Historically, societies have always located near water, due partly to the fact that water enables more efficient travel tra vel compared to going over land. Waterways are ccritically ritically important to the transportation of people and goods throughout the world. The complex network of connections between coastal ports, inland ports, rail, air, and truck routes forms a foundation of material economic wealth worldwide. For Europe, maritime transport has been a catalyst of economic development and prosperity throughout its history. Maritime transport enables trade and contacts between all the European nations. It ensures the security of supply of energy, food and commodities and provides the main vehicle for European imports and exports to the rest of the world. As an economic economic activity, modern modern sea s ea transportation involves not only profitability, but imposes itself as an objective requirement in developing a human society based on geographical, economical and political data. Thus, it is considered that for any country`s economy, maritime transportation represents one of its most important linkages to the world economy. In order to support this idea, we can consider the fact that, when a shipping company is set up and organized, it immediately establishes a series of activities for cargo and passenger transportation, on world`s rivers, seas and oceans. Cargo and passenger transportation respond to the world economy`s needs, but the main purpose of establishing a shipping company is represented by the financial efficiency of the investment, meaning obtaining profit, in the short and also the long run. Shipping companies are considered important components of a state`s economy, due to the important role held in exporting and importing activities, for passenger and cargo movement. Most important role played for an economy is that they reduce the distance between producers and consumers, by realizing a series of connections between different national or international ports, or between the origin country of the ship-owner and other countries in the world.1 ³Shipping is one of the world`s most important industries and in studying maritime economics we are drawn into a discussion of the world economy as a whole. Seaborne trade is, in a sense, at the apex of world economic activity.´ 2
Alexa, C.: Ä Transporturi i expediii internaionale ´ , Editura ASE, Bucureti, 2001, page 1; Stopford, M.: ÄMaritime Economics´, 3rd edition, Abingdon, Oxon, 2009, chapter 1, page page 2, paragraph 3.
This paper, ³International Maritime Freight in Transportation´, aims to realize a clear and precise evaluation of how shipping companies perform their activity on the Romanian market, by highlighting their relationship with other businesses (through the charter contract) and also the t he price applied to these ccontracts ontracts,, meaning the freight. For the case study I have chosen a private limited company, ³BALKAN SHIPPING AGENCY´ LTD, one of the most active shipping companies from our country. The paper has been structured as follows: The first chapter presents general and particular aspects of marine transportation, including characteristics, main advantages and disadvantage, but also its importance within the world economy, its impact over the environment, and the effects over the international trade activities. The second chapter presents the types of charter contracts, their defining features, the forms these contracts might take, the bill of lading, its uses and also a differentiation between the bill of lading, as a transportation document, and the charter contract. The third chapter is based on describing the international freight market, the ways of establishing freight, its formation and the factors that influence it. The fourth chapter is represented by the case study on BALKAN SHIPPING LTD, comprising descriptions of the parties involved, the transportation route, cargo description, freight calculation and documentation needed in order for the transportation activity to be realized. The paper ends with conclusions and recommendations on the Romanian market of maritime transportation services.
Ch apt er I General Aspects Regarding Maritime Transportation 1.1. The Objective and the Importance of Maritime Transportation Activity
Transport is the most important link in economic relations. It is involved in creating products and delivering them to consumers, provides the link between production and consumption, between different industries, between countries and regions. It affects the development of the economy as a consumer of metal, energy, timber, rubber and other products. More than 100 million people in a world work in the system of transport. Sea transport is mostly used for external transactions. Only in some countries such as USA, Russia, China, Canada, Turkey, France, maritime transport provides internal transportation. This mode of transport is considered to be the largest carrier of freight throughout recorded history (carries more than 80% foreign trade goods) and also the cheapest and the most convenient, especially when displacing large quantities of merchandise. Most of cargo of the maritime transport accounted for liquid cargo ± oil and petroleum products. Dry-cargo vessels have a smaller share. In their basic structure bulk is dominated, then, general and secondary mass. The main condition for safe operation of the world¶s mercantile fleet is its constant renewal, increase tonnage of vessels, increase engine power, increase speed, automation, and improved environmental performance. Densities of vessels aged over 10 years are more than 1 / 3 of the world fleet and the ones aged over 25 years represent only 1 / 20. In developing countries and countries in Eastern Europe there is a tendency to increase the share of older vessels, which increases the risk of shippin s hipping g3. The structure of marine transport is dominated by specialized vessels ± tankers, bulk carriers, reefers, timbers. Tankers make up the greater part of half the world¶s fleet, which is associated with the development of world oil market. Most courts are designed according to the navigation (navigation mode) and under a certain type of cargo. Some ships are only for passengers, more ships are used to transport passengers and cargo (cargo), but the bulk of courts specialize in cargo transportation. There
ÄThe importance of maritime transport in the global economy ´, April, 2nd, 2010, available at http://www.nissoana.com// , last accessed 30/06/2010. http://www.nissoana.com 5
are four main types of marine vessels: 1) cargo ship (bulkers, liquid, combination) that perform certain booking or operate on regular routes, 2) cargo ship, 3) high-speed passenger liners, which have two or three classes for passengers, mail and luggage compartment, 4) a small number of comfortable high-speed vessels intended only for passengers and mail. Merchant service is a set of ships, which together with their personnel is engaged in commerc ial activities. commercial activi ties. Marine cargo car go ships have always been an importa important nt part of merchant ercha nt fleet and its main support in the financial sense. Thus, merchant ships may be divided into several categories, according to their purpose and/or size, just like the above mentioned marine vessels.
Problems One of the most important characteristics of this means of transportation refers to the specific environmental conditions in which it develops its activity ± seas and oceans ± that require special safety measures. It is generally known that any maritime expedition is naturally exposed to sea risks, the easements and the dangers of the unfettered force of nature. This is the reason why, with the social-economic development of the countries, the organizational improvement of these activities was imposed, through more efficient safety measures of insuring the ships, the cargo, the passengers and the crew`s members, but also the establishment of a more adequate legal framework to allow a normal development of the marine sector. No other transportation means can assure the movement of billion tons of cargo across seas and oceans. Even if airlines succeeded to become leaders on the transoceanic passengers¶ displacement, there still cannot be predicted a substitute means for transporting cargos. With respect to the other means of transportation, ship transportation is characterized by high loading capacity, but even the most recently designed ships have a relatively slow speed, even though they travel at very long distances. Marine and river transportation realize connections between different ports 4 of the globe, in high efficiency conditions, the costs being lower compared with land transportation. It is moreover recommended when moving small value goods and shipping costs prevail over time needed for displacement.
As advantages of this means of transportation, we can consider the following: - The most economically means, calculated even with respect to total costs incurred, even to displaced tone, but especially tone per mile; it is then true that, the advantage is highlighted especially on long distances ± transoceanic shipments; - Uses a developed range of ships, classical or specialized, with capacities from some tone deadweight to over 100 000 ± 300 000 tdw, which allow transporting large quantities on long distances, without stopping between the loading and the destination ports; - Allows the movement of cargo and passengers almost in any area of the globe, including ice areas and without water passage, and in better safety conditions; - Even considering the long distances covered, the shipping routes require much less arrangements for developing their activities, in comparison with land transportation; - Allows the concentration in marine hubs, the largest international harbors, of huge quantities of goods, which can be transported on the most diverse marine and oceanic routes; - Allows the receiving of different goods and quantities, in the same international harbors, from various maritime routes, which are dispersed, according to their destination, on the entire area of the served hinterland 6; - In certain situations, it can become a means of improving and offsetting the balance of payments of one country, helping the external debt reduction of the developing countries, through: establishing prices and delivery quantities which correspond to both the interests of the producers and the importers, improving the access over the less developed and developing countries, reaching commercial agreements for every single basic product (UNCTAD decisions). decisions). All in all, we can admit that the marine transportation, as an objective economic necessity, is able to keep its advantages through an adequate organization in constructing national and international fleets and harbors, with regard to all determinant factors of efficiency.
Beziris, A.: Ä Transportul Maritim ± Probleme Tehnice si de Exploatare ´, vol. 1, Editura Tehnica, Bucuresti,
1988; 6 The land or district behind the borders of a coast or river. The area from which products are delivered to a port for shipping elsewhere is that port's hinterland. 7
By considering the development of the marine transportation activities up to their complexity, A. Beiziris identified in his paper, ÄTransportul Maritim ± Probleme Tehnice si de Exploatare´ (1988), the following problems or disadvantages disadvantages :
- The necessary investments needed for specialized modern ships construction, adapted to technical standards at international inter national level; - Assuring the safety conditions before sea risks, through the quality of the construction and the installation on board; - Forming a qualified and specialized staff, corresponding to the high quality and value of the available means, but also the economical characteristics of this sector, with intense and variable international relations; r elations; - The most important drawback is still represented by the fact that it`s speed is very slow compared to all the other ot her means of transportation. The advantages and disadvantages of this means of transportation indicate that their solution is close related to international economic and political factors.
