Maritime Transportation

Authors: Dr. Jean-Paul Rodrigue, Dr. Brian Slack and Dr. Theo Notteboom

1. Maritime Routes

From its modest origins as Egyptian coastal sailships around 3,200 BC, maritime transportation has always been the dominant support of global trade. By 1,200 BC Egyptian ships traded as far as Sumatra, representing one of the longest maritime route of that time. With the development of the steam engine in the mid 19th century, this role expanded considerably as ships were no longer subject to dominant wind patterns. This long term attribute has been reinforced by recent trends where changes in international trade and seaborne trade are interrelated. Maritime transportation, like all transportation, is a derived demand. As of 2006, seaborne trade accounted for 89.6% of global trade in terms of volume and 70.1%  in terms of value. Maritime shipping is one of the most globalized industry in terms of ownership.

Maritime transportation, similar to land and air modes, operates on its own space, which is at the same time geographical by its physical attributes, strategic by its control and commercial by its usage. While geographical considerations tend to be constant in time, strategic and especially commercial considerations are much more dynamic. The physiography of maritime transportation is composed of two major elements, which are rivers and oceans. Although they are connected, each represents a specific domain of maritime circulation. The notion of maritime transportation rests on the existence of regular itineraries, better known as maritime routes.

Maritime routes. Corridors of a few kilometers in width trying to avoid the discontinuities of land transport by linking ports, the main elements of the maritime / land interface. Maritime routes are a function of obligatory points of passage, which are strategic places, of physical constraints (coasts, winds, marine currents, depth, reefs, ice) and of political borders. As a result, maritime routes draw arcs on the earth water surface as intercontinental maritime transportation tries to follow the great circle distance.

The most recent technological transformations affecting water transport have focused on modifying water canals (such as dredging port channels to higher depths), and on increasing the size, the automation and the specialization of vessels (e.g. container ships, tanker, bulk carrier). These transformations partially explain the development of maritime traffic that has been adapting to increasing energy demand (mainly fossil fuels), the movements of raw materials and the location of major grain markets. Yet, this process is not uniform and various level of connectivity to global shipping networks are being observed. This massification of transport into regular flows over long distances is not without consequences when accidents affecting oil tankers can lead to major ecological disasters (e.g. Amoco Cadiz, Exxon Valdez).

Fluvial transportation, even if slow and inflexible, offers a high capacity and a continuous flow. The fluvial / land interface often relies less on transshipment infrastructures and is thus more permissive for the location of dependent activities. Ports are less relevant to fluvial transportation but fluvial hub centers experiences a growing integration with maritime and land transportation, notably with containerization. The degree of integration for fluvial transportation varies from totally isolated distribution systems to well integrated ones. In regions well supplied by hydrographic networks, fluvial transportation can be a privileged mode of shipment between economic activities. In fact, several industrial regions have emerged in along major fluvial axis. More recently, river-sea navigation is also providing a new dimension to fluvial transportation by establishing a direct interface between fluvial and maritime systems.

The majority of maritime circulation takes place along coastlines and three continents have limited fluvial trade; Africa, Australia and Asia (except China). There are however large fluvial waterway systems in North America, Europe and China over which significant fluvial circulation takes place. Fluvial-maritime ships enable to go directly from the fluvial to the oceanic maritime network. Despite regular services on selected fluvial arteries, such as the Yangtze, the potential of waterways for passenger transport remains limited to fluvial tourism. Most major maritime infrastructures involve maintaining or modifying waterways to establish more direct routes (navigation channels and canals). This strategy is however very expensive and undertaken only when necessary. Significant investments have been made in expanding transshipment capacities of ports, which is also very expensive as ports are heavy consumers of space.

The importance and configuration of maritime routes has changed with economic development and technical improvements. For instance, containerization changed the configuration of freight routes with innovative services. Prior to containerization, loading or unloading a ship was a very expensive and time consuming task and a cargo ship typically spent more time docked than at sea. With faster and lower transshipment costs pendulum routes, which tend to be highly flexible in terms of which ports are serviced, have however emerged as the favorite form of containerized maritime circulation.

