Part B Text Study

Liner Shipping

Overview of liner shipping

Liner shipping is the service of transporting goods around the world at low cost, with greater energy efficiency than any other form of international transport and by means of high-capacity ocean-going ships that transit regular routes on fixed schedules. Thus it is a sophisticated network of regularly scheduled services. Liner shipping is growing at a high pace with the increasing global container traffic.1Liner shipping mainly involves carrying containerized cargoes, and liner vessels, primarily in the form of container ships and Ro/Ro ships, carry about 60 percent of the goods by value moved internationally by sea each year. Liner services involve higher fixed costs and administrative overhead than tramp services because tramps usually wait until they are full before departing from a port whereas liner services promise to depart on predetermined schedules regardless of whether the ship is full. The number of ships required for a given liner service route is determined principally by the frequency required on the service route, the distance traveled by a ship on the route and the speed of the ship. For example, a weekly liner service between Port A and Port B may require four ships to maintain the necessary frequency. Collaboration among liner shipping carriers is very common. Today smaller alliances are collaborating to form even bigger alliances. The trend of consolidating fleets and service routes demands better decision support systems to control a large fleet of ships and to solve large-scale scheduling and optimization problems. Mega-alliances and continued consolidation trends in liner shipping might lead to concentration of market power in the hands of a few major players. Alliances will focus on faster transit times and reliability by raising network efficiency and reducing port calls.

Features of liner shipping

Firstly, sailings are regular and repeated from and to designated ports on a trade route, at intervals established in response to the quantity of cargo generated along that route. True liner service is distinguished by the repetition of voyages and the consistent advertising of such voyages. Once the service is established, the operator must conform, within narrow time limits, to the published schedule. Although the frequency of sailings is related directly to the amount of business available, it is general practice to dispatch at least one ship each month. Vessels engaged in liner service may be owned or chartered; it is the regularity and repetitious nature of the operation, rather than the proprietorship, which is crucial.

Secondly, liners are common (public) carriers, required by law to accept without discrimination between offerers any legal cargo which the ship is able to transport. Some liner operators stipulate the minimum quantity of cargo which must be presented by a single shipper; so long as the limitation is reasonable, this is permissible. Cargo usually is varied, and is called either general or package. In container transport, everything is packed into large boxes before they are placed aboard ship. Operators accept small shipments for consolidation, i.e. packing into containers with other small lots until the boxes are filled.

Thirdly, goods carried in liner service ships are usually of higher value than the cargo hauled in tramps, and are charged higher freight rates. The fact that common carriers accept less than shipload lots, nearly always in packages (including containers) requiring special care in stowage, also influences the establishment of liner rates. Handling (stevedoring) charges always are included in the freight rate. Because of the variety of commodities loaded in every port of call, great care must be exercised by ship operators to ensure delivery in good condition. Freight rates are identical for all shippers of a given item transported in the same ship.

Fourthly, a liner service company issues a standard (or uniform) contract of carriage or B/L. Regardless of the size of the shipment, or the number of different commodities or items comprising a given lot of cargo, the provisions of the contract apply equally to all shippers who use any one vessel. These provisions are not subject to negotiation, but are unilaterally imposed by the carrier. Only in very exceptional cases will a senior executive of the common carrier alter the terms of the B/L to accommodate an individual shipper.

Fifthly, freight rates in liner services are stabilized by setting identical charges for all shippers of the same item aboard a certain ship. Rates may vary, however, from one sailing to another, but increases are announced in advance. Rates are compiled into detailed listings (freight tariffs) which are made available to shippers on demand. Frequently, two or more carriers serving a particular trade route form an association intended to stabilize rates and regulate competition. The necessity to conform to government regulations imposed upon common carriers tends to prevent the freight rates charged by liner service operators from making sudden sharp changes.

Sixthly, services—frequency of sailings and ports of call, as well as the capabilities of the ships themselves—are adjusted to meet the demands of shippers. Many liner operators arrange their schedules to meet minimum needs during the year, and then augment sailings when seasonal increases are experienced. Changes in liner service often are influenced as much by political and technological considerations as they are by economic factor. Drastic changes in established liner operations are infrequent; carriers' intentions, especially relating to withdrawals from the route, usually are well publicized in advance. This is essential to the dependability of the liner trade.