1.3. The Development of Maritime Transportation The marine transportation activity is one of the most internationalized activities and for studying its advance is necessary to take into account the evolution of the world economy 7. The first reaction of a ship owner or a charterer after an iimportant mportant event (for example: a nuclear accident in Russia or an a n increase in oil price), is to weight its effects over the marine transportation market. The most important increases in freight prices were generated by political conflicts, the most noticeable being the closing of the Suez Channel in 1956 and 1967. Besides the political influence, neither the strategic influence of the marine transportation activity can be neglected. As the sector faced deeper internationalization, the new industrialized countries together with OECD (The Organization for Economic Cooperation and Development) contributed to the maritime development. development. For a better understanding of the economic and political factors that contributed to the development of the marine transportation activities is necessary to look at the double interaction between the development development of the sector and the one of the world economy. One of the principal reasons of the industrial revolution was building a cheap and fast means of 7
Batranca, G. Ä C o onsideratii nsideratii Privind Fundamentarea Deciziilor in Transpo rtul Maritim´, Editura AIT Laboratories, Bucuresti, 2004; 8
transportation. This is why, every day distances seem to be shorter and shorter. This progress, from a world built up from isolated communities to a global community, is due to the activities of the commercial marine transportation. The increased importance of the marine sector determined the development of a whole international cooperation, under the supervision of U nited nited Nation Organization, for : - -
Assuring safety conditions for human life and the ships over the sea; Avoiding Avoid ing accidents and a nd the organization of the marine rescue and assistance;
- Preventing the environmental pollution and especially the one of the marine environment; - Unifying the marine transportation legislation and a nd methodology; methodology; - Protecting the ship owners and the producers of goods; - Establishing, for maritime trade, an adequate, fair, lasting and operational, legal and economic framework, able to guarantee, based on international cooperation, equality in the obligations and the rights of the parties involved.
1.4. Sea Transportation and the Economics The idea of shipping as the catalyst of economic development is not new8 . Adam Smith, often regarded as the father of modern economics, saw shipping as one of the stepping stones to economic growth. In the third chapter of ³The Wealth of nations´, published in 1977, he argued that the central economic force is a capitalist society in the division of labor, and the extent to which this can be practiced depends crucially upon the size of the market. A business working in a country town without links to the outside world can never, he argued, achieve the high levels of efficiency because it`s very small market will limit the degree of specialization. Adam Smith saw shipping as a source of cheap transport which can open up wider markets to specialization, by offering transport for even the most everyday products at prices far below those that can be achieved by any other means. This proved to be a profound insight. Economic development has gone hand in hand with sea trade for sound economic reasons, a process which Adam Ada m Smith explains in the following following way: ³As by means of water carriage a more extensive market is opened to every sort of industry than what land carriage alone can afford it, so it is upon the sea-coast, and along the 8
Economy Watch ± Economy, Investment and Financial Reports, Ä S hipping hipping Industry´, available at http://www.economywatch.com/world-industries/shipping-industry.html,, last accessed 26/06/2010; http://www.economywatch.com/world-industries/shipping-industry.html 9
banks of navigable rivers, that industry of every kind naturally begins to subdivide and improve itself, and it is frequently not until a long time after that those improvement extend themselves to the inland parts of the country «.´9 Adam Smith painted a graphic picture of the economic benefits offered by sea transport in the eighteen century, centur y, as follows: ³ «. a broad wheeled w heeled wagon attended by two men and drawn by eight horses is about six weeks time carries and brings back between London and Edinburgh nearly 4 tons weight of goods. goods. In about the same sa me time a ship navigated by six or eight men, and sailing between the ports of London and Leith, frequently carries and brings back 200 ton weight of goods. Since such, therefore, are the advantages a dvantages of water carriage, it is natural that the t he first improvement improvement of art and industry should be made where this convenience opens the whole world to a market for the produce of every sort of labor.´ 10 This is a labor productivity of 15 times. By exploiting economies of scale and integrated transport system, shipping continues to demonstrate Adam Smith`s insight. Today, a lorry carrying a 40-foot container from Felixstowe to Edinburgh might be competing with a small container ship carrying 200 containers. Or a truck holing 40 tons of oil along our congested highways competes with a coastal oil tanker carrying 4 000 tons of oil by sea. Ships now travel at speeds that trucks can hardy match on congested urban roads and at a fra fraction ction of the cost. No wonder that the oceans are the highways of economic development, an aspect of the business that hardly changes cha nges over centuries.
1.5. Sea Transportation and International Trade Tra de
Sea transport or simply shipping is essential to the functioning not just of modern society generally, but of the global economy in particular. For international trade, sea transport remains the most economical mode of transportation that moves all kinds of goods around the world. For example, shipping makes possible the bulk movements of raw materials and primary commodities to sites of manufacturing, and manufactured products to their markets. Moreover, the movement of forms of fuel and energy, especially petroleum and natural gas, is also largely dependent on shipping. Without effective and economical sea transport, therefore, the viability and efficiency of the world economy would be adversely
Adam Smith quoted in Martin Stopford, Ä Maritime Economics ´, 3rd edition, Abingdon, Oxon, 2009 Martin Stopford, ÄMaritime Economics´, 3rd edition, Abingdon, Oxon, Oxon, 2009, chapter 1, page 3, paragraph paragraph 3
affected. Indeed, economic growth has become closely related to developments and improvements in sea transportation.11 In recent times, developments and advancements in sea transportation have had profound impacts upon international trade. To take an important example, the conversion of merchandising from break-bulk shipping to containerization now permits goods dispatched from their point of origin to reach their intended destination more efficiently, and with much less risk of damage da mage to the goods. There are also clear cl ear benefits to exporters and importers when sea transportation costs less while facilitating µJust-In-Time¶ stock management. Presently, traders can expect relatively safe, easy and economical access to international markets through a combination of deep-sea and short-sea shipping that utilizes container transshipment opportunities. opportunities. ÄWithin the very broad area of sea transportation, short-sea has become increasingly important because most trunk or deep-sea vessels do not call at small or ³off-line´ ports. At such ports, the depth may be insufficient to accommodate large vessels, or the cargo amounts are too limited to justify the use of large vessels. Instead, ³feeder operators´ provide separate short-sea shipping services that mediate between small ports and large vessels. Since small ports greatly outnumber major ports in the world, short-sea transport is an indispensable part of the growth in sea transportation.´ tr ansportation.´12 Due to the financial crisis and economic downturn, growth in the world economy and in global merchandise exports decelerated in 2009 and it is expected by analysts to decline in 2010. The reduction in the global production and demand resulted in lower levels of trade and undermined growth in maritime commercial activities. Downside risks, including the adverse feedback between the financial sector and the real economy, made the outlook for maritime trade uncertain. Climate change and the need to adapt to the international regulatory regime for greenhouse gas emissions from international shipping are adding a further challenge to maritime transport sector. As mentioned earlier, after the economic downturn and sharp decline in world merchandise trade, growth in international trade continued, but at a slower rate of 3.6 per cent in 2008, as compared to 4.5 per cent in 2007, and even slower in 2009.
igmund Freud´, 2000 Pamela Tirschwell, ³ S igmund
hort-S ea ea Transport and Economic Development Business Intelligence Journal - August, 2009 Vol. 2 No. 2,´ S hort-S in Penang ´, ´, Chang Kah Loon, (MPhil)
Consistent with the past trend, major loading areas were located in developing regions (60.6 per cent), followed by developed economies (33.6 per cent) and countries with transition economies (5.9 per cent). These facts are ar e shown in the graph bellow:
Table 1.1. World Merchandise Trade Tra de (2000-2008) (2000-2008) Exports Countries 20002008 2007 2008 5,00 6,00 1,50 World 2,50 5,00 1,50 North America 0,00 2,00 -6,00 Canada 2,00 1,50 -5,00 Mexico 3,50 6,50 6,00 United States 5,50 3,50 0,50 South and Central Centra l America 3,50 4,00 0,00 Europe 3,50 3,50 -0,50 European Europea n Union (27) 1,00 3,50 7,50 10,00 2,50 20,50 -4,00 12,50 6,00
1,50 7,00 7,50 11,50 2,50 19,50 -20,00 13,00 9,50
0,00 1,50 2,50 5,50 5,50 8,50 -11,00 7,50 2,00
5,00 3,00 3,50 3,00 3,00 8,50 3,00 3,00
6,00 1,50 2,00 -2,50 5,00 0,50 4,00 0,50 1,00 -3,50 17,50 13,50 4,00 -1,50 3,50 -1,50
Norwa Norway y Switzerland Commonwealth Commonwealt h of Independent States Stat es* * Asia Australia China Hong Kong, China India Japan
5,00 2,00 17,00 8,00 9,00 16,00 3,00 13,50 2,50
9,50 2,00 5,00 2,50 20,00 16,50 8,00 4,50 11,00 10,00 14,00 4,00 7,00 -2,00 16,00 14,00 1,50 -2,00
Six East Asian Traders* Tra ders*
*Commonwealth of Independent Independent States: a regional organization, whose participating cou countries ntries are former Sov Soviet iet Republics, form formed ed during the breakup of the Soviet Union; *Malaysia, Republic of Korea, Taiwan, Penghu, Kinmen, Matsu and Thailand.
Source: WTO,´Growth in the volume of world merchandise trade by selected region and economy ´(2000-2008), available at http://www.wto.org/english/res_e/statis_e/its2008_e/its08_world_trade_dev_e.htm, http://www.wto.org/english/res_e/statis_e/its2008_e/its08_world_trade_dev_e.htm, last accessed 30/06/2010.
