CAPT. RENATO B.

AQUINO

MET 103 - MARITIME ECONOMICS

FINAL EXAM

MARITIME EDUCATION AND TRAINING ( MAMET )

FINAL EXAM

MET103-MARITIME ECONOMICS

1. What is Maritime Economics? Describe its role in maritime shipping industry.

Explain each activities and benefits.

Maritime economics is the application of economic analysis to all the functions

involved in moving goods and people by sea. It is defined as a field of study concerned
with the manner in which scarce productive resources are used to bridge the spatial
separation of international trading countries most effectively.

Trading is one of the most important applications of maritime transport.

Thousands of shipments travel through seas and oceans. All the world giants are relying
on maritime transport for conducting their trade. The countries who have exclusive
ownership of trade routes get the most benefits out of maritime transport.

We ship food, technology, medicines, and memories. As the world's population

continues to grow, particularly in developing countries, low-cost and efficient maritime
transport has an essential role to play in growth and sustainable development. ... Maritime
transport is the backbone of global trade and the global economy

2. What is IMO? What is IMO’s global mandate in shipping industry and its
particular country? Explain and elaborate your answer.

The International Maritime Organization (IMO) is the United Nations

specialized agency with responsibility for the safety and security of shipping and the
prevention of marine and atmospheric pollution by ships.

IMO was established to adopt legislation and Governments are responsible for
implementing them. When a government accepts an IMO Convention it agrees to make it
part of its own national law and to enforce it just like any other law.
The 4 Pillars of IMO: SOLAS, STCW, MARPOL, AND MLC.
 SOLAS is a set of international standards first released in 1914, in consequence to
the Titanic disaster. Today SOLAS regulates basic safety aspects for ships on
international voyages such as stability, machinery, electrical installations, fire protection
and lifesaving appliances.

The main objective of the SOLAS Convention is to specify minimum standards

for the construction, equipment and operation of ships, compatible with their safety. ...
The current SOLAS Convention includes Articles setting out general obligations,
amendment procedure and so on, followed by an Annex divided into 14 Chapters

The STCW Convention

STCW certification was created to promote safety of life and property at sea and
to protect the marine environment. It establishes internationally accepted standards of
training and certification of seafarers, ensuring that crew are qualified and fit for duties at
sea.

The International Convention for the Prevention of Pollution from Ships

(MARPOL) is the main international convention covering prevention of pollution of the
marine environment by ships from operational or accidental causes. The MARPOL
Convention was adopted on 2 November 1973 at IMO.

Just like SOLAS, which regulates the shipping industry to follow minimum
standards to safeguard life at sea, MARPOL is another important convention which
safeguards the marine environment against ship pollution. MAPOL and SOLAS are
considered to be two effective safety and environmental protection tools of IMO.

The Maritime Labour Convention, 2006 (“MLC, 2006”) establishes minimum

working and living standards for all seafarers working on ships flying the flags of
ratifying countries.

The comprehensive Convention sets out in one place seafarers' rights to decent
conditions of work on almost every aspect of their working and living conditions
including, among others, minimum age, employment agreements, hours of work or rest,
payment of wages, paid annual leave, repatriation at the end of contract.
3. What is chartering? There are different types of chartering. Explain charter
market, each term and legal aspects. Give examples and elaborate your answer.

Chartering is an activity within the shipping industry whereby a shipowner hires

out the use of their vessel to a charterer. The contract between the parties is called a
charter party. The three main types of charter are: bareboat charter, voyage charter, and
time charter.

In Bareboat Charter, owner of the ship delivers it up to the charterer for the agreed
period without crew, stores, insurance, or any other provision, and the charterer is
responsible for running the ship as if it were his own for the period of the contract. It also
known as “Demise Charter” where the people who rent the vessel from the owner are
responsible for the operations.

For example, a new building tanker vessel were chartered by an oil major
company (Shell Petroleum) meaning once the vessel is ready to sail on her maiden
voyage Shell will take over the vessel from the owner and they will operate the vessel as
it is their own, from Operation / Technical / Marine and crewing will be done by Shell
only. The real owner will only receive money from the agreed chartered terms and
condition

Under voyage charter, a ship is chartered for a one-way voyage between specific
ports with a specified cargo at a negotiated rate of freight, Payment is based on the freight
rate per loaded or unloaded quantity of goods and expressed in the applicable units of
weight or measure. Specifies a period, known as laytime, for loading and unloading the
cargo. It is also the hiring of a vessel and crew for a voyage between a load port and a
discharge port.