Seventhly, liner service vessels often reflect in their design the special requirements encountered in their employment. Refrigerated fruit and meat carriers, heavy-lift ships, Ro/Ro vessels, container ships, and break bulk ships may be found on many routes, depending upon the demand for these specialized capabilities. Because more or less identical cargoes move in all the dry cargo liners on a given trade route, many of the ships employed on that route, regardless of owner, are similar in capability. Container ships vary in their cruising speed and the number of containers they carry, but otherwise are very similar; wherever they are used. Since 1945, liner ships of all types have been growing in size and increasing in speed;inevitably the cost of their acquisition and operation has risen steeply.

Eighthly, liner service companies have a large and somewhat complex organization in the shore establishment, especially in the home office. Normally there are several divisions (i.e. traffic, operations, financial, and managerial) with an appropriate staff. Outport offices may duplicate this organization on a smaller scale. Liner service operations entail contact with shippers, maintenance of an active cargo handling terminal, and processing of a great amount of detail work inherent in general cargo service on a repetitious schedule.

Ninthly, procurement of cargo is the responsibility of the traffic department, which includes salesmen to call on regular as well as prospective shippers. Advertising is extensive and continuous, and major efforts are made to disseminate information concerning the capabilities of the line. Arrival and departure times of ships are widely publicized. Shippers are assisted in the development of markets for their goods as a means of increasing cargo offerings.

Finally, passengers sometimes are carried in cargo liners, but by international agreement the number is limited to twelve.

Some advantages of liner shipping

1. Efficiency of liner shipping. Liner shipping is the most efficient mode of transport of goods. In one year, a single large container ship could carry over 200,000 container loads of cargo. While individual ships vary in size and carrying capacity, some container ships can transport over 20,000 containers of finished goods and products on a single voyage. Similarly, on a single voyage, some car carrier ships can handle 7,600 cars. It would require hundreds of freight aircraft, many miles of rail cars, and fleets of trucks to carry the goods that can fit on one large liner ship. Container ships have the capacity to carry several large warehouses worth of goods on a single journey; a large container ship engine weighs up to 2,300 tons and has about 1,000 times more power than a family car; large container ships can be operated by teams of just thirteen people utilizing sophisticated computer systems; the ships' computer systems are highly advanced, enabling the precise routing, transport, loading, and unloading of thousands of containers for every voyage; if all the containers from an 11,000 TEUs ship were loaded onto a train, it would need to be 44 miles or 77 kilometers long; in an average year, a large container ship travels three-quarters of the distance to the moon which means in its lifetime it travels to the moon and back nearly ten times.

2. Global economic engine. Liner shipping connects countries, markets, businesses, and people, allowing them to buy and sell goods on a scale not previously possible. Additionally, as a major global enterprise in its own right, the international shipping industry is responsible for millions of existing jobs and plays a crucial role in stimulating new jobs. It contributes hundreds of billions of dollars to the global economy annually thereby increasing GDP in countries throughout the world. Moreover, as the lifeblood of global economic vitality, ocean shipping contributes significantly to international stability and security. The significant amount the industry contributes directly to the global economy and the role of the industry as a facilitator of economic growth for other industries have made liner shipping a global economic engine.2

Freights of liner shipping

The freights of liners comprise basic charges and additional charges. The basic charges can be calculated by such ways as weight ton, measurement ton, total FOB price of the cargoes. Additional charges take many forms.

1. Basic charges. The basic charges can be calculated by the following ways. First is by weight ton (W/T): A weight ton can be a metric ton or a long ton or a short ton, as is decided by the liner companies. Cargoes that are charged by W/T are marked “W” in the liner freight tariff. Second is by measurement ton (M/T): A measurement ton is either one cubic meter or 40 cubic feet. Cargoes that are charged by M/T are marked “M” in the liner freight tariff. W/T and M/T are together called freight ton. Generally speaking, the former is applied to cargoes with more gravity while the latter with less gravity. Third is by total FOB price of the cargoes: Cargoes that are charged in this way are marked “A.V.” or “ad val” in the liner freight tariff. Fourth is by either W/T or M/T, whichever the highest: Cargoes that are charged in this way are marked “W/M” in the liner freight tariff. Some cargoes are marked “W/M or A.V.” in the liner freight tariff. This means the cargoes will be charged by either the measurement ton or the weight ton or the total FOB price, whichever the highest. While the freight of a kind of cargoes is to be charged by “W/M plus A.V.”, then the freight will be charged by either the measurement ton or the weight ton, whichever the highest, plus a certain percentage by A.V. Fifth is by the number of the cargoes: Cargoes like trucks and cattle are charged in this way. Sixth is as arranged by the shipper and the carrier: Freight is usually discussed by the shipper and the carrier for the goods like grain, mineral ore, coal, etc.

