The Developing Countrie An-D International Shipping Public Disclosure Authorized

The Developing Countrie an-d International Shipping Public Disclosure Authorized

World Bank Staff Working Paper No. 502

November 1981 Public Disclosure Authorized

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Copyrght198 The views and interpretations in this document are those of the author and should not be attributed to the World Bank, to its affiliated organizations, or to any individual acting in their behalf.

WORLD BANK

Staff Working Paper No. 502

November 1981

THE DEVELOPING COUNTRIES AND INTERNATIONAL SHIPPING

In recent years many developing countries have considered or taken steps to develop or expand national merchant marines to serve their foreign trades. The purpose of this paper is to consider whether and under what circumstances developing countries can benefit from investments in international shipping.

In recent years, much has been said and written to encourage develop- -.ng countries to invest in national shipping lines to carry their foreign trade. In examining the issue, tne paper finds no overwhelming evidence either favouring or arguing against such investment.

International shipping is capital intensive and can be risky and highly competitive. Investments are more likely to be beneficial for countries with a tradition in shipping and with appropriate institutions, where there is also potential for industrial linkages and hence expansion of related industries, prospects of substantial net foreign exchange savings or earnings for shipping activity, and for the ability to develop new trading volumes, routes or partners by removing service constraints. The existence and strength of these factors must be tested in the context of overall economic transport needs and priorities, taking into account the possibilities for improving both inland and shipping technologies through such investment.

Prepared by: Harald Hansen Transportation, Water and Telecommunications Department

Most of the research and data collection for this paper was undertaken in 1978 and 1979. In the preparation of the paper I have berefitted greatly form the collaboration of Bern-hard Abrahamsson (consultant) who participated in the field mission to India and Korea and who commented con- structively on an earlier draft of the paper. I have also greatly benefitted from frequent discussions with George Bain and A.J. Carmichael as well as from criticism and discussions with many other colleagues, including, in particuiar Kathleen di Tullio, Mahbub ul Haq, Vincent Hogg, Winston King, Ernst Lutz, Alan Walters and Christopher Willoughby. However, they are in no way respon- sible for any of the shortcomings of this paper. ABBREVIATIONS

Names of Organizations

ACP African, Caribbean and Pacific Group of States AMPTC Arab Maritime Petroleum Transport Company BSC Bangladesh Shipping Corporation CENSA Council of European and Japanese National Shipowners' Associations CGT Compagt.ie Generale Transatlantique COMANAV Compagnie Marocaine de Navigation CSC Ceylon Shipping Corporation ECA Economic Commission for Africa ECOWAS Economic Community of West African States EEC European Economic Community ELMA Empresa Lineas Maritimas Argentinas ESCAP Economic and Social Commission for Asia and the Pacific FMC Federal Maritime Commission (United States) HMSO Her Majesty's Stationary Office (United Kingdom) ILO International Labour Organisation IMCO Inter-Governmental Maritime Consultative Organization IMF International Monetary Fund ITF International Transport Workers' Federation KDB The Korea Development Bank KDFC Korea Development Finance Corporation KSA Korea Shipowners' Association MICRO Maritime International Consultancy and Research Company Ltd. NAMUCAR Naviera Multinacional del Caribe OECD Organization for Economic Co-operation and Development OSG Overseas Shipholding Group Inc. SCI The Shipping Corporation of India Ltd. SDFC Shipping Development Fund Committee (India) UASC United Arab Shipping Co. UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Programme UWIST The University of Wales Institute of Science and Technology WISCO West Indies Shipping Corporation

Other Abbreviations

DFC Development finance company ECDC Economic cooperation between developing countries GDP Gross domestic product GNP Gross national product IFIs International financial institutions LDCs Developing countries NIEs Non-market industrial economies, sometimes also referred to as CPE's (centrally planned economies) GLOSSARY OF SHIPPING TERMS

Bareboat An agreement whereby one party (the owner) hires out a charter vessel for a specific period under which the charterer, in effect, takes control of the vessel, paying all operating and voyage costs.

Bulk carriers/ Vessels designed to carry dry or liquid bulk cargoes, vessels generally in full ship loads.

c. & f. Cost and freight.

c.i.f. Cost, insurance, freight.

Combined OBO or 0/0 vessels as defined below. carriers

Contract of An agreement providing sea transport for a certain tonnage affreightment bulk cargo during a specific period between two ports or areas at agreed rates.

Cross-trading Transport between foreign countries, i.e., trades not involving the foreign trade of the country whose flag the vessel is carrying. dwt Deadweight tons or weight which a vessel is capable of carrying by way of cargo, plus bunkers, stores and fresh water, when loaded to maximum permitted marks.

f.a.s. Free alongside ship. f.o.b. Free on board.

Freight Charges levied by shipping companies for transporting goods. For liner vessels (liner terms) the cost of loading and discharge is normally included in the freight costs while in the case of bulk commodities f.i.o. terms (free in and out) or related terms are commonly used whereby the cost of loading and discharge is not borne by the shipowner. grt Gross register tons--the total enclosed capacity (in units of 100 cubic feet) in a ship, less certain exempted spaces.

LASH Lighter aboard ship.

Liner con- A group of two or more vessel-operating carriers which ference provides international liner services or the carriage of cargo on a particular route or routes within specified geographical limits and which has an agreement within which it operates under uniform or common freight rates and any other agreed conditions with respect to the provision of liner services. Liner Regular scheduled service at fixed rates on a given service trade route.

LNG Liquified natural gas.

LPG Liquified petroleum gas.

Neo-bulk Commodities which traditionally have moved on liner vessels but which increasingly are carried more economically in full shiploads by specialized vessels such as cars, timber, etc.

OBO Ore/bulk/oil carrier. Vessels which are constructed in such a manner as to carry both oil and dry bulk cargo.

Open Registry Generally refers to a country (i) which allows ownership or and/or control of its merchant vessels by non-citizens; Flags of (ii) where access to the registry is easy and transfer Convenience from the registry at the owner-s option is not restricted; Countries (iii) where taxes on the income from the ships are not levied locally or are low. A registry fee and an annual fee, based on tonnage, are normally the only charges made; (iv) which is a small power with no national requirement under any foreseeable circumstances for all the shipping registered; (v) where manning of ships by non-nationals is freely permitted; (vi) which has neither the power nor the administrative machinery effectively to impose any government or international regulation or control the companies themselves.

0/0 Ore/oil carrier.

POL Petroleum, oil and lubricants.

Reefer Ship equipped to handle full cargo loads under controlled temperature conditions.

Ro/ro Roll-on, roll-off.

Time charter Charter arranged for a fixed period. Payment usually per dwt per month, excludes voyage costs.

Tramp ships Tramp ships are those which do not have to run on regular routes as liner ships, but run as and when required to suit specific cargo.

Trip charter Charter arranged for a voyage specifying delivery and re-delivery ports or areas. Payments per dwt per month, excludes voyage costs. (iii)

ULCC Ultra large crude carrier (generally crude oil tankers of 300,000 dwt or above).

VLCC Very large crude carriers (generally crude oil tankers of 175,000-300,000 dvt).

Voyage Charter arranged to carry a cargo on a single voyage charter between two specified ports or areas. Payment, usually on either cargo ton basis or on a cubic capacity basis, includes voyage costs.

Voyage costs Vessel costs comprising bunkers, port charges and canal charges.

Worldscale A Lreight index designed to express tanker rates per ton of cargo, irrespective of vessel size and route, in terms of the costing of a standard vessel, Worldscale 100. It replaced the earlier INTASCALE (International Tanker Nominal Rate Scale) and ATRA (American Tanker Rate Schedule) in 1969. TABLE OF CONTENTS

Page No.. Summary and Conclusions ...... i-viii I. Introduction ...... 1 A. Purpose ...... * ...... 1 B. Past World Bank Lending and Other Activities ...... 2 C. Changing Shipping Scene 4...... 4

(i) Introduction ...... 4 (ii) Seaborne Trade and Shipping Tonnage ...... 4 (iii) Shipping Technology and Institutional Environment .... 6

D. International Resolutions and Actions by Developing Countries ...... 13 II. Shipping Options Available to Developing Countries ...... 15 III. Basic Factors in Shipping Investment Decisions...... 19 A. Introduction ...... 19 B. General Considerations ...... 19

(i) Intr3duction ...... 19 (ii) Profitability of Shipping ...... 21 (iii) Risk:ness and Market Fluctuations ...... 24

C. Potential Benefits to LDCs from Selective Shipping Investments ...... 25

(i) Introduction and Methodology ...... 25 (ii) Saving Foreign Exchange ...... 26 (iii) Effect on Freight Costs and Trade ...... 29 (iv) Employment ...... 35 (v) Shipping Investments and Related Sectors ...... 41 (vi) Security of Service and Non-Economic Factors ...... 42

D. Regional, Sub-Regional and Other Trade and Shipping between LDCs ...... 43

(i) Introduction ...... 43 (ii) Trade between LDCs ...... 43 (iii) Trade and Shipping between LDCs ...... 44 (iv) Regional or Sub-Regional Cooperation between LDCs in Shipping ...... 48 - ii -

Table of Contents (continued)

E. Shipping in Economic Development of LDCs ...... 49

(i) Introduction ...... 49 (ii) Potential Positive Factors in Shipping Investments by Particular LDCs ...... 50 (iii) Potential Negative Factors in Shipping Investments by Particular LDCs ...... 51 (iv) Shipping Investments by Types of LDCs and Circumstances ...... 53

IV. Vessel Acquisition Sources of Ship Finance and Technical Assistance ...... 55

A. Introduction ...... 55

B. Sources of Finance ...... 55

(i) Equity Investment ...... 55 (ii) National Shipping Finance Funds or Development Finance Corporations ...... 56 (iii) Export Credits ...... 56 (iv) Bilateral Assistance ...... 56 (v) Commercial Banks and Ship Mortgage Lenders ...... 57 (vi) Leasing ...... 57 (vii) International Development Institutions ...... 57

C. Finance and Technical Assistance ...... 57

D. General Considerations ...... 59

V. Conclusions ...... 61 Table of Contents (continued)

ANNEXES

Page No.

1 A World Bank Group Lending for Shipping as of June 30, 1979 62

B World Bank Group Lending for Ocean-Going Shipping Fiscal Years 1975-1979 ...... 63

2 Seaborne Trade ...... 64

3 Types of Shipping Services and Competition ...... 67

4 Shipping Conferences ...... 74

5 Excerpt from the Convention on a Code of Conduct for Liner Conferences ...... 76

6 Participation of Developing Countries in World Shipping and the Development of Their Merchant Marines - UNCTAD Resolution 120(V) ...... 81

7 Ship Financing and Technical Assistance - UNCTAD Resolution 120(V) ...... 85

8 Extract from Resolutions by the United Nations Conference on Trade and Development and the UNCTAD Committee on Shipping on Shipping Finance ...... 88

9 Extract from the Report of the Group of Experts on Improved Methods of Financing Ship Acquisition by Developing Countries ...... 89

10 Extract from Selected International Resolutions Regarding Merchant Fleets of Developing Countries ...... 9

11 Basis for the Computation of the Shipping Corporation of India's Contribution to India's Balance of Payments ...... 94

12 Selected Measures Used to Assist National Shipping ...... 95 - iv -

Table of Contents (continued)

Tables Page No.

1 World Seaborne Trade 1965-1977 ...... 97

2 Merchant Fleets and Seaborne Trade of Developing Countries 1970-1977 ...... 98

3 Changes in World Fleet 1965-1978 ...... 99

4 Liner Freight Rate Index 1968-1979 ...... 100

5 Indicative Variations in Selected Freight Rate Indices Selected Years 1950-1978 ...... 101

6 Indicative Ship Prices 1970-1979 ...... 102

7 Comparison in Trends of Indicative Ship Prices and Wholesale Prices for Other Capital Goods 1968-1977 ...... 103

8 Developing Countries with Merchant Fleet of 100,000 dwt and above in 1970 and 1978 ...... 104

9 Approximate Share of Foreign Trade of Selected Countries Carried by National Flag Vessels in Recent Years ...... 105

10 Financial Data on Korean Ocean-Going Shipping Industry 1970-1978 ...... 106

11 Relative Profitability of Shipping Versus Other Industries in Selected Countries and Periods ...... 107

12 United States: Profitability Measures in Shipping and Other Industries ...... 108

13 Annual Return on Equity of Clients of Korea Development Finance Company 1976 and 1977 ...... 109

14 Relative Profitability of Selected Firms in Selected Indian Industries 1965/66 - 1976/77 ...... 110

15 Relative Profitability of Selected Major Industrial and Commercial Undertakings of India's Central Government 1969/70 - 1977/78 ...... 111

16 Selected Information on Profitability of Shipping Companies 114

17 Distribution of Working Surplus as Percent of Vessel Acquisition Costs from Selected Norwegian Ships 1974 ...... 116

18 Relative Profitability of Other Developing Countries' Shipping Lines ...... 117 Table of Contents (continued)

Tables (continued)

19 Laid up Tonnage 1966-1979 ...... 118

20 Indicative Composition of Costs for Selected Ship Types Under United Kingdom Flag 1976 ...... 119 21 Indicative Differences in Daily Vessel Costs 1976 ...... 120

22 Contribution of British Shipping to the Balance of Payments 1952, 1958 and 1960 ...... 121 23 Hypothetical Balance of Payments Effect of Substituting a National for a Foreign Liner Ship in an Average Year of Ship's Life for Profitable and Unprofitable Ships ...... 122

24 Sample Balance of Payments Effects of a National Shipping Line in an Average Year ...... 124 25 Indian Shipping's EarniLUgs/Savings in Overseas Trade ...... 125

26 Format for Estimating Foreign Exchange Effect of a National Shipping Line (NSL) ...... 126

27 Gross Capital Stock at 1970 Replacement Cost per Employee in Shipping and Selected Other Industries in the United Kingdom 1966-1975 ...... 127

28 Capital Intensity in Selected Major Industrial and Commercial Undertakings of India's Central Government - 1977/1978 ...... 128

29 Korea: Capital Investment per Incremental Employee in Selected Bank-Assisted Shipping Projects ...... 129 30 Potential Ranges in Capital Intensity in Shipping ...... 130

30a Norway: Average Crew Size for Selected Vessel Types in International Trades mid-1977 ...... 131 31 Selected Information on Capital Intensity of Shipping ...... 132 32 Selected Average Capital Investment in Vessels/Output Ratios 133 33 Indicative Evolution in Seagoing Employment in Selected OECD Countries 1955-1977 ...... 134

34 Ratio of Officers/Ratings in the Merchant Marine of OECD Countries ...... 135 - vi -

Table of Contents (continued)

Tables (continued)

35 Development of International Trade between Developing Countries 1970-1978 ...... 136

36 Quantum Index of International Trade 1977 (1970 = 100) ..... 137

37 International Trade between Developing Countries by Commodity Class 1970 and 1977...... 138

38 Number of Conventional Liner and Tramp Vessels Engaged in Selected Intra-LDC Trades in 1973 ...... 139

39 Seaborne Trade in Selected Major Bulk Commodities by Selected Developing Countries 1975 and 1976 ...... 140

Chart

Evolution of Dry Cargo and Tanker Freight Rate Indices 1950-1979 ...... 141

Bibliography ...... 142 SUMMARY AND CONCLUSIONS

1. Introduction

i. Efficient low-cost transport by ocean shipping is of major importance to all partners in world trade. It is particularly important for developing countries as they seek to raise their levels of production and consumption by opening new markets and sources of supply. The purpose of this paper is to consider whether, and under what circumstances, developing countries (LDrs) 1/ can benefit from investments in international shipping. The paper was p e- pared as a desk study complemented by visits to India and Korea. In this paper the term "shipping" refers only to ocean-going goods transport and excludes river or inland waterways transport and coastal/interisland transport since these are part of domestic transport systems. Nor does it include the specialized, limited market of passenger cruise shipping.

ii. It is opportune to examine the question of international shipping and the LDC-s for several reasons. These include the major changes in shipping technology and institutional arrangements in recent years; the deteriorating balance of payments situation of many LDCs which is generating a growing general preoccupation with foreign trade, including intra-LDC trade; and the adoption of resolutions, in a variety of forums, requesting the international financing institutions (IFIs) to consider increased lending for the sector.

2. Past World Bank Lending iii. Through June 30, 1979 the World Bank had lent directly or indirectly (in the form of DFC on-lending) about US$340 million for the acquisition of ocean-going vessels and related technical assistance. This represents about 0.5% of total cumulative World Bank/IDA lending. It includes about US$102 million in rehabilitation loans to the Netherlands and Norway in the late 1940s/early 1950s; US$&3 million to India (tankers); and US$16 million to Turkey (ro/ro vessels) as part of two agricultural loans. The balance consists of on-lending by development finance companies for ship acquisition to India, Indonesia, Korea, Morocco, the Philippines, Tanzania and Thailand. During the period FY75-FY79, World Bank lending for shipping amounted to US$115 million, with all but US$10 million being indirect DFC on-lending. The average DFC sub-loan was US$3.0 million and was mainly for the acquisition of individual second-hand vessels, principally bulk, rather than for new buildings.

