Chapter 8
Global Transportation
THE BALANCING ACT:
SECURITY VERSUS GLOBAL
COMMERCE
• Prior to 9/11, shipments could clear U.S.
ports and airports in hours.
• Today there is more security, inspections,
paperwork that takes much longer.
• Balance between security and global
commerce.
• Tightened security measures are here to stay
and global shippers are adjusting their
shipping processes and inventories to allow
for the added transit times.
EXTENT AND MAGNITUDE OF
TRADE
Overview of the North American Free Trade
Agreement (NAFTA)
• NAFTA establishes free trade between Canada,
America and Mexico.
• The Treaty states the objectives of the three
Countries is based on the principles of an
unimpeded flow of goods, most-favourednation (MFN) status, and a commitment to
enhance the cross-border movement of goods
and services.
• South Africa is part of the SADC (Southern
African Development Community) and the
African Free Trade Zone which is similar to
NAFTA.
GLOBAL TRANSPORTATION
PROVIDERS
Ocean Transportation
• Types of carriers: liners, tramps, and private
vessels
LINERS
• Liners are ships that ply fixed routes on
published schedules.
• Liner services are either container or breakbulk types.
Liners cont’
• Freight must be moved to the liner
company’s terminal at the port after the
shipper has arranged freight booking or
reservation
• Freight is loaded by machine if bulk, or
crane if containerized.
Liners cont’
• Container movement is gaining over the
traditional break-bulk (general cargo)
method of ocean carriage.
• When goods have to be heavily crated and
packaged for break-bulk movement, a
container often provides much of that
needed protection
Liners cont’
• Break-bulk ship might require many days to
unload and load its cargo by small crane and
manpower
• An entire container ship can enter, unload, load,
and clear a port in less than 12 hours
• Such speed has brought about labour savings to
both the shipper and the liner company, as well as
increased ship (and capital) utilization.
• Because a ship is only earning revenue at sea, it is
easy to see why containers have become a
dominant form of packaged-goods shipping.
Liners cont’
• Container service, although saving port
and ship time, has brought about different
operating and management concerns for the
ship company
• This service requires a large investment in
containers – at sea, delivered inland, loaded
• Although a ship might carry 1,000
containers, an investment of 1,500 to 2,500
containers is necessary to support that ship
Liners cont’
• With inland movement of containers,
control over this land movement becomes a
necessity.
• The container itself is a large investment
and is attractive to thieves in areas of
warehouse or housing shortages.
Liners cont’
• roll-on/roll-off ship, referred to as a
RORO ship.
• These ships carry trucks, trailers, and
construction equipment much like a
multilevel ferryboat.
• Especially effective when ports don’t have
cranes (container with wheels don’t a crane)
TRAMPS
• The tramp ship is one that is hired like a
taxi or leased auto.
• That is, it is a bulk or tank ship that is hired
on a voyage or time basis.
• Time charters are usually longer-term
charters in which the shipper will make or
arrange for more than a one-way move.
• Such charters are made with or without
crews being provided by the shipowner.
PRIVATE VESSELS
• Private ships are owned or leased on a longterm basis by the firm moving the goods.
• Many oil ships fit this category, as do
automotive and lumber vessels.
SHIP REGISTRY
• Although a ship might be U.S.-owned and ply a
route between the United States and the Persian
Gulf, it might be registered in and fly the flag of
Liberia or Panama. These nations represent what
are called flags of convenience.
• That is, the owners derive certain benefits of taxes,
manning, and some relaxed safety requirements by
being registered in those countries, rather than in
the United States, Canada, or wherever.
• The top flags of convenience nations include
Panama, Liberia, the Bahamas, Greece, and Malta.
Air Carriers
• Air transportation offers the global
transportation user speed
• Four types of air carriers are available for
international shippers: air parcel post,
express or expedited service, passenger, and
cargo.
AIR PARCEL POST
• Air parcel post service is provided by the
postal service of a country and is designed
to handle small packages.
• The postal service contracts with an air
carrier to pick up and deliver the item from
one country to another
EXPRESS OR EXPEDITED
SERVICE
• Express or courier service is provided by air
carriers and is generally restricted to small
shipments weighing less than 32 kg.
