Maritime Logistics
IFB304TC
Week 2
Dr Zhongshuo Chen
[Link]@[Link]
School of Intelligent Finance and Business
International Maritime Passages
•The basic features of sea transport are constrained by the
world’s geography. International maritime routes are forced to
pass through specific locations corresponding to passages,
capes, and straits.
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International Maritime Passages
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Maritime News
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Maritime News
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Maritime News
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Introduction of Bulk Shipping
•Bulk shipping transport is a practicable and cost-effective
means for transporting large volumes of cargo to serve
international trade.
•Bulk shipping usually operates without a fixed route and
schedule.
•Minimising unit cost of transportation through ever bigger
sizes.
•Minimising cargo handling time and cost – more efficient port
facilities.
•In the freight market, cargoes are carried at freight rates. The
terms and conditions are negotiated between shippers and
carries through shipbrokers.
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Dry Bulk Shipping
•Dry Bulk Cargoes
Minor Bulk
Major Bulk Approx. 20% by weight
➢ Agribulk
➢ Iron ore ➢ Sugar
➢ Coking coal ➢ Fertilizers
➢ Thermal coal ➢ Metals and minerals
➢ Grain ➢ Steel and forest
products
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Dry Bulk Shipping
There are approximately 5,000 bulk carries in use around the world.
Bulk vessels are one of the most environmentally friendly methods of transporting
large volumes of dry cargo across long distances.
A typical bulk carrier emits 6.5g CO2/tonne, which is significantly less than the
average emissions of 61g CO2/tonne from rail transportation. (Clarkson, 2024)
Standard deadweight
LOA Main cargoes
tonnage (DWT)
Very Large Ore
250,000 About 330m Iron ore
Carrier (VLOC)
Capesize 180,000 About 292m Iron ore, coking coal
Iron ore, cocking coal,
Panamax 82,000 About 229m
thermal coal, grain
Thermal coal, grain,
Handymax 58,000 About 190m salt, cement, steel
product
Steel product, cement,
Small Handy 38,000 About 180m
grain,ore
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Dry Bulk Shipping
Ore Brasil was ordered in 2009 by Vale SA, Brazil’s largest mining company.
Ore Brasil entered service in 2011, classified by DNV as a Very Large Ore Carrier,
DWT 402,347 tonnes, 362m lengthwise, 65m breadthwise.
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Wet Bulk Shipping – Tanker Sector
•Crude oil tankers carry crude oil, diesel oil or residual fuel oil
“dirty” products.
•Product tankers carry “clean” refined petroleum products
such as gasoline, jet fuel, kerosene, naphtha and gas oil.
•Chemical tankers are generally smaller tankers up to ~60,000
DWT with a greater number of tanks and special coating that
allows them to carry organic / inorganic chemicals, vegetable
oils and other special cargoes.
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Wet Bulk Shipping – Tanker Sector
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Bulk Shipping
•Charter types
Voyage Expense (Fuel, Operating Expense (Crew
Port, Canal costs, etc.) salary, maintenance, etc.)
Charter type Owner Charterer Owner Charterer
Voyage/COA ✓ ✓
Time charter ✓ ✓
Bareboat charter ✓ ✓
COA: Contract of Affreightment
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Bulk Shipping
• The market structure of bulk shipping is characterised by
several conditions:
1. Large numbers of firms that own bulk ships can provide
similar bulk shipping services.
2. Entrants to the bulk shipping market can easily gain access to
information and customers.
3. Although the large capital investment required to purchase
ships can deter new entrants to the bulk shipping market,
assistance and support from shipping commercial banks are
available to finance shipping investors.
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Bulk Shipping
• The market structure of bulk shipping is characterised by several
conditions:
4. The entry barriers to the bulk shipping market are weak.
5. Fewer regulatory or economic obstacles for bulk shipping firms to
withdraw from the market.
6. Product development and promotion activities are not necessary for
bulk shipping firms to operate, and information about freight rates
and other business matters can be easily obtained through various
sources.
7. To a large extent, price (i.e., freight rate) and fleet size in the bulk
shipping market are determined by the market.
[Link]
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Bulk Shipping
• The bulk shipping market consists of four separate but
interrelated markets:
➢The freight market.
➢The new building market.
➢The sale and purchase (S&P) market.
➢The demolition market.
