Textbook of Maritime Medicine

Merchant ships carry 90 percent of the volume of world trade.  Shipping is essential to the functioning of the global economy and its dependence upon moving goods from production to consumption sites.  Raw materials and finished goods have been the main cargoes in international trade.  In later decades, trade in intermediate goods for further processing has grown steeply and in parallel with the so-called fragmentation of production processes.  Fragmentation implies that the production process is split on several geographically different locations so that each component is produced where the production costs are most favourable.  Trade in these components constitutes an important share of seaborne trade.

World seaborne trade rises with economic growth.  The development of world gross domestic product and the seaborne cargo flows show this. Fragmentation and specialisation further increase the volume traded relative to the production volume.  Figure 2.1. Illustrates growth in seaborne trade, world GDP and OECD industrial production.

Figure 3.1 World economic growth and seaborne trade, Index 1994=100

Source Unctad (2008) http://www.unctad.org/Templates/Page.asp?intItemID=2618

Whereas shipping dominates world international cargo transport, passenger transport has met strong competition from air transport.  Consequently, intercontinental passenger lines ceased operating.  The remaining passenger shipping segments are regional and coastal ferries, high-speed crafts in regular traffic and cruise vessels for tourists.  The traditional intercontinental passenger liners have disappeared from the scene.

Ferries markets show big variations.  Ferries range from small passenger ferries crossing rivers and fiords such as ferries on Hudson River in New York, in Hong Kong harbour and in Norwegian fiords, to big Ro-Ro (Roll-on Roll-off) ferries with a capacity to carry 3000 passengers and 650 cars as those operating across the English Channel. North Sea ferries and Hurtigruten resemble cruise vessels carrying fewer cars/lorries but with capacities up to 1-2000 passengers. Color Line a major operator in the North Sea, in later years has invested in vessels with capacity for passengers and cars similar to the channel ferries.  Ferry operations involve many passengers and crews.  A local example, Color Line in 2008 carried a total of 4,1 million passengers, more than 890,000 private cars and approximately 170,000 heavy goods vehicles. (Color Group, 2009) http://www.colorline.no/pages/infoCenter/infoCenter.faces?contentId=1.338 

The American market is the largest cruise market. The Mediterranean and Asian markets are developing fast, however.  A special segment is the exploration markets in Arctic and Antarctic waters.  Cruise Market Watch (2009) http://www.cruisemarketwatch.com/blog1/ states that “Total worldwide cruise capacity at the end of 2009 will be 383,093 passengers (a 6% increase over 2008) and 245 ships.  Annualized total passengers carried worldwide are estimated at 16 million for 2009, a 2.6% increase over 2008.  Of these approximately 60 per cent are US citizens and 25 per cent are Europeans”.  The larger cruise vessels carry several thousand passengers and crews of several hundred persons.  As an illustration of the number of passengers that can be carried in one trip; the second biggest cruise line RCL has ordered a vessel with a capacity of 5400 passengers to be delivered by in the fall of 2009.

The major commodities in seaborne trade are crude oil, oil products, gas, chemicals, coal, iron ore, grain, phosphate, alumna, and intermediary and finished goods. The latter two are mainly carried in containers, whereas the first nine are moved in bulk. In addition, special shipping segments such as transportation of cars and of heavy cargoes plus offshore vessels supporting offshore oil production have emerged and grown into important segments in international shipping.

Figure 3.2a International seaborne trade, mill tons loaded

Source: UNCTAD (2008, 22) http://www.unctad.org/Templates/WebFlyer.asp?intItemID=4659〈=1

Figure 3.2b Internationalised containerized trade growth, million tons

Source: UNCTAD (2008, 38) http://www.unctad.org/Templates/WebFlyer.asp?intItemID=4659〈=1

