Chapter 13 part 2

Question 1

List and describe the 8 building blocks of liner service economics

Answer 1

1. Ship characteristics
   *Ship size, speed and cargo-handling efficiency set economic framework for the service
   *larger ships, faster, consume more fuel, spend more time at port
2. The service schedule
   *Have to decide frequency of sailings and number of port calls
   *larger, faster ships speed offset by longer port time. May require more ships in string
3. Capacity utilisation
   *need to make sure ship is full but also must not run out of space
4. Ship costs and economies of scale
   *three main cost elements
   * (a) capital costs diminishing returns
   *(b) OPEX - significant economies of scale
   *(c) bunker costs - diminishing returns
   *overall - big economies of scale savings per tue, diminishes with marginal size increase
5. Port charges
   *Less control, based on ships tonnage
6. Deployment of containers
   *Two issues:
   *Mix of container types
   *Efficiency of turn-around
7. Container costs
   *Capital costs, maintenance and repair, terminal costs, storage, on-shipment costs, repositioning
8. Administration costs

Question 2

How do liner companies set prices?

Answer 2

Free market principles generally apply but they try to base their pricing policy on dual principles of:
1. Price stability
2. Price discrimination

Question 3

Why price stability and need to fix prices to achieve this?

Answer 3

High overheads, difficult to negotiate price for every customer

Question 4

Why (commodity) price discrimination?

Answer 4

1. High rates for high value, low rates for low value = increase volume and attract wider range of cargoes = use of larger ships thus cost savings
2. Price discrimination between shippers - regular shippers get discount

But, containers make discrimination difficult. Different service requirements for different shippers and containers. Ship owners charge FAK rate

Question 5

Liner pricing figures and cases

Answer 5

textbook

Question 6

Describe reason for liner conferences/cartels

Answer 6

Developed to deal with the pricing problem, tariffs below AC. Also overcapacity due to overbuilding; seasonal imbalances
Conferences covered:
1. Rates
2. Number of sailings
3. Ports served
4. Goods carried
5 Sharing of revenue

Question 7

What are the types of conferences?

Answer 7

1. Closed - controlled membership, share cargo, use price discrimination
2. Open - allow any company to join as long as they comply with rate agreements

Question 8

Describe Global Alliances

Answer 8

Replaced conference system. Covers three main areas:
1. Service schedules - type and size of vessel, itineraries, sailing schedules
2. Support services - chartering of ships, joint terminals, management of containers
3. Restrictions on activities of members

Allow members to use combined size to improve efficiency of global operations

Question 9

Discuss three principles for regulating liner competition

Answer 9

1. Freedom to negotiate - shippers should always have option to freely negotiate rates, surcharges and other terms of carriage
2. Freedom to protect contracts - shippers and carriers should always be able to protect key terms of negotiated service contracts
3. Freedom to coordinate operations - carriers should be able to pursue operational agreements with other carriers as long as these do not confer undue market power to the parties involved

Question 10

13.11

Answer 10

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