Even though, over the years developing economies have increased their share of imports, including finished consumer goods, and also parts and components used as inputs in globalized production process. All in all, after analyzing the decline in demand for consumption goods, as well as the fall in industrial production in major economies and reduced energy demand, especially in developed regions, we realize that deceleration of maritime trade volume affected all shipping sectors.
The year 2009 has been di i
lt for the entire shi
ing industry and the major it ity of
the Balti por ts saw their cargo volumes fall Finland and Germany recorded b iggest losses, but Sweden, Lithuania and Poland followed with considerable falls in their por ts¶ cargo
throughputs for the f irst three quar ters of 2009. However, it seems that the end of the year has borne witness to some k ind of recovery, at least in L ithuania and Poland. In addition, Estonia was able to boost its already positive growth dur ing the last quar ters. Prelimnary data i suggests that Estonia was the only state in the Baltic Sea region to increase its cargo volumes
in 2009. In 2009, R oman omanian was one of the countr ies that exper iences one of the lowest volume of merchandise traded in its major por ts, as shown by the char t bellow.
Char t 1.2.Total merchandise traded in EU major por ts (2009)
t ranspor ranspor t o t of oods ± 3rd quar t t r 2009 , Source: European Commision, Eurostat, Statistic Da tabase, ³Mar ³ Mar iti iti available at http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/ S-QA-10-027/EN/ S-QA-10-027-EN.PDF, S-QA-10-027-EN.PDF, last accessed 28/06/2010. £
the strategic impor tance of shipping to the EU economy - 2 billion tones of
freight are loaded and unloaded in EU por ts every year - and the increase of the mar iti itime
traff ic going through EU waters (every year 1 billion tones of oil are transiting through EU por ts and EU wat ers), the EU is constantly developing and int ensifying its mar iti itime safet y
policy which the aim to eradicate substandard shipping essentially through a convergent application of internationally agreed rules. As maritime oil disasters have proved, the environment is hit hard when ships carrying dangerous cargo run into trouble. The European Commission is keen to improve the safety of vessels carrying potentially polluting cargo, hence the decision to ban single hull tankers in view of the risk of grounding. However, that does not prevent unscrupulous or negligent operators and crews from illegally discharging polluting substances into the sea. To counter this practice, measures were introduced in 2000 to improve port reception facilities for ship waste and cargo residues. The directive aims to reduce marine pollution by ensuring that all EU ports provide adequate waste reception facilities, and by collecting a fee from all ships whether they use the facilities or not, under the polluter pays principle, which gives them an incentive to deliver waste ashore rather than dispose of it illegally at sea. 13 Some of the greatest accidents with huge evidence over the environment environment are presented below: On 12 December 1999, the Erika, a 25 year-old single-hull oil tanker carrying the Maltese flag and chartered by Total-Fina, broke into pieces some 40 nautical miles off the southern tip of Brittany, polluting almost 400 kilometers of French coastline. The damage caused to the environment and the exceptionally high cost of the damage to fisheries and tourism make the Erika oil spill one of the major environmental disasters of recent years. On the 19th of November 2002, the tanker "Prestige" broke in two, after six agonizing days since Wednesday, the 13th, when the ship sent the SOS signal at a few miles off the Galician coast, north western corner of the Iberian Peninsula. The tanker, carrying some 77,000 tons of oil, sunk to the depth of 3,600 meters some 250 km off the Spanish coast, with a large quantity of oil still on board. The ³Erika´ and the ³Prestige´ accidents encouraged the EU to drastically reform its existing regime and to adopt new rules and standards for prevention of accidents at sea, in particular involving oil tankers. The EU considerably reinforced its legislative arsenal to combat flags of convenience and give Europe better protection against the risks of accidental oil spills. The third maritime safety package was born in November 2005, with the main objective to restore the competitiveness of the sector while benefiting only those operators who respect the safety standards, in particular by increasing the pressure on owners of substandard ships.
European Commission, ³Improving the competitiveness, safety and security in European shipping ´, ´, Maritime Transport Policy, 2006 14 14
More than three years later, with the adoption of the measures proposed in the third maritime safety package, an important step has been achieved both on the improvement of the effectiveness of existing measures to prevent accidents and on the management of their consequences if the worse w orse were to happen. With the Third Maritime Safety Package Pa ckage14, the EU has completed this legislative arsenal covering all chain of responsibility of the maritime sector.
It was adopted on 11 March 2009 15 15
C h a p t e r II Charter Contracts and the Bill of Lading 2.1. Main Characteristics and the Parties Involved in Shipping Contracts Generally, ships are taken on the basis of charter contracts negotiated by brokers, either on behalf of the charterer or the ship owner. A charter contract is defined by the following characteristics15: - It is a document, containing the rights, obligations and the responsibilities of each of the parties involved (the charterer or the ship owner); - Generally, it is prepared by the charterer`s broker, on the ground of the agreed terms between the ship owner and the charterer; - It is signed either by the charterer or the ship owner, either by their brokers, on their behalf; -
It contains a suite of standard clauses, printed on different forms (usually referred to t o as the printed text 16 ), followed, moreover by additional clauses, called: addendum or rider 17 , clauses which best highlight the parties` requests; r equests;
- It can have as many blots, corrections and additions in compliance to the parties` requests; The parties are generally referred ref erred to as the ship owner and the charterer, even though Contractual relationships could be more complex. When closing a charter contract with a charterer who is not the ship owner, it is used the ³dispondent owner´
denomination.. On the denomination t he
other side, there is the beneficial owner, who is the registered owner of a vessel who can charter the vessel out to others. Beside the ship owner and the charterer, the ongoing of the contract implies the participation, without having the status of contractual parties, of the shipper and the consignee. According to the Hamburg Rules, the shipper is the person with whom or in favor of whom a transportation contract was signed. Also, a consignee is the person who was delivered or who delivered the object of the transportation contract. Generally, the shipper is
Caraiani G., Sorescu M.: Ä Transporturi Maritime´, Editura Lumina Lex, Bucuresti, 1998 The printed text contains a number of clauses with or without blank spaces, which must be filled in by the contracting parties (e.g. the name of the ship, the cargo to be loaded, the freight); 17 These clauses are frequently enclosed with wit h the charter party, containing confidential terms which one doesn not wish to divulge to certain employees of one of the contracting parties; 18 A person or a company which has a commercial control over a vessel`s operation o peration without owning the ship.
also the exporter of the cargo to be transported, and depending on the delivery terms and conditions,, he can also be the charterer. conditions chart erer. The receiver is the person or the entitled company to receive the cargo. This person can or cannot be nominated in the contract, because he will prove his quality through the bill of lading, submitted to the ship master at the arrival.
2.2. Forms of the Contract
Although the great majority of charter contracts are written, this is not compulsory. Over time, due to different legal problems generated by the diversity of legal systems, it has been imposed impose d a series of standard contracts, contr acts, whos whosee clauses are printed print ed on standard tandar d forms. Almost each of these standard forms are numbered in order to ease the amendment of the contract. The American practices from the 70`s established two distinctive parts for these standard forms: the first one contains numbered cassettes to be filled in and the second one, a series of standard clauses. The advantage of the system was that the second part was to be filled in only if the parties wanted to modify the standard clauses, otherwise it would have been incorporated by reference. In practice, there a only few cases when the parties totally agree the standard clauses, this is why the new forms gave up the division system in two parts. Much more frequent freque nt are those cases cas es when the parties have ha ve to negotiaate te in order to reach an agreement regarding supplementary clauses for certain aspects, uncovered in the standard contract. These supplementary clauses are known under the denomination of ³rider´ or ³adendum´, and their existence helps to the correct the interpretation, given by the general context of the contract, in order to avoid isolated meanings. These new introduced clauses have priority in interpretation when their content is contrary to the one given by the standard clauses, because the first is considered to better represent the interests of the parties. From the same reason, in case the standard contract is divided in two parts, the first one prevails because of the specific data filled in. Regarding the erased words, they are considered nonexistent. Even so, in certain cases (a litigation for instance), they are taken into consideration, if only the clauses contained by the contract would be meaningless without them. In order to overcome these issues, the newest standard contracts contain a series of clauses presented in more than one version, which give the parties involved the possibility of
choosing the most suitable clauses for specific situations, with the purpose of avoiding the possible amendments. All these standard contracts are the result of long negotiation between different groups of charterers and ship owners, or they have been framed by organizations representing either charterer`s interests, either the ones of the ship owners. The most representative standard contracts are agreed, adopted or recommended by different organizations organiza tions of associations. A charter contract is considered agreed if it is negotiated and agreed by different charterers` or ship owners associations. Standard clauses of this contract cannot be modified or erased, without the previous agreement of the parties that agreed tto o them. It is adopted by a charterers` organization if it officially sustains a contract agreed under the above conditions conditions or by another charter charterers` ers` organization or association19. A charter contract is recommended when there is no charterers` association with whom a certain contract could be negotiated or when even if the contract has been negotiated with a charterers` association, there is no possibility that all members of that association to use it. Even if the recommended contract is desired to be used without modifications to the printed amendments, this is not compulsory compulsory.. Besides these three terms, there there is also used the term ³approved´ ³approved´.. A charter contract is considered approved when it has been agreed, adopted a dopted or recommended.
