishing of information due to usage of IT tools in the process
6. Over dependence on documentation

Some examples of fraud are

 Issuance of False certificates by corrupt port officials for short landing of cargo.
 Issuance of Bills of loading without actual loading of cargo.
 Exportation of rubbish by consignors.
 Illegal manipulation of valves at oil terminals.

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Types

Frauds are broadly classified into Documentary, Shipping and Charter party frauds.

1. Documentary: presentation of forged documents with wrong declaration to the bank or shipper or
shipping company.
2. Shipping: It includes scuttling, deviation, cargo theft, or so called accidental fires in which vessel. Also
if cargo is disposed without the knowledge of the owner, it form a fraud.
3. Charter Party: It occurs when one or two contracting parties default, leaving the others to clear the
mess. These contracting parties for a Time or Voyage charter are shipowner, charterer and cargo
owner. Such frauds were not uncommon in the past but the problems escalated following oil boom,
excess tonnage, congested ports, inexperienced developing countries in international trade and
disturbed political or social conditions in various countries.
4. Theft of cargo by crew.
5. False/planned accident of vessel to accrue insurance benefits.

Precautionary Measures

The following precautionary measures are suggested:

a. Dealing only with reputed companies.


b. Awareness to traders by Embassy commercial sections and Chambers of Commerce of the risks in
trade and transport transactions and the necessity to check before advancing the names of potential
suppliers, buyers or transport companies.
c. Having documents confirmed by the bank will be a safe. Similarly following documentary collection
or Letter of Credit as mode of payment will be safe.
d. Proper understanding of shipment terms.
e. Inspection and approval of goods and vessels by authoritative organisations.
f. 3rd party inspection and credit rating inspection if required.

Activity

1.Consider that you are a shipper who is wants to book space on the carrier. On what factors will you negotiate
with the shipping company.

2. Is ship a favorable medium of transportation in international trade. Comment.

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Objective Type Questions

1. Marine Insurance cover indemnify the shipper against losses that might occur during carriage of
goods by:
a. Sea
b. Air
c. Land
d. All the above
2. The THC for export container is generally higher than import container. ___________(True/False)
3. ____________charges levied on importer if empty container is not returned to the company on
time.
a. Demurrage
b. Terminal Handling charges
c. Lift on/Lift off charges
d. Detention

Review Questions

1. What are the various factors on the basis of which negotiation is done for booking of ocean mode?
2. What is marine insurance cover? What risks are covered by insurance cover?
3. Discuss different types of freight rates applicable in ocean mode of transportation.
4. Write a note on maritime fraud in shipping industry.
5. Solve following numerical:
a. Suppose that you will be shipping a container of paper from Buffalo to Rio de Janeiro. If the container
rate (CR) is $2,800, the currency adjustment factor is 40%, the terminal handling charge is $310, the
bunker adjustment factor is 12% and there is a $35 cleaning fee (this is an arbitrary charge), what is
the per container rate? {Ans: USD 4601}
b. Suppose that you will be shipping 275 packages of Idaho Potatoes from Vancouver to HongKong. If
the container rate is $3,250, the currency adjustment factor is 18%, the container yard charge is $220,
the bunker adjustment factor is 21%, and there is a $25 cleaning fee (this is an arbitrary charge), what
is rate per package? { Ans: $ 17.32}

[
HINT : Calculation for ocean rate on a prepackage basis= CR + [ CR * CAF ] + [ CR * BAF ] + CYC + ARB ]
Number of Packages

[Calculation for ocean rate on a per-container basis.- CR + [ CR * CAF ] + THC + [ CR * BAF ] + ARB]

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IMPORTANT TERMINOLOGY OF MARITIME TRADE

BAF - bunker adjustment factor

BC (or B/C) – bulk carrier

Beam or BM - the extreme width of a ship

BENDS - both ends (i.e. load and discharge ports)

B/L - bill of lading (document signed by the carrier, which acts as a receipt and evidence of title to
the cargo)

BN - booking note (sometimes issued as a contract for a simple voyage)

BOB - bunkers on board

Bow - the forward part of a ship

Brokerage - commission payable to the ship broker

Box - Another (less formal) name for a shipping container. This is how they are often referred to in
the industry.

Break bulk - loose cargo, such as cartons, stowed directly in the ship's hold as opposed to
containerized or bulk cargo. The volume of break bulk cargo has declined dramatically worldwide
as containerization has grown.

Bulk cargo - commodity cargo that is transported unpackaged in large quantities. These cargos
are usually dropped or poured as a liquid or solid, into a bulk carrier's hold. Examples of bulk cargo
are grain, seed, and coal and iron ore.

Bunkers - name given for the fuels used to propel a vessel

CBM - cubic meters.

