ITLS6300 Maritime Management

and Logistics

Day 3 : Revision

Professor Michael Bell

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(a) Contrast the landside supply chain for coal at Newcastle with the landside
supply chain for iron ore at Port Hedland. (b) What strategy can be used when
stockyard space at the port is in short supply?

(a) In Newcastle, multiple mining companies use a number of rail operators to haul
coal to Newcastle on track owned by a number of companies, all coordinated by
the Hunter Valley Coal Chain Coordinator. In Port Hedland, there are fewer
mining companies. The majors (large mining companies) own the railways that
carry the iron ore to their own terminals, a much simpler arrangement. In this
case the port authority needs to coordinate as the entrance to the port only
allows one ship to arrive or depart at a time.
(b) When stockyard space is scarce, coal can be ordered from the mines when
required in a process referred to as cargo assembly. Stock can be kept at the rail
head when stockyard space at the port is in short supply.

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(a) Explain why LNG supply chains are expensive to build, and (b) explain the role
of FPSO, FLNG and FSRU in hydrocarbon supply chains.

(a) The production of LNG requires the purification of natural gas followed by its
cooling to -161C. This is done in a train. LNG is then stored in tanks made of
special steel (normal steel cracks at -161C). LNG carriers are among the most
expensive ships to build. At the other end, LNG is again stored in special tanks
prior to regasification. Regasification requires the input of energy.
(b) A Floating Production, Storage and Offloading (FPSO) ship is a floating vessel
used by the offshore oil and gas industry for the production and processing of
hydrocarbons, and for the storage of oil. FLNGs allow relocation of LNG
processing trains into the sea to unlock remote, smaller gas fields, reducing
capital expenses and impact on the environment. A Floating Storage and
Regasification Unit (FSRU) allows regasification at more remote ports where
land-based facilities would not be economically justified.

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The optimal shipment size is equal to , where cf is the fixed cost in $ per trip,
+2
Y is the output in tonnes per day, l is the inventory cost in $ per tonne per day, and
w is the storage cost in $ per tonne per day. (a) What is the optimal shipment size
when the charter rate is $1,000 for the trip, output is 1,000,000 tonnes per day,
inventory cost is $1 per tonne per day and storage costs $2 per tonne per day? (b)
How does optimal shipment size depend on distance and speed?

103 106
(a) The optimal shipment size is = 2 108 = 14,142 tonnes.
1+22
(b) As the distance increases so will the fixed cost per trip as the charter cost is
usually based on a daily rate. Increasing distance could then be countered by
increasing speed, but this would increase the amount of bunker consumed during
the trip, which is proportional to speed squared. At some point the savings in
time cost would be offset by the increase in bunker cost.

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(a) What is arbitrage across space and time for a commodity?

(b) What is a contango situation in the oil market and what impact does it have
on tanker charter rates?

(a) Arbitrage across space is the purchase of a commodity where the price is low and
the sale of the same commodity where the price is high, leading to a demand for
ships to move the commodity between markets to exploit price differences.
Arbitrage across time is the purchase of a commodity now for sale in the future,
with the intention of making a profit after storage and interest charges.
(b) In a contango situation, hedgers or investors are willing to pay more now for
future delivery of a commodity (oil) than the spot price plus storage and interest
charges. This leads to the storage of oil, frequently in ships, pushing up the
charter rates for larger, older tankers.

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(a) What kind of freight is shipped as break bulk and why? (b) Contrast the
stevedoring task for break bulk with the stevedoring task for containers?

(a) Cargo is shipped as break bulk when this is an economic consideration or a

physical necessity. One economic consideration relates to items whose weight
reaches the limit before the container is full. Bundling goods into unitised
cargoes is also often more efficient than utilising containers and is common for
timber, steel pipe, steel coil and aluminium ingots. Items too large to fit or with a
shape too difficult to position inside a container, referred to as project cargo,
goes as break bulk.
(b) Loading and unloading of break bulk is done by a team of stevedores, requiring
considerable skill and frequently working in dangerous environments, such as
ship holds. When project cargo is loaded it must be correctly lashed, a skilled job.
By contrast, the loading and unloading of containers is highly mechanised,
requiring a driver for the quay crane and (if not automated) further drivers for
the horizontal transport. Stacking cranes are automated in more modern
terminals.
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(a) Would you expect autonomous ships to be larger or smaller and why? (b)What
factors are important for ship routing and scheduling?

(a) The automation of ships means the crew and crew quarters may be removed,
saving both space and fixed cost. Reduction of the fixed cost per trip leads to a
smaller optimal ship size. Furthermore the standardisation of autonomous
system components means that their cost of manufacture falls as more are made,
further reducing the cost of the ship, and therefore the fixed cost per trip.
(b) Ship routing between any pair of ports is influenced by the presence of ECAs, fuel
price differentials, and weather. Ship scheduling, namely the sequence of port
calls, depends on the origin-destination matrix of container movements. If
possible, dominant destinations should immediately proceed dominant origins, so
that sufficient capacity is created on the ship while minimising periods of low
utilisation. TEU-miles should also be minimised to avoid unnecessary capacity
utilisation.

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