Global Transportation

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Chapter 8

• Global Transportation

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THE BALANCING ACT SECURITY VERSUS GLOBAL COMMERCE

• Prior to 9/11, shipments could clear U.S. ports
  and airports in hours.
• Today there is more security, inspections,
  paperwork that takes much longer.
• Balance between security and global commerce.
• Tightened security measures are here to stay and
  global shippers are adjusting their shipping
  processes and inventories to allow for the added
  transit times.

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EXTENT AND MAGNITUDE OF TRADE

• Overview of the North American Free Trade
  Agreement (NAFTA)
• NAFTA establishes free trade between Canada,
  America and Mexico.
• The Treaty states the objectives of the three
  Countries is based on the principles of an
  unimpeded flow of goods, most-favoured- nation
  (MFN) status, and a commitment to enhance the
  cross-border movement of goods and services.

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• South Africa is part of the SADC (Southern
  African Development Community) and the African
  Free Trade Zone which is similar to NAFTA.

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GLOBAL TRANSPORTATION PROVIDERS

• Ocean Transportation
• Types of carriers liners, tramps, and private
  vessels
• LINERS
• Liners are ships that ply fixed routes on
  published schedules.
• Liner services are either container or break-
  bulk types.

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Liners cont

• Freight must be moved to the liner companys
  terminal at the port after the shipper has
  arranged freight booking or reservation
• Freight is loaded by machine if bulk, or crane if
  containerized.

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Liners cont

• Container movement is gaining over the
  traditional break-bulk (general cargo) method of
  ocean carriage.
• When goods have to be heavily crated and packaged
  for break-bulk movement, a container often
  provides much of that needed protection

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Liners cont

• Break-bulk ship might require many days to unload
  and load its cargo by small crane and manpower
• An entire container ship can enter, unload, load,
  and clear a port in less than 12 hours
• Such speed has brought about labour savings to
  both the shipper and the liner company, as well
  as increased ship (and capital) utilization.
• Because a ship is only earning revenue at sea, it
  is easy to see why containers have become a
  dominant form of packaged-goods shipping.

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Liners cont

• Container service, although saving port and ship
  time, has brought about different operating and
  management concerns for the ship company
• This service requires a large investment in
  containers at sea, delivered inland, loaded
• Although a ship might carry 1,000 containers, an
  investment of 1,500 to 2,500 containers is
  necessary to support that ship

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Liners cont

• With inland movement of containers, control over
  this land movement becomes a necessity.
• The container itself is a large investment and is
  attractive to thieves in areas of warehouse or
  housing shortages.

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Liners cont

• roll-on/roll-off ship, referred to as a RORO
  ship.
• These ships carry trucks, trailers, and
  construction equipment much like a multilevel
  ferryboat.
• Especially effective when ports dont have cranes
  (container with wheels dont a crane)

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TRAMPS

• The tramp ship is one that is hired like a taxi
  or leased auto.
• That is, it is a bulk or tank ship that is hired
  on a voyage or time basis.
• Time charters are usually longer-term charters in
  which the shipper will make or arrange for more
  than a one-way move.
• Such charters are made with or without crews
  being provided by the shipowner.

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PRIVATE VESSELS

• Private ships are owned or leased on a long-term
  basis by the firm moving the goods.
• Many oil ships fit this category, as do
  automotive and lumber vessels.

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SHIP REGISTRY

• Although a ship might be U.S.-owned and ply a
  route between the United States and the Persian
  Gulf, it might be registered in and fly the flag
  of Liberia or Panama. These nations represent
  what are called flags of convenience.
• That is, the owners derive certain benefits of
  taxes, manning, and some relaxed safety
  requirements by being registered in those
  countries, rather than in the United States,
  Canada, or wherever.
• The top flags of convenience nations include
  Panama, Liberia, the Bahamas, Greece, and Malta.

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Air Carriers

• Air transportation offers the global
  transportation user speed
• Four types of air carriers are available for
  international shippers air parcel post, express
  or expedited service, passenger, and cargo.

