Chapter 11 Review Slides: International Ocean Transportation

Chapter 11 Review Slides INTERNATIONAL OCEAN TRANSPORTATION LEARNING OBJECTIVES At the end of this chapter, the student should: 1 Identify the types of ocean transportation services and vessel sizes. 2 Understand the significance of ship flags and liability conventions. 3 Understand the sec...

Chapter 11 Review Slides INTERNATIONAL OCEAN TRANSPORTATION LEARNING OBJECTIVES At the end of this chapter, the student should: 1 Identify the types of ocean transportation services and vessel sizes. 2 Understand the significance of ship flags and liability conventions. 3 Understand the security requirements of the United States. 4 Understand the security requirements of the IMO. 5 Understand the function of non-vessel-operating common carriers (NVOCC). PREVIEW It is important to understand types of ship service and the types of ships available, so the shipper can know the correct marine application to make to successfully transport cargo. Besides examining these topics this chapter discusses other important issues such as flag of registration, liability conventions and the services of non-vessel-operating common carriers. 11-2 Chapter 11: International Ocean Transportation CHAPTER OUTLINE 11-1 Types of Service I. Liner ships operate on a pre-established schedule and with determined ports of call II. Tramp ships operate wherever the market dictates III. Analogy is of a liner as a public bus, a tramp as a taxicab 11-2 Size of Vessels 11-2-1 Deadweight Tonnage and Cubic Capacity I. Total capacity of ship expressed in long tons (2,240 pounds), or metric tons (2,204.6 pounds) II. Measured using weight of the difference in water displacement when ship is empty and when it is full III. Does not include: a. Fuel of ship, called the bunker b. Does not include supplies of ship, called the stores IV. Vessels have volumetric capacity for cargo, called grain or bale cubic capacity 11-2-2 Gross and Net Tonnage I. Gross tonnage is total volume capacity of the ship expressed in hundreds of cubic feet (2.83 cubic meters) II. Only measures capacity below deck III. Used to determine tax in country ship is registered or for fees for ports and canals a. Referred to as gross registered tonnage (GRT), which takes into account the specific way a canal authority determines gross tonnage IV. Net tonnage is tonnage minus engine room, crew, and other space necessary for operation of ship 11-2-3 Displacement I. Displacement tonnage is total weight of the ship, when fully loaded, measured by the weight of the volume of the water it displaces II. Light tonnage is weight of the ship, measured the same way, when the ship is empty 11-2-4 Plimsoll Mark and Load Lines I. Lines painted on hull to indicate different allowable drafts (how deep ship sits in water) in different situations Chapter 11: International Ocean Transport 11-3 II. Draft is determined by season, latitudes, and density of water a. Deepest draft a ship can sit is called “tropical line” (T) b. Next is “summer line” (S) c. Next is “winter line” (W) d. Then there is the “winter North Atlantic line” (WNA) e. There is also a “freshwater line” (F), since ships sit deeper in freshwater than saltwater III. Plimsoll mark sits at the same height at the summer line; it is a circle bisected by a horizontal line IV. Identifies the classification society that determines the vessel’s load lines V. Load lines correspond to geographical regions of the globe, and a vessel must be at the appropriate load line when it arrives in that location 11-2-5 Size Categories I. Difference is made between ships that can pass through the Panama Canal and those that cannot a. Maximum size that go through locks is called Panamax ship b. Larger ships are called Post-Panamax ships c. Locks are 1,000 feet long, 106 feet wide II. Handysize ship—dry-bulk trade in 10,000-50,000 deadweight ton range III. Suez-Max ships—those that can go through Suez Canal IV. Capesize ships—large dry bulk carriers more than 80,000 deadweight tons V. Very large crude carrier—oil tanker up to 300,000 deadweight tons VI. Ultra-large crude carrier (ULCC)—oil tanker more than 300,000 deadweight tons 11-3 Types of Vessels 11-3-1 Containerships I. Sixty percent of world trade is containerized II. Container volume is growing 7.5 percent per year since 1990 III. Containerships also known as “box ships” a. Can carry up to 18,000 TEUs (20-foot equivalent units) b. Some mixed cargo ships can carry as few as 100 TEUs c. Panamax containerships carry approx. 4,500 TEUs d. Post-Panamax containerships carry more than 6,000 TEUs e. Containerships are placing new demands on ports and areas around ports (bridge clearances) f. With plans for larger ships, trend is to create a system of large “hubs,” to and from which the mega-ships would travel, coupled with smaller, “feeder” ships, which would travel between the hubs and small ports g. Containerships hold containers under deck and on deck 11-4 Chapter 11: International Ocean Transportation h. Some ships are eliminated the concept of deck altogether. 