Pendulum service. Involves a set of sequential port calls along a maritime range, commonly including a transoceanic service from ports in another range and structured as a continuous loop. They are almost exclusively used for container transportation with the purpose of servicing a market by balancing the number of port calls and the frequency of services.

The most extensive pendulum services are known as "round-the-world" routes as major maritime ranges of the world are services along a continuous loop. Another recent trend has also been the integration and specialization of several routes with feeder ships converging at major maritime intermediate hubs. This is notably the case for Europe (Mediterranean, North Sea and the Baltic) in light of the negative impacts of deviations from main maritime shipping routes in terms of service length and frequency of port calls.

Not every territory has a direct access to the ocean. Maritime enclaves are such countries that have difficulties to undertake maritime trade since they are not part of an oceanic domain of maritime circulation. This requires agreements with neighboring countries to have access to a port facility through a road, a rail line or through a river. However, being an enclave does not necessarily imply an exclusion from international trade, but substantially higher transport costs which may impair economic development.

2. Maritime Freight

Maritime traffic is dominantly focused on freight. Before the era of intercontinental air transportation, transcontinental passenger services were assumed by liner passenger ships, dominantly over the North Atlantic. Passengers are now a marginal leisure function solely serviced by cruise shipping. Several oceanic ferry services are also in operation over short distances, namely in Western Europe (Channel; Baltic Sea), Japan and Southeast Asia (Indonesia). The systematic growth of maritime freight traffic has been fueled by:

• Increase in energy and mineral cargoes derived from a growing demand from developed economies of North America, Europe and Japan. For instance, coal is mainly used for energy generation and steel-making. Many developing countries, such as China, are also increasingly involved in importing raw materials.
• Globalization that went on par with an international division of the production and trade liberalization.
• Technical improvements in ship and maritime terminals have facilitated the flows of freight.
• Economies of scale permitted maritime transportation to remain a low cost mode, a trend which has been strengthened by containerization.

Maritime traffic is commonly measured in deadweight tons, which refers to the amount of cargo that can be loaded on an "empty" ship, without exceeding its operational design limits. This limit is often identified as a loadline, which is the maximal draft of the ship. Maritime freight is conventionally considered in two categories:

Bulk cargo. Refers to freight, both dry or liquid, that is not packaged such as minerals (oil, coal, iron ore) and grains. It often requires the use of specialized ships such as oil tankers as well as specialized transshipment and storage facilities. Conventionally, this cargo has a single origin, destination and client. It is also prone to economies of scale.

Break-bulk cargo. Refers to general cargo that has been packaged in some way with the use of bags, boxes or drums. This cargo tends to have numerous origins, destinations and clients. Before containerization, economies of scale were difficult to achieve with break-bulk cargo as the loading and unloading process was very labor and time consuming.

The global maritime shipping industry is serviced by about 22,000 vessels. There are four broad types of ships employed around the world:

• Passenger vessels can be further divided into two categories: passenger ferries, where people are carried across relatively short bodies of water in a shuttle-type service, and cruise ships, where passengers are taken on vacation trips of various durations, usually over several days. The former tend to be smaller and faster vessels, the latter are usually very large capacity ships having a full range of amenities. In 2005, about 11 million passengers were serviced by cruise ships, underlining an industry with much growth potential.
• Bulk carriers are ships designed to carry specific commodities, and are differentiated into liquid bulk and dry bulk vessels. They include the largest vessels afloat. The largest tankers, the Ultra Large Crude Carriers (ULCC) are up to 500,000 deadweight tons (dwt), with the more typical size being between 250,000 and 350,000 dwt; the largest dry bulk carriers are around 350,000 dwt, while the more typical size is between 100,000 and 150,000 dwt. The emergence of liquefied natural gas technology enabled the maritime trade of natural gas with specialized ships.
• General cargo ships are vessels designed to carry non-bulk cargoes. The traditional ships were less than 10,000 dwt, because of extremely slow loading and off-loading. More recently these vessels have been replaced by container ships that because they can be loaded more efficiently are becoming much larger.
• Roll on-Roll off (RORO) vessels, which are designed to allow cars, trucks and trains to be loaded directly on board. Originally appearing as ferries, these vessels are used on deep-sea trades and are much larger than the typical a ferry. The largest are the car carriers that transport vehicles from assembly plants to the main markets.

