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Category Archives: Maritime Law

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Maritime Law

Differences And Correlation Between Spot Rates And Contract Rates in Shipping

Ever since the start of Covid, there has been a lot of focus in the shipping industry and amongst exporters on the relative developments in spot rates and contract rates.

What has given rise to these discussions is the steep increase in spot rates in the months succeeding the spread of the Covid infection, which was thereafter followed by slightly more measured increases in contract rates.

Throughout this period, the overall rate scenario was characterised by extreme volatility, which impacted freight procurement spending for shippers and rendered supply chain, transport, and inventory planning even more difficult than it usually is.

With the prevailing global uncertainty and geo-political tensions, exporters, trade associations, carriers, competition watchdogs, and governments alike closely watch developments in freight rates.

In this article, we will understand the differences between spot and contract rates, the correlation between the two, the circumstances in which these rates prevail, and how both Carriers and Shippers attempt to balance cargo carried on spot and contract rates to their maximum advantage.

What are Spot rates and Contract rates?

When a shipper or exporter, or cargo owner needs to ship cargo overseas, he approaches a few container carriers with an inquiry, providing all the necessary information (such as origin, destination, load port, discharge port, consignee details, commodity, weight, value, packaging, special instructions, pre-carriage and on-carriage details, and other relevant details). Based on this information, the carriers will quote accordingly.

Given that the shipper will need some time after rates are quoted by the Carrier (in order to negotiate and finalise the rate, make a booking, get the cargo ready for shipment, and then arrange transport to the load port or pick-up point), Carriers generally specify a certain validity for each rate quoted. The expectation is that the shipper will complete all the steps mentioned above within the validity period, and the cargo/ stuffed container will be handed over to the carrier within the validity period specified.

In the case of bigger exporters/ manufacturers, however, the requirements and circumstances will be different. Big corporations such as Ikea or Walmart have massive volumes shipped globally and throughout the year. Since manufacturing and sourcing are concentrated in a few locations, deliveries are destined for countries where there exists a market for their products.

They have an established presence, and the number of origins and destinations is known in advance. Also, by utilising demand forecasting techniques and supply chain planning tools, the company has a fairly accurate idea of the regularity and volume of cargo flows.

Besides, by virtue of the huge volumes that they control, such companies have the scale and size to negotiate better rates with carriers.

Thus, bigger shippers or cargo owners with large quantities of goods to export/ import and with relatively steady cargo flows – in terms of an even split across months, seasonality, and origin-destination combinations – generally value supply chain reliability and stability in terms of transport planning, wherefore what they require is rates that are valid for a longer period and accompanied by minimum guaranteed space commitments.

Under these circumstances, the shipper will require rates that are valid for a longer period (the most common period being 1 year, but it could be shorter at 6 months or longer at 2 or 3 years), covering their important trading corridors, with a certain amount of guaranteed space every week/ month.

In this case, the shipper will sign a long-term contract with the carrier, where the shipper commits a certain quantity of volume that they will give the carrier (known as the Minimum Quantity Commitment or MQC), in return for which the carrier extends to the shipper the benefits of better rates (which are lower than the prevailing market rates), guaranteed space and equipment, the relative stability of rates (which facilitates long term planning and stability of cost base, which in turn helps annual transport budgeting and product pricing).

For contractual customers, carriers often also lower the quantum of surcharges and accessorials or keep the surcharges at a fixed level (subject only to the caveat that the quantum will be re-evaluated and revised should the carrier’s actual costs for that activity exceed a certain pre-decided level).

These rates are known as contractual rates, recorded in the contract signed between the shipper and carrier. The nature of these rates is such that they are long-term and relatively stable.

Spot rates, on the other hand, are the rates that are currently available in the market. These rates are determined by the interplay between supply and demand and constantly keep changing.

When shippers do not have regular and/or sizeable cargo volumes that will flow steadily over a year or so, they will be constrained to approach carriers on an ad hoc basis as and when they have cargo to export to international markets.

For such ad hoc shipments, other than the typical pricing drivers, carriers will price primarily depending on how much capacity is available on the corridor in question (with secondary considerations being the need to have the container sent to the destination – for repositioning purposes or to fill with export cargo from the destination, availability of cargo on backhaul trades, etc.).

Thus, these are, in essence, the prevailing market rates that are dynamic, constantly varying in response to fluctuations in the shipping market, impacted by both the demand for shipping services and the supply thereof.

Spot rates are typically quoted for each booking or consignment of cargo. They are short-term rates that are valid only for a certain period, depending on the volatility of the transport markets.

The validity of these rates will generally vary between a week to a month, depending on the average time taken for shippers to get the cargo ready for shipment (in exceptionally volatile times or during a bull run when freight rates are moving upwards at a rapid pace – as happened during the Covid induced disruptions in 2020 and 2021 – rates offered by carriers will be valid for an even shorter period of perhaps just a few days.

This is not to imply that the shipper has just a few days to get the cargo ready and hand it over to the carrier; rather, it means that the shipper has only a very short time frame within which to confirm acceptance of the freight rates offered and place their bookings. Once the bookings are made, the standard terms and conditions and timelines will apply.

Summary of Differences between Spot Rates and Contractual Rates

The difference between spot rates and contract rates can be summed up as under:

1. Validity period: spot rates have a very short validity (generally not more than a month) and essentially involve playing the spot market. In comparison, contractual rates have a far longer validity (typically 1 year).

2. Tactical or strategic: Spot rates can be considered a very tactical approach and essentially involves not committing to any carrier in the long term, instead relying on the spot market to get the best rates in the current scenario, while contractual rates are negotiated and entered into with a more strategic mindset, keeping holistic, long-term supply chain requirements in mind.

3. Ad hoc shipments vs regular cargo flows: Spot rates are obtained in the case of ad hoc cargo, whereas contractual rates are opted by shippers who have regular cargo flows spread evenly across the duration of the contract, with relatively fewer fluctuations.

4. Degree of volatility: Contractual rates offer a greater degree of stability in terms of freight and transport costs since they are fixed for the duration of the contract (with clauses to review and revise rates should the market change drastically or the carriers’ cost base change considerably; however this contingency is generally remote and the extent of the increase, if at all, will be more measured than increases in spot rates). Spot rates are inherently volatile and could change on a daily or weekly basis, subject to changes in all the factors that impact freight rates.

5. Freight rate levels offered: Contractual rates are generally negotiated at a level lower than spot rates since the logic is that if shippers can guarantee to the carrier a steady flow of volumes for the whole year (so the carrier is thus assured of revenue for the duration of the contract and a certain level of capacity utilisation is guaranteed), they can offer a more attractive rate in lieu thereof. In the case of spot rates, since the business is completely transactional and there is no customer stickiness or long-term relationship, carriers generally try to maximise their revenues and profit therefrom by offering the highest rates possible.

6. The flow of cargo – in terms of regularity/ no seasonality effect: Contractual rates are suitable for cargo that is regular / has limited seasonality effect (where the volumes do not vary significantly basis seasons and are more or less consistent the whole year round). The importance of this factor is that it helps the carrier plan their vessel movements for forthcoming months, provides revenue visibility, and improves the quality of their forecasts, so they can adopt an agile approach towards pricing depending on the amount of capacity they need to fill. Cargo which is highly prone to fluctuations based on seasonality (such as winter clothing or mango exports from India in summer) or occasion-specific cargo (such as Christmas decorations or back-to-school items), are some products that are moved on spot rates.

7. Space and equipment guarantees – from the carrier end: From the Carrier’s end, a contractual rate implies a corresponding commitment to providing assured equipment and space on their vessels/ services. In reality, however, there might be contingencies or market-level changes due to which a carrier might not be able to provide space/ equipment. For spot rates, the rates already take into account the supply-demand equation and are offered after evaluating capacity utilisation on vessels and availability of equipment, wherefore, space and equipment availability is generally not an issue.

8. Minimum quantity commitment – from the shippers’ end: Shippers entering into a contract generally commit a certain minimum quantity of volumes that they will offer to the carrier during the duration of the contract. In a lot of instances, due to unforeseen events over the course of the year that might disrupt production and transport flows, shippers might not deliver the cargo committed. In the case of spot rates, the very ad hoc nature of business precludes anything in the form of a quantity commitment. Since rates are requested as and when shipments come up, the probability of the cargo volumes not materialising is not very high.

9. Quantity of volumes involved: Contractual rates are generally negotiated by bigger shippers, who control large volumes, enough to present an attractive business opportunity to carriers, who will therefore be incentivised to offer lower rates. For spot bookings, the volumes are generally not as high, or even if they are high, it is typically in one lot or spread over a very short time frame).

10. Applicability of rates – to all shippers or a single customer: Contract rates are unique to each customer, as they are negotiated with each individual customer desirous of entering into a contract with the carrier. These rates are dependent on a number of factors such as commodity, corridors, annual volumes, equipment type, etc. Spot rates, on the other hand, are the current general rates prevailing in the market and are offered to all customers who approach the carrier. While shippers will do their best to negotiate on spot rates as well, the final rate will not be very different from the average spot rate, wherefore shippers with spot bookings can be said to have a reasonably uniform rate, with minor fluctuations depending on specific causes.