2.3. Types of Charter Contracts: A. C harter harter by demise / Bareboat charter
It is a rental contract, according to which the ship owner provides a discharged vessel to the charterer, for temporary t emporary usage, in exchange of a so called ³hire´ ³ hire´ ± it is calculated ca lculated according to the usage period. The ³bareboat´ charterer disposes of the vessel, without the crew and the specific materials and also assumes the maintenance expenses, current or accidental repairs, supply, freight, anchorage, insurance, port duties and cross channels fees, meaning all the financial expenses of the commercial and technical activities performed. The ship owner is obliged to assure for the charterer the disposal of the vessel in proper technical
19 It should be noted that a charter contract can also be adopted by a ship owners` association if it has been issued by another ship owners` association with the purpose of being used in a sector field, without being adopted by a charterers` association.
condition and also to present the registration documents, the certificate of origin and the class certificate20. B. Booking Note
Is represents the booking of the necessary transportation space, in view of dispatching a predetermined quantity of goods. It is also the most suitable for linear transportation. This type of contract specifies the principal condition under which the transport is performed:
- The quantity and the description of the goods dispatched; - The loading and unloading port; - The name and address a ddress of the sender. Also referred to as ³berth note´, it appears as a letter from the ship owner`s broker to the charterer, which confirms the engagement of the necessary transportation space and also the principal conditions for its performance. One or more copies of this letter have to be signed by the charterer, to testify his agreement. Afterwards, this document has to be sustained by the bill of lading. C . C harter harter party21 It contains the contractual terms specific to tramp transportation and appears under two forms:
- Voyage Charter Party ± represents the rental of a vessel for a given number of voyages (this number is mentioned, together with the duration of the contract). According to this contract, the loading and unloading operations can represent the responsibility of both the charterer and the ship owner. In this case, freight calculation depends on the quantity of goods transported, or it represents a total sum according to the vessel`s capacity (lump 22
sum) . - Time Charter Party ± defines the situations when the charterer rents the vessel for a predetermined period of time. Loading, unloading expenses, fuel, channel and ports fees are the responsibility of the charterer (as compared to voyage charter party, where they could have been covered by the ship owner). According to ³BALTIME´23, the ship master 20
By issuing this certificate, the clearing company grants to the charterers and to the insurance companies that the vessel is solid, sealed, durable and functional, from all points of view, fin order to perform the voyag e. The better the technical condition of the vessel, the higher the interest of the charterers, the lower the risks assumed by the insurance companies, consequently, the lower the premiums paid for insuring the vessel. 21 The denomination comes from Äcarta-partita´, known in the Middle Age, when the transportation document was no more than single paper, cut in two pieces, each of them containg the integral text of the document and both the charterer and the ship owner being given one half; 22 Represents a single payment for the total amount due, as apposed to a series of periodic payments; 23 1939 ± Uniform Time Charter . 19 19
is obliged to follow the charterer`s orders regarding the vessel`s operation. In this type of contract, the full commercial responsibility fall on the charterer and the freight is a function of the time the vessel is at the charterer`s disposal. D. Bareboat or charter by demise
It refers to ship leasing arrangement in which the use of the entire vessel and all associated expenses pass on from the ship owner to the lessee (charterer). If the lessee also has the right to appoint a ppoint own master and the crew, it is call called ed a bareboat charter. charter. 2.3.1. Main Clauses of C of Charter Party Contract
Generally, the charter party contracts comprise the following main clauses:
- The vessel`s denomination, denomination, its main characteristics and the useful capacity; ca pacity; - Data referring to the commencement period of the voyage, the date when the vessel is supposed to arrive at the loading port, the lay days, the last day admitted for loading, and also the necessary period until reaching the destination port;
- The notification manner regarding the vessel`s arrival at the loading port; - Cargo description; - The intermediary ports, the loading port and the destination one; - The freight, its calculation, the currency; - Freight conditions, costs bearing for each of the parties involved; - Loading/unloading norms, the lay day calculation.
2.4. The Bill of Lading A bill of lading (sometimes referred to as a BOL or B/L) is a document signed by a carrier (a transporter of goods) or the carrier's representative and issued to a consignor (the shipper of goods) that evidences the receipt of goods for shipment to a specified designation and person. The term derives from the verb "to lade" which means to load a cargo onto a ship or other form of transportation. A bill of lading can be used as a s a traded object. The standard short for form m bill of lading is evidence of the contract of carriage of goods and it serves a number of purposes:
- It is evidence that a valid contract of carriage, or a chartering contract, exists, and it may incorporate the full terms of the contract between the consignor and the carrier by reference (i.e. the short form simply refers to the main contract as an existing
document, whereas the long form of a bill of lading (connaissement integral, fr.) issued by the carrier sets out all the terms of the contract of carriage;
- It is a receipt signed by the carrier confirming whether goods matching the contract description have been received in good condition (a bill will be described as clean if the goods have been received on board in apparent good condition and stowed ready for transport); - It is also a document of transfer, being freely transferable but not a negotiable instrument in the legal sense, it governs all the legal aspects of physical carriage, and,
like a cheque or other negotiable instrument, it may be endorsed affecting ownership of the goods actually being carried. This matches everyday experience in that the contract a person might make with a commercial carrier like FedEx for mostly airway parcels, is separate from any contract for the sale of the goods to be carried, however it binds the carrier to its terms, irrespectively of who the actual holder of the B/L, and owner of the goods, may be at a specific moment.
2.5. Main Types of Bill of Lading Through bill of lading - This bill states that the goods are consigned to a specified
person and it is not negotiable free from existing equities, i.e. any endorsee acquires no better rights than those held by the endorser. So, for example, if the carrier or another holds a lien over the goods goods as security for unpaid debts, the endorsee is bound by the lien. Although, if i f the endorser would fail to disclose the charge, the endorsee will have the right to claim damages for failing to transfer an unencumbered title. It is also known as a non-negotiable bill of lading, but from the banker's point of view this type of bill of lading is not safe. Order bill of lading - This bill uses express words to make the bill negotiable, e.g. it states that delivery is to be made to the further order of the consignee using words such as "delivery to A Ltd. or to order or assigns". Consequently, it can be endorsed by A Ltd. or the right to take delivery can be transferred by physical delivery of the bill accompanied by adequate evidence of a company's intention to transfer. Bearer bill of lading - This bill states that delivery shall be made to whosoever holds
the bill. Such bill may be created explicitly or it is an order bill that fails to nominate the consignee whether in its original form or through an endorsement in blank. A bearer bill can be negotiated by physical delivery.
S urrender urrender bill of lading - Under a term import documentary credit the bank releases
the documents on receipt from the negotiating bank but the importer does not pay the bank until the maturity of the draft under the relative credit. This direct liability is called Surrender Bill of Lading (SBL), i.e. when we hand over the bill of lading we surrender title to the goods and our power of sale over the goods. A sea waybill is a non-negotiable receipt issued by the carrier. It is most common in the container trade either where the cargo is likely to arrive before the formal documents or where the shipper does not insist on separate bills for every item of cargo carried (e.g. because this is one of a series of loads being delivered to the same consignee). Delivery is made to the consignee who identifies himself. It is customary in transactions where the shipper and consignee is the same person in law making the rigid production of documents unnecessary. A straight bill of lading by land or sea, or sea waybills are not documents that can convey title to the goods they represent. They do no more than require delivery of the goods to the named consignee and (subject to the shipper's ability to redirect the goods) to no other. This differs from an Äorder´ or Äbearer´ bill of lading which is possessory title documents and negotiable, i.e. they can be endorsed and so transfer the right to take delivery to the last endorsee. Nevertheless, bills of lading are "documents of title", whether negotiable or not, under the terms of the Uniform Commercial Code.
2.6. Issues of the Bill of Lading and its Enforcement In most national and international systems, a bill of lading is not a document of title, and does no more than identify that a particular individual has a right to possession at the time when delivery is to be made. Problems arise when goods are found to have been lost or damaged in transit, or delivery is delayed or refused. Because the consignee is not a party to the contract of carriage, the doctrine of privity of contract states that a third party has no right to enforce the agreement. However, whether this is a problem to the consignee depends on who owns the goods and who holds the risks associated with the carriage. This will be answered by examining the terms of all the relevant contracts. If the consignor has reserved title until payment is made, the consignor can sue to recover his or her loss. But if ownership and/or the risk of loss have transferred to the consignee, the right to sue may not be clear in contract, although there could be remedies in tort/delict (the issue of risk will have been most carefully considered to decide who should insure the goods during transit). Hence, a number of international Conventions and domestic laws specifically address when a consignee has the 22 22
right to sue. The legal solution most often adopted is to apply the principle of subrogation, i.e. to give the consignee the same rights of action held by the consignor. This enables most of the more obvious cases of injustice to be avoided. Since bills of lading are most frequently used in trans border, overseas or airborne shipping, the laws of whatever other countries are involved in the transaction covered by a particular bill may also be applicable including the Hague Rules, the Hague-Visby Rules and the Hamburg Rules at international level for shipping, The Warsaw Convention for the Unification of Certain Rules for International Carriage by Air 1929 and The Montreal Convention for the Unification of Certain Rules for International Carriage by Air 1999 for air waybills, etc. It is customary for parties to the bill to agree both which country's courts shall have the jurisdiction to hear any case in a forum selection clause, and the municipal system of law to be applied in that case choice of law clause. The law selected is termed the proper law in private international law and it gives a form of extraterritorial effect to an otherwise sovereign law (e.g. a Chinese consignor contracts with a Greek carrier for delivery to a consignee based in New York: they agree that any dispute will be referred to the courts in New York (since that is the most convenient place ² the forum convenience) but that the New York courts will apply Greek law as the lex causae to determine the extent of the carrier's liability.)
