Presentation is loading. Please wait.

Presentation is loading. Please wait.

Genoa - 20031 Co-operation agreements in Liner Shipping Pierre Cariou Lecturer University of Nantes IUP BFE - “Shipping-Trading Institute”

Similar presentations


Presentation on theme: "Genoa - 20031 Co-operation agreements in Liner Shipping Pierre Cariou Lecturer University of Nantes IUP BFE - “Shipping-Trading Institute”"— Presentation transcript:

1 Genoa - 20031 Co-operation agreements in Liner Shipping Pierre Cariou Lecturer University of Nantes IUP BFE - “Shipping-Trading Institute”

2 Genoa - 20032 L.S. and Co-operation agreements 1.1. General overview 1.3. Technical agreements in L.S. 1.2. Pricing agreements in L.S.

3 Genoa - 20033 1.1. General overview Mid-19een century : steam boat = ability to offer a scheduled (called liner) service Two maritime transportation markets: Tramping = unscheduled services (cab or car rental) L.S = scheduled services (bus or train)

4 Genoa - 20034 L.S. characteristics

5 Genoa - 20035 Goals to achieve Shippers want: 1) Secure frequency and reliability to their purposes: Stability in space/service quality 2) Stability in prices Ship-owners want: 3) Long run profitability

6 Genoa - 20036 Total Cost (Short run) = Fixed Costs + Variables Costs Voyage FC (Fuel consumption, wages, port dues…) FC (capital costs, equipment…) Cost considerations Port and THC (Terminal Handling Costs) Administrative costs

7 Genoa - 20037 Short Run marginal cost pricing Short Run Price variability (q > q max ) Q Cost q max 0 MC SR D1D1 D2D2 Need for excess capacity: Space/Quality (1) and Price stability (2)

8 Genoa - 20038 Long Run Financial losses Q Cost 0 D1D1 AVC LR MC LR -- Long Run marginal cost pricing Price must be set above the MC to cover fixed cost

9 Genoa - 20039 Long Run Ship-owners profitability IF PERFECT COMPETITION: Price Competition = LRMC Solution: Allow co-operation between ship-owners Short run Min. quality of services Price variability “In ocean commerce, there is no happy medium between war and peace” (Alexander Report, US, 1914) Destructive competition “Maritime conferences finds their origins in the development of colonial English trade… they are an undesirable but unavoidable consequence of Liner shipping” (Royal Commission on Shipping Rings, UK, 19O9)

10 Genoa - 200310 1.2. Pricing agreements 1875 : 1st Maritime conference UK - Britain/Calcutta 1980 : 350 conferences Share of Conferences in main maritime East/West Trade

11 Genoa - 200311 “ A group of two or more vessel-operating carriers which provides international liner services for the carriage of cargo on particular route or routes within specified geographical limits and which have an agreement… of which they operate under uniform or common freight rates and any other agreed conditions with respect to the provision of liner services” - Unctad Maritime conferences

12 Genoa - 200312 Membership : Close (UK) versus Open conferences (US) Common pricing Outside competition (possibility to change from official tariffs) Deferred Rate (with regular shippers) and Dual Rate System (with exclusive shippers) Revenue pools for high value commodities Main contractual terms of agreement

13 Genoa - 200313 Q Cost 0 D1D1 D2D2 AVC LR MC LR P -- ++ Pricing principle - One good AVDd

14 Genoa - 200314 Pricing limits - 2 goods Price P1P1 P2P2 Q 0 Airline competition Tramping competition Internal competition Within Cartel With Outsiders “Charge what the traffic can bear” - Evans (1982)

15 Genoa - 200315 Pricing system - Maritime freight 1. Conventional break bulk (bag, box…) Payment unit according to the stowing factor : Volume/Weight and kind of commodity 2. Containerised Commodity Box Rate (CBR): Price is according to the size (20/40/45 feet)/kind of container (dry, liquid, reefer…)/ kind of commodity Freight of All Kind (FAK): Price is according to the size (20/40/45 feet)/kind of container (dry, liquid, reefer…)

16 Genoa - 200316 Pricing system - Extra cost/rebates Currency Adjustment Factor (CAF) Bunker Adjustment Factor (BAF) Extra length (> 12 m.) and extra weight (> 5 tons) Special equipment (own container or not) Port cost Rebates (differed or fidelity)

17 Genoa - 200317 Pricing system - Loading/unloading charges Liner terms or Port Liner Terms Charges (PLTC) Conventional 3 possibilities for loading and unloading (entrance, quay, on board) Container 9 possibilities for loading and unloading Full Container Load/Less than Container Load (4 combinations)

18 Genoa - 200318 Pricing example - conventional goods 3 boxes of cakes from Colon (Panama) / Antwerp (Belgium) M = Unit volume: 1.5 x 1.5 x 1 m. W = Weight: 480 kg 1. Belgian Francs : 0.108 FF 1.DM : 3.299 FF West India Trans-Atlantic Steam Shipping line conference Members (CGM - France, CSAC - Chile, DSR - Germany, Hamburg Sud - Germany, Hapag-Lloyd - Germany, P&O Neddloyd - Netherland) Area - From/to any Northern European Range to South America Atlantic Section CARICA (p. 1)

19 Genoa - 200319 WITASS Conference Pricing (abstract, p.6) ALL SECTIONS (WESTBOUND & EASTBOUND) - EUROPE CommoditiesLCL (DM) Alimentary goods180 W/M Min. 3x Stowing factor - Payment unit M=Volume = 3x(1.5x1.5x1) = 6.75 m3 W=Weight = 3x 480 = 1.44 tons Unit for payment : M=6.75 m3 Pricing example - conventional goods