11. Confidentiality of rates: Contract rates come into effect on the basis of the contract signed between the shipper and carrier. Since the contract is a confidential document and the rate negotiations and other terms are commercial information whose circulation is restricted, it obviously follows that contractual rates are highly confidential in nature. Spot rates, however, since they are market-driven, are common knowledge to all players in the market.

12. Rebates linked to volumes/ cargo commitments/ MQC: To attract a greater number of bigger and more loyal customers, who will deliver more business in the long run, Carriers try to make contractual terms even more lucrative by implementing various rebate schemes whereunder shippers are entitled to rebates per container, subject to meeting certain volume criteria. In the case of spot rates, since it is ad hoc and non-recurring business, carriers do not offer rebates.

13. Suitable for which type of shipper: Contract rates are suitable for bigger manufacturers and traders who have sizeable volumes throughout the year and trade internationally. In contrast, shippers who seek spot rates are generally smaller and have limited international movement.

Carriers’ Perspective

Carriers generally attempt to strike a strategic balance between the proportion of cargo moved under spot rates and under contract rates. There is no fixed or suggested ratio for spot-to-contract volumes. The proportion of spot to contract cargo depends on a number of factors, such as Carriers’ long-term strategy, the markets/ customer segments they intend to target, the proportion of chartered to owned vessels, the trades they are serving, transactional vs partnership approach etc.

The underlying logic that guides Carrier behaviour is the intent first to sign contractual cargo that fills a sizeable proportion of their overall capacity. This provides the carrier with assured volumes and revenue visibility for the rest of the year. Once the carrier has assured themselves of minimum business, they have the flexibility to play in the spot market and try to sell the remaining space to spot shippers at rates that are higher than the average contractual rates.

If a carrier is focused on building long-term commercial relationships and intends to adopt a partnership approach with potential customers, the obvious option for them is contractual rates. Likewise, if a carrier prioritises the maximisation of revenues and profits in the short term at the expense of steady business relationships, it will opt to carry more spot business.

In a bull market or when demand exceeds supply, where spot rates are rising, carriers might prefer to do more spot business, while in a stable market scenario, they might sign more contractual cargo.

Shippers’ Perspective

The shippers’ perspective is obviously the inverse of what the carrier is. The determinant factors of whether a shipper opts for contract rates or spot rates are more clearly defined than is the case with carriers.

Shippers primarily make this decision based on the degree of supply chain reliability they intend to achieve, counterbalanced by considerations of freight procurement costs and the total cost of ownership. The magnitude of stability in overall supply chains that a shipper would target will basically depend on the nature, scale, scope, and geographical diversification of their business.

Export-oriented businesses with large manufacturing capacity will, of necessity, need to prioritise supply chain integrity to ensure the smooth functioning of their business and ensure that their inventory pipeline is always adequately stocked to meet forecasted demand. Should this fail to fructify, the repercussions for the sippers can be catastrophic, resulting in missed sales opportunities, reduced revenue, loss of goodwill and reputation, and the risk of losing market share to more agile competitors.

It is for this reason that such shippers will take a long-term partnership view and look to enter into strategic relationships with reputed carriers, who can guarantee service levels, global network, shipping capacity, and equipment availability. In these circumstances, shippers will often be amenable to paying a slight premium in return for space commitments.

On the other hand, small and medium-sized businesses whose manufacturing is on a relatively lower scale or whose operations are primarily geared towards domestic consumption will typically not have regular cargo to ship to overseas markets. Their maritime transport requirements will be ad hoc, depending on whether and when they receive orders from overseas buyers and retailers, which ipso facto means that it is not a viable option for them to enter into long-term contracts.

These shippers will instead have to approach carriers as and when they have an international consignment, for which the carrier will quote spot rates. The only possible leeway the shipper might get in terms of rates would depend on the size of their consignment and the amount of open space that the carrier has to fill.

Apart from this broad categorisation, shippers attempt to strike a balance between reliable services and their overall transport costs by trying to ship a certain portion of their cargo on spot rates. So, a shipper will first estimate the inventory levels that they need to ensure at all times and sign a contract covering this proportion of their overall production.

Thereafter, depending on the criticality of the goods or raw materials and the time criticality, shippers will aim to transport the remaining cargo on spot rates, trying to secure the lowest possible rates, depending on market conditions.

It is to handle such complex decisions and ensure the optimal balance between business continuity and costs that most big manufacturers have invested in separate supply chain and transport planning departments.

Correlation between Spot and Contract rates

There is a direct correlation between spot and contract rates. When negotiating contractual rates during the contracting season, the prevailing spot rate levels are used as a benchmark to negotiate contract rates (of course, bearing in mind the future outlook and forecasts for freight rate developments and capacity infusion).

To illustrate with the help of a recent example, when global supply chains were roiled by supply chain disruptions of unprecedented magnitude post-Covid (in 2020 and 2021), capacity was scarce (as vessels and equipment were absorbed due to congestion) while demand increased. Due to this combination of factors, spot rates shot up to over 10 times their historical average rates.

And even then, shippers weren’t guaranteed space or equipment. In this situation, certain carriers like Maersk Line had the foresight to sign multi-year contracts with shippers at rates which were lower than the then-prevailing spot rates but still higher than the historical average contractual rates.

This ensured that in the event of an inevitable cooling of the market, while spot rates are now back to pre-Covid levels, carriers can still reap the benefits of higher contract rates, thus having insulated their bottom lines from a return to normalcy for spot rates – at least for the duration of the contract.

Similarly, as of today, we are in the midst of the annual TransPacific contracting season, where shippers are anticipating further falls in spot rates, and hence delaying the conclusion of contract signings; the rationale being that the more they wait, the more the chances that spot rates will fall lower, in which case they will be in a stronger position to negotiate even lower contractual rates with Carriers.

Another common situation is where there is surplus capacity in the market while demand growth is at a more modest pace, thereby exerting downward pressure on freight rates. This is an advantageous situation for whippers, as they not only can avail of low rates but also do not have to face the risk of capacity shortages. Since there is surplus capacity in the market, shippers can play the spot market, approaching multiple carriers as and when they have cargo ready to ship and negotiating lower rates.

Current Spot and Contractual Rate Scenario

Since shipping markets have, by and large, reverted back to normal now, supply chain pressures have dissipated rapidly, and the extreme congestion that afflicted most ports across the world has now cleared.

The balance of power has now firmly shifted back in favour of shippers, and they no longer have to rely on contracts for assured space. Given this, shippers once again are in a position to balance spot and contract rates to their benefit.

Carriers, on the other hand, have – after making record profits since 2020 – are now finding themselves in a position where the capacity infusion is compelling them to compete for cargo, which inevitably involves dropping rates. While the super profits made over the last 3 years have provided carriers with a financial cushion, and as the high-rate level contracts signed in 2021 and 2022 are now due for renewal, they find themselves staring at the prospect of lower levels of both spot and contract rates.

Future Trends

The short and medium-term outlook for the shipping industry looks downbeat at the moment.

The new ordering spree that most global carriers embarked upon as part of their capacity augmentation initiatives will cause a massive influx of capacity over the next 2 to 3 years. Demand is expected to remain tepid, as recessionary pressures have caused a slowdown in discretionary spending, further exacerbating the situation.

Carriers are thus challenged on two fronts; increasing supply and declining demand, which has caused fright rates to erode drastically.

Due to this, it is extremely plausible that markets will continue to remain soft, giving shippers the option of relying more and more on spot markets and eliminating the need to rely extensively on contract rates.

Source: Marine Insight

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Understanding Maritime Towage And Salvage

When a car breaks down, we call the towing company to have it towed away, moved to a safe place or workshop, and have it repaired. This is quite normal when the mode of transport is over land, though uncommon for heavy vehicles because of their size and difficulty in towing (in such cases, a mechanic and parts to be used for the repair are usually brought to the site of breakdown).

What happens when a boat on the water or a large tanker or cruise ship has a breakdown that it is not even able to limp to the nearest port? What happens in the case of serious accidents to such vessels while on the high seas or the harbour?

What is Towage?

In the maritime industry, towage refers to the moving of a stricken vessel with the aid of another, usually a powerful tug or towboat. A stricken vessel is one that cannot move using its own power and therefore needs assistance from a towing vessel. It may have had a breakdown, got stranded on the seafloor, run out of fuel, or met with an accident.

Such vessels have to be moved quickly as they may be lying on a busy shipping channel or could be in danger of leaking some contaminant into the sea if left unattended. For example, leaked fuel or heavy metal may cause irreversible damage to the ecosystem around.