1/ The term LDCs as used in this paper is somewhat more restictive than that used in the World Development Report 1979. It excludes the middle income developing countries of Greece, Portugal, Spain and Turkey. In addition, when referring to the fleets of LDCs, the tonnages registered in the so-called "open registry countries" of Cyprus, Liberia, Oman, Panama, Singapore Pad Somalia are excluded. As in the case of the World Development Report, it excludes the capital surplus oil exporters of Kuwait, Libya, Oman, Qatar, Saudi Arabia and the Uniited Arab Emirates. 3. The Shipping Scene iv. Shipping is directly affected by two main trends. One is the development of trade and the other concerns technological and institutional developments in the two main sub-sectors of the industry, viz. regularly- scheduled general cargo liner services and bulk cargo non-scheduled shipping of minerals, grains, petroleum and similar products. The major technological developments which have taken place in the shipping industrv in recent years include the development of cargo unitization (pallets, containers, etc.) in general cargo liner shipping, a great increase in the size of bulk vessels used in long distance and large volume trades and the greater use of increasingly more specialized vessels such as LNG carriers. A further development has been the trend towards automation and reduced crews, particularly on the vessels of developed market economy countries. While these developments have reduced, or at least restrained, increases in the cost per unit of cargo transported, they have also meant greatly increased acquisition cost for more specialized vessels such as container ships, LNG or LPG carriers, large oil tankers, etc.

v. During the 1960s and 1970s a major change was the increased LDC governmental interest in the sector. This is reflected in various resolutions of UNCTAD and other international bodies; the adoption of the Convention on a Code of Conduct for Liner Conferences in 1974 (this has not yet entered into force); and the growth of government-owned or controlled shipping companies in some non-market industrial economies (NIEs) including the Soviet Union, as well as in LDCs. In bulk shipping, institutional developments include a growing use of contract affreightment and pooling arrangements. There has also been a rapid growth in open registry shipping, but there has been considerable discussion recently about the desirability of "flags of convenience". Proposals have been made by UNCTAD and the LDCs for gradually phasing out open registry shipping on the alleged grounds that vessels are less safe, crews are paid less, loss and damage claims are difficult to recover, etc.

vi. Particular developing countries, as well as the LDCs as a group, have paid a great deal of attention to shipping policy and practices in recent years by sponsoring resolutions within a variety of international forums. They have also invested in ships, particularly liner vessels, to serve a multiplicity of economic, political and strategic objectives, with the relative importance of each varying from case to case. LDSs have shown an increased awareness of their dependence on foreign-owned shipping and a growing belief that by carrying a significant share of their international trade in national flag vessels, they could save scarce foreign exchange, reduce freight costs, obtain new markets and generally facilitate their foreign trade, including that with other LDCs. The right of the LDCs to membership of liner shipping conferences serving the trade of their countries, and the need for greater conference/user consultations have long been recognized and often implemented. More recently, increased attention has been given to cargo 6haring, as reflected in the Code of Conduct for Liner Conferences and Resolution 120 V of UNCTAD V (June 1979), and to bulk shipping. Other resolutions have dealt with the important question of the availability and terms of ship financing since ships are capital-intensive assets with relatively long lives. There have been many specific recommendations that the IFIs assist LDCs to acquire new or second-hand ships.

vii. The LDCs account for a fairly limited, but increasing, share of the world shipping tonnage. In mid-1978 the developed market economy countries, accounted for 53% of the total shipping tonnage in terms of dwt, the so- called open registry countries for 31%, the LDCs for 8%, the NIEs for 7%, and the capital surplus oil exporting countries for 1%. While there was a rapid growth in LDC-owned tanker and dry bulk fleets between 1974 and 1978, these countries accounted for a larger share of the world liner fleet (15%) than of tankers (5%) and dry bulk vessels (8%). The share of LDCs in world shipping tonnage was much smaller than their share of world seaborne trade. In 1974, the LDCs accounted for about 30% of world seaborne tonnage. Despite the increasing number of LDCs that have developed or expanded national merchant fleets in recent years, the bulk of their shipping fleet is still concentrated in a limited number of countries, with four countries (India, Brazil, Korea and Yugoslavia) accounting for about 43% of the LDC-owned tonnage. Vessels owned and operated by LDCs are generally smaller and older than the world fleet averages.

viii. A range of options is available to a country concerned with the maritime transport of its foreign trade. At one extreme it can buy imports on a c.i.f. basis and sell exports on f.o.b. basis, thus, in theory, leaving all the international shipping arrangements to the trading partrer and giving up any control or influence over these arrangemen-s and their costs. The other extreme is to build up a national flag fleet with the capacity to carry most of the country's foreign trade as well as to participate in cross-trades between third countries. These options are summarized below:

Types of Shipping Options

No Shipping Capability National Shipping Capability

a b c d e f

Owned Tonnage No control Use of freight Shippers Using For use in For use in of shipping brokers or councils Chartered the coun- the coxn- (buy c.i.f. shipping agents or similar or leased try's try-s and sell with control organiza- tonnage. foreign foreign f.o.b.). over shipping tions trade. trade and arrangements, with con- also in but not rates. trol over cross- shipping trading. arrangements and some control or influence over rates. - iv -

The relationship between the trading arrangements used, actual control over shipping arrangements and the existence and use of national flag vessels is, however, in practice not clear cult. The above simplified presentation may be more relevant for LDCs than for developed countries with well established trading and shipping arrangements. In the latter case an importer may well control the shipping arrangements and, if he so chooses, use a national flag vessel even if he is actually buying c.i.f. ix. Conceptually, investment in vessels for use on trade routes to an.' from the investing country that are presently served by foreign flag liner or bulk vessels can be considered as import substitution. Investment in bulk vessels for cross-trading, on the other hand, can be considered as an export industry. Similarly, investments in liner vessels to open up new services on routes where there is now no service could be considered as an export activity.

4., Factors in Shipping Investment Decisions x. The basic factors in shipping investment decisions, particularly as they apply to developing countries, are a very mixed picture of potentially positive and negative features which, of necessity, must be evaluated on a case-by-case basis. The essential pre-conditions for considering investment in the shipping sector are a satisfactory determination of inter-sectoral i-;iorities and detailed project feasibility studies. xi. The main potential benefits that a particular LDC may expect from investments in shipping are:

(a) net foreign exchange savings on the country's present or normal traffic;

(b) assistance in the form of value added to the country's foreign trade and economy generally through the economic activity generated by lower freight rates and/or new, better or more secure shipping services and/or better export returns on essential bulk commodities;

(c) backward and forward linkages with the rest of the economy which lead to greater economic diversification and development; and

(d) net profits from the shipping operations. This latter item is likely, in fact, to overlap with (a) and care needs be taken to avoid double counting.

These benefits are summarized briefly in the following paragraphs. It should, however, be stressed that they may well prove to be negative in particular circumstances. xii. Review of the available information indicates that sound investments in shipping are likely to result in some net savings of foreign exchange. These savings will be greatest where the company can operate profitably and where, at least after an initial build-up period, the country can utilize domestic rather than foreign shipping resources, e.g., crews, management and overhead, insurance, communications, vessel repairs, spare parts and supplies, and possibly even locally built ships. xiii. A second potential benefit is the positive effect on the foreign trade balance. This can occur through reduced freight rates on existing exports/imports, the traffic generation effects of improved, more suitable shipping services, or the opening up of new services, e.g., in trades between and among LDCs. These benefits will depend on the ability of the national line to operate efficiently at competitive rates and the extent to which new services are integrated into a coordinated general trade expansion program or a specific foreign trade oriented project. xiv. The expectation of profitable shipping operation is a major factor influencing some, but not necessarily all, decisions to invest in the industry. A review of the limited amount of publicly available information suggests that some nationally-owned LDC shipping companies appear to have been profitable. The rapid expansion of some private sector LDC shipping companies in recent years suggests a similar experience also. Nevertheless, there is sufficient evidence to indicate that several LDC shipping companies either have been losing money or earn only marginal returns. xv. The economic benefits from sound investments in shipping and the petential for broader development impacts from such investments depend significantly on how shipping is integrated with, and contributes to, the economic development of the country. Economic linkages depend on the pattern of a country's resource allocation and/or the extent to which the national fleet draws on domestic industries such as ship-repair yards, marine insurance, ship finance organizations, ship classification services, marine telecommunication services, marine institutes, marine research institutes, etc.

xvi. There are a number of factors which need careful consideration in decisions about shipping investments. These include:

(a) the increasingly capital-intensive nature of many types of shipping;

(b) the particular riskiness of some sections of the industry;

(d) the existence of open registry shipping and the fact that some developed countries directly or indirectly subsidize their shipping industries; - vi -

(e) competition from the increasing involvement of a number of NIEs and of tramp shipping lines in liner routes on a non-conference, lower-than-conference- freight-rate-basis; and

(f) protectionism in the industry.

These factors are discussed briefly below and at length in the paper itself. xvii. Shipping is generally a capital-intensive industry with, at best, modest direct employment creation effects. This is particularly true for modern vessels such as container ships and large bulk carriers. Unless very important backward linkages exist, the number of jobs cre, -ed indirectly may also be fairly limited. Capital investment needs, however, may be reduced by focusing on the relatively more labor-intensive sectors, by using second- hand vessels, by using leased or chartered vessels, or through joint ventures with an established shipping line. This latter also offers a way of acquiring operational experience and market contacts. xviii. Shipping is a risky business subject to considerable fluctuations in demand and, in the case of bulk shipping, to volatility in freight rates. The industry is also affected by changes in vessel technology, rapid movements in exchange rates, national or international regulations of various kinds which can increase costs and a number of other factors. The degree of risk, however, varies significantly with the type of shipping and operating pattern used. In bulk shipping that is part of an integrated project or under long- term charter arrangements, for example, the risks are relatively small. Liner shipping in a country's normal bilateral foreign trade is also less risky relatively than is cross-trading in liner or bulk trades. xix. Often there are less costly alternatives to investment in shipping such as development of a domestic forwarding industry to achieve lower transport costs through international door-to-door freight control over cargo movements between inland points, strengthened shippers' organizations as a means of balancing the powers of shipping conferences and providing a medium for commercial consultations, and the long-term chartering or leasing of vessels by a national shipping line. xx. The existence of open registry shipping, which often uses crews from other LDCs or low-wage developed countries reduces the comparative advantage some LDCs might appear to have on account of low crew costs. How- ever, th-is could change with the efforts of ITF to raise wage levels on open registry vessels and -he efforts of many LDCs and UNCTAD to phase out open registries. The practice of some developed countries of assisting their shipping industries through direct or indirect subsidies, among other measures, may also limit the potential benefits of sound shipping investments to individual LDCs by below cost price competition. xxi. The increasing involvement of several NIE shipping lines in general cargo liner shipping, often outside the conferences and at lower freight rates, - vii - has the paradoxical effect of promoting trade by lowering transport costs but at the same time reducing the potential for profitable operation of LDC shipping lines. xxii. A difficult factor to assess is the potential trend towards cargo sharing and protectionism, as reflected in the Convention on a Code of Conduct for Liner Conferences, and the proposals for "equitable participation" by LDCs in bulk shipping. While assisting some LDCs to develop their shipping industries, these measures could also encourage uneconomic investments, restrict the growth of the fleets of those LDCs that have been more successful and competitive, and cause less efficient use of shipping capacity and, therefore, tend to increase freight rates. xxiii. In summary, the relatively capital-intensive nature of shipping, its riskiness, the uncertainty surrounding its potential benefits and the fact that alternatives to the use of national flag vessels are generally available, suggest very careful consideration of inter-sectoral investment priorities and a proper economic evaluation and feasibility studies before new investments are undertaken in the sector. From the national point of view, key factors to be considered include: present and prospective trade volumes and patterns; the suitability of existing shipping services; the potential benefits from institutional improvements and the provision of related facilities (e.g., ports); the likely availability of the supporting institutional, operational and other facilities required for national flag shipping; the borrowing possibilities and other avenues available for ship procurement, as well as the potential benefits from alternative investments in other sectors. In this connection, it should be borne in mind that shipping as an international industry requires an internationally-oriented framework; that money may be available from abroad only for the acquisition of new ships and then on a tied basis; and that ships are movable assets which can be bought, sold and chartered on the international market. xxiv. The following conditions may be helpful in identifying the circumstances where shipping investments might be beneficial:

(a) the country has an environment that seems to offer comparative advantages in the sector such as a maritime or naval background and resources such as trained or partly-trained personnel, an appropriate institutional framework, and a potential for significant backward linkages (eeg. ship supplies, ship building and repair services, insurance etc.) and efficient, economical operations;

(b) the country has substantial volumes of foreign trade, preferably with a reasonable balance of imports and exports;

(c) the country has sufficient capital resources to permit it to invest in shipping which is a relatively capital- intensive industry or, alternatively, it can obtain - viii -

funds from abroad on reasonable terms either in the form of joint ventures or loans;

(d) the country has a good potential for new or increased foreign trade that is presently being inhibited by the cost and/or service limitations of its shipping services, including those affecting intra-LDC trade;

(e) the vessels and shipping technologies currently being used in major trades are not the most economical from a total transport and distribution chain point of view;

(f) the country is developing a major project which will give rise to significant exports or imports where tailor-made shipping services may be the most economical solution. xxv. These factors and conditions, as well as the potential economic and financial returns, would require careful consideration on a case-by-case basis. This would also be true for the operation and management capabilities and the particular conditions of the trade(s) in question. Hence the importance not only of careful consideration of inter-sectoral priorities but also of proper feasibility studies before substantial investments, particularly public sector investments, are undertaken in international shipping. I. INTRODUCTION

A. Purpose

1.01 Efficient, low-cost transport by ocean shipping is of major importance in world trade, particularly to the efforts of developing countries to raise their level of production and consumption. The purpose of this paper is, therefore, to consider whether, and under what circumstances, developing countries 1/ (LDCs) can benefit from investment in international shipping 2/. There are several reasons why it is opportune to examine this question. Major technological and institutional changes have occurred in recent years in shipping. LDCs have shown a growing interest in shipping. Several specific international resolutions to the effect that the international financial institutions (IFIs) should consider increased lending for the sector have been passed in various forums. The deteriorating balance of payments of a number of countries has focused attention on their foreign trade activities and prospects, including the opportunities for South-South trade which is less likely to attract financing from ccr- entional sources. This paper first discusses these points end then considers the potential benefits and risks to individual LDCs from investments in international shipping.

1.02 This paper is not concerned with river or inland waterways transport, coastal shipping or inter-island shipping limited to a particular country or with World Bank lending for these sectors. These are considered as elements of the domestic transport system of a country and, as such, fall within normal consideration for multilateral assistance. It also ignores the fairly limited and specialized cruise shipping industry.

1/ The term developing countries or LDCs as used in this paper differs somewhat from that used in the recent World Development Report, 1979. The term, particularly any statistical references, as used here does not include the following member countries: Greece, Portugal, Spain and Turkey. As in the case of the World Development Report, the capital surplus oil exporters (Kuwait, Libya, Oman, Qatar, Saudi Arabia and United Arab Emirates) are excluded unless otherwise indicated. References to the merchant fleets of developing countries also exclude the fleets registered in so-called "open registry" countries (Cyprus, Liberia, Oman, Panama, Singapore and Somalia) although not all of the tonnage registered in these countries is beneficially owned outside them. It is understood that Somalia has changed or is in the process of changing its legislation; it might no longer be classified as an open registry. Bermuda, the Bahamas and Hong Kong, which are generally referred to as tax havens but sometimes also as open registry, are included as developing countries.

2/ The terms international shipping, ocean-going shipping, ocean shipping and shipping are used interchangeably to refer to shipping serving foreign trade. - 2 -

B. Past World Bank Lending and Other Activities

1.03 World Bank lending for international shipping has been relatively modest. Through June 30, 1979 a total of about US$552 million had been lent for all types of shipping, both domestic and international, of which about US$521 million was for ships and US$31 million for related activities. This includes direct and indirect lending through DFC as summarized below and indicated in more detail in Annex I.

World Bank Lending for Shipping Through FY79

A. Direct Lending Amount (US$ millions)

Inland Waterways Projects 37 Shipping Projects 145 Inter-island Projects 82 Broader Projects 100

Sub-total 364

B. DFC On-Lending

Inland Waterways Sub-projects 6 Other Shipping Sub-projects 182

Sub-total 188 Total 552

Total as % of World Bank Lending: 0.8%

Total as % of World Bank Transportation Lending: 3.8%

1.04 About 80% of the lending has occurred since 1970. Of the total lending for shipping, approximately 60% was for international shipping and 40% for domestic shipping, i.e., inland waterways transport, coastal and/or inter-island shipping. Direct lending for international shipping or broader projects with an international shipping component includes the post-war loans to the Netherlands and Norway in the late 1940s/early 1950s and later loans to India and Turkey 1/. Indirect World Bank loans for international shipping have been made to India, Indonesia, Korea, Morocco, the Philippines, Tanzania and Thailand. Annex IB provides a summary of World Bank lending for ocean going shipping during the fiscal years (1975-1979) totalling US$115 million for one direct loan and 35 indirect loans involving 51 vessels of some 438,000 dwt. Most of the vessels were bulk carriers (43) and were acquired second-hand (36) rather than as new buildings (15).

1/ The vessels financed under the Indonesia fertilizer distribution project ($42 million), although primarily intended for inter-island transport, have also been used for exports to neighboring countries. - 3 -

1.05 This paper does not try to analyze why past World Bank lending has been modest. It may be due importantly to the availability of bilateral and commercial sources of finance and the relatively low priority given to the sector by many countries. The number of requests from member countries for World Bank lending for international shipping which have been formally turned down or actively discouraged appears to have been very small. However, information is not available to indicate the extent to which possible projects have been raised informally with World Bank missions and how many such inquiries have been discouraged.

1.06 In addition to lending for the purchase of new or second-hand vessels, or for the rehabilitation of existing vessels, the World Bank has provided advice and technical assistance, particularly in connection with direct loans. Technical assistance has also been provided for improved maintenance and repairs. Funds have been made available for shipping sector planning, for the training of ship safety inspectors, and for carrying out major improvements in shipyards and maritime training establishments. Consultant services have been financed to assist in preparation of taxation surveys and to draw up financing and operational plans in private and state shipping companies. Individual financial and technical advisors have been provided to assist in the establishment of ship finance units in borrowers' banks and ship finance institutions. In all of these activities, the World Bank has worked in close consultation with the governments and sometimes with bilateral lenders and other international organizations. Thus, an important part of the World Bank-s involvement in shipping has been assistance in improving the institutional framework for the industry.

1.07 In Indonesia and the Philippines, World Bank inter-island shipping projects have resulted in the establishment within large state banks of maritime credit units to serve as channels for funds on-lent to private shipping companies. Support has also been given to a new organization (PANN) established in Indonesia to procure and lease ships. Through the services of internationally recruited experts, these newly created units have become knowledgeable about the maritime sector of their countries and developed expertise in appraising shipping projects. The maritime credit department of one bank has financed from its own funds about seven times the amount it has financed with funds borrowed from the World Bank. In India, the World Bank's involvement has resulted in the establishment of a Marine Department within the India Oil Corporation to assist in tanker scheduling and improvements in oil handling in Indian ports.

