Cost Control Flashcards
What are the types of revenue on passenger ships and what influences revenue?
- Ticket prices and sales
- Occupancy rate
- Maximum passenger numbers and vehicle/trailer capacity (ferry)
- Cruise itinerary
- On board amenities and catering/ retail outlets
Seasonal demand - Competition and market position
- Costumer experience (loyalty/repeat business)
What are the types of revenue on cargo ships and what influences revenue?
- Freight rates
- Charter rates (Voyage and time charter)
- Volume or weight (mass) available for cargo
- Vessel Efficiency
- Port infrastructure
- Regulatory Environment
- Economic factors
Container Leasing: Some cargo ships specialize in container transport. Revenue can be generated by leasing containers to shipping companies or businesses requiring container space.
Describe a liner trade
Liner cargo ships:
LINERs or line vessels operate scheduled
maritime and commercial type trips in
specific ports only.
The departures and arrivals of these ships
are adhered to with great care.
Reliability of a “line” requires planning so
that customers and exporters know exactly
when they cargo is expected to arrive with
great accuracy due to logistical
requirements.
Today liners are mainly container ships but
include roro, ropax, pure car carriers and
pure car and truck carriers.
What are the characteristics of liner trades?
A ship operating under a line performs regular trips between specific ports, while trying to follow a tight time schedule.
The sailing schedule is published and known (through the port agents and the local maritime newspapers) to everyone.
The target is to collect small parcels, which need to be transported to the port(s) of destination and thus they utilise as much of the cargo space as possible (holds
and/or deck capacity of the ship).
The liner operators run regular services between predefined ports and act as common carriers, accepting any parcel of general cargo shipped between the ports covered by their service.
The income (freight) is geared more to the long term rather than to each legvoyage or each round voyage based on fixed tariffs based on transport costs.
Shipping lines are usually shipowners of the liner vessels, or they take charteredin tonnage in order to satisfy the requirements of the specific liner service
What is a tramp trade?
A ship engaged in the tramp trade is one
which does not have a fixed schedule or
published ports of call.
Tramp ships trade on the spot market with no
fixed schedule or itinerary/ports-of-call(s).
Chartering is carried out most usually in
London, New York, Singapore shipbroking
exchanges.
The Baltic Exchange serves as a
type of stock market index for the trade.
The term tramper is derived from the British
meaning of “tramp” as itinerant beggar or
vagrant; in this context it is first documented
in the 1880s, along with “ocean tramp” (at the
time many sailing vessels engaged in
irregular trade as well).
What are the characteristics of tramp trading?
§ Primarily designed to carry the more simple and homogeneous cargo in large quantity.
§ Bulk cargos are normally loaded and discharged by mechanical equipment, elevators, pumps, etc.
§ Operated at the lowest possible cost due to low unit value of cargoes carried.
§ Ships have less powerful engines in relation to size as reliability and speed is not as important as liner trade. Cargo capacity is more important than power.
§ A tramp generally carries cargos belonging to only a few (often one or two cargo owners). Hence, loading and discharging are confined to a few ports.
§ Tramp carriers do not have a fixed route and predetermined schedule of departure as it is to be engaged by one party (usually some charterer or cargo owner) whose needs need to be met.
§ Tramp carrier offers services at terms and conditions, including freight/hire charges,
which are not fixed and given but are negotiable.
§ Freight is paid on basis of lumpsum or US$ per tonne of cargo or something similar
and calculated on voyage basis using Time Charter Equivalent (TCE)
So what is the difference between Liner and Tramp type cargo ships and how they derive income?
Tramp shipping is a type of shipping service where vessels operate without a fixed schedule or route. Instead, tramp vessels are chartered on a voyage-by-voyage basis based on specific cargo requirements.
Tramp shipping generates revenue through charter fees paid by cargo owners or charterers for the use of the vessel on a specific voyage.
Tramp vessels often operate in the spot market, where they are chartered for individual voyages at prevailing market rates.
