From To Shore To Ships:

The Principles Of Maritime Economics

Nazery Khalid

South East Asia Seminar, Universiti Malaya, Kuala Lumpur

28 September 2007
 PRESENTATION OUTLINE
International trade and seaborne trade
Shipping economics
Port economics
The logistics sector
Global trends and impacts on seaborne
trade and shipping
Outlook on seaborne trade
Challenges for shipping players and ports
INTERNATIONAL TRADE AND
SEABORNE TRADE
 INTERNATIONAL TRADE
Growth of global economy increasingly
dependent on international trade.
World merchandize export grew 6% in
2005 largely due to economic growth in
developing countries.
Globalization, liberalization, advent of
shipping technology and logistics
sector, trade agreements contribute to
growing international trade volume.
 ASIA-EUROPE & ASIA-N. AMERICA
(ANNUAL % TEU GROWTH)
Trade 2008F 2007F 2006F 2005 2004
Asia-Europe 7.4 10.3 12.6 14.5 17.6

EuropeAsia 6.9 5.5 5.9 7.1 7.9

Asia-N.America 7.7 8.1 9.4 12.1 12.5

N.America-Asia 5.0 5.1 5.6 5.6 1.3

Global Insight, World Trade Services

 SEABORNE TRADE
Seaborne trade (good loaded) reached
7.11 bil. tons in 2005, growing 3.8%.
Total maritime activities increased to 29
tril. ton-miles in 2005 (UNCTAD 2006).
Volume of trade in tanker cargo, dry
bulk, container segments on the rise.
Asian trade, especially in and out of
China, has grown tremendously.
Volumes set to grow in coming years.
TRENDS IN TRADE TRANSPORT
Higher degree of containerization.
Focus on multimodal transport.
Sophisticated supply chain
management.
Intensive use of IT in cargo handling,
processing and tracking.
One-stop shipping, Free Trade Zone,
distripark concepts.
Ports as catalysts of trade & economy.
SHIPPING ECONOMICS
SHIPPING ECONOMICS 101
Ships carry 95% of global trade.
Demand for shipping services depends
on demand for the cargo they carry.
Investing in ships depend on prospects
of trade / route, condition / cost of
vessels, competition, financing,
shipyard capacity, regulatory policies,
depreciation of vessels.
Balance b/w newbuilding & scrapping.
 TYPES OF SHIPS
Tankers (petroleum, chemical, palm oil)
Bulk carriers (break bulk / dry bulk)
General cargo
Container ships
Gas carriers (LNG / LPG)
Ferries / passenger ships
Roll on Roll off (RO-RO) vessels
Offshore support vessels (OSV)
WORLD TONNAGE BY SHIP TYPE *
Ship type Jan 2003 Jan 2004 Jan 2005 Jul 2006
Tankers 304.4 316.7 336.1 396.9
Bulk carriers 300.1 307.7 320.6 353.2
Container 82.8 90.5 98.0 120.5
General cargo 97.2 94.8 92.0 94.1
Passenger 5.5 5.6 5.6 5.7