1.08 World Bank staff have helped to develop shipping projects through close consultation with government officials. Terms of reference for studies have been drafted, shipbuilding contracts have been drawn up for use by borrowers, procedures for international competitive bidding have been worked out, and methods for procuring second-hand ships have been implemented. Advice has also been given about ship mortgage procedures, lease and charter contracts, ship registration, and safety inspection procedures. In addition, information and opinions have been given to borrowers about ship designs, shipyard and repair organizations, and ship operating procedures. - 4-

C. Changing Shipping Scene

(i) Introduction

1.09 The demand for ocean shipping is an integral and dependent part of international trade, abouit 90% of which (in ton miles) is carried by sea. The balance consists of relatively short distance overland transport, mainly between continental European or North American countries, and long haul air transport of relatively high value/low volume goods.

1.10 The period since World War II and, particularly the years 1965-1978, has been one of major changes in the volume and nature of foreign trade and ocean-going shipping industry serving this trade 1/. The following paragraphs deal briefly with some of the main changes in seaborne trade and shipping. Annexes 2, 3 and 4 provide rhore background information on (i) seaborne trade, (ii) types of shipping service and competition, and (iii) shipping conferences.

(ii) Seaborne Trade and Shipping Tonnage

1.11 As a result of the growth of the world economy, the demand for shipping, both in terms of tons carried and in terms of ton-miles, has increased every year since World War II except for 1975. Between 1965 and 1977 the volume of seaborne trade increased by an average of about 6.5% per annum or from about 1,633 to about 3,475 million tons, It reached an estimated 3,657 million tons in 1979. Between 1965 and 1973 the rate of growth averaged 9.1% p.a. but, as a result of inLernational events and world-wide recession, the volume increase averaged only 2.7% p.a. between 1973 and 1979. Seaborne trade in terms of ton-miles increased faster than in volume - about 9.7% p.a. between 1965 and 1977 because the average length of haul increased from about 3,600 to about 5,200 nautical miles. As a result of changes in the crude oil trade between 1977 and 1979, the increase in tonnage was largely offset by a reduction in the average haul to 4,800 miles.

1.12 The increase in seaborne trade in terms of ton-miles was due largely to the rapid increase in the volume and average distance of crude oil shipments. In 1977 crude oil, with an average haul of 7,300 miles, accounted for about 60% of seaborne trade. Trade in the five major bulk commodities (iron ore, grain, coal, bauxite, and phosphate) accounted for a further 18%, refined petroleum products for 6%, a number of so-called "minor-bulk commodities" (e.g., manganese ore, sugar, scrap, etc.) shipped by bulk carriers for another 6%, with the remaining 10% consisting of a large number of heterogenous and often high unit value goods commonly referred to as "general cargo". (Table 1). Apart from the growth in crude oil transport, an important development in

1/ Sir Lindsay Alexander has described the period 1965-1978 as one of "technical revolution" insofar as shipping is concerned in "The Challenges to British Shipping 1965-1990," the 13th Blackadder Lecture 1979, published by North East Coast Institution of Engineers and Shipbuilders, Newcastle upon Tyne. -5-

seaborne trade has been the rapid growth in minor bulk commodities shipped by bulk carriers. By contrast there has been a relatively modest growth (2.1% p.a.) in general cargo, in part, due to the gradual shift of several of the minor bulk commodities from liner to bulk shipping, a distinction which will be made in the following section.

1,.13 Excluding capital surplus oil exporting countries, developing countries accounted for about 30% of the world seaborne trade tonnages in 1974, with their share being higher for tonnages loaded (41%) than for the tonnages discharged (18% - Table 2). This reflects the importance of the LDCs in the export of petroleum and dry bulk commodities such as iron ore, phosphate, bauxite, etc. Although comprehensive up-to-date information is not available, the average distance over which the seaborne trade originating in, or destined for, the LDCs as a group moves, seems to be considerably longer than for the world seaborne trade as a whole.

1.14 Detailed information is not available on the volume of seaborne trade between developing countries. UN statistics suggest that the value of all international trade by al:L modes between developing countries (with the term "developing countries" here including the capital-surplus, oil-exporting countries) amounted, in 1979, to US$99.2 billion, or roughly 6.1% of total international trade. This compares with US$10.8 billion and 3.5% in 1970 (Table 35). The increase has been rapid both in absolute and relative terms. Due to the higher share of air and surface transport in the trade between developed countries, and the relatively lower unit value of trade between developing countries, it is likely that seaborne trade between developing countries accounts for a significantly higher percentage than their share in the value of total trade. The question of trade between developing countries and the importance of shipping to serve this trade is discussed further in Chapter III (D) below.

1.15 The expansion in seaborne trade during the period 1965-1978, particularly in bulk commodities, has been accompanied and facilitated by a rapid increase in the world shipping tonnage as well as by important technological and structural developments in shipping, including large increases in the size of bulk vessels and a proliferation of special vessel types (Table 3). In terms of gross register ton (grt), world shipping increased from 160 million in 1965 to 406 million in 1978, with the share of the LDCs increasing from about 7.0% in 1965 to about 8.5% in 1978. In terms of deadweight tonnage (dwt), the fleets registered in developed market economies accounted in mid-1978 for 53.3% 1/ of the world tonnage, the open registry countries for 30.9%, the LDCs for 8.1%, the centrally planned economies (CPEs) for 6.5% and the capital surplus oil exporting countries for 1.2%, according to Lloyd's Register of Shipping Statistical Tables. In 1978, the LDCs

1/ If Greece, Portugal, Spain and Turkey are considered as developing countries, in line with the World Development Report 1979 the share of the developed countries falls to 42.2% and that of the LDCs increases to 19.2%. - 6 - accounted for 5.4% of the tanker tonnage, 8.0% of the bulk carrier tonnage and 14.6% of other vessels (mainly liners) in terms of dwt, indicating the relative priority given initially by most LDCs to liner shipping. Korea is one of the few LDCs where development of a national fleet focused initially on bulk vessels. In recent years, several LDCs have given increased attention to bulk shipping (see also 1.37 and 2.03).

(iii) Shipping Technology and Institutional Environment

a. Shipping Services

1.16 Before discussing major changes which have occurred, or are taking place, in shipping technology and the institutional environment, it is necessary to identify the main types of shipping services. There are three broad categories--scheduled or liner services, tramp or charter services, and industrial or private 'own account' carriage. These categories generally differ in the kind of services offered to the users (shippers), the general types of goods carried, and to some extent, the kinds of vessels used, although there exists a considerable overlap between the categories. Liner services provide regular scheduled services on particular trade routes for break-bulk or unitized cargo of less-than-full shiploads. Liner vessels normally carry a multitude of cargoes for a large number of different shippers at fixed rates. Tramps and industrial, or private, carriers normally involve full shiploads of one commodity for one shipper, particularly liquid and dry bulk commodities (POL, minerals, grains, etc.).

1.17 A major difference between liner shipping and tramp shipping is that while liner trades are generally categorized as cartelized markets with administered prices, tramp shipping is considered as a textbook example of a highly competitive market. This is, however, an oversimplification. Thus while in almost all significant liner trades the majority of the lines serving the trade join together in price fixing cartels called conferences, the conference members, apart from internal service competition, face some outside competition in many trades from non-conference lines, tramp operators, and alternative modes of transport. This competition probably has increased significantly in the last few years due, in part, to increased non- conference operations by certain NIE shipping lines, the establishment or expansion of other non-conference lines, the withdrawal of some members from certain conferences 1/ and the inci?ased use of land bridges. Similarly, some constraints exist in parts of the tramp markets due to the existence of a few very large users (e.g., major petroleum companies) on the demand side and to a trend towards establishment of pools and consortia on the supply side.

1/ Sea-Land, the largest container line, for instance, announced in January 1980 that it would withdraw from a number of conferences serving the United States-Far East trades. This was followed by a series of freight rate reductions by the conferences. -7-

1.18 The different market situation is also reflected in the behavior of freight rates over time. In the case of liners, particularly conferences, the freight rates show a continuously upward trend in recent years, although at markedly different annual increases (Table 4) and with significant differences between trades (comparable data are, however, not available on this point). On the other hand, tramp rates reported on the open market show very marked fluctuations depending on supply and demand conditions (Table 5 and Chart 1). However, as indicated in Annex 3 (para. 5), only a small proportion of long-term charter business is reported.

1.19 The riskiness of shipping will be discussed in Chapter III, but it should be pointed out at this stage that open market charter rates fluctuate. sharply over time. Peak rates tend to be relatively short lived and associated with special demand situations such as the Korean War, the closure of the Suez Canal and the 1973 boom. The peak market in 1973/74 was followed by a period of excess shipping capacity and an even greater excess shipbuilding capacity with depressed and partly subsidized prices for new ships as well as depressed second-hand prices. However, since mid-1978 second-hand prices for ships as well as charter rates have increased significantly as the surplus shipping capacity has been reduced. The ordering of new ships has also increased as have new building prices (Tables 6 and 7).

b. Technological Changes

1.20 Major technological changes have taken place during the period 1965-1978. These changes have been particularly significant in the case of liner shipping, where there has been a gradual development of the conventional liner vessel, including the use of pallets, anA a revolutionary development of new vessel types, particularly container vessels, ro/ro vessels as well as barge-carrying vessels and combination vessels. Although a few container vessels and small ro/ro ferries existed before 1965, they have since grown rapidly in size and importance. The productivity of a modern container ship in terms of ton-miles per annum is between five and eight times that of a conventional cargo liner, and the productivity of a crew member on a large container vessel in terms of ton-miles per seaman is perhaps ten times that of a person on a conventional liner in 1965 1/. These changes have reduced the relative cost of labor to total cost and greatly increased the capital costs per vessel and per seafarer. Full container vessels, and to a lesser extent ro/ro vessels, have primarily been introduced on the main trade routes between developed market economy countries where labor and hence conventional cargo handling costs are high. More recently, however, they have also been introduced on some trade routes between developed market economy countries and LDCs, e.g., between the United States or Europe and the Middle East or the Caribbean. In 1979, the tonnage of general cargo vessel sailings from developing countriea was about 30% of the tonnage of general cargo vessel sailings from developed market economy countries; for full container vessels it was 3% and for ro/ro vessels, 14%. The Arabian Gulf accounted for about 54% of the LDC container sailings and 73% of the ro/ro sailings 2/. Multi-

.1/ Sir Linsday Alexander, op. cit.

2/ Uloyd's Shipping Economist, February 1980. -8- purpose vessels with some container capacity are also being introduced in an increasing number of trades.

1.21 Along with the rapid expansion of seaborne trade in dry and liquid bulk commodities, bulk shipping underwent considerable technological changes during the period 1965-1978. Thus 1965 saw the first great leap in the size of tankers with the appearance of very large crude carriers (VLCC). Although started earlier, the rapid increase in tanker size was clearly due in large measure to the closure of the Suez Canal in 1967. Also significant was the growing importance of the economies of scale for larger vessel sizes in the light of the longer average haul via the Cape and the rapidly increasing demand for crude. As can be seen from Table 3, the average size of tankers increased from 13,000 grt in 1965 to 23,000 grt in 1978. An even clearer picture of these changes can be seen from the ag.e/size composition of the mid-1978 tanker fleet--average size of the 0-4 year old tankers was 48,500 grt as compared with 12,200 grt for the 10 years and older tankers. In terms of carrying capacity or productivity per ton mile per seafarer, the increase has been even faster than reflected by the grt figures. Marked changes have also taken place in tanker technology, including increased automation. These changes, while reducing real transport costs per unit of cargo have increased the investment cost per job. The increase in tanker sizes has given rise to increased concern and international regulation concerning tanker safety and pollution, particularly within the framework of IMCO.

1.22 The technological developments, although important, have been less marked in dry bulk vessels than in tankers or liners except perhaps for the rapid development since 1965 of combined carriers (vessels for alternative transportation of liquid and dry bulk cargo and comprising all types of ore/oil and bulk/oil carriers). Thus while tankers of 100,000 grt and above accounted for 50% of the total tanker tonnage in 1978, only 4% of the bulk carrier tonnage were vessels of 100,000 grt or above and all of these were combined carriers. Basically, the size limit of modern bulk carriers reflects the constraints posed by the Panama Canal. Apart from the tankers and conventional bulk carriers, several new vessel types have developed or grown in Lmportance since 1965 to meet changes in seaborne trade, including LNG and LPG vessels, vehicle carriers, forest product carriers, wine tankers, etc. There has also recently been a development of combination vessels which can carry both bulk and liner cargoes. An important aspect of bulk shipping has been the development of so-called neo-builk where certain important commodities which were earlier carried as liner cargoes have increasingly been switched to full or part-load shipments.

1.23 In dry bulk and other vessels there have also been improvements in instruments, communications equipment and a gradual movement towards automation. These have made possible substantial reductions in typical crew sizes for the new vessels. In several European countries and in Japan trial operations with sharply reduced crews are undeiway. - 9 -

1.24 An important factor in shipping costs has been the very rapid increase in bunker prices. Fuel oil prices at New York, for instance, rose from $2.00 per barrel in mid-1970 to about $21.00 in October 1979, while the prices of marine diesel oil (the most important fuel) rose from $3.66 to $34.00 per barrel during the same period. Bunker costs have therefore become an increasingly important part of shipping costs, accounting for up to 60% of the operating costs. According to one estimate, bunker costs in late 1979 accounted for about 43% of the operating costs of a Norwegian 80,000 dwt tanker as compared with 13% five years earlier 1/.

1.25 Rising bunker costs have induced shipping companies to introduce a reduction in the "normal" vessel speeds, have increased research into more fuel-efficient engines, and have increased consideration of alternative or supplementary forms of power, including coal-powered engines and, even, sails. Thus, in recent years, an increasing amount of research has been done on wind-assisted vessels or wind-driven (sailing) vessels with auxiliary engines, in Belgium, Canada, the Federal Republic of Germany, Japan, Sweden, the U.K. and the U.S. Such vessels would incorporate the latest aerodynamic, electronic and automation techniques and their navigation would be assisted with up-to-date oceanic knowledge and satellite-observed and relayed meteorological data.

1.26 Shipping is estimated to consume about 5% of the world's oil supply. Any modest saving of part of this enormous absolute total would therefore appear highly desirable in a fuel-conscious world. Sailing ships would not only save fuel but are, at the same time, practically pollution-free. They are likely to require more manpower per vessel dwt which would be an added advantage for many LDCs. In short, wind-assisted or sailing ships may have an increasing claim to being considered as "appropriate technology" for part of the shipping industry, e.g., for small and medium-sized bulk carriers for the transport of low-value bulk commodities. The introduction of prrto- types should be monitored by the Bank.

c. Institutional Changes

1.27 The technological developments in liner shipping have also been accompanied by significant institutional changes. One of these has been the development of consortia, whereby two or more liner companies on a trade route join together for the operation of container vessels as one way of spreading the heavy investment costs in such vessels, assuring their efficient operation and reducing the possibility of overtonnaging. A second institutional development has been the growing emphasis by users that shipping conferences should consult or even negotiate with shippers' organizations regarding freight rate increases and other service matters. At the inter-governmental level this point has been reflected in several resolutions adopted by the UNCTAD Committee on Shipping since its establishment in 1965. It is a subject which has also been given attention in the work of other United Nations

1/ Journal de la Marine Marchande, January 24, 1980, p. 194. - 10 - bodies, particularly ESCAP. The question of conference/shipper-organization consultations is also an important feature of the Convention on a Code of Conduct for Liner Conferences.

1.28 A third major institutional development was the adoption in 1974 by a United Nations Conference of Plenipotentiaries of the Convention on a Code of Conduct for Liner Conferences. By January 14, 1980, 44 countries, accounting for 17.3% of the relevant world tonnage, had agreed to be bound by the Convention, thereby meeting the required number of states (24) but not yet the tonnage requirement (25%) for its entry into force 1/. However, at the mid-1979 UNCTAD V several countries, including the EEC countries, announced their intention of ratifying the Convention and its entry into force therefore now appears likely 2/.

1.29 The Convention was intended partly to provide a certain measure of control over shipping conferences, partly to overcome the potential negative effects of varying or even conflicting national regulations and cargo prefer- ences, and partly to assist those LDCs wishing to do so to build up national liner fleets by providing a secure cargo base. Probably one of the most con- troversial features of the Convention is the provision for cargo reservation or sharing that is referred to, for short, as the 40-40-20 principle 3/. The Convention not only guarantees any national shipping line the right, subject to certain criteria, to participate in any conference which serves its country, it also stipulates that where a conference pooling arrangement exists, the national lines of the two countries served should, unless otherwise agreed, have an equal share in the trade with about 20% being left for third country lines. Annex 5 contains the complete text of these provisions as well as Conference Resolution 2 which confirms the freedom of shippers to use non-conference vessels and the right of such companies to continue operations provided they adhere to the principles of fair competition on a commercial basis.

1/ Signatures and Ratification of, or Accessions to, the Convention on a Code of Conduct for Liner Conferences, note by the UNCTAD secretariat (TD/B/C.4/INF.28), Geneva, January 14, 1980 and United Nations Conference of Plenipotentiaries on a Code of Conduct for Liner Conferences, Vol. II United Nations Publications Sales No. E.75.11.D.12, Article 49, Geneva 1975.

2/ According to a July 1979 UNCTAD press release, 56 countries accounting for 75 percent of the world tonnage have expressed their willingness to ratify the Convention (TAD/INF/1084).