2. Additional charges. Freight of liners has in it the loading and the unloading charges. Great attention should be paid to the additional charges which take many forms. Additional charges should not be overlooked in the quotation of the cargoes. The following are some examples of the additional charges: bunker adjustment factor (BAF), or bunker surcharge(BS); currency adjustment factor (CAF); transshipment additional/surcharge; port additional/surcharge; port congestion surcharge; optional surcharge; heavy lift additional/surcharge;long length additional/surcharge; direct additional/surcharge; alteration of discharge port additional/surcharge; deviation additional/ surcharge.3

Liner alliances in liner shipping

1. Formation of liner alliances. Once liner companies used conferences as a means for curbing competition and controlling tariff rates in the market as early as 1875. Regularity and frequency of service, the two imperatives of liner shipping, combined with deploying very large container ships, can easily lead to low capacity utilization for independent liner shipping operators. Under the commercial pressure to achieve greater economies of scale through bigger ships and at the same time provide more frequent global services, in the mid-1990s the medium-sized container companies started to form alliances. From then on, liner companies has been forming liner alliances that allow them to realize economies of scale, extend scope and network, extend their customer base, and increase asset utilization while providing customers with more frequent sailings and faster transit times, thus for more than 20 years, collaboration and alliance formation has been a common phenomenon among liner shipping operators. Accounting for more than two thirds of the liner services on major global routes, alliances are most common on deep sea routes such as the Asia-North America route that require a bigger commitment in terms of assets (ships) from carriers. In addition to mergers and acquisitions (M&A), shipping lines have undergone a transformation by reshuffling existing alliances and creating new ones. As of 2017, the top 10 carriers joined forces in three global alliances (Table 4.1). The three alliances, which include the top 10 container shipping lines plus K-Line—the 14th largest container shipping line in the world—collectively control 77 percent of global container ship capacity, leaving a 23 percent market share for the world's other container shipping lines. The three alliances also control as much as 93 percent of all East-West trade. Such alliances have become increasingly important in the global shipping industry, as carriers are seeking to improve utilization of capacity associated with larger vessels and to reduce operational costs by sharing vessels and capacity, for example. Increasing consolidation among carriers may bring some order in a market that would benefit from a better management of supply and improved efficiency and synergies among carriers. This in turn would improve industry growth through the pooling of cargo, improved economies of scale, reduced operating costs, and larger margins. However, regulators need to keep a close watch on anticompetitive behavior in the liner markets, as growing concentration may lead to market abuse, supply constraints, and higher prices.

2. Motives of liner alliances. The main motives of liner alliances may be extending service coverage, providing more frequent sailing services, fastening entry to new trade routes, sharing the risks of providing new liner services, maximizing operational synergy, increasing capital utilization of ships, container equipment and terminal facility, reducing financial burden on equipment investment, providing faster transit service, stabilizing freight rate, conforming to shipping policy of foreign government, gaining skill or know-how in liner shipping industry, limiting external competition, and conforming to shipping policy of national government. Aimed at rationalizing operations, rather than involving in price-setting strategies, alliances are coalitions of liner shipping operators and integrate the operational aspects of each participant's services, whilst leaving the commercial activities in the hands of the individual companies. That is to say, although there is often complete operational integration, each member retains its corporate identity and executive management, including sales and marketing, pricing, bills of lading, and vessel ownership and maintenance, hence contrary to the route-based character and price-setting objectives of conferences. Typically members of an alliance pool their ships on a particular trading route, allocate part of each ship's capacity to the alliance members, cover operating joint services on the major liner routes, chartering in vessels, slot sharing, shared terminals, pooled containers, coordinated feeder and inland services where permitted, and information sharing. As a result of these alliances and agreements, shipments arranged through one liner company may actually be moved by a ship operated by another and alliance members can offer higher sailing frequencies than would be possible using only their own ships and achieve cost efficiencies, especially in terminal operations.

