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He who pays the piper calls the tune

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Over the last year or two, I have written a number of articles on the subject of ‘Just in Time’ arrivals at ports (for example this one). I have even raised the matter directly with the IMO but it seems that the points raised normally go unanswered.

There appears to be a major disconnect and lack of understanding by those involved in projects that revolve around JIT and the commercial reality of shipping operations. One only need look at the project partners to understand that in almost all cases the participants do not reflect the full cross section of the shipping industry and until that is changed the projects are perhaps fatally flawed.

In a number of cases, projects purport to involve port authorities but one has to question if those involved with different aspects of port operation have actually been involved. That is especially true for ports which accommodate several sectors of shipping such as cruise, container line, dry bulk, wet bulk and general cargo. All of these sectors operate under different conditions and have different methodologies for contracting between ship operators and clients.

The idea of JIT is supposedly to make ports more efficient and to reduce the environmental impact of ships through their passage to the port and waiting outside ports for berths.

The basic reasons for why JIT is not a universal proposition for shipping in meeting the above aims are set out in my article referred to above. I remarked that for liner operators and cruise operators they may work but for other sectors are likely to be rejected. Those haven’t changed but recent events have reminded me of the difference in the ways different sectors of shipping operate and particularly which parties have the upper hand in carriage negotiations.

Liners where JIT looks good but doesn’t happen

Firstly there is the liner sector which would seem to be the ideal candidate for the JIT proposals. There are many reasons for this but not least the fact that lines have scheduled dates for calls at specific ports.

There is obviously fierce competition among liner operators for traffic but the individual shipments on any given vessel are only a fraction of the total cargo. Such is the size of modern ultra-large box ships it is not unusual for the number of shippers and receivers for a single call to run into the high hundreds if not thousands.  For that reason any individual cargo owner has very little clout when it comes to arguing the fine points of the carriage contract.

Shippers do not get much – if any – advantage by switching their allegiance to a rival line because despite anti-trust rules being in place, the costs are pretty much the same in every case. Maybe that should not be surprising because ships and fuel costs are the same across lines and it is only in the matter of crew wages and taxation that there is much of a difference.

Lines may sell themselves on being customer focussed although the reality does not support this. If there is one thing that should be key it and which would differentiate lines it is schedule reliability. Considering the consolidation that has taken place in the liner sector this century and the switch to slow steaming, there should be less of a problem in securing berths. And yet schedule reliability has declined year on year for the best part of a decade.

Last year the average was under 90% for all lines with the majority falling in the 80-85% range. In 2020 this has dropped like a stone and in Q3 one in three ships was off schedule.

To make matters worse, 2020 has seen a very peculiar situation developing with an apparent box shortage causing lines to blank sailings and freight rates reaching record levels. Some of the shortage has no doubt been caused by receivers using boxes in ports as storage because the JIT philosophy in logistics generally over recent years has seen a lot of warehousing capacity removed as obsolete.

It would seem that in Europe at least, cargo interests have reached the end of their tether and are asking the European Commission to step in and bring some competition back into liner operations. What may or may not happen remains to be seen as the joint approach by the European Freight Forwarders Association (CLECAT) and the European Shippers’ Council (ESC) was only made this week.

Charterers play by their own rules

Last year was also a relatively good year for many of the owners in the non-liner trades as regards freight rates and utilisation but the upper hand here is as ever – and in contrast to the liner sector – with the cargo interests. Nowhere has this been so obvious than in the vexing issue of crew changes.

This has been an area where the various players in shipping including shipowners’ associations, seafarers unions and regulators have come together in a rare show of unity to advocate for seafarers problems caused by the COVID-19 pandemic to be recognised and resolved at an international level. The issue has even been reported briefly in mainstream media circles but despite the talking hundreds of thousands of seafarers are left either stranded on board ships or languishing at home unable to work because governments are unwilling to make special arrangements for seafarer travel.

In the spot market vessels are either operating under voyage or time charter parties and even those under time charter are sublet much of the time on voyage charter basis. In these negotiations the charterer or cargo owner is the king. Only in exceptional circumstances do shipowners have the upper hand in demanding terms and conditions that favour them and even when they do it is normally only with regard to freight or hire rates and little else.

When fixing time charters, the owner cedes commercial control of the vessel to the charterer leaving the only daily running of the ship in his own hands. Under normal circumstances crew changes would be carried out quite smoothly with no problem. Under a voyage charter the owner would arrange for it to take place to suit themselves and under a time charter after discussing with the time charterer the planned schedule of the vessel.

Last year things were different. Because of the restrictions on crew travel, BIMCO felt it necessary in June to devise a new clause for time charter parties that would allow ships to divert for the purposes of a crew change. The purpose of the clause is two-fold: firstly, it confers on owners a right to deviate for crew changes which would otherwise be prevented due to COVID-19 restrictions. Secondly, it provides an option (but not an obligation) for time charterers to contribute to crew changes by way of reduced daily hire for the duration of the deviation plus an equal share of bunker costs.

It is hard to know how many owners were able to insist on the clause being inserted but what is clear is that far from the charterers playing ball, a great many seem to have flexed their muscles and insisted on ‘No crew change clauses’ being inserted. Recently the IMO has justifiably condemned the practice but that will likely have little effect in ending the use of such clauses.

What has this to do with JIT? On the face of it very little but it is an example of the influence that charterers have on the operation of ships beyond the carriage of cargo. If shipowners are in such weak position as to not be able to ensure that crew are not fatigued and vessel safety jeopardised, how do the proponents of JIT suppose that shipowners will be able to allow the arrival time of ships and the speed of passages to be decided by third parties for reasons that the charterer cares little or nothing about?

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