2.7. Bill of Lading Versus Charter Contracts As a document, the bill of lading is more important than the charter party because the negotiable bill of lading gives the right to receive the goods. In fact the charter party is only a contract of affreightment that only represents the hire of tonnage space; consequently, the charter-party does not represent the goods. For that, another document is necessary that serves as proof of the actual loading of the goods and consequently that can be considered as the implementing evidence of the contract of affreightment. This other document is now exactly the bill of lading and for each transport of goods there should, in theory at least, be a charter party and a bill of lading. In tramp shipping, where only full cargos are transported, there will generally be a charter party and a bill of lading. In the liner shipping one will generally not find a charter party but only a bill of lading that. The bill of lading does not replace the contract of affreightment but it is the presupposition of it. The fact that there is a bill of lading creates the presumption that 23
previously a contract of affreightment was already concluded. This way of concluding happens in the liner shipping tacitly, when the ship owner announces the sailing and the destination of the ship, orally or in writing (e.g. via the press) and that the freight forwarder binds himself to ship goods with that named ship. In that case, the bill of lading is the confirmation and the written proof of the contract of affreightment; the bill of lading is also the proof that the goods were loaded on board the ship. The bill of lading can be issued in two different manners: 1. Without a preceding contract of affreightment .
There is only a presumption of a contract of affreightment and the provisions which govern the bill of lading, apply. If the bill of lading is negotiable then the Hague-Visby Rules which are of public order apply; if the bill of lading is not negotiable then the bill of lading is only a receipt. 2. For the implementation of a charter party that was signed by the parties concerned. a) If the bill of lading bears the words "Freight and all other conditions and exceptions
as per Charter" the terms of the contract of affreightment affreight ment are incorporated in the bill of lading, which means that those terms ter ms will in fact have to be applied, provided that they are not in contradiction with the terms of the Hague-Visby Rules 24. b) The bill of lading does not refer to the charter-party. In that case the terms of the bill of lading will prevail on those of the charter party. " The The terms of the contract may also be gathered from the charter, where there is one
provided that its terms either wholly or in parts are expressly incorporated in the bill of lading, or the charterer is also the shipper, in which case the bill of lading as between 25 charterer and ship owner is usually merely a receipt recei pt "" .
An important difference between the charter party and the bill of lading lies in the fact that the charter party is a gestation agreement agr eement i.e. that the contract is signed before it is carried out; whereas the bill of lading is an actual agreement because the contract is only signed after the goods have been really loaded on board.
Wildiers, P.: ³Le contrat d'affrètement maritime´, Anvers, Editions Lloyd Anversois, 1969, page 93. 9 3. harterparties and Bills of lading ´, Scruton on ÄC harterparties ´, 2008, regarding the relation charter party/bill of lading. 24 24
C H A P T E R III
FREIGHT IN INTERNATIONAL SEA TRANPORTATION 3.1. General Aspects Regarding Maritime Freight
Freight is the reward payable to the carrier for the carriage and arrival of goods in a mercantile or recognized r ecognized condition, condition, ready to be delivered to the merchant. There are more than one freight markets, thus demand and supply not only interact on the general transportation market, but on the market of certain groups of merchandise and vessels. As in any other activity, from the collected freight, the ship owner has to cover his expenses and also gain a certain profit. Expenses related to vessels are divided in more categories: a) Expenses corresponding to purchasing and maintaining the vessel. These costs are strictly dependent on the value of raw materials and labor consumed for building the vessel, but also on the supply and demand at the acquisition moment. For an efficient use of the vessel, regarding its volume and its transportation capacity, it is very useful to know the construction characteristics: DWT 26 , DWCC 27 , TRB, TRN, loading capacity, maximum speed, the amount of fuel consumption at different speeds; b) Expenses related to the direct operation of the vessel. These are reflected in everyday operation costs, either displacing or not, for loading and unloading the cargo, fuel supply, respectively the consumption of fuel per day, fuel acquisition price, the number of crew members and their wages, wa ges, insurance premiums; c) Expenses indirectly indirectly related to t o operating the vessel and uncontrolled by the ship owner. Total costs generated by the vessel also include the fees paid by the ship owner , which do not depend on the way the vessel is organized and operated, but on other factors, like: norms specific to the state where the vessel is registered, agreements between states, port administrations, channel administrations, agreements between different transporta tra nsportation tion operators.
Deadwight Tonnage: is a measure of how much wight a ship is carrying or can safely carry. It is the sum of the
weights of cargo, fuel, fresh water, ballast water, provisions, passengers and crew; 27 Deadweight Cargo Capacity: it gives the wught of the cargo that the vessel can carry and it depends d epends on water temperature and the water (whether it is salt, brackish); 25 25
3.2. Cost Elements in Sea Transportation The pricing of cargo ships` services, like all pricing, is dependent on the forces of supply and demand, but the factors affecting both supply and demand are probably more complicated than in the case of most other industries and services. As in all forms of transport, the demand for shipping is derived from the demand for the commodities carried, and it is, therefore, therefor e, affected by the elasticity of demand for these commodities. The demand for sea transportation is affected both by direct competition between carriers and, because it is a derived demand, by the competition of substitutes or alternatives for the particular commodity carried. On any particular route, the ship owner is subject to competition from carriers on the same route, and also from carriers operating from alternative supply areas. For example, on some routes there is also competition from air transport for high value to low weight ratio consignments, and in the coasting trade there is also competition from inland transport. The price eventually fixed depends largely on the relationship between buyers and sellers. Where both groups are numerous, and have equal bargaining power, and where demand is fairly elastic, conditions of relatively perfect competition prevail. Under these circumstances, prices are fixed by the ³haggling of the market´ and are known as contract prices. The market for tramp charters operates under such conditions, and the contract is drawn up as an agreement known as a charter chart er party. The contract may be for a single voyage at so much per tone of the commodity carried, or it may be for a period at a stipulated rate of hire, usually so much per tone of the ship`s deadweight carrying capacity. The charter rates are quoted on a competitive basis in various exchanges throughout the world. Foodstuff and raw materials in particular are traded in a highly competitive world market, and their movement is irregular, depending upon demand and supply conditions. It is quite usual for cargoes of these commodities to be loaded and actually marketed during transit, the charterers instructing the ship to proceed to a certain range of ports and determining the port of discharge while the ship is es route. In the case of very long-term charters, takers or ore carriers, the rate of hire is fixed to give the owner a reasonable return on his investment. Under these conditions, the rate structure for tramp is a very simple product and emerges from competitive interplay of supply and demand. From the economist`s point of view, rates made in this way represent the most efficient methods of pricing, for where price is determined under conditions of perfect competition, production is encouraged to follow 26 26
consumers` wishes, and price itself does not deviate to any great extent from the average total cost. In this way the consumer is satisfied and production capacity most usefully employed. The factors influencing the formulation of a fixture fixt ure rate are detaile detailed d bellow: 1. Ship specification which would also embrace the type of vessel (bulk, carrier, containership,, oil tanker); containership 2. The types of traffic to be conveyed; 3. General market conditions: this is a major factor and generally an abundance of available ships for charter tends to depress the rate particularly for voyage and shortterm charters; 4. The daily cost to be borne by the charterer; 5. The duration of the charter: generally, the longer the charter, the less it is influenced by the market situation relative to the availability ava ilability for ships and the demand for them; 6. The terms of the charter: as mentioned before, the ship owner and the charterer are free to conclude a charter party part y of any terms; 7. The identity of cost to be borne by the charterer and ship owner must be clearly established; 8. Responsibility for the survey costs of the vessel must be clearly defined as to whether they are for the charterer`s or ship owner`s account. Currency surcharge is another factor to be considered, as it arises when the freight rate is related to a floating currency. Because of currency depreciation, a currency surcharge is imposed in order to minimize losses that the ship owner or the charterer could incur in such situations. The tramp shipper markets goods of relatively low value, so he seeks the lowest possible transport charge, as the freight percentage of the total value may have a direct bearing on the salability of the commodity. He has thus a prime interest in the availability of tramp shipping space at any particular time by reason of the fact that freight and chartering rates will reflect variations in the economic forces of supply and demand. In a market situation where there are plenty of vessels the shipper will be able to charter at a rate which will be only marginally above the operating costs of the vessel. In the opposite situation, he will be forced to pay more but there is a limiting factor in the price of the commodity at the point of sale to the rate which the ship owner may receive. In these conditions, the premium returns are earned by the operators of the most efficient ships. In weak market condi conditions tions their relative efficiency ensures a small profit while others just break even. Where the market is
strong the proven reliability shown before will ensure e nsure that the t he services of such vessels will be sought out before other opportunities are taken up. In the liner trades the freight costs are more stable and controlled. The ship owner is able to hold the rate at a fair level to show a profit margin, but he must be careful not to hold his rates so high that they price the goods out of the market. At this point, joint cooperation between shipper and carrier and other parties is needed.