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CBFT (or CUFT or CFT) - cubic feet

CIF - cost, insurance and freight

CFR (or C&F) - cost and freight

COA - contract of affreightment – a contract (charter party) for a specific number of voyages
COP - custom of (the) port

CP (or C/P) - charter party

Carrier - any individual, company or corporation engaged in transporting goods. Container shipping
lines are sometimes referred to as ocean carriers.

Charter rate - a rate for shipping freight agreed upon between the owner of a vessel and the person
wanting to use the vessel (the 'charterer').

Container - a reusable steel rectangular box for carrying cargo that first came into common use
about 50 years ago. The sizes of containers are standardized so that they can easily be moved
between specially adapted containers ships, trains and trucks.

Container terminal - a docking, unloading and loading area within a port designed to suit the sizes
and needs of container ships.

DEM – demurrage

DES – despatch

DRAUGHT - depth to which a ship is immersed in water

DUNNAGE - materials, often timber or matting, placed among cargo for separation and increased
stability or to protect the tank tops

DWAT or DWT - deadweight – the weight of the cargo, stores, bunkers, water.

ETA - estimated time of arrival

ETB - estimated time of berthing

ETC -estimated time of completion

ETD -estimated time of departure

ETS -estimated time of sailing

FAS - free alongside

FEU - forty foot or equivalent unit (container)

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FEU - forty foot or equivalent unit (container)

FD - free discharge or free despatch

FDD - freight, deadfreight & demurrage

FIO - free in/out – the ship owner does not incur the loading and discharging costs

FIOS - free in/out and stowed. As per FIO but owner also free to stowage expenses
FO - free out but can also mean fuel oil

FOB - free onboard

FRT – freight

Grain capacity - cubic capacity of a cargo hold or holds measured for bulk cargoes
GRT - gross registered tonnage

HA – hatch

H and M - hull and machinery

HO - holds (compartment below deck for cargo)

IMO - International Maritime Organization

LT - liner terms – also can mean long tons (2240 lbs)

MIDSHIP - approximately equidistant from bow and stern of ship

MIN/MAX - minimum/maximum (usually cargo quantity or time charter period)

MT - metric ton (tonne) 1000 kilos

NRT - net registered tonnage

OBO - ore/bulk/oil (vessel)

FEU - 'Forty-foot Equivalent Unit'. This is a container that is the same height and width as a TEU
but twice the length. As a result, it has twice the capacity.

Freight rates - The charge made by a shipping line for the transportation of freight aboard one of
its ships from one place to another.

Gantry crane - a type of crane used to load and unload container ships. It lifts objects with a hoist
and can move horizontally on a rail or pair of rails.

Vessel - another word for a boat or ship. Container ships are sometimes referred to as vessels.

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Intermodalism - a system whereby standard-sized cargo containers can be moved seamlessly


between different 'modes' of transport, typically specially adapted ships known as containerships,
barges, trucks and trains. Because the cargo does not need to be unloaded from the container
every time it is moved from one mode to the other it is a very efficient and fast system of
transportation.

International Convention for the Safety of Life at Sea (SOLAS) - prescribes the numbers of
lifeboats and other emergency equipment that ships must have, as well as safety procedures
including continuous radio watches when a ship is at sea.

International Maritime Organization (IMO) - a specialized agency of the United Nations


responsible for measures to improve the safety and security of international shipping and to prevent
marine pollution from ships. It is also involved in legal matters, including liability and compensation
issues and the facilitation of international maritime traffic.

International Organization for Standardization (ISO) - an international standard-setting body


composed of representatives from various national standards organizations. It was the ISO that
prescribed the standard size of shipping containers to make global container trade more efficient.

Knot - a nautical measurement of speed equal to 1.15 miles or 1.85 kilometers per hour on land.
The speed of ships is measured in knots.

Manifest - a list of cargo being carried by a ship as declared by the shipper.

Pallet - a term used for a load-carrying platform onto which loose cargo is stacked before being
placed inside a container. It is designed to be moved easily by fork-lift trucks.

Reefer - Industry term for a temperature-controlled container. Inside each one is a complex system
of coils, wires and electrical fittings, which are managed by a computer that controls everything
from the temperature and humidity to ventilation and gas levels, all working to prevent the
deterioration of fresh food or other sensitive goods over long distances and periods of time.

Shipper - any person or organization paying for its cargo to be shipped from one place to another.

TEU - 'Twenty-foot Equivalent Unit'. This is the industry standard to measure containers. A 20-foot
container's dimensions are twenty feet long (6.09 meters), 8 feet wide (2.4 meters) and 8 feet six
inches high (2.6 meters). These dimensions have been set by the International Organization for
Standardization (ISO).

Source: www.worldshipping.com

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