Tugboats or Tugs

Tugs or tow boats are essentially the same. They are specifically designed for the purpose of pushing or pulling a stricken vessel. They are also called pusher crafts or pushers by the industry. Tugboats are easily noticeable by their squat shapes, rounded or flat bows, and tires or rubber fenders around the sides.

Such vessels are used to move boats, very large ships, or barges. Barges are large floating platforms used to transport goods, and these platforms are normally moved using tugboats.

When large vessels have to be berthed in their respective slots at a port, tugs are used for their gentle and precise positioning. Without guidance and assistance from tugs, modern mammoth vessels cannot berth safely on their own using their own power. Similarly, ships are moved out of their berthing slots using tugs or tow boats that take them safely to their respective channels for onward sailing.

Steam-powered boats were used for towage in the English harbours during the first half of the 1700s. Modern tug boats using powerful diesel engines had their origin in the early 1900s.

With speeds ranging up to 20 knots, powerful tugboats have bollard pulls between 340 and 477 tons. Some have highly advanced ROVs (Remotely Operated Vehicles) on board to help with rescue and salvage operations.

Boats and ships ply the high seas, rivers, lakes, and crisscross harbours. Tugboats are used to tow such a vessel in the event of an accident. Tugs that go into the sea are also used for salvage operations on high seas. A tug’s captain and his small team should have the skill and experience to safely manoeuvre vessels of all shapes and sizes along restricted waterways without causing any environmental disturbance.

Sometimes, tugs also serve as supply vessels for ships. Shipping companies enter into towage contracts with towing companies to take care of situations both routine and unforeseen.

From towage, let us now move on to salvage.

Salvage

Towage and salvage are two entirely different operations, and they cannot happen side by side. While towage can be generally viewed as the rescue, salvage is the retrieval of what is left after an accident.

Marine salvage is usually carried out after a casualty to a large boat or ship that has rendered it beyond towing. A vessel may be partially or completely damaged as a result of an explosion or fire onboard or due to a collision. Salvage could be to recover the vessel or the vessel as well as its cargo. Salvage companies have salvage vessels manned by dedicated crews and carrying special salvage equipment for use in such operations.

Depending on circumstances, it may be decided to refloat a wrecked or partially sunken vessel, perhaps repair it, or have it towed to the nearest port. Just refloating and towing alone will not do the job. If the ship is carrying contaminants or other toxic agents that are in danger of leakage, they have to be contained first and later disposed of properly. Marine salvage also involves retrieving cargo carried onboard a vessel before it is completely damaged by fire or seawater.

The normal practice after a marine accident is to draw a salvage contract between the shipping company whose vessel is involved in the accident and the salvage company. This would rule out any ambiguities at a later point in time and bring out a clear understanding of what is expected of the salvage company to minimise loss to its client while safeguarding its own interest.

In earlier times, it was common for passing vessels to assist in the salvage of a stricken vessel and then stake a reward for providing assistance.

International Maritime Organization (IMO) and Salvage Convention 1989

Salvors are those engaged in salvaging ships or the cargo that it carries. A 1910 marine convention held at Brussels on salvage provided rewards to salvors only upon successful completion of a salvage operation (“No Cure, No pay” principle). This principle often resulted in those who wanted to help to turn a blind eye to a marine accident as they were not sure of getting paid for their efforts.

In most cases, such a situation caused pollution or contamination of the surrounding environment from the wreckage of a ship. To set this right, the International Maritime Organization’s (IMO) Salvage Convention of 1989 brought about changes that would incentivise salvors to step in and act to prevent further damage to a stricken vessel, its cargo, and, therefore, the nearby environment.

The Salvage Convention of 1989 provides for salvage rewards taking into account a salvage crew’s skills and efforts in preventing or containing environmental damage as a result of a marine accident. This special reward that is assessed by an arbitrator or tribunal is to be paid to salvors who have not been paid for their efforts at salvage.

It would include expenses incurred for the salvage plus 30% of these expenses if the efforts resulted in preventing or minimising environmental pollution as a result of the accident. The reward may be scaled up to 100% of the salvor’s expenses by the assessing authority if it is found that the salvor had acted in a conscientious and responsible manner to avoid such pollution or contamination.

However, if negligence on the part of the salvor resulted in environmental damage, it can result in no special reward.

The salvage convention of 1989 was adopted on 28 April 1989 and came into force on 14 July 1996.

Towage, as well as salvage, are important aspects of the maritime industry as they prevent or minimise loss to shipping companies. From another and more important global perspective, timely interventions can prevent environmental disasters or at least reduce their intensity.

Source: Marine Insight

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6 Reasons That Lead To Port Congestion

Empty store shelves, out-of-stock products, and apologetic salespeople citing shipment delays are some of the main reasons for customer dissatisfaction. Sure enough, the blame can be pinned on a lack of proper supply chain logistics.

But, look a bit more deeply, and we might see this thing called port congestion that figures more often among reasons for stock-outs. The tremendous increase in global business volumes also necessitates logistics operators to be constantly on their toes to handle the increased volumes effectively.

Port congestion is overcrowding at a seaport that gives rise to all kinds of problems for stakeholders such as the shipper, carrier, consignee, as well as the port’s administration. The cause for overcrowding could be one or several.

Sometimes a single reason can have a cascading effect causing untold distress to the stakeholders. Congestion is often a result of the changing requirements of stakeholders.

Port Congestion and Supply Chains

Disruption in committed delivery timings can upset supply chains and exhaust inventories. It can also lead to a build-up of stock when the flow of traffic is regularised and pre-ordered stocks start coming in. In this case, stocks on board a vessel that was delayed, as well as regular supplies, reach their destination within a short gap or even sail in together!

Global supply chains are affected because port congestions and inventory plans get upset. Port congestions result in containers having to wait for more time to berth. The longer time required for berthed and loaded vessels to leave the port is the reason behind this conundrum.

In recent times, the coronavirus pandemic caused a major slowdown and, in some cases, a complete shutdown of operations at ports and business centres. Later on, when such operations resumed, and things started limping back to normal, the extra volumes and traffic of cargo created congestion at ports. Ports that were already burdened could not handle the extra volumes.

In this case, cargo ships were unable to berth and had to wait long periods to get berthing slots. They had to wait outside at anchorage for their turn to berth. Infrastructure and machinery limitations further slowed down activities. With very few automated port terminals in the world, labour shortages meant very long delays.

The delay of one vessel meant delays for those waiting in line. More vessels in the queue to berth means wasted fuel consumption as well as the discharge of more effluents into the sea. Human wastes from ships and bilge water damage the marine ecosystem.

Port congestion may be caused by natural calamities, or it may be due to man-made conflicts.

Reasons for Port Congestion

Force Majeure

Force majeure or the Act of God are unavoidable factors that cause port congestion. This French term, meaning “an inevitable, greater force”, covers natural phenomena such as earthquakes, pandemics, storms, rough seas, etc.

Interestingly, human conflicts such as armed violence or civil unrest, as well as labour strikes, also come under the force majeure clause. Generally, force majeure factors are not considered when it comes to compensation for delays or damages.

Let us look at some of the main factors here.

Pandemics

Pandemics and other health-related disasters can affect staff and labour attendance that is required to run the operations of a port terminal. The coronavirus pandemic, which began in December 2019, is a prime example of how a pandemic can affect port operations.

When the workforce is down, shore-side operations get affected badly. Even after recovering from the pandemic, it might take quite a long time to undo the chaos created by the backup of ships.

Bad Weather

Storms and rough seas can prevent ships from berthing at certain ports or sailing out of channels safely. Ships then have to wait for the inclement weather to abate, causing a long queue of ships to come in as well as sail out of the port terminal.

Lack of Port Infrastructure

Not all ports are developed and equipped with state-of-art cargo and container handling equipment. Nor will some have the necessary storage space to hold containers and other cargo. Booking cargo and berthing slots of ships without considering these factors can cause serious port congestion.

Labour-related Issues

Labour disputes and strikes can cause operations to slow down drastically or even grind to a complete halt. Last year, a strike by dock workers affected some German ports. Separately, labour unions of the ports of Liverpool and Felixstowe, UK, went on strike protesting over contract negotiations. Similarly, the Finnish port workers went on strike in February this year, affecting operations of all the major ports in Finland for about two weeks.

Lengthy or Complicated Customs Clearance Procedures

Some countries have complicated customs procedures for imports as well as exports. Some of these formalities can be completed only upon the arrival of a ship. Lack of digitalisation and effective communication can add to the woes here, causing a backlog of clearance or export.

How can Supply Chains Overcome Port Congestions?

Dividing bulk orders and having them shipped on multiple vessels to different but nearby ports is one method to overcome port congestion. This is so that even if one consignment is stuck at the main port due to congestion, the rest can be received from other ports. This method is more expensive and will require longer overland transit to bring such goods from the nearby ports.

Overall, for the business, it might work out better than having all the cargo stuck at one congested port. However, this is possible only if there are one or more ports nearby or conveniently accessible.

