Transportation, warehousing, and inventory management are fraught with risks at all levels. For a successful buy-sell transaction or vice versa, all risk factors must be considered, managed, and countermeasures executed, leaving no room for error.

However, logistics management and execution of its various functions are not easy tasks. Each step has to be handled with care. Achieving zero-error performance might not always be possible, but every step should be taken to aim for this.

Supply chain disruptions happen when logistics management and task execution are not synchronised and, in some cases, when unexpected events occur.

Supply chain disruptions can have far-reaching and disastrous consequences. Besides delays in deliveries, it can affect product quality, create shortages or excess of stocks, and upset warehousing and storage capacities.

Also, projects may often be delayed, their overall costs shoot up, and strategies go off track. Frequent disruptions can affect an organisation’s reputation.

Risks associated with transportation and storage are the most common in logistics. Breakdowns and failures can be prevented to a large extent by proper planning and having backup plans in place.

What are the Main Logistics Risks Faced by Businesses Today?

This can be quite an exhaustive list, but let’s review the main risks that logistics organisations face.

Supply Risks

Relying on a sole supplier might have its benefits, but imagine if they suddenly decide to turn off the supply. Having one or two backup suppliers who can be relied on in such situations can help to a certain extent.

Maintaining good supplier relationships can go a long way toward ensuring uninterrupted supplies. Suitable software with strong forecasting techniques helps produce reliable figures that can, in turn, help the supplier plan production accordingly. This helps prevent stock-outs and overstocks.

Transportation Issues

Transportation is the backbone of the logistics industry. Without it, the physical movement of goods, whether for buying or selling, can never be complete. Arranging the correct type of transport for moving the required quantities is crucial in avoiding transportation risks.

However, transportation depends on many factors, such as cost, the quantity and quality of goods being moved, journey distance, proximity to ports and railway yards, and others.

Goods can spoil or deteriorate with time if mishandled during transport and storage. Temperature-sensitive goods must be transported in the right containers, and refrigerators or temperature-controlled containers help to maintain the quality of the goods transported.

As in warehousing, goods are mainly transported under ambient, chilled, or frozen conditions, depending on the type of goods. Accurate storage temperatures, as the customer prescribes, must be followed during transportation to prevent spoilage and deterioration.

For example, grains are often transported under ambient conditions. Fruits and vegetables are transported over long distances in chilled containers, while meat, fish, and poultry are transported in refrigerated containers.

Most of the transport today involves multimodal containers. Reputed transport operators handle multimodal transport arrangements efficiently. Eventualities such as equipment breakdown, alternate routing, staffing, labour issues, etc., are often considered by these operators while planning the transport of goods.

Handling and Storage Risks

Technologically advanced warehouses for the storage of temperature-sensitive products are common these days. They are designed to store such products at the required temperature, humidity, and other conditions that ensure their quality, texture, etc.

Warehouse operators have to ensure that the vehicles used for transporting goods to customers, containers, Material Handling Equipment (MHEs), and their warehouses are maintained and serviced correctly at the prescribed intervals to avoid breakdown.

Security Risks

Modern multimodal containers are mostly theft- and pilferage-proof. Similarly, modern warehouses are designed to prioritise security. In addition to security personnel, cameras and sensors are installed at critical points to deter pilferage, theft, and unauthorised access.

Labour Issues

Labour supply can be unpredictable, and unexpected labour unrest can sometimes irreparably upset logistics operations. Logistic organisations must remember this and always have alternate measures in place.

Maintaining good relations with labour unions and government organisations dealing with such unions can mitigate the impact of labour unrest. Opting for warehouse automation and having a temporary stand-by workforce are other measures that can help combat the effects of labour unrest.

Cyber Risks

Hackers can compromise an organisation’s information system. This often leads to the organisation’s confidential information finding its way into the open net, leading to considerable cyber risks.

Sensitive data relating to finance, customers, and shipments should never fall into the wrong hands where it can be misused. Hackers often steal data to sabotage operations.

Some ways to minimise cyber risks include using updated and original software with anti-malware, data encryption, and enforcing system access control for employees.

Political Events and Natural Calamities

Wars, conflicts, and significant political upheavals pose considerable logistics and business operations risks. Similarly, forces of nature, such as storms, floods, fires, etc., are natural calamities beyond mankind’s control.

Both are considered ‘force majeure’ or ‘acts of god’. They interrupt the normal flow of work and often cause damage and destruction of property. Though very little can be done about such instances, arrangements can be made to transport goods by an alternate mode of transport, such as having warehousing arrangements at different locations.

Logistics Risk Assessment

Most modern logistic organisations carry out periodic risk assessments. Such assessments help pinpoint the source of risks and their impact on logistics operations. Risks are analysed, and precautions are taken to minimise or prevent them.

Develop contingency plans that are workable and can be mobilised quickly. Policies and procedures considering such situations should be developed, or existing ones should be updated and enforced by logistics companies.

What Else Can We Do to Minimise Logistics Risks?

It is essential to have robust policies and procedures that are easy to understand while covering all aspects of logistics operations and business. Communication is vital in any operation.

Encourage cross-department and one-to-one communication between employees, and make sure that management communicates well with their employees.

Staff training and motivation are crucial here.

Learn from the competition. They might have a few good note-worthy points to help you run your organisation more efficiently and effectively. Join the local logistics association, where ideas and interests can be shared to help grow the business collectively.

New risks can occasionally arise. Safety protocols should be developed, updated, and enforced to combat such unexpected risks.

You might also like to read-

• What Are Logistics Parks?
• What is Inbound and Outbound Logistics?
• What is Reverse Logistics and Recycling?
• What is Integrated Logistics Management?
• 11 Basic Components of Logistics Cost

Disclaimer: The author’s views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used in the article, have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendations on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight.

What are Logistics Risks? appeared first on Marine Insight - The Maritime Industry Guide

While the maritime industry has, in the past few years, been the subject of intense scrutiny for its GHG emissions, most of the regulatory focus has been on the shipping sector.

While this is not unusual given that it is the maritime transport leg of the supply chain that accounts for the bulk of emissions (primarily through its bunker consumption), there are other stakeholders that also contribute to emissions (albeit not of the same magnitude as shipping). 

This set of stakeholders includes Maritime Ports and Terminal operators, who act as the link between sea and land transport, facilitating EXIM movement by functioning as gateways for vessels to berth at and discharge cargo.

Ports and terminals are capital-intensive assets, requiring significant investments for the acquisition of land, development of facilities, and purchasing of container handling equipment, all of which entail extensive construction activity.

Once constructed and operational, regular container/ cargo handling activity at the port and various ancillary activities also generate emissions.

These ongoing operational activities include the use of cranes and vehicles for moving cargo/ containers within the port premises, fuel consumed by cranes of various types, reach stackers, trucks, and other vehicles, administrative activities, etc., all of which are critical to the smooth functioning of the port.

Thus, the construction and operations of ports and terminals give rise to emissions right from the onset, attributable to the various activities that fall under the port’s scope.

Besides this, the port is considered to be indirectly responsible for emissions emanating from the activities of other entities operating from or using their premises and facilities.

Therefore, while designing and constructing the port and terminals therein, it is advisable to bear in mind the UN’s Sustainable Development Goals (SDGs), an internationally agreed-upon set of goals ratified in 2015 as part of the United Nations 2030 Agenda for Sustainable Development.

Whether setting up a greenfield port, evaluating a port expansion project, or setting daily operational processes, it is essential to consider the impact on the SDGs. 

To illustrate this point with specific examples, when conducting feasibility studies for a greenfield port, it is crucial to gauge the impact on the ecology and local society in the region.

Likewise, if the port doesn’t have a natural deep draught, dredging will have to be undertaken at frequent intervals, which will also impact the environment. 

Once commissioned, the port can generate significant amounts of waste, which will have to be disposed of responsibly, for which appropriate arrangements will need to be made while designing and constructing the port.

As with all other industries, emissions from ports are categorised into:

1) Scope 1: emissions directly emanating from the port’s operations

2) Scope 2: the port’s indirect emissions from power generation

3) Scope 3: Other indirect emissions

Given their unique position at the intersection of the sea and land legs, ports can not only regulate their own emissions but also help other stakeholders such as Carriers and Truckers in reducing their emissions.

There are certain measures that port authorities and terminal operators can undertake to reduce direct and indirect emissions, which are explained below:

1. Minimising or optimising energy consumption

Since port activities involve the consumption of extensive amounts of energy, it is essential that energy usage be minimised or optimised. This can be done by designing efficient processes that minimise movements and thus help reduce the consumption of energy.

For example, this would entail minimising housekeeping moves, where storage of containers in the port premises is planned such that each container can be easily accessed without the need to move other containers. 

2. Green/ renewable energy sources

Given the sizeable energy requirements at ports and terminals, an increasing number of port authorities and terminal operators are looking at replacing conventional fuel-based energy sources with green or renewable energy. The objective is to use energy from clean sources, which will reduce the quantity of emissions and thus reduce pollution.

One such source is solar energy, which involves upfront investment in installation of solar panels, but thereafter generates benefits in the form of lower consumption of conventional energy, lower electricity costs, and reduced emissions. 

In the UK, the Portsmouth International Port was the first in the country to utilise solar canopies to power its operations. In the US, the port of Corpus Christi, Texas, is another example of a port exploring solar energy. 

3. Sensor-activated / Smart lighting systems: 

Given the inherently hazardous nature of work in ports and the potential dangers involved, ports need to have adequate lighting to ensure visibility at all times so that employees and workers avoid accidents due to lack of visibility/ poor light. This obviously implies the consumption of large amounts of electricity. 

A growing number of ports are, therefore, replacing standard lighting systems with smart lighting systems that are equipped with activity sensors, where lights switch on automatically when they sense movement and switch off when there is no movement. This helps ports reduce energy consumption, helping strike the right balance between safety and electricity consumption.   

4. Cold ironing at Ports

Also known as Alternative Maritime Power or Shoreside Supply, cold ironing involves vessels utilising shore-based power while berthed at the port. The port makes arrangements for the vessel to use power from non/ less-polluting sources (potentially solar power, in the best-case scenario). The vessel is, therefore, able to avoid using bunkers, thus helping reduce emissions.

Cold ironing has been popular in North American and European ports, and China is also now focussing on this by including it in its 5-year plans.

5. Increasing port productivity and efficiency levels

A direct correlation exists between the productivity and efficiency levels at ports and emission levels. As ports and terminals strive to increase their productivity and overall efficiency, their activity levels reduce, thus resulting in lower emissions.

With faster handling of containers on board vessels, loading and unloading of cargo is finished quickly, reducing the vessel’s time at berth or port premises, resulting in lower emissions.

Also, if time is saved at the port, the vessel can subsequently sail at lower speeds and still maintain schedule reliability. Sailing at lower speeds reduces bunker consumption, which in turn lowers emissions.

Sharing data on time and as relevant also enables freight forwarders, onward transport providers, and consignees to proactively plan cargo movement as per timelines provided, which ensures prompt and timely evacuation of containers and also helps reduce waiting and idle time for trucks – all of which help reduce emissions.

6. Use of technology 

The key to boosting efficiency and facilitating proactive planning is to utilise technological solutions to assist in operations management. 

The market is replete with logtech solutions of varying functionalities and aimed at either the holistic supply chain or specific aspects thereof. Depending on requirements and the relative criticality of each activity, Terminal operators can select software that best meets their requirements. 

Using technology can help optimise container and vehicle movements, as well as storage of containers, which reduces fuel consumption.

Likewise, using RFID tracking can help provide visibility to container status and location, which makes it easier to locate and move the container promptly.

In these and other ways, technology can assist in better planning and vessel and container handling, thus reducing wasteful movement, accelerating cargo movement, and generally reducing associated emissions.

7. Green corridors

Green corridors are an innovative concept intended to make the transit between 2 ports more eco-friendly and less polluting. A green shipping corridor connects 2 ports such that it facilitates lower (or zero) emissions by creating an entire ecosystem that is geared towards emission control, encompassing regulatory measures, ensuring the availability of green fuel along the route, and financial incentives. 

Given their relative novelty and the extent of work involved, the idea is still catching on, with initially only the biggest ports evaluating its feasibility in connecting to their biggest destinations (such as on the Asia-Europe trade lane). 

You might also like to read-

• Minimum Quantity Commitment (MQC) and Liquidated Damages in Container Shipping: Concept and Relevance
• The Essential Guide to Shipping Container Dimensions – What You Need to Know
• Commoditisation of Container Shipping: Implications for Carriers and Cargo owners
• 10 Top Eco-Friendly Cruise Ships
• Green Float: Eco-friendly Floating Cities at the Sea

Disclaimer: The author’s views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used in the article, have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendations on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight.

How Port and Terminal Operators Can Control Emissions? appeared first on Marine Insight - The Maritime Industry Guide

Generally, in the container shipping industry, shippers and cargo owners work with container carriers either through long-term contracts or on an ad hoc basis. The former involves signing contracts for a longer time frame (typical duration being one year, but sometimes could be shorter or multi-year contracts as well), while in the latter instance, shippers play the spot market. 

While spot rates are generally commonly preferred when markets are bearish, and so shippers try to play the spot market in the anticipation that freight rates fall further in the future (closer to the cargo readiness date), entering into a contractual agreement is a feasible option for shippers with a regular flow of volumes and when markets are stable or where supply chain reliability and availability of space and equipment is prioritised over freight rates (unless the difference between spot and contract rates is excessively high). 

The very essence of a contract between a carrier and a shipper is the agreement to carry a certain volume of cargo at agreed freight rates. This specified quantity of cargo constitutes the shipper’s commitment to the carrier in return for competitive contract rates (which are lower than the prevailing spot rates) and is known as the Minimum Quantity Commitment (MQC).

The MQC clause in the contract thus specifies the minimum quantity of cargo (or the number of containers) that the shipper is obligated to transport with the carrier during the duration of the contract in return for the lower contractual freight rates.

Entering into a contractual agreement with an MQC is beneficial to the shipper in the following ways:

1) Guaranteed space and equipment: The entire premise of entering a contract with MQCs is to ensure that the carrier promises space to carry the committed volumes. This provides shippers with certainty regarding the availability of space on vessels and equipment. 

2) Stability in freight rates: As rates are negotiated for the entire duration of the contract (and can not be revised, except in the case of force majeure events or contingencies), shippers are assured of stability in freight rates, resulting in relatively steady overall transport costs. This enables shippers to budget supply chain costs accurately and price their merchandise accordingly.

3) Limited exposure to increases in accessorials and surcharges: Contractual agreements generally specify the quantum of surcharges, such as the Bunker Adjustment Factor (BAF) or Terminal Handling Charge (THC), which limits the shipper’s exposure in case of a rise in the carrier’s costs related to the activities that the surcharges pertain to. For example, in the case of Terminal Handling Charges (THC), where carriers sometimes mark up the quantum, the carrier might agree to a lower THC in the contract.

Similarly, BAF levels fluctuate depending on oil/ bunker prices, which generally move upwards (except during times of recession), wherefore most contracts specify that the BAF levied will be revised in case oil prices move beyond a certain range. This implies that the carrier will absorb minor increases in bunker costs (while also retaining the option of correcting the quantum of the BAF if excessive price movements result in an inordinately higher increase in bunker costs), which, to a great extent, insulates the shipper from BAF increases.

4) Optimising inventory management: With guaranteed space, shippers have confidence regarding the volume, frequency, and speed at which they will be able to deliver raw materials, components, and finished goods to their manufacturing plants or consumer markets.  As a result thereof, shippers can plan their inventory levels, reorder levels, and minimum reorder quantities accordingly to avoid storing surplus inventory or ordering more (or earlier) than is necessary to replenish stocks. This lowers inventory holding costs and improves cash flows while also minimising risks of obsolescence and damage to stock. This also helps shippers in striking the right balance between the  JIT (Just in Time) and JIC (Just in Case) methods of inventory management.

5) Supply chain reliability: All of the above factors greatly aid end-to-end supply chain planning, with minimal disruptions and a lower probability of errors. Shippers have more control over their supply chains and can forecast costs and delivery schedules with greater accuracy, making the supply chain more reliable and robust. This results in overall benefits for the business and can be a source of competitive advantage.

From the Carrier’s perspective

For the carrier, contractual MQC cargo represents guaranteed business and space utilisation, while the spot market represents opportunities to maximise revenues and yields.

MQC volumes thus ensure an acceptable minimum level of space utilisation and provide revenue visibility to carriers, leaving them well poised to aggressively sell their remaining open space in the spot market.

MQC volumes can also help carriers in network optimisation and CAPEX allocation.

Carriers, therefore, strive to strike a balance between ensuring adequate cargo commitments, while leaving enough space to cater to spot cargo. 

The intent is to ensure that the MQC justifies the contractual rates offered and that the aggregate revenue is of a level sufficient enough to make it financially feasible for the carrier.

Liquidated Damages

The concept of MQCs is linked to Liquidated Damages, which is the penalty that the shipper has to pay in case of inability to deliver the committed volumes. Liquidated damages are charged as a certain pre-agreed amount per container, so the total amount the shipper is liable to pay as liquidated damages is calculated as the shortfall in MQC multiplied by the rate of liquated damages. 

The rationale behind incorporating the liquidated damages clause is to have in place a deterrent to discourage shippers from promising unrealistically high volumes in return for lower freight rates while also compensating the carrier for the opportunity cost of the blocked space that was eventually unutilised due to the shipper’s inability to deliver the committed volumes.

In practice, however, the enforcement of liquidated damages and holding the shipper accountable for missing MQCs largely depends on the extent of the shortfall, the market conditions, and the relative bargaining power of shippers vis-a-vis carriers. 

Where the shortfall is not very high, or where market conditions are bearish with shippers holding the upper hand or where retaining the shipper’s business is crucial for the carrier, it is likely that the carrier will overlook the shortfall.

In a buoyant bull market and high freight rate environment (such as was witnessed in post-Covid, in 2021 and 2023), carriers would be more amenable to overlooking MQC shortfalls, as it allows them to sell the space thus freed at the higher spot market rates and maximise revenue (as had the shipper delivered the MQC volumes, the carrier would have been legally obligated to carry them at the agreed freight rates, thus decreasing space available for higher-yielding spot cargo).

Factors to consider while determining MQC’s

It is important for both the shipper and the carrier to ensure that the MQCs agreed upon are realistic. Contractual freight rates are offered by the carrier depending on the volumes committed by the shipper (amongst other factors) and, therefore, place a legal obligation upon both the shipper (to ensure that the volumes materialise) and the carrier (to ensure adequate space and equipment to cater to the MQC volumes).

Some important factors to consider while determining the MQC are explained below:

1) Overall business or volumes controlled by the Shipper: The shipper needs to evaluate his production capacity and export potential before he can commit to an MQC with the carrier. The volume has to be large enough to induce the Carrier to offer lucrative rates, while the Shipper could look to spread his volumes amongst two or more carriers in order to avoid risks arising from excessive reliance on one carrier.

2) Capacity and Trade lanes or Port corridors involved: The carrier needs to analyse their shipping network and available capacity before agreeing to the MQC volumes. This is both to ensure that the carrier has the capacity to cater to the MQCs and also to ensure that the freight rates are priced with the market conditions, equipment availability, and supply-demand imbalance in mind.

3) Market Outlook: Depending on whether freight rates are expected to fall or rise during the duration of the contract period, carriers and shippers will try to minimise risks. If freight rates are forecast to increase, shippers will attempt to set a higher MQC to ensure that a greater proportion of their cargo moves at the pre-agreed contract rates. On the contrary, if rates are expected to fall, then shippers will try to lower their commitment (sufficient to ensure adequate inventory levels) in the hope of later capitalising on lower spot rates prevailing closer to the cargo readiness date. 

Carriers will likewise take into consideration freight rate forecasts and overall business outlook while accepting MQCs and try to negotiate rates and contract duration accordingly. 

To illustrate with an example, when freight rates were at record high levels post-COVID, carriers such as Maersk adopted an innovative approach to maximising long-term profitability by compelling shippers to sign long-term contracts (with duration ranging from two to three years). The underlying logic was that the contractual rates offered, though lower than the existing spot rates, were higher than the average contractual rates. 

This meant that the carrier would benefit from higher contract rates even when the spot freight market eventually reverted to normalcy. The success of this strategy can be gauged from the fact that this strategy enabled Maersk Line to shore up their revenues even in H2 2022 and 2023, when spot rates had started returning to their historical average levels.