11-3-2 Roll-On/Roll-Off Ships I. Roll-on/roll-off (RORO) ships carry self-propelled cargo: automobiles II. Carry cargo that can be wheeled on and off the ship: railroad cars III. Ship does not require special loading equipment IV. Containerized shipment of automobiles a. Does away with expensive stevedore labor to drive cars b. Eliminates costs of modifying ships for non-RORO cargo—important for countries importing more cars than exporting V. Livestock ships using same concept are trot-on/trot-off ships. 11-3-3 Break-Bulk or General-Merchandise Ships I. Category of vessels that is least homogenous: there are all sorts of break-bulk ships, which were often created for a specialized trade or a given shipping lane II. Multipurpose ships that can transport shipments of unusual sizes, unitized on pallets, in bags, or in crates III. Due to containerization and RORO, break-bulk ships’ share of international trade is decreasing IV. Main problem with a break-bulk ship stems from its labor-intensive loading and unloading: a. Each unitized piece must be handled separately, with several stevedores in the hull of the ship, and several stevedores on the quay, in addition to the crane operators. b. Since the cargo is of different sizes, each piece may require different equipment c. Securing of the loads on the decks is just as labor intensive, since pieces of cargo have odd sizes d. Break-bulk ships stay in ports much longer, especially since they cannot load or unload in the rain, and their schedules can be erratic V. Advantage of break-bulk ships is they can call at just about any port to pick up different kinds of cargo 11-3-4 Combination Ships I. Combination ships are designed to carry all sorts of different loads in a single voyage Chapter 11: International Ocean Transport 11-5 II. Typical combination ship has several holds in which bulk cargo such as timber or grain can be placed a. Holds can also be used for break-bulk cargo, especially oversize and heavy cargo, such as machinery, and sometimes containers b. Combination ship also has a tweendeck, or a deck below the main deck, which accommodates smaller break-bulk cargo, as well as vehicles that are loaded through a RORO access door c. On main deck, typical combination ship can carry several containers as well d. Combination ship has one or more on-board cranes, to increase its versatility and unload its cargo in any port III. Thrive on shipping lanes with a low volume of trade 11-3-5 Product, Chemical, and Crude Carriers I. All transport petroleum products II. Product vessels transport refined products, such as gasoline, diesel oil, or other refined products III. Chemical carries specially designed to carry chemicals, up to as many as 40 different chemicals, and referred to as “drugstore” ships IV. Crude carriers are bulk ships that transport unrefined (crude) oil V. Very large crude carriers (VLCC) and ultra-large crude carriers (ULCC) have such a deep draft that they can only call on very few ports in the world a. Stay at anchor and smaller crude carriers are involved in lightering, transferring cargo to port b. Sometimes VLCCs and ULCCs dock at artificial island and connect to pipeline which transfers cargo to port c. Commanded by captain called “master unlimited” who has skills to handle these large ships 11-3-6 Dry-Bulk Carriers I. Have several holds in which non-unitized cargo is placed II. Some are oil-bulk-ore (O-B-O) carriers in that they occasionally carry oil and oil products in bulk III. Tend to be small enough to go through Panama Canal IV. Baltic Exchange is a meeting place for brokers representing the ship and cargo owners to meet and conduct business V. Three types of charters used for bulk vessels: a. Voyage charter—hires ship with all functions provided by the ship b. Time charter—ship owner provides all services over a fixed period of time c. Bareboat or demise charter—hired and run by another party VI. Specific dry bulk carriers serve Great Lakes ports and are called lakers VII. While not considered to be dry bulk carriers there are specialized ships: a. Refrigerated (“reefer”) ships 11-6 Chapter 11: International Ocean Transportation b. Liquid food carriers c. Chemical tankers d. Cement carriers 11-3-7 Gas Carriers I. Carry liquefied natural gas (LNG) and liquefied petroleum gas (LPG) II. Often have a sailing schedule, like liners 11-4 Flag I. Country of registration II. Somewhat of an extension of the territory of the country III. Ship must obey laws and regulations of country of registry and taxes IV. Ship owner gets to choose country of flag a. Developed countries tend to have strict regulations: i. Crew composition, training, working conditions ii. Higher taxes b. Other countries have minimal requirements c. Some countries have open registry which ship owner can have vessel fly the country’s flag with no citizenship requirements of ship’s owners i. These are called flags of convenience ii. Some developed countries have secondary registries with regulations less strict than their regular registry d. Flag does not influence seaworthiness of vessel, which is done by classification societies and determines insurance premiums V. Countries attempt to influence flags a. Cargo Preference Act of United States requires at least 50 percent of U.S. Government cargo be carried by U.S.