Deviation in International Carriage of Goods and Trade - Essay Example

Sur [Supervisor's Literature review on the topic of deviation in international carriage of goods and trade The Global Trade exists at the age of Christopher Columbus, a man who opened the 'New World' up for exploration by European Traders. During the 1400s and 1500s were times of great world exploration. Explorers and traders from countries all over Europe and Asia set out around the world in search of adventure, knowledge, new trade routes and new products. European and Asian traders had been trading among each other for hundreds of years before this. They had traveled using land route, the Silk Road and camel caravans to move goods from place to place. But the new sea route around Africa was quicker and safer. It led to an explosion of world trade that involved people in all over the world. (Wilson 8-12) Transportation is a significant part of doing business globally. Freight logistic companies nowadays have to adapt themselves to serve customers' need which is endless. Customers have become global, they require global support and multimodal capabilities. They are interested to use fewer service providers to extend cooperation and communication among modes and between carriers to them. The role of the freight forwarder is changing from an agent who arranges transportation and prepares shipping documentation to a provider of the whole range of additional value-added services to shippers. At the same time, many forwarders are merging with large logistics companies to become part of one-stop-shop specialist companies. (D'Arcy 71-80) In 2002, market demand grew by double digits. As China joined the World Trade Organisation, many multinationals relocate production of a whole range of consumer goods from their domestic plants, mainly in the US and Europe, to this region, where production costs are much cheaper, which led to rapid growth in all trades from China. The major route of ship liners are divided into three main routes, Transpacific (Asia/US), Asia/Europe/Asia, and Transatlantic (US/Europe). The strength of the Transpacific (Asia to US East Coast) trade is continuing, with 491,000TEU moving in 3Q 2003, 18% up from 2Q 2003 and 5.6% up from the same period in 2002. (Chuah 1-22) This has been encouraged by low interest rates despite the slowdown in the US economy. The Asia-Europe trade also grew by 11% in 2002, and carriers have deployed any extra ships on the Asian trades to maximise profits. This strategy is also benefiting other trades such as the Transatlantic, as it keeps the supply of capacity down. Market share of shipping company is based on their capacity in number of TEU(Twenty-foot Equivalent Unit). The top-ten liners are held around 40% of the whole market, while the total market has 459 different players faced with high competitive environment. (Schnitzer 5-25) Maersk Sealand held the largest proportion of market share in the industry over the last five year. Not only the biggest by far but also probably one of the best equipped lines to face the future. MSC (Mediterranean Shipping Company) are a young shipping line. (Taylor 87-99) The company has grown incredibly fast and ranking number two toward this year and last year. P&O Nedlloyd was following the merger of P&O Containers (UK) and Nedlloyd Lines (Rotterdam). It face with high competitive and fell down to 3rd ranking since 2002. The settlement in the contract is mainly composed of the service provided by the shippers, the flexibility of services, price and the length of contract. The leading companies try to get the globe shipper to be in the part of their portfolio. (Todd 11-13) Due to the fact that a different group of clients have different requirements, some may look for the quality of service rather than price. As a result, the shipper has to offer the tailor-made contract to each group of customer. Whenever the contract has been signed, it means that the carrier is obligated with their promise. In case of missing their commitment, the shippers would loose their reputation which is significant in this business. Shippers have to evaluate their own capability before offering any service to the client to avoid the lost of their reputation. The analyst forecasts that the demand for container service tends to increase due to the upturn of economic. In the Asia outbound route, demand for transport tends to exceed in the near future. So, the shipper is looking forward to the long-term contract to be confirmed that they would have the shipment for their business running. Freight rates have been strongly influenced by the market condition. The narrowing of the gap between supply and demand on a particular route rises up freight rates and vice versa. This demand is primarily driven by the world trade in containerized commodities. Freight rates are volatiles depending on not only a fluctuation of economic, but also the demand of containerized commodities. From three main routes of shipping lines, freight rate departuring from Asia is much higher than that from US or Europe. (Trebilcock 5-9) The historical data shown that the production site has shifted toward Asia resulted in a huge increase in demand for ship liners from Asia than that from other sites of the world. The more demand, the more raising the price of freight e.g., in Transpacific route, Price Eastbound from Asia to US is more than Westbound from US to Asia despite the same distance. This evidence can also be proved in Asia/Europe/Asia route while Transatlantic route is not similar, freight rate does not depend on the site of departure or in another word, demand from the both sides of this route are fluctuated. (Perdikis 1-13) The growth of demand for containerization has driven shipping company to acquire more capacity, e.g. establish new lines, increase the size of ships in an existing line, increase the frequency, and/or increase the number of ports. However, they could not optimize the capacity utilization. Prices for capacity can be swung unpredictably. As describe above, the demand for both sides of the same route are not the same. For example, when capacity utilization in the westbound shipping lane from Asia to Europe is optimized, the price was close to the theoretical price predicted. (Sellman 11-23) On the other hand capacity utilization in Asia is not the same, it seems to be lower than the former lanes, leading to a price drop far below what theoretical predicted.Shipping companies have the hurdle to fill empty holds in reducing prices to their marginal costs. Historical data regarding freight rates are not generally available partly due to not only the complicated structure of freight rates but also the confidentially of service agreements. Maersk Sealand has the strategy to concentrate on their key customer accounts. It has identified 50 global shippers who are their "VIP customers" and these accounts are given first class treatment and Key Account Managers who look after them. The special price or rebates can offer to these VIP customers in order to maintain their loyalty and to compete with other shippers. Conclusions Starting with the borderless of the world, business becomes global. The evolution of transportation is the part of doing business globally. Due to the enhancement in information technology and communication network, the carriers enable to provide the quality of service to the customer and also operate their business efficiency. To be the leading company in this business, carriers have to provide a full range of services to their clients. As a result, door-to-door service is very fashionable nowadays. Price, speed, reliability and flexibility of service are the criteria that shippers use to determine in which carriers they should deal with. To manage business globally, partnership is one of the strategies that both carriers and clients are undoubtedly looking for. Works Cited Chuah, Jason. Law of International Trade. London: Sweet & Maxwell, 3rd ed., 2005. D'Arcy, Leo. Schmittoff's Export Trade : The Law & Practice of International Trade. Carole Murray. Barbara Cleave. 2000 Perdikis, Nicholas & Robert Read, eds. The WTO and the Regulation of International Trade : Recent Trade Disputes Between the European Union and the United States (Cheltenham : Edward Elgar, c2005). Schnitzer, Simone. Understanding International Trade Law (Southernhay East, Exeter : Law Matters, 2006). Sellman, Pamela, ed. Law of International Trade, 4th ed. (London : Old Bailey Press, 2003). Taylor, Martyn D. International Competition Law : a New Dimension for the WTO (Cambridge : Cambridge University Press, 2006). Todd, Paul. Cases and Materials on International Trade Law (London : Sweet & Maxwell, 2003). Trebilcock, M. J. & Robert Howse. The Regulation of International Trade, 3rd ed. (London ; New York : Routledge, 2005). Wilson, John F. Carriage of goods by sea. Harlow : Pearson Longman, 2004. Read More