The distinctions in vessel types are further differentiated by the kinds of services on which they are deployed. Bulk ships tend to operate on both on a regular schedule between two ports or on voyage basis. In the latter case the ship may haul cargoes between different ports based on demand. General cargo vessels operate on liner services, in which the vessels are employed on a regular scheduled service between fixed ports of call, or as tramp ships, where the vessels have no schedule and move between ports based on cargo availability.

3. Maritime Shipping

Maritime shipping is dominated by bulk cargo, which roughly accounted for 69.6% of all the ton-miles shipped in 2005, but the share of break-bulk cargo is increasing steadily, mainly because of containerization. Shipping has traditionally faced two drawbacks. It is slow, with speeds at sea averaging 15 knots (26 Km/hr). Secondly, delays are encountered in ports where loading and unloading takes place. The latter may involve several days of handling when break-bulk cargo was concerned. These drawbacks are particularly constraining where goods have to be moved over short distances or where shippers require rapid service deliveries. However, technical improvements tend to blur the distinction between bulk and break-bulk cargo, as both can be unitized on pallets and increasingly in containers. For instance, it is possible, and increasingly common, to ship grain and oil, both bulk cargoes, in a container. Consequently, the amount of containerized freight has grown substantially, from 23% of all cargo in 1980, 40% in 1990 to 70% in 2000.

Geographically, maritime traffic has evolved considerably over the last decades especially through growth in transpacific trade. By establishing commercial linkages between continents, maritime transport supports a considerable traffic that covers 90% of the intercontinental transport demand of freight. The strength of maritime transport does not rest on its speed, but on its capacity and on the continuity of its traffic. Railway and road transportation are simply not able to support a traffic at such a geographical scale and intensity. Heavy industrial activities that use bulk raw materials are generally adjacent to port sites, benefiting from load breaks. The average haul length was about 4,200 miles.

Maritime shipping has seen several major technical innovations aiming at improving the performance of ships or their access to port facilities, notably in the 20th century. They include:

• Size. The last century has seen a growth of the number of ships as well as their average size. Size if a common denominator for ships is it expresses type as well as capacity. Each time the size of a ship is doubled, its capacity is cubed (tripled). Although the minimum size for cost effective bulk handling is estimated to be around 1,000 deadweight tons, economies of scale have pushed for larger ship sizes to service transportation demand. For ship owners, the rationale for larger ships implies reduced crew, fuel, berthing, insurance and maintenance costs. The largest tankers (ULCC) are around 500,000 dwt (dominant size between 250,000 and 350,000 dwt), while the largest dry bulk carriers are around 350,000 dwt (dominant size between 100,000 and 150,000 dwt). The only remaining constraints in ship size are now the capacity of ports, harbors and canals to accommodate them.
• Speed. The average speed of ships is about 15 knots (1 knot = 1 marine mile = 1,853 meters), which is 28 km per hour. Under such circumstances, a ship would travel about 575 km per day. More recent ships can travel at speeds between 25 to 30 knots (45 to 55 km per hour). To cope with speed requirements, the propulsion and engine technology has improved from sailing to steam, to diesel, to gas turbines and to nuclear (only for military ships; civilian attempts were abandoned in the early 1980s). Since the invention of the helix, propulsion has improved considerably, notably by the usage of double helixes, but peaks were reached by the 1970s. Reaching higher maritime speeds remains a challenge which is excessively costly to overcome. As a result, limited improvements in commercial maritime speeds are foreseen.
• Specialization of ships. Economies of scales are often linked with specialization. Both processes have considerably modified maritime transportation. In time, ships became increasingly specialized to include general cargo ships, tankers, grain carriers, barges, mineral carriers, bulk carriers, Liquefied Natural Gas (LNG) carriers, RO-RO ships (roll-on roll off; for vehicles) and container ships.
• Ship design. Ship design has significantly improved from wood hulls, to wood hulls with steel armatures, to steel hulls (the first were warships) and to steel, aluminum and composite materials hulls. The hulls of today’s ships are the result of considerable efforts to minimize energy consumption, construction costs and improve safety. Depending on its complexity, a ship can take between 4 months (container and crude carriers) and 1 year to build (cruise ship).
• Automation. Different automation technologies are possible including self-unloading ships, computer assisted navigation (crew needs are reduced and safety is increased) and global positioning systems. The general outcome of automation has been smaller crews being required to operate larger ships.

