Maritime and Logistics Management - Essay Example

? Department of Maritime and Logistics Management-Voyage Planning Assignment In regards to the question of the bulk carrier owned by the bright star shipping company, and which route it should take the issue must always be reduced to the most profit available at the least amount of distance traveled. The ship is expected to be re-delivered to the bright star shipping company at Hong Kong, whereupon a choice concerning possible voyage charters must be made. If the ship arrives at Hong Kong, in order to undertake either option for employment the ship must initially traveled to another port. It is not specified whether or not the ship will be able to carry a cargo on its way to either Manila or Shanghai in order to take either of the two jobs available. Conventional logic dictates that whenever a ship makes an oceanic voyage, it is more efficient for the ship to contain a cargo rather than simply travel empty. If at all possible, any cargo vessel should attempt to carry cargo of some sort even if its ultimate objective is to arrive at a different port city to undertake a more valuable cargo. Without knowledge of whether or not the vessel can undertake a cargo on its way to either of the major ports, then this analysis will presume that there is no cargo known it to be available for this ship when it arrives in Hong Kong. Therefore, if a situation arises where the cargo vessel must travel empty then the links of an empty voyage should be minimized. Therefore, it is more logical in this instance to travel from Hong Kong to Manilla due to the simple fact that the distance the ship will have to travel without a cargo will be minimized, as opposed to a trip from Hong Kong to Shanghai, a greater overall distance in nautical miles. Moreover, a shorter journey would enable the ship to undertake the paying job faster. What this analysis must determine is whether or not the expense and profit potential of option one would outweigh the benefits of option two in the long run. If there is a potential for greater profit at the end of the final voyage, it must be great enough to outweigh the potential for lost time and the expense of traveling to either destination without cargo. The amount of the respective cargoes the ship can hold must also be considered based upon the available price. For steel, each unit will be packaged as .91 m? per tonne as opposed to 1.20 for the timber. So for the same amount of weight, a greater volume of steel can be loaded onto the ship. In addition to the weight over volume difference between the two commodities, the price for steel is also higher. By calculating cubic meters, it has been found that the same weight of steel will take up just slightly more than three fourths the volume of the same weight in timber. Under these circumstances, it is necessary to make determinations concerning the most useful cargo carrying strategy for the ship in question. Additional information that would aid in this determination is whether or not the Nunki is specialized for one cargo or the other. All ships have weight and volume limitations, the ship specialized for a particular cargo but loaded up with a different commodity with an unusual stowage factor may find itself in the situation of being unable to fully utilize its entire volume by carrying the cargo in question. The same weight in steel represents just over 75% of the same volume in timber, and this must be factored into price calculations. With the net tonnage of 18,800, we must still subtract from that 400 tons of dead weight (including freshwater and constants) leaving 18,400 tonnes remaining. Under ideal conditions, and traveling an identical distance it would be more logical to carry the steel cargo, unless specialized factors in ship construction would further reduce the available volume if steel were not the originally intended cargo of the vessel. But in this case, the different destinations will represent differences in the time and route of the two possible voyages. Calculations: Net Tonnage 18,800 0.91 / 1.2 = 0.75 Steel 24.50 per tonne Assuming speed of 10 nm/hour Timber = Hong Kong - Manilla, 632 nm, 2.6 days - Manilla - Trinidad (11,166 nm total) 46.5 days at sea – ETA 11/1. Steel = Hong Kong - Shanghai, 845 nm, 3.5 - London (11,329 nm total) 47.2 days at sea – ETA 11/2. Under these conditions, it is possible to make certain reasonable extrapolations concerning the relative efficiency and potential profitability of either voyage. Without specific knowledge concerning design features favoring one form of cargo over the other, then it is assumed that the overall capacity of timber as opposed to steel will be similar, or at least differences in the overall amount of volume the ship can carry will not be significantly affected by the origin of the cargo. Therefore it is assumed that the bulk carrier has a particular weight limit in terms of the cargo it can carry. But the same weight in timber will take up a larger volume than the same weight in steel. By the time the cargo hold is loaded to the maximum capacity allow by its volume, the amount of weight it is carrying would be less for timber as opposed to steel. In addition, steel also commands a higher price. In order to choose the timber cargo as a profitable option, there are two essential tests at which point the timber carrying job would need to demonstrate advantages over the other option. There would need to be a price differential between timber and steel in favor of the lumber. This is not the case. For a given amount of weight, a steel cargo represents a $3.30 advantage over timber. And as we have established, it is possible to put a greater volume of steel