Tramp vessels are suitable for irregular routes or locations without regular schedules and offers flexibility for cargo owners to charter vessels based on their immediate needs.
Liner shipping involves regular, scheduled services on specific routes with fixed ports of call. It’s characterized by the use of standardized containers, and vessels follow a predetermined timetable.
Liner shipping generates revenue through containerized cargo, with fees charged based on container space and services provided.
Liner shipping companies earn revenue by providing regular, scheduled services on fixed routes.
Liner shipping commonly involves the use of standardized containers, promoting efficiency in loading and unloading. They are suitable for businesses with regular shipping needs, offering dependable and scheduled transportation.
Tramp Shipping Revenue: Primarily driven by charter fees and spot market rates for individual voyages.
Liner Shipping Revenue: Derived from containerized shipping services, with fees based on scheduled, regular routes and standardized container usage.
In summary, tramp shipping offers flexibility with vessels chartered for specific voyages, while liner shipping provides regular, scheduled services with standardized containers, each contributing to revenue through distinct business models.
What is a voyage charter?
A voyage charter involves a shipowner renting out their vessel for a specific journey or voyage.
The charterer (usually a cargo owner or trader) pays the shipowner for the transportation service on a per-voyage basis.
Ship operator arranges fuel. Charterer pays freight as per charter party
What is a time charter?
In a time charter, the shipowner leases their vessel for a specified period, and the charterer gains control over the vessel for that time.
The charterer pays a fixed rate to the shipowner for the use of the vessel during the agreed time frame.
The charterer is generally responsible for arranging and covering the costs of fuel during the charter period.
The owner pays wages, and day to day
operating costs
what is bareboat (demise) charter?
A demise charter involves the shipowner leasing out the vessel along with full control and possession to the charterer.
The charterer, often a company or individual looking for a temporary vessel, pays the shipowner and assumes all operational responsibilities, including crewing and maintenance.
The charterer is responsible for arranging and covering fuel costs, and covering running costs as they have full control over the vessel’s operations.
what is COA?
There is an agreement in place for the owner to make cargo space available for a given volume of cargo over a specified time
The owner doesn’t need to specify a
particular vessel, just needs to make
a ship available.
The owner pays all running costs and
receives payment for services
Explain the concept of Time Charter Equivalent (TCE) to understand daily income based on a voyage charter.
The Time Charter Equivalent (TCE) is a financial metric used in the shipping industry to assess the daily income or earnings of a vessel engaged in a voyage charter. Here’s a simplified explanation:
Definition:
Time Charter Equivalent (TCE): TCE represents the daily earnings of a vessel engaged in a voyage charter, expressed on a per-day basis. It helps in evaluating the financial performance of a vessel during a specific voyage.
Calculation:
The TCE is calculated by taking the total revenue generated from a voyage charter and dividing it by the number of days the vessel is actively earning money during that voyage.
Components of TCE Calculation:
Revenue from Charter: This includes the total amount received from the charterer for the specific voyage.
Active Days: The number of days the vessel is actively involved in revenue-generating activities during the voyage.
Formula:
Let’s say a vessel earns £100,000 for a voyage, and the voyage lasts for 10 days.
A higher TCE indicates better daily earnings for the vessel on a particular voyage, while a lower TCE suggests lower daily income.
Usefulness:
TCE is valuable for shipowners and operators as it provides a clear and simple measure of the vessel’s financial performance on a day-to-day basis during a voyage charter.
In essence, Time Charter Equivalent helps in understanding how efficiently a vessel is earning money each day for a specific charter, allowing stakeholders to make informed decisions about the vessel’s economic performance.
What are the ship design consideration that influence revenues?
Ship Size:
Example: A larger ship size allows for economies of scale, reducing the cost per unit of cargo transported. This efficiency can attract more shipping contracts.
Cargo Carrying Capacity:
Example: A tanker with higher cargo capacity can transport more oil or gas in a single trip, making it more cost-effective for energy companies.