3. Types and areas of liner alliances. Liner alliances of liner companies are developing at least two different types: core alliances with a set of global partners, and multi-consortia networks of slot exchanges covering individual traders. This allows the members to use their combined size to improve the efficiency of global operations. And the alliance agreements generally cover three main areas. First is service schedules including the type and size of vessel to be employed on each route; itineraries and sailing schedules; and ports and port rotations. Second is various support services including chartering of ships; use of joint terminals; the management of containers; feeder services and the coordination of inland services. Third is restrictions on the activities of members such as the use of third-party carriers on specific routes subject to the consent of members and measures for capacity to deal with shortages and surpluses.

4. Features of liner alliances. As mentioned above, liner alliances of liner companies integrate individual service networks, vessel sharing (i.e. joint fleet), slot-chartering, joint ownership and/or utilization of equipment and terminals, and similar endeavors on better harmonization of operations. In particular, the scopes of cooperation in liner alliances can be stated as follows: joint terminals or terminal contracts; joint mainline services; joint feeder services; joint purchase or ownership of ships; joint purchase and usage of containers;joint intermodal, rail, or trucking operations; joint container depots; jointly-managed pools of containers and equipment; joint bunker purchase; joint EDI systems; and interchange of empty containers. Hence, though features of liner alliances are manifold, and the most important of them can be summed up in the following. First is wider geographical scope. Liner alliances enable lines to broaden the range of routes, setting up a world-wide network of services and offering their customers one-stop shopping4. Second is possibility to perform vessel planning and co-ordination on a global scale whereas separate tie-ups on individual routes can lead to unproductive conflicts of interest and sub-optimal fleet deployment. Third is risk and investment sharing. As the capital investment requirements can be met by the joint financial resources of a wide group of companies. Fourth is achievement of economies of scale or cost savings. Larger alliances can help to justify investments in the new generation of larger ships and to reach satisfactory utilization rates. The main cost savings come from economies of scale benefits as well as opportunities for smarter operations with increased volumes—e.g. improved network utilization and lower container and imbalance costs. Fifth is easy entry in new markets. Multi-trade alliances allow a line to enter a trade even without the deployment of additional tonnage, simply by using slots on its partners' existing services5. That is to say, liner alliances yield greater benefit if the geographical footprint of the member companies is complementary, rather than resulting in additional volumes in the same trades. Sixth is increase in frequency of services. As global partnerships offer great potential for enhancing overall frequency and allow multiple fixed-day-of-the-week sailings. Seventh is combination of purchasing power. By combining purchasing power and volumes, liner alliances can drive down the cost per unit of container handling, intermodal, and feeder services.

5. Key reasons for successful liner alliances. Through this kind of global alliance arrangement, a lot of scale benefits can be achieved: more frequent service, shorter transit times, wider port coverage, lower slot costs, and a stronger bargaining position in negotiating with terminal operators, container depots, and inland/feeder transportation carriers. However, there are still some possible disadvantages of liner alliances, such as market competition between cooperating members, infeasibility to cooperate due to members' compatibility, inherent instability between cooperating members, inefficient decision-making procedure within cooperation members, market reputation possibly affected negatively due to cooperative with poor-reputed member, and worrying to be merged or acquired by cooperation members. Thus some key reasons for successful alliances should be considered, such as mutual trust between all members, the number and size of members, partner compatibility (in particular of companies' culture), a reasonable and practicable cooperating rule for following up, continuous mutual commitment of facilities (ships, equipment, etc.), mutual agreement on cooperation objectives, good understanding by all members of competition and marketplace, compatible decision-making processes, good interpersonal relations between members, open communication between the parties, continuous CEO (chief executive officer) direction and involvement, sharing of integrated computer systems/EDI, and continuous mutual commitment of finance.

