Current Issues in Maritime Economics

181 Pages·1993·4.863 MB·English

by  K. M. Gwilliam (auth.), K. M. Gwilliam (eds.)

Current Issues in
Marititne Economics
Edited by
K. M. Gwilliam
Rotterdam Transport Centre,
Erasmus University,
Rotterdam, The Netherlands
Springer-Science+Business Media, BV. .
Current issues in maritime economics I edited by K.M. Gwilliam.
p. cm.
Papers presented at a conference, on the occasion of the
retirement of H.J. MOlenaar, held at Erasmus University, Rotterdam
in June 1991.
<acid-free paperl
1. Shipping--Congresses. 1. Gwilliam, K. M. II. Molenaar, H. J.
HE562.C87 1992
387.5--dc20 92-37818
ISBN 978-90-481-4222-4 ISBN 978-94-015-8153-0 (eBook)
DOI 10.1007/978-94-015-8153-0
Printed on acid-free paper
Ali Rights Reserved
@ 1993 Springer Science+Business Media Dordrecht
Orginally published by Kluwer Academic Publishers in 1993
Softcover reprint ofthe hardcover Ist edition 1993
No part of the material protected by this copyright notice may be reproduced or
utilized in any form or by any means, electronic or mechanical,
including photocopying, recording or by any information storage and
retrieval system, without written permission from the copyright owner.
Contents
Foreword
VII
1 K.M. Gwilliam
Maritime Economics in Transition? 1
2 Tae-Woo Lee
Some Reflections on the Causes of Growth of
Korean Shipping ....................... 8
3 Karl-Heinz Breitzmann
Transition from a Planned to a Market Economy:
Problems, Tasks, and First Results in Shipping of
Eastern Germany . . . . . . . . . . . . . . . . . . . . . . . 22
4 R.W. Stuchtey and M. Zachcial
Perspectives and Trends of the European Short Sea
Shipping Industry . . . . . . . . . . . . . . . . . . . . . . . 36
5 R.O. Goss and P.B. Marlow
Internationalism, Protectionism and Interventionism
in Shipping . . . . . . . . . . . . . . . . . . . . . . . . . .. 45
6 Trevor D. Heaver
Workable Competition, Politics, and Competition
Policy in Liner Shipping . . . . . . . . . . . . . . . . . .. 68
7 Jean-Pierre Dobler
Is the Balancing of the World Newbuilding Market
on the Long Term a Goal out of Reach? . . . . . . . . . 85
8 S.G. Sturmey
Social Costs and Pricing in Shipping .......... 101
9 Simme Veldman
The Optimum Size of Ship and the Impact of User
costs - an application to container shipping ...... 112
10 Franklin de O. Goncalves
Freight Futures and Chartering: A Contingent Claims
Analysis Approach to the Optimal Operational and
Investment Decisions in Bulk Shipping . . . . . . . .. 145
11 Hercules E. Haralambides
Sensitivity Analysis of Risk in Shipping Finance . .. 168
v
Foreword
We would like to acknowledge the support of the Stichting Willem
van der Vorm Maritieme Economie and the International Association of
Maritime Economists without which this book would not have been
published.
The Stichting Willem van der Vorm Maritieme Economie is a
charitable foundation for the encouragement of teaching and research in
maritime economics, which finances the Chair in Maritime Economics within
the Rotterdam Transport Centre of Erasmus University.
The International Association of Maritime Economists is an association
of academics and professionals in the field. The proposal to establish this
association was presented and agreed at the conference organised by the
Rotterdam Transport Centre in June 1991.
vii
.
1 Maritime Economics In
Transition?
K.M .Gwilliam
Rotterdam Transport Centre
Erasmus University Rotterdam
1.1 Origins of this volume
The title of this volume - Current Issues in Maritime Economics -was that of
a conference held at Erasmus University, Rotterdam in June 1991. The occasion
of that conference was the retirement of Professor H.J. Molenaar from the
special chair in Maritime Economics which he had held for eight years. It was
also the occasion of the inaugural meeting of a World Association of Maritime
Economists.
The title and structure of the conference emerged from discussions
between Molenaar and I, as joint chairmen of the conference, but particularly
reflect his judgement of the issues which are current and crucial in the field.
The keynote speakers invited were the maritime economists most respected by
Molenaar himself. Almost without exception, those invited did indeed make
their contributions. It is therefore particularly appropriate that this edited
selection of the papers from the conference should be offered as a festschrift to
honour his retirement.
Dutch universities have a civilised tradition which should be noted in this
context. Not only do new Professors have the opportunity to offer an inaugural
lecture, but those retiring are also invited to give a reflective valedictory
lecture. Molenaar's "afscheids college" surveyed his experience in the
1
shipping business, as an international civil servant concerned with shipping
policy of UNCTAD, and as a professional researcher and academic,
demonstrating the invaluable link between practice and research which marked
his career. In the course of the lecture he also made his own valedictory
observations on the current issues which this collection of papers addresses.