Cost of carrying in world trade has fallen over the years.  This partly explains the strong growth in interregional trade since WWII. Stopford (2009) (http://www.amazon.co.uk/Maritime-Economics-Martin-Stopford/dp/041527558X/ref=sr_1_1?ie=UTF8&s=books&qid=1254137899&sr=8-1) points out that for example the oil freight amounted to 30 per cent of the value of a barrel of Arabian Light Oil in 1960.  In 2004, the freight was less than 5 per cent of the value of the oil.  The real costs of transporting coal have also fallen.  This reduction in coal transport cost in real terms from 1960 until 2004 is illustrated by Clarkson (2004, 17). http://www.marisec.org/shippingfacts/uploads/File/ClarksonReportFinalDraft.pdf   The cost of transporting general cargoes has also fallen dramatically, mainly because of containerisation and the accompanying change in cargo handling and efficiency.

Figure 3.3 example of trade cost

Source: Shipping Facts and World Trade. (Marisec, 2009a)

 http://www.marisec.org/shippingfacts/worldtrade/the-low-cost-of-transporting-goods-by-sea.php

3.1.1  The diversity of ship size and ship types.

To reduce costs and increase efficiency in transport the shipping industry over the years has designed different types of vessels suited to carry specific cargoes or groups of cargoes. The main types of vessels are tankers carrying wet cargoes in bulk, dry bulk carriers, container vessels, car carriers, reefers, cruise vessels, ferries, high-speed crafts and specialist ships. For a brief introduction to the main types, see Marisec (2009b).  http://www.marisec.org/shippingfacts/worldtrade/types-of-ship.php

The world fleet sums up to more than 50 000 ships. The fleet consist of  several categories of ships as illustrated by Figure 3.4.

General Cargo ships (18,982)

Bulk Carriers (6,890)

Container ships (4,170)

Tankers (12,583)

Passenger ships (5,957)

Other (1,943)  

TOTAL # of ships (50,525)

Figure 3.4: Ship types and number of vessels, 2008

Source; Data from Lloyd's Register Fairplay (2008), graph available at Marisec (2009c)http://www.marisec.org/shippingfacts/worldtrade/number-of-ships.php

The carrying capacity of the world fleet has grown strongly partly reflecting the growth in seaborne trade.  Seaborne trade fluctuates with variations in economic activity in the different regions of the world economy, whereas vessels typically have an economic life of 25-30 years. Consequently, there periodically is a mismatch between the carrying capacity in the world fleet and the volume of seaborne trade.

Figure 3.5: World Fleet by principal types.  Cargo carrying vessels of 100 Gross tons and more.

Source: Unctad (2008, 32) http://www.unctad.org/Templates/WebFlyer.asp?intItemID=4659〈=1 

Such periodic mismatch results in wide fluctuations in the freight rates paid to shipowners and hence in the revenue earned in the shipping industry.  Figure 3.6 below shows variation in 12-month T/C freight rates for dry bulk carriers. That is the daily revenue in 1000 USD dollar paid to the shipowner for a dry bulk carriers hired out for 12 months. The Figure shows freight rate developments 1999- 2009 (August) for 4 different size groups of dry bulk carriers;  Handysize 10 – 40 000 dwt cargo carrying capacity, Supramax 40 – 60 000 dwt,  Panamax 60 – 80000 dwt,  and Capesize  100000- 200 000 dwt.

Figure3.6:  Freight rates for 12 months Time Charter for dry bulk carriers of different sizes. 1000 USD/day

Source:  Platou (2009) http://www.platou.com/dnn_site/EconomicResearch/RSPlatouMonthly/Previous.aspx

Economies of scale are important in shipping. Both construction costs and operating costs display scale economies, i.e. costs per passenger or per tonne cargo carried fall with increasing vessel size. Steel requirements and engine strength increase less than the cargo carrying capacity for large compared to smaller vessels, thereby reducing construction costs relative to carrying capacity. Large vessels similarly do not require proportionally larger crew than smaller vessels.  Hence, operating costs also exhibit economies of scale.