4) Seasonality and Peak season: Demand spikes during peak season (such as Christmas or prior to Chinese New Year), and on account of commodity-specific seasonality (such as grapes or mangoes) needs to be taken into account while deciding MQC volumes. Both shippers and carriers need to understand the implications and constraints that these periodic demand spikes entail and evaluate feasibility prior to committing.

Conclusion

It is thus obvious that MQCs are an important aspect of the contractual agreement between carriers and shippers, which enable carriers to quote freight rates commensurate with the volumes committed, while shippers can, in turn, rest assured about space and equipment availability for the MQC volumes. 

The sanctity of the MQC volumes is sometimes disregarded due to commercial pressures and extant market conditions, but they remain an integral part of contractual terms and conditions. 

Given the widespread volatility in international transport markets, MQCs will continue to play an increasingly important role in helping shippers plan their supply chains, while for carriers, it will help plan their capacity allocation and design commercial strategies.

You might also like to read-

• How to Take Care of Cargo on Container Ships at Sea?
• 15 Reasons For Commoditisation Of The Container Shipping Industry
• 17 Benefits Of Using Logistics Technology Solutions To Customers And Supply Chains
• Trends and Outlook for Container Shipping Industry in 2024
• Commoditisation of Container Shipping: Implications for Carriers and Cargo owners

Disclaimer: The author’s views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used in the article, have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendations on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight.

Minimum Quantity Commitment (MQC) and Liquidated Damages in Container Shipping: Concept and Relevance appeared first on Marine Insight - The Maritime Industry Guide

Just like SOLAS, which regulates the shipping industry to follow minimum standards to safeguard life at sea, the International Convention for the Prevention of Pollution from Ships /MARPOL is another important convention for the prevention of pollution of the marine environment.

It sets standards for stowing, handling, shipping, and transferring toxic waste. Also, it lays down rules regarding the disposal of ship-generated hazardous waste, such as cleaning agents and cargo hold washing water.

MAPOL and SOLAS are considered two adequate safety and environmental protection tools of IMO.

Read: SOLAS – The Ultimate Guide

MARPOL 73/78, since it came into force in 1973 and was later revised by the protocol in 1978, ensures that shipping remains the least environmentally damaging mode of transport. It ensures that the marine environment is preserved by the elimination of pollution by all harmful substances discharged from the ship.

Related Read: 5 Instruments of International Maritime Organization (IMO) Every Seafarer Should Know

This marine environmental convention consists of six implemented annexes with their appendix for controlling and eliminating marine pollution.

They are as follows:

Annexe I:  Regulation for pollution prevention by oil (October 1983).

Annex II: Regulations for controlling pollution by Noxious Liquid Substance in bulk (April 1987).

Annexe III: Regulation for preventing pollution by harmful substances carried at sea in packaged form (July 1992).

Annexe IV: Regulation for pollution prevention by sewage from ships (Sep 2003).

Annexe V: Regulation for pollution prevention by Garbage from ships (Dec 1998).

Annex VI: Regulation for prevention of Air pollution from ships (May 2005).

They are as follows:

MARPOL Annex I

Regulation for the prevention of pollution by oil (October 1983).

This marpol protocol was adopted on 2nd October 1983 to prevent oil discharge or oily mixtures from ships intentionally or accidentally. It comprises 11 chapters which together contain 47 Regulations. It was brought about due to a spate of tanker accidents.

Chapter 1 gives a general description of MARPOL ANNEX I and consists of 5 regulations which explain the “Application” of this chapter in different types of the ship, along with the “Definition” of different terminologies used in the chapter. The regulation may not apply to all kinds of ships; hence a separate section for “Exceptions” and “Exemptions” is also provided. It also explains the condition where an administrator may allow alternative fittings, materials, appliances etc., to be installed on ships to fulfil this annexe.

Most importantly, this annexe prohibits dumping hazardous waste within 12 nautical miles of the nearest land.

Chapter 2 deals with Surveys and Certifications requirement for all oil tanker ships of 150GT and other sips of 400 GT. And comprises five regulations.

Related Read: How to Get Dangerous Cargo Endorsement Certificate?

Regulation 6 describes the requirement for different surveys to comply with MARPOL annexe 1.

Regulation 7 provides the terms to issue or endorse the IOPP certificate to the ship post successful survey by the appropriate administration. Regulation 8 also describes how to issue or support the certificates by another contracting government, followed by Regulation 9, which tells the form of the certificate, including languages such as English or the official language of issuing country.

Regulation 10 explains the duration and validity of certificates and provides timelines for the renewal of certificates.

Regulation 11 terms the authority of port state control under Annex 1 to inspect the ship for compliance.

Chapter 3 deals with the Requirements for Machinery spaces for all ships and lists the requirements under Regulations 12 to 17 so that the engine room and other machinery spaces comply with MARPOL Annex 1.

Regulation 12 explains the requirement of storage tanks for oil residues produced on all types of ships due to machinery operation and methods to dispose of the oil residue. It further provides details to protect the fuel oil tanks for vessels having a fuel oil capacity of 600m3 and above.

Related Read: List of Important Tanks on a Ship

Regulation 13 describes the requirement for standard discharge connection on a ship to dispose of oil residue from sludge and bilge tanks.

Regulation 14 The requirements of oil filtration equipment onboard a ship for discharging engine room bilges or ballast water from fuel oil tanks are given in this regulation, followed by Regulation 15, which restricts the discharge of treated bilges in special areas.

Related Read: An Overview Of Sludge And Bilge Management Onboard Ships

Regulation 16 explains the requirement of segregating oil and water ballast carried in the ship’s fuel tank.

Related Read: A Guide To Ballast Tanks On Ships

Regulation 17 lists the need for a compliant oil record book for machinery space in oil tankers of 150GT and above and other ships of 400 GT and above.

Chapter 4. deals with the Requirements of Cargo areas in an oil tanker ship, listing down various regulations (Regulation 18 to 36).

Chapter 5 describes how to prevent pollution from an oil pollution incident. Regulation 37, which lists the SOPEP or Shipboard Oil Pollution Emergency Plan, provides the details.

Related Read: What is Ship Oil Pollution Emergency Plan (SOPEP)?

Chapter 6 lists the requirement for the reception facilities to which the ship will dispose of the oily bilge/ sludge under Regulation 38, providing details of the facility outside and inside special areas.

Chapter 7 provides the special requirement for a fixed or floating platform to comply with Annex 1 of MARPOL with Regulation 39.

Chapter 8 deals with preventing pollution, which may happen during cargo oil between tankers at sea, also known as Ship to Ship Transfer (STS). It comprises three regulations from 40 to 42.

Related Read: What is Ship-to-Ship Transfer (STS) and Requirements to Carry Out the Same?

Regulation 40 provides the scope of application for this chapter, and Regulation 41 lists down the rules on safety and environmental protection during the STS operation, followed by Regulation 42, which tells the notifications which need to be provided by the ship to port state and all the other parties involved in the operation.

Related Read: 7 Important Points For Safe Lightering Operations On Ships

Chapter 9 details the special requirement for the use of carriage of oils in the Antarctica area with Regulation 43.

Chapter 10 deals with the Verification of compliance with the provision of this convention under Regulation 44 and 45, providing details of the application and the process for verification of compliance.

Chapter 11 lists the important requirement of the international code for ships operating in Polar waters under Regulations 46 and 47. Regulation 46 lists down the definition for this annexe, followed by Regulation 47 for the application and requirement for the ships sailing in polar waters.

MARPOL Annex II

Regulations for the control of pollution by Noxious Liquid Substance in bulk (April 1987).

This Annex was adopted on the 6th of April 1987, which deals with controlling and preventing pollution due to6 Apriluid substances in bulk, intentionally or accidentally. It comprises ten chapters which together contain 22 Regulations.

Chapter 1 gives general details on MARPOL ANNEX II and consists of 5 regulations providing the “Definition” of different terminologies which are used in the chapter and explains the “Application” of this chapter in various types of ships (Chemical tankers etc.). The regulation may not apply to all kinds of vessels; hence a separate section for “Exceptions” and “Exemptions” is also provided. It also explains the condition where an administrator may allow alternative fittings, materials, appliances etc., to be installed on ships to fulfil this annexe.

Related Read: Different Types of Tankers: Extensive Classification of Tanker Ships

Chapter 2 details different categories of Noxious liquid substances under regulation 6.

Chapter 3 lists the need for surveys and certification with four regulations from 7 to 10. Rule 7 deals with the surveys and certificates needed by chemical tankers following the provision of the International Bulk Chemical code.

Regulation 8 details the need for different surveys for the ships carrying noxious liquid substances in bulk, followed by issuing and endorsing the certificate under Regulation 9. The duration and validity of the certificate are provided in Regulation 10.

Chapter 4 specifies the Design, Construction, arrangement, and equipment for ships carrying Noxious cargo in bulk under regulation 11, followed by Regulation 12, which provides the details of pumping, piping, unloading arrangement and slop tanks.

Chapter 5 carries three regulations from 13 to 15 for the operational discharge of residues of noxious liquid substances.  Regulation 13 lists the need for control of discharges of Noxious liquid substance residues.

Regulations 14 and 15 provide the details of the Procedure and arrangement manual and the Cargo record book, which needs to be filled by the ships’ officers.

Chapter 6, which consists of Regulation 16, describes the role of government and authorised parties such as port state control on measures of control to check, survey and assess the ships to carry the cargo under MARPOL Annex II.

Related Read: A List of Inspections And Surveys Deck Officers On Ships Should Be Aware Of

Chapter 7 deals with the Prevention of Pollution arising from an incident involving noxious liquid substances and consists of Regulation 17, giving the details of the Shipboard pollution emergency plan for noxious liquid substances.

Related Read: IMO: Compensation Regime For Hazardous And Noxious Cargoes A Step Closer

Chapter 8 lists the requirement for the reception facilities to which the ship can dispose of the residues and mixture generated from noxious liquid substances under Regulation 38, providing details of the facility and terminal unloading arrangements.

Chapter 9 deals with the Verification of compliance with the provision of this convention under Regulations 19 and 20, providing details of the application and the process for compliance verification.

Chapter 10 lists the important requirement of the international code for ships operating in Polar waters under Regulations 21 and 22. Regulation 21 lists down the definition for this annexe, followed by Regulation 22 for the application and requirement for the ships sailing in polar waters.

Related Read: How The IMO Polar Code Supports Safe And Eco-Friendly Shipping

MARPOL Annex III

Regulation for preventing pollution by harmful substances carried at sea in packaged form (July 1992).

This Annex deals with those substances which are hazardous and carried in packaged cargo. The identification of such material is provided in the IMDG Code. The MARPOL Annex III came into force on 1 July 1992 and comprised 2 Chapters containing 11 regulations.

Related Read: What is the International Maritim1 Julyerous Goods Code (IMDG)?

Chapter 1 gives general details on MARPOL ANNEX III, consisting of 9 regulations.

Regulations 1 & 2 explain the “Definition” of different terminologies used in the chapter and the “Application” of this chapter in various types of ships carrying Hazardous goods.

Regulations 3 & 4 list the requirement for packaging and Marking/labelling of the packages carrying IMDG cargoes.

Regulation 5 provides the details of the documentation which are needed by the ship which is carrying hazardous material under MARPOL Annex 3

Related Read: A Guide To HAZMAT Cargo Loading On Ships

The storage requirement and quantity limitations for carrying harmful substances in bulk are provided under Regulations 6 & 7.

Regulation 8 lists the exceptions a ship carrying harmful cargo in bulk can have under various circumstances.

The authorisation of port-state control on the operational requirement of ships carrying such substance under MARPOL Annex III is listed in Regulation 9.

Chapter 2 deals with the Verification of compliance with the provision of this convention providing details of the application and the process for compliance verification under Regulations 10 and 11.

MARPOL Annex IV

Regulation for the prevention of pollution by sewage from ships (Sep 2003).

Entered into force on 27 September 2003, this Annex focuses on preventing sewage pollution from ships. It has 7 Chapters comprising 18 Regulations. It underlines restrictions for the discharge of sewage from ships.

Chapter 1 gives a general description of MARPOL ANNEX IV and consists of 3 regulations which explain the “Definition” of different terminologies used in the chapter and the “Application” of this chapter in various types of ships. The regulation may not apply to all kinds of ships; hence a separate section of “Exceptions” is also provided.

Related Read: MARPOL ANNEX 4 Explained: How to Prevent Pollution from Sewage at Sea

Chapter 2 lists the need for surveys and certification with five regulations from regulations 4 to 8. Rule 4 deals with the surveys to be done on ships implicated by this Annex. Regulations 4 & 5 provide the details for the issue or endorsement of certificates by the administration and another government.  Regulation 7 & 8 gives details of the form,  duration, and validity of the sewage pollution prevention certificate.

Chapter 3 provides the need of having Equipment and control of sewage discharge from the ship. Regulation 9 under this chapter provides details of sewage system requirements on ships, followed by Regulations 10 and 11 for having a standard sewage discharge connection to transfer sewage to port facilities and discharge sewage at sea within and outside particular areas.

Related Read: Sewage Treatment Plant on Ships Explained

Chapter 4 consists of 2 regulations (12 & 13) with the details of the reception facilities requirement. Regulation 12 provides the government agencies with the compliance to have a reception facility—code 13 lists the requirement of reception facilities for Passenger ships in special areas.

Related Read: Cruise Ship Sewage Discharges Into The Baltic Sea To Be Banned

Chapter 5, which consists of Regulation 14, describes the role of government and authorised parties such as port state control on measures of control to check, survey and assess the ships under MARPOL Annex IV.

Chapter 6 deals with the Verification of compliance with the provision of this convention providing details of the application and the process for compliance verification under Regulations 15 and 16.

Chapter 7 list the important requirement of the international code for ships operating in Polar waters under Regulation 17 and 18. Regulation 17 lists down the definition for this annexe, followed by Regulation 18 for the application and requirement for the ships sailing in polar waters.

MARPOL Annex V

Regulation for preventing pollution by Garbage from ships (Dec 1998).

This annexe deals with the garbage produced onboard ships, including e-waste and cargo residues and ways to prevent pollution from the same. It was enforced on 31 December 1988, having 3 Chapters with 14 Regulations.

Chapter 1 gives general31 December MARPOL ANNEX II and consists of 10 regulations providing the “Definition” of different terminologies used in the chapter under Regulation 1 and explains the “Application” of this chapter in various types of ship Regulation 2.

Related Read: ICS Publishes New Edition Of Industry Guidance On Garbage Management Plans

Regulation 3 lists the general prohibition on garbage discharge at sea, followed by Regulation 4 for the discharge of waste outside special areas.

Regulation 5 specifies the special requirements for garbage discharge from fixed and floating platforms. The need to discharge waste in the special area is given under Regulation 6.

Regulation 7 & 8 describes the reception facilities’ exceptions and requirements, including those inside the special areas.

Regulation 9 consists role of port-state control on measures of control to check, survey and assess the ships under MARPOL Annex V.

Regulation 10 deals with the need for Garbage Management Plan (GMP), including record books and placards.

Related Read: What is Garbage Management Plan (GMP) on a Ship?

Chapter 2 deals with the Verification of compliance with the provision of this convention under Regulations 11 and 12

Chapter 3 list the important requirement of the international code for ships operating in Polar waters under Regulation 13 and 14. Regulation 13 lists down the definition for this annexe, followed by Regulation 14 for the application and requirement for the ships sailing in polar waters.

MARPOL Annex VI

Regulation for prevention of Air pollution from ships (May 2005).

This relatively new annexe deals explicitly with ways to prevent pollution from ships, both by accidental causes and the one resulting from routine operations and operational wastes. It came into force on 19th May 2005, having five chapters with 25 Regulations.

It has put limits on nitrogen and sulphur e19 May and particulate matter from marine diesel engines with a power of over 130kw.

Chapter 1 gives a general description of MARPOL ANNEX VI and consists of 4 regulations which explain the “Application” of this chapter in different types of the ship, along with the “Definition” of different terminologies used in the chapter. The regulation may not apply to all kinds of ships; hence a separate section for “Exceptions” and “Exemptions” is also provided. It also explains the condition where an administrator may allow alternative fittings, materials, appliances etc., to be installed on ships to fulfil this annexe.

Chapter 2 lists the survey, certification, and means of control dealing with air pollution from the ship. It has 7 Regulations, with Regulation 5 explaining the need for different surveys for the vessel to prevent air pollution, followed by issuing and endorsing International Air Pollution Prevention (IOPP) certificate and International Energy Efficiency Certificates (IEEC) in Regulation 6.

Regulation 7 provides the details for the issue or endorsement of certificates by another party, followed by the forms of certificates and statement of compliance related to fuel oil consumption reporting in Regulations 8 for both IOPP and IEEC.  The details for the validity of these certificates are provided in Regulation 9.

Related Read: Important MARPOL Amendments Enter Into Force

Regulation 10 terms the authority of port state control under Annex VI to inspect the ship for compliance.

Regulation 11 explains how the administration and authorised party can detect ships for the violation and how to enforce this annexe.

Chapter 3 deals with the requirements for control of emissions from ships and consists of 7 Regulations, starting with the details of ozone-depleting substances in Regulation12, such as the refrigerant used on ships.

Related Read:  What is Ozone Depleting Substances on Ships?

Regulation 13 briefly describes Nitrogen Oxides (NOx) with different Tiers  (Tier I, II and III) in and outside the emission control areas.

Related Read: What is Nitrogen Oxides or NOx air pollution from Ships?

Regulation 14  gives a brief about Sulphur Oxides (SOx) with the requirement for the quantity of sulphur in the fuel oil as per the year, in and outside emission-controlled areas.

Related Read: What is Sulphur Oxides or SOx air pollution from Ships?

The emissions of Volatile Organic compounds from the oil tankers are considered in Regulation 15, providing the details to comply with the requirements.

Regulation 16 talks about the shipboard incineration operations and when the incineration is allowed.

Related Read: Construction and Working of Waste Oil Incinerator

Regulation 17 describes the reception facilities’ requirements for disposing of ozone-depleting substances, residue from exhaust cleaning etc.

To comply with the exhaust emission requirements, proper fuel oil is made available to burn on ships, whose condition is described in Regulation 18.

Chapter 4 provides the Regulation on Energy Efficiency on Ships having Regulations 19 to 23.  Regulation 19 talks about the application of this chapter on ships of 400GT and above.

Related Read: How to Improve Energy Efficiency of Ships?

Regulations 20 and 21 provide the details of Attained Energy Efficiency Design Index (Attained EEDI) and Required EEDI.

Related Read: Energy Efficiency Management in the Maritime Industry

The Ship Energy Efficiency Management Plan (SEEMP) requirements, which should be kept onboard, are provided in Regulation 22. Further, the requirement for fuel oil consumption data collection and reporting to the administration is also listed in this regulation.

Related Read: What is Ship Energy Efficiency Management Plan?

Regulation 23 talks about the technical cooperation between different parties (Administration, Government agency, Shipping company etc.) to improve the energy efficiency of ships.

Chapter 5 deals with the Verification of compliance with the provision of this convention under Regulations 24 and 25.

Thus, SOLAS and MARPOL conventions stand as two solid pillars that support the maritime industry by protecting the most important issues – marine pollution prevention and the safety of human life.

Disclaimer: The author’s views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used in the article, have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendations on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight. 

MARPOL (The International Convention for Prevention of Marine Pollution For Ships): The Ultimate Guide appeared first on Marine Insight - The Maritime Industry Guide

The shipping and maritime sectors are transforming. From digitisation to stringent environmental protection laws to changing shipping container dimensions, new technologies, amendments, regulations, etc., are continuously added to the industry.

One of the most significant transformations in the history of shipping and the maritime sector was the introduction of the first cargo container, which drastically reduced the price of transportation of products. Today, different shipping container dimensions are used depending on the type of cargo.

Related Reading: History of Containerisation

As of today, more than 17 million containers of different dimensions and types are used globally to make container shipping the most efficient method of transportation.

The ISO sets the standard shipping container dimensions. These containers are ISO certified, which means they are brought into business only when manufactured and tested per the specifications provided by the International Organization for Standardisation to ensure that the freight is suitable for multiple transportation modes, i.e. via cargo ship, truck or rail.

The ISO Shipping containers must fit perfectly onto ships and lock into chassis and trailers. They also stack perfectly on railcars, saving space and making the transportation of goods easier and more convenient.

The weight of the container is divided into three types:

• the tare weight,
• the gross weight,
• and the payload.

Related Reading: 16 Types of Container Designs

This article will discuss the critical specifications of shipping containers, including storage container dimensions and markings. The materials used for manufacturing a shipping container are either aluminium or steel, making them excellent for dry and packaged cargo.