This editorial introduction attempts to juxtapose the issues as identified by
Molenaar and the opinions on them offered by our contributors.
H.J.Molenaar. Full and down
K.M.Gwilliam
1.2 Internationalism
By its nature shipping has always been an international business. But the nature
of the international context does appear to be changing radically. "Flagging out"
has been the device by which the traditional shipowning groups have been able
to protect themselves against competition from operators with lower labour
costs or more favourable operating constraints and tax positions. Molenaar has
been concerned with this issue since, in 1957, he was a party to the presentation
of an ill-received note on the subject to the shipowners association. As a young
economist he wished the Dutch government to follow a more aggressive policy,
to exploit its geographic advantage and to make its flag the most favourable of
the technically full standard flags. In his valedictory lecture he observes
wistfully that, although the decision has been taken to keep the flag afloat
through a package of fiscal and manning rules bearing a strong resemblance to
those of the proposed EUROS registry, Holland now stands out in Western
Europe as having no second registry alternative other than the not fully
competitive Antilles flag.
The question that he poses is largely one of economic calculation.
"The true measure of merit seems to me the value added to the national
income. The basic question for shipping policy makers is how structurally
to achieve the most favourable ratio between the value added to the
national income and the national inputs .... Because of the adoption of the
Code on Conditions for Registration of Ships, a number of non-European
cheap flags will remain for many years to come the yardstick for
establishing the competitiveness of our flag .... For an increasing part of
the fleet, the competitiveness (thus) derives from the very level of cargo
handling know how and the increasing importance of safety and
environmental regulation. "
The devices used by other countries to stimulate the development of a national
flag are many and, sometimes, devious. Lee describes one of the most
remarkable recent phenomena, the growth of Korean shipping, and attempts to
identify the role which government policy has played in supporting that
development.
Almost the opposite story is told by Breitzmann, observing the difficulties
of transition of the former East German fleet from the position of strategic
protection to a free market competitor. In both cases, however, the question of
whether the degree of protection offered was really in the national economic
interest given the possible alternative use of resources, is implicit.
2
Maritime Economics in Transition
There are also some new markets appearing. Stuchtey and Zachcial
examine the prospects for coastal shipping in a liberalised Europe. Whilst they
do not suggest that this new opportunity will revolutionise logistics systems they
do suggest that it offers considerable potential for some of the apparently more
vulnerable fleets.
Underlying all of these discussions is the fundamental question whether
there is a case, in terms of real national interest, for the pursuit of "national"
rather than international policies. This is addressed by Goss and Marlow, who
analyse some of the fiscal devices used to pursue national interest in the sector,
but argue primarily that the more nationalistic policies are often either
ineffective or self defeating as far as the true national economic interest is
concerned.
1.3 Workable Competition
The second issue is the perennial problem of the relationship between market
structure and the workability of competition. The background to the current
situation is the rapid progression of change in the level and structure of world
trade in recent decades. The develop of new manufacturing centres in the far
east changed both the volume and direction of the main flows of manufactured
goods. Global sourcing of manufacturing has accentuated this. Containerisation
has standardised the unit of movement. New logistical systems have brought
demands for increased reliability and control of flows. All have together
conspired to support the development of new contractual forms, and new
competitors, outside the traditional liner conference arrangements.
As Molenaar puts it; .
"A main cause of the continual problems with the competition regime
appears to be the time lag between changes in the way shipping service
suppliers co-operate, or want to co-operate, and changes in the public
regulation thereof. Only now is the European Community, the most
important maritime policy maker of the time, to settle the legal position
of the new forms of co-operation, the consortia, called forward by the
container revolution. Already, however, the new logistical revolution is
making such an impact that the shipping industry is voicing the opinion
that consortia will no longer be needed. Seen in historical perspective we
are approaching a crucial stage: even the basic need for freight rate
competition in liner shipping is at stake.
3
K.M. Gwilliam
My question now is whether the logistical revolution will reinforce
individual market positions of service suppliers to such an extent, notably
through product and price differentiation, that the traditional
argumentation on the dangers of marginal pricing become void. "
The response of maritime economists to these new circumstances differ
considerably. Some argue that the low profitability of the conference lines
shows either that they were not attempting to exploit their market power, or that
they were inherently incompetent in doing so. In either case they do not
constitute a regulatory problem. Others argue that external threat to the
conference system is now so great, and entry into the trade sufficiently easy,
for international container shipping to be considered a "contestable market". If
that is the case the conference system cannot be a threat to the emergence of
efficient structural and price conditions and concern for the regulation of the
conferences is now irrelevant.
This issue is dealt with at length by Professor Heaver in the first paper.