20 Genoa - 200320 Pricing example - conventional goods Local currency FF Maritime freight(p.6)195x6,75=1 316 DM4 342 FF Min. freight (p.2)3x300 DM = 900 DM BAF (p. 3) - 5 DM pft 5x1.44=7.2 DM23.75 FF Port costs (p. 3) 715x1.44=1 023 BF111.2 FF Total prices 4 477 FF 683 €

21 Genoa - 200321 Pricing example - containerised goods Felixstowe (UK) to Maracaibo (Venezuela, p. 2) : Section VENCOL 2 dry containers of fertilisers (engrais) 40’ - 32 tons each (shippers property) 1. GBP : 10.06 FF 1.DM : 3.35 FF UK prices : VENCOL SECTION - Westbound - FCL Felixtowe - La Guaira - Maracaibo

22 Genoa - 200322 Local currency FF Maritime freight(p.5)2x5 800 = 11 600 DM38 860 FF BAF(p.3)2x200 = 400 DM1 340 FF Pricing example - containerised goods Port cost(p.3)2x85 = 170 GBP1 711 FF Post-haulage (p.2)2x2250= 5100 DM17 085 FF Rebates (p. 3)-2x350= 700 DM- 2 345 FF Total prices 56 651 FF 8 715 €

23 Genoa - 200323 “While it is generally accepted that conferences charge according to what the traffic can bear, the expression appears to mean… that the lines charge the maximum possible rate” (Evans, 1982) “The most anti-competitive form of market” (Bennathan & Walters, 1969) Pricing controversy “The liner market… presents a case, while not perfectly contestable is nevertheless reasonably close to it” (Davies, 1989)

24 Genoa - 200324 Conclusions Collective pricing is a deal between: less competition (profitability objectives for ship-owners) more stability in price and service quality (international trade) Common pricing is on commodities 3rd degree and not 1st degree discrimination(customers) Collective pricing is a consequence of High Fixed Cost in Liner Shipping

25 Genoa - 200325 1.3. Technical agreements Technical agreements (without pricing considerations) to share fixed and operational costs A consequence of containerisation (Mc LEAN - 1956) 1st container vessel: Almenia (60 teu) 1st consortium agreement: Atlantic Container Line (1966)

26 Genoa - 200326 A) Consortium Main advantages of containerisation: reduced damage to cargo (insurance premium) increase loading/unloading performances (reduced transit time) Simplified vessels and better utilisation of space

27 Genoa - 200327 Growth in World container trade (Millions TEU)

28 Genoa - 200328 Increase in ship costs Increase in container cost and container unbalanced Increase capacity through unit system Increase in port productivity (quay productivity + indirect system) Over-capacity Decrease and Prices harmonisation (1 to 4 in 1970 1 to 1.8 in 1985) Profitability decrease Price variability Consortium justification

29 Genoa - 200329 Consortium developments (1965-1980) “Integrated consortium”: create a new company managing capital and operational costs and commercial issues (Scandutch) “Ship Consortium”: managing capital and operational costs through slots agreement without commercial issues (TRIO) Outsiders competition (Evergreen) leads this second type of consortium to survive (more flexibility)

30 Genoa - 200330 B) Strategic alliances (1994-…) Initial motivations for Strategic alliances New requirements from shippers: World-wide services Unique co-ordinator Initial motivations for maritime conferences: stabilisation of price, cover fixed cost on a maritime route Initial motivations for consortiums Investment in containerships, share fixed cost on a maritime route

31 Genoa - 200331 A world-wide base

32 Genoa - 200332 Unique co-ordinator (commercial issues) Carrier 1Carrier 2 Pre-nineties networks Post-nineties

33 Genoa - 200333 Solution 1. Internal growth Carrier 1Carrier 2 1 & 2 invest Limits: Over-capacity

34 Genoa - 200334 Growth of main carriers capacity (1995/2000) - 000’ teu

35 Genoa - 200335 Solution 2. External growth Carrier 2 M or A with carrier 1 Merger & Acquisition Limits: Cost for acquisition: Profitability results

36 Genoa - 200336 Solution 3. Co-operation (joint-services) Strategic alliances (slot agreements) Carrier 1Carrier 2

37 Genoa - 200337 Alliances and mergers (1995/1999)

38 Genoa - 200338 13 Ship-owners-517 vessels on East/West Trade in 1997 (000’ teu)

39 Genoa - 200339

40 Genoa - 200340 Strategic Alliances advantages Horizontal Quality improvements (+) Economies of scale (+) Concentration (-) Vertical Port Congestion (+/-) Higher market power (+) Are + > - ?

41 Genoa - 200341 Number of containerships by size in 1990, 1995, 1999 Representative cost of containerships by size in 1997

42 Genoa - 200342 Economies of scale for containerships Economies of density ($/teu/day) Time at sea/ Economies of scale at sea Time at port/ Diseconomies of scale at sea Economies of scale ($/teu/service)

43 Genoa - 200343 Estimation of economies of density on containerships ($/day)

44 Genoa - 200344 Economies of scale ($/day/teu on Europe/Far East trade)

45 Genoa - 200345 Conclusion Collective agreements is an old tradition in liner shipping Collective agreements imply regulation issues Efficiency versus Market Power Shippers requirements for door-to-door services imply co-operations and competition between operators (Port operators/Ship-owners, Forwarder/Ship-owners…)

46 Genoa - 200346 For more information E-mail adress: pierre.cariou@sc-eco.univ-nantes.fr Personal web site: www.sc-eco.univ-nantes.fr/~pcariou


Download ppt "Genoa - 20031 Co-operation agreements in Liner Shipping Pierre Cariou Lecturer University of Nantes IUP BFE - “Shipping-Trading Institute”"

Similar presentations


Ads by Google