The advantage of dry aluminium containers over steel containers is that the former handles a slightly larger payload, whereas the dry steel containers have a slightly larger internal cube.

Related Reading: What is an intermodal container?

Following are the dimensions of standard shipping containers used in the international shipping market:

20 ft. shipping container dimensions

A standard ISO container of 20ft is the most popular and is used by ships of all sizes, big or small. The twenty-foot container dimensions are as follows:

The twenty-foot shipping container can carry the maximum gross weight of 30480 kg / 67200 lbs for general-purpose containers and up to 45,000 kg (99,207 lbs) for flat racks.

A 20 ft reefer container has a payload capacity of 27 400kg. Other special type containers include double door and flat rack containers.

40 ft shipping container dimensions

A 40-foot standard container dimension offers double the volume compared to a 20-foot container, costing 15-25% more than the latter. It makes the 40-foot containers the most cost-efficient shipping container for goods transported by ship.

A 40ft shipping container can carry a maximum weight of 30480kg / 67200lbs for general purpose containers, up to 60,000 kg (123,276 lbs) for Flatracks and 35,000 kg (77,161 lbs) for reefer containers.

45 ft shipping container dimensions

45 ft containers provide slightly better cubic feet capacity than a 40 ft container, giving valuable extra space to the shipper and giving the following advantage:

• Efficient Cargo Transportation
• Potentially Lower Transport Cost

The payload capacity of a 45 ft container is almost similar to a 40 ft container.

The above specifications are a representation of the commonly used containers. Specific container dimensions and capacity of the ISO containers may vary depending on the manufacturer, the age of the container, and the container owner.

Related reading: Handing Containers On Ships: Dimensions, Markings And Bay Plan

Other shipping container dimensions are available in the market, mainly used for road and rail transportation – 8ft, 9ft,10ft, 53 ft, and 60 ft.

Apart from standard containers, there are also high-cube shipping containers, usually higher than standard containers. They are great for transporting overweight cargo.

Markings on a shipping container

The standard for coding, identification (container ID), and marking containers is DIN EN ISO 6346, dated January 1996.

Following are the different markings provided in an ISO container.

Container Number

The container marking is the primary identification marking on the door end of an ISO container. It consists of seven numbers and four letters, which the ISO allots to identify every container to its owner. The number is unique for everyone and is registered for the records with the Bureau International des Containers (BIC), Paris.

Suppose the container number, as shown in the diagram, is-

ABCD 123456 7

Here, the first three letters, i.e. ABC, denote- Code for the Owner of the container.

The 4th letter, D, provides -the container category.

The first six numbers, i.e. 123456, are the container serial numbers.

The last number, i.e. 7, is- the check digit, used to validate if the owner or product group code and the registration number have been accurately transmitted.

Related Reading: How are shipping containers made?

Owner’s Logo

The shipping line or container vendor’s logo/name is provided on the end door.

ISO Code 

The ISO container code is stencilled below the container identification number. It provides the details of the type of container, i.e. GP (for general purpose), DV (for a dry van), etc. and denotes the container size. For if the ISO code below the container identification number is 45 G0, the first number, i.e. “4”, denotes the code length (40 ft), and the second number, i.e. “5”, is the code for width. The last two alpha-numeric characters show the type and subtype of the ISO container.

Weights & Payload

The container details and cargo weight are also marked on the end door.

– The weight of the shipping container: The true weight of an empty container provided by the manufacturer after the manufacturing process.

– Payload: This is the maximum cargo weight an approved ISO container can carry
– Gross Weight: The total weight of container and cargo within the safe limit

Approved Classification Society label

Before a shipping company uses the container for cargo transfer, an approved classification society tests it for seaworthiness and compliance with the ISO standards. The class label is also provided on the end door of the container.

Related Reading: What is the international association of classification societies?

Cube or volume

The container’s cubic capacity or volume is marked on the end door.

Warning and Operational Signs

The container may carry various warning labels and signs depending on the type of cargo it is moving. For example a heightened container will contain the height or warning stripes on the top part of the container. Similarly, a container carrying hazardous cargo will have a warning sign about the type of hazard or cargo associated with it.

Related Reading: 8 Things Deck Officers Must Know While Handling Packaged IMDG Cargo

Certifications

Different certificates which are occupied by the container need to be displayed using plates, such as:

CSC plate: The Container Safety Convention plate shows the ISO container has been inspected and tested by approved authorities. It also contains details of the owners and other technical specifications.

ACEP stands for Approved Continuous Examination Programme and is provided in the container. This is a safety program for shipping containers, wherein the container under it has to undergo an extensive inspection in a container depot every 30 months of its service. The container owner will renew the ACEP every ten years.

Related Reading: What is Container Security Initiative And How Does It Work?

For a seagoing professional or anyone who wants to transport cargo through shipping containers, it is essential to understand different shipping container dimensions, nomenclature, signals, symbols and signs displayed not only in various parts of the ship but in the cargo containers too.

If you think we missed something or should add more specifications related to the shipping container, please provide your valuable comments below.

You may also like to read

• How to Plan Cargo Containers Stowage on Container Ship?
• How to Plan Cargo Containers Stowage on Container Ship?
• Top 9 Houses made from Shipping Containers
• American Bureau of Shipping (ABS) Proposes New Rules for Ultra Large Container Ships
• What Are Foldable Containers For Shipping Cargo?

Disclaimer: The author’s views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used in the article, have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendations on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight. 

The Ultimate Shipping Container Dimensions Guide appeared first on Marine Insight - The Maritime Industry Guide

The International Maritime Dangerous Goods Code or IMDG Code was adopted in 1965 as per the SOLAS (International Convention For Safety Of Life at Sea) Convention of 1960 under the IMO. Also, some of the provisions of MARPOL are extended in the IMDG Code.

IMDG Regulations are updated periodically. The 2018 edition came into effect in 2020. However, the 2020 codes were enacted on 1 June 2022, after a five-month delay caused by the COVID-19 pandemic.

The objective of the IMDG Code is to ensure the safe transport of dangerous goods and prevent all types of marine pollution while allowing the free unrestricted movement of such goods. It also focuses on the preservation of the marine environment and the prevention of pollution. Voluntary compliance with the code began on 1 January 2019, and mandatory compliance with the code started on 1 January 2020.

It was developed as a uniform international code for transporting dangerous goods by sea, including packing, container traffic, and stowage, with special emphasis on segregating incompatible substances. It is a two-volume set; another one-volume supplement emphasises fires and spillage emergencies.

The IMDG code also ensures that goods transported through seaways are packaged safely. The dangerous goods code is uniform, meaning that it applies to all cargo-carrying ships worldwide.

Dangerous goods are materials essential for manufacturing items like electronics, cars, batteries, and pharmaceuticals, for which there is tremendous demand and a large chunk of world trade.

Related Reading: 8 Things Deck Officers Must Know While Handling Packaged IMDG Cargo

What Is IMDG CODE?

The Dangerous Goods Code was created per the recommendations of the United Nations Panel of Experts on the transportation of hazardous goods, along with the IMO (International Maritime Organisation). The UN presented this proposal as a report in 1956, after which the IMO IMDG Code was started to be drafted in 1961.

Related Reading: 5 Instruments of IMO every Seafarer Should Know

Since marine transportation has undergone a lot of development and changes, it becomes essential that the code also keeps up with the changes. This is why there have been constant amendments to the IMDG code. The amendments are proposed every two years, and the adoption of the amendments takes place after two years of the proposal by the concerned authorities. The amendments are presented in this manner:

• The countries that are members of the IMO present the required proposal.
• The UN’s expert panel then views and decides what proposals merit immediate attention in the upcoming amendment.

Related Reading: Material Safety Data Sheet or MSDS Used On Ships

Shipping Dangerous Cargo

Shipping dangerous goods is a very tricky business. This is why, to avoid complications or problems while categorising the aspect and level of danger, there is a set of classifications for dangerous goods. There are nine clauses in which dangerous goods are classified. The dangerous goods labels and dangerous goods certificate for the cargo are issued as per the nine clauses, which are explained as follows:

• Classification 1 is for explosives. The same classification has six subdivisions for materials that pose a high explosive risk and those that pose a low explosive risk, like aerosols and fireworks.
• Classification 2 is for gases. This clause has three sub-categories about highly flammable gases that are not inflammable and gases that are neither flammable nor toxic.
• Classification 3 is for flammable liquids and has no sub-divisions
• Classification 4 is for volatile solids. Three sub-categories deal with highly combustible solids, self-reactive solids and solids that, when interacting with water, could emit toxic gases
• Classification 5 is for substances that have the chance of oxidisation, like portable tanks
• Classification 6 is for all kinds of harmful substances, infectious substances or ones that could cause harm
• Classification 7 is specifically for radioactive material
• Classification 8 is for materials that face the threat of corrosion and erosion
• Classification 9 is for those substances that cannot be classified under any of the above heads, i.e. miscellaneous dangerous substances, like internal combustion engines, dry ice, etc.

Related Reading: Classification of Dangerous Goods

Importance of IMDG Code for seafarers

All the crew members engaged on a ship and directly involved with dangerous cargo carried on board the vessel must undergo a dangerous goods course based on STCW requirements and be prepared as per IMO guidance. Several shore-based training centres offer dangerous goods training to handle the IMDG cargo on a ship.

The following are essential points that a seafarer must understand under the IMDG code:

• Segregation of dangerous goods and identifying the proper shipping name of dangerous goods.
• They should know how the particular IMDG cargo should be packed
• He should understand different types of markings, labels or placards used to address various dangerous goods
• Must know the hazards associated with these goods and safe practices to load/unload the cargo unit carrying the IMDG products.

Related Reading: Cargo Handling On Ships – 10 Tips That Can Save Your Life

• The seafarer should understand the transport documents used for dangerous goods
• How to handle the hazardous goods when the ship is under voyage

Related Reading: Understanding Principles Of Passage Planning

• Inspector conduct a survey, if needed, to comply with applicable rules and regulations
• To know the best procedure to contain and fight a fire involving dangerous goods carried on a ship

Related Reading: Fighting Fire In Ship’s Cargo Hold

• To prepare hazardous goods loading/stowage plans considering ship stability, safety and emergency preparedness during an unfortunate incident.
• Understand the importance of correct dangerous goods declaration for port authorities and land transit purpose.

At present, the IMDG Code’s reach extends to about 150 countries worldwide, with around 98% of ships following its requirements. This figure helps us understand the code’s effectiveness concerning shipping dangerous goods across the oceans and the marine life that exists therein.

You may also like to read –

• What is IMO’s Global Integrated Shipping Information System (GISIS)?
• What Is Dangerous Goods Declaration in Shipping?

Disclaimer: The author’s views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendations on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight. 

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A Comprehensive Overview of IMDG Code for Shipping Dangerous Goods appeared first on Marine Insight - The Maritime Industry Guide

UNCLOS is an acronym for the United Nations Convention of the Law of the Sea, sometimes called the Law of the Sea Convention or the Law of the Sea Treaty.

As an international law of the sea, UNCLOS came into operation and became effective on 16 November 1982. It defines maritime zones. The convention has many provisions regulating and controlling nations’ functioning and claims on the world’s oceans and seas.

Its legal framework and regulations are essential for maritime activities.

However, such a proposal was first announced before the United Nations in 1973. Over nine years, with representations from over 160 countries, UNCLOS came into existence.

Background

Before the nautical law of UNCLOS came into force, there existed a school of thought known as freedom of the seas. This doctrine first came into operation in the 17^th century.

Under this law, no limits or boundaries were set for marine business and commercial activities.

Over the years and centuries, a problem emerged as technology developed and the needs of people worldwide grew.

Over-exploitation of the sea’s resources was immensely felt towards the middle of the 20^th century, and many nations started feeling the need to protect their marine resources.

Starting with the United States in 1945, many countries brought the natural resources found on their oceans’ continental shelves under their jurisdiction.

The UNCLOS defines the territorial sea as the 12-nautical mile area from the low-waterline along the coast. The coastal states’ sovereignty spans the territorial sea, seafloor, and subsoil.

Article 56 of UNCLOS defines parameters for establishing a nation’s exclusive economic zone (EEZ), which extends 200 nautical miles from its coastline. The article offers sovereign rights for exploration, conservation, resource exploitation and resource management of living and non-living natural resources.

Article 76 is crucial as it defines a country’s continental shelf as the seabed and subsoil of its submarine regions that extend beyond its territorial sea throughout the natural spread of the land topography to the outer limits of the continental shelf or 200 nautical miles. However, these parameters have given rise to disputes in semi-enclosed regions.

UNCLOS also outlines the duties and responsibilities of Flag States. Some countries that exercised this power were Argentina, Canada, Indonesia, Chile, Peru, Norway, Ecuador, and even Saudi Arabia, Egypt, Ethiopia, and Venezuela.

Since the use of marine reserves rose even more in the 1960s and missile launch pads also started being based in the oceanic bed, it became imperative that a specific regulation be placed to ensure proper protection and jurisdiction of marine reserves.

In 1967, the Third United Nations Conference on the Law of the Sea was convened. At this conference, the UN ambassador from Malta, Mr Arvid Pardo, requested a legal power that could bring about international governance over the oceanic floor and bed.

Such a legal power would also ensure that there would not be any problems between various countries over the oceanic floor and bed space.

In a significant way, UNCLOS III paved the way for the now-existing maritime law.

The features and highlights of the same can be explained as follows:

• UNCLOS, as the currently prevailing law of the sea, is ultimately binding.

• Even though the name of the nautical law suggests a United Nations involvement, the UN does not have any major functional role in the workings of UNCLOS.

• There are 17 parts, 320 articles and nine annexes to UNCLOS.

• The sea law provides full money rights to nations for a 200-mile zone by their shoreline. The sea and oceanic bed extending this area is regarded as an Exclusive Economic Zone (EEZ), and any country can use these waters for its economic utilisation.

• The IMO (International Maritime Organization) plays a vital role in UNCLOS’s operation. Along with the IMO, organisations like the International Whaling Commission and the International Seabed Authority are vital parties in the functional areas of nautical law.

Even though UNCLOS has 160 member parties, the US has still not sanctioned (ratified) the nautical law. The main reason for the US not approving the sea law is its disagreement about Part XI of UNCLOS.

This part deals with the minerals found on the seabed in the EEZ. The International Seabed Authority was established based on this part of nautical law and called for equitable distribution of the proceeds of such seabeds.

The US is opposed to this theory, which is why it has not ratified UNCLOS despite being one of the most important members of the United Nations.

UNCLOS also contains specific provisions for protecting the marine environment and preventing pollution from the marine environment, the world’s oceans, and high seas by pollutants and practices like overfishing or deep seabed mining.

It also mentions the freedom of the high seas, especially the freedom of scientific research and easy passage of merchant vessels.

With the help of a maritime law like UNCLOS, it can be said that marine resources can be protected and safeguarded, especially in contemporary times where the need for marine resources’ protection has increased even more during the 1960s and 70s.

You might also like to read

• 5 Terms Every Mariner Should Know Under UNCLOS
• International Maritime Lawyers – Career Prospects and Qualifications Required
• Rights And Duties Of Seafarers Upon Criminalisation
• What are the Flag States in the Shipping Industry, And What’s Their Role?
• Why Nautical Mile and Knot Are The Units Used at Sea?
• Case Study: Criminalisation Of 87 Indian Seafarer In Indonesia, Rights Available But Denied

Disclaimer: The author’s views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used in the article, have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendations on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared, or used in any form without the permission of the author and Marine Insight.

Nautical Law: What is UNCLOS? appeared first on Marine Insight - The Maritime Industry Guide

After exploring the concept of commoditisation and the implications thereof in previous articles, we will in this article explore ways and means through which Container carriers can counter (or at least mitigate) the debilitating impact of commoditisation of shipping services.

After understanding the implications of commoditisation for Carriers, it is obvious that the trend has significant ramifications, both operationally and commercially, having forced a change in mindset towards serving customers and driving a change in the competitive positioning of carriers in the market.

Given the nature of the change and the deep-rooted alterations it has already wrought at the industry level, it would be difficult for an individual container carrier to reverse the trend. At the same time, fierce competitive instincts and the pressure of capturing market share to ensure growth will hinder industry-wide collaboration to counter commoditisation.

Under these circumstances, the best option for carriers is to create competitive differentiators or imbue their services with value-added elements that will set them apart from the standard market offerings. 

It is pertinent to note that given the current market structure, characterised by the presence of a few big global-level players, with each possessing abundant resources, any innovative feature designed by a carrier can be replicated fairly easily and within a relatively short span of time by other players, wherefore sustainable product differentiation will need a holistic and multi-pronged approach.

Carriers can adopt the following strategies:

1. New or niche products and routes:

Designing differentiated product offerings that create more value for exporters and manufacturers.

The most effective way a carrier can differentiate itself is by introducing new products or services. Considering that most major and minor trades are already covered adequately by global and regional carriers, Carriers will have to scour hard to find such options. 

These options could include finding new port-to-port corridors, connecting two new markets, catering to different commodities, or offering direct connections (instead of products involving transhipment). 

a) In terms of connecting new countries, this could take the form of identifying countries with significant growth potential and which are actively aiming at export-oriented growth (or with a burgeoning middle class, with aspirations of a better lifestyle and the disposable income to cater thereto – which will create demand for imported goods), thereby leading to the creation of trading ties with new countries. 

Examples illustrating this point would be countries in the West Africa region, which, given their demographic advantages, are enjoying robust growth (albeit off a low base) and are also looking to widen their export baskets (or broaden their export markets), thus creating higher demand for shipping service to connect with their new trading partners. Carriers can introduce new services to connect these emerging economies with their new markets.

b) New port-port combinations involve identifying alternatives to existing ports, which offer locational or operational benefits to cargo owners, sizeable enough to induce them to start using the new port, which creates a new (and better) option to the traditional gateway ports that have hitherto served the hinterland. 

An example of this is the port of Batangas in the Philippines. Manila, the biggest port in the Philippines, caters to the bulk of cargo leaving or arriving there. Given that it is located close to city limits and the high cargo volumes handled there, it at times faces congestion issues, leading to delays in handling vessels and cargo, evacuation of containers, delivery of cargo to the final destination, and a consequent increase in the total cost of ownership.

Instead, Batangas was located away from city limits and proximate to the manufacturing facilities of a few major exporters. Carriers, therefore, started calling Batangas and successfully marketed the new service as cheaper and faster. 

Another example was the port of Hazira, located somewhat (not exactly) midway between the much bigger and well-established ports of Nhava Sheva and Mundra. Hazira was conceptualised to cater to the surrounding industrial areas in Surat and the Central Indian hinterland, intending to offer this cargo a port that was closer and, hence, more optimal.

Given the smaller cargo base, Hazira did not intend to compete with Nhava Sheva or Mundra but instead focused on providing efficient and faster transport connections to its target hinterland.

Within a few years of becoming fully operational, the port today has carved its niche and exceeded 0.6 million TEUs in container throughout. 

c) Direct connections are another way to offer differentiated services. Given the steady upsizing of container vessels and that mega vessels now comprise a greater proportion of the container fleet, the hub-and-spoke model is gaining popularity, resulting in more containers being transhipped. While transhipment helps the Carrier increase utilisation levels of mega vessels and rationalise expenses, enabling them to standardise services and costs (which essentially is commoditisation), its inevitable concomitant is longer transit times and a greater probability of delays (since the journey now involves two legs). 

 In this scenario, Carriers could evaluate corridors with a higher proportion of time-sensitive or high-value cargo, where shippers could be expected to pay a premium for superior service and design direct shipment products on these corridors, highlighting the benefits of faster lead times and greater reliability and security, all of which are intended to make the supply chain more resilient. 

d) Carriers can also introduce innovative products involving multiple modes of transport, allowing them to offer shippers unique products that combine the advantages of different modes on different legs. 

Examples include Sea-Air products or Sea-Rail products, where the cargo is carried by sea on one leg of the journey and then by Air or Rail. This has the advantage of providing customers with a relatively faster (or smoother or more reliable) service at a slightly higher cost.

For example, in the case of fashion apparel, which is somewhat time-sensitive, the cost of air transport will be quite high, while sea transit will involve longer transit times. In this scenario, the carrier Sea-Air product could use shipping to cover a major part of the distance and thereafter use air transport to deliver to the final destination.

The Sea-Rail option works similarly and can be quite useful in overcoming supply chain bottlenecks or chokepoints. An excellent case illustrating this was seen during the COVID-induced port congestion at US West Coast ports, where the massive queue of vessels waiting outside Long Beach and Los Angeles caused inordinate delays, and shippers were unsure about how long it would take to clear their consignments. In this situation, some carriers started calling Canadian ports (which were not impacted by congestion) and then hauled the cargo by rail to the US. 

