1. MARITIME MARKET STRUCTURE
Marina Zanne

2. Introduction
Provision of maritime transport services involves 4 markets:
freight market
liner shipping market
dry bulk market shipowners, charterers,
tanker market brokers…
freight derivatives market
newbuildings market
second hand ships market (sale & purchase market)
demolition (scrap) market

3. The concept of 4 markets
Stopford M. (2009): Maritime economics, p. 179

4. The freight market - Introduction
Name
Size in DWT
Ships
Traffic[19]
Handysize to
34%
18%
Handymax to
37%
Panamax to
19%
20%
Capesize
and over
10%
62%
Class
Length
Beam
Draft
Typical Min DWT
Typical Max DWT
Seawaymax
226 m
24 m
7,92 m
10.000 DWT
60.000 DWT
Panamax
228,6 m
32,3 m
12,6 m
80.000 DWT
Aframax
253 m
44,2m
11,6m
 DWT
Suezmax
16 m
 DWT
VLCC (Malaccamax)
470 m
60 m
20 m
 DWT
ULCC
 DWT
 DWT

5. The freight market – The liner market
scheduled service at publically known tariffs  shippers can easily plan delivery times and costs
many loading and unloading ports on the round trip;
high speed & high regularity
small quantity of high valued cargo
contract for freight transport – bill of lading (Hague/Hague-Visby & Hamburg Rules)
routes: from developed to developed countries

6. The freight market – The liner market
30% (in 2000) of cargo transported by sea is general cargo  mainly it is transported in containers with liner services  value of this cargo is cca 80% of all cargo tr.
cargo: manufactures, semi-manufactures, minor bulk
evolution from cargo liners to containerized transport
scheduled services started from 1870s (steamships)
until 1960s multi-deck ships with own cargo handling eq. were used (cargo liners)  these ships were able to carry general cargo and bulks (reason: unbalanced trade routes)

7. The freight market – The liner market
liner and tramp ships (twin deckers) were similar and thus it was able to use them interchangeably  the construction of specialized ships  to improve productivity & make the service more efficient (ro-ro, reefer ships etc.).
labour and capital intensive service  lack of cargo  cost, complexity and poor delivery of liner service  ships were spending cca 50% of time in ports (in the 1960s)  unification of cargo  paletization, containerization (integrated transport system)  higher productivity

8. The freight market – The liner market
Example: Productivity comparison Priam class cargo liner ( DWT) vs. Liverpool Bay container ship ( DWT, TEU) The cargo liner spent 149 days (in a year) in ports = 40% The container ship spent 64 days (in a year) in ports = 17% 9 cont ship = 74 classic cargo liners In 1975: 14,1 million TEU In 2010: 543 million TEU Growth: 10% per year

9. The freight market – Dry bulk market
tramp shipping; no fixed or published schedule;
ships are employed on spot or chartered
bulk commodity can be transported as bulk cargo or general cargo
usual way: one cargo, one ship, one one loading and one unloading port
certain amount of empty trips
low value cargos
low speed ships
perfectly competitve market
economy of scale
Stopford M. (2009): Maritime economics, p. 429

10. The freight market – Dry bulk market- Parcel size distribution
Mix of cargoes – mix of routes – mix of needs in dry bulk market  different ship sizes
Stopford M. (2009): Maritime economics, p. 59

11. The freight market – Dry bulk market
Costs included in the charter fee/freight rate
$/day
$/t
Stopford M. (2009): Maritime economics, p. 182

12. The freight market – Tanker market
crude oil, oil products, chemicals, liquid gases & specialist cargoes
main customers: energy, chemical and agricultural business
economies of scale
subcontracting; fleet is owned by oil companies or long time chartered by the same companies; seasonal requirements are fulfilled on spot market
in a way similar to liner shipping (constant routes), in a way to tramp shipping (empty rides)
Worldscale – the instrument for setting the freight rates in tanker market

13. The freight market – Tanker market
Total capacity t
Average service speed
14,5 knots
Bunker consumption
Steaming
55 t/day
Other
100 t per round voyage
In port
5 t per port
Grade of fuel oil
380 centistokes
Port time
4 days for a voyage from one loading to another discharging port
Fixed hire element
$/day
Bunker price
116,75 $/t
Port costs
Most recent available
Canal transit time
30 h per Suez transit
The concept of Worldscale

14. The freight market – Summary (PSD)
Stopford M. (1997): Maritime economics, p. 16

15. The freight market – Summary (PSD)
Stopford M. (1997): Maritime economics, p. 393

16. The freight market – Freight derivatives market
derivatives contract – legally binding agreement in which two parties agree to compensate each other, with the compensation depending on the outcome of a future event  to share the risk of a volatile market and remove the “all or nothing” situation  the playing safe option
making derivatives work in practice is not easy:
a reliable base index is required,
assurance that on settlement date the parties will meet their obligations,
lack of counterparties.
Cargo owners and ship owners/operators face opposite risks; when rates go up shippers loose and owners gain, when they go down the revers happens.

17. Newbuildings market highly competitive market
cca 30 countries have significant merchant shipbuilding industry  changeable history
it takes several years to deliver a ship
shipbuilding market cycles  volatility of supply & demand for ships
the prices of ships fluctuate significantly  difficulties in planning
(in 1960s Europe’s share was 66%, now it’s less than 10%, Asia’s share grew from 22 to 84%)
(risk of filling the order book with ships contracted at low prices  until these ships are delivered their market price can double)

18. Stopford M. (2009): Maritime economics, p. 630
Newbuildings market
Price of new ships depends on demand for new ships and the available shipyard capacity and is influenced with freight rates, second-hand prices, market expectations and credit availability.
Stopford M. (2009): Maritime economics, p. 630

19. Sale & purchase market
cca ships change the owner every year; price mostly depends on the freight market situation, age of ship etc.
ships for sale need to be free of any mortgages and are usually out of charter
why selling?
replacement of vessels at certain age
the ship became unsuitable for his business
expectation of falling prices
“distress sale” - sale needed to meet the day-to-day commitments
why buying?
need for a specific ship/capacity, feeling that it is the right time to acquire a ship

20. Sale & purchase market
shipbrokers; often the ship is offered to sveral broking companies
full details of ship are mandatory; hull, machinery, equipment, class, survey status etc.
put the ship on the market,
negotiation of price/conditions,
memorandum of agreement; price, deposit, where, when at what terms etc.; rights and obligations
inspections; physical ins. (drydocking/underwater), classification society records,
closing; simultaneous delivery of ship and transfer of funds

21. Stopford M. (2009): Maritime economics, p. 204, 205
Sale & purchase market
Stopford M. (2009): Maritime economics, p. 204, 205

22. Sale & purchase market Disusion:
What is the relation between the prices of newbuild and second-hand ships when the freight rates are good (high freight rates) ?
What are the advantages of second-hand ship over a new ship and viceversa?

23. The demolition (scrap) market
recycling industry
ship is usually scraped when operating costs are higher than ship’s value
ship owners – brokers – (intermediaries) - demolition yards (China, Pakistan, India, Bangladesh)
scrap metal is used as a raw material for mills or it is used in construction
the price depends on the demand of the local steel markets  when the shipping (freight) market is in depression a lot of ships is scrapped  low price of scrap metal

24. Sources & further reading
Stopford M.: Maritime economics, London, Routledge (2009), Chapter 5
The tramp shipping market, Clarkson Research Studies, 2004
Freight derivatives market – FAQ,
The End of Break Bulk Liner Shipping,