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Bulk Shipping
• Four shipping markets can further be divided into a real
market and an auxiliary market:
Bulk shipping
market
Real market Auxiliary market
New building Sale and purchase
Demolition market Freight market
market market
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The Shipping Market
• Four shipping markets can be linked by cash flows:
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The Shipping Market
• The main cash inflow is the revenue generated from the
freight market.
• In the demolition market, old ships sold to scrap dealers
provide another source of cash inflow.
• Both cash inflow and cash outflow can be generated from the
sale and purchase market.
• The new building market is an outflow of cash as shipowners
pay cash to shipyards for new ships.
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The Shipping Market
New Buildings
• Demand for new vessels reflects the need for sea transport
capacity.
• Usually takes a few years (2-3 years).
• A decision to order a ship should reflect a shipping investor’s
expectation of future freight rates.
• The price of building a new vessel can serve as a stabilisation
mechanism for the shipping industry.
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The Shipping Market
New Buildings
•When sea transport demand goes up, the
freight rate will increase and investment in new
vessels is accelerated subsequently.
•The new building price rises, stabilising the
shipping market with a “barrier” to excessive
profits.
•To increase the supply of sea transport at
periods of high freight rates, shipowners
increase their fleet sizes by purchasing new
ships.
•Shipbuilders respond to the increased demand
for new vessels by setting a higher price for
new buildings.
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The Shipping Market
New Buildings
• Building new ships is the primary method of increasing the
supply of tonnage in the bulk shipping market.
• The demand for new ships by shipping firms is derived from
the need for new tonnage.
• Investors may order new ships when the price of building
new ships is low.
• The price mechanism of the new building industry has
implications for the demand for new vessels.
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The Shipping Market
Second-hand Vessels
• The second-hand ship market becomes an alternative source
of ships during freight booms.
• The second-hand ship market can be considered as an
auxiliary market.
• The second-hand market is closely integrated with the freight
market.
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The Shipping Market
Second-hand Vessels
• A key function of the second-hand ship market is to
reallocate vessels among ship operators.
• The second-hand ship market improves the efficiency of the
shipping market by reducing the market exit cost.
• To maximise their profits, investors acquire ships when ships
are cheap and sell ships when the peak is reached.
• Low freight rates usually coincide with low vessel prices.
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The Shipping Market
Demolition Vessels
• The second-hand vessel sale and purchase market is highly
competitive and cyclical, and the price movement is usually
limited by the price of a new ship and the price of a scrap
vessel.
• The vessel scrapping price denotes the minimum price of a
second-hand vessel.
• The scrap vessel price tends to follow the movement of the
freight market.
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The Shipping Market
Demolition Vessels
• Old vessels sold to scrap dealers provide a cash source from
the perspective of shipowners.
• The decision to scrap a ship is based on a carrier’s
expectation of the future operating profitability of its ships
and its own financial position.
• The supply of old ships to the scrap market depends on the
scrapping value.
• Vessels in the bulk shipping market include new buildings
and second-hand and scrap vessels.
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The Shipping Market
Freight Rate
• The freight market trades shipping services for transporting
cargoes at a certain freight rate.
• The demand for freight transport is a function of the
freight rate and shipping demand per time period.
• The freight rate moves to a level at which the shipping
demand is equal to the shipping supply in the market.
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The Shipping Market
Seaborne Trade
• Bulk shipping allows flexibility in sea transport to satisfy the
timely shipping requirements of seaborne trade.
• Seaborne trade is a primary driver of shipping services.
• Seaborne trade influences the freight rate.
• The return on investment (ROI) in ships depends on the
volume of trade.
• Trade barriers can increase shipping freight.
• Shipping managers adjust their fleet sizes based on changes
in seaborne trade.
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The Empirical Model
• Empirical bulk shipping model:
• Provides an overview of a number of key factors that affect the
bulk shipping market.
• How these factors are related to one another.
Picture is generated by AI
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The Empirical Model
• Vessel prices and fleet size:
➢Both new building price and second-hand vessel price do not
have a significant impact on fleet size.
➢A low new building price has no significant impact on the
decision of shipping firms to increase their fleet sizes with new
ships.
➢A high vessel price does not have a significant impact on
restraining shipping firms from ordering new ships.