Table 3.1:  Economies of scale of ship size, total cost in USD per year and USD/day

Source: Stopford (2009, 224)

So why do we see such a wide variety of vessel sizes? The trade off between scale economies and frequency of service is important in seaborne trade as in most transport industries. Large vessels imply large unit cargoes and induce high storage volumes and costs for cargo owners.  Contrary to this the trend in manufacturing is to reduce storage and arrange supplies to arrive “just in time” for use in the production process. Vessels size therefore reflects the transport volume and the haul length, with larger vessels operating on longer routes and in trades with a high annual volume of cargo relative to vessel’s carrying capacity. Larger vessels furthermore are less flexible in switching among trades following changes in trade flows, since they can visit a restricted number of ports only, e.g. the ports that are equipped to handle big vessels. The largest vessels are those moving the major bulk cargoes; crude oil, iron ore and coal in intercontinental trades and container vessels in the “around the world” routes, whereas regional feeder vessels and coastal vessels are smaller.

The average age of the fleet, also vary with the fluctuations in market conditions.  When trade is expected to increase in one or more segments, contracting of new vessels increase above the pure number needed to replace technically or economically obsolete vessels.  Time to build the new vessel increases when contracting booms.  In such times, many shipowners accept to sign a contract for delivery 3-4 years into the future in order to secure a berth at the yard.  Under such market conditions, shipowners postpone deletions as far as possible. Hence, the average age of the fleet first increases because scrapping activity is lower than normal and thereafter average age falls when the new vessels are delivered..

The age of the vessels furthermore is affected by changing regulations. The requirement for double hull tankers forced shipowners of single hull vessels to convert them to double hull, to other uses or to scrap the single hull tankers at a lower than normal age.  Following this regulation, several single hull tankers were converted to storage of to floating oil production units. 

Figure 3.7:  Scrapping of tankers above 80 000 dwt carrying capacity.

Source: Platou (2009) http://www.platou.com/dnn_site/LinkClick.aspx?fileticket=PohKxQ725jo=&tabid=296

Losses and incidents hit the merchant fleet every year.  When the fleet is growing and the transport activity is high more incidents happen as is seen from Figure 3.8 which shows a steep increase in incidents in later years with high activity as is illustrated in Figures 3.2a and 3.2b above. There has been a clear reduction in the frequency of total loss of vessel and the number of incidents relative to the transport capacity or fleet size however.

Figure 3.8a):  Serious and total losses, number of vessel and 3.8.b): Total losses as share of the world fleet, number of vessel

Source: International Union of Marine Insurers (IUMI, 2009) http://mediasuite.svv.ch/mediaserver/api/getMediadata.cfm?media_id=3252&mandator=fw40_mandator_0235

3.1.2  Sailing areas

The major deep-sea trades cross the Atlantic and the Pacific on the northern hemisphere.  This reflects the location of the developed economies.  These are also the nations most engaged in international trade.  The container and car trades are typical for this trading pattern.   There are of course some changes in the trading pattern over time.  The main change since the 1990s is the rising share of world trade to and from China and the growth in the inter-Asian trades.

Figure 3.9:  Intensity of shipping routes during one year in 2004.

Source: The World Bank (2008)

The trade patterns differs among the main bulk cargoes since the raw materials, such as crude oil, coal, iron ore, grain, phosphate and alumna are located differently across the globe.  This implies that some of the greater trades originate in the southern hemisphere. Figure 3.9 below reports Fearnleys illustration of crude oil trade routes in 2001. For the current routes in dry bulk trades see http://www.people.hofstra.edu/geotrans/eng/ch5en/conc5en/maritimeroutes.html)

Figure 3.10: Trade pattern, crude oil in 2001. (Mill metric tons, billion tonne-miles in parentheses)

Source: Fearnleys (2002)

3.1.3    Major ports – cargo handling and turnaround time

The major ports of the world service vessels in deep-sea shipping.   Now the major ports are located in Asia, mainly China, reflecting Chinas new and central place in international trade. The increasing difference in port size reflects changes in ship operations and the effort to exploit economies of scale to reduce the transport cost per tonne or container.  By concentrating port visits for vessels on intercontinental routes to a few main ports in each continent and employing smaller feeder vessels to carry the cargo to its final destination, it is possible to carry the cargo in larger vessels on the longest leg of the voyage.  Such a hub and feeder operation requires multiple discharging and reloading in the hub port.   Modern efficient cargo handling changed this trade off between direct port-to-port operations and hubbing and led to a concentration of intercontinental transport operations using large vessels to a limited number of major ports in each continent.