* in mil. DWT

Source : UNCTAD, Lloyds Register / Fairplay

LEADING SHIPPING NATIONS (JUL 06)*
Country Tankers Bulk Container Gen. Cargo Passenger Total
Greece 18.6 23.0 5.2 5.0 8.0 17.2
Japan 11.7 20.7 8.1 8.8 7.9 14.2
Germany 4.7 3.4 35.5 7.3 2.3 8.3
China 3.4 10.4 5.7 10.1 3.7 6.9
Norway 6.9 2.4 0.4 10.1 6.7 4.8
USA 7.8 1.8 2.3 3.9 13.6 4.6
HK (SAR) 4.8 6.0 1.3 2.0 0.5 4.5
Korea 2.8 4.4 1.9 2.0 1.0 3.2
Spore 3.7 1.4 2.7 1.2 0.1 2.5
UK 2.7 1.4 3.3 2.4 3.5 2.3
* in mil. DWT
Source : Lloyds Register / Fairplay
TOP 10 FLEETS (JULY 06)
Country Mil. DWT
Greece 166
Japan 138
Germany 81
China 67
Norway 46
US 45
HK (China) 44
Korea 31
Singapore 24
UK 22
Source : UNCTAD
KEY AREAS IN SHIPPING MARKET
Economic role of shipping
International transport system
Demand for shipping services
World merchant fleet
Supply of vessels
Role of ports in transport system
Players in the shipping industry
SHIPPING INDUSTRY FEATURES
Moves in cycles
Volatile and risks
High capital expenditure
Competitive
Highly regulated
Dependent upon many external factors
Subject to production, consumption and
trade pattern
 BULK CARGO TRADE
Bulk cargo
* Liquid bulk (crude oil, oil products,
LPG, LNG, chemicals)
* Dry bulk (iro ore, coal, grain,
bauxite, alumina, phosphate)
Refrigerated or reefer cargo (dairy
products, meat, fish).
 GENERAL CARGO TRADE
General cargo include parcels / items
too small for bulk shipment.
Consist of manufactured and semi-
manufactured products.
High-value cargo : consumer goods,
textile, machinery, vehicles.
Low-value cargo : steel, forest
products, building materials, foodstuff,
empty gas canisters.
KEY AREAS IN SHIPPING ECONOMICS
Regulatory framework
Ship design
Shipbuilding / newbuilding
Scrapping / demolition
Secondhand ship market
Ship financing / investment
Ship trading
Freight / charter market
Ship management / crewing/ bunkering
PORT ECONOMICS
 ROLES OF PORTS
Conduit between sea and land
transport.
Part of the logistics chain linked with
other transport modes and supply chain
components.
Provide shelter and services for ships.
Catalyst of growth to industries and
businesses.
 ROLES OF PORTS
Critical trade facilitators.
Vital components of transport network.
Interaction points with other transport
modes.
Link suppliers, producers,
manufacturers and consumers.
Connected by a complex hub and
spoke network of ports worldwide.
 PORT ECONOMICS 101
Port development requires big capital.
Demand for port services derive from
demand for shipping services and cargo.
Users include shipping lines, shippers,
ancillary service providers.
Ports gain revenue from ships calling
and cargo processed.
At ports, time is money, hence waiting
time for ships must be kept short and
cargo processed fast and efficiently .
FACTORS AFFECTING PORT CALLS
Trade / production / distribution patterns.
Weather / natural conditions.
Type and quantity of cargo.
Port services cost / tariff structure.
Port and logistics facilities.
Quality of trade transportation and
ancillary services.
Socio-political influences.
 TYPES OF PORTS
Container ports
General cargo ports
Passenger terminals
Petrochemical terminals
LNG / LPG terminals
Fishing ports
Naval ports
TOP MARITIME NATIONS 2005
World rank Country DWT as % of
world tonnage
1 Greece 18.02%
2 Japan 14.52%
3 Germany 7.89%
4 China 7.22%
5 US 5.18%
6 Norway 5.01%
21 Malaysia 1.06%
UNCTAD
 TOP CONTAINER PORTS 2005
Ranking Port Throughput (mil TEU)
1 Singapore 23.19
2 Hong Kong 22.43

3 Shanghai 18.04
4 Shenzen 16.20

5 Busan 11.84
6 Kaohsiung 9.47
14 Port Klang 5.54
19 PTP 4.17

UNCTAD
GLOBAL TRENDS AFFECTING
SEABORNE TRADE
SEABORNE TRADE TRENDS
Greater containerization
Greater trade volumes from developing
countries i.e. China, India.
Growing volumes, more varied types of
cargo and wider markets.
Growing focus on multimodal transport
to meet shippers demand for speed,
efficiency and low cost of delivery
 SHIPPING TRENDS
Bigger vessels being built.
Pursuit of economies of scale.
Rising price of vessels / operating cost.
Manpower shortage.
Consolidation of shipping lines.
Shipping companies buying into ports
and logistics companies.
Greater focus on safety and security.
FACTORS INFLUENCING PORTS
Globalization & liberalization

Globalized markets, outsourcing and

changing production base have boosted
trade & demand for maritime transport.
More trade means bigger investment in
ports to enlarge capacity to facilitate
greater trade volume.
Flattening of markets due to
liberalization result in greater need for
port connectivity.
FACTORS INFLUENCING PORTS
The China factor

Chinas economic miracle has

contributed immensely to world
economies / trade / port development.
More shipping services to and from
China and more development at ports
expected in the near future to cater to
growing trade.
FACTORS INFLUENCING PORTS
Changing ownership structures

Wave of consolidation in ports / shipping

affects port business.
It has changed the way ports are owned /
operated / developed and the way ships
are routed.
Consolidation brings greater economies of
scale and better use of resources.
FACTORS INFLUENCING PORTS
Geopolitics
Peace and stability crucial to economies,
maritime trade and port prosperity.
Regional initiatives in trade and transport
will boost maritime trade and port growth.
Opening up of economies i.e. China and
Vietnams accession into WTO, FTAs,
contributes to greater trade.
FACTORS INFLUENCING PORTS
Regional / global economy

