The roles described below may in reality be combined in full or in part by the same company, for example a cargo owner may act as charterer as well as the owner and manager of a merchant fleet.
The key stakeholders in the maritime sector are:
A Ship Owner, the company that owns the asset (ship). Ship owners invest their money, with or without the financial assistance from banks or private funds, in building new ships (new buildings) or purchasing second-hand ships. The Ship owner has to determine when to buy, what type and what size of ship to buy, at which price, and then arrange financing.
Other critical decisions have to do with the operation and the technical management of the ship. Some Ship owners have integrated departments for technical or commercial operations. Other Ship owners (usually of small and medium size, <10 ships) prefer to outsource the commercial and/or the technical management of their fleet to specialised companies, which are called Ship Operators (commercial management) and Ship Management companies (technical management).
Ship owners aim to make a profit by:
- buying ships low and selling them high (speculative investment), and
- chartering the ship at profitable freight rates.
The leading ship owning countries are Greece, China, Japan, Germany, Norway, Denmark, USA and others.
Figure: UNCTAD Building, ownership, registration and scrapping of ships, 2017 (percentage of world total)
A Ship Operator is the company responsible for chartering the ship. The Operator will have to make the following decisions:
- which cargo order to fulfil and at what freight rate,
- choose between different types of chartering such as voyage trips, time charter, bareboat charter and contract of affreightment,
- where to refuel (known as bunkering), the quantity of bunker fuel and at what prices,
- determine ship routes and cruising speeds as well as maintaining strategic positions so that ships are as close as possible to ports with profitable next cargo orders,
- negotiate port expenses, select port agents, estimate and budget costs, make payments etc. Ship operators will often operate “pools” on behalf of several different owners and the ships already under their control. In this manner, ship owners reduce the risk from each individual ship by sharing the overall upside/downside from the economics of all the ships in the pool. Ship owners are, however, free to leave a pool at any time they wish.
A Ship Management company is the company that is mainly responsible for the crewing, technical maintenance and supply of food and spare parts. Ships are expensive, depreciating assets that require high quality maintenance. Proper maintenance is often crucial for achieving higher freight rates by ensuring the high quality and safe transportation of goods they carry. Proper maintenance of ships is largely dictated by specialised engineering companies, known as Classification Societies or simply Classes.
Each ship is registered to one Class, which has created a detailed list of tasks that need to be diligently carried out so as to ensure proper maintenance of the ship and seaworthiness. Failure to comply with the recommended maintenance plan leads to non-conformances that may eventually lead to the loss of seaworthiness of the ship. There are approximately 1500 ship management companies worldwide managing 10 or more ships. The largest ship management firms are based in the UK, Singapore, Cyprus, Hong Kong and other countries.
A Charterer is the company that acts on behalf of the cargo owner (in some cases a charterer may be the cargo owner itself). The Charterer is particularly interested in transporting goods from port A to port B at the lowest possible cost whilst ensuring the quality and safety of transportation remains at the highest possible level, often a very delicate trade off. A Charterer needs to determine which type of charter is best for each occasion (voyage trips, time charter, COA, etc), where to load and discharge, select port agents, estimate budgets, decide where to refuel, etc. The largest Charterers are based in Switzerland, UK, Germany, USA, and Singapore. It is not uncommon for Charterers to own and manage their own fleet, and in some cases even charter out some of their own ships.
A Chartering Broker is the intermediary role that facilitates the chartering of ships. Chartering brokers maintain a wide network of ship owners/operators and charterers/cargo owners in order that they can match and propose available ships with cargo orders. Chartering brokers charge a commission on the total freight rate finally agreed between the ship’s and cargo’s parties. The largest shipbroking firms are based in the UK. Other countries with a large number of shipbrokers are Greece, Germany, Singapore, Norway and USA.
A Sale & Purchase (S&P) Broker is the intermediary role that facilitates the process of buying and selling of ships. Like Chartering brokers, the S&P brokers maintain wide networks of ship owners and banks so as to identify good matches and opportunities for selling and buying a ship.
Chartering and S&P brokers are important data powerhouses in the maritime industry. The largest and/or most prestigious shipbroking houses (such as Clarksons, Simpson Spencer Young (SSY), Howe Robinson, McQuilling, etc) create regular, as well as bespoke, research reports for their clients. Many of them also produce and circulate free newsletters and reports that include their commentaries and analysis on current market conditions.