3.3. Means of Establishing Freight Freight can be established by various means, but generally the most frequent are the following: a) According to the weight and volume of the cargo. In case freight is determined according to the cargo`s weight, it is very important to specify whether it is expressed in metric ton, long ton or short ton, as there t here are significant differences between them. b) Lamp sum freight: according to this means of establishing freight, the charter pays a certain amount of money, independent on the quantity of goods loaded. Generally, it is used when the charterer is allowed to load maximum capacity or in case of oversized cargoes. c) World Scale reference: specific to oil tankers. This means easily allows freight comparisonss and also an comparison a n efficient calculation of voyages. voyages. d) Deadweight unit: it is mainly used in afreightment contracts 28 , when the vessel`s capacity to be used is unknown. e) As a percent of the cargoes value: in practice, this means is no longer used.
3.4. Factors Influencing Freight A variety of factors influence freight transportation demand, some directly and others as a result of changes in transport costs and rates and in the services offered. Among those factors that directly influence freight transportation are the following: 1. The economical influence: the demand for transportation services is derived from the level of economic activity. Trends and changes in the national or regional economy affect manufacturing and distribution processes. As a derived demand, the most basic 28
The expression usually employed to describe the contract between a ship-owner and another person called the charterer , by which the ship-owner ship -owner agrees to carry goods of the charterer in his ship, or to give to the charterer the use of the whole or part of the cargo -carrying space of the ship for the carriage of his goods on a specified voyage or voyages or for a specified time. 28 28
influence on total freight demand is the volume of goods produced and consumed. Expansion in a national or regional economy results in increases in overall freight demand, while contractions in the economy result in reductions in freight demand. 2. Industrial localization patterns: are critical in determining transport demand as measured in ton-miles or other units that reflect length of haul. The spatial distribution of economic activity also influences mode choice, with many commodities likely to be shipped by one mode when distances are short and by another when distances are longer. 3. Globalization of business : today, many companies manage worldwide production and distribution system, and national economies are increasingly being integrated into a global economy. As production facilities are shifted to locations around the globe where goods can be produced more economically, the demand for world trade will continue to increase. 4. International trade agreements : global production and distribution are also affected by international trade agreements, quotas and tariff restrictions. Other direct factors: 5. J ust ust in time inventory practices; 6. C arrier-shipper arrier-shipper alliances; 7. C entralized entralized warehousing warehousing ; 8. Packaging materials; 9. Recycling . Among the factors that have an indirect impact on freight demand, by influencing costs and services are ar e the following: 1. Economic regulation and deregulation: deregulation in transportation industry was driven by the desire to encourage greater price and service competition and to increase opportunities to develop multimodal and intermodal relations among and within various modes. 2. International transportation agreements: they often involve complex negotiations as the nations involved seek to protect their t heir interests and to create opportunities for trade and economic growth. For example, where carrier entry or participation is restricted in a particular market, rates tend to be higher. Other indirect factors: 3. Intermodal operating agreements; 29 29
4. S ingle-source ingle-source delivery of international LT L shipments; 5. Fuel prices; 6. Publicly provided infrastructure; 7. U ser ser charges and other taxes; 8. Government subsidization of carriers; 9. Environmental policies and restrictions; 10. S afety afety policies and regulations;
11. Effects in changes of truck size and weight limits .
3.5. International Freight Market: Organization and Functioning The fixed freight level for different categories of vessel and cargoes depends on market conditions, mainly on demand and supply, which is why this indicator is permanently analyzed, in order to obtain possible market forecasts. This kind of data is periodically published: monthly, weekly or even daily, through reports drawn by specialized institutions belonging to this field. Ship owners, shippers and charterers take great interest in statistics showing trends in freight rates and charter rates. Three different unit of measurement are commonly used29 : voyage rate statistics, for dry cargo commodities, which are generally reported in $ per ton for a standard voyage. In contrast, time charter rates are generally measured in $000 per day and they are commonly reported for trips (round voyages). The third and the most complex measure of freight rates is Worldscale. The concept was developed during the Second World War when the British Government introduced a schedule of official freight rates as a basis for paying the owners of requisitioned tankers. The schedule showed the cost of transporting a cargo of oil on each of the main routes using a standard 12.000 dwt tanker. Owners were paid the rate shown in the schedule or some fraction of it. This system was adopted by the tanker industry and has been progressively revised over the years. The Worldscale index is published in a book which is used as the basis for calculating tanker spot rates. The book shows, for each tanker route, the cost of transporting a metric ton of cargo using a vessel on a round voyage. Worldscale is available on a subscription basis and the annual fee entitles the subscriber not only to the Schedule itself but also to notices of all amendments and the right to request rates for any voyage not shown in the Schedule. 29
Martin Stopford, ÄMaritim Economics ´, 2nd edition, Taylor and Francis e-Library, 2003, chapter 3, page 93 30
Mar iiti time transpor tation services are bought and sold on the international freight market, compounded of a ll national freight markets. The relation between tonnage demand and supply on the international freight market is determined in establishing the freight level. Freight evolution is subject to the free interaction between supply and demand: for example, if
tonnage demand increases more than the supply of tonnage, freight level will increase. This way of estab lishing freight level is much more obvious ou s dur ing economic growt h per iods, when freight is several times more than in the recession per iods. This aspect is descr ibed by the BDI ± the Baltic Exchange Dry Index - evolution, which is the major index on the Baltic Int ernational Future Freight Exchange from London. Figure 3.1.The Evolution of Baltic Exchange Exchan ge dry Index (2007-2009 (2007-2009))
Source: InvestmentTools.com, available at http://investmenttools.com/futures/bdi_baltic_dry_ index.htm, last accessed 06/07/2010.
As we can see from the graph, last year was represented by a positive and unexpected evolution of the BDI, soon af ter the 2008 crush (more exactly from 11.793 points re r eac ache hed d in
May 2008, to 663 points registered in December 2008). Even if by February 2009, it exceeded 1.316 points, freight ware barely able to cover the operating costs of the vessels, the costs related to the amount of fuel consumed and those related to the he vessel s crew.
By September 2009, the index star ted to maintain a stable level of 3.000 points, but still analysts are not very opti mistic. They consider that the upward evolution was suppor ted by circumstantial evidence, like winter harshness (which det ermined an increase in coa l demand) or pirate attacks (which brought a negative inf luence on transpor t routes including
the Suez Channel). This year, freight level is expect ed to decrease, because, as compared to 2007, 20 07, 20-30% -30 % more vessels will be launched to water. The supply will increase, while transpor tation demand still maintains its level.
C H A P T E R IV CAS ASE E ST DY ± PERFORMING AN INTERNATIONAL SEA TRANSPORT 4.1. Parties Involved This paper`s aim is to realize an accurate analysis of the way a maritime transport is performed, the relationship between parties involved and their influence on the Romanian transportation market. In order to realize this transportation activity, we need a producer company (DONAU CHEM LTD), a consignee (AIGO LTD), a middleman (BOGFIL COM LTD) and the most important, a shipping company (BALKAN SHIPPING AGENCY LTD) and a custom operator (EUROEST OPERATIONS). Bellow, I will try to describe each of them, in order to highlight their importance for the Romanian transportation and economic market. 4.1.1. The exporter (the producer company) ± DONA
CHEM LTD: the company`s
object of activity is represented by the production and distribution of mineral fertilizers (simple - urea, liquid fertilizers, ammonium nitrate, complex and liquid forms) and intermediaries (ammonia, nitric acid), but also the production of spare parts and technological tools. At this moment, the company is able to supply the entire range of chemical fertilizers requested by the agricultural activities. I should mention the fact that the technologies functioning within DONAU CHEM reach the t he standards of European factories. The company`s headquarter can be found at the following address: 1, Portului Street, 145200, Turnu Magurele, Teleorman County, Romania, having the contact data: Phone: +40 247 416438, 416438, e-mail e -mail address: [email protected]
. 4.1.2. The importer (the consignee) ± AIGO LTD : AIGO is a global leader in providing
high performance adhesion and surfacing solutions, being the first manufacturer of synthetic resins from melamine, phenol and urea. It is the specialist for film resins, insulation resins, glues for the chipboard and plywood industries as well as for glues and hardeners for the furniture industry and load bearing wooden structures. The company is represented by highly qualified team works on innovative solutions for clients with the aid of state-of-the-art laboratories, global know-how and future oriented technologies and the high quality of products and services are attested by ISO 9001, ISO 14001 and Responsible Care certifications. 32
The company can be contacted at: 18F, No.397, Jiaozhou Rd.(No.1088,Wuding Rd.), 200040, Shanghai, or or [email protected] [email protected]
.. 4.1.3. The middleman ± BOGFIL COM LTD: it is a custom agent, which offers complete
service on custom requirements: cargo declaration for export, primary custom declarations, custom clearance and warehouse. It also fills f ills EUR certificates, bills of lading and pa pays ys custom duties at the clients` order. The middleman can also arrange for the carriers of the cargo (as in the transport presented by this case study), even if this is not a necessary condition, because the exporter is entitled of choosing his own transportation company. DANAU CHEM LTD, the producer company presented by this study case, hires a middleman because, under the negotiated terms, the delivery conditions fall under FOB Incoterms 2000, which specifies that the exporter is in charged char ged with export custom clearance. The company can be contacted at: 22, Cobuz Street, 205200, Calafat, Dolj County, or [email protected]
.. [email protected]
4.1.4. The shipper -
BALKAN SHIPPING AGEN AGENC CY LTD: since 1997, BALKAN
SHIPPING is a member of Ship Agents and Brokers Association of Romania. The company has 40 years of service to the shipping community worldwide, we have extensive experience in all aspects of liner agency, ship broking, sale and purchase, ships agency, and bunkering and freight forwarding. Nowadays the company developed overseas and created both branch offices and subsidiaries in Germany, Ger many, Greece, Belgium and Singapore. The company`s headquarter is located at: 132, Mircea cel Batran Street, 900132, Constanta, Constanta County. 4.1.5. The port operator ± E ROEST OPERATIONS: it cooperates with the t he port authority
to move cargo through a port at a contracted minimum level of productivity. They may be state-owned (particularly for port authorities) or privately run (like the one used in this case). The work involves managing the movement of cargo containers between cargo ships, trucks and freight trains and optimizing the flow of goods through customs to minimize the amount of time a ship spends in port. Maintaining efficiency involves managing and upgrading waterways, storage facilities, communication equipment, computer systems and dockworkers' union contracts. The port operator also manages paperwork, leases, safety and port security. EUROEST disposes of all necessary equipment in order needed in loading and unloading activities and it is contracted by the producer company for loading the cargo exported to China.