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AIR PARCEL POST

• Air parcel post service is provided by the postal
  service of a country and is designed to handle
  small packages.
• The postal service contracts with an air carrier
  to pick up and deliver the item from one country
  to another

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EXPRESS OR EXPEDITED SERVICE

• Express or courier service is provided by air
  carriers and is generally restricted to small
  shipments weighing less than 32 kg.
• Speed is the essential characteristic of this
  service, with next-day or second-day delivery a
  standard service level.
• Examples of major carriers providing this service
  include Federal Express, United Parcel Service
  (UPS), and DHL.

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PASSENGER CARRIERS

• Regularly scheduled international passenger
  flights haul freight in the belly of the plane.
  
• These carriers focus on the movement of
  passengers, but the excess capacity in the
  nonpassenger compartment permits the transporting
  of cargo along with passengers.

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ALLCARGO CARRIERS

• All-cargo carriers specialize in the movement of
  freight, not passengers.
• The air planes are outfitted with larger hatch
  openings, cargo compartments, and floor- bearing
  ratings.
• Many air cargo planes have mechanized
  materials-handling devices on board to permit the
  movement of heavier cargo inside the plane.

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ALLCARGO CARRIERS cont

• Some of the larger planes are capable of
  transporting a 40-foot container (FEU), trucks,
  and other motor vehicles.
• Generally, these carriers haul heavier shipments
  weighing more than 32 kg. BAX Global, Federal
  Express, and UPS Air are examples of U.S. all-
  cargo carriers.

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• Ancillary Services companies provide a variety of
  functions that offer the user lower costs,
  improved service, and/or technical expertise and
  include air freight forwarders, international
  freight forwarders, nonvessel operating common
  carriers, ship brokers, and ship agents

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AIR FREIGHT FORWARDERS

• The air freight forwarder books space on an air
  carriers plane and solicits freight from
  numerous shippers to fill the booked space.
• The air freight forwarder offers the shipper of
  small shipments a rate savings resulting from the
  advanced purchase of space

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INTERNATIONAL FREIGHT FORWARDERS

• These firms arrange movement for the shipper.
  They do not necessarily act as consolidators or
  earn their revenues in the manner like domestic
  forwarders.
• International freight forwarders act as agents
  for shippers by applying familiarity and
  expertise with ocean shipping to facilitate
  through movement.

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INTERNATIONAL FREIGHT FORWARDERS cont

• They represent the shipper in arranging such
  activities as inland transportation, packaging,
  documentation, booking, and legal fees
• They play an invaluable role for shippers who are
  not familiar with the intricacies of shipping or
  those who do not have the scale or volume to
  warrant having in-house expertise in this area.

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NONVESSEL OPERATING COMMON CARRIERS (NVOCC)

• Nonvessel operating carriers assemble and
  disperse less-than-container shipments and move
  them as full-container shipments.
• They serve much the same role as the domestic
  freight forwarders.
• A shipper moving a small item would otherwise
  have to move it via break-bulk ocean carrier or
  air freight.

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NONVESSEL OPERATING COMMON CARRIERS (NVOCC) cont

• The NVOCC consolidates this shipment with many
  others and gains the economies of container
  movement.
• Some NVOCCs operate from inland cities, where
  they unload inbound containers and distribute the
  goods to consignees.
• They in turn solicit outbound freight,
  consolidate shipments into the containers, and
  move them back to a seaport for outbound
  movement.

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NONVESSEL OPERATING COMMON CARRIERS (NVOCC) cont

• The steamship line gains opportunities from
  broadened territorial traffic, and it gains
  services and control over containers from the
  NVOCC solicitations.
• Shippers and receivers gain from the shipping
  expertise and processes of the NVOCC, as well as
  from expanded and simplified import and export
  opportunities.

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SHIP BROKERS

• These firms act as middlemen between the tramp
  shipowner and a chartering shipper or receiver.
• The brokers extensive exposure, contacts, and
  knowledge of the overall ship market make them
  valuable parties in these arrangements.
• They are compensated on the basis of a percentage
  of the chartering fees.

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SHIP AGENTS

• Ship agents act on behalf of a liner company or
  tramp ship operator (either owner or charter
  company) to represent their interests in
  facilitating ship arrival, clearance, loading,
  unloading, and fee payment while at a specific
  port.
• Liner firms will use agents when the frequency of
  sailings are so sparse that it is not economical
  for them to invest in their own terminals or to
  have management personnel on site.