Having an efficient supply chain that splits the order quantities to stagger the arrival dates slightly is another option to avoid complete stock-outs.

Blank Sailing

Carriers overcome port congestions through blank sailings. When a ship skips a port that is congested and instead sails directly to its next port of call, it is called blank sailing. Such sailings affect the carrier, shipper, consignee, and the port authority in question, where they lose valuable revenue.

To overcome the problem of port congestion, supply chains have become more flexible these days and often opt for overland transport or air freight to bring in their cargo and overcome emergencies.

Port Congestion at Leading Ports

For comparison, one of the busiest ports in the US, the Port of Houston, has a current cargo waiting time of 4-5 days. The busy ports in India fare better. The Mundra Port and the JNPT (Nhava Sheva) have an average waiting time of 1-2 days for discharging incoming cargo.

Port Congestion Surcharge (PCS)

Some carriers charge a port congestion surcharge to cover the costs caused by delays. Recently CMA CGM introduced a port congestion surcharge of $100 per unit for consignments sailing from the Port of Mersin, Turkey, to the Indian subcontinent to cover their costs due to traffic congestion.

Source: Marine Insight

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What is GDP Multiplier Ratio in Shipping?

The GDP Multiplier Ratio is a relatively little-known concept. Still, it is widely used in container shipping while evaluating the potential of new markets, preparing commercial plans and formulating long-term strategies, and prioritising CAPEX allocation when deciding between competing target markets.

It is, in essence, a variant of the Trade Multiplier Ratios that are common in economic parlance and is frequently referred to in the container shipping industry, with executives of companies commonly quoting this number to quantify the prospects for the container shipping trade in any country or region (or at the global level).

The Ratio expresses the relationship between the growth rate of a given country’s GDP and the rate of growth of its containerised trade.

To illustrate with the help of a very simplistic example, if a country’s GDP grew at 10% in a particular year and its containerised trade grew 15%, its GDP Multiplier Ratio will be 1.5, indicating that the company’s containerised trade is growing 50% faster than its GDP.

Likewise, suppose another country’s GDP growth rate is 10% while its container trade grew at 20%. In that case, the GDP Multiplier Ratio is 2, indicating that the second country offers more potential in terms of container trade volumes.

Generally, there is a direct positive correlation between a country’s GDP and its exports and imports.

Countries with a higher GDP would obviously trade more volumes while developing countries with relatively lower GDP will have far lesser international cargo movement.

In the case of exports, a country with a higher GDP would most likely have a bigger manufacturing sector, implying more goods to be exported.

Likewise, a higher GDP would also indicate higher per capita income and higher purchasing power, which would translate into greater demand for imported goods.

Conversely, in the case of countries with lower GDP, the volume of export cargo would most likely be relatively lower, and the composition too would be unfavourable (low-value commodities or raw materials which can be transported as bulk rather than being containerised).

The potential for importing goods would also be lesser, given the weaker spending power of its population.

The GDP Multiplier Ration thus depicts how much stronger the positive correlation between GDP and Container trade is, thus providing a gauge of the likely trends in the development of container trade in that country.

In certain cases, however, such as for specific rapidly developing countries or during a bull cycle, when countries record high ratios, implying that there is greater potential for shipping companies as the country is experiencing a boom in exports and imports (and thus constitutes a fast-growing market).

Examples typically include rapidly industrialising countries in growth regions such as India or in the African continent.

This Ratio is one of the criteria used by the management of container carriers in decisions regarding which markets to serve and making strategic choices on countries/ regions they ought to focus on in the long term.

Since such decisions involve considerable CAPEX and OPEX and entail a long-term commitment to the selected market, the accurate evaluation of the potential of competing options is critical to the sustainable growth and profitability of the Carrier, basis which adequate assets will be deployed, wherefore due consideration needs to be given to the GDP Multiplier ratio (amongst other factors).

Usage of the GDP Multiplier Ratio

Container carriers use the Ratio while making varied decisions, the most common ones of which include:

1. Selecting between various competing markets to invest in

When a carrier intends to expand its geographical presence and sphere of activities, it is presented with questions related to which country to target.

Generally, there exists more than one potential market/country, each with its own pros and cons.

Since the proposed investment will be huge, carriers need to perform a thorough cost-benefit analysis and prepare a robust business case, which will form the basis for selection.

In this scenario, the GDP Multiplier Ratio is a crucial factor while evaluating the relative merits and demerits of each market.

2. Allocation of capacity

Often, expansion doesn’t necessarily mean entering a new market but strengthening its presence in existing markets. In the case of container carriers, this means allocating additional capacity (in the form of vessels, resources and equipment) to a country they already serve.

This, once again, is an expensive investment, and there also exist opportunity costs, wherefore Carriers must exercise due caution while infusing capacity in any particular market.

In such situations, the Ratio is a good tool to justify the deployment of incremental tonnage.

3. Formulating long-term growth strategies

Given the cyclical nature of the container shipping industry, it is imperative for carriers to frame long-term strategies to adapt to the various market cycles, surviving during troughs and maximising profits during peaks.

These strategies include CAPEX in new vessels, as well as decisions on which markets they will serve upon being commissioned (or could be the other way round where the Carrier decides the target market and then orders vessels that are apt for the trade selected – such as procuring vessels with more reefer capacity for vessels intended to ply the South America trades).

The GDP Multiplier Ratio helps in these decisions as well.

The Ratio is obviously to be analysed in conjunction with a wide range of diverse factors, such as:

1. Total container trade volumes

Less-developed countries which have recently embarked upon large-scale industrialisation drives will see their container trade grow at a fast clip (due to higher exports) while their GDP growth will be more measured. Its GDP Multiplier Ratio will therefore be higher (as a ratio or percentage), but the total number of EXIM containers (in absolute terms) will not be as impressive.

Similarly, highly developed countries with a low ratio might, in fact, have a thriving container trade, representing a lucrative market for carriers.

Also, even though the ratio might be low, the fact that it is calculated off a high base means that in absolute terms, even the low percentage will translate into far higher volumes.

This holds true for developed countries, which have already achieved high rates of industrialisation and whose current manufacturing and exports levels are significant, wherefore GDP growth will be driven by factors other than exports, denoting that the growth in containerised trade will be more or less commensurate with growth in overall GDP.

In view thereof, relying solely on the Ratio will present a misleading picture of the country’s potential for containerised transport.

Carriers will therefore need not just to view the ratio in isolation but also consider the volumes in absolute terms that the ratio represents.

2. Scope for containerisation

Containerisation refers to the process of transporting commodities in containers which were hitherto transported in bulk.

As the benefits of containerisation become obvious, more and more commodities are being transported in commodities.

The number of commodities and volumes thereof which have the potential of being transported via containers defines the scope and pace of containerisation in a country.

So, we might have countries whose GDP multiplier ratio is not very high but where existing low containerisation levels mean there is considerable scope for container carriers to try to have these commodities transported via containers.

This is, therefore, another factor that carriers need to be cognizant of while evaluating the potential of any market.

3. Export/import location split, rather than viewing the aggregate ratio in isolation

Besides the forecasted growth in container trades, as inferred from the GDP Multiplier Ratio, Carriers also analyse the corridors and import/ export locations to determine the profitability and viability of the projected volumes.

If the incremental volumes are anticipated to flow to/ from markets which are already overserved, carriers might find that the fierce competition renders the business commercially viable.

Likewise, suppose the trading partner is subject to sanctions. In that case, regardless of the volume of cargo, carriers will refrain from plying the trade to avoid falling afoul of the sanctions imposed (and thus exposing themselves to penalties or restrictions in the broader global market).

Historical developments in GDP Multiplier Ratio and current scenario

Considering that the GDP Multiplier Ratio is a function of a multitude of factors such as increased globalisation, geographical dispersion of supply chains, enhanced international trade connectivity, and offshoring of production to low-cost locations, it is not surprising that the ratio rose steadily since the 1980’s when globalisation became the norm.

China first started becoming the preferred manufacturing location for Western corporations.

The ratio rose steadily from the 1980s to 2008, with values ranging from slightly over 2 to 6 at varying periods in time. The years from 2000-08 saw exceptionally strong development, with an average value of 3.3, coinciding with the strong bull run in the global economy and the container shipping trade.

The recession of 2009 upended the strong positive correlation between GDP and container trade growth, and the ratio started declining gradually over the years.

As the fortunes of the container shipping industry waxed and waned in the subsequent years, the ratio dipped to around 1 and hovered in a narrow range thereafter, indicating that the rates of growth for both the GDP and container trade are on par.

This implies that container trade has to some extent, plateaued, and we will likely witness a moderation from the previously high rates of containerisation.

Post Covid (which turned on its head the traditional dynamics of the container shipping business), given how altered the commercial aspects were, it would be futile to draw any conclusion from the Multiplier ratio.

The reconfiguration of trade routes and realignment of sourcing patterns meant that growth in GDP rates did not accurately mirror the growth in container trade, rendering it difficult to draw meaningful inferences therefrom.