-flagged ships b. Jones Act requires cargo transported from one port in the United States to another port in the United States—a trade called cabotage—must be carried on U.S.-flagged ships c. All cargo in trades supported by the Ex-Im Bank must go through U.S.-flagged ships d. To provide ships for military needs, U.S. subsidizes high costs of U.S. flagging 11-5 Liability Conventions I. Hague Rules of 1924 limited the liability of a ship owner toward the cargo owners to U.S. $500 per package “or customary freight unit,” and it allowed ship owners to escape liability in seventeen specified cases a. Called the 17 “defenses” Chapter 11: International Ocean Transport 11-7 b. Includes infamous nautical fault, or errors of the crew of the ship in its management or navigation. c. In 1936, the United States adopted the Hague Rules by incorporating them in the Carriage of Goods by Sea Act (COGSA) II. U.S. $500 limit per package became a problem with the advent of containers, when shipping lines began claiming that they were “freight units” and attempted to limit their liability to U.S. $500 per container a. Hague Rules were therefore revised in 1968 to clarify the definition of “package” to the units listed on the bill of lading b. It also increased the liability of the carrier to U.S. $666.67 or U.S. $2 per kilogram, whichever was higher c. These revised rules are known as Hague-Visby Rules d. The United States has not ratified this treaty, although it has been ratified by all of its major trading partners e. In 1979, the Hague-Visby Rules were amended to reflect the declining value of the U.S. dollar, and the liability limits were expressed in Special Drawing Rights (SDRs), the artificial currency of the International Monetary Fund, and set at SDR 666.67 per package or SDR 2 per kilogram, whichever was highest III. The advent of better navigational equipment and the annoyance of shippers at the continuous existence of the nautical fault defense triggered yet another round of international negotiations led by the United Nations Commission on International Trade Law (UNCITRAL): a. Abolished the 17 defenses of the Hague and Hague-Visby Rules and replaced them with only three: i. The carrier took all reasonable steps to avoid damage ii. Damage by fire iii. Damage due to an attempt by the carrier to save life or property at sea b. It also increased liability limits to SDR 835 per package and SDR 2.5 per kilogram. These rules are known as the Hamburg Rules and have only been ratified by a small number of countries, only a handful of which are significant international traders IV. Since the United States has not ratified the Hague-Visby Rules nor the Hamburg Rules, the COGSA is still in vigor, even though it is grossly outdated with its limit of U.S. $500 a. Several efforts have been made to attempt to revise COGSA, but none of them has been successful to date b. With the advent of Ocean Shipping Reform Act (OSRA) and of private contracts between shippers and shipping lines, it seems that the liability limit has been lifted in many contracts, and that all but a handful of defenses have been eliminated V. There is still a problem with liability with intermodal freight 11-8 Chapter 11: International Ocean Transportation a. Liability limits are different for domestic transport in the exporting country, international transport by ocean, and domestic transport in the importing country b. When cargo is damaged in transit without the possibility of tracing where specifically in the voyage the peril occurred, which liability limit is applicable? i. The United Nations Conference on Trade and Development (UNCTAD) answered it in 1980, in a treaty that was proposed but never ratified ii. These rules, though, form the basis for the guidelines developed by the International Chamber of Commerce iii. In June 2000, the United Nations Commission on International Trade Law (UNCITRAL) started the process of creating a formal multimodal liability framework VI. The Rotterdam Rules (the results of UNCITRAL’s efforts) have higher liability limits than either Hamburg or Hague-Visby a. With SDR 875 per package and SDR 4 per kilogram b. Eliminates several of the 17 defenses c. Applies “door to door”—subjects exporting and importing countries to the same liability limits d. Convention has been signed by the U.S., but will not be in force until one year after the twentieth country ratifies it. As of August 2010, there were 20 signatories 11-6 Non-Vessel-Operating Common Carriers I. Shipping companies that do not own ships II. Regulated by the Federal Maritime Commission (FMC) III.NVOCC purchases space on a ship and sells space to companies needing to ship cargo IV. Shipping line is paid for space and weight whether or not the NVOCC resells the space (at a higher rate) V. NVOCC usually acts as a freight consolidator and aggregates less-than- container-load (LCL) freight from several customers into a full container: a. Allows small shippers to benefit from protection of a container b. Allows small shippers to ship without extra packing protection demanded by break-bulk shipping VI. Consolidators in the air passenger business followed the same model in buying blocks of seats on airliners at a discount, then