into a given area based on the difference in volume as compared to the wood. The bulk carrier with a cargo of timber will fill up its volume with less weight, which will command a lower price in any event. There is another consideration to factor into the analysis, whereby it might be possible to legitimately except the cargo of timber. Distance as well as cargo capacity is the other determining factor in this case. If the ship travels from a starting point in Hong Kong, either journey to its ultimate destination with a full load of cargo would be just over 11,000 nautical miles. The voyage carrying the steel cargo would be slightly longer, but the overall difference amounts to less than one day at sea. The difference between arriving on November 1 or November 2 if the ship were to leave Hong Kong at the same day that it arrives on September 16. However, more time is necessary due to the loading requirement demanding a stay in the loading port of 120 hours. The voyage is slightly longer with steel, and it must be determined whether or not this difference would amount to a meaningful difference in time and profitability. The above calculations indicate roughly a 75% disparity of weight over volume between steel and timber. Even given the same price for the commodity, some reason would need to be given in order to justify the potential loss of salable weight from the timber cargo. The distance would have to be significantly greater for the steel journey as opposed to the alternative. A secondary set of calculations will attempt to demonstrate the necessary disparity which would have to exist in order for the timber to be a viable option. 21.20 - timber, 24.50 - steel 24.50/21.20 = 1.156 ~ 1.16 0.91/1.2 = 1.31 One being an equivalent quantity, the decimal constitutes the discrepancy. .16 + .31 = .47 47.2 / 100 = 0.47x 47 = 22.18. For the above calculations, The discrepancy of 75% is translated into time, in addition to an expression of the cost difference in terms of commodity price. Combining these factors yields a percentage. This represents the hypothetical time difference that would need to exist in order to make the timber voyage more cost-effective than steel. There would need to be a difference greater than 22 days between timber and steel voyages, in order to offset the cost differential per unit of weight. The real difference is not quite 24 hours. Under the circumstances the available information creates a situation where it is most definitely more cost-effective to take the steel cargo job. Other factors with the potential to alter this balance as stated earlier, would be design specifications expressly intended to optimize storage capacity for timber, as opposed to metals. No such information is given. At present there is no rationale for any other choice. Other factors have been considered, such as the need for dead weight compared with that of cargo, nor are there any draft restrictions. The ships must also purchase fuel, but the amount spent on fuel would not be expected to overcome the cost differentials. It is reasonable to conclude that the steel order is more cost-effective, and factoring in the time needed to load the cargo, a ship carrying the timber cargo would not be expected to arrive before November 6, whereas a vessel carrying the steel cargo would not be expected to arrive before November 7 – factoring in the extra 120 hours. A ship carrying steel to London should arrive at approximately 1 PM, or 1300 hrs. military time. A bulk carrier with the timber cargo should arrive at 11PM local time. Other Logistical Concerns In an age with mounting concern over fuel consumption and possible environmental damage as a result of fossil fuel utilization, Maritime operations may experience increased pressure to undertake shorter voyages whenever possible. In this case, while the difference between the two options appears to be less than that of one day's travel, political concerns have altered the business of maritime trade and through political and financial pressure in the past, and are likely to do so again (Senge, Smith, & Kruschwitz, 2008;Wintersteller, Quandt, & Kley, 2009). It is in the interest of the manager of a maritime operation to predict when and how such trends are most likely to emerge, and to remain ahead of the curve if possible (Saunders, Strock, & Travlos, 1990; (Kahneman & Lovallo, 2006; Samija, 2010). The dynamics presented during the course of this analysis may be subject to change in the face of international political pressure to always undertake the shortest route whenever possible in order to limit fuel consumption. Issues of this sort – as with all other matters in maritime shipping must fall under the envelope of yet another cost-benefit analysis. Impositions or restraints upon logistics of maritime operations as a result of political pressure will probably come in the form of duties or taxes, and a cautious analysis is necessary to determine how the winds of political change will alter the bottom line for maritime shipping. As it stands currently, similar quantities of fuel would have to be purchased in any event for either of the two routes proposed in this article. And only if the trip were extended by 22 days or more with the timber shipment prove cost-effective. But the prospect of increasing costs for energy, while unlikely to affect a voyage – or the choice of a voyage with only one days difference represents a source of potential limitation in the future. But increases in taxation, and changes in market forces that result in increases to fuel prices could render transatlantic voyages prohibitively expensive, if economic growth does not keep pace with energy costs. Conventional wisdom would seem