In 2023, as the disruptive pressures dissipate and the container shipping industry shows signs of returning to normalcy, we will likely see a greater correlation between the GDP and Container trade.

The ratio, however, is not expected to surpass the values recorded in the pre-Covid period, indicating that at a country level, growth in container trade is expected to be commensurate with the growth in GDP.

Source: Marine Insight

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What are Trans-Shipment And Trans-Shipment Ports?

Is it a direct shipment? A question commonly asked when shipping goods overseas. Direct shipment is the opposite of trans-shipment. These two terms are used in all modes of transport, be it land, sea, or air.

Direct Shipments

When goods are to be transported from location A to Z, and they are loaded onboard a ship that sails directly from port A to port Z, where port A is the port of first loading, and port Z is the final destination of the cargo, it is called direct shipment.

The ship may sail directly from Ports A to Z without stopping at any other port or calling in at certain other ports on the way to take in or discharge other cargo.

Trans-shipments

When goods have to be offloaded at an intermediate port and loaded onto a different ship to make its onward journey to its final destination, it is called trans-shipment. The port or ports where it is offloaded to take the connecting vessel is called the trans-shipment port. The connecting ship may be scheduled to sail after a day or more, during which the goods will have to stay on shore.

In the above example, if the goods are transported from port A to Port E, offloaded, and then loaded onboard another ship to sail from port E to Port Z, that is trans-shipment. Port E is the trans-shipment port.

Trans-shipment may involve one or more ports between the port of origin and the final discharge.

Why trans-ship cargo and not go for direct shipment?

Direct connections may not be available between two ports. For example, there are no direct sailings to most Australian ports from other continents. Cargo going to Australia from the US, Europe, Africa, the Middle East, and Asia normally trans-ship via ports in Singapore or Port Klang, Malaysia.

Another scenario is when container space is unavailable to ship the cargo directly. Though direct shipments typically reach destinations faster, businesses may trans-ship their cargo to beat delivery deadlines. Let us see how this works through an example.

The Electran company in Kolkata, India, gets an order for 200 electric motors to be shipped to Lena & Co., Cairo, Egypt, by sea, to be delivered in 18 days. Direct sailing from Kolkata Port to Ain Sokhna in Egypt takes 24 days, with the ship calling in at Jurong port, Singapore, en route. However, another option available to Electran company is to trans-ship the container via Cochin, from where it will catch a direct onward sailing to Ain Sokhna. In the second case, it takes only 17 days to reach Egypt.

Direct/Trans-shipment Route Total No. of days taken
Direct shipment

Kolkata Port, India to Ain Sokhna Terminal, Egypt

Kolkata Port, India

|

Jurong Port, Singapore

|

Ain Sokhna Terminal, Egypt

 24 days
Trans-shipment via Cochin, India

Kolkata to Cochin = 4 days

Cochin to Ain Sokhna = 13 days

Kolkata Port, India

|

Cochin Port, India

|

Ain Sokhna Terminal, Egypt

 17 days

In this example, the direct shipment takes longer to reach its destination because of the number of ports of call en route, the total distance to the destination, etc. Whereas while trans-shipping the cargo, a quick connection after offloading the container at Cochin port gets it across to Ain Sokhna faster.

Advantages of Trans-shipping Cargo

Trans-shipments are usually more economical when compared with direct shipments. This is because the demand for moving cargo as direct shipments is higher and costlier. The shorter lead time for direct shipments and fewer times the goods are handled are two main reasons for the increased cost of direct shipments.

Port charges may sometimes be less at smaller trans-shipment ports resulting in cost savings. In some cases, it may be faster to trans-ship cargo, as direct shipments take a longer route while covering major ports.

Trans-shipment ports and the availability of connecting feeder services from these ports offer businesses a great deal of flexibility in shipping their cargo. Large cargo carriers cannot berth in small ports, and in such cases, trans-shipment may be the only option to transport cargo to such places.

However, a trans-shipment may be prone to delay as cargo has to be offloaded, kept in temporary storage, and loaded on board another vessel to continue its journey to its final destination. Delays due to port congestion, other issues, or inclement weather can result in missed connections and longer lead time. The chances of cargo damage are higher in the case of multiple handling.

Top Trans-shipment Ports of the World

The Port of Singapore

It is the largest trans-shipment port in the world. It serves as the main connection between Australia and the rest of the world. An estimated 20% of global sea cargo is trans-shipped through the port of Singapore.

The Port of Shanghai

With the largest automated container terminal, it handles an estimated 21 million TEUs annually in trans-shipments alone.

The Port of Busan

It is the third largest trans-shipment port in the world. Annual trans-shipment volumes last year were more than 12 million TEUs.

Large shipping lines like the MSC, AP Moller-Maersk, CMA CGM, etc., connect to almost every port in the world. They have designated trans-shipment hubs or ports that serve as trans-shipment connection points.

The port of Salalah, Oman, is the trans-shipment hub to the Middle East for Maersk Lines. The Mundra Port in India, in association with the Mediterranean Shipping Company (MSC), completed a major expansion and development phase to play the role of a crucial trans-shipment hub for shipments to the Middle East, South Asia, and India.

Upcoming Strategic Trans-shipment Ports in India

India is focusing on developing its trans-shipment ports in a big way to meet the increasing container traffic. Currently, 75% of the country’s trans-shipment cargo is handled by ports in Colombo, Singapore, Malaysia, and Dubai.

An International Container Trans-shipment Port (ICTP) is coming up at the strategically located Galathea Bay in the Nicobar Islands in the Bay of Bengal. Once completed by 2028, the initial phase will have a container handling capacity of 4 million TEUs annually.

The first phase of the three-phased Vizhinjam International Trans-shipment Deepwater Multipurpose Seaport near Trivandrum, Kerala, is expected to be completed by September this year. This multipurpose seaport that is close to international shipping routes will mainly help in the shipment of break bulk cargo.

In groupage or transport of LCL, cargo trans-shipments are common where cargo is unloaded at a trans-shipment port and grouped with other cargo going to the same destination as a full container load. Trans-shipment ports are important to the cargo shipping industry as minor sea ports often do not have the infrastructure to handle large carriers or the volume of cargo.

Digitization and real-time communication and tracking facilities have made it much easier to handle trans-shipments these days.

Source: Marine Insight

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Understanding Supply Chain Resilience

Disruptions are quite common in our lives, be they personal or professional. A family’s life may face disruption due to the health problems of a member, loss of employment, or failure on any other personal fronts. Similarly, an organisation may face upheavals due to a government’s new economic policies that may result in loss of business. It could also be due to a breakdown of infrastructure, labour, or transport issues.

A society or nation may face disruptions when there is a sudden change of government, a change of economic policies due to terrorist acts, natural calamities, etc. The most recent example is the Coronavirus pandemic which had a global negative impact. Resulting in several millions of deaths (6.8 million is the current estimate by the World Health Organization) and debilities, it pushed the economies of several nations back by a couple of decades.

When the pandemic struck, families, organisations, and nations never expected it to reach such catastrophic proportions, and a Plan B was never in place to meet the calamities – human as well as economical. While some countries could handle the disaster better, some others just crumbled under pressure. The sheer scale of the disaster pulled them down.

What do successful families, organisations, and nations have in place that the others do not?

Resilience

The ability to quickly bounce back to form from a slump is resilience. In most cases, besides financial resources, those who have had an effective Plan B in place were the most successful in bouncing back to their previous form.

Such countries, organisations, or people could deal with illness, economic or governmental upheavals, and other negative pressures more effectively than those who did not. In other words, they were more prepared.

Resiliency in Supply Chains

Here, let us focus on the resilience of supply chains. From a true logistics and supply chain perspective, it is the ability to respond and recover quickly from shocks and disruptions to the business. Supply chain resilience is characterised by the preparedness of an organisation to meet sudden and disruptive events that affect its business performance negatively.

Having flexible contingency plans to counter such situations and quickly mobilise these plans is very crucial here. It is all about mitigating supply chain risks. Let us briefly take a look at some of the important disruptive factors affecting supply chain functions and how to deal with them.

Changes in Government Policies

The policies of a nation’s government need not always remain static. Dynamic nations and their governments often modify their laws and policies to meet their economic targets and improve economic output. This might include changes in taxation and surcharge laws that affect business, changes in the list of items that can be imported or exported, etc.

Changes in government policies on labour as well as transport have to be considered by business organisations as part of supply chain resilience. An example would be diesel-powered trucks commonly used in the transport of cargo. The various climate agreements between member countries are already looking at phasing out automobiles and machinery that use polluting fuels such as diesel. Some countries like the United Kingdom are considering stopping the sale of diesel and petrol automobiles by 2030.

Whether this is a workable solution to combat climate change remains to be seen. Still, it is also a fact that more people are moving towards vehicles that run on less-polluting fuels such as petrol or electric batteries. The retirement age for trucks and other automobiles that run on diesel is also being brought down, and the call for zero-emission models is growing louder by the day.