3/ In agreeing in principle to ratify the Convention, the EEC countries agreed that Article 2 of the Convention should not be applied in conference trades between EEC member states or, on reciprocal basis, their trade with other OECD countries. (EEC Council Regulation No. 954/79). - 11 -

1.30 Although no drastic or sudden changes in liner shipping are likely to result from the entry into force of the Convention, it is expected to strengthen the conference system and reduce competition in liner shipping; and could therefore reduce the need for efficiency and put upward pressure on freight rates. It could, however, at the same time, reduce over-supply on particular trades. However, the Convention contains compensating provisions for consultations between conferences and shippers' organizations on matters of common interest, including tariff conditions and tariff changes (Chapter III, Article 11). The Convention is likely to result eventually in an increasing share of liner cargoes being carried by national flag vessels at the expense of third flag carriers. It could also mean that some of the more successful LDC shipping lines or industries will have to reduce their present share of some trades or that future expansion within their foreign trades, or in cross-trading, will be restricted. Indian liner vessels, for instance, carry more than 40% on some routes; particularly those with LDCs and the important India-U.K. run. It could also limit the involvement of CPE lines on certain trades; this could be one reason why some European lines favor the Convention. A related question is how the cargo-sharing provisions will be implemented on a national, regional or sub-regional basis. In the Ivory Coast, for example, a rigidly-enforced national cargo-sharing system is resulting in significai.t administrative work and delays which could negatively affect trade. Where trade volumes are relatively small and present liner services are organized on a regional basis, it could also result in inefficient use of shipping capacity unless some form of regional or sub-regional cooperation takes place. An Annex to Resolution 1 of the Conference specifically provides that "national lines within a region at one end are to have the flexibility of adjustments among themselves in regard to their shares." It may be added that a Resolution 106 (V) of UNCTAD V included a clause urging "developing countries which are situated within the same liner service area to pool information on cargo movements and service requirements with a view towards developing joint sailing arrangements to increase the competitiveness of their liner fleets." The effect of the Convention on the efficiency of liner shipping and liner freight rates will depend mainly on how the Conven- tion is implemented. It should not be a substitute for careful economic and financial analysis in investment planning.

1.31 A fourth institutional development in liner shipping has been the growing involvement of government-owned or controlled shipping companies, both from CPEs and from some LDCs. Several countries are considering or have already adopted legislation which would enable them to control competition in their trades, particularly from liners belonging to CPEs.

1.32 On the institutional side of bulk shipping, a significant development has been the increasing number of consortia wherein owners agree to pool their tonnage and operate it as one entity, thus benefiting from economies of scale and increased flexibility. This has both facilitated, and been encouraged by, the rapid expansion of so-called contracts of affreightment, i.e., a contract for the provision of an agreed shipping capacity for a specified time between nominated ports at agreed rates but without specification of the particular vessel/vessels to be used. - 12 -

1.33 A second important institutional development in bulk shipping has been the rapid increase in bulk shipping under so-called open registry. In mid-1978 approximately 36% of the world tanker fleet in terms of dwt was registered in the open registry countries and 30% of the builk carrier tonnage. According to an UNCTAD study approximately 75% of the open registry .fleet was beneficially owned in four countries--the United States, Hong Kong, Greece and Japan 1/. The rapid growth of the open registry fleets in recent years has given rise to dnsiderable discussion on the desirability of this trend. This question was discussed at UNCTAD V where resolution 120(V) of June 3, 1979, inter alia, called on the UNCTAD secretariat to study the repercussions of phasing out open registries (Annex 6, paras. 10-12). The UNCTAD secretariat and, apparently, most LDCs see the phasing out of open registry shipping both as morally right and as a means of bringing shipping under closer government control. They also see an opportunity for a substantial increase in LDC-owned bulk fleets due to their potential for providing low cost crews. The UNCTAD secretariat argues that the gradual phasing out of open registry fleets would achieve the above objectives without adversely affecting freight rate levels 2/. Although some LDCs would indeed be likely to increase their bulk fleets and operate them efficiently, either alone or in joint venture with shipping interests--presently involved in open registry operations or bulk shipping in developed countries, it is far from clear what would happen with the present open registry fleet. It is also far from clear that such a phasing out and the potential reduction in competition which might result, particularly if the phasing out is combined with cargo sharing arrangements, would not negatively affect freight rates 3/.

1/ Beneficial Ownership of Open Registry Fleets - 1979 (TD/B/C.4/AC.1/7), report by the UNCTAD secretariat, October 1979. This included fleets registered in Liberia, Panama, Singapore, Cyprus, Bermuda, Hong Kong and Bahamas.

2/ The Repercussions of Phasing Out Open Registries (TD/B/C.4/AC.1/5), report by the UNCTAD secretariat, September 1979. The report argues that the main impact would be felt by "transnational corporations which are operating outside national jurisdictions and keeping their profits and cash flows outside the monetary and fiscal controls exercised by States."

3/ Different viewpoints on these and related aspects were presented at the January 1980 meeting of the UNCTAD Ad Hoc Intergovernmental Working Group on the Economic Consequences of the Existence or lack of a Genuine Link between Vessels and Flag of Registry, see Report of the Group (TD/B/784) dated February 8, 1980. This meeting failed to reach any agreement. The representatives from LDCs (with the exception of several open registry countries) and the CPEs generally supported the phasing out of open registries. The representatives of developed market economy countries, while recognizing some negative aspects of open registry shipping, stated that several aspects needed more thorough consideration before decisions could be taken. A number of these questions were raised in a recent study by the Economist Intelligence Unit Ltd. for the United States Council of the International Chamber of Commerce, Open Registry Shipping-- Some Economic Considerations, London 1979. - 13 -

1.34 Concurrently, the International Transport Workers Federation (ITF) is continuing its efforts to force shipowners operating under open registry to meet ITF demands on wages and conditions. This, apparently, is contrary to the views of the unions of developing countries in Asia (para. 3.08), which provide a significant portion of the crews of open registry vessels.

1.35 Although some developed and developing countries have taken legislative or administrative measures in the past to require the use of national flag vessels for part of their bulk trade, the question of an international understanding on cargo sharing and "equitable participation" of national flag vessels in a country's foreign trade has recently been raised at a broader level by the developing countries and UNCTAD. At UNCTAD V the LDCs put through a resolution 1/ setting out certain principles for "equitable participation" in bulk shipping and calling for a program of studies by UNCTAD to help developing countries create and expand their own shipping services (Annex 6). Although it is too early to know what will happen on this point and its effect on world shipping and freight costs, it should be borne in mind that any rigid and large scale system of cargo sharing must result in increased ballast, non-income earning and voyages as well as less efficient use of global shipping capacity and hence an -ipward pressure on shipping costs and freight rates.

D. International Resolutions and Actions by Developing Countries

1.36 Closely related to the changes in the international shipping scene discussed above, and reflecting the increased interest of several LDCs in shipping, a number of international resolutions have been adopted in recent years aimed at facilitating the expansion of the merchant fleets of developing countries. Firstly, UNCTAD V adopted a resolution 2/ requesting the IFIs to assist developing countries finance the purchasing of new or second- hand ships as well as port facilities (Annex 7). The UNCTAD Committee on Shipping had previously unanimously urged the World Bank Group and the regional development banks to consider increased lending for vessel acquisition (Annex 8 contains the relevant texts). Also, in early 1978, the UNCTAD Group of Experts on Improved Methods of Financing Ship Acquisition by Develop- ing Countries advocated increased multilateral and bilateral lending for shipping. The Group concluded, inter alia, that the lack of finance on suitable conditions has been a factor which has restricted the establishment and/or growth of the merchant marines of developing countries; that the existing multilateral aid bodies are adequately structured to meet the needs of developing countries in this respect if these bodies pay more attention to shipping development; and that the possibility of using bilateral or multilateral aid for the acquisition of second-hand vessels should be explored thoroughly (Annex 9 contains the summary and conclusions of the Group's report). Various resolutions by the United Nations, the Group of 77 (the

1/ 23 developed market economy countries voted against, while most socialist countries abstained.

2/ 23 countries, the developed market economy countries, abstained. - 14 -

developing countries) and regional groups of LDCs have advocated larger merchant marines for the LDCs as a group (Annex 10 contains the relevant texts of some illustrative resolutions). Finally, as already mentioned, the Convention on a Code of Conduct for Liner Conferences, inter alia, provides a basis for developing countries- shipping companies to join conferences serving their foreign trade through its membership and cargo sharing provisions (Annex 5). I/

1.37 Secondly, at the national level several LDCs have, in recent years, taken steps, or expressd the wish, to expand their merchant marines. In some cases this has been done on a bilateral or sub-regional basis (Chapter III (D)). This has particularly been the case of general cargo (liner) merchant fleets where the LDCs argue that the foreign-controlled conferences have increased freight rates arbitrarily and excessively and paid insufficient attention to their national interest. Several LDCs with large bulk imports or exports have also started to develop national or regional bulk fleets in the expressed hope of increasing their economic returns and/or obtaining a greater financial retuirn from their natural resources. Several countries may also be attempting to increase the returns through increased processing of raw materials. The increasing interest of some LDCs should also be seen against the age composition of the fleets of LDCs, particularly general cargo vessels, where almost half the tonnage of LDCs was 15 years or older in mid-1977 and therefore possibly approaching or exceeding the economical life of the vessels. Consequently, for the LDCs just to maintain their existing shipping tonnage would require substantial investments.

1/ Other major aspects covered include consultation with shippers, freight rate increases and settlement of disputes. - 15 -

II. SHIPPING OPTIONS AVAILABLE TO DEVELOPING COUNTRIES

2.01 Individual LDCs or groups of LDCs have a number of options regarding the maritime transport of their foreign trade. Going from one extreme to another these include:

(a) ignoring maritime transport arrangements and costs completely by selling on f.o.b. (free on board) terms and buying on c. & f. (cost and freight) or c.i.f. (cost, insurance and freight) terms only - thus leaving shipping arrangements to the trading partner and foregoing any control or influence over freight arrangements and costs;

(b) having independent companies in LDCs arrange the maritime transport with foreign-owned shipping lines, so that the terms of shipment used give the LDC company some degree of commercial control over the shipping arrangements - thus leaving individual shippers with control over the shipping arrangements but little or no influence over freight rates except, possibly, for very large shipments;

(c) relying on foreign-owned shipping lines but organizing the LDC shippers into a shippers' council or trade association 1/ in order to strengthen the bargaining position of national, and possibly even regional, shippers vis-a-vis the shipping conferences or shipping lines. Negotiations could then take place regarding freight rates and particulars of service, and through control over sufficient cargo volumes, facilitate the introduction of bulk shipping, all with the aim of obtaining the lowest possible freight costs. A related and comple- mentary option is to encourage a domestic freight forwarding industry for international door-to-door freight control over general cargo movements between inland points;

(d) establishing private and/or public shipping line(s) to serve part of the foreign trade by using time chartered or leased liner and/or bulk ships or such vessels acquired on a hire-purchase basis whereby, at the end of the charter or lease period, they become the property of the national shipping line. This latter approach has been used very extensively and apparently successfully in the case of Korea. It may be mentioned that the Convention or Code of Conduct for Liner Conferences recognizes the right of member lines to use chartered tonnage to fulfill their conference obligations (see Annex 5, article 2, para. 11);

1/ Several reports dealing with such organizations are indicated in the bibliography. - 16 -

(e) establishing private and/or public shipping line(s) to serve part of the foreign trade by domestically owned vessels. In the liner trades this might involve operating either inside existing shipping conferences or operating a non-conference service to compete with a conference and help assure that conference rates are not monopolistic;

(f) establishing or expanding of a privately or publicly-owned national merchant marine to serve not only the foreign trade but also to enter cross-trades on a competitive basis.

These alternatives, which will be referred to in Chapter III below when discussing the potential benefits to LDCs from investments in international shipping, can be presented schematically as follows:

Types of Shipping Options

No Shipping Capability Natural Shipping Capability

a b c d e f

Owned Tonnage

No control Using freight Shippers Using For use For use of shipping brokers or councils chartered in the in the (buy c.i.f. shipping agents or similar or leased country-s country's and sell with control organiza- tonnage. foreign foreign f.o.b.) over shipping tions with trade. trade and arrangements, control over also in but not rates. shipping cross- arrangements trading. and some control or influence over rates.

2.02 It should be noted that under options (a), (b) and (c) above, some national flag shipping might develop "naturally" without any public policy related to the development of national flag shipping. Also there may be a difference between registration and ownership as a shipping company of an LDC might register its vessels in another country, e.g., an open registry country or a developed country. Conversely, an LDC-registered shipping company could be a joint venture between national and foreign interests, facilitating transfer of technology and of operational experience.

...... - 17 -

2.03 Although no up-to-date survey is available, it would appear from press reports and available statistics that in recent years there has been a gradual movement of developing countries away from options (a) and (b) towards (c) and even (d) or (e) above, or a combination of (c), (d) and (e). According to Lloyd½s Register of Shipping Statistical Tables, which includes all vessels of 100 grt and above, about 41 LDCs had a merchant fleet tonnage in excess of 100,000 dwt in 1978 as compared with 24 in 1970 (Table 8). These 41 countries accounted for 98% of the merchant fleet tonnage of all LDCs in 1978; the four leading countries (India, Brazil, Korea and Yugoslavia) alone accounted for 43% of the LDC tonnage. According to an UNCTAD survey, in mid-1976 shippers~ councils or equivalent organizations had been set up in 33 developing countries or territories, although 10 were inoperative for various reasons 1/. Neverthe- less, it would appear that options (a) and (b) are still commonly used in a number of developing countries, particularly in the smaller countries or territories of Africa, the Caribbean and Oceania. Options (c), (d), (e) and (f) have been adopted more commonly in the industrialized countries but also apply to some LDCs as noted above.

2.04 One of the clearest examples of the change which has taken place in some developing countries is India. After independence, India started building up its merchant marine in order to carry a substantial part of its foreign trade to the point where, in 1977-78, Indian shipping carried about 55% of the country's seaborne imports and 24% of seaborne exports, for an overall share of 38%. By types of commodities the share was highest for coal (85%) and POL (60%) and lowest for exports of ores (21%). It was 38% for general cargo. At the same time regional shippers- councils were established and supported by a Freight Investigation Bureau.

2.05 Other developing countries which have partly moved towards options (d) and (e) include Argentina, Brazil, Chile, Colombia, the Philippines and Korea (Table 9); the latter has also moved towards option (f), as has India to a lesser extent. Some of these countries supplement their owned fleets with chartered vessels. For instance, in 1977 Brazil carried 12% of its foreign trade by owned vessels (27% for general cargo, 8% for dry bulk and 15% for liquid bulk) and another 39% by foreign vessels chartered by Brazilian shipowners. A special case is the Maldive Islands, whose merchant fleet of 119,000 dwt in mid-1978 consisted mainly of relatively small and old second- hand, general cargo vessels operated on a tramp basis. Transfer of profits from the Maldives Shipping Ltd. during the period 1975-1978 accounted for about 22% of government revenues.

2.06 Industrialized countries relying largely on options (b) or (c) and those where national flag vessels carried less than 5% of their ocean-borne foreign trade include Australia, the Netherlands, the United States and Canada (Table 9), although Australia has now entered its main liner trades with Europe and Japan, and the United States has taken some steps to acquire bulk carriers for its important bulk dry cargo trades in addition to continuing to

1/ Effectiveness of Shippers- Organizations, a report by UNCTAD secretariat (TD/B/C.4/154), Geneva, 1976. - 18 - subsidize part of its liner shipping. Canada, reportedly, is reconsidering its ocean-going shipping policy. It should, however, be pointed out that apart from the share carried by national flag vessels, additional cargo may, in the case of some countries, be carried by vessels beneficially owqned in these countries but registered in open registry countries. Thus, while in mid-1978, the merchant fleet of the United States totalled 23.9 million dwt, an estimated 62.4 million dwt of additional tonnage were beneficially owned in the United States but registered in open registry countries. The corresponding figures for Canada were 3.6 million and 2.7 million dwt and for the Netherlands 7.9 million and 1.2 million dwt respectively. Industrialized countries opprating option (f) include Greece, Norway and the United Kingdom as well as, more recently, the USSR with respect to liners. It may be added that in addition to the 57.0 million dwt of national registered tonnage, Greece beneficially owned another 40.7 million dwt under open registry flags in mid-1978. - 19 -

III. BASIC FACTORS IN SHIPPING INVESTMENT DECISIONS

A. Introduction

3.01 This section discusses several basic factors in shipping investment decisions and the potential benefits to certain LDCs from selective investments in international shipping. The discussion is, of necessity, in general terms. In practice, a large number of variables affect investments in shipping which can only be considered in terms of decisions about specific vessels on specific trades under specific conditions at a given time. Some shipping companies and individuals have developed computer programs to facilitate the investment analysis. The discussion is based on a review of available information, supplemented by visits to India and Korea. The available data show very wide variations depending on factors which cannot readily be isolated. Sub-section B considers briefly certain general aspects related to investments in shipping while sub-section C discusses the possible benefits from such investments. Sub-section D discusses the question of trade and shipping among developing countries. Finally, sub-section E relates the various points discussed in sections B-D.

B. General Considerations

(i) Introduction

3.02 Major investments in shipping require careful analysis of the usual economic, financial, technical and institutional aspects as well as consideration of inter-sectoral priorities and transport sector considerations. While this analytical approach will apply to any investment decision, the special nature of shipping in general and the particular type of shipping or trade decision in question make such analysis of the utmost importance since shipping can be a risky, relatively low profit and capital intensive industry. Before discussing briefly the first two of these characteristics of the shipping industry (the third will be considered in section (C) under employment), it is useful to stress three points. Firstly, shipping is not a uniform industry selling a homogeneous product; it is a composite of different types of shipping services and vessels operating on a multitude of trade routes each with differing conditions. Secondly, although ocean shipping services are, and probably will continue to be, the dominating mode of transport in international trade, there are a number of alternative ways in which shipping requirements can be met (see Chapter II above). Thirdly, ships are mobile assets which can be bought, sold, and chartered on the international market. The trend towards more capital intensive and specialized vessels has, however, increased the scope for errors of judgment in assessing the shipping market. It has also increased the importance of careful consideration as to the timing of vessel acquisition and of procurement procedures. The variations in charter rates and vessel prices, particularly for secondhand vessels, are directly related as high rates tend to be accompanied by relatively high vessel prices. - 20 -

3.03 Key aspects which, from a national point of view, should be covered in the shipping investment analysis include:

(i) the existing volume, composition and pattern of trade; its organization and the likelihood of changes in trade oxrgaul- zations, volume and patterns;

(ii) the existing shipping services used in the different trades, including the suitability of these services/vessels and their costs and the freight rates/charges;

(iii) the extent to which part or all of the trade needs could be better met, or provided at a lower cost, by alternative arrangements and the extent to which these would require organizational changes or investments i.n related facilities such as ports, etc.;

(iv) the institutional, operational and supporting facilities and staff required and available for national flag shipping and how any possible gaps could be filled -- this should include questions concerning crew training facilities, management, ship registration provisions, transfer of flag provisions, ship mortgage and lien provisions, currency transfer regulations and other special aspects arising from the international character of shipping;

(v) the role of the government in regulation and promotion of shipping, including dependence on measures to "steer" or direct cargoes;

(vi) vessel acquisition procedures and the financing possibilities;

(vii) evaluation of economic benefits of alternative investments in ships, taking into account the relative advantages of second-hand vessels versus new buildings from national or foreign yards.