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LAND BRIDGES

• The "landbridge" is a generic term meaning use
  the land freight as a means of transport
  connection.
• The landbridge is a way of transporting cargo
  from a port or an inland point of origin in the
  shipper's country to an inland point or a port of
  final destination in the consignee's country
  using a combination of usually sea and land, or
  air and land, or air, land and sea transports

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RATE MAKING IN GLOBAL TRANSPORTATION

• Rate making is presented from the standpoint of
  three major transportation supply sources
  available to shippers air, liners, and chartered
  tramp ships.

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Shipping Conferences

• A steamship conference is a voluntary
  organization of vessel-operating carriers whose
  main function is to set acceptable rates for
  steamships and shippers.
• The goal of the conference is to maintain a
  stable market and fair competition among
  carriers.
• Another important element of the steamship
  conference is to administer operating rules that
  guarantee the shipper a consistent level of
  service from participating lines.

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Global Air

• AIR CARGO RATE
• Air cargo rates are based on the value of service
  or the cost of service
• The less sensitive cargo is to rates, the higher
  the rate will be.
• On traffic lanes where demand is strong and plane
  capacity is limited, the air rates will be high,
  and vice versa for traffic lanes where supply
  exceeds demand.

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AIR CARGO RATE

• Products with high prices or emergency conditions
  surrounding the move will be charged high rates
  because the freight rate is a small portion (less
  than 1 percent) of the landed selling price.
• Cost factors enter into air carrier pricing of
  cargo.

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AIR CARGO RATE

• Given the limited cargo- carrying capacity of a
  plane, space is a premium.
• The utilization of this space is related to the
  density of the cargo, with low-density cargo
  requiring more space per weight unit than
  high-density cargo.
• Rates are based on a product density

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AIR CARGO RATE cont

• Container rates are also available for cargo
  shipped in a container.
• The rate is cost based, rather than value of
  service or commodity based.
• The rate applies to a minimum weight in the
  container

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LINER RATE MAKING

• Approximately 80 to 90 percent of total cost is
  fixed and 10 to 20 percent is variable.
• Liner companies tend to have large overhead costs
  in the form of managements that are necessary for
  solicitation purposes.

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LINER RATE MAKING cont

• A majority of the total costs of operating a ship
  are fixed.
• Because cargo loading, unloading, and fuel are
  the only primary variable costs, the ships
  operation cost is roughly the same regardless of
  the commodity hauled.

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LINER RATE MAKING cont

• Ship operators will often determine unit costs in
  terms of cost per cubic metre of ship space so as
  to better evaluate and price for the range of
  commodities handled.
• There is a tendency to price according to the
  principles of value of service.
• That is, a floor of variable costs must be
  covered as a minimum then the blend of high- and
  low-value-per-kilogram commodities, as well as
  the host of traffic elasticities, leads to
  pricing according to what the traffic will bear
  to maximize revenue.

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THE CONFERENCE OF RATE MAKING

• Liner firms have long banded together into
  collective rate-making bodies called steamship
  conferences.
• Conferences comprise member liner firms only.
• The organization is international in scope
  because liner firms of many nations will belong
  to one.
• They are also territorial in scope.

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THE CONFERENCE OF RATE MAKING cont

• Because ship operators experience a relatively
  fixed cost per day, and weight is not necessarily
  a variable cost expense, rates are constructed to
  also accommodate the density of freight
• Many rates are assessed on a weight basis.
• Products that might occupy more of a
  proportionate share of space relative to their
  weight are often charged on a weight or measure
  (W/M) basis

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THE CONFERENCE OF RATE MAKING cont

• Time/volume rates are a rate feature new to ocean
  shipping.
• The service contract provides for a guaranteed
  amount of tonnage or containers over a certain
  time period.
• The carrier or conference receives the benefit of
  a larger or guaranteed amount of tonnage.

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Tramp Ship Cost Rate Factors

• COSTS
• Tramp ships are generally not controlled by a
  specific route with a single commodity.
• Large oil tankers that are built for time
  charters for specific origin-destination markets
  are the exception.
• The basic tramp vessel might haul coal, grain,
  fertilizers, and lumber in the same year

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Tramp Ship Cost cont

• Adaptability is necessary to minimize lost
  revenue possibilities that will arise.
• These vessels might not always be of low-cost,
  optimal design for any of the movements, but that
  is a basic trade-off to being flexible.