Figure 3.11: Major ports. Total traffic in thousand tonnes.

Source UNEP/GRID-Arendal, (2006) http://maps.grida.no/go/graphic/major_merchandise_ports_and_likely_waste_transit_points

The turnaround time in port represents one of the major changes in shipping in the last 50 years.  For general cargo or manufactured intermediary and finished goods, the main effect of containerization was to facilitate cargo handling by introducing special vessels to pack the cargo.  Before containerisation, cargos came in smaller units of different shapes, weight and volumes.  Storing cargo in the hull required many hands and different arrangements in the cargo hulls.  Containerisation changed this, standardising the cargo unit, the vessel hold and the cranes that lift the cargo onboard the vessel.  One important effect is that container vessels can be loaded or discharged in 24 hours against the former 1-2 weeks for general cargo vessels.

A similar but less striking change characterise bulk shipping.  The pumps and port equipment in the oil terminals are more efficient than before and important improvements have reduced time in port for dry bulk.

Another characteristic of port development is the establishment of specialised terminals within the port area.  These terminals often operate for profit and are owned and operated by others and not by  the port authorities.  They are built to handle one kind of cargo and have become more efficient than the traditional ports.  This also contributed to the shorter port stay in current ship operations.  One example is chemical terminals operated by Odfjell ASA.

Figure3.12: Terminals for chemicals, Example Odfjell terminals

Source Odfjell (2009) http://www.odfjell.com/internet/frames.asp?company

Vessels therefore sail for a greater part of the year than before and can make more cargo carrying trips and carry more cargo per year.  This is so especially in the container trades.  The resulting efficiency as reported in Figure 3.13.  Since efficiency also depends on fleet capacity relative to transport demand or whether there is excess transport capacity or not, efficiency also varies with market conditions.  Even so, we see a positive trend in the container fleet efficiency from the 1970s, the first decade after the introduction of containers.  The reduction in tanker efficiency between 1970 and 1990 on the other hand reflects the huge excess supply of tankers that followed the intense contracting in the beginning of the 1970s.

Figure 3.13: Tons cargo carried per deadweight ton (dwt) of the world fleet. Selected years

Source UNCTAD (2008, 64)

3.1.4  Short sea shipping

Short sea shipping transports cargoes and passengers within regions either in international or national waters.  An important part of the cargoes transported in short haul routes are carried by feeder services.  They move cargoes landed in the major ports from overseas by deep-sea vessels. In Europe, short sea shipping moves 40 per cent of EU internal cargo transport and carries a big share of the 400 million passengers passing through European ports each year. Hence short sea shipping is an important part of the shipping industry. 

Short sea shipping faces particular political restrictions.  Cabotage or transport between national ports may be open only to national vessels.  Restrictions on cabotage have been reduced especially as EU opened up its coastal waters in 1999, except for Greece where limitations were extended to 2004.  Internal EU trades no are open to all vessels flying EU flags. (Europe, 2007, http://europa.eu/legislation_summaries/internal_market/single_market_services/l24065_en.htm ).   Brazil and USA still protect their coastal traffic by denying access to these trades for foreign flag vessels.

Since the cargo hauls are short in coastal shipping vessels, spend more of their time in port.  Rules for measuring vessel size therefore become especially important in short sea shipping since port tariffs are calculated using these measuring rules.

Operating short sea routes further imply that the vessels for a large part of the time operates within different nations economic or territorial zones were cabotage and other national restrictions may influence their operations.  It furthermore implies that the vessels more of the time trade within reach of rescue helicopters and boats.