2. More flexibility for bigger customers

Offering greater leeway regarding shorter cut-offs, priority in the allocation of empty containers, space guarantees, etc.

Given the highly standardised nature of processes and workflows in international shipping and transport, most carriers offer the same cut-offs, cargo acceptance timelines, free time, etc. 

Further, the fact that carrier alliances operate the majority of services of most major trade lanes means that multiple carriers have cargo sailing on the same vessel, wherefore these carriers offer the same cut-offs, gate-in times, sailings schedules, and transit times – all of which perpetuate commoditisation.

Due to this, all customers receive a standardised level of service, regardless of the carrier opted for, making them focus solely on price as a parameter for evaluating carriers.

Under these circumstances, Carriers can create a compelling competitive differentiator by offering flexibility in terms of operational processes and extended timelines. Since the sanctity of the broad process needs to be respected, such leeway can be limited only to bigger customers who control large volumes or are critical for the Carrier (because they help the carrier fill a significant proportion of the space available, which gives the carrier the option of selling the remaining space at higher spot market rates).

This would involve identifying key customers and offering them more flexible solutions to allow them more time to gate in containers, prioritising the allocation of empty containers, providing space guarantees (especially in peak season), giving them more free time, etc. 

Given the larger scale, bigger exporters generally put greater emphasis on supply chain reliability and resilience rather than focussing solely on costs, wherefore it is likely that they will be amenable to paying a reasonable premium on top of prevailing freight rates for shipping services that strengthen their supply chain.

3. Use non-asset-based elements as differentiating factors

Differentiate basic customer service, streamlined processes, and better systems.

As mentioned in the previous point, container alliances control a sizeable proportion of global shipping capacity, where it logically follows that cargo booked by different carriers is transported on the same vessel. This ipso facto implies that each carrier offers similar transit times, cut-offs, sailing dates, etc.

In this situation, even though the basic transport service is, in essence, the same for all members of an alliance, individual Carriers still have recourse to the option of differentiating their service offerings in terms of customer service levels, sales expertise, flexible situation-based pricing, value-added services, and pre-carriage and on-carriage transport options. Carriers can also streamline their processes to make it more convenient for shippers to do business with them, as well as replace manual processes with systems to improve transactional ease and pace. 

These factors can be leveraged by Carriers to create more overall benefits for customers despite the basic transport service remaining the same, whereby the shipper will perceive the combination of smoother processes and adjustable service elements as creating additional value.

4. Reversal of the trend of operating in container alliances

Some carriers are bucking the trend of operating as part of alliances and building significant scale by themselves so they can design their own unique products and eliminate one of the factors that have led to commoditisation.

The trend of container carriers forming Alliances had gathered momentum since the early 2000s, with even the hitherto strong players who previously preferred to operate alone since deeming it expedient to join an Alliance (besides co-operating in other ways, such as slot sharing or vessel sharing agreements).

These avenues of cooperation, while making commercial sense for carriers, contributed significantly to the standardisation of shipping services. 

Over the years, Carriers have come to accept such cooperation as inevitable, making it a defining characteristic of the industry. The prevalence of container alliances is such that carriers proactively seek membership in alliances to ensure steady utilisation levels and rarely operate alone.

Post the Covid pandemic, we have witnessed carriers like MSC making a strategic decision to operate independently after the announcement of their break-up of the 2M alliance with Maersk.

MSC was enabled to do this by virtue of having invested extensively in new and second-hand tonnage since 2020 – so they not only augmented their fleet rapidly but also have a regular stream of capacity flowing over the next three years – to the extent that they have not only taken over from Maersk as the biggest container carrier but also widened the gap considerably. 

The build-up of scale has left MSC well poised to cover all primary and secondary markets on their own, without the need to cooperate with other carriers.

With the new-found independence, MSC can redesign its network and offer services that best serve the requirements of its customer base, while other carriers will have to find common ground with their Alliance partners. 

Whilst it can by no means be assumed that other Carriers will follow MSC’s example and start operating independent of existing alliances (the constraining factor being the resources necessary to build up the scale to offer standalone services), it nevertheless remains an option available to carriers (with the most prominent ones being Maersk or CMA-CGM), especially in the post-Covid era, when they have accumulated considerable cash reserves. 

5. Container carriers evolving into Integrated Logistics service providers

Carriers are investing heavily in logistics capabilities and controlling more parts of the supply chain in their quest to provide end-to-end logistics services. 

Carriers like Maersk have long harboured ambitions of expanding beyond their core shipping business and offering end-to-end logistics services, a strategy that has been emulated by other carriers as well – resulting in the emergence of integrated logistics service providers (who have a presence across the supply chain rather than in just one or two components thereof). 

The result is that a number of big and mid-sized container carriers now have significant logistics and port assets with matching capabilities and expertise, putting them in a position where they can offer a wider range of transport-related services.

With these forays in the logistics and ancillary sectors, container carriers have gradually evolved from being pure shipping service providers to integrated logistics service providers, with their assets and product portfolio augmented to bridge the first and last-mile gap and provide door-to-door services.

These integrated logistics service providers now own shipping vessels, aeroplanes, rail operators, road assets, inland infrastructure, and maritime terminals – enabling them to exert greater control over more parts of the supply chain and simplifying their efforts to provide a one-stop solution for all logistics and transport requirements.

This affords them greater latitude in designing solutions that are customised to meet the customer’s unique needs and thus offer differentiated services. 

Exporters will obviously find it convenient to deal with one transport and logistics services vendor instead of contracting and liaising with multiple vendors for various modes (sea, road, rail) and segments of the supply chain (warehousing, customs clearance, etc.). They will perceive this as a differentiating factor.

Another advantage that will accrue to carriers is that when they handle a greater part of the customer’s supply chain, they will be so deeply embedded in the customer’s supply chain that the customer will find it difficult to change vendors, thus increasing customer stickiness.

6. Better market research and customer-level analysis

To identify emerging trends and needs, new customers, and unearth unmet or future requirements.

With the mass of paperwork generated during the course of any shipping transaction, carriers have access to a humongous amount of data regarding every aspect of their customer base, commodity profile, pricing information, etc. 

The challenge lies in the fact that the data is mostly unstructured and stored in different formats (on paper or in emails, Excel files, word documents, PDF reports, etc) and in different locations (local servers, cloud platforms, physical files, personal laptops, etc).

This presents obvious difficulties when it comes to collating and analysing the information available, wherefore, companies generally are not able to glean valuable insights from the information available. 

At a broader level, the shipping and logistics market is so fragmented and geographically dispersed that conducting comprehensive market studies is a complex and challenging exercise. 

In recent years, with advances in technology and the advent of systems with IDP (intelligent Document Processing) and analytical capabilities, companies have the option of rigorously analysing all available data to obtain actionable insights and understand their customer’s requirements better.

Such analysis can also be used for yield optimisation and price maximisation initiatives based on the value of the service to the customer and their relative contribution to the carrier’s revenues.

This information can be used to initiate up-selling and cross-selling marketing campaigns, as well as uncover unmet needs and design solutions accordingly. With the Carrier offering complementary and/ or customised solutions, they will stand out from the standardised products available in the market. 

At the macro level, the superior quality of market intelligence will enable carriers to unearth untapped segments, identify potential markets, recognise future trends, and overall understand the market better, leaving them better placed to offer customised solutions. An example can be the identification of opportunities for containerisation of commodities that were traditionally transported as bulk, and where the feasibility of which is further increased due to the container imbalance at the customer’s location. 

In this instance, the carrier can target the containerisation of the commodity by offering attractive rates. The combination of the advantages of containerised transport and reasonable freight rates will make it a lucrative proposition for exporters, thus opening a new revenue stream for the carrier.

7. Eco-friendly and sustainable products

Especially for customers who have made significant commitments towards CSR and sustainability.

With increasing regulatory focus on the emissions generated by the maritime transport sector, there has been a raft of legislation aimed at curbing the carbon footprint of the shipping industry. 

Governments, exporters, retailers, and consumers are becoming aware that the shipping industry is responsible for a significant share of global emissions (even though it is the most eco-friendly mode of transport) and that their demand for imported goods is a factor in increasing emissions.

Since most countries are now highly interdependent, and trading ties are too entrenched to make a complete decoupling feasible, it is not possible to reduce the international trade in goods significantly.

Consumers are therefore seeking products with a lower carbon footprint and are willing to pay a premium for such products, due to which a rapidly growing market for eco-friendly products now exists. 

Simultaneously, exporters and manufacturers have also started focusing on making their supply chains greener as part of their CSR activities. 

Therefore, as part of their green initiatives, these big exporters and retailers prefer transport solutions which are less polluting, both because they want to reduce their own carbon footprint and also to cater to the market segment that prefers (and also is willing to pay a premium for) such products. 

Carriers can partner with these manufacturers and exporters by designing green transport solutions, which will, in turn, help the manufacturer reduce their carbon footprint and make their products more eco-friendly. 

Carriers typically offer a range of green solutions, promising various levels of emission reductions, through the use of vessels that operate on LNG or bio-fuels or scrubber-equipped vessels or even carbon offsetting (where emissions are not reduced but are offset through investments in reforestation). 

The nature of these green offerings makes it obvious that while they can be a source of competitive differentiation, the resources required to create them are considerable, involving heavy capex and opex – something that not all competitors can replicate easily and inexpensively.

8. Focus on holistic customer experience

While customers are nowadays willing to accept basic service levels simply because they are provided at low rates, the complexity of the international transport process means that there are various junctures in the transport chain where expert guidance and good customer service are needed, which in turn means that their overall customer experience with transport vendors is generally sub-optimal. 

Also, given the numerous bottlenecks and potential chokepoints in the international transport process, cargo owners will likely need to contact the carrier’s customer service and operations teams on almost a daily basis throughout transit.

Areas in which assistance could be sought vary from the availability of containers to the extension of free time and cut-off dates to queries about documentation or commodity, rollovers and delays, correction or revisions to information submitted, and claims for damage to cargo.

Since these are all issues where human intervention will be necessary for resolution, and extensive coordination and liaising with relevant stakeholders will be required. Cargo owners will need a responsive customer service person to understand issues and provide solutions.

Carriers who take this factor into cognisance and aim to deliver a superior customer experience will be preferred by exporters over carriers with whom the customer experience is perceived as being of average quality.

9. Better customer segmentation and profiling

To identify big BCOs who prioritise service over price due to their global scale of business, the complexity of supply chains, and inventory management. 

Carriers typically have a very broad and disparate customer base, with the profiles of individual customers differing in terms of factors such as scale, operational complexities, coverage requirements, variety of cargo, and transport requirements. 

A standardised solution or a one-size-fits-all approach towards serving customers will prove to be ineffective in such cases, as customer needs exhibit considerable variation, warranting an individual approach and customised solutions.

Carriers will, however, need to weigh the costs of delivering customised solutions with the incremental revenue accruing therefrom while ensuring that the customer has the scale to justify the efforts and resources expended.

Therefore, carriers need to analyse their customer base to identify the biggest ones whose business might conceivably require customised solutions and, most importantly, who are capable and willing to pay a premium.

Typically, customers who avail of such services are the ones with geographically dispersed manufacturing facilities and catering to global markets, whose intricate supply chains mandate services of a level higher than the standard market offerings.

Companies such as Ikea and Walmart are good examples, as they control massive volumes, which carriers would deem lucrative enough to design comprehensive customised solutions for.

Because their manufacturing facilities are dispersed across locations with varying levels of infrastructure and connectivity, and also because they need a robust supply chain, these entities are amenable to considering innovative transport products that infuse resilience and stability therein. 

10. Leveraging systems and technology

The transport and logistics industry has traditionally not been a pioneer when it comes to the adoption of technology. This is partly due to the prevalence of long-established manual processes and ways of working, as well as the sheer number of stakeholders and geographies involved, which possess vastly differing levels of technological capabilities (so, to take an example,  while the Customs department in a European country might offer the option of digitising documents and submitting information online, their counterparts in developing countries might not have the technological resources or trained manpower to offer similar facilities). 

The widespread adoption of technology in the transport and logistics industry is also hindered by the numerous exceptions to a process that is, at best, only very broadly standardised. 

In contrast to this, the manufacturing sector has witnessed relatively greater levels of automation and implementation of technological solutions in a bid to streamline operations, optimise costs, and increase efficiency.

This mismatch between the technological capabilities of carriers and exporters can be a source of frustration for exporters, who are accustomed to a more digitised way of working, as they are constrained to adopt paper-based documentation and manual modes of working while dealing with Carriers. 

Other drawbacks of not using systems are longer transaction times, delays in preparing documents, more human errors, inadvertently missing out on sharing information, etc, all of which will hinder the smooth functioning of the customer’s supply chain.

Leveraging technology can help carriers provide faster, more accurate, and more effective services, complementing the customers’ automated workflows and creating a compelling value proposition. 

11. Transparency in pricing structure

Communicating the rationale behind various surcharges and accessorials levied, as well as explaining reasons for the quantum thereof, so exporters are more amenable to paying higher prices, as they associate higher prices with better quality and are convinced that the prices are commensurate with the value or service provided.

This is more a communication initiative rather than an actual distinctive commercial differentiator, which essentially involves the Carrier being transparent about its pricing structure and various components thereof (not to a granular level but at least in terms of ancillary costs), whose benefits customers might not be aware of (and hence resent having to pay for, and instead prefer to opt for the carriers basic shipping service). 

These ancillary services can inter alia include space guarantees during peak season, additional free time, and equipment availability (especially in equipment deficit locations), all of which involve certain costs. 

Where carriers are able to communicate clearly the value of such services and quantify the benefits thereof, thus facilitating a comparative evaluation of the incremental costs vis a vis the anticipated value, the shipper will be much better placed to make a straightforward assessment and decide whether to opt for the service or not.

This can dispel exporter’s misconceptions and understand the value of superior quality of service.

You might also like to read-

• 15 Reasons For Commoditisation Of The Container Shipping Industry
• Commoditisation of Container Shipping: Implications for Carriers and Cargo owners
• How Shippers Select Container Carriers – 11 Important Factors
• 17 Benefits Of Using Logistics Technology Solutions To Customers And Supply Chains
• What is Nearshoring in Shipping And Logistics – Advantages and Disadvantages

Disclaimer: The authors’ views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendations on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared, or used in any form without the permission of the author and Marine Insight.

Commoditisation of Container Shipping: How Carriers Can Counter or Mitigate the Impact Thereof appeared first on Marine Insight - The Maritime Industry Guide

Those in the shipping, warehousing, or supply chain business may be quite familiar with the acronyms, ETD and ETA.

Organizations and businesses depend on these two for their planning and scheduling.

What are EDT and ETA in Shipping?

ETD is the abbreviated version of Expected or Estimated Time of Departure while ETA stands for Expected or Estimated Time of Arrival.

ETD could be the estimated departure time of the shipper’s cargo on board a vessel or that of the transport vessel itself. It could be the estimated departure time of anything that could be waiting for dispatch.

Similarly, in ETA, arrival could be that of the vessel or the cargo.

An ETD normally means the expected date of departure while ETA means the expected date of arrival of an ocean carrier or cargo.

The time is not mentioned in most cases as delays and early arrivals of vessels and cargo are unpredictable.

ETD and ETA are only the indicative dates and are not binding on the ocean carrier, clearing or freight forwarding agent.

Where can I find the ETD and ETA of a shipment?

The estimated times of departure and arrival are usually mentioned in the booking confirmation issued by the ocean carrier or the freight forwarder. It is an acknowledgement for the booking of cargo by ship (or any other mode of transport).

A booking confirmation will have the booking confirmation number, description and quantity of the load to be shipped, the equipment that is used for the shipment, and the journey plan.

The equipment means the type of container or pallet that is used to hold the cargo. A typical journey plan would include the ETD and ETA of the carrier.

Confirmation of Booking

A booking confirmation is a valid contract between the carrier and the shipper. It is issued by the carrier or freight forwarder to the shipper.

The shipper could be the consignor or the consignee.

The booking confirmation of a container would normally include the following information:

•  Booking party
•  Booking confirmation number
•  Shipper name
•  Place of return of the empty container or containers
•  Dangerous goods information
•  ETD
•  Vessel name
•  Port of discharge
•  ETA
•  Trans-shipment ports if any
•  Container number and description
•  Details of the trucker
•  Date of booking
•  Authorized signature

The booking confirmation number is usually mentioned on all documents and correspondences related to a shipment.

How are ETD and ETA calculated?

ETD and ETA depend on factors such as the ship’s schedule, stops for bunkering and maintenance, and also depending on known conditions at the various ports – at origin and en route, such as labour problems, berthing congestions, etc.

A carrier may change the given ETD and ETA based on any of the above factors. Weather and rough seas are other reasons for delayed departures or late arrivals of ocean vessels.

Some companies that deal in marine delay insurance classify these factors as shore-side factors and ship-related factors.

Shore-side factors are those conditions that affect the departure of a vessel such as labour unrest, traffic congestion, transport problems at port, infrastructure breakdown, etc.

Ship-related factors are those which affect the arrival of the vessel at a port such as weather delays, breakdown of ship’s machinery en route, etc.

While ETD and ETA are approximations, the Actual Time of Departure (ATD) and Actual Time of Arrival (ATA) show the actual time of the vessel’s departure and arrival at a port.

The variances between ETD – ATD and ETA – ATA over a prolonged period is not a desirable situation and it has to be corrected accordingly.

ATD and ATA are important in inventory forecasting, manufacturing processes, project management, etc. ATD or ATA are used in the calculation of the lead time of goods.

Importance of Lead Time, ETD, and ETA

In shipping and cargo movement, a lead time is a total time taken for a ship or cargo to move from point A to point B (origin to destination of the vessel or cargo) expressed in the number of days.

Accurate lead times are critical in inventory forecasting. Inventory forecasting is the projection of inventory requirements of a business at a future time.

It uses data such as stocks on hand, sales and demand, inventory lead time, and other factors to arrive at the forecasted figures. Accurate and up-to-date data helps to produce accurate forecasts.

Of these data, the inventory lead time can be considered the most unpredictable since most of the factors causing delays in the departure or arrival of vessels (ATD and ATA) are hard to predict.

Predictive models to arrive at projected delays are not practical. However, based on historic trends, organizations can factor in a certain number of days in their inventory forecasting models to cover these unforeseen delays.

Lead time is a critical key performance indicator (KPI) measure for supply chain and logistics companies. Lead time figures are usually broken down into goods ready days, transit days, and clearance and delivery days.

Goods ready days show the number of days taken by the supplier to get the goods ready and have them delivered to the port for shipment.

Transit days show the number of days taken for the transit of the cargo from the port of origin to the port of destination or discharge.

The Clearance and delivery days show the number of days taken for the goods to be customs cleared from port and delivered to the customer’s premises.

All these days are the actual days taken for the movement of cargo from its point of origin at the supplier’s warehouse to the customer’s storage location.

Analysts of the ocean carrier compare the ETD and ETA given with the actual times of departure and arrival.

They look for abnormal or large variances, find the reasons for these variances, and try to set them right. Variances have to be corrected for an optimum supply chain.

In shipping, it is important to note that the estimated time of delivery (ETD) is from the port of origin and the estimated time of arrival (ETA) is to the port of destination. ETD and ETA do not mean that it is from the shipper’s premises to the consignee’s doorstep unless mentioned specifically.

Can Compensation be Claimed on Delayed Departures?

When the shipper books cargo on an ocean vessel, the ocean carrier has the responsibility to take the cargo on the vessel that is mentioned on the booking confirmation.

The booking confirmation will also show the ETD of the vessel. In some cases, the ETA is also shown.

In the event of the cargo missing the sailing for no fault of the shipper, then the carrier should take the cargo in an alternative vessel latest within three days from the date of the original booking.

If it exceeds three days then, in most cases, the shipper can claim compensation from the ocean carrier for the days exceeded beyond the three days.

Compensation can be claimed only in the case of carrier haulage. It also has to meet certain conditions like full payment from the shipper or his customer to the ocean carrier, etc.

The claim for compensation has to be made by the shipper within a certain number of days as specified in the agreement with the ocean carrier. The exclusions here are, any force majeure or delays from the port.

However, the terms may vary from carrier to carrier and the shipper has to confirm this in the agreement with the ocean carrier.

Live Tracking of Vessels and Cargo

The old practice of updating the customer when the goods reach a pre-defined location has given way for live tracking of goods.

Earlier, the status of the vessel or goods between two pre-defined locations were not available, especially to the customer.

