FORMS OF SHIPPING

Different forms of shipping are needed, as the nature of commodities is different. Bulk cargo requires one kind of shipping to suit the homogeneous quality and attract cheaper freight charges. On the other hand, carriers, which provide regular and scheduled shipping services, suit general cargo as its nature is heterogeneous and their marketing requirements are different. The different forms of shipping are:

1. Liner Shipping

The liner shipping has the following features:

(i) Regularity: It operates on a regular route between fixed ports. The schedule of services are predetermined. The schedule does not change, irrespective of the availability of cargo. On account of commitment of regular services, they are ideally suitable and useful for small exporters. It carries small loads of many shippers. For easy understanding, they can be compared to local bus service in Bhopal. Just like local buses, these shipping lines stop on fixed routes. Local buses meet the requirements of general public; similarly these shipping lines cater the demands of the small exporters. They are highly useful to small exporters.

(ii) Fixed Tariff: They generally offer fixed and stable freight rates. Each shipper pays the freight in accordance with weight, volume or value of the cargo. The tariff rates are fixed in the market. So, exporters would be able to plan exports, taking the freight rates that are known and prevail fixed in market.

(iii) Designed to Carry Variety of Cargo: General cargo is in the form of bales, bundles, boxes, barrels, drums etc. The designs of the holds and number of decks are different from those of tramp to suit the varied nature of cargo. It carries even reefer (refrigerated) cargo. Share of containerised cargo is increasing due to its popularity. To suit the container requirements, the specially designed container ships are also increasing.

(iv) Sophisticated Equipment: The cargo handling equipment is expensive and sophisticated. The equipment ensures quick turnaround. A quick turnaround means that the ship spends the least possible time in loading and unloading in the port and more time in transit.

2. Tramp Shipping

The shipment of goods through tramps is known as tramp shipping. A tramp carrier has the following characteristics:

(i) Homogeneous transportation: These ships are used for transportation of huge quantity of homogeneous cargo, which is carried in bulk quantity. Examples of such cargo are grain, coal, sugar, timber, wheat, ore, phosphate etc.

(ii) No fixed Route and Tariff: It does not have fixed route and predetermined schedule of departure. Tramps ply on the rule of demand and supply in the market. They are not committed to any discipline in respect of service schedule and freight rates. Their freight rates and tariff are purely market driven. They run where there is demand. They can be compared to private buses in a marriage season where there are no fixed rates and totally depend on the season’s demand. Generally, each tramp carries cargo of few ship users. They carry on specific voyage or consecutive voyage. In other words, for the same route they move continuously, one voyage after another. So, loading and discharging are confined to a few ports. (iii) Less Expensive and Less Operating Costs: As they carry homogeneous cargo, their equipment is simple. Bulk cargoes are normally loaded and discharged by mechanical equipment, elevators and pumps that are less expensive. As they carry comparatively low unit value commodities, a tramp is operated at the lowest possible operating cost.

(iv) Terms and Conditions Negotiable: As their services, terms and conditions, freight charges are not fixed, they are not given and totally negotiable.

(v) Charter Market and Chartering: The market for shipping bulk cargo is referred to as charter market and the shipping services are known as chartering.

Chartering Practices

When a tramp carrier is engaged, it is said to be under charter. The charterer (person who engages or hires the tramp) can hire the tramp either whole or bulk of the space. The agreement between the ship owner and charterer for hiring the ship is called charter party. A tramp may be chartered in one of the most important forms:

(a) Voyage Charter: A ship may be engaged for a single voyage (say from port A to port B) or for consecutive voyage (say from port A to port B to port C) or return voyage (say from port A to port B and return to port A). The ship owner provides the vessel to the charterer for carrying an agreed quantity of cargo from a particular port in a country (Mumbai, India) to another port in a different country (Baltimore, USA). Instead of one port, ports of loading in India could be more (Mumbai, Chennai) and in similar way ports of discharge can be more than one in USA (Baltimore, New York). Alternatively, the agreement (known as charter party) provides carriage of cargo between ports within a certain range (say from any port in India to any port in USA). In the later case, the charterer has to convey the names of the specific ports to the master of the vessel before the commencement of voyage. The agreement may provide that the charterer has to pay for the freight according to the actual quantity loaded or for the total capacity of the ship. Even if the

charterer is not able to load the total quantity agreed upon, he has to pay the freight for the agreed quantity. The remaining capacity not booked by the charterer can be hired by the ship owner to another charterer. In this case, the ship owner has to bear the total expenses for the voyage such as fuel, port charges, salaries of crew, stores and provisions, depreciation, insurance etc. In other words, ship owner has to bear all running expenses and operating expenses for the voyage. The ship owner recovers the freight charges from the charterers in the form of revenue. After meeting all expenses, balance of revenue becomes the profit for the voyage to the ship owner.