The economic evaluation involves consideration of the ability of the vessels to operate profitably at competitive rates and what benefits the proposed investments will yield as compared with alternative investments in other sectors. As discussed later, these benefits may, apart from profits, include foreign exchange savings, positive effects on freight rates and trade, employment, development effects through linkages with other sectors of the economy, the stimulation of local entrepreneurship, greater security of services, etc.

3.04 From the operating enterprise's or company s point of view, a number of detailed organizational, operational, financial and technical aspects will need detailed studies before any investment decision could be finalized and implemented. The organizational structure of the company will depend, inter alia, on the type of shipping services to be provided, the size of the - 21 -

operation, and the degree of utilization of outside services (management companies, technical services, agents and brokers, etc.) 1/.

(ii) Profitability of Shipping

3.05 Although it is frequently stated that international shipping yields a relatively modest return on investment, only limited comparative data is available. It should also be emphasized that little, if any, comparative data appear to be available concerning the profitability of open registry shipping. This is also true for the rapidly increasing, and presumably competitive, Greek and Hong Kong shipping industries 2/. Due to the great variations in conditions in different shipping trades and services as well as the differerces which arise from differences in national accounting procedures or regulations (e.g., vessel depreciation policies in light of tax laws, regulations and commercial practices), meaningful comparisons of the level of profitability in shipping in different countries, and even between different companies in a given country, pose major practical problems. Differences in debt/equity ratios need to be considered in comparing the profitability of shipping and other industries. The profitability of public sector shipping companies, such as the Shipping Corporation of India, may also be affected by public service obligations not only in coastal shipping but also in international shipping in some cases.

3.06 The cyclical fluctuations mentioned in the following section further complicate any proper analysis of this point since data Lor one, or even a few years, are unlikely to be representative of the total investment period. In this connection it should be recalled that the period 1975-1978 has been a very depressed period in international shipping, particularly bulk shipping. This is clearly seen in the case of Korea where, for the ocean-going shipping industry, net income before tax as a per cent of equity between 1970 and 1978 varied between (-9.5%) and 38.6% and the net working surplus as a percent of fixed assets varied between 13.5% in 1978 and 28.2% in 1973 with working ratios of respectively 80 and 68% (Table 10). The diversification of some European and American shipping companies into other sectors and the production of only aggregated financial accounts is a further complicating factor in any analysis.

3.07 Notwithstanding the limitations of using, in part, second-hand data without details as to their exact coverage and compilation, Tables 10-18 present available information relating to the profitability of shipping and other industries in several countries. Due to differences such as depreciation policies, tax rules and debt/equity ratios, the net working surplus, as a percent of net fixed assets, might be the preferred basis for international

1/ Some publications dealing more fully with the organizational aspects are included in the bibliography.

2/ For 1975 and 1976, years of relatively depressed shipping markets, the net profits after taxes of one major Hong Kong shipping company represented a net return of 23% on net worth according to data provided by Instituts fur Bilanzanalysen, Frankfurt. - 22 -

comparisons. The available data was not, however, sufficiently detailed to permit a consistent and uniform presentation of all the financial data, hence the presentation on different bases.

3.08 Thu-.-,,----es 11-13 tend to confirm the relatively low profitability of shipping in some industrialized countries. Table 11, for instance, indicates that for a sample of British shipping companies' net income before tax, as a percentage of capital employed, averaged 6.2% during the period 1950-1969 as compared with an average of 15.0% for all companies/industries sampled. The Belgian, French and German shipping companies listed in Table 11 are basically liner companies and the 1976 result should not therefore have been drastically distorted by the depressed bulk market of that year; Hapag-Llbyd½s 1976 return of 5.3% was in fact higher than the average for the 1970-1976 period (3.9%).

3.09 The Indian data in Table 11 and detailed further in Table 14, however, indicate the caution with which these data must be used as special tax provisions for shipping may change the relationships between before-tax earnings and after tax profitability of shipping and general industry. Thus, for a sample of Indian industries and companies during 1965/66-1976/77, shipping had the lowest return in terms of net operating surplus as a percentage of net fixed assets and net income before tax as a percentage of equity, but showed the highest return in terms of net income after tax as a percentage of equity. This result may be due in part to the very high debt/equity ratio for shipping, low interest rates from the Government for ship acquisition, and special tax advantages given to the industry. A somewhat similar picture results from a comparison of the relative profitability of the Shipping Corporation of India (SCI) and selected other major Government of India enterprises during the period 1969/70-1977/78 (Table 15). This comparison showr d that although the weighted average return of SCI in terms of net operating surplus as a percentage of net fixed assets was below the average for the sample, mainly due to the poor results in 1975/76 - 1977/78, its return in terms of net operating surplus as a percentage of capital employed and even more so for net income as a percentage of equity, was well above the average. The profitability of SCI may have been negatively affected by certain service obligations, including certain coastal trades, but it is not known how significant this has been.

3.10 Although the above data must be used with great caution due to the valuation differences mentioned in para. 3.05, they indicate not only that there were marked differences in the relative profitability of shipping in different countries, but also that there were wide variations in overall returns on different types of shipping in particular countries (Table 16, page 1, Footnotes a and d). The latter point is also reflected in Norwegian data which show great differences in the profitability of different Norwegian vessels in different types of shipping (Table 17). It should be noted that cyclical fluctuations in bulk shipping, particu-larly spot market bulk shipping, together with the shortage of comparable time series makes it difficult to draw conclusions regarding the relative profitability of liner and bulk shipping. This is further complicated by the fact that some bulk shipping - 23 -

companies tend to "play the market", while others may tend to charter their vessels on a long-term basis. Nevertheless, the data in Table 17 indicate that during the period 1970-1974, the return on investment in Norwegian liner sh''pping was significantly less than in bulk shipping; separate data for 1947- 1957 showed a similar Dattern The Table also shows large differences between vessels or companies engaged in the same types of shipping. Even in conference-organized liner trades there may be great differences in the relative profitability of liners of a particular country on the same trade route. As indicated by Deakin and Seward 1/ there are large differences even in the profitability of different British liner companies operating on the same trade route at similar conference freight rates.

3.11 Also with regard to LDCs, the available information (including that in Tables 10, 13, 14, 15, 16 and 18) shows a mixed picture. Thus, selected shipping companies in some LDCs appear to have earned returns comparable to, or better than, those of lines in some developed countries. Such returns may also be equal to, or better than, the average return of other public sector companies in their countries in certain years, e.g., in India and Sri Lanka. The rapid expansion of some privately owned LDC shipping companies, e.g. in Hong Kong, would tend to indicate that they are reasonably profitable; this is as partly confirmed by the data referred to in the footnote to para. 3.05 2/. On the other hand, some LDCs lines are understood to have been losing money for a number of years and to be dependent on financial assistance from the government, while others have made only marginal returns. Thus, according to the Economic Commission for Africa (ECA), the financial position of most African shipping lines is precarious, with most of them existing on national subsidies 3/. A study of shipping in the Commonwealth developing countries, while noting that information had not been forthcoming to derive conclusive evidence on the profitability of shipping lines in these countries, expressed the view that the revenues of most lines covered both their direct and indirect costs and yielded some profits. However, the authors doubted whether the returns on capital invested in shipping matched the oppottunity cost of capital in many developing Commonwealth countries 4/.

1/ B.M. Deakin and I. Seward, Shipping Conferences, A Study of their Origins, Development and Economic Practices, Occasional Paper 37, Cambridge University Press, Cambridge, 1973.

2/ According to press reports Hong Kong shipping magnate C.Y. Tung has offered to buy one of Britain's largest shipping companies (The Journal of Commerce, March 18, 1980, p. 10).

3/ Global Strategy for the Implementation of the United Nations Transport and Communlications Decade in Africa (1978-1988), report by the Economic Commission for Africa (E/CN. 14/ECO/138/Rev.1) p. 12, 1978.

4/ A. Benham and B. Ogley, Development of the Merchant Marines of Common- wealth Developing Countries, 1977, p. 13. - 24 -

3.12 Maybe the most that can be said on the basis of the available information is that, at the feasibility study stage, very careful analysis will be required of the likely profitability of new shipping investments, taking into account the particular conditions in the trade in quest.ion, including the market risks involved and possible ways of minimizing these. Sensitivity analysis of key variables such as future market conditions, load factors, etc. appears essential and should be based on a realistic assessment of potential fluctuations.

(iii) Riskiness and Market Fluctuations

3.13 Shipping is generally considered a risky business that is subject to considerable fluctuations in demand which results in wide fluctuations in profitability. In bulk shipping, these fluctuations in demand are also accompanied by wide fluctuations in freight rates. The riskiness was illustrated by conditions in early 1978 when there was a shipping surplus of about 100 million dwt, mostly tankers, representing about one-sixth of the total world tonnage 1/. Many shipping companies lost money as the open market freight rates for tankers and some bulk carriers were insufficient to cover even the running costs of vessels. Several companies either sold off part of their fleet, went out of business or operated with government assistance. Several developed market economy countries, as well as some LDCs, took special, hopefully temporary, measures to assist their shipping industries as well as their shipbuilding industries.

3.14 However, the above gloomy picture did not apply equally to all types of shipping, or in all trades, or to all companies in a given trade. Thus, in March/April 1978, 10.8% of the tanker grt tonnage was laid up as compared with 4.4% of all other tonnage. Liners accounted for only about 2% of the laid up tonnage as compared with 21% of the world tonnage. Reflecting, in part, differences in fleet composition and trading patterns, the percentage laid up varied markedly from country to country ranging from 25%'. or more for Libya, Sweden, Denmark, and Norway to 2% in the case of Japan and none for India and Korea 2/.

3.15 Historically, open market charter rates show very large variations depending on demand and supply situations, but this is not the case in liner rates (see Tables 4 and 5, also Graph 1). Nor is it to the same extent applicable to bulk rates under privately negotiated, long-term charter arrangements. The reason for the volatility of the open market charter rates is that they represent, in large part, a marginal market responding to demand fluctuating with changes in world trade as well as to special political or military events such as the closure and reopening of the Suez Canal. Volatility is also closely related to the relatively high

1/ Fearnley and Egers Chartering Co., Ltd., Review 1977, Oslo, 1978, pp. 7 and 15.

2/ Calculated from Shipping Statistics, May 1978. - 25 -

proportion of fixed costs in shipping. The supply of vessels at a given time is relatively fixed by the fact that building new ships takes time, and that shipowners, as a group, tend to order excessively during periods of peak demand. The tonnage contracted in 1973, a year of peak demand and high freight rates, was more than twice the tonnage ordered in each of the two preceding years, and also almost twice the combined tonnage ordered in the four depressed years 1975-1978 1/. Although it is extremely difficult to know when the shipping market will be in equilibrium, it is worth noting that charter rates, as well as second-hand values in many instances, more than doubled by June 1979 from the extremely depressed conditions in June 1978. -The laid up tonnage fell from about 57 million dwt in mid-1978 to 24 million dwt in May 1979 and 10 million dwt at the end of 1979 when about 1.6% of the world tonnage was laid up (see also Table 19). The tonnage of new ships on order, which had been declining sharply from about 268 million dwt in January 1974 to 51 million in April 1979 also increased modestly during the second and third quarter of 1979 to 57 million dwt 2/.

3.16 The variations in open market rates cause wide fluctuations in the profitability of bulk shipping over time although their severity can be moderated through the use of long-term contracts and the utilization of escalation clauses. In the case of the liner trades, although not normally subject to short run fluctuations in freight rates 3/, profitability is affected by variations in demand and the degree of non-conference competition, changes in the efficiency of shipboard operations, and higher costs for fuel (unless fully offset by bunker surcharges) and insurance, etc. It should, however, be noted that from the point of view of a country's foreign trade, reliance on foreign-owned shipping may also involve some economic and political risks with regard to the availability of sufficient tonnage and, more importantly, with regard to freight costs, not covered by long-term charters. The market risks would be greatly reduced in the case of vessels committed on a long-term basis to carrying part of a country's foreign trade.

C. Potential Benefits to LDCs from Selective Shipping Investments

(i) Introduction and Methodology

3.17 International shipping to serve a country's normal foreign trade can be looked upon as an import substitution investment. A second type of international shipping, cross-trading or option (f) of para. 2.01, would be more akin to an export industry. The latter will not be discussed here since, at present, few developing countries appear to consider shipping

1/ Fearnley and Egers Chartering Co. Ltd., Review 1978, Oslo, 1979, p. 18.

2/ Fairplay International Shipping Weekly World Ships on Order, November 22, 1979, p. 2.

3/ Secret rebates have reportedly occurred in certain trades as indicated by recent FMC investigations and settlements with several lines engaged in trades to or from the United States. - 26 - investments solely for this purpose, although it is of considerable importance in the case of the Maldives, Hong Kong, Korea, and India. It is also possible that in several case due to the trade patterns, some cross-trading might be necessary in individual cases to enable full and efficient use of vessels basically intended to serve the direct foreign trade of a country.

3.18 As in the case of any import substitution, investment in shipping for a country's foreign trade can initially be looked upon as the avoided import cost or freight payment, and the cost of imported goods and services and national resources used to provide the shipping service, taking into account shadow prices where appropriate 1./

3.19 Developing countries investing in shipping generally claim that such investments are needed in order to save foreign exchange, to reduce freight costs and thus promote a country's foreign trade, to provide added employment, and to assure adequate and reliable shipping services. These potential benefits are discussed in the following paragraphs. For the discussion, alternative (c) of para. 2.01 will be considered as the case without national ships and alternative (e) with owned national flag vessels to carry part of the trade, as the alternative. An in-between arrangement may in some cases be for a national shipping company to use time chartered or leased vessels--alternative (d). Korea, for instance, has partly used this latter approach; of the total shipping tonnage operated by Korean owners in April 1979, 64% was owned, 24% involved bareboat charter with option to buy and 12% was time chartered. Furthermore, about 46% of the planned increase during 1977/78 - 1981 was expected to come through hire-purchase arrangements.

(ii) Saving Foreign Exchange

3.20 The potential for avoiding substantial foreign exchange payments for maritime freight is often given by LDCs as one important reason for investments in ocean-going shipping. This has been a major factor in the cases of India and Korea. Although no comprehensive information is available regarding the foreign exchange costs of the maritime transport of developing countries' foreign trade, according to balance of payments data compiled by the IMF, 78 developing countries paid 10,866 million SDR (about $13,200 million) for freighting by all modes their imports by foreign lines in 1975 2/. According to a recent World Bank Staff Working Paper: "Trade in Non-Factor Services: Past Trends and Current Issues" 3/, imports of freight and insurance

1/ A related way of looking at such investments, suggested by Cohen and Shneerson is in terms of domestic resource costs (D. Cohen and D. Shneerson, "The Domestic Resource Costs of Establishing/Expanding a National Fleet", Maritime Studies and Management, No. 3, 1976).

2/ IMF, Balance of Payment Year Book, Supplement to Volume 28, 1970-1976 with certain adjustments.

3/ A. Sapir and E. Lutz, World Bank Staff Working Paper No. 410, Washington, D.C., July 1980 Data reflect IMF balance of payments data. Table 1 of Annex I of the above report lists the countries covered. - 27 -

services in 1975 were the most important non-factor service imports in the balance of payments of the Group of LDCs for which IMF data were available; they accounted for about 35% of all non-factor service imports of these countries. The cost of imported freight and insurance services for these countries, US$14.1 billion, were about 10% of their trade import values; they exceeded 13% for WDR regions 1, 2 and 5 and were less than 7% of regions 3 and 9 1/.

3.21 Although the total freight paid to national flag lines in a country's foreign trade is a gross foreign exchange saving, the net saving from the national point of view will be significantly less depending on a number of factors, including: (i) the type of vessels involved and their age and cost structures under national and foreign flag, (ii) the extent to which the vessel is acquired from abroad and the financing arrangements, (iii) the extent to which national resources are used in its operation (crew, management, repair facilities, etc.), (iv) the operating efficiency and level of profitability, (v) the impact on freight rates, and (vi) the general conditions on the particular trade routes in question.

3.22 The composition of costs for selected ship types under the U.K. flag in 1976 are given in Table 20, while Table 21 indicates differences in daily vessel costs for certain flags of registry. In the case of chartered vessels use, there would normally not be any potential foreign exchange saving on the crew account and only partly for management. On the other hand, there is no direct acquisition and financing costs although an allowance for capital costs will normally be included in the charter rate. In the case of bareboat chartering with an option to buy, crew and management costs would largely be national costs and the capital costs would be included in the charter payments. As an example, an analysis of the contribution of British shipping to the balance of payments is given in Table 22.

3.23 A hypothetical calculation for a liner vessel (Table 23), indicates the variations in net savings depending on the assumptions used for (ii) and (iv) above. Thus, on the assumptions that the trade was unprofitable, that the ship was purchased abroad and paid for at 6% annually over a 25 year life, and

1/ These percentages have been estimated on the basis of the data given in the report. The specific regions mentioned are:

WDR 1: Low income Africa South of Sahara 2: Low Middle and Intermediate Middle Income Africa South of Sahara 3: Upper and Higher Income Africa South of Sahara--includes South Africa 5: Upper middle Income North Africa and Middle East. 9: Upper Middle and Higher Income Asia and Pacific. This covered only Singapore and is not strictly comparable due to the open registry, cross-trading nature of some of Singapores fleet. - 28 - that the national resources used were crewi and management, the foreign exchange saving was 5% of the gross freight, while, if the trade were profitable and the vessels purchased at home (or received as a gift), the saving might be 35%. The relativ'7 savings might be greater if, apart front crew costs 1/ and management costs, a significant part of the costs of repair, insurance, and some other items could also be procured nationally. It should, however, be noted that in several developing countries, shipping management may initially have to be partly obtained abroad and would therefore, in part, involve a foreign exchange cost. While crew costs might largely be a national currency cost, there could be partly offsetting foreign currency losses if the employment of national crews on national flag vessels meant a transfer of such crews from foreign flag vessels to national flag vessels rather than the employment of previously unemployed persons or persons locally employed in other national industries. If the national shipbuilding or ship repair industries were competitive, their services would, at least in part, be exported (e.g., used by visiting foreign lines) if not used by the national shipping industry, and should in that case be considered as a foreign exchange cost - at least equal to the likely international sales price of the services, if the yards were working to capacity.

