Maritime Operations and Management

In today’s globalized world, almost no nation can rely solely on what it produces domestically. Most countries are involved in international trade at some level. Everything from raw materials like oil, copper, and lumber, to consumer goods like food and clothing are transported overseas. Without shipping, intercontinental trade would not exist, nor would the bulk transport of raw materials and the import and export of affordable food and manufactured goods (The International Shipping Federation, 2006). As the most cost-efficient method of bulk transport, over 90% of world trade is carried on the water. Worldwide maritime commerce supports 8.4 million jobs, and over $300 billion in personal income. There are around 50,000 merchant ships trading internationally, which represent over 150 countries.3 In the United States, maritime trade makes up 78% of all international trade (The International Shipping Federation, 2006).

The issues regarding maritime or shipping services have significant affects on the expansion and development of nations in a worldwide economy. The latest tendency of international commercial markets has triggered a first-time level of investments in container ships and ports, and the collaboration among carriers, operators, and companies. To deal with the boost in cost, competition, and demand, liner shipping companies are cautiously evaluating the performance of their operations. These companies attempt to recognize opportunities for improvements in logistics and operations, with important reduction in time and cost during operations. Therefore, effective maritime management and operations is very important.

The market structure for international maritime transport includes tramp shipping and liner shipping (Tupper, 2006). In tramp shipping, service is performed irregularly and provided on a demand basis. Liner shipping lines offer regular schedules, publishing in advance their calls at ports. A third general mode in ocean shipping, industrial shipping, is acknowledged in Ronen (1982).

This report will focus on the importance of research in liner shipping operations and management because container shipping has shown fast growth during the past two decades and it is a major module in studies of maritime management and operations.

Background

The transportation of goods in containers and the container shipping industry have rather recent histories. Some authors argue that the idea of shipping goods in intermodal containers was first developed in 1956 by Sea-Land Services, Inc. of New Jersey, at that time known as Pan-Atlantic Steamship Company (ASME, 1983). Pan-Atlantic Steamship built the first containers based on their current shipping needs. The first container ships were old tanker ships whose decks were converted into trailer platforms to host the just-built containers. In a matter of months, a container ship departed from New Jersey to Houston with 58 containers on deck. This event marked the beginning of the containerization era and the future of general cargo transportation. Containerization as a cargo handling concept was soon born, proving efficient in reducing labor costs, handling time, and damage during loading from trucks to container ships and vice versa. Soon after, Sea-Land developed the fully cellular container ship designed to maximize load capacity and ensure safety.

In 1960, the container shipping industry suffered a dramatic growth as Sea-Land competitors refitted their fleet and docks learned to accommodate the special needs of such ships (Smith, 2004). In 1961, the International Standards Organization (ISO) formed a container section to develop uniform container sizes with special characteristics for intermodal purposes. The administration of New York City encouraged the construction of the first container terminal in Port Elizabeth, New Jersey. Consequently, railroad companies joined the development, transporting containers across the USA on flat cars. The new container transportation industry in the USA developed into a global industry with the construction of Europe’s first container port in Rotterdam in 1966 (Smith, 2004).

On average, the world seaborne trade has grown more than 3.5% per year through 2006. This growth has been bolstered by the trade in liner shipping, whose estimated growth was 11.2% in 2008 and 9.8% in the last 20 years (United Nations Conference on Trade and Development [UNCTAD], 2009). These results provide evidence that liner shipping and container trade has become an important player in the operation of seaborne trades and development of global economies.

Importance of studying liner shipping

Certain aspects of container liner shipping have global effects in the development of countries and their economies. The study of liner shipping is important since this industry has unique characteristics and a high level of dependence in logistics principles. The industry faces challenges that undermine the development and efficiency of the transportation system. Although research in this field has increased in the last 10 years, liner shipping operations can still benefit from more research works on this area. Given the growing demand for liner services, the characteristics of container shipping present major challenges in modern maritime operations.

The continuous instability in prices for marine fuel and oil products, triggered by the increasing price of oil, has helped to increase operations costs in the industry. Ronen

(1992) suggests that marine fuel is not a problem then for liner operators and owners of container fleets. Nevertheless, due to current characteristics of container ships and the number of service calls they make, diesel consumption is an important issue today. Recent studies [Shintani (2009) and Eljardt (2008)] presented references prices for marine fuel in the order of $170.00 per metric ton (MT) and $330.00 per MT respectively. With the barrel of oil closing at prices over $110.00 (Shintani (2009), the latest price figures and predictions of marine fuel are rather discouraging. Bunkerworld (2010) confirms that prices for IFO380, a common fuel oil used by large containerships, has passed $450.00 per MT in ports like Rotterdam and Singapore. The price reached $500.00 per MT in the Port of Los Angeles in December 2007. The current trend for the IFO380 fuel oil in the world’s four largest ports is shown in Figure 1. Operators had relied on low steaming and speeding up techniques for fuel savings, while coping with voyage extension and low flexibility against contingencies (Lo, McCord, and Wall, 1991).