➢The price of second-hand vessels does not have a significant
impact on the decision of ship operators to adjust their fleet sizes.
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The Empirical Model
• Four shipping market segments:
➢A positive correlation between new building price and second-
hand vessel price.
➢A positive correlation between new building price and scrap
vessel price.
➢Second-hand vessel price is positively correlated with scrap
vessel price.
➢Both second-hand vessel price and scrap vessel price are
positively correlated with the freight rate.
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The Empirical Model
• Freight rate, seaborne trade, and
fleet size:
➢Fleet size is affected by the freight
rate.
➢Fleet size is affected by seaborne
trade.
➢The freight rate is influenced by Picture is generated by AI
seaborne trade.
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The Empirical Model
• The new building and second-hand vessel markets can be
considered as the factor market.
• The product market is the freight market where sea transport
services are traded.
• Shipping firms engage in two exchange functions:
➢Buy factors of production in the factor market.
➢Sell sea transport services in the product market.
• The product market is crucial in determining fleet size.
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Container Shipping
What is container
shipping market?
Picture is generated by AI
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Container Shipping
• When demand for shipping capacity is uncertain and
significant lead times exist for adding capacity, managers of
shipping firms must carefully consider their capacity decisions.
• Let’s look at how to develop a container shipping model to
determine capacity in the container shipping industry.
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Container Shipping
• The container shipping mode:
➢Began with the industrial organization paradigm that “industry
structure determines the conduct of firms, whose joint conduct then
determines the collective performance of the firms in the
marketplace”.
➢Interpret conduct as a firm’s choices on key decision variables
such as capacity.
➢Identified the factors that affect total fleet size in container
shipping and developed a container shipping model to explain the
relationships among the factors and assess their effects on the
capacity of the container shipping industry.
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Industrial Organization in Container
Shipping
• Industrial Organization (IO) theory:
➢Take industry as the unit of analysis, provides a useful theoretical
framework for a study of the container shipping market.
• Empirical researchers are concerned with how basic industry
characteristics affect the adoption of business operational
practices.
• The performance of the container shipping market depends
on both the demand for and the supply of container shipping
services, and the industry structure.
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Industrial Organization in Container
Shipping
• Industrial characteristics in the container shipping business:
1) High fixed cost.
2) Little difference in the services offered.
3) A few operators accounting for the majority of the total
shipping supply.
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Capacity Adjustment in the Container
Shipping Market
• The container shipping market is governed by a mechanism
to determine the freight rate and fleet size.
• The freight rate coordinates the decisions of carriers to adjust
supply in the container shipping market.
➢A higher freight rate is conducive to stimulating growth in
shipping capacity.
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Capacity Adjustment in the Container
Shipping Market
Seaborne Trade
• International trade of general cargo is one of the key factors
affecting the demand for container shipping services.
• World output growth plays a decisive role in determining
the volume of container trade.
• Shipping and international trade are interrelated.
• Shipping supply depends on two key decision makers:
shippers and carriers.
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Capacity Adjustment in the Container
Shipping Market
Freight Rate
• The freight market serves the demand for sea transport.
• Demand for freight services is a function of the freight rate
and quantity demand for shipping services per time period.
• Container shipping supply is a function of price and quantity
supplied by container shipping firms.
• The freight market determines the freight rate at the level
where shipping demand from shippers is equal to shipping
supply.
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Capacity Adjustment in the Container
Shipping Market
Capacity Adjustment
• Container shipping is a capital-intensive industry.
• A change in seaborne trade affects carriers’ decisions on
whether or not to expand, and their decisions can influence the
supply of world fleet capacity.
• Ships are sold and purchased in different markets.
• The shipping firm can adjust its operations efficiency to
cope with the fluctuation of trade.
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An Empirical Model of the Container
Shipping Market
• Factors considered to affect fleet size include broken-up age,
new orders, seaborne trade, and world fleet.
Seaborne trade
New orders Broken-up age
Freight rate Fleet size
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Determinant of Fleet Size in Container
Shipping
• Seaborne trade is a key determinant affecting fleet size.
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Determinant of Fleet Size in Container
Shipping
• The freight rate is another
important factor that affects fleet
size.
➢Ship operators consider cargo
availability to fully utilise shipping
spaces more important than the
potential revenue generated from the
freight market in deciding their
shipping supply.
Source: Statista
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