3.24 In the case of India, foreign shipping lines spent an estimated 25% of their freight earnings from Indian trades in India, while for Indian shipping companies during 1973/74-1975/76, the disbursements abroad represented less than half of their freight revenues (Table 25). SCI estimates its foreign exchange savings equalled about 49% of its earnings from overseas services or about Rs. 1,320 million ($154 million). The methodology used by SCI (Annex 11) is interesting although it contains a major omission in that it does not take into account capital costs in foreign currency. The same limitation applies to the Indian data in Table 25 and also prevented any proper analysis of the balance of payments effect of Korean shipping. Accord- ing to the Indian National Shipowners- Association, the net foreign exchange contribution of Indian shipping, after allowing for foreign currency capital costs, would be about Rs. 150-200 crores ($180-240 million) per annum 2/. According to the annual report of the Ceylon Shipping Corporation (CSC), the foreign currency operating costs of CSC in 1974-76 varied between 48% and 60% of their gross freight revenues while its net foreign exchange savings, after interest, varied between 29% and 37%. In the case of Argentina, expenditures abroad by Argentine flag vessels accounted for between 30 and 46% of their revenues, although again it is not clearly indicated whether capital costs have been included. Neither the CSC nor the Argentine data seem to take into account foreign exchange earnings foregone from expenditures in their ports by foreign vessels which might otherwise have occurred. In the Ivory Coast, the

1/ It should be recognized that even with 100% national crews, a share of the crew costs will be a foreign exchange cost since the crew will spend part of their earnings abroad. Similarly, crews on foreign ships most likely would spend some in the country as reflected in Table 23.

2/ Indian Shipping, November 7, 1979, p.3. - 29 -

Ministry of Marine has estimated the net foreign exchange savings of that country's merchant fleet at CFAF 2,000 million in 1977 (US$8 million) or about 10% of freight revenues of the national flag vessels. This comprehensive analysis does, however, treat the acquisition cost of vessels as a foreign exchange cost in the year of purchase (about US$20 million in 1977) and would therefore tend to produce relatively low net foreign exchange savings during a period of rapid expansion of the fleet when vessels are imported. The analysis correctly treats expenses of national flag vessels in Ivory Coast ports as foreign exchange costs equivalent to foreign exchange revenues foregone. In the case of Norway, operating expenses abroad accounted for about 41% of the gross foreign exchange freight earnings in 1972-1974, while interest on foreign loans accounted for 6% and net ship imports (less export of second-hand ships) for 8% 1/. About 90% of the Norwegian ocean-going fleet was engaged in cross-trading. On the other hand, if the national flag vessels are operated at a deficit, use few national resources, and involve expensive vessels purchased abroad on relatively hard financing terms, the net foreign exchange savings could be negative. Table 26 sets out a format for analyzing the balance of payments effects of a national shiipping line.

3.25 If the national currency is overvalued, the value of the net foreign currency savings would be understated if the official exchange rate is used without adjustment. Furthermore, if the investment in national flag vessels results in reduced freight rates and increased exports, these would represent further foreign exchange benefits.

3.26 Although significant gross foreign exchange earnings or savings may be obtained from investments in shipping, the net savings will, as discussed above, be smaller, although still potentially interesting. Notwithstanding the data problems, it would appear that in most cases some foreign exchange savings would result. This would, howev-r, have to be considered on a case- by-case basis by the countries considering investing in shipping. Such an analysis should, in addition to an estimation of the net foreign exchange savings of national flag vessels (i.e., gross earnings less foreign exchange expenditures and less foreign exchange earnings foregone), also include (i) the foreign exchange savings which might be obtained from alternative uses of the national resoturces which might be invested in shipping, (ii) shadow pricing if appropriate, (iii) the extent to which in a given case foreign loans or credits may be available for shipping but not for other purposes, (iv) the fact that only a small portion of the vessel cost will normally have to be paid initially, and (v) the fact that vessels are movable assets with an international market, although at a fluctuating price level.

(iii) Effect on Freight Costs and Trade

3.27 The potential for bringing about lower freight charges and/or improved service is often cited as reasons for LDCs investing in national merchant marines. Information to substantiate these claims is scattered and impressionistic. In the case of India, it was claimed that national flag

1/ Norwegian Government White Paper - St. Meld No. 23 (1975-76), p. 107. - 30 -

vessels had had some positive effect and individual e-:amplls were mentioned (see paras. 3.31, 3.32 and 3.33 below.). However, no compiehensive analysis was available. In considering the potential effect of national flag vessels on freight costs, it is necessary to distinguish once more between three types of shipping services: (i) liner or scheduled operation within a shipping conference, (ii) liner operation outside the conferences, and (iii) bulk shipping. The following discussion will be in general terms as necessary statistical data are not available.

3.28 Before discussing the different types of shipping, it may be useful to consider briefly whether, in principle, there are any general reasons why ships from some LDCs should be able to operate at lower costs than those of developed countries. An important cost is labor, covering both crews and management. This would be particularly significant and generally favorable for the LDCs in liner shipping and could become increasingly important in bulk shipping if open registry shipping were curtailed through international agreement. It should, however, be noted that in the case of some LDCs, the potential advantages in terms of lower unit wage rates (including social charges, etc.) may be partly offset by larger crew sizes. The relative importance of crew and administration costs in the total daily costs vary markedly between vessel types, being highest for liner vessels, tramp vessels, small reefers, and small bulk carriers (including tankers) and lowest for container vessels and other high technology vessels such as LNG carriers or very large bulk carriers, as indicated in Table 20. This Table assumes cost under British flag operations using British officers and Asian seamen (ratings) and reflects 1976 cost levels. Such costs might also be lower for newly-built vessels than for vessels purchased second-hand or for vessels which have undergone conversion to reduce their operating costs and increase their earning capacity. As can be seen from the Table, crew and administration costs ranged from almost 30% for a small product carrier to 2% for a LNG vessel; due to the sharp increase in bunker costs since 1976 the percentages may now be somewhat lower. According to a 1976 Swedish estimate, crew costs for a liner vessel or small bulk carrier under the British, Norwegian or Swedish flag would be two to three times the cost under the Liberian flag without ITF agreement (Table 21). The difference is smaller, but still significant, if Greek crew costs are considered. More recent data indicate that the total monthly crew cost for ratings in mid-1979 was between US$2,000 and US$2,500 for Japanese, Norwegian and American; about US$1,900 for British; about US$950 for Greek and about US$600 for Indian ratings 1/. The latter might be comparable to an efficient LDC shipowner. Efficient LDC shipowners should therefore have a special potential for low cost operations in the relatively more labor-intensive parts of shipping. They might find it economical to use relatively more labor and less capital-intensive vessels on particular trades than would shipowners from the higher labor cost countries although, in practice, the best balance would have to be evaluated separately for each trade. Consideration would also have to be given to the extent to which lower crew costs in the LDCs might be offset by higher financing costs or less advantageous tax provisions than those available to its foreign

1/ Lloyd's Shipping Economist, February, 1980, p. 16. - 31 -

competitors. Several countries, including developed countries, give various forms of financial assistance to their shipping industries in an effort to improve their competitive position 1/,

3.29 It is not possible within the scope of this paper to deal exhaus- tively with the question of economies of scale in shipping. 'However, two aspects may be mentioned briefly, i.e., economies of scale associated with vessel size and economies associated with number of vessels operated by a single company. In principle, there are considerable economies of scale in bulk shipping from increased vessel sizes, particularly in the long-distance, large-volume trades. However, the extent to which increasing vessel sizes can be economically used in particular trades depends, apart from vessel costs, on the trade volumes involved and the capacity of existing port and storage facilities or the cost of new facilities. These factors are even more important for liner vessels. For both liner and bulk vessels there may be a trade- off between decreasing ship operating costs per ton-mile from fully used larger vessels and increasing port and storage costs. It is, however, likely that increasing bunker fuel prices and the reduced bunker costs per ton of cargo for larger vessels may gradually result in increased vessel sizes, particularly in the average size of bulk vessels. In liner trades this could also increase the use of large container vesels for main-line port trades, supplemented by feeder services.

3.30 As far as is known, no comprehensive and conclusive study has been made of the economies of scale for shipping companies neither with regard to the number of liner vessels operated on a particular trade route nor the number of bulk vessels. The available evidence tends to indicate that there are some economies of scale, particularly with regard to marketing and company overhead, as well as the possibility of more specialized services. In liner trades a certain minimum frequency may be necessary to attract regular cus- tomers; while in the bulk trades certain types of contracting, e.g., contracts of affreightment, require a number of vessels for operational flexibility. However, some of the potential benefits from larger scale operations may be obtained through pooling arrangements or other forms of joint operation as well as the use of outside specialized services. The successful operation of a number of small companies with one to four vessels, for instance in Greece and Norway, would tend to indicate that scale may not be a definitive obstacle for small well-run shipping companies 2/. It should, however, be noted that

1/ United States Department of Commerce, Maritime Administration, Maritime Subsidies, United States Government Printing Office, Washington, D.C., 1978.

2/ Skipsfartsneringen, Norges Offentlige Utredninger, NOU. 1978: 13, pp. 30- 32 discusses these aspects further. Ferguson et al., The Economic Value of the United States Merchant Marine, Evanston, 1961, although somewhat dated now, also concluded that shipping was not characterized by large economies of scale. It should, however, be recognized that there are also a number of very large companies. Exxon Corportion, for instance, at the end of 1976 reportedly owned, through various affiliates, 154 vessels totalling 16 million dwt (United States Department of Commerce, Maritime Administration, Foreign Flag Merchant Ships Owned by U.S. Parent Companies, U.S. Government Printing Office, Washington, D.C., 1978). - 32 -

even a relatively small company with, say, three handy-sized bulk carriers might require an investment of about US$45 million, or an equity financing of about US$13 million, based on mid-1979 new-building prices. For more capital- intensive vessels such as container vessels, LNG vessels, etc., the investments for a single vessel could be of the same order of magnitude. According to one estimate, the total cost of instituting a basic container service on an important trade route was between US$120 and US$200 million in the early 1970s 1/.

3.31 In the case of a national shipping line joining an existing conference, it becones bound by the conference rules and must charge the same rates as other conference members. The voting power of the line in conference affairs depends on the organization of the conference, the number of lines and their relative voting rights. One vote per line appears to be fairly common although conferences may tend towards consensus decisions rather than voting. Even if a national line has costs below the average of the conference members, it is not necessarily clear whether its participation in the shipping conference will have a downward effect on the general level of freight rates in the trade or just result in higher profit for the line 2/. On the other hand a high cost national line, at least initially, might encourage a conference to maintain or increase freight rates to protect the national line-s financial viability. Governments and public sector shippers might also be less inclined to resist conference rate increases if the survival of a national line, especially a public sector line, were at stake. It has been argued, e.g., in India (by both shipowners and shippers), and by UNCTAD 3/, that national lines may, however, have had more influence on, or been more sympathetic to, requests from nationals for promotional freight rates for new items, or lower freight rates or smaller increases for individual, important, export commodities, the competitive position of which might be negatively affected by higher rates. Clearly, as long as the rates were above marginal cost, it would be in the interest of conference members not to lose a particular trade. It has also been argued that national lines might be more sensitive to special service improvements requested by national shippers. Access to the minutes of conference meetings on freight rate questions would be necessary for any authoritative analysis of the effect of particular national lines on conference freight rates and also on conference service matters. Such access is

1/ The Regulated Ocean Shipping Industry, op. cit., p. 83.

2/ In the case of India, it was mentioned that on several occasions the Indian lines had been instrumental in obtaining lower than originally planned general freight rate increases, e.g., in the India/Europe trade, and ensuring a longer period between freight rate increases. T.K. Sarangan, Liner Shipping in India's Overseas Trade (United Nations publication. Sales No.: 67.11.D.25), New York, 1967, chapter 1, gives several examples. Other examples are given in Establishment or Expansion of Merchant Marines in Developing Countries (TD/26/Rev.1), New York, 1968, pp. 7-11.

3/ TD/26/Rev. 1, op. cit. pp. 7-9. - 33 - not readily available. However, well-organized shipper councils or trade associations, and other efforts towards setting up a counter-balancing force to the conference or encouraging competition may be alternative ways of achieving the desired objectives. Even if a national shipping line exists, such organizations have-a part to play by representing the interests of shippers as in Korea and India. In the latter case, the Freight Investigation Bureau also appears to have played a useful role. In the case of West Africa, the Institut de Documentation de Recherche et d'Etudes Maritimes (I.D.R.E.M.) in the Ivory Coast has estimated that, through a strengthened bargaining position, the region has avoided conference freight rate increases totalling some US$350 million between 1977 and 1979, although the basis for this estimate is not known.

3.32 It would appear that liner operations outside the shipping conferences are rarely undertaken by LDC companies on their main trades. This is probably because they find it easier and less risky to share in the conference. In the case of India, the liner companies appear generally to operate within the conferences although it was reported that this is considered on a trade-by- tra&'e basis and that in the India/US trade, two Indian lines had left the conference due to a disagreement over a freight rate increase which they considered excessive. The Convention on a Code of Conduct for Liner Conferences is likely to encourage conference membership by LDC lines and generally strengthen the conference system, possibly through increased use of pooling agreements as one way of implementing cargo sharing. The extent to which participation in non-conference liner operations might be economical from a country's point of view would depend, to a considerable extent, upon the degree to which the line could operate profitably at lower-than-conference rates, or force the conferences to reduce their rates, rationalize their operations, or otherwise bring their services more in line with the needs of the trade than could be done previously. Study of major trades would be required to determine this. Despite lower freight rates, shippers may often be reluctant to use non-conference services, due to the lower frequency of service and port coverage which these normally provide as compared with conference lines as a group. In the case of India, it was reported that many shippers who had previously taken advantage of lower cost non-conference lines were returning to the conference lines following a number of cargo losses from a few "fly-by-night", non-conference operators in 1978. The lower freight rates of non-conference lines could also, depending on the specific conference agreements, be partly off-set by loss of loyalty rebates, or higher freight rates if shippers had to use conference lines for part of their needs or, at a later date, if the non-conference line withdrew its services.

3.33 Investments in bulk shipping by developing countries may reduce directly or indirectly the freight costs under three circumstances. Firstly, this can occur if the national line can operate efficiently and offer competitive rates as compared with those obtainable from other sources. As many bulk trades use identical types of ships with similar fixed costs, crew costs may be the deciding factor, together with taxes. High crew costs appear for instance to have been a major reason for the use of so-called "shikumisen" (tied-in) vessels in the Japanese bulk trades. The "shikumisen" vessels are generally built in Japan, financed largely under the regular shipbuilding - 34 -

program and chartered on a long-term basis by Japanese shipowners, from foreign companies, particularly in Hong Kong or Singapore. For countries with low crew costs this could therefore be an important consideration favoring owned vessels over chartered vessels (excluding bareboat charters and some leasing) which would be manned by the foreign owner. Secondly, as indicated earlier, the greatest possibilities for achieving long-term reductions in transport costs may exist in the use of neo-bulk shipping, i.e., bulking of consignments of commodities which are presently shipped by liner services. A 1975 study of the possibility of bulking rubber shipments from Malaysia to Europe concluded that substantial savings could be achieved by actually inviting tenders 1/. An important institutional aspect was that the Malaysian Rubber Exchange and Licensing Board had the necessary power to enter into contract shipping arrangements on behalf of the industry and to ensure that the cargo would be shipped on contract vessels. It is possible that the existence of suitable national flag vessels might facilitate the transfer to bulk shipping of commodities presently shipped by liners, but the same might be the case using chartered vessels. Thirdly, the existence of national bulk shipping may also improve the knowledge of LDCs which are important exporters or importers of major bulk commodities and thereby facilitate agreements with the producers/buyers/sellers of these products and ensure the best possible prices. Although concrete information is difficult to find, allegations have been made that in the case of some major bulk commodities, higher-than- prevailing market freight rates occasionally have been used in deriving f.o.b. prices by deducting "assumed" freight costs from competitive c.i.f. prices. It is also alleged that the exporting countries have not participated in the economies achieved from the use of larger, more economical bulk vessels. Again, at least part of this advantage could be obtained from the use of chartered vessels. However, this would depend on who controls the shipping arrangements and the relative elasticities of supply and demand.

3.34 Apart from a potentially favorable effect on freight costs, investments in national-flag vessels may assist foreign trade by: (i) providing service to areas not already covered or only covered by transhipment at higher costs, where there may be potential for beneficial trade or, (ii) promoting national products abroad as part of the line-s own business promotion services. Specific cases have, for instance, been cited where Indian shipping lines have been instrumental in opening up new trades, particularly to other developing countries (e.g., Latin America and West Africa) and to CPEs on the basis of bilateral agreements. It was also mentioned that national lines had continued to serve congested ports which foreign lines had avoided, e.g., to Nigeria and the Gulf area as well as certain Indian ports during periods of acute congestion. It has also been argued that national liner companies might be more cooperative towards national shippers, e.g., be ready or obligated to accept less desirable commodities and to call at marginal ports 2/. If the

1/ R.A. Ramsey, Bulking of Rubber Shipments in the Malaysia/Europe Trade, Kuala Lumpur, 1975 (restricted report).