For example, a tanker vessel were chartered by an oil majors ( Equinor ) for a
certain voyage to lift a cargo from Oil terminal in Mideast to China , The vessel will
proceed to the load port at an specified date where the voyage start ..meaning the
voyage will start when the vessel arrives at load port during Laycan ( date of
cancellation )and it will be completed once the cargo will be discharged at discharge port
in China. The fuel and the crew management will be shouldered by the owners at this
time.

Time Charter is where the charterer undertakes to hire the ship for a stated period
or for a specified round-trip voyage or, occasionally, for a stated one-way voyage, the
rate of hire being expressed in terms of so much per ton deadweight per month. The ship
owner leases a vessel to a charterer for a fixed period, and they are free to sail to any port
and transport any cargo, subject to legal regulations.
 For example, a tanker vessel is chartered by an oil majors ( BP ) for 5 years. Once
the vessel is turned over by the owner to the charterer then, the charterer will be operating
the vessel on those 5 years including fuel but crew management and maintenance of the
vessel were still responsible by the owners itself

4. We have four shipping markets namely: new building, freight, sale and purchase,
and purchase demolition or scrap. Explain each and describe its effect in maritime
economics. Elaborate your answer.

The newbuilding market deals with transactions between shipowners and

shipbuilders. Contract negotiation can be very complex and extend beyond price. They
also cover ship specifications, delivery date, stage payments and finance. The prices on
the newbuilding market are very volatile and sometimes follow the prices on the sale and
purchase market. It brings new ships into the shipping industry and sends cash out of. the
market as materials, labor and profit. The newbuilding market is trading ships that are not
yet built-in other words the ship's keel may have been laid.

The Newbuilding Market is totally different from all the other shipping markets as
it is a market that deals with ships that practically do not exist and they have to be built.
This makes the function of this market quite complex with the three most serious
consequences to be the following: I. The specification of the ship is not fixed, thus it
should be determined. II. The whole contractual process of the project is far more
complicated. III. The ship will be available after 2-3 years from the contract date, which
means that the market conditions that are based on time may be different. This makes the
expectations very important for the whole process

The freight market can be defined as the place where the buyers and sellers of
shipping services come together to strike a deal. Freight is the reward payable to a carrier
for the carriage and arrival of goods in a recognized condition. There are 4 major types of
freight transportation available for shippers to use in the world of freight shipping. The
primary ones are by ground (road), rail, ocean, and air. Although these are the main
categories of freight transportation, each method has their own processes that differ from
one another. Shipowners contract to carry cargo for an agreed price per tonne while the
charter market hires out ships for a certain period. A charter is legally agreed upon in a
charter-party in which the terms of the deal are clearly set out.

A freight company has the job to arrange all the details required by a cargo
transport between shipper and carrier. The freight company works through individuals
called freight brokers. They are the actual employees that bring the profit and their job is
to find carriers and shippers.

In the sale and purchase market, second-hand ships are traded between
shipowners. The administrative procedures used are roughly the same as in the real-estate
business, using a standard contract. Trading ships is an important source of revenue for
shipowners, as the prices are very volatile. The secondhand value of ships depends on
freight rates, age, inflation and expectations.

The Sale and purchase of ship is one of the important aspects of the shipping
industry. It involves vast amounts of money and requires different kinds of professional
knowledge, such as knowledge of particular type of ship and its function, legal
knowledge as well as dealing and bargaining knowledge. In order to reduce the number
of disputes and smoothen the sale and purchase procedure, normally the shipowner
(seller) and the buyer will appoint brokers as middlemen to handle the transaction. There
are three main stages for the sale and purchase of a ship which include (1) the negotiation
and contract stage, (2) the inspections stage and (3) the completion.

It simply stands for Sale & Purchase (S&P), the business practice of buying and
selling commercial ships in the open market.

On the other hand, in demolition market, ships are sold for scrap. The
transactions happen between shipowners and demolition merchants, often with
speculators acting as intermediaries. It assists in balancing the supply and demand in the
shipping industry and is a major driver of market equilibrium and the level of freight
rates.

Little has been written about the ship demolition market, an essential element in
the supply/demand balance for shipping. Either technical or economic obsolescence may
be the cause for scrapping a ship, where the latter is strongly influenced not only by
anticipated freight market levels, but the rate at which more efficient ships are being
introduced. The scrap value of a ship is a function of both the realizable value of the
materials within the ship and cost of demolition. Both are strongly influenced by the cost
structures prevailing in the likely country of demolition. The paper explores not only the
fundamentals of the ship demolition market, but the trends from the 1960s to the present.
The shipbreaking market has moved in that time from being West European-centred to
Asian-centred, concentrating for some years in Taiwan, but now shifting to the Indian
subcontinent.
C/E Pancho A. Garcia PhD

MAMET Professor