6. Factors affecting task complexity of liner alliances. The following are three factors that appear to significantly affect the complexity of the tasks that a liner alliance sets out to accomplish: First is scope of alliance activities. The tasks undertaken by today's liner alliances are far more complex than those faced by the old-fashioned consortia. As far as alliance scope is concerned, it should be noted that traditional consortia were very narrow in scope, being limited to the deep-sea leg of a single trade lane. In sharp contrast, today's liner alliances are far more complex, as they are multi-trade agreements extended to a wide number of routes and activities, covering feeder services, terminal operations, inland transport, equipment sharing, and joint purchasing. They do not only focus on cost reduction, but also point to extend each partner's geographical coverage, allow entry in new markets, and increase service and frequency level. Needless to say, such enlargement in the scope of liner companies' cooperative ventures demands a substantial increase in the complexity of the task that they are set out to face. Second is environmental uncertainty surrounding these activities. The current competitive environment is more complex and changes at a faster pace than before, due to rapidly changing customer requirements, increasing competition pressures, protracted over-tonnaging, and declining rates. Competitive environment-related issues can therefore be considered as a cause of growing task complexity as critical as the widened alliance scope. Third is adequacy of skills and competencies within the alliance. Resources, core competencies, and familiarity of the partners with the tasks at hand must be considered. The greater the competencies and resources of the partners in relevant areas, the less complex will be the task that they are undertaking. However, as liner alliances in liner shipping essentially relate to the joint production of existing and well-known services, the availability of competencies and resources on the part of every partner does not seem to constitute a main cause of concern for the success of the alliance.

Notes

1. Liner shipping is the service of transporting goods around the world at low cost, with greater energy efficiency than any other form of international transport and by means of high-capacity ocean-going ships that transit regular routes on fixed schedules. Thus it is a sophisticated network of regularly scheduled services. Liner shipping is growing at a high pace with the increasing global container traffic.

班轮运输是一种低成本、比其他国际运输方式更高效、使用大运力的远洋船按固定航线和固定船期在全球范围内运输货物的服务，它是一个错综复杂的定期服务网络。班轮运输正随着全球集装箱运输量的增加而快速发展。

2. Moreover, as the lifeblood of global economic vitality, ocean shipping contributes significantly to international stability and security. The significant amount the industry contributes directly to the global economy and the role of the industry as a facilitator of economic growth for other industries have made liner shipping a global economic engine.

此外，作为全球经济发展活力的生命线，班轮运输对世界的稳定和安全发挥了重要作用。班轮业对全球经济的重大直接贡献以及班轮业作为其他行业经济增长推进器的角色使得班轮运输成为全球经济发展的引擎。

3. The following are some examples of the additional charges: bunker adjustment factor (BAF), or bunker surcharge (BS); currency adjustment factor (CAF); transshipment additional/surcharge; port additional/surcharge; port congestion surcharge; optional surcharge; heavy lift additional/surcharge; long length additional/surcharge; direct additional/surcharge; alteration of discharge port additional/surcharge; deviation additional/surcharge.

附加费举例如下：燃油附加费、货币贬值附加费、转运（船）附加费、港口附加费、港口拥挤附加费、选港附加费、重件货附加费（或超重附加费）、长件货附加费（或超长附加费）、直航附加费、改变目的港附加费以及绕航附加费。

4. Liner alliances enable lines to broaden the range of routes, setting up a worldwide network of services and offering their customers one-stop shopping.

战略联盟有利于成员班轮公司扩大航线覆盖面，建立全球服务网络，为客户提供一站式服务。

5. Multi-trade alliances allow a line to enter a trade even without the deployment of additional tonnage, simply by using slots on its partners' existing services.

多条航线班轮公司组成的战略联盟有利于成员班轮公司在不追加投入运力的情况下，仅使用联盟伙伴现有的舱位或箱位，就可进入新的航线和市场。

Comprehension Enhancement

Decide whether the following statements are true or false and try to correct the false ones.

( ) 1. Liner shipping involves lower fixed costs and administrative overhead than charter shipping.

( ) 2. Liner operators accept small shipments for groupage and they are common carriers.

( ) 3. Liner rates are much more instable than charter hire, and they are mainly subject to basic freight and surcharges.

( ) 4. The freight rate of liner companies is determined by the law of demand and supply.

( ) 5. Liner shipping provides millions of jobs and contributes significantly to world economic development, stability, and security.

( ) 6. W/M plus A.V. in the liner freight tariff means the cargoes will be charged by either the measurement ton or the weight ton or the total FOB price.

( ) 7. Liner freight rates have no relation with the costs of operation, and they remain relatively steady over a period of time.

( ) 8. Regularity and frequency of service are two imperatives of liner shipping.

( ) 9. Joint terminals or terminal contracts, joint mainline services, joint feeder services, and joint purchase or ownership of ships are some of the scopes of cooperation in liner alliances.

( ) 10. Traditional consortia is a multi-trade agreement extended to a number of routes and activities, covering feeder services, terminal operations, inland transport, equipment sharing, and joint purchasing.