So, what next – especially for logistics and transport companies? A resilient approach calls for the need to come up with effective alternatives to confront such situations much before it becomes the law. Some direct and proactive outcomes are less-polluting electric-powered heavy vehicles, more effective cargo consolidation methods, sustainable packaging and packing, etc.

MARPOL and IMO

Similarly, the shipbuilding industry, and therefore cargo shipping in general, is under the watchful eyes of the MARPOL (International Convention for the Prevention of Pollution from Ships) and the IMO (International Maritime Organization). Scrubbers or Exhaust Gas Cleaning Systems (EGCS) are used to treat ship engine or ship boiler exhausts and remove harmful particulate matter and other discharges that cause pollution and damage marine life.

Laws to introduce new and effective ship scrubbers and EGCS that bring down these emissions significantly were introduced about two years ago as a result of observations by the above bodies. The shipbuilding industry needs to proactively keep up with technological research and developments to meet such requirements and mandates mainly aimed at reducing marine pollution.

They have to partner with organisations such as the MARPOL and IMO to develop newer and better technologies to combat marine pollution and avoid disruptions. Supply chain resilience can only be achieved with foresight and planning.

Infrastructure Breakdown

Like all plants and machinery, Material Handling Equipment (MHE) is also prone to breakdown. Unless an effective maintenance contract is in place that takes care of quick maintenance in the event of a breakdown of MHE, a supply chain organisation will face problems in fulfilling the demands of its customers.

Having standby machinery may not be viable for many organisations, especially small and medium-sized ones. However, they can enter into a contract with MHE operators to supply material handling equipment on a temporary, as-and-when-required basis. Contracts with service providers should also specify the 24 X 7 availability of technical staff to rectify problems.

Many logistics and supply chain companies have mutual contracts for temporary warehousing arrangements to meet capacity overflow situations. When companies frame their supply chain resilience policies, they must consider all these factors.

Labour Disruptions

A strong and reliable workforce is a critical factor in the smooth running of any logistics and supply chain operations. Labour unrest or absenteeism has to be foreseen. Backup plans such as outsourcing of temporary labour force can be put in place. The introduction of automation and robotics for handling materials also helps in addressing the issue of labour problems to a large extent.

Having an adequate quantity of buffer stock to tide over any difficult situation caused due to disruption of labour is a must for supply chain resilience.

Relationship with Governmental Trade and Transport Bodies

Supply chain organisations should have a good and effective relationship with the related government bodies to help in their seamless forward movement and growth. It helps organisations keep in touch with the pulse of the industry, and this is crucial for maintaining supply chain resilience.

In our country, for example, being aware of the import/export list published by the Director General of Foreign Trade (DGFT) and keeping track of changes helps organisations from adjusting their production line and quantities accordingly. Sometimes, an existing item might be removed from this list. Failure to follow this list and abide by such rules can have severe repercussions in the form of penalties or temporary suspension of export/import licenses, etc.

Challenges and Patterns of Doing Business

Each challenge that every supply chain faces may be unique. Organisations need to learn from these experiences and have systems in place for addressing them effectively in the future. New business patterns may emerge while balancing supply with demand during this difficult phase.

The dramatic growth of E-Commerce during the post-coronavirus pandemic period is a case in point here. Organisations have to use their resources effectively while facing these challenges. Supply chain strategies will have to be reworked and replanned at regular intervals taking into account market changes and other shock factors.

Having multiple suppliers instead of relying on a single supplier can help stock-out situations in many cases. Entering into supply chain partnerships with companies in different geographical areas can also help maintain uninterrupted supplies.

Modern technologies such as artificial intelligence (AI), the Internet of Things (IoT), and cloud database technologies provide businesses with the edge to confront disruptions while at the same time tapping into newer and better opportunities.

Supply chain resilience is an important factor in maintaining any business organisation’s market share and, therefore, its financial performance. It requires the holistic commitment of the entire organisation to foresee risks, resist them, and recover faster.

Source: Marine Insight

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What Do You Mean By Humanitarian Logistics?

The word logistics is usually linked to the supply chain of a commercial business. It involves commercial goods, their transportation, warehousing, and redistribution. The logistics of relief goods, rescue equipment, relief infrastructure, aid workers, and victims in case of a disaster are referred to as humanitarian logistics.

The field of humanitarian logistics has received considerable focus in the last few decades due to two reasons. First, disasters and natural calamities have been on the rise due to changes in the earth’s climate due to global warming.

Second, advanced technology that helps in rescue and relief operations thereby saving human lives in such disasters, has been developed and put to use, with many more being researched.

Natural Disasters and Man-made Conflicts
Floods, earthquakes, and wars – some, because of their sheer intensity often cause untold misery to millions. Unlike commercial logistics, which follows a set and reasonably stable pattern of movement of goods, humanitarian logistics can be very complicated and challenging. These challenges come mainly from political hostilities, the topography of the region, and the destruction of transport and communication infrastructure in the affected areas.

So, why not make use of conventional logistics operations in such cases? The answer is that when most disasters strike, mankind is unprepared. The requirement for humanitarian logistics can be most unpredictable, as in the case of natural calamities or even man-made disasters.

Natural disasters and human conflicts can be very violent. In most cases, it destroys or renders useless the existing logistics infrastructure available in the area that conventional logistics operations rely on. In other words, relief and rescue missions have to be mobilized from other areas that may be located far away.

Disasters of Recent Times

Besides several millions of lives lost, some major catastrophes of recent times that have caused grave humanitarian crises are:

  • Earthquake in Turkey and Syria – February 2023
  • War in Ukraine – ongoing
  • Famine in Somalia, Ethiopia, Kenya – ongoing
  • Earthquake in Haiti, January 2010
  • Hurricane Katrina, August 2005
  • Tsunami in the Indian Ocean, December 2004

The coronavirus pandemic that started in 2020 and is far from over has been viewed by experts as a global health, humanitarian, and economic crisis.

Aid and Relief Materials

Countries affected by crises of such magnitude, especially economically weak nations, may not be equipped to meet such unpredictable disasters that invariably lead to famine and the spread of diseases. What they need under such situations is shelter, food, clean drinking water, toilet facilities, field hospitals, and medical aid to get back to normalcy.

Humanitarian logistics helps in the timely movement of items that are required to restore normalcy and for the quick recovery of the country that has been affected by the disaster. Critical items have to be moved in bulk by airdrops or overland transport from places or countries where they are readily available. The aim should be to act fast, minimize the loss of human lives, and reduce the suffering of the affected population. While juggling all these, humanitarian logistics operators also have to ensure that costs are kept to a minimum.

Think Tanks, Working Groups, Humanitarian Operations

Developed and developing nations have think tanks and working groups that make use of various trends and pattern studies, and economic models to try and forecast disasters. While they may be helpful in alleviating certain situations, natural disasters cannot be prevented altogether. Such groups work closely with governments and organizations that have the infrastructure and support to meet humanitarian crises.

The World Food Program (WFP) and UNICEF are the largest organizations that undertake humanitarian operations around the world. The WFP is based in Rome, Italy. Its operations mainly cover parts of Asia, Africa, and some Latin American countries.

UNICEF’s supply and logistics hub is based in Copenhagen, Denmark. It is the world’s largest humanitarian warehouse operation that caters to emergencies as well as deals with ongoing projects, especially those that alleviate the suffering of children in the world.

The Leadership

How does a typical humanitarian logistics operation work? Having dedicated and dynamic leaders who can engage effectively with high-ranking government bodies and officials is the critical thing here. True leaders are those who can get started quickly and effectively.

Top leaders handling such operations should be experts in communicating with political figures, other relief organizations, and donors across the world. They should be able to come up with project plans and get the necessary funding, and other approvals sorted out quickly from the requisite authorities. They should be able to swiftly mobilize relief staff, infrastructure, and the necessary aid materials required for the humanitarian operation.

Humanitarian logistics operations may sometimes call for unconventional methods to be followed to transport goods and aid workers to a relief site. The team members should be equally committed to fulfilling the tasks and have the drive to help those in distress.

Most disasters require the immediate movement of relief workers and materials to the site. Therefore, depending on the urgency of the situation and accessibility of the distressed location, airdrops are the most preferred mode of transfer in these cases.

The flow of a General Humanitarian Logistics Operation

Assuming that a key humanitarian logistics aid team is in place, humanitarian logistics flow may be generally summarized as follows:

  • Preparation of the project plan
  • Approval of the plan
  • Mobilization of staff and infrastructure
  • Getting the necessary funding and permissions
  • Acquisition and movement of machinery and equipment
  • Procurement of relief goods through direct purchases or tenders
  • Setting up of temporary shelters
  • Setting up temporary distribution warehouses
  • Movement of relief workers, food, water, medicine
  • Distribution of essentials
  • Rescue or transfer of those affected by the disaster
  • Review of operations post-disaster

Most of the above steps happen concurrently so that time – the critical factor here, is not wasted.