• Speed is the essential characteristic of this
service, with next-day or second-day
delivery a standard service level.
• Examples of major carriers providing this
service include Federal Express, United
Parcel Service (UPS), and DHL.
PASSENGER CARRIERS
• Regularly scheduled international passenger
flights haul freight in the “belly” of the
plane.
• These carriers focus on the movement of
passengers, but the excess capacity in the
nonpassenger compartment permits the
transporting of cargo along with passengers.
ALLCARGO CARRIERS
• All-cargo carriers specialize in the
movement of freight, not passengers.
• The air planes are outfitted with larger hatch
openings, cargo compartments, and floorbearing ratings.
• Many air cargo planes have mechanized
materials-handling devices on board to
permit the movement of heavier cargo
inside the plane.
ALLCARGO CARRIERS cont’
• Some of the larger planes are capable of
transporting a 40-foot container (FEU),
trucks, and other motor vehicles.
• Generally, these carriers haul heavier
shipments weighing more than 32 kg. BAX
Global, Federal Express, and UPS Air are
examples of U.S. all- cargo carriers.
• Ancillary Services companies provide a
variety of functions that offer the user lower
costs, improved service, and/or technical
expertise and include: air freight
forwarders, international freight forwarders,
nonvessel operating common carriers, ship
brokers, and ship agents
AIR FREIGHT FORWARDERS
• The air freight forwarder books space on an
air carrier’s plane and solicits freight from
numerous shippers to fill the booked space.
• The air freight forwarder offers the shipper
of small shipments a rate savings resulting
from the advanced purchase of space
INTERNATIONAL FREIGHT
FORWARDERS
• These firms arrange movement for the
shipper. They do not necessarily act as
consolidators or earn their revenues in the
manner like domestic forwarders.
• International freight forwarders act as
agents for shippers by applying familiarity
and expertise with ocean shipping to
facilitate through movement.
INTERNATIONAL FREIGHT
FORWARDERS cont’
• They represent the shipper in arranging
such activities as inland transportation,
packaging, documentation, booking, and
legal fees
• They play an invaluable role for shippers
who are not familiar with the intricacies of
shipping or those who do not have the scale
or volume to warrant having in-house
expertise in this area.
NONVESSEL OPERATING
COMMON CARRIERS (NVOCC)
• Nonvessel operating carriers assemble
and disperse less-than-container shipments
and move them as full-container shipments.
• They serve much the same role as the
domestic freight forwarders.
• A shipper moving a small item would
otherwise have to move it via break-bulk
ocean carrier or air freight.
NONVESSEL OPERATING COMMON
CARRIERS (NVOCC) con’t
• The NVOCC consolidates this shipment
with many others and gains the economies
of container movement.
• Some NVOCCs operate from inland cities,
where they unload inbound containers and
distribute the goods to consignees.
• They in turn solicit outbound freight,
consolidate shipments into the containers,
and move them back to a seaport for
outbound movement.
NONVESSEL OPERATING COMMON
CARRIERS (NVOCC) cont’
• The steamship line gains opportunities from
broadened territorial traffic, and it gains
services and control over containers from
the NVOCC solicitations.
• Shippers and receivers gain from the
shipping expertise and processes of the
NVOCC, as well as from expanded and
simplified import and export opportunities.
SHIP BROKERS
• These firms act as middlemen between the
tramp shipowner and a chartering shipper or
receiver.
• The brokers’ extensive exposure, contacts,
and knowledge of the overall ship market
make them valuable parties in these
arrangements.
• They are compensated on the basis of a
percentage of the chartering fees.
SHIP AGENTS
• Ship agents act on behalf of a liner
company or tramp ship operator (either
owner or charter company) to represent
their interests in facilitating ship arrival,
clearance, loading, unloading, and fee
payment while at a specific port.
• Liner firms will use agents when the
frequency of sailings are so sparse that it is
not economical for them to invest in their
own terminals or to have management
personnel on site.