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Tramp Ship Cost cont

• A major consideration of tramp owners is the
  nation in which the ship is registered.
• The nation of registry requires the shipowner to
  comply with specific manning, safety, and tax
  provisions.

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TRAMP SHIP RATE MAKING

• A tramp shipowner experiences costs, like those
  of the liner, that are largely fixed in nature.
• Ownership costs present themselves in
  depreciation and interest costs.
• Fuel is not as greatly variable with the
  commodity weight load, as is ship speed or at-sea
  versus port time.
• The key is that the shipowner minimizes empty
  nonrevenue miles and days.

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TRAMP SHIP RATE MAKING cont

• Three primary forms of ship rental or chartering
  systems are in use. These are the voyage, time,
  and bareboat or demise charter

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TRAMP SHIP RATE MAKING cont

• The voyage charter is one in which the shipowner
  mans, operates, and charters the vessel, similar
  to a taxicab for a specific voyage.
• Shippers seek voyage charters for primarily
  one-way and sometimes two-way trips.
• The owner is constantly seeking charters
  subsequent to present charters to minimize empty
  moves to the next charter.

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TRAMP SHIP RATE MAKING cont

• The time charter is one in which the shipowner
  rents the vessel and crew to a shipper for use
  over a period of time that often includes use for
  several shipments.
• The owner has his or her ship productively tied
  up for a longer period of time than in the voyage
  charter, and the shipper might judiciously
  arrange the moves, making the time charter more
  economical than several voyage charters.

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TRAMP SHIP RATE MAKING cont

• The bareboat or demise charter is one in which
  the owner usually rents the vessel for a long
  period of time while the chartering party
  supplies the crew and performs the physical
  operation of the vessel.
• In this setting, the owner is seeking to recoup
  capital and interest costs and to be assured that
  the ship will be safely operated.

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ROLE OF PORT AUTHORITIES IN GLOBAL TRANSPORTATION

• The term port authority applies to a state or
  local government that owns, operates, or
  otherwise provides wharf, dock, and other
  terminal investments at ports.
• The primary reasons for the existence of these
  organizations are to allow for comprehensive
  planning, to provide the large physical
  investment base, and to provide for certain
  political needs within the area.

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• Port authorities roles includes
• Ownership of all waterfront rights and renting of
  waterside access rights to shipping companies and
  terminal firms.
• Developing waterways and pier terminal facilities
  and renting them to users short- and long-term
  bases) who do not have the scale of operations to
  support or perhaps do not wish to actually own
  such assets.

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Port authorities roles includes cont

• This capital financing role is perhaps the major
  benefit provided by these port authorities.
• Port authorities also promote overall trade
  through their port areas
• This includes industrial development efforts, the
  offering of favorable financing, representation
  before regulatory bodies, and the encouragement
  of adequate transportation facilities on land.

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Transnet National Ports Authority

• The national ports authority is responsible for
  the safe, effective and efficient economic
  functioning of the national port system, which it
  manages in a landlord capacity.
• The national ports authority provides port
  infrastructure and marine services at the eight
  commercial seaports in South Africa.

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Transnet National Ports Authority

• The core functions of the national ports
  authority are as follows
• To plan, provide, maintain and improve port
  infrastructure
• to provide or arrange marine-related services
• to ensure the provision of port services,
  including the management of port activities and
  the port regulatory function at all south African
  ports and
• to provide aids to navigation and assistance to
  the maneuvering of vessels within port limits and
  along  the coast.

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FUTURE OF GLOBAL TRANSPORTATION

• Global transportation will grow in importance as
  more manufacturing and merchandising firms become
  involved in overseas sourcing and marketing.
• The cloud on the global trade horizon is
  nationalism. This ranges from tariff protection
  to political constraints and home flag carrier
  protection. ????

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FUTURE OF GLOBAL TRANSPORTATION cont

• Such nationalism tends to appear whenever a home
  industry is threatened by foreign competition or
  forces.
• The Jones Act in the United States, which
  requires domestic movements only by U.S. flag
  ships and domestic airlines, is one such example,
  though not a significant one on the world scene
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