Logistics Emergency Teams (LET)

The World Economic Forum (WEF) of 2005 saw the world’s leading logistics and transportation companies, such as Agility Logistics, United Parcel Service (UPS), A.P. Moller – Maersk Group, and the DP World come together to form The Logistics Emergency Teams (LET). This voluntary body provides response and support to humanitarian emergencies around the world. With their experience, expertise, and global contacts, the LET has been part of several successful emergency deployments.

Humanitarian logistics is not always restricted to the movement of relief materials and aid workers. It may also involve activities such as helping a society reclaim its ecosystem through the planting of trees, restoration of fauna, etc. Some of the other activities that are undertaken by such organizations post-disaster period are setting up flood water barriers, hurricane shelters, etc.

The success of any humanitarian logistics operation depends upon how short the gap is between its preparedness and response in meeting challenges of food and medical insecurities and other humanitarian issues faced by the displaced population. The success, speed, effectiveness, or failure of each completed or ongoing operation is to be taken as a learning curve that should help humanitarian logistics organizations perform better and faster in the future.

Source: Marine Insight

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What is A Non-Operating Reefer Or NOR Shipping Container?

Shipping containers of various sizes contribute more than 90% to the transportation of cargo globally. Multimodal container shipping help move cargo between locations using more than one method of transport without having to offload and load between different containers at various locations and the different modes of transport. Last year, an estimated 20 – 23 million TEUs (Twenty Equivalent Units) were used to move cargo globally.

Types of Containers

Shipping containers are generally categorised as dry or refrigerated containers. Dry containers are sometimes referred to as general purpose (GP) containers or dry vans (DV), while refrigerated ones are called reefers. Dry containers store and transport general dry cargo, while refrigerated containers are used for temperature-sensitive materials.

Refrigerated shipping containers have generators fixed to them for running the refrigeration unit that keeps the goods inside at the desired temperatures. These units run on electricity as well as fuel. Temperature-sensitive materials, such as perishable food items, pharmaceutical drugs, etc., are transported using such reefers.

So, what is a non-operating reefer or NOR shipping container?

In some instances, refrigerated shipping containers are used to transport general cargo items but with refrigeration units turned off. Such a container is called a non-operating reefer or a NOR shipping container. A refrigerated container may sail as a reefer to one location, and the same may serve as a NOR shipping container to another location.

What purpose does transporting dry items in a switched-off refrigerated container serve? Why are these dry items not transported by dry containers?

Most leading shipping container carriers offer NOR services. As with all commodities, the principle of supply and demand applies to shipping containers as well. Increased demand for containers to a particular destination may fuel the price, but what if there is not enough demand to get these containers back? In this case, the container rate naturally falls. An imbalance in container availability at locations can hamper the movement of goods.

Repositioning of Containers

To counter this situation, container carriers often offer their customers who might want to transport dry cargo, empty refrigerated containers with their refrigeration units turned off. The repositioning of reefer containers, thus, as NOR, at locations where they are needed most mainly helps the carriers to maintain some balance in container availability. It does away with the need to transfer empty refrigerated containers to locations, thereby losing revenue.

Non-operating reefer services are usually available to customers at a reduced rate. Besides being cost-effective to the customer, this method of repositioning containers generates revenue for the shipping carrier.

However, reefer containers cannot carry the same volume of cargo as their dry counterpart. They have much less cargo space as some space inside is taken up by the refrigeration equipment and insulation. The thicker wall of reefer containers consisting of insulation materials or padding reduces storage space considerably. Besides, the dimensions of the door of a reefer container are much less when compared to a dry one.

Not all types of dry cargo are allowed in NOR containers. Only cargoes that do not damage the equipment and insulation material are allowed by carriers in their NOR containers.

Normally, cargo packed neatly in cardboard or similar cartons without sharp edges is allowed. The cartons should be such that they can be stacked and lashed safely, so they do not move around inside the non-operating reefer. Loose loading is not done in such containers.

Similarly, there are weight restrictions too. The normal maximum allowable weight is 3000 KG/M. Hazardous chemicals, heavy machinery with sharp parts, abnormally sized cargo, fertilisers, batteries, items with strong odours, etc., are not allowed in non-operating reefers.

NORs are generally used to transport food and beverages, textiles, toys, and other such items.

Converting a Refrigerated Container to a NOR Shipping Container

A refrigerated container has to go through a certain process before it can be used as a NOR.

After unloading a reefer of its refrigerated contents, the refrigeration unit is switched off and disabled. It is then taken to its respective container depot, and the inside is cleaned and dried thoroughly. Once these steps are completed, the container is ready for taking in the designated dry cargo.

Why NOR Shipping Containers?

As we have seen earlier in this article, NOR shipping containers benefit both the carrier and the customer.

To the carrier, it helps to a great extent in offsetting container shortages at locations – both dry and refrigerated. Shipping dry goods by NOR is economical to businesses as costs are much less than a dry container of the same size, albeit with some space restrictions.

NOR containers get priority onboard carrier vessels as it is mainly used to meet container shortages at a destination. This also means a shorter lead time for the customer.

Limitations of NOR Shipping Containers

Some limitations of NOR containers are given below:

  • Non-operating refrigerated shipping containers cannot be used in the transportation of all types of cargo.
  • Since they are technically classified as reefers, they do not get the extended detention and demurrage-free days that dry containers enjoy.
  • A NOR container can only accommodate a lesser volume of cargo when compared with a dry container of the same size, for example, a 20’ refrigerated container used as NOR V 20’ dry container (General Purpose or Dry Van). This is because of the space occupied by the refrigeration unit inside the container and its thicker insulated container walls.
  • It can accommodate only a lesser weight than a dry van of the same size. This is usually fixed at 3000 KG/M.
  • It is estimated that a NOR container holds 10 – 15% less cargo than a dry container of the same dimensions.
  • Dry containers usually have more lashing points to secure the cargo, another reason why not all types of dry cargo can be transported using a NOR container.
  • For transporting dry cargo, the inside of such a container has to be dry – especially if it has been washed before loading.
  • Sharp edges of boxes or machinery may cause damage to the insulation material, and hence special care has to be taken while loading and unloading cargo.
  • The dimensions of the door of some reefer containers may be less than that of a dry container. The feasibility of loading cargo through the narrow opening must be considered before booking such a container.

Customers must consider these limitations before transporting their cargo by a NOR container.

Source: Marine Insight

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What is an ATA Carnet in Shipping?

In French, the word ‘carnet’ simply means a notebook. Later on, this word came to be commonly used for ticket books or a bunch of tickets bound in the form of a simple booklet from which it can be torn off and used.

Today, if you were to check the dictionary for the word ‘carnet’ you will find that it means ‘a permit, license, or document issued by a customs authority for the movement of an item from one country to another for a short period after which it has to be brought back to the country from where it was sent’.

Global business operations these days may require the movement of goods or equipment from one country to another for a short period. In such cases, it is not taken for sale or consumption.

To take an example, business organizations often display their products at international exhibitions, trade fairs, etc. A product for display has to be first exported to the country where the exhibition or trade fair is being held. It may have to pass through several countries, enroute.

Once the event is over, the product has to be taken back to its country of origin. Such temporary transfer of goods between countries without having to pay customs duties or following the normal customs formalities is facilitated through an easy customs arrangement called the ATA Carnet.

It allows goods into a country on a temporary basis while guaranteeing payment of customs duty in the event of a default. That is, if the goods are not taken back to their country of origin within the specified period, customs duty becomes payable.

An ATA Carnet can be availed by any legally registered business organization. It is more popular among exhibitors, motion picture filming crews, sports teams, etc.

What is an ATA Carnet?

The acronym ATA stands for ‘temporary admission’ or ‘admission temporaire’ in French. It is an international agreement between customs authorities of certain countries that allows for the movement of goods between these countries without having to pay customs duty or having to move the goods through a bond.

Currently, there are about 80 member countries to the Customs Convention on ATA Carnet that is administered by the World Customs Organization (WCO). A council working closely with the WCO called the World ATA Carnet Council (WATAC) is in charge of managing the system. Representatives of the member countries make up the WATAC.

The ATA Carnet does away with the need to pay customs duty at a port of entry, keep the imported goods in bond, furnish sureties and guarantees, or fulfill other customs formalities normally associated with the import of goods. It is a system of quid pro quo where the appointed bodies of the member countries guarantee each other on the agreements.

Member countries usually have a single body that would guarantee such transactions, but a few leading countries have several bodies that are authorized to issue guarantees.

What does the ATA Carnet issuer guarantee?

The basic guarantee states that duties and taxes will be paid by the guaranteeing body in case the arrangement is found to have been misused. As such, an exporting organization cannot sell or transfer the goods once it reaches their destination. It has to ensure that the goods are taken back to the country of origin within a specified time frame.

Most guaranteeing bodies take security from the exporting organization to cover claims that may come up in case of any default. Such securities are usually in the form of bank checks or surety bonds.