For a comparison, this practice can be compared to engaging a total bus by a marriage party with understanding that fifty seats would be paid at an agreed rate and the balance ten seats can be sold to other passengers by the bus owner. Even if the marriage party does not come in full swing of total booking made, still the bridegroom’s party has to pay for 50 seats, as agreed. The bus owner is free to book the balance 10 tickets to another marriage party, provided he is able to synchronise! (b) Time Charter: Under time charter arrangement, a ship is hired for a fixed time period with the condition that the ship is to be operated in specified territories. Though the primary essence of the agreement is for the fixed time, still the charterer can employ the ship only within the specified territories. The charterer cannot operate the ship beyond the territorial jurisdiction. The ship owner has to deliver the ship to the charterer, on the agreed date, in a seaworthy condition. Besides, it is the duty of the ship owner to ensure the ship, in the same seaworthy condition, during the period for which the ship has been given on contract to the charterer to enable him to use the ship for the purpose of carrying cargo during the contracted period. It is the responsibility of the ship owners to provide the crew and maintain stores and provisions for the crew during the period of voyage. All the operating expenses such as insurance, depreciation and other fixed expenses have to be borne by the ship owner. All the running expenses like fuel, port charges, canal dues and cargo expenses have to be met by the charterer. The charterer has to pay the agreed hire charges, generally in advance, whether the ship is used or not during the contractual period. After the period is over, charterer has to return the ship, in the same seaworthy condition, it has been given, back to the ship owner, except the normal wear and tear.

The ship owner is assured of the contracted hire charges. By a long-term contract of affreightment, the charterer is protected from the vagaries of fluctuations in freight rates during the long-term contractual period. The charterer can also sublet the ship if the agreement so provides. If the market rates improve and the ship is sublet later, then the charterer may earn more money than what he has to pay in the form of hire charges to the ship owner and stands to gain.

charter. However, under time charter, the ship owners have to undertake the responsibility that the ship is maintained in a seaworthy condition during the contract period. The ship owners have to exercise all reasonable care and diligence to maintain the ship, in seaworthy condition. This implies that the ship owners are responsible in keeping the hull, machinery and equipment in a thoroughly efficient condition during the contract period so that the charterers are able to employ the ship for carrying the cargo without any problem, whatsoever.

(c) Bare Boat Charter or Charter by Demise: Under this agreement, the bare boat is let out by the ship owner to the charterer for a fixed period. The ship owner hands over the boat in a seaworthy condition to the charterer. The ship is at the disposal of the charterer during the period. It is the responsibility of the charterer to bear all running expenses like paying salary to crew and maintaining the necessary provisions and stores, in addition to bearing all the operating expenses, as mentioned above in the charter voyage. The charterer has the right to appoint the master of the crew and the Chief Engineer, subject to the approval of the owners.

The difference between the time charter and bare boat charter lies in the fact that in the later case the ship lies in the bare form with the charterer who has the full right to operate the ship, in the way he desires. The ship owners have the minimum responsibility and are considered as ‘dead’ as they have no concern about the expenses and the use of the ship. Under this type of chartering arrangement, which is frequently also termed ‘chartering by demise,’ the ship owner virtually relinquishes all responsibilities and rights in respect of his vessel for a specified period, in return for a pre-arranged and regular payment of hire. The charterer becomes an assumed owner, operating, crewing and chartering the ship as if he were, in fact, the owner. They have to return the ship in the same seaworthy condition as they have received, except normal wear and tear.

For the agreed period, the ship owners are paid a fixed sum per ton, calculated on dead weight of the ship. The charterer is totally free to use the ship for carrying the cargo during the specified period and has to bear all running and operational expenses.

3. Conference Shipping

A conference is an association of two or more liner shipping companies. The first conference was formed in 1875, known as UK-Calcutta Conference. The characteristics of conference shipping are:

(i) Restrict/Eliminate Competition: They are organised to restrict/eliminate competition in trade, regulating and rationalising sailing schedules and ports of call. They operate on the basis of written agreement, defining rights and obligations of members. The members are expected to follow the rules set by the conference under agreement. In the event of violation of rules by any member, the agreement provides penalty. Penalty may be as high as the forfeiture of the amount deposited by the member.

(ii) Benefits: The basic aim is to minimise losses and maximise profits by combating competition among ship owners. There is a rate agreement in respect of the sailings between the liner ships. The sailing schedules are regulated.

They can be compared to Bhopal Local bus owners association where the local bus owners are the members of the association. They enjoy unity and work with strict discipline for their common good.

(iii) Particular Trade or Geographical Area: The conference practice is followed by the shipping lines engaged in a particular trade or operating in a specified geographical area. The competition from other shipping lines is encountered by entering into agreements with other conferences operating on alternative routes in such a way that each conference works in one route.