4. Maritime Economics

An important feature of the economics of shipping relates to its capital costs, which requires financing. Because of their size, ships represent a significant capital outlay. Cruise ships represent the most expensive class of vessels, with the Queen Mary 2 costing $800 million, but even a container ship represents an initial capital outlays of $75 million. The annual cost of servicing the purchase of these vessels represents the largest single item of operating expenditures, typically accounting for over half of the annual operating costs. Container shipping requires the deployment of many vessels to maintain a regular service (14 ships in the case of a typical Far East – Europe service), which is a severe constraint on the entry of new players. On the other hand, older second-hand vessels may be purchased for much smaller amounts, and sometimes the purchase price can be easily covered by a few successful voyages. In some regards, therefore, the shipping industry is quite open and historically has provided opportunities for entrepreneurs to accumulate large fortunes. Many of the largest fleets are in private hands, owned by individuals or by family groups.

The main advantage of maritime transportation is obviously its economies of scale, making it the cheapest per unit of all transport modes, which fits well for heavy industrial activities. On the other hand, maritime transportation has one of the highest entry costs of the transport sector. Typically, a ship has an economic life between 15 and 20 years and thus represents a significant investment that must be amortized. For instance, a Panamax containership can cost $50,000 per day to operate with most of the expenses related fuel and port charges. The operation of the maritime transport system requires financing that can come from two sources:

• Public. The public sector is commonly responsible for guidance infrastructures (beacons and charts), public piers, dredging, security and in several cases of the administration of ports (under the umbrella of port authorities).
• Private. The private sector is mostly concerned about specific facilities such as piers, transshipment infrastructures and ships, which are commonly owned by private maritime companies.

In the past, governments have intervened, often massively, in the maritime sector to fulfill different goals such as economic development, national defense, prestige, balance of payments, and the protection of the national industry. To reach those goals, governments relied on methods such as regulations, subsidies, national fleets, preference of cargo and ports of entry. Cabotage regulations have been one of the privileged measures to protect the national maritime transportation industry.

Cabotage. Transport between two terminals (a terminal of loading/embarkment and a terminal of unloading/ disembarkment) located in the same country irrespective of the country in which the mode providing the service is registered. Cabotage is often subject to restrictions and regulations. Under such circumstances, each nation reserves for its national carriers the right to move domestic freight or passengers traffic.

Many cabotage laws were implemented, such as the Passenger Services Act of 1886, which placed cabotage restrictions on oceanborne passenger travel in the United States. In the same line, the Merchant Marine (Jones) Act of 1920 implemented cabotage regulations for freight. The shipping industry has a very international character. This is reflected particularly in terms of ownership and flagging. The ownership of ships is very broad. While a ship may be owned by a Greek family or a US Corporation, it may be flagged under another nationality. The use of flags of convenience is a mean by which ship owners can obtain lower registration fees, lower operating costs and fewer restrictions. The maritime industry is now more deregulated than before because of technical changes, mainly containerization and open registry ships operating under fiscal shelters. By 2007, about 65% of the global tonnage was registered under a flag of convenience.