Live tracking gives clear visibility of goods and vessels in transit and therefore a realistic ETD and ETA. The movement of cargo vessels can be monitored by the shipping company and disruptive events en route avoided.

Along with the live-tracking of cargo, some companies offer additional services to their customers. Some of the services offered with live tracking of cargo are real-time monitoring of the cargo’s temperature, humidity, or shock levels. This can be very useful in the transportation of medical or hi-technology equipment, food items, etc.

Ocean carriers these days have effective Transport Management Systems (TMS) and live tracking of their vessels and the cargo that it carries. Tracking portals of ocean carriers allow the customer to see where exactly the goods consigned to them are at any given point in time.

Live tracking makes the calculation of ETD and ETA more accurate for the customer. It helps the ocean carrier or freight forwarding agent to see where delays happen and take necessary steps to reduce or even prevent the negative impact of such delays before the goods have reached their destination.

Several tools and software are available in the market today that simplifies the calculations of ETD and ETA. If used correctly, they are often very accurate and help an organization to plan.

Taking actions based on live tracking moves a company from being reactive to proactive. Customers prefer to deal with organizations that look ahead to avoid problems rather than deal with problems when they happen. Updated and accurate ETD and ETA help customers plan and manage their activities and also avoid stock-outs.

To understand the ETA forecast better, let us take a look at the following calculation based on the assumption that the ideal lead time for the journey (base days) is fifteen days.

The historic data available for the calculation (average values) is as follows:

Delay due to labor strike: 3 days
Delay due to poor weather: 2 days
Delay due to departure port congestion: 1 day
Delay due to arrival port congestion: 2 days
Delay due to extended stop for bunkering: 1 day
Delay due to malfunction of ship machinery: 2 days
Delay due to war or piracy: 3 days

Let us take the probability of occurrence of these events over the 15 days (lead time) period as follows:

Labor strike: 3%
Poor weather: 20%
Departure congestion: 10%
Arrival congestion: 15%
Extended bunkering: 5%
Technical malfunction: 10%
War or piracy: 1% (subject to variability depending on the current situation)

The probabilities are arrived at based on historic and recorded occurrences. For instance, data shows that a labour strike occurs over 10 days in a year. So, the probability that your shipment may be delayed due to a labour strike is (10/365) x 100 = 3%.

When it comes to poor weather, the objective of any shipping line would be to reduce the delay due to this by selecting better routes or including delays in the total shipping time (mentioned as 15 days in the above example).

The reason that the probability on account of poor weather is higher compared to other events is that it has a compounding effect. For example, a storm at one transhipment point might delay a vessel by 1 day.

Upon approaching the destination port, it may be low tide at the port thereby restricting entry into the port. For this reason, it has a higher probability of delaying the ship.

The calculation for the computation of ETA is as follows:

Total journey time = Base number of days + ∑(probability not in percentage x delayed days)

In the example given above, the total journey time will be calculated thus:

Total journey time equals 15 + (0.03 x 3) + (0.2 x 2) + (0.1 x 1) + (0.15 x 2) + (0.05 x 1) + (0.1 x 2) + (0.01 x 3).
Total journey time in days equals 16.7 days.

For the journey of 15 days, 1.7 days are to be accounted for various delays. As the base journey time (ideal lead time for the journey) increases, the probability of occurrences also increases, resulting in long delays.

Accurate ETD and ETA information helps the customer plan their storage space, labourers, and other operations effectively.

You might also like to read:

• Freight Forwarding Process – Everything You Wanted to Know
• NOTIFY PARTY in Shipping – Everything You Wanted To Know
• What is Demurrage and Detention in Shipping?
• Bill Of Lading in Shipping: Importance, Purpose, And Types
• Telex Release – Everything You Wanted to Know

Disclaimer: The authors’ views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight. 

What is ETD and ETA in Shipping? appeared first on Marine Insight - The Maritime Industry Guide

ISPS code, or the International Ship and Port Facility Security Code, is an essential maritime regulation for the safety and security of ships, ports, cargo and crew.

The biggest challenge the world is facing today is fighting terrorism. There have been many events in history lately involving terrorist attacks in different parts of the world in various forms.

But the most gruesome of all – the September 11 terrorist attack on the Twin Towers (World Trade Centre) proved that national and international security was at stake.

Maritime security is a prevailing issue, and several incidences have taken place even before the 9/11 attack (e.g. On 26th February 2000, bombs that were hidden inside two crowded buses in a Philippians’ ferry – Our Lady of Mediatrix, exploded and killed 45 passengers).

Before the ISPS code, the SOLAS primary focus was the safety of the ship at sea. As security and safety are entirely different topics, new amendments were made in SOLAS and the Chapter XI, which contains measures to enhance maritime safety, by renaming to Chapter XI-1 and a new Chapter XI-2 was added with additional focus on maritime security.

Related Read: SOLAS and MARPOL – A General Overview

This new chapter comprises of regulations known as International Code for the Security of Ships and of Port Facilities with the abbreviated name “International Ship and Port Facility Security Code or the ISPS Code”.

Since the sea is one of the easiest ways to approach an international territory, International Maritime Organisation (IMO) under SOLAS convention chapter XI-2 developed the International Ship and Port Facility Security code – The ISPS code for the safety of ships, ports, seafarers and government agencies.

The ISPS code was implemented by IMO on July 1st 2004, as a comprehensive set of measurements for international security. It prescribes responsibilities to government authorities, port authorities, shipping companies, and seafarers.

It applies to ships making international voyages, which include passenger ships & cargo ships of 500 GT and above.

Related Read: 10 Ways to Enhance Ship Security

Main Aim of ISPS code In Shipping

The ISPS code mainly looks after the security aspects of the ship, seafarers, ports and port workers, to ensure preventive measures can be taken if a security threat is determined. The main aim of the International Code for the Security of Ships and of Port Facilities (ISPS) is as follows:

• To monitor the activity of people and cargo operation
• To detect the different security threats onboard vessel and in port and implement the measure as per the situation
• To provide a security level to the ship and derive various duties and functions at the different security level
• To establish the respective roles and responsibilities of the contracting governments, agencies, local administrations and the shipping and port industries
• To build and implement roles and responsibilities for port state officer and onboard officers to tackle maritime security threat at the international level
• To collect data from all over the maritime industry concerning security threats and implementing ways to tackle the same
• To ensure the exchange of collected security-related information data with worldwide port and ship owners network
• To provide a methodology for security assessments so as to have in place plans and procedures to react to changing security levels
• To find the shortcomings in the ship security and port security plan and measure to improve them

Related Read: Measures Taken During Shipboard Operation for the Safety of Ship’s Crew, Cargo, and Marine Environment

ISPS Code Requirements

The ISPS code incorporates various functional requirements so that it can achieve certain objectives to ensure the security of ships and ports. Some of the important requirements are as follows:

• To gather the security-related information from the contracting government agencies
• To assess the received information
• To distribute the security-related information to appropriate contracting government agencies
• Defining the proper communication protocols for ships and port facilities for hassle-free information exchange
• To prevent any unauthorised entry in port facilities or on a ship and other related restricted areas, even if the unauthorised entry is not a threat (but always considered as a potential threat)
• To prevent the passage of unauthorised weapons, incendiary devices or explosives to ships and port facilities
• To provide different means for raising the alarm if any security incident is encountered or a potential security threat is assessed
• To implement proper security plan on port and ship-based upon the security assessment and requirements
• To plan and implement training, drills and exercises for ship and port crew so that they are familiar with the security plans and there is no delay in implementing the same in case of a real threat

Related Read: What are the Duties of the Contracting Government (CG) under the ISPS Code?

ISPS Code Meaning for Ships:

The cargo ships are vulnerable to security threats as they hardly carry any weapon of protection in case of a real attack. Piracy, terrorist attack, stowaways etc. are real-time threats haunting the ship and its crew. Improved ship security will be required in order to identify and take preventive measures against such security incidents.

The administration is responsible for reviewing and approving a ship security plan for the ship, which will also include any amendments of old plans etc.

The company must train its officer for ship security officer certification and the assessment of the ship security will be carried onboard by these certified officers only. The timely assessment of the ship security plan (SSP) by a certified officer is essential for finding shortcomings and enhancing the current SSP.

The ship security assessment shall be documented, reviewed, accepted and retained by the company. Every ship must carry an approved ship security plan approved by the Administration.

ISPS Code for Vessels Includes :

Company Security Officer ( CSO )

CSO is a company appointed person, who is responsible for the ship security assessment and for the onboard survey to confirm the development and implementation of the ship security plan as per ISPS code. If any deficiency occurs, CSO is responsible to deal with all the non-conformities and to modify SSP as per the deficiency.

Related Read: What are the Duties of Ship’s Company Security Officer (CSO)?

Ship Security Officer ( SSO )

SSO is the i- charge of security of the vessel onboard and responsible for the other entire crew member to carry out duties for ship security as per ISPS code. SSO is responsible for carrying out frequent drills for ISPS Code as per SSP.

Related Read: What Are The Duties Of Ship Security Officer (SSO)?

Ship Security Plan ( SSP )

It is a plan kept onboard vessel mentioning the duty of crew members at different security levels and the do’s and don’ts at a different type of security threats. SSO is responsible under CSO to implement ship security plan onboard vessel.

Related Read: Understanding Ship Security Plan On Board Ships

Ship Security Alert System

Different types of security equipment are kept onboard which includes a metal detector for checking the person entering the vessel. From July 2004, most of the ship has installed the Ship Security Alert System (SSAS) as per ISPS norms which do not sound on the ship but alarm the shore authority about the security threat.

Related Read: What is Ship Security Alert System (SSAS)?

Implementing ISPS Security Level

It’s the responsibility of SSO to implement the security level onboard complying with the security level set by the local government authorities. Also, a continuous response is to be made to Port state when the security level is “level 3”.

ISPS Code for Port Facilities

Port facilities have to make sure that all the facilities are protected from any kind of threats which may arise from both land and water. They also need to monitor the ships which are coming to its shore from an international voyage for any security risk.

It is the port facility which defines the security levels to be implemented on the ships which are in its territorial waters. The Port managing company is responsible for preparing the Port Facility Security Plan.

The port facilities security assessment is also an essential and integral part of the process of developing and updating the port facility security plan.

The assessment is usually assessed and reviewed by the flag state or by the government organisation responsible for shipping and port development for that country.

ISPS Code for Port Facilities Includes:

Port Facility Security Officer ( PFSO )

The PFSO is a Government-appointed officer responsible for implementing PFSP and determining security levels for port and vessel berthing at their jetty. He/She is also responsible for conducting a port facility security assessment.

Port Facility Security Plan ( PFSP )

It includes plans and actions to be taken at different security levels, roles and responsibilities, and actions to be taken during any security breach.

Related Read: The Importance of Port Security

Security Equipment

To avoid a breach of security inside the port, minimum security equipment, such as scanners, metal detectors, etc., must be available at all times at the port facility.

Implementing Security Level

The port authority implements security levels under the consultation of a local government authority. The security level adopted for the port facility must be informed to vessel administration for cooperative measures.

Challenges of ISPS code:

Every regulation comes with its challenges. The ISPS code is no different and has the following concerns:

• Human rights are one of the biggest concerns with the ISPS code as it directly affects the seafarers’ well-being. Shore leave has always been considered as an essential stress relief process for the ship’s crew, and due to security threats, many countries are prohibiting shore leave for seafarers

Related Read: Everything You Ever Wanted to know about ‘Shore Leave

• Another concern is the proper implementation of the ISPS code, as not all the crew are trained at the shore for ship security training.
• It also impacts the crew’s daily activity, involving additional duties such as security watch, etc.
• Implementing the security level on the ship is also an additional job, which is time-consuming.
• Port activities are also affected when the security level rises, leading to a slowdown in cargo operations.
• When the security level is at its highest, the ship’s port stay will increase as all the cargoes are checked, compared to lower security levels (1 & 2), wherein only a handful of cargoes are inspected for security reasons.
• Some ports do not allow cargo operations under security level 3 until the level is minimised.

Advantages of ISPS Code:

• The ISPS aims to increase the safety and security of the ship, hence minimised the risk
• Better control of cargo flow, personal access
• Better documentation procedure (as it has standard procedures all over)
• Secured working environment making it easier for seafarers and port workers

Disadvantages of ISPS:

• Additional work for seafarers as more security-related tasks are added to the work routine
• Slow work progress when the security level rises
• Additional paperwork and certification requirements
• Increase in operating cost of the ship for ISPS implementation and increase in port costs (more port stay) if the security level is higher
• More administration work

Related Read: 

• Proficiency in Designated Security Duties (PSDS) Certificate: A Mandatory Requirement for Seafarers
• Safety of Life at Sea (SOLAS); The Ultimate Guide
• MARPOL (The International Convention for Prevention of Marine Pollution For Ships): The Ultimate Guide
• Nautical Law: What is UNCLOS?
• A Guide to Maritime Labour Convention (MLC), 2006 for Maritime Professionals

References International Maritime Organisation

Disclaimer: The authors’ views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight. 

The Ultimate Guide to the ISPS Code for Ships – Enhancing Maritime Security appeared first on Marine Insight - The Maritime Industry Guide

“General Average” is a term used in the maritime industry to define shares in a common loss during a maritime accident.

Defined by York Antwerp Rules 1994 of General Average, these rules lay guidelines for the distribution of loss in an event when cargo has to be jettisoned in order to save the ship, crew, or the remaining cargo.

The rule states the apportionment of losses amongst the parties involved in any maritime adventure in case of an extraordinary sacrifice or if the expenditure is made intentionally with the proper justification that the causes for the same involved preserve the other property from risk of being lost.

The underlying cause which led to the introduction of General Average was, in event of the grave situations where the safety of the ship, crew members and cargo was jeopardized.

It’s always a difficult decision for the ship’s crew to take appropriate action to save the interests of cargo owners and the ship. The time constraints in such exigencies don’t allow the ship’s crew to decide which cargo to jettison and which to leave.

Consequently, there would be a hot debate arising among cargo and ship owners as to whose cargo has been jettisoned and whose interests compromised. The loss being totally on the account of the person whose cargo has been discharged.

Thus, in order to regulate the unprejudiced interests of all those parties who enter into a common maritime venture, a powerful tool named General  Average was introduced, in the York Antwerp rules of 1890 and later reviewed and amended recently in 1994.

The clauses of General Average under the York Antwerp Rules 1994 can be simplified as under

• A loss is deemed to be considered under general average if and only if the reason of sacrifice is extraordinary or the sacrifice is reasonably made for the purpose of common safety for preserving the property involved. E.g.  Capsizing due to inclement weather conditions, shifting of cargo leading to the excessive listing of the vessel
• When two or more vessels are pushing or towing and are involved in a commercial reason, then general average applies if they disconnect from each other in order to preserve the vessel and the cargo

• General average shall be applied only for those losses which are linked directly with the material value of the cargo carried or the vessel. Any claims arising due to the delay, a loss or expense caused due to loss of market  or any indirect loss must not be accounted into the general average

• Each party’s share in the general average should not be determined by a fault-based approach. The risk borne by all should be equal in all aspects. However if one of the parties’ actions has resulted in the loss, legal actions can be taken against those actions

• Average adjusters are individuals or institutions looking after claims arising due to the general average. The parties of a general average claim should send a written notice to them within 12 months from the date of termination of the common maritime agreement between the parties involved. If they do not receive this notice, the adjusters are entitled to proceed with all available information with them
• If a vessel or cargo is damaged by water, including damage by beaching or sinking a burning ship in order to extinguish the fire, then that damage shall be countable as general average. Also, if a vessel is grounded intentionally for the common safety, it excludes damage caused by smoke or heat of the fire
• If salvage operations are carried out in order to save or prevent the loss of cargo or to prevent or reduce environmental damage, the expenditures involved and the remunerations to salvors should be allowed in general average

• If any vessel has been grounded and the cargo is liable to get damaged, then efforts can be made to refloat the vessel. However, if such efforts cause damage to boilers or machinery of the vessel, it shall be made as a general average

• The procuring expenses of any cargo, fuel or ship’s stores upon being discharged as per general average act shall be admitted into general average

• Loss of freight incurred to the owner due to loss or damage of cargo should be included in the general average. However, it is important to deduct from it the expenses which would have been incurred by the owner  for carriage as they were not actually incurred

• If cargo is sold in damaged condition, the general average amount is the difference between net sound and net damaged value

Disclaimer: The authors’ views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight.

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A General overview and review of the Container Shipping industry in 2023

As we step into 2024, it would be worthwhile to briefly review how 2023 was for the shipping and logistics industry in order to understand the underlying context, which in turn will facilitate a better appreciation of the trends and factors that are expected to influence the maritime industry in 2024 (and beyond).

In 2023, while the shipping industry in general witnessed a gradual return to pre-Covid levels, the year was uncharacteristic in many ways.

Freight rates across most trade lanes continued their steady descent to the historical average, while port congestion and other transport bottlenecks that had driven the post-COVID disruptions in 2021 and 2022 largely dissipated, greatly easing the pressure off global supply chains.

The resultant freeing up of shipping capacity and equipment, in conjunction with the infusion of new tonnage (which had been ordered in large quantities by cash-rich Carriers during the Covid-fuelled boom), led to an excess supply situation, which further drove down freight rates.

The recessionary pressures afflicting most countries and subsequent tempering of consumer sentiment had the effect of moderating demand for shipping services (as shipping is derived demand, dependent on the demand for consumer and industrial goods and raw materials).

As a consequence of these factors, the balance of power started shifting slowly in favour of shippers and exporters, first manifested in the drop in spot market rates and later in contractual rates (as and when they came up for renewal, where new contract rates were negotiated using existing spot rates as a guideline).

And amidst all this, the Russia-Ukraine conflict had ramifications spreading far beyond the region, while concerted endeavours to mitigate risks arising from reliance on a single sourcing centre, as well as the desire to diversify procurement origins and shorten supply chains, caused a realignment of trade patterns.

Attempts by various governments to increase economic cooperation with politically and ideologically alike countries to strengthen bilateral relations and make supply chains more reliable and robust (referred to as “Friendshoring”) provided further impetus to the trend of shifting manufacturing capacity and investments, thus creating new markets and manufacturing/ procurement centres.

Increasing curbs on technology transfer and investments in key industries by entities perceived as future competitors or antagonists, as well as the desire to prevent any one country from dominating global supply chains, also caused a shift in demand patterns.

Towards the end of the year, the commencement of hostilities in the Middle East severely affected shipping in the region, with broader repercussions for major East-West trades (primarily Asia to Europe and the Mediterranean) as the narrow pass leads to the Suez Canal, which caters to a large proportion of the worlds containerised shipping trade (also holds true for other modes of shipping, such as tankers and bulk).

Attacks on commercial vessels indicate a widening of the theatre of conflict, with more nations and players getting involved, greatly adding to the level of risk for vessels plying on this route. The overall uncertainty has had a debilitating impact on shipping services, compelling Carriers to sail around the Cape of Good Hope, which is a longer and more expensive route.

The combination of longer sailing distances, lengthier transit times, higher bunker consumption, increased insurance premiums, risk allowances for the crew, etc., have all caused a spike in freight rates, which will inevitably have an inflationary effect on consumer prices in most countries.

Natural factors, too, played their part, with atypical climatic variations impacting major waterways, from the Panama Canal to the Great Lakes in the US to the Rhine River in Germany. Poor rainfall and/ or drought in these areas led to a drop in water levels, resulting in the imposition of limitations on draught and the weight that vessels sailing across these waterways could carry.

At the Panama Canal, historically low water levels compelled the Panama Canal Authority to reduce the daily limit of the number of vessels that can cross the Canal, while the low water levels, by default, implied a curtailment in the cargo that vessels could carry. Low water levels on the Rhine impacted barge movement at various points in time throughout 2023, which in turn put pressure on other modes of transport such as road and rail.

Given the diverse nature, scale, and geographical spread of all these factors, the impact of which was magnified manifold when occurring in conjunction (such as the Panama Canal and Suez Canal both being blocked at the same time would leave Carriers and shippers reliant on routing options that are far longer and involve considerably higher costs), the non-controllable element of the shipping business became more complicated.

Since most of these factors are essentially natural phenomena or require political solutions – thus being outside the control of Carriers and Exporters – there is considerable uncertainty regarding their resolution and impact as we move into 2024. Further, with the complex macroeconomic and geopolitical factors at play, the operating environment is quite volatile.

Under these circumstances, there are some prominent factors that will materially impact the Container Shipping industry in 2024, the nature and impact of which we will understand in this article.