He argues that whilst the major lines may be contestable the thin lines are less
likely to be so, and are also likely to be distorted by the interventions of
developing country governments. He therefore concludes that reforming the
treatment of liner conferences not only requires satisfactory analysis of the
economics of liner shipping, but must also recognise the political elements in
harmonisation of promotional and regulatory policies in widely diverging
economic situations.
Molenaar's answer to his own question is rather different.
He recognises that the integration of sea transport of containers into total
logistical services can lead to a separation of container flow management from
shipping capacity management, with prices determined by the capacity to
differentiate products in the first case, but by the level of costs in the second.
Nevertheless, in 1988 he judged that the sea transport of containers would be
only partly integrated into logistic services, and that the individual market
positions of container services would be strengthened by the new situation. His
valedictory judgement was rather less optimistic.
"Today I see some rather gloomier scenarios as a consequence of the
gradual and incomplete transformation of service demanded. In one of
these the freight cost on the bulk transport of containers, on a quasi liner
basis, become an important reference level for shippers, leaving little
hope for a structural improvement of returns on investment in container
liners. A more plausible scenario leaves container transport within the
exclusive domain of liner shipping. However, the composite logistical
4
Maritime Economics in Transition
service tariffs remain based on freight rates quoted by pure ship operators
and owners in a continued weak market position. I, for my part, do not
expect the basic economics on the supply and demand side, calling for
regulation, to become soon obsolete. "
This conclusion appears to concur with the judgement of the liner operators that
the. new structural conditions are such as to prevent the emergence of rates
which fully remunerate capital in this sector. The paradox of that conclusion is
why, if it is true, any sensible entrepreneur should continue in the business.
That paradox is addressed by Dobler in his analysis of the relationship between
the shipping and shipbuilding sectors. He argues that the (perhaps misguided)
policies of a number of nations on the importance of the shipbuilding sectors
to their economies injects a flow of subsidy into the shipbuilding market which
distorts not only that market itself, but also the whole shipping market. For that
reason he advocates a new world order of regulation with a concentration on
the elimination of state subsidy.
Other, newer, arguments for regulation are also emerging. In particular,
the increased emphasis on the potential environmental damage that can be
caused by ships. The protection against such damage in port, has led to the
development of port state controls, which have their spin off effects also on the
environmental impacts of ships at sea. But this is a limited spin-off and their are
some strong arguments for a new dimension of international regulation
stemming from this source. Sturmey considers the logic of these arguments. He
agrees that shipping imposes some costs on society for which the polluters do
not pay, and which may be the source of some distortions. But he also sees
great difficulties in identifying the basis for international standards given the
real differences in the opportunity costs of factors in different countries, and the
widely different ethical judgements which prevail across the international
community. He therefore cautions against intervention in shipping on these
grounds, except to eliminate blatant and intolerable evils.
1.4 Decision procedures, commercial policy and the
choice of Technology
The third set of issues are of a more micro kind, concerning the decision
processes of firms in this changing shipping world. Molenaar was long involved
with middle and long term forecasting of the demand for shipping, and in his
inaugural lecture at Erasmus singled out the pricing process in the wet and dry
bulk markets as one of the root causes of the prevailing imbalances in the
5
K.M. Gwilliam
shipping and shipbuilding markets for these sectors. In his valedictory lecture
he bemoans the fact that the market mechanism has not improved much in the
meantime as a safe invisible hand to guide investors. He comments specifically,
as follows:
"The consistent demand for middle and long term projections of the
market cannot be explained by the perceivable private and public benefits
derived therefrom. However, advances are now being made. First they
come from the development of computerised user friendly decision
support models. These enable company internal monitoring of expectable
market balances; this may largely remove the danger of consensus
forecasting. To individual investors, widely published and aging forecasts
do not seem of much avail. Second they come from extension of
forecasting models to the dynamics of the market, notably joint responses
of investors to initial market outlooks. The weak element thereof remains
the behavioral equations"
These developing techniques are represented by three papers in this volume.
Firstly, Veldman confronts the problem of selecting the optimum size of ship
in the container market with a model based approach. In his model he provides
a basis for decision making which takes into account not only the spatial and
physical nature of the trades addressed but also takes into consideration the
importance of user costs to shippers in the context of the "new logistics".
A matter of common concern is the treatment of risk in decision making
in markets which are both uncertain and subject to an apparently high degree
of speculative instability. Goncalves applies a contingent claims analysis
approach to the optimisation of operational and investment decisions in the bulk
shipping market. With this approach he is able to address the questions of the
choice of the ship owner between spot chartering, term chartering and laying
up a vessel as well as those of the optimum timing of acquisition or selling of
vessels.
Finally Haralambides addresses the problem of the formal treatment of
risk analysis in shipping finance, and suggests his own new approach to the
sensitivity analysis of risk.
1.5 Is shipping special?
The papers in this volume, and the conference from which they were selected,
covered a wide range of topics. Individually they might have found their way
6