The company can be contacted at: 16, Nicolae Grigorescu Street, 900636, Constanta, Constanta County, or [email protected]
or [email protected]
4.2. Route description This study will be based on analyzing the transport of chemical fertilizers (specifically Carbamide) directly from Romania to China, following the route: Constanta (Romania) ± Istanbul (Turkey) ± Port Kelang (Malaysia) ± Nansha (China) ± Shekou (China) ± Ningbo (China) - Shanghai (China). As attested by the Statement of facts ± time sheet ( see annex 1), cargo was ready to be loaded at the 1st of July 2010, in Constanta port. The port operator is responsible for loading the cargo and makes sure everything is settled until the departure moment. Considering the fact that the producer company is located in Turnu Magurele and the loading is made in Constanta, I want to clarify that the internal transport (from Turnu Magurele to Constanta) is made by rail. Regarding the external transport, ³Xin Shan Tou´ is the name of the ship, which will be transporting the cargo from Romania to China. The moment the ship arrives to Constanta port, it is berthed and loaded, thus ready for departure. After that, the estimated duration period until destination is considered to be 21 ± 25 days.
4.3. Cargo description Carbamide (urea) or is an organic compound with the chemical formula (NH2)2CO. The molecule has two amine (-NH2) residues joined by a carbonyl (-CO-) functional group. It serves an important role in the metabolism of nitrogen-containing compounds by animals and is the main nitrogen-containing substance in the urine of mammals. Being solid, colorless, odorless (although the ammonia which it gives off in the presence of water, including water vapor in the t he air, has a strong str ong odor), odor), neither acidic nor alkaline a lkaline,, highly soluble in water, and relatively non-toxic, urea is widely used in fertilizers as a convenient source of nitrogen. Urea is also an important raw material for the chemical industry. The synthesis of this organic compound by Friedrich Wöhler in 1828 from an inorganic precursor was an important milestone in the development of chemistry. It is a raw material for the manufacture of many important chemical compounds, such as: 1. Various plastics, especially the urea-formaldehyd ur ea-formaldehydee resins. 34
2. Various adhesives, such as urea-formaldehyde or the urea-melamine-formaldehyde used in marine plywood (the case of our importer company ± AIGO LTD) . 3. Potassium cyanate, another industrial feedstock. feedst ock. 4. Urea nitrate, an explosive. More than 90% of world production of urea is destined for use as a nitrogen-release fertilizer. Urea has the highest nitrogen content of all solid nitrogenous fertilizers in common use (46.7%). Therefore, it has the t he lowest transportation costs per unit of nitrogen nutrien nutrient. t. Because it absorbs moisture from the atmosphere is has to be stored either in closed/sealed bags on pallets, or, if stored in bulk, under cover with a tarpaulin. As with most solid fertilizers, storage in a cool, c ool, dry, well-ventilated area is recommended. Regarding the Romania ± China transport, cargo (chemical fertilizer, urea, having the custom code 31021010) will be transported in bulk, meaning that it is transported unpacked and in large quantities. More specific the quantity of urea which will be transported is 1244,519 1244,5 19 MT (according to t o Cargo Manifest document, see annex 2). According to the Certificate of Quality (see annex 3), cargo is described as: prilled, white colour, free flowing, free from harmful substance, product treated against caking. caking. The substance contains: 46.2 % Nitrogen, 0.93 % Biuret and the rest of 0.40 % moisture. The Certificate of Quality also mentions the validity period of four months from delivery date, only in case cas e of adequate storage conditions: closed spac spaces, es, without humidity. Concerning the quantity of urea transported, tra nsported, the Certificate of Quantity (see annex 3) attests a net weight of 1244.519 MT. The total quantity of cargo loaded is also attested by the Draft Survey Report , which calculates the exact quantity of cargo at discharge (see annex 5).
Cargo transported also has a box to be filled in the Commercial Invoice (see annex 4). Thus, we observe that minimum 90 % of the urea transported has a 1 ± 4 mm granulometry, and maximum 10 % less than 1 mm and more than 4 mm granulometry (it is used in the qualitative and quantitative evaluation of the free-floating). We can see from the commercial invoice that the unit price for urea is 208, 17 Euro, meaning that the total value of transported cargo is 259071, 52 Euro. This unit price is one of the determinants of the custom duties the exporter is obliged to pay.
4.4. Freight calculation
Sea freight calculations can be divided into two main components: break-bulk and containerized. As the cargo transported by our company is bulk loaded, I will apply the first 35
calculation method: in this case, cargo is measured along the greatest length, width and weight of the entire shipment. Shipping lines quote bulk cargo per ³freight ton´, which is 1 metric ton or 1 cubic meter, whichever yields the greatest re revenue. venue. In order to determine freight level, the ship owner considers all factors which determine the transportation cost and also the assumed profitability. Thus, freight level is determined by: running expenses (operating expenses related to the vessel), including wages, fuel costs, port taxes, charter commissions, costs depending on the chosen route, hazard risks are also to be considered, together with the season when the transport is performed. For this practical situation, freight level will be established according to the capacity or weight of the transported cargo, represented by 1.244, 519 MT of chemical fertilizers. As an additional clause negotiated between parties, freight costs will be computed according to the delivered weight. Considering the price per metric ton of cargo transported (208, 17 euro), transportation cost has been agreed to 12 $ per metric ton loaded. This cost includes: expenses related to vessel`s operation, crew member`s wages, fuel costs (calculated bellow), charter commissions, expenses related to the chosen route (35 % for crossing the Bosphorus Strait) and insurance. As mentioned earlier, a very important determinant of freight level is the amount of fuel consumed. The vessel`s activity is measured in a special unit measurement, referred to as K. the number of K`s can be computed by the following relation:
K= (E+Q)*Km*C (E+Q)*Km*Cs/1000 , where
Q= the quantity of loaded cargo E= unit equivalent (barge) E= L*(B+2*To)*1,176 , where
L= unit length (barge length) B= unit width (barge width) T0= weight in accordance with the draft Km= route kilometers Cs (sector coefficient)= represents the t he degree of difficulty of the route.
For determining fuel consumption, the number of K`s is multiplied with a specific amount of fuel, established by each of the companies. In this case, the coefficient is settled at 2.30 ± 2.40 kilograms of fuel per K (the vessel`s activity measurement). 36
In this case, we have: E= 67 .4( .4( 1 10.4 0.4 +2*2 +2*2..00)= 67 ..4*7 4*7 .2= 485. 485.2 28 K= (485. (485.2 28+ 1244.5 1244.519)*1 19)*14 400*2 00*2.35 .35/1000= /1000= 5691 691..03
It means that, the total fuel consumption needed for performing this transportation is: K* K*C C ss= = 5691 691..03*2.35 *2.35= = 133 1337 7 3 3.92 .92 kilograms
Past experience related to hazard risks influenced the international transportation and insurance market, considering the fact that no transport is performed nowadays without concluding an insurance contract: in our case, cas e, the importer will be responsible fo forr insuring the vessel and also the cargo transported. Marine Insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin (Constanta) and final f inal destination destination (Shanghai). This contract offers coverage in the event of a marine loss. Marine loss is damage or destruction of a ship's hull and the ship's cargo, as the result of the occurrence of an insured peril (risk). Perils insured against include collision of the ship with another ship or object; the ship sinking, capsizing, or being stranded; fire; piracy; jettisoning (throwing overboard of property to save other property); barratry (fraud or other illegal act by a ship's master or crew, resulting in damage or destruction of the ship and/or cargo), and various other liability exposures. To be covered, an act cannot involve prior knowledge by the owner of the ship or its cargo. Excluded Excluded are wear and a nd tear, dampness, decay, mold, and war. The cost of the insurance will also be included in the transportation cost (freight), which at its turn, is part of the custom value, needed to be paid by the importer.