B. Trends and Factors impacting the Container Shipping industry in 2024

1. Supply-demand balance and a massive influx of additional capacity in the market

Perhaps the most common concern in the container shipping industry has been the massive influx of new capacity that is expected to inundate the market in 2024 (and 2025 as well).

As Carriers grappled with a paucity of capacity to meet the unexpected increase in demand in the second half of 2020 but still made record profits due to record-high freight rate levels, a proportion of the windfall revenues were utilised for placing orders for new vessels.

The ordering spree led to a record orderbook (measured as a proportion of existing capacity, the orders placed post-COVID ranked second only to the pre-recession period in 2008-09, when the global economy was booming and demand for shipping services was high).

The extent of over-ordering can be gauged from the fact that the capacity of the new vessels ordered is equivalent to 27% of the global fleet, which in October 2020 stood at 8%. 

What poses even more challenges for Carriers is the fact that the timing of the delivery of these vessels will coincide with a marked drop in demand, with estimates for global demand ranging between 3% to 4% for both 2024 and 2025.

To make matters worse, a large proportion of the newbuilds comprise mega-vessels, which by virtue of their size are subject to the operational and infrastructure limitations at maritime ports, thus restricting the number of ports that they can call at and, by extension, the number of trades that they can be deployed on. 

While cascading vessels to secondary and tertiary trades is an option that Carriers can resort to, there is a limit to the extent that this tactic can be employed, given the draught restrictions, limited handling capacity, and infrastructural constraints at most ports on these trades.

Scrapping vessels is another option, especially ones that are non-compliant with the latest emission control regulations (or where the cost of modifying or retrofitting the vessels would be prohibitively high); however, in this case, too, the extent of capacity thus removed will be limited, as the proportion of vessels deemed fit for scrapping is far lesser than the new tonnage being delivered.

2. Emission control regulations and cost of compliance

While shipping is the most eco-friendly mode of transport, the sheer amount of cargo transported every year means that at an aggregate level, the sector’s emission levels are very high, primarily arising from the use of fossil fuels.

In a bid to reduce the carbon footprint of the shipping industry, governments and international organisations have introduced wide-ranging regulations that target various aspects of vessel operations, from the use of biofuels to installing scrubbers to measuring the energy efficiency of individual vessels to demarcating emission control areas (ECAs).

The latest in the series of such measures is the European Union’s Emission Trading Systems (ETS), whereunder, starting from 01st January 2024, vessels calling at EU ports (and certain other ports)  will need to purchase carbon credits. The threshold covering the proportion of carbon emissions for which credits need to be purchased will increase each year, starting from 40% in 2024. 

The EU has also introduced the Carbon Border Adjustment Mechanism (CBAM) intended to reduce emissions on imports to the EU.

Covering carbon-intensive products such as fertilizers, iron and steel, and cement, the CBAM is intended to cover possible loopholes where companies relocate manufacturing to countries with less stringent environment protection policies or where imports of such products replace more eco-friendly products that are manufactured in the EU. It is mandatory for EU members to report emissions on a quarterly basis, with the first report due on 31st January 2024. 

The cost of complying with these regulations is considerable and will impact Carrier’s margins and business models. With rates dropping sharply and margins back to wafer-thin levels, Carriers do not have much leeway to absorb these costs and have already announced various surcharges to pass on the costs to customers. 

In 2024, this will translate into higher freight rates and TCO, as well as an increase in the administrative and procedural tasks involved in monitoring emissions and ensuring compliance.

Carriers and shippers will also respond by limiting calls at EU ports and instead redesign their service networks to call at alternate ports such that the ETS charges are minimised, leading to changes in sailing schedules and ports of call. As an aside, it must be noted that in anticipation of such evasive steps that could be construed as violating the spirit of the law, the EU has brought certain non-EU ports under the ambit of the ETS scheme.

One of the implications for container shipping is that besides the increase in costs and the administrative workload, these emission control measures will also have the effect of moderating capacity, as noncompliant tonnage will be scrapped (though the extent will be slight).

3. Geo-political tensions and military conflicts: which will precipitate realignment and duplication of supply chains, with consequent alteration in trade patterns

2024 will likely witness an intensification of trade wars, military conflicts, and other geopolitical factors that have weighed upon international trade and shipping in the recent past. 

The impact of military conflicts will influence the shipping industry, both directly (as has happened in the case of the attacks on commercial shipping in the Bab el-Mandeb straits, where Houthi rebels have been successful in disrupting international shipping) or indirectly (in the case of the ongoing Russia-Ukraine conflict, which has pressurised the global economy and created recessionary pressures in European countries). 

A potential flashpoint in 2024 could be Taiwan, where some Western analysts are apprehensive of Chinese military action (akin to Russian action in Ukraine).

Should this happen, the hostilities will directly impact shipping activity in the region, and we will also see an indirect impact in the form of economic sanctions, as were imposed on Russia (the difference, of course being factors such as the deep entrenchment of China in global supply chains, its control of critical raw materials and dominance in the manufacturing of electronic and high-tech products such as semiconductors, all of which will render decoupling a highly difficult exercise).

Trade wars and economic sanctions will also influence international trade patterns and economic engagement in 2024. With Western corporations increasingly looking to diversify sourcing origins to alleviate risks arising from excessive reliance on countries like China, as well as Western governments backing friend-shoring initiatives, combined with the undeniable prudence of moving at least a portion of manufacturing capacity closer home (termed “nearshoring”, intended to shorten supply chains, so as to gain better control and to reduce the possibilities of disruptions and delays), 2024 will see the emergence of new trading partnerships between geographically proximate countries (such as the US and Mexico or EU countries and Turkey), stronger economic ties between politically aligned countries, alteration of cargo flows and shipping routes, and reallocation of shipping capacity.

Economic sanctions and restrictions on technology transfer will also make imports from sanctioned countries more expensive, creating an imperative to shift production to alternate locations.

An example of this is the growing investment in manufacturing capacity in Mexico, which offers the benefits of being sanction-free, closer to US markets, connected via multiple transport modes, and cultural affinities.

An interesting point to note is that Chinese companies have ramped up their investments in Mexico and have been proactive in setting up plants there, which helps them evade tariffs and duties levied on Chinese-manufactured products.

At the other end of the spectrum, we have seen greater collaboration and trade between Russia and China. 

Companies will have to create parallel supply chains, one aimed at the Western markets and the other at Chinese and other markets, to ensure that they benefit from manufacturing in China while also catering to the US and European consumer markets.

Since these situations can be resolved only through political negotiations, bilateral dialogues, and military deterrents, it is difficult to hazard a guess regarding timelines for a possible resolution. 

It would be reasonable to expect that this will define international maritime trade in 2024.

4. Extreme weather events

With weather analysts forecasting a severe El Nino in 2024, there is a greater probability of the occurrence of extreme weather events, which have the potential to impact international shipping.

An example is the Panama Canal, which has been grappling with low water levels caused by drought and scanty rains, which in turn reduced the Canal’s ability to handle fully laden vessels. As a result, the Panama Canal Authority was compelled to announce restrictions on the number of vessels transiting the Canal, as well as impose weight and draught restrictions. The result was a reduction in effective capacity, which eroded the utility of the Canal. Forecasts for poor rainfall in 2024 indicate that this situation will continue well into 2024.

Likewise, the Rhine River in Germany and the Great Lakes in the US, both of which play a crucial role in barge transport, have been afflicted by low water levels.  

Implications for Container shipping

Severe weather events impact the shipping industry in myriad ways, witnessed in the form of lower volumes, changes in trade patterns, revisions to ports of call and vessel deployments, modal shifts, increased pressure on other transport modes, congestion, delivery delays, etc.

Some of the more prominent changes are explained below:

a) US intercoastal volume shift: The US, by virtue of its geographical size and number of trading partners, has cargo coming to both its West Coast and East Coast ports. Traditionally, West Coast ports have been the preferred gateways and have better infrastructure and greater capacity, while the major consumption centres are located on the East Coast.

During the peak of the covid-induced congestion at West Coast ports such as Los Angeles and Long Beach, shippers and carriers started using the Panama Canal route to call at East Coast ports, with the dual objectives of avoiding the congested USWC ports and ensuring that their supply chains remained at least partially functional.

In the long run, the intent was to create an alternative route and infuse resilience in the overall supply chain. This caused the proportion of cargo handled at USWC ports vis a vis USEC ports to be inversed, which was maintained even after the COVID crisis abated. Now, however, low water levels at the Panama Canal have compelled Carriers and shippers to redirect move volumes to the USWC ports, thus bringing the intercoastal split closer to historical levels.

b) Modal shift towards Road and Rail: The curtailment in the effective capacity (both shipping vessels and cargo) that waterways can handle will inevitably drive a modal shift towards alternate modes of transport, like road and rail. Examples include Carriers now providing rail and road options to the Panama Canal or Rhine River barge cargo being transported by road. This not only increases the cost of transportation but also gives rise to more emissions. Additionally, the scale of maritime transport generally cannot be replicated in road or rail, wherefore a sudden shift will strain the rail/ road capacity, causing delays and congestion.

5. Changes to global trade wrought by concepts such as Friendshoring/ Nearshoring/ China + 1/ Decoupling and Derisking

As the traditional China-centric supply chain model was supplanted by procurement strategies which emphasised shortening supply chains, diversifying souring locations, and bolstering economic ties within politically aligned blocs, we saw the emergence of new routes and trading relationships.

In one such development, Mexico replaced China as the USA’s largest trading partner, while other Asian countries such as Vietnam, Thailand, Malaysia, India, and Bangladesh increased their share of exports to America (in the manufacturing sector). In the high-tech and electronics sector involving products like semiconductors, South Korea and Taiwan became preferred partners, as curbs were imposed on technology transfer to Chinese entities.

Whilst China has a formidable advantage in terms of scale and infrastructure in the manufacturing of most products and hence is likely to remain a critical component of any company’s sourcing strategy, other countries will increase their share of manufacturing and exports as we move into 2024.

Further, with China focussing on moving up the value chain and with its historical cost advantage eroded by rising wage levels, a significant proportion of the manufacturing of low-cost goods will shift to other countries. 

Additionally, given the dependence on Chinese raw materials and components, instead of a complete revamp of supply chains, we will see the somewhat counterintuitive phenomenon of elongated supply chains, where Chinese components will be exported to new manufacturing centres in other countries, from where the finished goods will be exported to Western countries.

This will create even greater interdependencies and more intricate supply chains, where local issues could have international ramifications (to take a hypothetical example, production or transport disruptions in China, which hinder exports of buttons and raw materials to Vietnam, will impact production and export of Vietnamese garments to Western countries).

Lastly, to evade sanctions and tariffs, Chinese corporations are increasingly investing in foreign companies (that are not subject to sanctions, such as Mexico), which will provide further impetus to the shift of manufacturing capacity, while remaining in Chinese control. Taking cognisance of this development, Western governments are evaluating measures to impose stringent rules of origin.

For the shipping industry, this will translate into the need to introduce new services connecting the newer manufacturing centres, which will also imply a change in fleet composition (to incorporate smaller vessels, which can be accommodated at the newly added ports of call).

6. Shift in the centre of global trade from advanced economies to emerging economies

Global trade and growth have historically been driven by developed economies in the Western hemisphere, while Asian and African countries have largely been the source of raw materials, commodities and low-end general merchandise. 

Advanced economies dominated the economy and accounted for a significant proportion of the global demand for shipping services (which in turn drove demand for raw materials and commodities).

The balance of power has, however, been gradually shifting towards the Orient, primarily due to China’s position as the factory of the world and of late, abetted by the rapid pace of growth enjoyed by developing nations like India, the ASEAN countries, and other emerging economies.

Developed and advanced economies, on the other hand, have been struggling with low growth rates and, in the last 2 years, have been facing recessionary pressures, resulting in a relative diminution of their weightage in the global economy. This is especially true for European countries such as Germany, France, and Italy, which have been battling with a lack of labour to drive their manufacturing-oriented economies and also have to contend with a subdued domestic sentiment. 

This shift of economic heft is amply illustrated by the fact that, as per IMF estimates, China and India are expected to account for approximately half of the world’s growth in 2023 and 2024.

For the shipping industry, this would translate into higher export and import volumes to these emerging markets, necessitating reallocation of capacity and reconfiguration of sailing networks. 

Thus, instead of having the bulk of shipping capacity connecting established manufacturing centres and advanced economies, carriers will now need to cater to growth markets and new sourcing locations.

This ipso facto also implies a change in the composition of vessel sizes in the global fleet. While ports in China, Europe and the US were capable of handling vessels of over 20,000 TEUs to serve emerging markets, Carriers will need to incorporate a greater number of smaller-sized vessels (5,000 to 15,000 TEUs). 

This trend will also lead to a spurt in intra-regional trade, as rapidly developing countries trade more with each other, with manufacturing shits and supply chain interdependencies also creating new demand for components and raw materials. Carriers will have to reallocate vessels and equipment to cater to this cargo while correspondingly reducing capacity on existing routes.

7. Focus on Sustainability, circular supply chains and reverse logistics

With the broad-ranging emission control limits that Carriers have to ensure compliance with, and further considering that the permissible limits will be lowered successively in forthcoming years, Carriers have been compelled to proactively focus on sustainable operations and reducing their carbon footprint.

The intent is not only to comply with existing regulations but also to stay a step ahead and ensure that they meet emission control targets well before the stipulated deadlines.

In fact, most major carriers have already embarked upon the journey towards decarbonisation and have set themselves ambitious targets, with Maersk Line and Hapag Lloyd being examples in this regard. While the IMO has targeted net zero emissions for the shipping industry by 2050, Maersk Line has stated ambitions of reaching net zero by 2040. Hapag Lloyd has likewise set itself the target of reaching net zero by 2045.

Most other companies have allocated significant funds towards decarbonisation initiatives and have embarked upon various projects to ensure this.

In 2024, this focus will only intensify as Carriers increasingly prioritise sustainability and align commercial strategies and business objectives therewith. 

Providing further impetus from the demand side are major exporters, retailers, and manufacturers who too are equally (if not more so) focussed on reducing their carbon footprint, wherefore they, as customers of Carriers, are demanding more eco-friendly or green solutions. Since studies have found that a sizeable number of end-consumers are willing to pay a premium for eco-friendly products, it makes business sense for Carriers, exporters and importers to invest in green supply chains – a trend that will gather further momentum in 2024. 

For the bigger Carriers, awash with surplus funds generated during the preceding 2 years, the cost of compliance with environmental regulations is manageable, increasing the probability of all stakeholders in the supply chain playing their part in reducing overall emissions in the transport process.

Some common methods and strategies employed by Carriers to reduce their carbon footprint include:

1. a) Order new vessels with energy-efficient designs and engines
2. b) Slow steaming to reduce bunker consumption and, thus, emissions (with the added benefit of savings on bunker costs)
3. c) Using less-polluting fuels, such as LSFO, bio-fuels, LNG, etc. Carriers are also investing considerable amounts in R&D to determine the fuel efficiency and emission levels of alternate fuel types and combinations thereof in order to find out which fuel is the least polluting one.

As part of the endeavour to make supply chains greener, Carriers, manufacturers, and exporters will also develop circular supply chains and reverse logistics capabilities, where waste or end-of-lifecycle residue is disposed off in a responsible manner. 

8. Other derivative trends

Apart from the major trends covered above, we will witness a number of other trends at play during the course of 2024, arising from the interplay of the major trends and diverse geopolitical and macroeconomic factors.

The notable ones among these are:

a) Carriers competing on rates: As capacity surpluses and the pressure to ensure higher utilisation levels exacerbate with the new tonnage entering the market, it is highly probable that Carriers will resort to undercutting prices in order to retain market share or capture volumes from competitors.

This has already been evidenced since the last quarter of 2023 and will likely continue throughout 2024 (subject, of course, to supply-side scarcity created due to military conflicts that threaten shipping through the Suez Canal and other factors which could have the effect of reducing effective capacity).

Bigger players in the industry, with their cash reserves, are more likely to attempt to undercut competitors, as they are in a better position to absorb losses in the short term.

The other rationale is that smaller players will not have the financial cushion to sustain in a low freight rate environment, leaving them vulnerable and more prone to going out of business, which will, in the long run, reduce the levels of competition in the industry and thus benefit the remaining players.

b) Break-up or reshuffling of Container Alliances: The container shipping industry has been dominated by Container alliances since the turn of the century, which collectively now control a large proportion of capacity. 

MSC took the bold step of breaking up with its 2M alliance partner, Maersk Line, and is set to operate services on its own. MSC was enabled to do this due to having invested heavily in new and second-hand tonnage from 2021 onwards, which now leaves them with the scale to operate standalone services while ensuring adequate presence in all major trades and markets. While the split will be official in 2025, both carriers have already started treading their separate paths. 

Although Maersk intends to position itself as an integrated logistics service provider, offering end-to-end logistics services and has been focussing on building up first and last-mile delivery capabilities, as far as container shipping services are concerned, their smaller orderbook will mean that they will be at a distinct disadvantage in an industry where scale is critical.

In this scenario, the pragmatic course of action open to Maersk would be to look at options to join or form another alliance, possibly leading to a reorganisation of existing alliances and the creation of new ones. 

c) Divergent growth strategies pursued by Carriers: In the past, Carriers have mostly been guided by a similar approach towards growth through their quest for scale and pursuing economies of scale. In the post-COVID environment, Carriers have embarked upon different strategies and growth plans that they perceive will leave them well-poised to capitalise on changing customer preferences in a rapidly evolving industry.

While MSC aggressively acquired tonnage to displace Maersk from the top slot, Maersk attempted to acquire logistics assets to complement its shipping services. Carriers like CMA-CGM have adopted the middle path, with investment both in vessels and logistics assets, while Hapag Lloyd has essentially focussed on its core container shipping business, while also investing in ports and terminals. 

With these developments continuing in 2024, we will see Carriers competing on varied value propositions, with their go-to-market strategies designed to play to their strengths and incorporating newly acquired assets and logistical capabilities.

You might also like to read-

• 10 Trends Expected To Define Supply Chains And Shipping
• 6 Major Trends in Container Shipping in 2022
• Container Freight Rate Index: Overview, Types and Methodology
• Types Of Bunker/ Scrubbers Carriers Can Use To Ensure Compliance With International Emission Control Regulations

Disclaimer: The author’s views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used in the article, have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendations on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight.

Trends and Outlook for Container Shipping Industry in 2024 appeared first on Marine Insight - The Maritime Industry Guide

In a previous article, we explored the trend of commoditisation of container shipping services and understood the reasons driving this trend.

In this article, we will delve into the implications of commoditisation for various stakeholders and the deleterious impact thereof on carriers and cargo owners.

To fully appreciate the commercial impact and implications of the trend of commoditisation, it is first necessary to distinguish between the commoditisation of shipping services and the commoditisation of freight.

The commoditisation of freight started quite a while before the commoditisation of shipping services. While both have had an adverse effect on the revenues of container carriers, the phenomena are different in their nature, how they unfolded, and the extent to which they can be controlled or reversed. 

Commoditisation of freight was, in a way, an inevitable outcome of the introduction of containerised shipping services. Traditionally, while transporting freight, the value of the commodity played a role in determining freight rates, with high-value cargo being charged higher and vice versa (so the higher the cargo value, the higher the freight rate). 

Container carriers would set different rates for different classes of commodities. While reefer or special cargo (that requires temperature-controlled transport or special handling during transit) obviously commanded a freight premium as compared to dry cargo transported in general containers, carriers would previously also further segregate dry cargo based on the nature and value of the commodity. 

This meant that carriers quoted separate rates for cargo such as electronic goods, furniture, and household goods. On top of this, for low-value or mixed cargo, carriers also offered special FAK (Freight All Kind) rates. The intent was to entice shippers of low-value or mixed cargo to ship with that particular carrier by offering relatively better rates. 

Besides the value, other factors determining the freight rates included the weight of the cargo, packaging requirements, etc. 

Note on the correlation between weight of cargo and freight rates: When it comes to weight, the lighter the cargo, the lower the freight rate the carrier can offer.

This is because while determining the carrying capacity of a vessel, carriers calculate the nominal capacity in TEUs by assuming a per-container weight of approximately 14 tons when, in fact, a container can easily carry 20 tons (or more). 

What this means is that for every tonne that the container exceeds the benchmark of 14 tons by, there is a corresponding reduction in the actual carrying capacity of the vessel – resulting in a lesser number of containers that can be loaded on the vessel and thus resulting in lower aggregate revenues.