LAND BRIDGES
• The "landbridge" is a generic term meaning use
the land freight as a means of transport
connection.
• The landbridge is a way of transporting cargo
from a port or an inland point of origin in the
shipper's country to an inland point or a port of
final destination in the consignee's country using a
combination of usually sea and land, or air and
land, or air, land and sea transports
RATE MAKING IN GLOBAL
TRANSPORTATION
• Rate making is presented from the
standpoint of three major transportation
supply sources available to shippers: air,
liners, and chartered tramp ships.
Shipping Conferences
• A steamship conference is a voluntary
organization of vessel-operating carriers
whose main function is to set acceptable
rates for steamships and shippers.
• The goal of the conference is to maintain a
stable market and fair competition among
carriers.
• Another important element of the steamship
conference is to administer operating rules
that guarantee the shipper a consistent level
of service from participating lines.
Global Air
AIR CARGO RATE
• Air cargo rates are based on the value of
service or the cost of service
• The less sensitive cargo is to rates, the
higher the rate will be.
• On traffic lanes where demand is strong and
plane capacity is limited, the air rates will
be high, and vice versa for traffic lanes
where supply exceeds demand.
AIR CARGO RATE
• Products with high prices or emergency
conditions surrounding the move will be
charged high rates because the freight rate is
a small portion (less than 1 percent) of the
landed selling price.
• Cost factors enter into air carrier pricing of
cargo.
AIR CARGO RATE
• Given the limited cargo- carrying capacity
of a plane, space is a premium.
• The utilization of this space is related to the
density of the cargo, with low-density cargo
requiring more space per weight unit than
high-density cargo.
• Rates are based on a product density
AIR CARGO RATE cont’
• Container rates are also available for cargo
shipped in a container.
• The rate is cost based, rather than value of
service or commodity based.
• The rate applies to a minimum weight in the
container
LINER RATE MAKING
• Approximately 80 to 90 percent of total cost
is fixed and 10 to 20 percent is variable.
• Liner companies tend to have large
overhead costs in the form of managements
that are necessary for solicitation purposes.
LINER RATE MAKING cont’
• A majority of the total costs of operating a
ship are fixed.
• Because cargo loading, unloading, and fuel
are the only primary variable costs, the
ship’s operation cost is roughly the same
regardless of the commodity hauled.
LINER RATE MAKING cont’
• Ship operators will often determine unit costs in
terms of cost per cubic metre of ship space so as to
better evaluate and price for the range of
commodities handled.
• There is a tendency to price according to the
principles of value of service.
• That is, a floor of variable costs must be covered
as a minimum; then the blend of high- and lowvalue-per-kilogram commodities, as well as the
host of traffic elasticities, leads to pricing
according to what the traffic will bear to maximize
revenue.
THE CONFERENCE OF RATE
MAKING
• Liner firms have long banded together into
collective rate-making bodies called
steamship conferences.
• Conferences comprise member liner firms
only.
• The organization is international in scope
because liner firms of many nations will
belong to one.
• They are also territorial in scope.
THE CONFERENCE OF RATE
MAKING cont’
• Because ship operators experience a
relatively fixed cost per day, and weight is
not necessarily a variable cost expense,
rates are constructed to also accommodate
the density of freight
• Many rates are assessed on a weight basis.
• Products that might occupy more of a
proportionate share of space relative to their
weight are often charged on a “weight or
measure” (W/M) basis
THE CONFERENCE OF RATE
MAKING cont’
• Time/volume rates are a rate feature new to
ocean shipping.
• The service contract provides for a
guaranteed amount of tonnage or containers
over a certain time period.
• The carrier or conference receives the
benefit of a larger or guaranteed amount of
tonnage.
Tramp Ship Cost Rate Factors
COSTS
• Tramp ships are generally not controlled by
a specific route with a single commodity.
• Large oil tankers that are built for time
charters for specific origin-destination
markets are the exception.
• The basic tramp vessel might haul coal,
grain, fertilizers, and lumber in the same
year
Tramp Ship Cost cont’
• Adaptability is necessary to minimize lost
revenue possibilities that will arise.