reselling them to individuals, usually through discount travel agencies Chapter 11: International Ocean Transport 11-9 11-7 Security Requirements 11-7-1 Cargo Inspections I. The Container Security Initiative is a program through which CBP inspects, in the foreign port of departure, cargo destined for the United States 11-7-2 Advanced Shipping Notifications I. Worldwide 24-hour rule (providing manifest 24 hours before a ship sets sail) II. U.S. requires 10+2 (Importer Security Filing) which requires 10 pieces of information from the shipper, and 2 from the carrier, before the cargo is loaded Note: the remainder of the information on security is covered in Chapter 15. KEY TERMS 10+2 rule A set of required pieces of information that the shipper must provide to the U.S. Customs and Border Protection agency at least 24 hours prior to loading a shipment in the port of origin. Also known as the Importer Security Filing. 24-hour rule A rule first instituted by the U.S. Customs and Border Protection agency which requires carriers to send Customs the manifest of all cargo destined for the United States 24 hours prior to the cargo being loaded in the port of departure. Several other countries have adopted a similar requirement. bale The end result of a packaging technique which consists of taking a commodity and unitizing it by compressing it and placing it into a bag or encircling it with string, metal, or plastic bands. Bales are used to transport cargo that is difficult to ship unless compressed: wool, cotton, tobacco, used clothing, scrap paper, and recycled plastic bottles or aluminum cans. Baltic Exchange The world market for maritime cargo transportation, located in London, where cargo owners and ship owners negotiate the cost of moving cargo. It publishes multiple indices reflecting the market conditions for particular cargoes and types of ship. bareboat (or demise) charter A lease agreement (also called a charter party) between the owner (lessor) of a bulk cargo ship and a lessee, in which the owner provides the lessee with only the ship, 11-10 Chapter 11: International Ocean Transportation without any other services or supplies. See voyage charter and time charter for alternative charter party agreements for ships. box ship Another, more casual, name for containerships. breakbulk A type of cargo that is unitized---boxes, crates, or bales---and placed directly in the holds of a ship. breakbulk ship A type of ship designed to carry breakbulk cargo. Also called a general-merchandise ship. bunker The amount of fuel that a ship carries on board and that it needs to travel. cabotage An ocean trade consisting of shipping between ports located in the same country. chemical carrier A liquid-bulk ship that carries liquid chemicals. combination ship A type of ship that is versatile and can carry different types of cargo: containers, breakbulk, dry bulk, and RORO cargo. containership A ship designed to exclusively carry containers, both below its deck and above it. A containership's size is expressed in TEUs. Container Security Initiative A program instituted by the U.S. Customs and Border Protection agency, through which Customs agents are sent to the port of departure to inspect containers bound for the United States. Such containers are selected through screening or through suspicious activity flagged by the 24-hour rule. crude carrier A liquid-bulk ship that carries unrefined oil. deadweight tonnage (dwt) Chapter 11: International Ocean Transport 11-11 The maximum weight that a ship can carry. Since the ship also carries bunker and stores, the maximum weight that a ship can actually carry is lower than its dwt. deck A permanent cover over the ship's hull. displacement tonnage The total weight of the ship, when fully loaded, measured by the weight of the water displaced. dry-bulk carrier A dry-bulk ship that carries grain, ores, dry chemicals, or minerals directly in its holds. dry-bulk cargo Dry cargo that is loaded directly into the hold of a ship, without any form of unitization. Although dry, the cargo exhibits the properties of a liquid, in that it takes the shape of the hold. Examples of dry-bulk cargo include grain, coal, plastic pellets, gravel, and iron ore. flag The flag of the country in which a ship is registered. By extension, the country in which the ship is registered. flag of convenience Designation of the open registry of a country that has lower taxes and more lenient on- board regulations than other countries with open registries. A derogatory term. general-merchandise ship Another name for a breakbulk ship. grain An agricultural commodity, such as corn, wheat, oats, or soybeans. gross registered tonnage (GRT) The volume capacity of a ship (see gross tonnage), calculated in a way that meets the requirements of a specific authority, such as the Panama Canal Authority or the Suez Canal Authority. gross tonnage The total volume of a ship’s carrying capacity, measured as the space available below deck and expressed in hundreds of cubic feet. The gross tonnage is the basis upon which ships pay taxes or fees to transit through a canal. 