To take an example, a 10,000 TEU vessel can carry a total weight of 140,000 tons (based on the standard of 14 tons per container). Now, if the average weight per container were actually found to be 21 tons, it would imply a significant reduction in the actual carrying capacity of the vessel.

In this particular instance, an increase of 50% in the average container weight would translate into a 33% reduction in the number of containers that can be loaded on the vessel.

Conversely, suppose the weight of a container is lower than 14 tons. In that case, the carrier has the option of accepting other cargo whose weight per container exceeds 14 tons, thus enabling the carrier to optimise its capacity utilisation and maximise revenues.

Now, while this is a very simplistic example, and it is extremely unlikely that the weight of all containers would be so high, it serves to illustrate how important it is for the Carrier to try to ensure a lower average container weight.

Carriers, therefore, would tend to quote higher freight rates for heavier cargo and offer lower rates for lighter cargo, sometimes going to the extent of imposing a Heavy Weight or Overweight surcharge.

This cargo-based pricing policy was carried forward even after containerised transport started gaining popularity.

As the rate of commoditisation improved rapidly, with more and more commodities starting to be transported in containers and container shipping becoming among the more prevalent modes of shipping, competition intensified with the advent of more players in the sector.

As more capacity was infused in the market, the competitive pressures resulting from the imbalance of supply and demand compelled container carriers to play with prices in order to retain business or increase market share. 

This demand-supply mismatch amidst the influx of tonnage also meant that the potential opportunity loss that could arise from carrying heavier containers was minimised (since carriers now had surplus capacity anyway, it wasn’t as if they would have to refuse business simply because some cargo booked was heavier). 

Carriers, therefore, started lowering the differential for heavier and high-value cargo. This meant that the premium that carriers were charging previously slowly started eroding, and the range of freight rates offered for different cargo types started getting narrower, resulting in lesser freight differentiation based on commodity type.

The situation slowly degenerated into one where the freight rate differential started diminishing and was altogether negated over a period of time. Today, freight rates offered are generally not very sensitive to commodity type (except in certain cases)

This is what is referred to as the commoditisation of freight.

Commoditisation of container shipping, on the other hand, refers to the phenomenon of growing standardisation of shipping services offered by container carriers, with nary a differentiating trait. 

While the trend of commoditisation of freight was to a certain extent inevitable and the direct consequence of containerisation (as the whole intent of carrying cargo in containers was to standardise the transport process by having the container as a single and homogenous unit of transport, as opposed to previously, when cargo was packed in pallets and packages of various types, shapes and sizes, which by default eliminated the need for differentiated handling and storage requirements for diverse types of cargo and thus introduced an element of uniformity), the commoditisation of container shipping services is primarily ascribable to the consistent and widening demand-supply imbalance and the resultant competitive pressures on industry participants to increase utilisation levels (and thus ensure maximum utilisation and turnover of expensive assets such as vessels and containers – to recoup their ROI), even if it implied dropping rates and operating on wafer-thin margins.

Further, while the commoditisation of freight is, to a great extent, irreversible given the operating dynamics of the industry when it comes to the commoditisation of container shipping services, there are still ways in which container carriers can try to differentiate their products and attempt to stand out from the competition, by convincing customers to evaluate shipping services on parameters other than price.

In this article, we will understand the implications of commoditisation and understand why commoditised markets cause differentiated service offerings to fail.

Implications of Commoditisation:

Pressure on freight rates and Carrier’s profit margins

Commoditisation is both the result of and the source of price pressures exerted by the gap between supply and demand. Commoditisation initially began because carriers had to undercut prices in order to fill incremental tonnage being injected into the market. In contrast, competitors had to follow suit to avoid losing market share. 

This levelling of price levels compelled carriers offering superior services to eliminate the differentiating elements of their services and instead mirror the service levels provided by competitors, which resulted in industry-wide standardisation.

As the services provided by all carriers were now highly similar, they were constrained to compete on prices and tried to lure customers by lowering freight rates further and further (in the absence of any other product/ service-based differentiator).

This gave rise to a self-perpetuating cycle wherein lower prices drove more standardisation, which in turn increased the pressure on freight rates and margins.

Deterioration in average operational service levels

Since the intense competition in the market and the supply-demand imbalance rendered rates the primary parameter in the selection of a container carrier, carriers were compelled to reduce rates to match the competition. 

This included even carriers who earlier had a reputation for offering superior services and charged (and successfully obtained) a premium therefor. Since carriers were now constrained to quote rates in line with the prevailing market rates, they also started offering services which were aligned with what most competitors were offering. 

This gradually led to a situation where all Carriers were offering services that were more or less uniform, just as their freight rates were. This meant that Carriers moved away from offering premium services, which competitors could not or would not provide, and instead matched the competitors’ service levels and pricing points.

This led to a decline in the average quality of services offered by the industry as a whole, as carriers slowly removed those service elements which customers were unwilling to pay for or whose value was not apparent to the customer.

Greater probability of Price wars

Since carriers were now competing on price and had deprioritised efforts to differentiate their service offerings, the inevitable result was price wars, as each carrier who wanted to gain market share or ensure maximum utilisation for their vessels had to undercut competition in the absence of other unique value propositions.

The downside was that such attempts by one carrier were immediately followed by corresponding rate cuts by other carriers, thus degenerating into all-out price wars. 

With the growing pace of commoditisation and equipped with burgeoning war chests accumulated during the pandemic-fuelled freight boom, the probability of the industry witnessing price wars of greater intensity will only increase in the forthcoming years, especially considering the massive influx of capacity that is expected to hit the waters over the next 3 years.

Customers deprived of choices in terms of product offerings and alternate routings

Customer requirements for container shipping services vary considerably, depending on factors such as the size of the customers operations, volumes transported, geographical dispersion, nature and value of commodity, special handling requirements, lead time requirements, the criticality of cargo for upstream and downstream operations, seasonality, etc. 

Therefore, customers often need services that are faster or more reliable or offer space guarantees to ensure that their supply chains and businesses operate smoothly. Depending on the situation, shippers often prefer premium services, where the potential incremental revenue will justify the premium freight rates charged. 

Customers thus have the option of choosing between average service levels, which are prevalent in the market, or a premium service, which lends their supply chains a certain competitive edge, and they generally strive to strike a balance between premium and standard services.

With commoditisation and the reduction in premium services however, customers are deprived of this choice and have to select from amongst services which are highly uniform.

This implies that even in cases where the customer is willing to pay a premium for services of superior quality, it is quite probable that they will not find suitable options in the market and, therefore, will be forced to rely on the standard services available, which in turn implies that they will have to re-plan their supply chains and inventory management policies.

This usually necessitates building in some slack in their supply chain (to account for slower services with lower schedule reliability), which involves additional costs, thus raising the TCO.

Lower focus on designing innovative transportation solutions

Since the sole focus in any commoditised market is competing on price and offering a highly standardised product, the carrier’s efforts are primarily aimed at designing a basic product with features and characteristics that match what the standard offering is in the market.

From the customers perspective, since the price is perceived as the primary criteria upon which to base the buying decision, and where there is a reluctance to pay higher than prevailing market rates even for products that are superior to existing ones, it does not make commercial sense to try and offer differentiated products. 

In this situation, carriers have little incentive to design and develop innovative or creative transport solutions that might optimise the customers supply chains and serve customer requirements more efficiently.

Carriers will, therefore, concentrate their efforts on delivering a basic functional product in the most elemental manner possible, and not expend resources and efforts towards analysing transport flows and supply chain processes, and thereafter design alternative and more efficient services. 

Focus on lowering per-unit slot costs in order to improve margins

In a highly commoditised market, characterised by intense competition and extremely slim margins, and with the scant scope of being able to increase prices, the only opportunity that Carriers have to improve their operating margins is to reduce costs. Accordingly, carriers have rigorously analysed their cost base with the intent of eliminating all avoidable expenses and minimising other outlays as much as possible, even at the cost of service quality. 

The objective is to reduce the slot cost per TEU, which reduces overall costs which then translates into higher margins even if revenues and freight rates were to remain stable. 

Carriers then have the option of either retaining the higher margins or using them as a cushion in case prices are undercut even further (so the cost savings are passed on to the customer in the form of lower rates, effectively leaving the carrier’s financial situation unchanged).

An example of this focus on costs is the slow steaming and super slow steaming strategies adopted by carriers since the early 2010s in a bid to reduce bunker consumption and save on fuel costs.

While carriers were successful in significantly reducing their bunker spends, the slower sailing speeds resulted in longer transit times, causing the customer to receive their cargo later than before, which in turn compelled customers to increase their average inventory levels (to take into account the additional time now required for cargo to be delivered). This example perfectly depicts the functioning of the commoditised container shipping market.

Companies unwilling to invest in technology, assets or initiatives to improve service quality

Given the low-profit margins and that the expectation is to provide only a basic level of service, Carriers generally are unwilling to invest extensively in assets and other aspects of the business, such as technology or process optimisation initiatives.

There is thus a consequent lack of focus on planning for future growth, and Carriers instead look mostly at short-term tactical considerations. Since the Carriers intent is to reduce capital expenditure and sweat assets as much as possible, they will prefer operating with existing assets instead of procuring new ones.

The outcome is that carriers are under-invested and cannot improve their service levels. Their fleet will not be equipped with the latest vessels built using modern technology (which is generally more fuel-efficient and eco-friendly). Likewise, their container pool will consist of equipment that is not in prime condition. 

Failure to leverage technology or streamline processes will result in the industry being hampered by dated practices, inefficient processes, and an over-reliance on manual workflows, necessitating extensive human effort – all of which will undermine operational efficiency and resilience. 

Deterioration in customer service levels

Since price is now the predominant factor in the customers list of criteria for evaluating carriers, and better service does not command a premium, carriers have responded by redirecting their efforts towards paring costs to the bone and rationalising their cost bases so as to provide a standardised level of service at the lowest price possible, thereby detracting from the focus on customer service. ‘

Having acknowledged the fact that customers are highly sensitive to changes in freight rates, with a corresponding decline in the weightage assigned to service-related parameters, carriers have accordingly rearranged their priorities towards cost minimisation, with relatively lower emphasis being accorded to customer service levels (or improvement thereof).

Since the intent is to provide an elementary level of service, initiatives aimed at improving customer service levels have been scaled back.

With all players adopting this mindset, there has been a gradual deterioration in average customer service levels in the industry.

Innovation focussed on cost-reduction initiatives

Generally, any service provider would expend resources in the pursuit of improving their services and increasing the utility and value thereof. In a commoditised market, however, there is little incentive for the service provider to focus on product enhancements. 

In the shipping industry, Carriers are focused on cost-reduction initiatives in a bid to curtail costs even further.

Carriers are therefore embarking upon initiatives related to process streamlining and standardisation, setting up centralised back offices in low-cost locations, outsourcing non-core activities (such as payroll), compelling customers to use impersonal channels of communication (such as web portals and call centres) rather than commercial value-add activities.

Over the years, this has manifested in the form of:

• The emergence of global back offices: where documentation and routine process-oriented tasks from offices across the world are being offshored. These back offices are located in low-cost locations to benefit from the availability of affordable and quality human resources, which results in internal efficiency and lower operational costs. Most global container carriers such as Maersk Line, CMA-CGM, Hapag-Lloyd and ONE have set up global shared service centres in locations as diverse as India (Mumbai, Pune, Chennai, Bengaluru), Philippines (Manila) and China (Chengdu).
• Outsourcing non-core / non-critical activities, such as payroll and administrative functions, or even the manning of vessels or handling of cargo at ports. On the land side, Carriers prefer to control only the ocean movement of cargo and engage third-party transport providers for trucking movements from the port to the final destination. Even in back offices, Carriers prefer not to have employees on their payroll (to avoid long-term contractual obligations) and instead prefer to use agencies who specialise in providing manpower (essentially contract staff).
• Rise in automated/ self-service channels: advancements in telephony and technology have enabled carriers to create new channels for servicing customers rather than allocating human resources to handle customers shipments. This takes the form of call centres for telesales customers and self-service portals on carriers websites for small or ad hoc customers. 
• The objective is to segment customers according to their size and geographical sphere of operations, volumes controlled, and complexity of business, whereafter customers whose volumes are low or ad hoc are segmented as telesales or self-service, and only customers with volumes above a certain threshold are allocated dedicated sales and customer service personnel. 

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• Causes and Consequences Of Vessel Delays in Container Shipping

Disclaimer: The authors’ views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used in the article, have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendations on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight.

Commoditisation of Container Shipping: Implications for Carriers and Cargo owners appeared first on Marine Insight - The Maritime Industry Guide

A seaway bill is a receipt of goods issued by the ocean carrier to the customer (also called the consignor or shipper).

It is a contract by which the ocean carrier undertakes to transport the customer’s cargo in its vessel or vessels, from one point to the other.

It is a non-negotiable contract between the ocean carrier and the customer to deliver the goods booked by the customer to a specific consignee.

It is this non-negotiable nature of the bill that sets it apart from the regular bill of lading.

The seaway bill is usually preferred by companies that deal directly with each other on a regular basis. There is no involvement of a third party in such dealings in which instruments such as bank letter of credit, etc. are not used.

A seaway bill will show a consignor and a single consignee who can receive the goods at the port of discharge.

Both the seaway bill and bill of lading are issued by the carrier to acknowledge receipt of cargo and undertake to transport it from one place to another as per terms and conditions mentioned in the bill.

However, the main difference between a seaway bill and a bill of lading is that while the former is non-negotiable, the latter is negotiable.

When a bill of lading is made to the ‘order of’ a certain party, it means that the ownership of the goods shipped under the document is transferable to a different party.

If the bill of lading is endorsed in the name of another party and the party is in possession of the original endorsed bill, then this party can claim receipt and ownership of the goods.

Negotiable V Non-Negotiable Documents

A negotiable document or instrument allows the holder to transfer the title of ownership of goods to a third party. Normally, there are two parties to such a transfer – the endorser and the endorsee.

The original bill of lading can change hands through endorsement whereby the endorser (the original owner of the cargo) transfers ownership of cargo to the endorsee (the new owner of the cargo as agreed between both the parties).

The cargo is shipped and delivered to the party who holds the original, endorsed bill of lading.

A non-negotiable instrument specifies a single party as the owner and this ownership cannot be endorsed to a third party. The cargo, in this case, is shipped to the originally specified party.

An endorsement to be valid must be signed by the endorser or holder either on the face of the bill or its back-side. The transaction is said to be complete when the instrument is delivered to the endorsee in whose name the ownership has been transferred.

Issuing the Seaway Bill

A seaway bill is usually issued in triplicate – the original and second copies are given to the shipper or consignor, and the third to the consignee. The consignor sends the original to the consignee for clearance and receipt of the cargo into his warehouse.

A seaway bill is a non-negotiable instrument that facilitates easy and fast clearance of goods through telex release or expresses release.

Telex Release

Sometimes the shipper and customer may agree to do away with the practice of exchanging the original bill to facilitate timely clearance and receipt.

Instead, the shipper will surrender the original bill to the ocean carrier or his appointed agent at origin. When it is surrendered, the carrier will send an electronic message confirming this to their office at the destination port.

Once the vessel reaches its destination port and the cargo that is mentioned in the bill is offloaded, the goods will be handed over to the consignee, after verification of the consignee’s identity, etc.

It is normal practice for the shipper to send the customer a confirmation message on the surrender of the original seaway bill. This method is called Telex Release.

An ocean carrier will need all the original copies of the seaway bill to be surrendered at their office. The clearing agent at the destination only has to contact the carrier’s office at the destination with the necessary credentials and documentation to get details of the cargo and its clearance.

An advantage of the telex release is that cargo will be released at the destination port without having to produce the original seaway bill as they are already surrendered at the port of origin.

It, therefore, avoids delays that can happen in the exchange of original documents and subsequent clearance of goods. All that the consignee has to do is to clear Customs, pay all dues to the concerned parties, and take charge of the consignment.

The term ‘telex release’ has stuck on to date even though the message to release cargo without the original bill is conveyed through email or by other electronic means. Earlier this message was conveyed by sending a telex message.

Express Release

In an Express Release, the carrier, after completion of the necessary paperwork and other formalities produces an electronic bill of lading called the Express Bill of Lading. An electronic copy is given to the shipper.

There is no other physical document in this kind of bill of lading and this is all that is required for the consignee to clear the goods once the carrier offloads cargo at his end.

The customer has to just establish his credentials at the carrier’s office. There is no OBL (original bill of lading) when it comes to an express release.

Telex and express release save time and money. An original bill of lading may be lost or delayed in transit. The vessel carrying the cargo might have already reached the discharge port by this time and if it is not cleared within the stipulated period it could lead to storage or demurrage charges – both from the port as well as the ocean carrier.

Telex and express release is mostly used with seaway bills. In other words, these two methods of releasing cargo to the consignee do not work with bills of ladings that are negotiable documents.

There may be exceptions to this whereby, when a telex or express release is requested of a bill of lading, it loses its ‘negotiable document’ status. In such cases, the consignment is delivered only to the consignee named in the bill of lading and cannot be endorsed to another party.

Contents of a Seaway Bill

What does the seaway bill show? The answer to this is simple; pretty much everything that is shown on a bill of lading.

However, a key difference between the two is that a seaway bill will always be titled ‘SEAWAY BILL NON-NEGOTIABLE’.

A seaway bill typically shows the following details, each in their separate fields:

Seaway Bill Number

This is a unique alphanumeric identification code issued by the ocean carrier for identification of the consignment and which is usually quoted on all correspondence related to the shipment.

Consignor

The consignor field shows the name and address of the party who ships the goods through the ocean carrier to his customer. The consignor is the shipper or exporter sending goods and as such, this field may also be labelled as ‘shipper’ or ‘exporter’.

Consignee

In a seaway bill, the consignee is the consignor’s customer. It is the party who receives goods at the port of destination, through his clearing agent, after payment of all customs duties and other dues. The consignor, having sold or transferred the goods to the consignee, cannot change hands further through endorsements or other means.

Notify Party

In a seaway bill, this field is usually left blank as the consignee is the party that is to be notified upon arrival of the vessel at the destination. Some shipping companies may enter the same address as shown under the ‘consignee’, in this field.

Vessel Name and Voyage Number

The name of the vessel on board which the consignment is loaded is shown here. If the vessel has a voyage number, that will be mentioned alongside the vessel name.

Place of receipt

The place of receipt is the location where the goods are handed over to the ocean carrier by the shipper (consignor), which is usually the port of loading. The goods may also have been handed over to the carrier or its agent from a different location, other than the load port.

Port of Loading

Port of loading is the port from where goods are loaded on board the ocean vessel.

Port of Discharge

The port of discharge is the destination port of the cargo where the goods are off-loaded from the vessel for delivery to or collection by the customer (consignee).

Place of Delivery

When the ocean carrier is contracted to deliver the consignment to the address of the customer or an alternative storage location, that is shown under ‘Place of Delivery’. In such cases, the carrier’s office will make arrangements to transport the cargo overland or by other means to the specified place of delivery. The consignee takes delivery of his goods from this location.

Booking ref./ Shipping ref.

The shipping company may have their booking reference or shipping reference numbers. If these are available, these numbers are shown under this field.

Cargo description /Dimensions /Container details

The details shown above is followed by a table that shows the unique container number (or numbers) and the seal numbers. The description of packages and the goods contained therein with the total number of packages are shown in this table. It also contains the gross cargo weight and measurements. These are normally shown in kilograms (KG) and cubic meters (CBM).

International Maritime Organization and Lloyds Register Numbers

Another important number shown on a seaway bill is the IMO (International Maritime Organization) or the Lloyds Register number.

The IMO number is a unique and permanent number that identifies the ship. A unique seven digits number is preceded by the letters IMO (example IMO1234567). This number does not change irrespective of changes to the ship’s owner, flag, or name.

A specialized wing of the United Nations, the IMO is responsible for regulating shipping activities worldwide that include their safety and security.

One of the main tasks of Lloyds Register is the classification of marine vessels. Based in London, it has other business interests that stretch into engineering and technical fields. The Lloyds online register includes information on marine vessels besides other assets that have been classed by the Lloyds Register.

Other Fields on the Seaway Bill

Carrier Endorsements

A seaway bill may include endorsements regarding the mode of freight payment, whether telex or express release, etc. This field will show the ocean carrier agent’s endorsements, both at the port of loading as well as discharge.

It is also common to find details of cargo insurance, inland routing instructions – if any, and such other details in the seaway bill.

Shipped on Board Date

As the heading specifies, this is the date when the goods are taken on board the carrier.

Declared Value of Goods

The declared value of goods is the value as shown on the invoice by the shipper. This value is used for computation of customs duty or any other taxes that may be applicable in the normal course. The ‘declared value’ may or may not be printed on the seaway bill.