5. Shipping Services and Networks

The maritime shipping industry offers two major types of services:

• Charter services (also known as Tramp). In this form of service a maritime company rents a ship for a specific purpose, commonly between a specific port of origin and destination. This type of shipping service is notably used in the case of bulk cargo, such as petroleum, iron ore, grain or coal, often requiring specialized cargo ships that become the load unit.
• Liner shipping services. Involves a regular scheduled shipping service often calling several ports along a pendulum route. The emergence of post-panamax containerships has favored the setting of pendulum services since the maritime landbridge of Panama is no longer accessible to this new class of ships. To insure reliability, frequency and a specific level of service (in terms of port calls), many ships can be allocated to a single route, which can take different shapes. For instance, to insure a weekly port call, 8 vessels must be allocated for a pendulum service between Europe and Pacific Asia and about 5 vessels for a trans-Atlantic service. These maritime shipping services are available to any freight importer of exporter, implying that the cargo being carried on any given ship belongs to different interests. A growing share of liner services is containerized.

An important historic feature of oceanic liner transport is the operation of "conferences". These are formal agreements between companies engaged on particular trading routes. They fix the rates charged by the individual lines, operating for example between Northern Europe and the East Coast of North America, or eastbound between Northern Asia and the West Coast of North America. Over the years in excess of 100 such conference arrangements have been established. While they may be seen as anti-competitive, the conference system has always escaped prosecution from national anti-trust agencies. This is because they are seen as a mechanism to stabilize rates in an industry that is inherently unstable, with significant variations in supply of ship capacity and market demand. By fixing rates exporters are given protection from swings in prices, and are guaranteed a regular level of service provision (Brooks, 2000). Firms compete on the basis of service provision rather than price.

A new form of inter-firm organization has emerged in the container shipping industry since the mid-1990s. Because of the costs of providing ship capacity to more and more markets are escalating beyond the means of many carriers, many of the largest shipping lines have come together by forming strategic alliances with erstwhile competitors. They offer joint services by pooling vessels on the main commercial routes. In this way they are each able to commit fewer ships to a particular service route, and deploy the extra ships on other routes that are maintained outside the alliance. The alliance services are marketed separately, but operationally involve close cooperation in selecting ports of call and in establishing schedules. The alliance structure has led to significant developments in route alignments and the economies of scale of container shipping (Slack, 2004). The consequences have been a concentration of ownership, particularly in container shipping. The 20 largest carriers controlled 26% of the world slot capacity in 1980, 42% cent in 1992 and about 58% in 2003. Those carriers have the responsibility to establish and maintain profitable routes in a competitive environment. This involves three major decisions about how such a maritime network takes shape (Notteboom, 2006):

• Frequency of service. Frequency is linked with more timely services since the same port will be called at more often. A weekly call is considered to be the minimum level of service but since a growing share of production is time dependent, there is a pressure from customers to have a higher frequency of service. A trade-off between the frequency and the capacity of service is commonly observed. This trade-off is often mitigated on routes that service significant markets since larger ships can be used with the benefits of economies of scale.
• Fleet and vessel size. Due the basic maritime economics, large ships, such as post-panamax containerships, offer significant advantages over long distances. Shipping lines will obviously try to use this advantage over their long distance routes, keeping smaller ships for feeder services. In addition, a large enough number of ships must be allocated to insure a good frequency of service. To keep their operations consistent, shippers also try to have ships a similar size along their long distance pendulum routes. This is not an easy undertaking since economies of scale force the introduction of ever larger ships which cannot be added all at once due to extensive financial requirements and the capacity of shipbuilders to provide them. So each time a bigger ship is introduced on a regular route, the distribution system must adapt to this change in capacity.
• Number of port calls. A route that involves less port calls is likely to have lower average transit times in addition to requiring a lower number of ships. Conversely, to few port calls could involve difficulties for the cargo to reach inland destinations remote from the serviced ports. This implies additional delays and potentially the loss of customers. An appropriate selection of port calls along a maritime facade will help insure access to a vast commercial hinterland.

Since many container shipping services have a pendulum structure, cabotage imposes some restrictions on these services.