Other notable sources of maritime information are IHS MarkIT and Lloyds List Maritime Intelligence Unit (LLMIU). They focus on the collection and processing of a wide spectrum of maritime information (including vessel technical and commercial data, chartering data, AIS, and more) as well as maritime-related financial, business and trade news. Other prestigious maritime shipping and commodity research firms include Drewry, S&P Global Platts and others.
Banks and private investors lend money to ship owners to buy ships. The percentage of ship financing may vary widely depending on the shipping market conditions and may reach 80% in periods of extremely positive market conditions. Banks may confiscate ships from owners that breach the terms of a loan. In such cases, a bank may become a ship owner for a period of time. In the last 10 years, there have also been many private funds that have entered the maritime industry by providing money to build or buy commercial fleets. These private funds may remain private or may lead the company to an IPO or an alternative exit strategy.
Classification Societies, Classes, are non-governmental organisations that establish and maintain technical standards for the construction and operation of ships and offshore structures. They provide certification for both construction and ongoing service, confirming that a vessel meets the required standards. There are currently more than 50 classification societies, the more well known include Lloyds Register (UK), Bureau Veritas (France) and DNV GL (Norway/Germany).
Shipyards build ships based on the designs agreed between the ordering ship owner and the shipyard engineers. Shipyards may receive subsidies or partner with banks to make lucrative offers for new buildings to ship owners. More than 90% of the merchant fleet is built in China, Japan and South Korea. Specialised shipyards, e.g., for offshore or passenger vessels, can also be found in Norway, Germany and Italy.
Demolition Yards, also known as Shipbreakers or Ship Recyclers, are responsible for breaking up ships that their owners have decided to withdraw from active service due to age or other reasons. For example, in extremely bad market conditions even relatively new ships, of 5 or 10 years of age, may not be financially sustainable and can be sold for scrap. Major decision factors when looking at demolition are the current freight rates against the scrap value of a ship, the latter essentially determined by the current levels of steel price. Most demolition yards are located in India, Bangladesh, China, Pakistan and Turkey.
Traders and Hedge Funds are often divisions within ship operators, commodity traders, ship owners, or they can be standalone entities such as Commodity Trading Desks within investment banks, macro hedge funds or commodity specific hedge funds that have no actual physical shipments themselves. There also exist a limited number of Freight exchange-traded funds (ETFs), i.e. Invesco and Breakway Dry Bulk. These participants will actively trade both dry and wet freight in the same way as oil or equities. Typically, they will only deal in derivatives (FFAs) such as futures and swaps.
Trading strategies tend to be either directional or time/product spreads (e.g. the spread between Capes and Panamaxes for dry bulk) or as part of larger structures incorporating underlying commodities (e.g. coal and grains). These participants will also provide hedging liquidity to physical players seeking to cover their price risk exposure via swaps or options.
A Port/Terminal is the place where cargo loading and discharging take place. Ports are usually located close to significant hinterland infrastructures so as to facilitate the journey of the goods. Ports vary widely in terms of dimensions, maximum number and size of ships they can accommodate, hinterland transportation capabilities, loading/discharging equipment (e.g., cranes, container lifts), planning and optimization technology, customs efficiency and red tape procedures. Major ports of the world are Rotterdam, Antwerp, Amsterdam, Hamburg, Singapore, Shanghai, Tianjin, Guangzhou, Ningbo, Suzhou, Qingdao, Dalian, Busan, Hong Kong, Klang, Kandla, Jawaharlal Nehru, Hedland, Houston, South Louisiana, Dubai and more. There are also oil terminals which are offshore facilities that provide loading/discharging capabilities which are located away from the shore to allow very big ships to be serviced (example LOOPS terminal in Louisiana, USA).
A few words about CompassAir
Creating solutions for the global maritime sector, CompassAir develops state of the art messaging and business application software designed to maximise ROI. Our software is used across the sector, including by Sale and Purchase brokers (S&P/SnP), Chartering brokers, Owners, Managers and Operators.
Through its shipping and shipbroking clients, ranging from recognised World leaders through to the smallest, most dynamic independent companies, CompassAir has a significant presence in the major maritime centres throughout Europe, the US and Asia.
Our flagship solution is designed to simplify collaboration for teams within and across continents, allowing access to group mailboxes at astounding speed using tools that remove the stress from handling thousands of emails a day. To find out more, contact us via [email protected].