Place and Date of Issue

The seaway bill is usually issued from the ocean carrier’s office. It is signed and issued to the shipper or his agent. The place from where it is issued will be shown on the seaway bill.

The date on which the seaway bill is prepared and released to the shipper or his agent is the ‘date of issue’.

Signature

The signature field is normally the last field on the seaway bill. This holds the signature of the ocean carrier’s authorized signatory. It formally binds him as the carrier of cargo as mentioned in the seaway bill. These days most bills do not carry signatures as they are generated digitally.

Disadvantages of a Seaway Bill

Upon issue of a seaway bill, the consignee shown on the bill cannot be changed and goods will only be delivered by the ocean carrier to the specified consignee. Therefore, the seaway bill cannot be used as a negotiable document.

Banks and financial institutions do not accept seaway bills from companies to issue financial guarantees as it does not give them control over the title of goods. On the other hand, bills of lading, because of their negotiable nature, are accepted by such organizations to issue letters of guarantee (letter of credit).

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Disclaimer: The authors’ views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight. 

What is Seaway Bill in Shipping? appeared first on Marine Insight - The Maritime Industry Guide

A common refrain about the container shipping industry is that it has become highly commoditised. Analysts describing the prospects and nature of the industry, while discussing the challenges faced by the container shipping industry and its customers and stakeholders, often decry the trend of commoditisation as being one of the factors responsible for the deteriorating schedule reliability and customer service levels.

Simply put, the concept of commoditisation of any product refers to a situation where all competitors in the market start offering a standardised product with similar characteristics and uses, leading to a situation where every competitor’s product is identical. 

This lack of differentiation leads to customers having no way or reason to select one manufacturer’s product over the others, making price the sole (or primary) parameter in the buying decision.

Under these circumstances, manufacturers will have to resort to lowering the prices of their products in order to entice customers to buy them. 

Once a particular manufacturer has reduced its price, other manufacturers will be compelled to follow suit, failing which they will lose market share. Their product sales will start falling rapidly (since customers get a similar product at a lower price, they have absolutely no incentive to buy competitors’ products and thus pay more for a similar alternative). 

In the case of services, however, given the inherent difference from tangible products, it is the process and mode of delivery of the service that will create the holistic customer experience and play an important role in the customers’ perception of the quality received in lieu of the price paid.

Given the intangible aspects and the element of subjectivity, it is relatively difficult for competitors to replicate a service that is available in the market, wherefore commoditisation of services is less common.

Commoditisation of the Container Shipping industry

Container shipping is unique in the sense that carriers essentially offer transportation services, execution of which is done by offering space on their vessels, as well as the use of their shipping containers (unless the cargo owner/ exporter has opted to use a shipper-owned container – which is not very common). Thus, what carriers offer their customer is a mix of intangible elements delivered by using physical assets. 

Over the past several years, in response to market conditions and the competitive environment, container shipping has gradually been commoditised. The trend has gathered momentum since the late 2000s, when the massive influx of incoming capacity, coupled with recessionary pressures, compelled carriers to embark upon price wars and undercut competitors in their bid to retain market share and ensure reasonable utilisation levels for the incremental capacity that had entered the market.

Over the years since then, as carriers continued their quest for capacity and economies of scale and maintained the vessel upsizing and newbuild ordering spree, supply has generally outstripped demand.

Besides, shippers have shown reluctance to pay a premium for superior quality and service, as a consequence whereof carriers have reconfigured their product portfolio to offer standardised services at prices which are on par with what competitors are offering and aligned with what customers value and are willing to pay for. 

Also, in response to wafer-thin margins, carriers started rigorously focussing on their cost base, with the objective of paring to the bone expenses that were not related to their core business or generated revenue. As a result, all the features and service elements which failed to materialise commensurate revenue were often discarded to provide a basic service which was sufficient to meet the customers’ primary requirements. 

Attempts were also made to standardise the process and minimise exceptions as much as possible so that it could be managed smoothly with minimal effort, and also reducing complexity, resources utilised, and effort expended. 

This industry-wide endeavour to rationalise costs, standardise the broad process, and increase efficiency led to all carriers offering similar products at comparable service levels – which further contributed to the spread of commoditisation.

Another interesting aspect is that certain trade lanes have been more susceptible to commoditisation than others. Trade lanes which have a profile matching the most common elements of the container industry are likely to be commoditised earlier and faster, i.e., where the assets and services needed to cater to the trade are typical ones, the probability and pace of commoditisation is far greater.

For example, dry containers are much more common than reefer containers (because the proportion of dry cargo is much higher, besides which they are cheaper to procure; hence, more container carriers can afford to invest in them rather than in the more expensive reefer containers). Therefore, on trades with a higher proportion of dry cargo, such as the Asia-Europe trade, more carriers will have more equipment, enabling them to mirror products offered by the competition, leading to the commoditisation of services. 

On the other hand, in trades involving South America, which exports large quantities of fruits and agricultural products, the proportion of reefer cargo is higher than in most other trades. Therefore, to serve this trade, Carriers will first need to invest in the more expensive reefer containers, which could act as a barrier to entry for competition and hence moderate the pace of commoditisation (it must be emphasised that this factor will only slow the pace of commoditisation, and not halt it completely, because an increasing number of carriers are now investing in reefer containers.

So, a decade or so back, shipping companies like Maersk had a much higher inventory of reefer containers vis-a-vis competitors, providing them with a distinct competitive edge on such trades; competitors have in the last few years also purchase reefer containers, thereby enabling them to serve this trade effectively. The increased competition and consequent provision of similar services will, therefore, slowly lead to the commoditisation of container services in these trades as well).

This logic also holds for special equipment, such as flat racks, open tops, and tank containers, which only the bigger carriers would hold in sufficient quantities in their equipment pools. Therefore, in verticals like project cargo, where such equipment is more likely to be utilised, the bigger carriers can offer services that are, to some extent, differentiated. 

A variant of this is geographically niche services, where companies look to start services connecting hitherto underserved regions. 

This would include developing countries with high growth rates and ample scope for industrialisation. Examples are countries in East and West Africa, where operational challenges have thus far deterred carriers from running services.

Companies like Maersk and MSC, with the scale and wherewithal to tackle the operational and ground-level challenges, were better placed to design products connecting these countries with the rest of the world, something their competitors could not readily replicate. 

This barrier to entry thus helped stem the tide of commoditisation initially. As in most other instances, though, the other bigger carriers (such as Hapag-Lloyd, CMA CGM, and COSCO), in their pursuit of new high-growth markets, have realised the potential of such niche trades and started offering services thereto, which once again inevitability led to commoditisation.

To summarise, the level of commoditisation depends on the commonality of the type of cargo to be transported and the equipment required, as well as the ease of serving the region/ country, the difficulties posed by which will delay the trend of containerisation until the competition is in a position to offer similar services. 

Reasons for commoditisation of container services

Having understood the concept, the background and the prevalence thereof, let us now delve into the reasons for the commoditisation of container services.

1. Upsizing of vessels and excess capacity creating a demand-supply imbalance

Perhaps the biggest reason for the commoditisation of container shipping was the influx of capacity due to the ambitious fleet augmentation and upgradation initiatives programmes undertaken by almost all Carriers, which steadily eroded the very idea of product differentiation. 

While Carriers until 2000s had their own strengths and niches that they operated in (such as Maersk and Evergreen being global carriers which offered multiple connections across all major trading routes or the likes of the now defunct Hanjin Shipping, which had a smaller fleet but controlled a lot of South Korean exports or regional carriers like RCL, whose focus of operations was a limited geographical area, often the intra-regional trades), the boom in global trade and the accompanying rapid growth of containerised transport meant that all Carriers started investing heavily in new tonnage to capture a larger share of the growing container transport segment. 

Consequently, the growth in supply started exceeding demand for shipping services, and the supply-demand imbalance widened further with the recession in 2008-09 and in the subdued economic environment thereafter.

Left saddled with behemoths and strained by the pressure of ensuring adequate cargo to maximise utilisation of their expanded fleets, Carriers were left with little option other than to cut prices in order to get more cargo.

Since most global carriers now had ample amount of capacity and equipment, their competitive position was strengthened, and they embarked upon debilitating price wars to capture market share.

The result was that carriers gave up all attempts at differentiation and started offering standardised services and competing on price, contributing greatly to the rapid commoditisation of the container shipping market.

2. Low barriers to entry

Attracted by the growth and potential of the container shipping segment and aided by the relatively easy availability of ship finance in the 2000s, competition in the industry intensified.

The barriers to entry were low since carriers could start their own container shipping business with relatively fewer investments (even though vessels are extremely high-value assets and building an appropriate pool of containers can be expensive, which, combined with establishment and manpower costs, would necessitate massive CAPEX, Carriers could reduce the upfront investment using strategies such as chartering vessels instead of owning them, sell and lease-back options for vessels, leasing containers, appointing agents at destination countries rather than setting up own offices, serving only limited geographies where they had inherent advantages etc.) wherefore more carriers could offer container shipping services, of a level and quality comparable to that of existing players. 

This created a situation where the number of product offerings increased, with a corresponding decrease in product variety/ diversity). Since carriers then had to compete on prices, container shipping was further commoditised.

3. Space-sharing agreements and Container alliances make differentiation difficult

Since the beginning of the 2000s, Carriers have been collaborating extensively through container alliances and slot-sharing agreements. This is done with the intent of offering wider geographical coverage than any single carrier could offer on its own, as well as increasing vessel utilisation levels, in a bid to optimise the asset turnover ratio and ROI of these expensive vessels. What this essentially entails is multiple carriers carrying their customers’ cargo on the same vessel. 

So, while each carrier will market their services separately and try to sell them to customers as a unique product, in reality, since all carriers use the same vessel, they are, in essence, offering the same product.

Thus, carrier cooperation agreements lead to commoditisation.

4. Focus on short-term returns and survival rather than long-term strategy

Given the cut-throat nature of competition in the container shipping industry, shipping carriers are not in a position to take the long-term view or make decisions that will lead to sustainable growth in the future.

The intense struggle to retain volumes and grow at the expense of competitors has led to carriers focusing on short-term survival tactics, where the intent is to stay afloat until the industry cycle reverses and the uptick pushes freight rates into profit-making territory again.

This mindset impedes attempts to design differentiated products and instead makes carriers take a myopic approach and offer customers only the most elemental of services.

5. The quest for efficiency led to standardisation and, thus, loss of differentiation

The international shipping process is beset with complexities, with a multitude of variations to the process depending on the jurisdictions and commodities involved. Carriers are now attempting to standardise the transport process by reducing the number of exceptions allowed and mandating that their customers follow the same broad process (of course, with reasonable allowances made for logical reasons). 

This standardisation has furthered the similarities in the services offered by various carriers, increasing the extent of commoditisation.

6. Flexibility: Carriers unwilling to be flexible regarding standard processes

In a bid to capture more business and differentiate themselves from the competition, Carriers would previously offer a certain degree of flexibility to customers in terms of late cut-offs, extended free time, dedicated customer service focal, etc.

Permitting this flexibility involved incurring additional expenses, which pushed the carriers’ cost base upwards and often could not be recovered from customers.

With the enhanced focus on rationalising costs, Carriers started adhering to their standard processes more stringently, thereby reducing the flexibility offered to individual customers. With processes becoming highly standardised across the industry, the level of commoditisation increased.

7. Lower slot costs enable carriers to compete on price

The rationale underlying the commissioning of bigger vessels was to reduce the slot costs per container, enabling the carrier to reduce operating costs and thus increase their operating margins or capture more business by passing on the savings to customers through lower rates.

This approach shifted the focus from service levels to freight rates, where carriers opted to leverage the reduced cost base to undercut competition, paving the way for commoditisation.

8. Slim margins and cost pressures

The pressure to compete on rates, in conjunction with the historically low margins, led carriers on a downward spiral, where wafer-thin margins were further depressed by price wars. 

In response, carriers started eliminating non-revenue generating activities (costs for which could not be recovered from customers). Instead, they focused on offering basic standardised services, which lacked any differentiating features whatsoever.

An example is how carriers have invested in well-designed websites and apps and are slowly guiding smaller shippers and cargo owners towards using self-service or telesales channels instead of allocating a full-time sales or customer service representative.

The idea is to reduce manpower and instead create digital platforms which empower the customer to manage and track the booking himself. 

9. Cargo owners (BCOs) are reluctant to pay premiums for superior quality of service or faster transit times

With the globalisation of manufacturing activity and dispersed supply chains becoming the norm, manufacturers and cargo owners are exporting and importing far more volumes than before. This translates into a massive surge in transport and procurement expenses, representing a significant cost element.

Due to subdued macroeconomic fundamentals, even manufacturers across industries are pressured to reduce costs. With shipping procurement spending representing a big proportion of their transport costs, BCOs give greater weightage to price while evaluating transport vendors. They are, therefore, open to contracting basic-level services at low rates.

This reluctance to pay a premium for a superior quality of service has lessened the imperative for carriers to offer differentiated services at higher prices, which in turn adds to the degree of commoditization.

10. Bigger vessels reduce the number of ports that they can call at, limiting options and, thus, differentiation

Apart from the surplus capacity and the pressure on freight rates that bigger vessels exert, there is another operational aspect of mega vessels that hinders product differentiation. By virtue of their bigger size and heavier weight, ULCCs require deeper draught to be able to call at a port.

 Because draught is essentially a natural characteristic and dredging is effective only to a certain extent, there are a limited number of ports in each region which possess the draught necessary to accommodate mega vessels, which constricts the number of ports that a mega vessel can call, and in turn curtailing the number of direct port calls, effectively reducing the port-pair combinations / direct routing options that the carrier can offer to customers, thus leading to a commoditised service (where all carriers serve the same mega ports).

11. The “Hub and Spoke” model decreases the number of port-pair combinations/ direct services offered, lessening the differentiation between competing services

The limitations imposed by deep draught requirements that curtail the number of ports which mega vessels can serve have also led to the prevalence of the: hub and spoke” model, involving transhipment at mother ports, whereunder carriers deploy mega vessels to serve major ports in all regions and reduce the number of services to/from smaller ports (effectively consolidating in fewer big vessels the volumes that were hitherto carried by a greater number of smaller vessels). 

Containers destined for smaller ports in the vicinity are then discharged at the transhipment port and then loaded onto feeder vessels, which can call the feeder ports in the vicinity. 

Given that there is only a limited number of ports/terminals that can handle mega vessels, all carriers must, of necessity, confine their basic services (connecting the mother ports in the origin and destination regions) to the same ports, resulting in commoditisation.

12. Growing consolidation in the container shipping industry

The container shipping industry has witnessed numerous mergers and acquisitions over the past two decades, leaving the industry more consolidated than it was at the beginning of the century.

Bigger carriers have tried to build operational scale and geographical presence by growing both organically and inorganically, with smaller carriers who were unable to withstand competition being acquired by bigger carriers. 

Post the rounds of consolidation and exits witnessed since 2000, there now exists a smaller number of bigger players (as opposed to a handful of bigger players, a few medium-sized players and a number of smaller players), each with the financial resources (especially in the post-covid environment) to operate at the global level even in an unprofitable environment.

With similar objectives and enough resources available to achieve those objectives, these dominant carriers offer a uniform level of services across most trades.

13. Products can be easily replicated by competitors, thereby eliminating the element of novelty and product differentiation

With little to prevent competitors from replicating any new service designed or innovation introduced by a particular carrier, the advantages of differentiation are short-lived.

Any innovation will instantly be mirrored by other industry players, thus negating the differentiating factor and commoditising the service. 

14. Carriers have been focussing on basic ocean shipping services and moving away from landside/ other value-added services

While most Carriers have traditionally also had a freight forwarding or logistics arm, as well as investments in port assets (with some Carriers even investing in oil, airlines, supermarkets and rail companies), as the shipping markets receded from their highs in 2008, Carriers increasingly started focussing on their core container shipping business and divested non-core activities, including logistics and port assets. 

Since product differentiation was primarily based on land-side activities, and Carriers were now confined to only offering basic shipping transport, they had little scope to offer services that were distinct from those offered by other market players, leading to the commoditisation of their primary business activity. 

15.  The democratisation of information and proliferation of digital forwarders and freight management platforms 

Carriers have traditionally relied on manual rate sheets and emails to quote rates and share other pertinent information regarding sailing frequency and transit times. Cargo owners and freight forwarders, therefore, had to approach numerous Carriers to obtain quotes, which often took a few days, and could compare information only for carriers who reverted on time. Therefore, exporters often did not have complete visibility of the prevailing market rates, and decisions were generally made basis incomplete information.

Nowadays, with the extensive use of digital freight management tools and logistics technology, customers can retrieve in a few minutes rates offered by all carriers for any port pair combination and, therefore, immediately compare rates and service levels and make an informed decision. 

This democratisation of information has meant that exporters have access to all the data required to objectively evaluate alternatives and select the one that best meets their requirements and at the optimal price.

Due to this, Carriers are forced to offer sharp rates in line with what is offered in the market to avoid losing the customer. Ultimately, this does degenerate into competing on prices, with other carrier/ service evaluation criteria being rendered secondary. 

Future trends

While the container industry has become highly commoditised, the windfall profits earned in the post-COVID years have afforded Carriers a substantial financial cushion to create new sources of corporate and product differentiation. With the healthy cash flows, Carriers have deleveraged and strengthened their balance sheets and thereafter utilised the surplus funds to carve a niche for themselves, in line with their long-term strategic vision.

These attempts at rebranding themselves and building a new business model include:

Maersk’s strategy to position itself as an integrated logistics service provider by investing heavily to scale up its logistics capabilities across the globe and in different verticals, by acquiring strong regional players and also investing in assets, with the intent of becoming an end-to-end logistics services provider, rather primarily focussing on its traditional container shipping business.

Maersk has prioritised its growth in the logistics segment at the expense of its container shipping business, resulting in it losing its long-held position as the world’s largest container carrier to MSC (and an analysis of current order book suggesting that even CMA-CGM could overtake when their newbuilds are delivered).

MSC has taken the diametrically opposite approach, focussing extensively on building its fleet through acquiring vessels and also placing orders for new tonnage. MSC aggressively acquired tonnage during the peak of the supply chain disruptions in 2020 and has shown little signs that its appetite has whetted since then.

The magnitude of its fleet expansion has been such that it has left Maersk far behind in terms of operated capacity. MSC has also invested in logistics assets and acquisitions but on a smaller scale than Maersk. Looking at its strategy and the size of its fleet, it is quite conceivable that MSC will have to undercut prices to fill its vessels and offer an extensive network of services with similar service quality.

CMA CGM has taken the middle path and tried to strike a balance between the two contrasting approaches adopted by Maersk and MSC by investing in vessels and logistics capabilities alike. CMA CGM has both purchased and chartered vessels in recent years, as well as placed orders for new vessels. Its order book is of a scale that enables it to surpass Maersk and take the number 2 spot amongst container carriers. 

In terms of logistics assets, it has targeted inorganic growth through the acquisition of global freight forwarders and local players as well. At the global level, it has acquired prominent freight forwarding companies like Ceva Logistics and Bollore. In contrast, on the local level or in niche segments, it has invested in companies such as Gefco, Ingram Micro, and Stellar Value Chain Solutions. Looking at its pattern of acquisitions, it is likely that the company will try to differentiate its services by offering end-to-end transport solutions.

Hapag Lloyd was one of the most highly leveraged companies prior to COVID-19. After the exceptional bull run in the post-COVID market, the company used its profits to retire existing debt, as well as invest in new tonnage, besides some investments in logistics and port assets. Hapag Lloyd has seen a turnaround of sorts, with the largely successful implementation of its multi-year global strategy. 

The company’s stated approach to differentiate its products is to identify unmet customer needs (through customer surveys and face-to-face interviews) and then design premium solutions around those needs. Hapag Lloyd is focussing on high-value cargo (reefer commodities and special equipment such as flat racks and open-top containers) in its attempt to counter market commoditisation.

Overall, carriers are cognisant that the market has devolved into a highly commoditised one and are aware of the long-term consequences of this trend. They are, therefore, trying to counter this by devising appropriate corporate strategies and altering their business models to meet changed ground realities.

While the attempts at offering differentiated services and trying to position themselves apart from competition may or may not be successful, it is nonetheless evident that carriers are making concerted attempts to counter the trend of commoditisation. 

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Disclaimer: The authors’ views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used in the article, have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendations on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight.

15 Reasons For Commoditisation Of The Container Shipping Industry appeared first on Marine Insight - The Maritime Industry Guide