2/ Sema, Interet de l'Existence d'une Flotte Nationale pour le Developpement du Commerce Exterieur, Paris, 1978. - 35 -

type of vessels, or shipping technology, used by foreign shipping lines serving particular trades of a country is not the most economical from a total transport point of view, including requirements for port, storage and inland transport facilities as well as the ships, an investment in more appropriate vessels could possibly result in lower overall transport costs. This would naturally have to be considered on a case-by-case basis, including to what extent the potential benefits could be obtained through chartered vessels or only through owned vessels.

3.35 Very little comparative information is available on the above points. Although specific instances exist, e.g., in India, as mentioned in para. 3.31, where the introduction or existence of national flag vessels reportedly have reduced the freight costs on particular commodities or helped avoid or modify freight increases. The opposite might also be the case; this is more likely if the national flag vessels are not operated efficiently. Promotion of national bulk shipping through restrictive measures such as cargo reservations could contribute to inefficient operations and increased freight costs, particularly during periods of depressed freight rates. One way of minimizing this danger while still providing some assistance to national, bulk shipping companies, is used in India where a Government Agency (Transchart) invites bids for the transport of Government bulk commodities and gives Indian vessels preference, only if their rates are equal to or lower than those quoted by foreign owners. Careful analysis of the existing trading arrangements, shipping services used and their operations as well as the likely costs of national flag shipping operations would clearly be required to determine whether, in a particular case, establishment or expansion of national flag shipping would help reduce freight costs and promote a country's foreign trade and to what extent these benefits could be achieved through the use of chartered vessels and/or institutional changes.

(iv) Employment

3.36 Although investme'ats by developing countries in shipping may increase the employment opporcunities both on board and on shore, they cannot generally be justified solely in terms of employment created. As indicated in paragraphs 3.40 - 3.46 shipping is, despite large variations, a relatively capital intensive industry in terms of capital cost per job. Further- more, shipping requires certain skills which, although available in some LDCs, are unlikely to be readily available in many others without considerable expenditures on training and, in the case of officers, considerable time also. According to an IMCO estimate, the cost of training a deck or radio cadet is some US$6-7,000 and that of a navigator or engineering officer US$10-12,000 1/. Exceptions to shortage of skilled seamen may exist in certain LDCs with an established maritime tradition due to a long coastline, established fishing industry and/or coastal shipping. This could provide a ready basis for recruitment but does not obviate the need for shore and shipboard training.

1/ The Position of Developing Countries in World Shipping p.56. (no date). - 36 -

3.37 Although LDCs with low-cost, trained, maritime personnel will have a considerable advantage as compared with other countries in establishing or expanding their merchant marines, it should be borne in mind that employment on board foreign vessels, can provide significant earnings for some countries without direct investments in shipping. It is, for instance, reported that in the case of the Philippines, 90 manning agencies supply over 40,000 seamen of all grades to foreign flag ships, making crew remittances the sixth biggest dollar earner in the country. Exxon reportedly is partly replacing Spanish and Italian crews with those from the Philippines or Korea 1/. The employment of Korean seamen on overseas vessels has increased rapidly in recent years to 16,200 persons in 1978 remitting about US$100 million to Korea annually. In the case of the Philippines, the foreign exchange earnings from seamen employed on foreign vessels was about US$120 million annually. Substan- tial remittances were also received by India as some 20,000 Indian seamen were, in early 1979, registered and about 11,000 actually employed in jobs on For comparison it can be mentioned that there were about 11,400 jobs on Indian ships plus 4,500 shore-based employees of the Indian lines. While, in the case of some developed countries, the employment of foreigners on national flag vessels may be restricted or even prohibited, this is not the case with open registry countries. According to a 1979 survey of Liberian flaT vessels, some 86,000 seamen from about 100 countries were employed on these vessels with 62% coming from LDCs and 38% from developed market economy countries 2/.

3.38 Although they may be very beneficial in terms of remittances, employment opportunities on foreign ships could, depending on the supply situation, also make it more difficult for national lines in some LDCs to retain crew, particularly officers, and put an upward pressure on their crew costs. This appears for instance in part to be the case in India and Korea. India has been opposed to the efforts of the ITF to increase wages for seamen, particularly on open registry ships, as have the unions of other developing countries in Asia 3/.

3.39 Employment in shipping, even if of limited overall importance, may, however, have somewhat greater regional importance as the seamen may come from rural coastal areas with few employment alternatives. Employment in the national shipping administration or directly related service industries increases the total employment opportunities.

1/ Seatrade, September 1978, p. 139.

2/ International Maritime Associates Inc., Economic Impact of Open Registry Shipping, Washington, D.C., April 1979, Appendix A.

3/ The Conference of Asian Seafarers' Unions in mid-1979 called on ITF to review its open registry policy to ensure that it does not lead to shrinkage of employment opportunities for Asian seamen or disrupt their national wage structure (Indian Shipping, vol. 31, No. 8, 1979, pp. 6 and 27). - 37 -

3.40 International shipping is generally considered a relatively capital intensive industry although the capital invested per employee differs markedly for different types of shipping, and also on. whether new or second-hand vessels are used. Capital investment per employee is also affected by vessel crewing patterns, national labor policies, the relative portion of onshore to onboard employment, which differ from company to company, country to country and by type of shipping. Onshore employment, for instance, is normally significantly higher for liner services than for bulk services. 3.41 The investment per employee in shipping in the United Kingdom increased between 1966 and 1975 from E 28,000 to E 51,000 or by 81% in constant 1970 prices the investment per employee in shipping in 1975 was slightly less than in electricity, gas and water but substantially higher than in other major industries (Table 27). In Norway, shipping is a capital intensive industry accounting for some 9% of the capital stock. It also accounted for about a fourth of the capital depreciation as compared with 3.3% of employment and 5.2% net national product in 1974. The real capital per employee in ocean-going shipping was NKr. 925,000 (US$160,000) as compared with NKr.400,000 (US$70,000) for five major industrial concerns in 1973 1/. For a modern Norwegian tanker, the investment cost per job would be considerably higher-- some NKr. 6-10 million (US$1.2-2.0 million).

3.42 The net (unrevalued) fixed assets per employee of the Shipping Corporation of India in 1978 wa about $58,000, as compared with an average of $5,000 per employee for 22 other major Government of India undertakings. The corresponding figures for total capital employed per employee was $57,000 and $7,000, respectively. In both cases SCI had the highest capital/labor ratio followed by aluminum and petrochemical companies (Table 28). The Ceylon Shipping Corporation-s net fixed assets (not revalued) per employee were US$21,000 at the end of 1976 while in the case of 26 state industrial corporations in Sri Lanka, the average investment employed in production was US$5,000 equivalent per employee. For Korea's ocean-going shipping industry, the average net fixed assets (not revalued) per employee was $48,000 in 1977. From a sample of 32 sub-loans in that country, the average appraisal estimate of investments per incremental job for two marine transport projects were $155,000 and $234,000 respectively as compared with a weighted average for the 32 sub-loans of $43,000. For a different sample of sub-projects in the same country, the simple average appraisal estimate of investment per incremental job was $115,000 for 13 shipping projects and $39,000 for 33 other projects. The average investment per incremental job in 195 sub-projects focussing primarily on small and medium industrial projects was US$11,000 (Table 29).

3.43 Table 30 indicates the range in ±nvcatment per crew member for selected new-building and second-hand vessels based on estimated market prices as of end-1974 (period of high prices) and end-1977 (period of relatively depressed prices). The Table indicates the differences which may exist,

1/ St. Meld. No. 23 (1975-76) op. cit., p. 7 and 63. - 38 -

depending on whether vessels were acquired at "low" or "high" prices, the time factor, and much lower capital cost per job for second-hand vessels than new-buildings. Crew sizes are indicated on an assumed level as well as a higher level which might appertain to some low crew-cost countries. According to IMCO, the average number of personnel for manning ships in OECD countries is 34 compared with 50-57 in developing countries 1/. This difference may, in part, be due to larger crew complements per se which may in part offset the advantage LDCs might have on account of crew cost, and in part to relatively older and less automated vessels being used by several LDCs. It should, however, be noted that in several developed market economy countries, experiments are presently under way with greatly reduced crews on the more automated vessels. As the crew sizes do not increase in relation to ves5el size, relative crew costs generally decline with vessel size as indicated by the following example for tanker vessels 2/:

Vessel size Wages of % of Wages/dwt 1,000 dwt operating costs (000)

25<35 60 31.7 45<60 45 13.2 80<90 34 10.1 120<160 30 4.8

3.44 Onshore employment and back-up staff have been ignored in Table 30 as they will vary markedly from country to country and service to service. In Norway and Korea, with large bulk fleets, seaborne employment was about 86% and 75% of the combined seaborne and direct onshore employment in shipping in 1977 and 1978 respectively. In the case of the Argentine liner company ELMA, onboard employment accounted in 1976 for 65%. On the basis of assumed crew size and the depressed prices prevailing at the end of 1977, the investment cost per crew member at the end of 1977 ranged as indicated in Table 30 from about US$20,000 on second-hand liner vessels (US$0.7 million per vessel) and US$34,000 on a small second-hand tanker (US$1.2 million per vessel) to about US$1.8 million on a new container vessel (US$52 million per vessel) and almost US$5 million on a new LNG vessel (US$115 million per vessel).

3.45 Table 31 presents some information regarding the average investment (mostly not revalued) per employee in selected shipping companies or industries at the end of 1976 (or other period for which the information was available) and shows the great variation which exists depending on vessel types and age - ranging from an original acquisition cost of US$27,000 per employee in the case of Ceylon Shipping Corporation, with mostly old liner vessels, to about US$230,000 in the case of the relatively modern and capital intensive Norwegian fleet. These figures refer to direct employment only and

1/ The Position of Developing Countries in World Shipping, op. cit., p. 56.

2/ Extracted from H. P. Drewry (Shipping Consultants) Ltd. Trends in Tanker Operations and Economics, 1979. - 39 - do not take into account indirect employment in the national shipping administration or industries related to shipping such as shipbuilding, repairs, insurance, etc.

3.46 A second measure of capital intensity is the ratio of capital investment to output (revenues). According to the 1968 UNCTAD report "Establishment or Expansion of Merchant Marines in Developing Countries", the net incremental capital/output ratios (ICOR) in shipping at that time appeared to be betwreen 5:1 and 7:1 although the ratio for a ten-year old vessel might be more like 3:1. Comparable current ICORs are not available. However, in the case of the two new small bulk carriers financed by a Korean DFC, the incremental capital/output ratios at appraisal were put respectively at 2.1:1 and 2.3:1. This compared with an average capital/output ratio of 1.86:1 for this DFC's projects in 1977. Table 32 indicates that for a number of developing countries the average (not incremental) capital/output ratio was considerably lower, ranging from 0.8:1 to 4.0:1 on the basis of original vessel acquisition costs. Simple new ships, and used ships, generally require less capital per unit of output than more complex new ships.

3.47 The above data tend to confirm that despite wide variations, shipping is a relatively capital-intensive sector 1/. From the point of view of capital investments per employee, LDCs should consider entering or expanding their merchant marines only after having given careful attention to the expected employment benefits from shipping as compared with possible other alternatives. It should, however, be noted that it may be easier to obtain foreign financing for shipping than for many other industries as several countries subsidize their shipbuilding industries. This should be considered when comparing alternative profitable investments. Such financing would commonly cover 70-80% of new ship costs but higher percentages may now be available for LDCs 2/. Careful analysis should also be given in shipping feasibility studies to the relatively-low capital costs for smaller, second- hand, liner or bulk vessels to see whether these capital cost advantages are offset by the higher operating costs (particularly maintenance and repairs, as well as fuel) which these vessels are likely to have as compared with new vessels, taking into account the greater difficulty of obtaining financing for second-hand vessels. Conversion of existing vessels might also be considered as a way of modernizing existing vessels to reduce their operating costs or increase their earning capacity. Bareboat chartering or leasing with option to buy is a possible way of overcoming this latter point. The question of standardization and suitability for the particular trade,

1/ According to one estimate the total investment in new ships delivered between January 1, 1970 and December 31, 1978 was $120,000 million, while the likely annual investments in the early 1980s were estimated to be at least $15,000 million (paper presented by Mr. Slater and reproduced in BIMCO Bulletin, III, 1979, pp. 5180-86).

2/ Alternative sources of ship finance, including the important OECD understanding on Export Credit for ships are discussed in Chapter IV. - 40 -

naturally also needs careful consideration including the likely degree of containerization in liner trades. The cost data should be converted to a cost per cargo ton per annum basis to reflect possible differences in vessel sizes, speed and loading/discharging rates, etc.

3.48 As far as is known, no comparison has been made between the skill requirements in shipping and other industries; but shipping, with its relatively heavy capital investment and the trends towards more automation, requires considerable and increasing levels of skills both onboard and onshore. This'is particularly true in the case of the more sophisticated vessels. Normal or standard training requirements are generally dealt with at the national level (both government and individual companies). In some cases, special training courses are also organized at the regional and international levels. Certification requirements, until recently, have been dealt with at the national level but an IMCO conference in July 1978 unanimously adopted the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, 1978.

3.49 According to a survey of maritime developments in Commonwealth developing countries, "progress is now seriously held back because of a very severe shortage of trained and experienced people for either seagoing or shore-based jobs, at every level" 1/. The IMCO convention requires the parties, in consultation with IMCO, to promote support for countries requesting technical assistance for training (see also para. 5.11). The Bank is financing the rehabilitation of the Indonesian Maritime Academy and has also assisted such training in Korea. Developments in shipping technology in recent years have not only tended to increase training and retraining requirements but also to reduce the average crew sizes of the fleets of developed countries (Table 33) and also to increase the ratio of officers to ratings (Table 34) and the needed skill requirements.

3.50 Development of required maritime skills will probably be easier in countries which already have a maritime orientation from coastal or inland waterways transport or have fishing. As regards the management level, bulk shipping, particularly under long-term contracts, requires a smaller management team than liner shipping. Particular skills, whether crew or management, can be obtained from abroad at a cost, or through joint ventures or some other form of association with established foreign shipping interests. Such joint ventures or associations might also involve cooperation between two or more developing countries as in the case of the Irano-Hind Shipping Company or on a regional or sub-regional basis as discussed further in section D below.

3.51 Investments in international shipping by LDCs are not likely to become important sources of employment. Nevertheless, it is possible that for a specific area in a country, such employment could be of great regional importance, particularly if shipping investments resulted in "upstream" employment opportunities in ship repairing or shipbuilding which are relatively more labor intensive. Investments in national flag vessels for

1/ A. Benham and B. Ogley op. cit., p. 113. - 41 - overseas trades may result in lower freight costs than would otherwise be the case. This could result in a multiplier effect of increased exports and, thereby, increase employment in the production of the commodities concerned. While this might also be achieved by the use of chartered vessels, these would not provide onboard employment or as many onshore jobs.

(v) Shipping Investments and Related Sectors

3.52 Investment in shipping may, in appropriate cases, create further employment and output in related sectors. The extent of these economic linkages will depend largely on how far shipping is planned as an integral part of the economy and can draw on, and provide service for, other sectors of the economy. The main economic linkages between shiDping and other sectors of the economy, apart from the employment of crew and onshore personnel, could be ship repair and shipbuilding and their supply industries (e.g., iron and steel, various equipment an' machinery industries, paint, furnishings, etc.) as well as other support industries such as insurance, finance, communications, provisioning, ship classification, and maritime training. All of these activities tend to be more labor-intensive than modern shipping. Ideally, therefore, the existence or possible development of such related industries should be evaluated in connection with any consideration of major investments in shipping, taking into account the economies of scale which may be involved, i.e., for shipbuilding, and the resources available in the country. A clear, although possibly unique, example of this approach appears to have been Korea.

3.53 In Korea, shipping forms an integral part of the national economy and planning since the country s export-led development pattern depends both on the import of large volumes of raw materials for the steel industry and basic heavy industry, particularly shipbuilding, and on the export of manufactured products to many different markets 1/. Shipping, particularly bulk shipping, provides the transport for these essential imports and is, itself, a customer of the shipbuilding industry. As exports have increased, investments have been made in liner vessels to meet part of the transport requirements. Korean shipping, by focusing initially on bulk shipping, has been different from that of most LDCs which have focussed, at least initially, on liner shipping.

3.54 A second example where the development of shipping seems to have been developed as an integral part of the country's economic development is Brazil. It has developed a liner fleet to serve its foreign trade in liner goods, partly through cargo reservation measures and bulk shipping industry to

1/ The Korean input-output Tables for 1975, before the most recent expansion of the shipbuilding industry, show that the main linkages between water transport and other sectors were with petroleum products, non-metallic minerals, wholesale and retail trade, business consumption, road transport, ships, rolled steel, loading and unloading, financing, communications, etc. - 42 - serve its important imports of petroleum and exports of iron ore, partly on the basis of combined operations. It has also built up an important shipbuilding and ship repairing industry. The Brazilian shipbuilding industry, which in early 1980 ranked second only to Japan's in terms of tonnage on order, serves the Brazilian shipping industry and earns foreign exchange as an export industry 1/. No economic or financial analyses of the Brazilian shipping and shipbuilding industries or of the effects of the various cargo reservation and tax measures used is presently available.

3.55 In the event that the existence of national shipping lines in particular instances results in lower freight costs for particular imported raw materials or export commodities, this could, depending on the relative elasticities and freight factors involved, result in some expansion in these industries and thus be an indirect linkage effect. This could also be true if a national line helps open up new trade routes and new markets.

(vi) Security of Service and Non-economic Factors

3.56 The questions of security of service and non-economic considerations are grouped together here because the security of service considerations blend into national defence considerations. The availability of shipping services to meet part of a country's foreign trade needs in case of war or other emergencies has been a consideration in connection with the development of many national merchant marines. At periods of high worldwide demand for shipping services and high freight rates (not necessarily related to wars) LDCs with small trade volumes might find the availability of shipping services greatly reduced. This might be particularly so for essential imports when vessels are transferred to higher volume trade routes and chartered vessels might only be available at higher rates, if at all. The question of security of service, for instance, appears to have been a major consideration in the development of Korean shipping, given the country-s geographical position, its dependence on imports of large volumes of raw materials for its industry, as well as the growing importance of exports to many different markets. The question of a reliable transport service for a large proportion of essential oil imports was, apart from foreign exchange savings, a consideration in the Bank's 1972 loan to India for four crude oil carriers and two product carriers. While defence considerations fall outside the normal economic evaluation, they have been a very important consideration in the development or expansion of national merchant marines (e.g., the United States, Israel, and Korea). Other non-economic considerations includ.; .-tional prestige or identity.