to dictate that rising fuel costs would be inherently negative for any form of transportation business, but it is possible for any economic situation to be of benefit to certain individuals under the right circumstances (Hanlon, Rajgopal & Shevlin, 2004; Lun, Lai, & Cheng, 2010). Decreases in fuel costs are not always positive – a sharp decline in oil prices worldwide was a symptom of a fundamental collapse in worldwide demand in 2009, as a result of the aftermath of the banking crisis (Krugman, 2009). Prohibitively sharp declines in oil prices represent a decline in the industrial activity that would normally motivate the consumption of oil. Should fuel prices drop too low, it could serve as an indicator of deeper economic problems that will interfere with the purchases in other sectors that create the demand for maritime transport in the first place. It is essential that those in control of maritime enterprises conduct continuous calculations and evaluations of their available options and the efficiency of their operations. With oil tankers especially, spills and explosions are ever present concerns (Etkin,2000; Devanney, 2006; Harstad, 2010), even when shipping dry bulk cargo, time is still money and complex decisions must be made in order to optimize the profit potential of whatever ships are currently on the waves. As technology advances explosive tragedies are less common as a result of ongoing progress and advancement both in terms of structural innovations, as well as a growing sense of global interconnectedness amongst the management. In more difficult economic times, it is common for there to be fewer ships and see – increasing the pressure for those that do ply the waves to make fewer mistakes and again a broader comprehension of the political implications of the changes going on around them with the potential to extend into the maritime trade (Rodrigue, 2010). Environmental concerns, as well as the threat of increases in the cost of fuel exemplify these concerns. Excessive energy costs could prove equally disastrous for the transportation industry, yet in the converse of the prior situation – higher fuel costs could represent an upswing in economic activity, and therefore more business. In purely logistical terms it may be prudent for maritime companies to put fewer ships on the ocean at any given time, in order to minimize expenses. Logistical decisions do not exist in a vacuum, and those in charge of maritime organizations must by necessity be cognizant of the wider world, and prevailing trends of economic growth and decline. While fluctuations in the global economy are notoriously unpredictable at best, they represent the province of forward thinking administrative overseers and corporate management. One trend to be cognizant of is the principle of mobility, the ability to travel freely goes hand-in-hand with overall economic health, one indicator of which is global trade in maritime shipping. But challenges and struggles occurring in one part of the world can very easily affect others as economies grow increasingly interconnected the world over. Greater ease of travel and communication has fed an economic gestalt reality where fluctuations in the American stock market will affect those in Europe, and where austerity measures in Greece prompted not only riots, but also socioeconomic concerns throughout Europe as well. Within an increasingly interconnected world, the business of logistics for maritime purposes becomes more than simply predicting the shortest route between point A and point B, but remaining ahead of prevailing forces that may alter this balance at any time. References Devanney, J. (2006) The Tankship Tromedy: The Impending Disasters in Tankers. Tavernier, FL: The CTX Press. ISBN 0-9776479-0-0. Etkin, D.S. 2000. Worldwide analysis of marine oil spill cleanup cost factors. Technical report, Arctic and Marine Oil Spill Program Technical Center, June 2000. Hanlon, M. Rajgopal, S., Shevlin, T. 2004, Large Sample Evidence on the Relation between Stock Option Compensation and Risk Taking, University of Washington Harstad, E. 2010. tanker update News from DNV to the tanker industry No 02 2010.Triality – Taking environmental and economical performance a long step forward. published by DNV global governance, market communications. Krugman, P., (2009), Revenge of the Glut, New York Times, March 1. Lun, Y.H.V., Lai, K.H., Cheng, T.C.E., 2010. Shipping and Logistics Management, Springer - Verlag London Limited, London, 2010, pp.9-21 Rodrigue, J.P. 2010. Maritime Transportation: Drivers for the Shipping and Port Industries. International Transport Forum 2010 Transport and Innovation: Unleashing the Potential. Jean-Paul Rodrigue Dept. of Global Studies & Geography Hofstra University Hempstead, New York United States, 11549. Paper Commissioned for the Experts? Session on Innovation and the Future of Transport Paris, 26 January 2010. Samija, S. 2010. MARITIME TRANSPORT MANAGEMENT FOR THE PURPOSE OF EFFICIENCY AND SAFETY OF SHIPPING SERVICES. Suzana Samija, University of Rijeka Faculty of Maritime Studies Studentska ulica 2, HR - 51000 Rijeka, Croatia. Croatian Ministry of Science, Education and Sports, under Project No.: 112-1121722-1719. Saunders, A., E. Strock and N.G. Travlos, 1990, Ownership Structure, Deregulation and Bank Risk Taking, Journal of Finance, v45, 643-654.  Senge, P. Smith, B. Kruschwitz, N. 2008. The next industrial imperative, summer 2008: rethinking corporate innovations to face up to climate change. www.strategy-business.com/article/08205. Accessed: 7/5/2012. Smith, C.W., and R.M. Stulz, 1985, The determinants of firms' hedging policies, Journal of Financial and Quantitative Analysis 20, 391-405. Read More