4.5. Documentation This study case assumes that the producer company ± DONAU CHEM LTD, concluded an agreement with BALKAN SHIPPING AGENCY (internal and international forwarding agency), in order to t o transport chemical fertilizers from Romania to China. The port operator took care of receiving and loading the cargo, under the FOB delivery, in accordance to the conditions imposed by Incoterms 2000. Free On Board clause assumes that the seller delivers when the goods pass the ship's rail at the named port of shipment ± Constanta port. This means that the buyer has to bear all costs and risks of loss or damage to the goods from that point. The FOB term requires the 37
seller to clear the goods for export and makes the buyer responsible for all the costs incurred after the cargo has been loaded on board. In our case, the exporter will have to pay a pre established price, negotiated with the middleman, for preparing the custom documents. Loading expenses also fall on the exporter`s responsibility. In the same time, the importer, AIGO LTD, will be responsible with concluding the charter contract (see Annex 10) with the shipping agency, which is, in our case BALKAN SHIPPING AGENCY. For import cargo clearance, the t he shipper is requested to present tthe he following documents: documents: 1. The External Commercial Invoice
In order to transfer the property right from the seller to the buyer, an external invoice has to be issued. This document is prepared by the exporter and it synthesizes all the relevant clauses of the contract (see annex 4). This type of primary pri mary contract includes the following elements: 1. Name and address of the seller, its identification data (legal form, object of activity, phonee number, registration phon re gistration number from the Trade Register Office); 2. Name and address of the buyer; 3. Issuance date and number of the invoice; 4. Commercial denomination of the cargo transported; tra nsported; 5. Packaging description; 6. Transportation cost (freight); 7. Means and conditions of payment; 8. Transaction value, by specifying the unit price and the total value; 9. The bank to which the payment will be made 10. Premium and insurance type
Besides the property right transfer from the seller to the buyer, the external invoice shows the fact that the merchandise has been sold, sol d, thus it serves at obtaining the counter value of the merchandise, by being part of the compulsory documents requested by the bank for proceeding the import payment. 2. The Certificate of Origin
Represent a very important document in international transactions, because it verifies the nature, the quantity of the delivered goods, but also the manufacturing place. It also includes a declaration asserting the origin country of the goods. This document has the t he following functions: 38
1. Allows the importer to obtain some custom formalities; in this way, whenever partner countries share agreements that provide preferential tariffs, the importer will first have to demonstrate through the certificate of origin its right to a lower custom duty or even an exemption. 2. Assures the compliance with the measures of commercial policies from the importing country; 3. Assures the protection of certain intellectual property rights, as for example the origin denomination. The Certificate of Origin contains the weight and the type of the cargo, the quantity transported, the invoice number, impo i mporter`s rter`s and exporter`s name. na me. 3. The Certificate of Quality
Regarding the quality compliance, within international trade activities, a certificate of quality is requested, together with other documents, by the exporter`s bank, in order to charge the counter value of export. This document is issued by the producer company, but it can also be attested by any institution specialized in quality control. In order to collect the payment from the importer`s bank, the certificate`s content has to correspond exactly with the provisions stipulated by the contract, on the quality of goods 4. The Transportation Document
In our case, due to the fact that the cargo is transported by water, the transportation document takes the form of a bill of lading (see annex 6). It represents the evidence that a valid contract of carriage, or a chartering contract, exists, and it may incorporate the full terms ter ms of the contract between the consignor and the carrier by reference to the existing contract. This type of document has to comprise the following mentions: 1. Name of the exporter;
2. Name and address of the consignee; consignee; 3. Cargo denomination and its weight; 4. Packaging type ; 5. Name of the vessel; 6. Name and complete address of the t he exporter, and also his signature; 7. Date and place the bill of lading has been issued. 5. Custom Declaration
It represents the act whereby a person indicates the wish to place goods under a given customs procedure as provided for by the Community Customs Code (CCC) (Articles 4 (17) and 59 to 78 CC). Generally, this task is performed by the owner of the goods or a person 39
acting on his behalf (a representative). It may also be performed by the person having control over the goods. These persons may be individuals or companies, as well as in certain cases associations of persons. According to Article 201 CCIP, the declaration is to be presented to the official customs office, authorized with supervising the place where the exporter is established and the cargo is packed and loaded for the export transport. One of the most important elements mentioned in the custom declaration is the custom value of transported cargo (see annex 7). The custom value at export is the calculation basis of the custom rights the Chinese company will have to pay when transportation reaches its destination. Besides the custom rights, custom value also includes other taxes provided by the national legislation of the importing country (China). According to the delivery condition, other costs will be added: insurance, transportation costs ± freight, expenses related to cargo handling. 6. Master s Receipt
It represents the proof that all transportation documents have been delivered to the master (commander) of the vessel (see annex 8). It is the same for Mate s Receipt, only that the person who receives the documents is the vessel`s mate (deputy commander) (see annex 9). 7. The Letter of C of Credit
Right next to the condition of delivery from the commercial invoice, is the payment condition, the name and the address of the bank which will be collecting the counter value of the cargo transported, from the importer. The attached commercial invoice in this transportation simulation mentions as payment method the letter of credit. It is a binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be transferred to the seller. Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods. In order for the payment to occur, the seller has to present the bank with the necessary shipping documents confirming the shipment of goods within a given time frame. It is often used in international trade to eliminate risks such as unfamiliarity with the foreign country, c ountry, customs, customs, or political instability. For a better interpretation of the process, I have added bellow the so called letter of credit life cycle.
It is very impor tant to mention that letters of credit deal in documents, not goods. The
idea in an international trade transaction is to shif t the r isk from the actual buyer to a bank. Thus a LC (as it is commonly referred to) is a payment under tak ing give ven n by b y a ban b ank to the seller and is issued on beha lf of the applicant, which is the buyer (the buyer is the applicant and the seller is the benef iciary). The Bank that issues the LC is referred to as the issuing bank which is generally in the country of the Buyer. The bank that advises the LC to the Seller is called the advising bank which is generally in the country of the Seller. The specif ied bank makes the payment upon the successful presentation of the required documents by the seller within the specif ied ti me fra me. No N ote that the bank scrutinizes the documents and not the goods for mak ing payment. Thus the process works both in favor of both the buyer and the seller. The seller gets assured that if documents are present ed on ti me and in the way that they have been requested on the LC the payment will be made and buyer on the other hand is assured that the bank will thoroughly examine these present ed documents and ensure that they meet the terms and conditions stipulated in the LC .
Conclusions and Recommendations Last year, in February 2009, the Romanian Competition Council launched a very useful investigation for better understanding the Romanian maritime market. The investigation was mainly based on analyzing the functioning mechanisms mechanis ms of the transportation market and identifying certain dysfunctional elements r elated to its non competitive character. Thus, following this analysis, it was considered that a national strategy should be prepared and applied to the maritime sector. This strategy should be based on supporting Romanian ship owners, on stimulating ship construction, by using bank loans, promoting the national flag and bringing to line the national legislation to the one of the Community. Entering the Romanian market of maritime transport services is rather difficult, because of the large investment needed for building or acquiring a ship, to which one should also add the lack of concrete support from the local authorities. This market is considered to be a competitive one, due to the large number of shippers as compared with the reduced volume of cargo available for transport. Domestic demand for maritime transportation is represented by the economic agents belonging to energy sector, extractive industry, agriculture and forestry, processing industries, but also to the construction c onstruction and trade sectors. In the same time, ti me, shipping shipping supply at the Romanian Romanian ports level is represente represented d by foreign ship owners and foreign maritime companies. Unfortunately, the number of national ship owners is so reduced, that it could not be taken into account. It is the same situation for the vessels registered under the national flag. Due to the low volume of transported cargo, the lack of stable ship owners, the maritime transportation market is characterized by opacity and misleading misleading information. infor mation. In over to overcome this issue, a very important role will be played by ship brokers and shipping companies, because they best meet the requests of demand and supply. Another specific aspect of the Romanian maritime market is represented by freight dependence and practiced tariffs at the level of national maritime ports, but also freight level and tariff policies adopted at global level. This is due to the lack of a national merchant fleet and consequently a domestic domestic freight market. By analyzing the market of maritime services, a series of other connected markets are regarded, as for example the services market that deals with loading and unloading activities, navigation market or navigation market. As a result, there were also identified some issues related to this connected markets. 42 42
In this situation, it is best recommended the adoption of specific measures by the Romanian Minister of Transport, in order to erase this problems generated by different legal regimes applied to the same service. As observed in Chapter 1, Chart 1.2.Total merchandise traded in EU major ports (2009), page 13, on the services market related to cargo loading and unloading in the Romanian ports, we deal with a very small number of port operators specialized in handling certain categories of merchandise, mercha ndise, which indicate dominant or even monopolistic positions on this market. Only 1,5% of the total merchandise handled in the European Union`s major port has been loaded or unloaded in the t he Romanian Romanian ports. Unfortunately, at this moment, there is no sufficient evidence to support the practice of an a n anti competitive practice.
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