Passenger and Vehicle Capacity:
Example: A ferry designed to carry both passengers and vehicles can generate revenue from ticket sales as well as fees for transporting cars, trucks, or other vehicles.
Speed:
Example: A faster container ship may attract shippers with time-sensitive cargo, offering a competitive advantage in the transportation market.
Port Restrictions:
Example: Adhering to the size limitations of certain ports or canals (e.g., Panama Canal) ensures that a ship can access a broader range of destinations, increasing its market reach.
Regulations:
Example: Compliance with environmental regulations, such as the International Maritime Organization’s (IMO) sulfur emission limits, may require the use of cleaner fuels like low-sulfur diesel or alternative fuels like liquefied natural gas (LNG).
What are performance related issues that affect revenue, operational planning, operating speed, utilisation of ships capacity?
In Port Time:
Minimizing the time spent in port for loading and unloading operations enhances overall efficiency. A well-designed ship with optimized loading and unloading processes can reduce idle time, increasing the number of voyages a ship can undertake.
Off-Hire Time:
Unplanned maintenance or repairs can lead to off-hire time. Regular maintenance schedules and quality ship design can minimize the likelihood of unexpected breakdowns, ensuring the ship remains operational and generates consistent revenue.
Operational Planning (Back Hauls, i.e., Minimizing Voyage Time in Ballast):
Efficient operational planning involves securing return cargo for a vessel’s journey back to its origin, reducing the time a ship travels in ballast (without cargo). This strategic approach maximizes revenue generation by optimizing both outbound and return voyages.
Operating Speed:
Balancing operating speed with fuel efficiency is crucial. A ship designed for an optimal speed can reduce fuel consumption, contributing to cost savings and making the vessel more competitive in the market.
Utilization of Ship’s Capacity:
Effectively utilizing a ship’s cargo capacity ensures maximum revenue potential. Ships designed with flexibility in cargo handling or adaptable configurations can cater to a variety of cargo types, enhancing overall utilization.
What is the effect on revenue due to inadequate charter performance or not in compliance with agreed charter part terms?
Financial Penalties:
Inadequate charter performance may result in financial penalties stipulated in the charter party agreement. These penalties can significantly impact revenue, as the shipowner or operator may incur additional costs for failing to meet agreed-upon terms.
Legal Consequences:
Non-compliance with charter party terms can lead to legal disputes, arbitration, or legal action. Legal battles can be costly and time-consuming, diverting resources that could otherwise contribute to revenue-generating activities.
Reputational Damage:
Inadequate performance or failure to comply with charter terms can harm the reputation of the shipowner or operator. This can result in a loss of trust from charterers, making it challenging to secure future contracts and impacting the overall revenue potential.
Loss of Charterer:
Charterers may terminate or choose not to renew contracts if there is a consistent pattern of inadequate performance. Losing a charterer means a loss of regular income and may lead to idle time for the vessel, reducing overall revenue.
Future Business Opportunities:
Word of inadequate charter performance can spread within the industry, affecting the ability to secure new charter agreements. Potential charterers may be hesitant to enter into agreements with a shipowner or operator with a history of non-compliance, limiting future business opportunities.
Operational Disruptions:
Inadequate performance may disrupt the operational schedule, causing delays in cargo deliveries or pickups. This can lead to additional costs, logistical challenges, and negatively impact the efficiency of the shipping operation, affecting revenue streams.
Contractual Risks:
Non-compliance may trigger contractual risks outlined in the charter party agreement, such as withdrawal or cancellation clauses. These risks can result in the loss of anticipated revenue if the charterer decides to terminate the contract prematurely.
In summary, inadequate charter performance and non-compliance with charter party terms pose significant financial, legal, and operational risks that can impact revenue and the overall financial health of a shipping operation. It underscores the importance of robust contract management, adherence to terms, and maintaining a positive reputation in the industry.