July 2007 – February 2008

Figure 1. Fuel oil (IFO380) Price at Mayor Container Ports.

Some markets’ demands for containers services are larger than others. The largest disparity is on the Trans-Pacific route. The total flow for this route was estimated at 18.5 million twenty-foot-equivalent units (TEU), where 13.9 million TEU was the estimated flow from Asia to North America and 4.6 million TEU in the opposite direction (UNCTAD, 2009).

These differences in trade levels create strong imbalances in markets. Due to the imbalance between market supply and demand for containerized cargo, exhibited by excess ship capacity and declining freight rates, this industry has experienced financial deterioration and losses (Talley, 2002). These imbalances create many problems in liner shipping, including increased operations cost, lower fleet performance, and port congestion.

Due to the imbalance in trade routes and markets, empty containers pile up where the demand for them is low. As soon as a shipment arrives at a customer site, the commodity is unloaded immediately and an empty container becomes available (Choong, Cole, and Kutanoglu, 2004). Carriers are basically forced to carry these empty containers on their return trip to guarantee repositioning them where needed. Transporting empty containers is a logistics problem that supposes managing effort and transportation cost, generally with no revenues to its owner.

Given the evidence of expansion of services, and to rationalize their operation by pooling assets, shipping liners started to form strategic alliances in the late 1990s (Slack, Comtois, and McCalla, 2004). When an alliance is formed, an acquisition or cooperation is agreed upon for traffic distribution or vessel capacity utilization, and service routes and schedule are reevaluated. A number of services are rescheduled and many of them are cancelled. This is done to avoid duplication of services, transshipment delays, and/or excessive offers in routes that could increase imbalances and inefficiency to operations. On the other hand, the growing intermodalism requires agreements not only with other operators and container terminals but also truck lines, barges, and rail services around the globe. Intermodal operations are more important now to improving the delivery time of shipments and service time at port in consideration of congestion and new security policies after September 11, 2001.

The increasing use of hub-and-spoke networks, especially in minor trade routes like Africa and Latin America, is another challenge to deal with. The expansion of consumer markets and demand for containerized services had stimulated an increasing number of new container terminals in both mature and emerging markets. The rapid growth in the container ship fleet, the trend toward the use of large container carriers, and the growth of number of containers and container terminals are all consequences of expanding global markets.

Methods in Liner Shipping Management and Operations

Liner shipping differs significantly from the other two types of ocean shipping operations (industrial and tramp). Besides their economical objective, their differences are manifested when it comes to routing and scheduling issues (Christiansen, 2006). These modes of operation are not sharply defined or mutually exclusive. However, in the 1990s, research on liner shipping operations was limited. Researchers noticed these deficiencies and a number of important research had grown since at a moment when the industry showed growth and improvement. The area of decision analysis has been researched, and significant improvements have been reached since 1990. The decision in liner shipping may involve a variety of situations and problems at a planning level that include decision in the mix of the fleet, design of service route and schedule, fleet deployment and cargo booking. When it comes to the container cargo transported, decisions may include the design of shipment patterns, selection of transshipment ports and selection of shipment services.

Conclusion and Recommendation

The importance of studying linear shipping derives from the need for measuring various aspects of container shipping or liner shipping services. New opportunities for improving current and future liner shipping services are overlooked from not measuring the relationship between the aggregated logistics performance, efficiency, and cost in operations.

The objective of liner shipping service planners is to design liner shipping services and networks that can provide a regular, stable service schedule and profitable operations. They disagree on the idea of continuous changes and redeployment of the service fleet. Planners also reject the idea of relying in full on computers for operation decisions (Ronen, 2003). However, nowadays they expect computers to evaluate a wide range of strategic alternatives while the decision making process is left in their hands. They also expect a high degree of user interaction, sometimes requiring visual evaluation of the overall system.

The effects of the increasing demand, capacity of container ships, trade markets, port capacity, and cost have been widely studied. However, the effects of these issues on the characteristics of container transit time, level of transshipments, utilization, and fuel consumption of containership related to their operation cost performance deserve more studies.

It is highly recommended for liner shipping firms (and my personal professional ambition) to use a simulation modeling approach for liner shipping management in the aspects related to:

Measuring the expected performance of fleet deployment decisions and algorithms by measuring the expected performance of the deployment container ship in route.

Evaluating alternative service schedules in terms of their cost, logistics, and service characteristics and their effects on the transit time of containers during shipping operations.

Exploring the effects of proposed changes, additions, or cancellations of current service routes and liner services.

Evaluating the expected requirements for container storage at ports and container ship utilization due to the stochastic nature of container ship stowage and cargo at ports.