11-12 Chapter 11: International Ocean Transportation Hague Rules An international liability convention for ocean-going carriers that limits their liability to U.S. $500 per package. The liability convention followed by U.S. carriers until the Rotterdam Convention enters into force. Hague-Visby Rules An international liability convention for ocean-going carriers that limits their liability to SDR 667 per package or SDR 2 per kilogram, whichever is higher. This liability convention is the most commonly used in the world; however, the United States did not ratify this convention. Hamburg Rules An international liability convention for ocean-going carriers that limits their liability to SDR 835 per package or SDR 2.50 per kilogram, whichever is higher and eliminates most of the “defenses” a carrier could use to discharge itself of liability. The Hamburg Rules have not been ratified by many countries; the United States did not ratify this convention. hold In a ship, a portion of the inside volume designed to hold cargo. Importer Security Filing A set of pieces of information that the shipper must provide to the U.S. Customs and Border Protection agency at least 24 hours prior to loading a shipment in the port of origin. Also known as the 10+2 rule. laker A cargo ship designed for the Great Lakes of the United States and Canada. Their maximum size is dictated by the size of the locks through which they will travel. light tonnage The total weight of the ship, when empty, measured by using the weight of the water being displaced. lightering The process by which a large vessel’s cargo is unloaded offshore into smaller vessels that then take the cargo to nearby ports. The large vessel cannot access these ports because they are not deep enough or not equipped to handle such a large ship. liner ship A ship that operates on a regular schedule, traveling from a group of ports to another group of ports. liquid-bulk carrier A ship designed to transport liquid cargo held directly in the holds of a ship. Chapter 11: International Ocean Transport 11-13 load lines Marks on the side of the ship that indicate how low a ship can be in the water, depending on the season and conditions. LNG-LPG carrier A ship designed to transport liquefied—compressed—natural gas or petroleum gas. nautical fault An error in navigation made by the crew of a ship. net tonnage Obtained by subtracting the volume occupied by the engine room and the spaces necessary for the operation of the ship (crew quarters, bridge) from the gross tonnage. open registry A country that allows vessels owned by companies having no business relations in its territory to be registered in that country and carry its flag. Panamax ship A ship of the maximum size that can enter the locks of the Panama Canal. Plimsoll mark A mark on the side of the ship that indicates the classification society that inspects the ship. post-Panamax ship A ship whose size is too large to enter the locks of the Panama Canal. product carrier A liquid-bulk ship that carries refined oil products. RORO or Roll-On/Roll-Off ship A type of ship in which cargo is rolled on board rather than carried by crane. Rotterdam Rules A liability convention for intermodal shipments, implemented by the United Nations, but which only fifteen countries (including the United States) had yet ratified as of September 2009. secondary registry A response by developed countries to the threat of open registries and flags of convenience: They created a secondary registry with lower on-board standards and taxes to entice ship owners to carry their flag and not defect to flag-of-convenience countries. 11-14 Chapter 11: International Ocean Transportation stevedore A person who loads and unloads goods from a vessel in a port. stores All the supplies that a ship carries and that it needs to function. TEU-Twenty-foot Equivalent Unit. The equivalent of a twenty-foot container. A forty-foot container is two TEUs. time charter A lease agreement (also called a charter party) between the owner (lessor) of a bulk cargo ship and a lessee in which the owner provides the lessee with the ship, the crew, and all other services or supplies, for an agreed-upon period of time. See voyage charter and bareboat charter for alternative charter party contracts for ships. tramp ship A ship that does not operate on a regular schedule and is available to be chartered for any voyage, from any port to any port. trot-on/trot-off ship A ship designed to carry livestock. It possesses a ramp that the animals can use to walk on-board and exit the vessel. tweendeck In a combination ship, a deck located below the main deck that is used to carry smaller- size break-bulk cargo, such as vehicles. voyage charter A lease agreement (also called a charter party) between the owner (lessor) of a bulk cargo ship and a lessee, in which the owner provides the lessee with the ship, the crew, and all other services or supplies for a single voyage. See time charter and bareboat charter for alternative charter party contracts for ships. wet-bulk (liquid) cargo Liquid cargo that is loaded directly into the hold of a ship, without any form of unitization. Examples of liquid bulk cargo include crude oil, vegetable oil, alcohol, and molasses, as well as liquid chemicals, such as chlorine or caustic soda.