Rising economic prosperity and results in

higher income and greater consumer
demand.
Bright prospect of growing world
economy and container trade.
Shift into manufacturing / trade among
developing economies.
Improved trade /transport infrastructures.
FACTORS INFLUENCING PORTS
Inland transport

Improvements in intermodal linkages with

ports in several developing countries.
Supply chain and transport
infrastructures in the region has grown in
capacity & sophistication.
Improvement in logistics & transport
sector has boosted seaborne trade.
PORT COMPETITIVENESS CRITERIA
Location and physical features
Capacity and facilities.
Connectivity.
Productivity and efficiency.
Integration with other transport modes.
Provision of ancillary services.
Utilization of IT / EDI.
Customer focus.
Safety and security
CHANGING BUSINESS APPROACH
Ports must achieve better
integration with other transport modes.
Global port system adopts a hub and
spoke model. Ports need to adopt to
its dynamics.
Ports must offer incentives to attract
shipping lines, shippers & other users.
Ports must give greater focus on
speed, efficiency, safety, connectivity.
CHANGING PORT MANAGEMENT
Ports should no longer be
administered but managed.
Port authorities must become more
business-minded.
Free market dynamics demand ports
to be competitive.
Ports must go out and get clients. The
days of build it and they will come are
long over.
CHANGING PORT OPERATIONS
Bigger, more sophisticated ships need
adept handling.
Greater pressure to beef up facilities
improve productivity.
Greater need to improve interaction
with other transport modes.
Greater need for skilled workforce.
More intensive use of IT, EDI.
CHANGING PORT OPERATIONS
Economies of scale in terms of speed
and size of ships.
Specialization of types of ships.
Physical changes in types of cargo and
greater focus on containerization.
Processing, handling, storage and
delivery of cargo need to cater to
greater volume at faster turnaround
time.
CHANGING PORT OWNERSHIP
More privatization of ports.
Changing ownership of private ports
has given more business focus on port
operations.
More ports managing other ports to
widen revenue base.
More shipping companies buying into
ports.
More different types of shareholders
owning stake in ports.
FOR PORTS TO PROSPER
Trade-dependent nations need good
transport system to cater to more trade.
Efficient logistics network needed to
support regional integration across the
supply chain.
Huge investment needed to invest in
ports and to improve intermodal links to
facilitate greater regional trade.
Nations must reform archaic maritime
regulations and institutional set-up.
LOGISTICS SECTOR
 LOGISTICS
Logistics is a part of the supply chain
process that plans, implements and
controls the efficient and smooth flow
and storage of goods, services and
related information.
Logistics facilitate meeting the
customers need from the point of origin
to the point of consumption.
 LOGISTICS ACTIVITIES
Customs brokerage
Cargo consolidation
Transshipment.
Packaging and repackaging
Road transportation
Distribution services
Manpower supply
 SUPPLY CHAIN
Supply chain is the network of
organizations involved in the
upstream (supplier end) and
downstream (user end) linkage.
The link involves different processes
and ancillary activities that produce
values in the form of products and
services in the hands of the ultimate
consumer.
ANCILLARY SERVICE PROVIDERS
Haulage
Freight forwarding
Electronic Data Interchange
Cargo handling
Storage and warehousing
Customs clearance
Inland Container Depots
Maritime agency services
OUTLOOK AND CHALLENGES
SEABORNE TRADE OUTLOOK
Prospect of seaborne trade should remain
bullish in the near future.
Greater emphasis on ports / shipping
companies to improve competitiveness
and capacity.
Plenty of opportunities in growing trade for
logistics and maritime ancillary service
providers to reap.
Competition will become more intense!
CHALLENGES FOR SHIPPING COMPANIES
Expand fleet to meet growing demand
Get the right balance in fleet composition
Raise competitive financing
Minimize operating costs
Improve ship / shipboard management
Get the right marketing mix
Consistently fill up slots on big vessels
Monitor developments affecting trade
CHALLENGES FOR PORTS
Improve competitiveness to serve bigger
vessels and growing trade volumes.
Reduce waiting time for ships.
Develop human resource along with
infrastructures and capacity.
Enhance use of technology to boost
productivity and efficiency.
Provide safety.
Offer competitive tariff and incentives.
Integrate with other transport modes.
REFERENCES ON MARITIME ECONOMICS
Chrzanowski, I. (1985). An introduction to
shipping economics. Surrey, UK : Fairplay.
Stopford, M. (1997). Maritime economics.
London : Routledge.
Branch, A. (1996). Elements of shipping.
London : Chapman & Hall.
UNCTAD (2006). Review of maritime
transport. Geneva : UNCTAD.
 THANK YOU

nazery@mima.gov.my
www.mima.gov.my