• These vessels might not always be of lowcost, optimal design for any of the
movements, but that is a basic trade-off to
being flexible.
Tramp Ship Cost cont’
• A major consideration of tramp owners is
the nation in which the ship is registered.
• The nation of registry requires the
shipowner to comply with specific
manning, safety, and tax provisions.
TRAMP SHIP RATE MAKING
• A tramp shipowner experiences costs, like
those of the liner, that are largely fixed in
nature.
• Ownership costs present themselves in
depreciation and interest costs.
• Fuel is not as greatly variable with the
commodity weight load, as is ship speed or
at-sea versus port time.
• The key is that the shipowner minimizes
empty nonrevenue miles and days.
TRAMP SHIP RATE MAKING
cont’
• Three primary forms of ship rental or
chartering systems are in use. These are the
voyage, time, and bareboat or demise
charter
TRAMP SHIP RATE MAKING
cont’
• The voyage charter is one in which the
shipowner mans, operates, and charters the
vessel, similar to a taxicab for a specific
voyage.
• Shippers seek voyage charters for primarily
one-way and sometimes two-way trips.
• The owner is constantly seeking charters
subsequent to present charters to minimize
empty moves to the next charter.
TRAMP SHIP RATE MAKING
cont’
• The time charter is one in which the shipowner
rents the vessel and crew to a shipper for use over
a period of time that often includes use for several
shipments.
• The owner has his or her ship productively tied up
for a longer period of time than in the voyage
charter, and the shipper might judiciously arrange
the moves, making the time charter more
economical than several voyage charters.
TRAMP SHIP RATE MAKING
cont’
• The bareboat or demise charter is one in
which the owner usually rents the vessel for
a long period of time while the chartering
party supplies the crew and performs the
physical operation of the vessel.
• In this setting, the owner is seeking to
recoup capital and interest costs and to be
assured that the ship will be safely operated.
ROLE OF PORT AUTHORITIES
IN GLOBAL
TRANSPORTATION
• The term port authority applies to a state or
local government that owns, operates, or
otherwise provides wharf, dock, and other
terminal investments at ports.
• The primary reasons for the existence of
these organizations are to allow for
comprehensive planning, to provide the
large physical investment base, and to
provide for certain political needs within the
area.
Port authorities roles includes:
1. Ownership of all waterfront rights and
renting of waterside access rights to
shipping companies and terminal firms.
2. Developing waterways and pier terminal
facilities and renting them to users [shortand long-term bases) who do not have the
scale of operations to support or perhaps
do not wish to actually own such assets.
Port authorities roles includes: cont’
3. This capital financing role is perhaps the
major benefit provided by these port
authorities.
4. Port authorities also promote overall trade
through their port areas:
• This includes industrial development
efforts, the offering of favorable financing,
representation before regulatory bodies,
and the encouragement of adequate
transportation facilities on land.
Transnet National Ports Authority
• The national ports authority is responsible
for the safe, effective and efficient
economic functioning of the national port
system, which it manages in a landlord
capacity.
• The national ports authority provides port
infrastructure and marine services at
the eight commercial seaports in South
Africa.
Transnet National Ports Authority
The core functions of the national ports authority are
as follows:
• To plan, provide, maintain and improve port
infrastructure;
• to provide or arrange marine-related services;
• to ensure the provision of port services, including
the management of port activities and the port
regulatory function at all south African ports; and
• to provide aids to navigation and assistance to the
maneuvering of vessels within port limits and
along the coast.
FUTURE OF GLOBAL
TRANSPORTATION
• Global transportation will grow in
importance as more manufacturing and
merchandising firms become involved in
overseas sourcing and marketing.
• The cloud on the global trade horizon is
nationalism. This ranges from tariff
protection to political constraints and home
flag carrier protection. ????
FUTURE OF GLOBAL
TRANSPORTATION cont’
• Such nationalism tends to appear whenever
a home industry is threatened by foreign
competition or forces.
• The Jones Act in the United States, which
requires domestic movements only by U.S.
flag ships and domestic airlines, is one such
example, though not a significant one on the
world scene
• END