Friday, February 22, 2019

Tramp and Bulk Shipping, Forecasting, and a Chilled Viognier on a Thames Terrace

My gigantism in container shipping  ‘little book’[1] gave me the opportunity to do something I have always wanted to do since the days of my good friend and colleague, the late Basil Metaxas and his infamous monograph The Economics of Tramp Shipping (Athlone Press, 1971). This was my perceived need for a clarification in the concepts of tramp; tramping; or tramp shipping on the one hand, and bulk shipping or even bulk-carrier on the other.

Often in the literature, the two concepts, tramp and bulk, have been confused or used interchangeably. Even worse, a “tramp ship” has often been used synonymously to a “bulk ship”, or bulk-carrier, and vice versa. However, “tramping” simply means operating a ship in the spot (voyage) market -i.e. as a taxi of the seas, whereby the contractual relationship between ‘passenger’ and ‘taxi-driver’ (‘cargo owner’ and ‘shipowner’ in our case) ends upon the completion of the voyage and the driver (shipowner) is again on the lookout for new custom (cargo) that will take him to the four corners of the earth, without any scheduling or fixed itinerary (thus the name tramp). Other than the ship itself, the provision of a tramp service requires minimal carrier infrastructure;[2] the market is highly competitive, with prices (freight rates) fluctuating wildly even in the course of one day.

Certainly, however, tramping does not assume any particular type of ship, such as a tanker or a bulk-carrier. To put it differently, a bulk-carrier or a tanker on a long-term time-charter is not tramping, nor is one engaged in a contract of affreightment. In short, the mere fact that a bulk ship is not offering regular or scheduled services, like a liner ship, does not make her a tramp. In the opposite, and this is the first time you hear this, a small container feeder-ship which out of, say, the hub of Piraeus distributes containers all over the Mediterranean, working as a common carrier, indiscriminately serving many principals (main-haul majors such as Maersk, MSc, CMA CGM, Cosco, etc.) would most definitely fall under my definition of tramping.

HE Haralambides

[1] Freely downloadable from: Gigantism in Container Shipping.
[2] Things nowadays may be somewhat different, but I remember a Greek shipowner friend, years back, telling me that, to do tramping, the only things you needed were a telephone, a shared office and a part-time secretary! He was also very good in forecasting… I remember him once, while sipping a glorious chilled Viognier on his terrace, overlooking the Thames, attentively and silently looking down on the street. “what are you doing”, I asked. “When the queue of the taxis below is long”, he replied, “business is not good, and people take the bus… shipping will not be doing well either”, he said philosophically with half a smile, refilling at the same time our glasses.

Friday, February 8, 2019

Shipping and economic development

 Shipping is a global service industry that, by general recognition, provides the lifeline of international trade. Suffice it to say that, due to the morphology of our planet, 90% of international trade takes place by sea. Technological developments in ship design and construction, and the ensuing economies of scale (EoS) of larger ships, have reduced trade- and transport costs, thus promoting trade (particularly that of developing countries) by making the transportation of goods over long distances affordable.[1] As a matter of fact, geographical distance plays a much lesser role today, as a determinant of trade between countries, and it is being replaced in trade models by the concept of economic distance, as this is proxied by ocean freight rates (cf. transport costs).

These developments have expanded the international markets for exported goods, thus allowing mass production and lower unit costs at home. This has improved the international competitiveness of exporting countries, and it has facilitated the industrialization of many of them around the world. One of the best examples of export-led industrialization is Japan: The Japanese are thrifty people. It was not therefore growth of domestic demand that enabled the country to develop, but low transport costs which allowed Japan to conquer Asian and world markets with high quality products. As a result, a huge global market for its products led to mass production, even lower costs and export prices, and greater dominance still in international markets.  

Often, international ocean transportation and Information and Communications Technologies (ICT) are referred to as the two basic ingredients of globalization [Joseph Stiglitz (2006) Making Globalization Work. W.W. Norton and Company, Inc. New York].

HE Haralambides

[1] In spite of distances, China buys more iron ore from Brazil, four times farther than Australia; it costs one dollar cent to transport one can of Heineken beer from Rotterdam to New York; and less than 10 dollars to bring an expensive TV set from Busan (Korea) to London. Actually, what matters most these days is not transport costs, but the time of the sea passage (as well as time in port) and the way these times impact the logistics and warehousing costs of traders.