Benefits of ATA Carnets

The popularity of ATA Carnets stems from the fact that it can be prepared easily by any legally registered organization wishing to export their product and bring it back within a certain period. This document is then checked and verified by the customs. As we can see here, it does away with cumbersome processes that are otherwise involved in exporting and later re-importing an item under a duty-exempt agreement.

There are considerable savings in time and money when an ATA Carnet is used. It benefits both the organization sending the goods as well as the customs departments as there is much less administrative work to cover.

In the event of an exporter defaulting on taking back the goods within the specified period, customs duty is automatically charged and becomes payable immediately by the guaranteeing body. A penalty is also usually charged when such goods exceed their validity of stay in the foreign country. Most of the ATA Carnets are valid for one year making it convenient for professional exhibitors and those who travel frequently with goods or equipment.

The validity may be extended in certain cases. Some countries accept extended carnets, also known as ‘replacement carnets’. But they have to be extended well before their original expiration date.

What are the goods that are normally covered under the ATA Carnet?

This list can be quite exhaustive however, it can be generalized as follows:

  • Items used in exhibitions and fairs
  • Professional or sports equipment

ATA Carnets are mostly used for the temporary movement of goods such as exhibition materials, sports equipment, race cars, race horses, camera and filming equipment, musical instruments, etc.

Items that are generally not covered under the system of ATA Carnet are goods that are consumed or disposed of at the destination. Examples are, samples that are meant for visitors or clients, printed brochures, oil, lubricants, cleaning materials, etc. Items that will be sold to customers do not come under ATA Carnet. Food and beverages, tobacco, fuels, etc. are some of the other items that normally cannot be taken abroad using the ATA Carnet.

Since different countries have different specific rules and regulations regarding the import and export of goods to and from their territories, exporters are advised to check with the respective customs authorities before making any arrangements to move their goods under the ATA Carnet agreement.

Who issues and guarantees an ATA Carnet?

In India, the Federation of Indian Chamber of Commerce and Industry (FICCI) is the appointed authority for issuing and guaranteeing ATA Carnets. In the US, it is the United States Council for International Business (USCIB). The USCIB has two appointed service providers under them (Roanoke ATA Carnet and Boomerang Carnets). The London Chamber of Commerce and Industry and the Paris Chamber of Commerce issue ATA Carnets from the UK and France respectively.

Source: Marine Insight

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Maritime Law

What Is A Ship Trim?

Vessel Stability measures the ship’s uprightness or how it remains at water level. Now, in a broad sense, this uprightness can be conceived from two perspectives, and ship stability can be described in two ways: i) longitudinal and ii) Transverse stability.

Transverse stability is the vessel’s tendency to remain upright when viewed in a longitudinal direction or when looking at the vessel from its fore or aft. Thus, we look at the vessel’s cross-section or faceward view.

Now, when the vessel inclines towards its port or starboard side about its longitudinal axis or, in technical terms, the ship’s centreline, we say that the vessel has lost its uprightness. When a vessel inclines towards the starboard, there is more draft on the starboard side than on the port and when the vessel leans towards the port side, vice-versa.

We have also studied the several facets of transverse stability, including the disturbing forces responsible for this loss in uprightness, heel and list (remember the difference?), myriad technical terms associated with this problem like the centre of buoyancy, the centre of gravity, metacentre, metacentric height, righting arm, and so on. Moreover, we have also learnt about the inclining experiment and how to attain stability.

Let us briefly look at another aspect of ship stability.

SHIP TRIM AND A BRIEF ON LONGITUDINAL STABILITY

Longitudinal stability is the measure of a vessel’s uprightness’ when we describe it from a lateral or sideways sense. That is, looking at the vessel’s length from any side. Here uprightness is defined as the vessel’s state of remaining level or even with the waterline throughout its length or span.

Now consider a situation when this state is lost, the vessel inclines towards the fore or aft by bow or stern respectively, and the even waterline changes. This is known as the ship’s trim. In other words, when the draft or water level is different or variable throughout the vessel’s length, the vessel is said to be trimmed.

When the draft or water level is higher at the bow or forward as compared to the stern or aft, the vessel is said to have a trim by bow or trim by forward. Conversely, when the draft is higher at the stern or the aft of the vessel compared to the bow end, the vessel is said to have a trim by aft or trim by stern.

The causes for this disparity in the drafts in a longitudinal sense of a vessel can be various factors more or less similar to the ones in the case of transverse stability, i.e., external like weather or sea conditions or internal like loading or weight shifts.

Measuring Trim

Trim measurement is very important for both designers and vessel operators. In simple terms, the mathematical difference between the forward and aft drafts, measured at the extreme ends of the vessel, is the Trim. Suppose the vessel has a draft TF measured at the forward end and a draft value TA measured at the aft end. The net trim of the vessel is the difference: +/- (TF – TA ).

Trim angle is also important while studying trim. A vessel has differential submergence at forward and aft, and throughout its length, the waterline changes as expected. Assuming the waterlines to be straight lines and ignoring effects like waves, ripples, etc., for basic calculation purposes, the previous and the new waterlines intersect at a certain point in the vessel’s length.

The equal and opposite angles subtended at the point of intersection are known as the trim angle. By the simple laws of geometry, this is directly proportional to the extent of trim faced by the vessel at a given time.

Physics of Trim and A Brief on Longitudinal Stability

Now trim is caused due to a force and an associated moment, whether external or internal. So, from the point of view of physics, this force and moment need to act somewhere to bring about the desired effect of trim.

They essentially act about a transverse axis passing through the point where the original and new waterlines intersect, as described in the last section. This point is known as the centre of flotation, or F.

This point is also the geometric centroid of the vessel’s water plane at the given time. Suppose some weight is added at a point lying on the same vertical line as the centre of flotation. In that case, there won’t be any change in the net trim, but only sinkage as from the physics of bodies, any kind of force acting on the centroid does bring about any change in the resultant moment, which effectively remains zero. Forces and loads acting anywhere else results in effective trimming moments acting about F that can cause changes in the trim.

The terms associated with longitudinal stability are more or less similar to that of the transverse. While the point keel K, and the centre of gravity, G, remain the same in a vertical sense, the centre of buoyancy, B, and the Metacentre, M, are taken as longitudinal.

The distance from the keel to the metacentre, KM, is once again the sum total of the distance between the keel and centre of buoyancy, KB, and the metacentric radius, BM, which is also the vertical distance between the centre of buoyancy and the Metacentre, M, or the sum total of the distance between the keel and the centre of gravity, KG, and the metacentric height, GM (distance between G and the M ), all quantities being analogous to those being discussed concerning transverse stability.

However, as already mentioned, specific measures like KM, GM, and BM are relevant from the point of view of longitudinal stability. They are marked with a subscript L while denoting for all practical purposes. We will not go into the detailed aspects of these and their associated calculations and derivations, which are beyond the scope of this article, which is mainly for understanding trim and longitudinal stability.

However, one very important quantity in our discussion that needs to be discussed is the moment to cause trim or MCT.

As we have already discussed, trim is always related to some enacting moment. So, for a given trim, t, there needs to be a certain moment associated with it. In the simplest of cases, when there is a shift in some weight, w, from one point to another over a certain distance, h, the moment is simply the product, w x h.

Similarly, when there is a change in internal loading, say, for instance, some kind of weight being added at a certain location, the moment can be likewise considered the product of the added weight w’, and the distance, say l, from the given point to the centre of flotation, F.

However, the scenario is different for external causes bringing about trim, though there are classifications and other empirical relations for the determination of the forces and moments due to these, like in transverse stability.

But for convenience, the moment to cause trim, which is a determiner of the ease or the minimum effort required to cause the trim has been standardised. Now the question arises: standardised to what? The answer is standardised to cause unit trim. Now carefully note the last term.

This means that given the disposition of a vessel, the minimum moment to cause this unit trim can be determined from physical relation. This is given as W X GML / L, where W is the displacement, GML is the longitudinal metacentric height, and L is the vessel’s length. We do not go into the derivation of this relation and its implications in calculations.

Now, this term unit trim can be ambiguous. The above relation essentially gives the moment to cause a trim by 1 metre. If we want to get the moment to cause a trim of just 1 cm, we simply divide the above quantity by 100. This has been further standardised as MCT1cm. Similarly, for getting in other units like feet or inches, the above relation can be transformed accordingly, though centimetres and metres are the two most common units of today.

MCT is also useful for estimating the drafts at which the vessel is likely to float at given conditions of loading.

Similarly, sometimes under certain conditions, trimming by bow is also important. Other than efficiency, trimming under certain limits is also crucial for instances like weather, sea-states, and other ballasting requirement issues. Several modern ship operators are purposefully using this useful trim to not only optimise efficiency but also save on energy consumption and even reduce emissions. The best trim for a vessel at a given time is determined by optimising all conditions of speed, draft, external conditions, and design.

Source: Marine Insight

 

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