1/ In late 1979 Brazil reportedly had export orders for ships totalling some US$750 million (The Journal of Commerce, October 19, 1979). The Brazilian shipbuilding industry reportedly employed some 43,000 persons directly and another 150,000 persons indirectly. (Fairplay International Shipping Weekly, August 16, 1979, p. 63). - 43 -

D. Regional, Sub-Regional and Other Trade and Shipping Between LDCs 1/

(i) Introduction

3.57 Economic cooperation between developing countries (ECDC) has been the subject of much attention in recent years. It has, for instance, been a theme of many international conferences and many reports. An UNCTAD Committee on ECDC has been established. At an April 1980 inter-regional meeting of experts, the LDCs agreed to start negotiations among themselves to establish the Global System of Trade Preference as a major instrument for promoting mutual trade, identifying, establishing, and promoting joint industrial ventures for increasing production and employment, as well as cooperation in improving transport and shipping. Although the role of ECDC in all its aspects is clearly outside the scope of this paper, trade between LDCs is one major aspect and is closely related to shipping because the bulk of this trade is, and probably will continue to be, seaborne. There are several in5tances of shipping cooperation between particular LDCs in order to promote such trade.

3.58 Full discussion of trade and shipping between LDCs would require comprehensive data on past, present and likely future tonnage of such trade in the form of trade matrices for major types of commodities as well as data on the type, operating patterns, and costs of the shipping services engaged in these trades. Since these data are not readily available, this section refers briefly to past and present trade between LDCs in terms of values and quantum indices. This is followed by a brief discussion of the relationship between such trade and shipping and some examples of regional or sub-regional cooperation between LDCs in shipping.

(ii) Trade between LDCs 2/

3.59 Although still accounting for a relatively small portion of total world trade, trade between LDCs has been increasing rapidly in recent years. As indicated in para. 1.14, it increased from US$11,000 million or 3.5% of world trade in value terms in 1970 to US$99,000 million or 6.1% in 1978 (Table 35). Trade between LDCs accounted for about 25% of their exports and 38% of imports in 1979. In terms of volume, this trade is likely to account for a larger share of world trade than in terms of value; according to one estimate, seaborne trade between LDCs accounted for about 8% of the world seabov.e trade volume in 1975 3/.

1/ The reference to LDCs in this section, particularly the references to trade statistics, includes the capital surplus oil exporting countries.

2/ The statistics in this section are mainly taken from the United Nations, Monthly Bulletin of Statistics, June 1979 and Statistical Yearbook 1978. More information on this subject can also be found in Trade Among Developing Countries by Main STC Groups and by Regions (TD/B/C.7/21), statistical note by the UNCTAD Secretariat, September 20, 1978 and Donald B. Keesing, Trade in Manufactures Among Developing Countries, December 14, 1978.

3/ Sapir and Lutz, op. cit. - 44 -

3.60 Slightly more than half of the intra-LDC trade was between countries in the same geographical region, particularly in South and East Asia and in the Americas. The share of regional trade had, however, declined somewhat from the high of 70% in 1970. This was largely due to the increased importance of petroleum which is -mainly an inter-regional LDC trade; petroleum accounted for 52% of the value of intra-LDC trade in 1977 as compared with 35% in 1970.

3.61 In terms of 1970 prices, trade between LDCs increased by 75% between 1970 and 1977; this was faster than the real growth of trade between developed areas (48%) and also faster than the real growth in exports from LDCs to developed countries (32%). The in.tra-LDC trade in manufactured products grew much faster (161%) and that of petroleum (28%) much slower than the trade as a whole (Table 36). The trade in manufactured products is largely intra- regional in South and East Asia and the Americas although there is also an increasing export trade from South and East Asia to the Middle East and Africa (Table 37). As pointed out by Keesing (op. cit.) most of this trade is from the relatively more to the relatively less industrialized LDCs.

(iii) Trade and Shipping between LDCs

3.62 Although detailed data are not available on the volume of trade between LDCs, it is clear that this is predominantly by sea. According to one estimate, intra-LDC trade (including that of capital surplus oil exporting countries) totaled some 233 million tons in 1975 or just under 8% of the total volume of world seaborne trade in that year. On the basis of the major commodities involved in this trade in 1975, and on the type of shipping services most likely to be used, it has been estimated that some 200 million tons (86%) probably moved by tankers or combined carriers some 15 million tons (6%) by bulk carriers, and some 18 million tons (8%) by liners 1/.

3.63 Without fairly detailed data on the present and potential future intra-LDC trade, by country and by broad types of commodities, and a detailed survey of existing shipping services between LDCs, it is not possible to say to what extent constraints or lack of shipping and/or high transport costs are obstacles to such trade. The situation is, however, likely to be somewhat different for tanker and dry bulk goods where there is a international chartering market and liner trades which tend to be served by particular vessels.

3.64 The relationship between trade and liner or small tramp shipping services is somewhat circular. New shipping services are unlikely to develop unless there is a sufficient trade or trade potential to make the service profitable, but trade may not develop without reasonable shipping services. As the trade of LDCs has traditionally been concentrated on developed countries, more extensive services are usually available on these trade routes. In some cases, trade between developing countries is transshipped via developed countries. In other cases, the trade between developing countries is carried as only part of a service linking a developing region

1/ Sapir and Lutz, op. cit. - 45 - with a developed region. In some of these and other trades, limited cargo volumes mean that advantage cannot be taken of the economy of scale from larger vessels or the high capacity utilization achieved which could reduce relatively high freight rates 1/.

3.65 There are, however, many examples of trade between developing countries and regions and shipping services having been developed. An outstanding example of this is the establishment of a direct shipping service between Brazil and Nigeria by the two countries- shipping companies. This has almost certainly contributed to the rise in exports from Brazil to Nigeria from US$12 million in 1974 to US$234 million in 1978. These comprise mostly manufactured products, including vehicles 2/. The largest Brazilian liner company also links Brazil with several other developing countries. Another example of liner services between developing countries is the case of India, where national flag vessels presently provide regular services to East Africa, West Africa, the Red Sea as well as South Asia and East Asia. Between 1970/71 and 1977/78 India's exports to these destinations increased by about 250% while, for instance, exports to Latin America, where there is no direct Indian national flag service, increased by only some 45% 3/. In most of the export liner trades from India to the developing countries, Indian lines carried in excess of 70% of the trade in 1976, the last year for which the data are available.

3.66 As mentioned earlier about half of the intra-LDC trade is trade within a region. Excluding fuels, approximately two-thirds of the 1977 value of intra-LDC trade was between countries in the same region. This may be due to many factors, including the establishment of a number of regional or sub-regional trade arrangements, such as the Association of South East Asian Nations 4/, closer economic or political relationships, lower transport costs, the existence of local shipping services, etc.

1/ According to an UNCTAD report, "there is strong evidence that the ad valorem incidence of transport costs on trade among developing countries is higher than on trade with the developed world." (Trade among Developing Countries by Main SITC Groups and by Regions, op.cit. p. 11). However, no data are presented in the report to back up this statement.

2/ United Nations, 1978 Yearbook of International Trade Statistics, New York, 1979.

3/ Economic Statistics of India-s Overseas Shipping Industry 1976-77, by the Transport Research Division, Ministry of Shipping and Transport, Government of India, March 1979 provides information on Indian vessels engaged in different trades.

4/ The question of ECDC and trade arrangements between LDCs is inter alia discussed in Economic Cooperation Among Developing Countries, Priority Areas for Action: Issues and Approaches (TD/244), report by the UNCTAD Secretariat, April 11, 1979. Annex I of that document contains a listing of major cooperation and integration arrangements of LDCs. These are discussed further in Economic Cooperation Among Developing Countries: Supplementary Material and Considerations Relating to Priority Areas for Action (TD/244/Supp.l), April 20, 1979. - 46 -

3.67 The high proportion of intra-regional LDC trade in South and South East Asia and the Americas is accompanied by extensive liner and tramp shipping services in these regions. This can partly be seen from Table 38 which shows the number of liner and tramp vessels which were employed in major intra-LDC trade routes in 1973, the last year for which such data are presently available although a similar survey for 1979 is under preparation. The Table shows particularly large numbers of liner and tramp vessels in the intra-South America, South East Asian, South Asian and African trades as well as between Indonesia and the Philippines and India/Pakistan to South East Asia. In this connection, it may be mentioned that a study of shipping to and from Bangkok in 1966 and 1967 indicated that the shorter trade routes tended to be much more competitive and have little effective conference organzation while conference control seemed to be more rigorous for the distant ports. This gave rise to relatively low freight rates and frequent service on the short competitive routes 1/.

3.68 In some regions with modest intra-LDC trade, the trade may be carried by liner vessels as part of their service to developed countries. This appears, for instance, to be the case in West Africa, where some liner trade between West African countries may be carried as part of the West Africa-Europe services.

3.69 Another interesting aspect of Table 38 is the relatively high proportion of older vessels on some of the intra-regional LDC trades or the relatively short distance inter-regional trades. For instance, in the intra- South American trades more than half the vessels were over 20 years old. Similarly, in the intra-South East Asia trades almost half the vessels were over 20 years old in 1973. This may indicate a gradual need for rehabilitation or modernization in some of the intra-LDC trades, but it may also reflect the economical use of relatively older and more labor intensive vessels on short distance intra-LDC trades.

3.70 Similar information is not available concerning bulk shipping between LDCs. However, the UNCTAD secretariat has identified a number of intra-LDC trades in the five major dry bulk commodities 2/, totalling some 7.3 million tons in 1976. One important, sub-regional trade is the export of some 1.3 million tons of wheat from Argentina to Brazil, Chile and Peru and Argentina's imports of some 1.6 million tons of iron ore from the same countries. The same report also indicates major petroleum (crude and products) trade between LDCs. Other bulk commodities may also move in substantial quantities; for instance, logs, rice and, to a lesser extent, locally produced urea fertilizers, move in quantity between South East Asian countries.

1/ Unpublished study by E. Bennathan and A.A. Walters.

2/ Trades in iron ore, coal, grain, bauxite/alumina and phosphate with annual shipments exceeding 100,000 tons. (Shipment of Bulk Charges Between Developing Countries (TD/B/C4/187), note by the UNCTAD Secretariat November 23, 1979. - 47 -

3.71 While increased economic cooperation and trade between LDCs will probably require further investments in shipping services, particularly in liner and tramp services, it is essential to consider such plans on a comprehensive case-by-case basis taking into account the trade route potential, txade organization, financing, insurance as well as transport, including shipping. It cannot be assumed that the mere introduction of shipping services, even if subsidized, will lead automatically to increased trade unless there already was a sound potential for such trade 1/.

3.72 Apart from the availability of liner or tramp shipping services, the level and structure of freiaht rates could be an impediment in some instances to increased LDC exports and increased intra-LDC trade in manufactured exports. However, sufficient information is not available to draw a firm conclusion on this point. It has generally been recognized that a major determinant of liner freight rate structures has been the unit value of cargoes; that is that higher value goods were likely to have higher absolute freight rates. This tendency may be more marked in the case of trades dominated by strong conferences than in competitive trades 21. It is less clear whether freight rates as a percent of the cargo value increase or decrease with the degree of processing 3/.

3.73 Increased cooperation and trade between LDCs in the future may also give rise to bulk or specialized shipping services on a project basis, e.g., in the case of fertilizers.

3.74 It may be noted that several of the DFC sub-loans for shipping in recent years have been for bulk or tramp vessels which would operate on a bilateral or sub-regional basis in South East Asia, e.g., between Indonesia and Korea or Indonesia and the Philippines.

1/ An example of this was the establishment of the West Indies Shipping Corporation (WISCO) in 1961 by the West Indies Federation. The objectives of this company were to (i) encourage regional trade, (ii) bring down the cost of living, and (iii) influence the rates charged by the ocean shipping lines. For this purpose the governments agreed to subsidize the line. However, according to a Bank Economic Report, the policy failed on all three accounts. For instance, it did not substantially influence the volume of intra-regional trade, "because transport costs--representing only 5% of delivered prices-were the least of the various impediments to trade. (The Commonwealth Caribbean the Integration Experience, published for the World Bank by the Johns Hopkins University Press, 1978, p. 107). In fact, WISCO was restructured in 1975 and put on a more commercially viable basis (ibid).

2/ In fact, and as would be expected, Bennathan and Walters (op.cit.) found that on competitive routes to and from Thailand, the unit value had no role in determining the freight rate.

3/ See for instance Alexander J. Yates, "Do International Transport Cost Increase with Fabrication?" Oxford Economic Papers, July 1977 pp. 45-71. - 48 -

(iv) Regional or Sub-regional Cooperation betewen LDCs in Shipping

3.75 In recent years there has been a trend towards sub-regional or regional cooperation in shipping. One way of enabling LDCs to participate in the carriage of their foreign trade could be to encourage this trend and to ensure that the services are operated on an efficient, cost-competitive basis. Examples of international joint ventures involving two or more developing countries include two liner companies in the Caribbean-WISCO which includes Trinidad and Tobago, Antigua, Barbados, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts, St. Lucia and St Vincent, and NAMUCAR which includes Costa Rica, Cuba, Jamaica, Mexico, Nicaragua, Trinidad and Tobago and Venez-udLL)-. Other examples include one major oil shipping company (AMPTC) in the Middle East which includes Algeria, Bahrain, Egypt, Iraq, Kuwait, Libya, Qatar, Saudi Arabia and the United Arab Emirates; and one major liner company (UASC) in the same region involving Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates and one liner company in the Pacific (Pacific Forum Line). There are also a significant number of bilateral shipping companies involving either government or private interests in two developing countries (for instance, Irano-Hind Company Ltd. between the Shipping Corporation of India Ltd. and Arya National Shipping Line of Iran; the Syro-Jordanian Shipping Co., involving the two governments; the Jamaica Merchant Marines Ltd. involving Jamaica and Mexico; and Flota Mercante Grancolombiana between Colombia and Ecuador). Apart from joint ventures between developing countries, there has also been, in recent years, a large number of joint ventures between established shipping or trading companies in developed market economy countries and government or private interests in individual LDCs, particularly in the Middle East. The status of most of these joint ventures, however, is not known. Arab Shipping 1979, a Seatrade Guide, published by Seatrade Publications, 1979, contains a tentative list of reported joint ventures in the Middle East. In many cases these were new companies with direct government ownership while in others they involve one or more pre-existina shipping lines as in the case of Irano-Hind Shipping Company and UASC. Information is not available to evaluate the economic and financial success of these ventures, but it is understood that a number of the sub-regional, multi-national shipping companies have in recent years been losing money 1/, It is not known to what extent losses are due to initial starting up difficulties, the gestation period it takes for trade to build up, given particular market conditions, or to poor management planning, operations or uncommercial policies.

1/ This reportedly has been the case of two multinational companies in the Middle East (AMPTC and UASC), and two in the Caribbean (WISCO and NAMUCAR). On the other hand the Irano-Hind Shipping Company apparently was profitable prior to the recent political events. It is also reported that WISCO's financial situation is improving after a many years of losses (Seatrade, February 1980, pp. 113-139 reviews the shipping situation in the Caribbean). - 49 -

3.76 In some cases regional or sub-regional cooperation in shipping is taking place on a broader basis. In the case of the ASEAN countries, for example, there has been a move towards sub-regional negotiations with particular shipping conferences and the formation of a sub-regional shipowners association. Similarly, the trend towards regional cooperation is also seen in the Pacific from the establishment of a regional shipping line (The Pacific Forum Line). Finally, in West Africa, there is a strong move towards regional cooperation in a number of aspects of shipping, that range from overall shipping policy, through negotiations with shipping conferences, regional shippers' council, regional institutions for maritime training to a regional shipowners association. There is also tal'k about one or more regional shipbuilding.and ship-repair facilities 1/. This trend towards sub-regional cooperation in West Africa appears to be coordinated by the Ministerial Conference of Central and West African States with a permanent secretariat in Abidjan and is complemented by a move towards freer regional trade within ECOWAS. The Ministerial Conference, for instance, reportedly has decided that for the purposes of the Convention on a Code of Conduct, West Africa should be treated as a single maritime range 2/.

3.77 The trend towards increased intra-LDC trade and economic cooperation is likely to continue, and may be facilitated through the encouragement of appropriate and competitive shipping services.

E. Shipping in Economic Development of LDCs

(i) Introduction

3.78 This section, which draws extensively on the discussion and data presented in Sections B and C of this chapter, will first review the main potentially positive and negative development aspects of shipping investments by LDCs and, secondly, identify the types of LDCs which may be more likely to benefit from sound investments in ocean-going shipping. Due to the very large differences which exist, the section can only develop some broad guidelines. Individual LDCs considering the purchase of ships should weigh the priority of such investments with alternative investments in other domestic or export-oriented industries. As discussed earlier, an investment in shipping by a particular LDC should not be looked upon in isolation but as a part of a maritime strategy or policy that is linked closely with the general foreign trade and economic development strategy of the country. Due to the uncertainty concerning the benefits from shipping, it is essential that any investment in the sector be preceded by appropriate feasibility studies.

1/ A large number of regional or sub-regional technical assistance projects in the maritime sector in both West and East Africa were included in the Program of Action of the United Nations Transport and Communications Decade for Africa 1978-1988 (Document E/CN.14/726/add.1, Volume II, Part III.

2/ Seatrade, February 1980, pp. 3-4. - 50 -

(ii) 1?otential Positive Factors in Shipping Investments by Particular LDCs

3.79 The main potential benefits from investments in shipping, as discussed earlier, are the following:

(i) net foreign exchange savings;

(ii) assistance to the country's foreign trade and general economy through lower freight rates and/or new, better or more secure shipping service, and/or better export returns on essential bulk commodities;

(iii) linkages with the rest of the economy which lead to greater economic diversification and development; and

(iv) net profits from the shipping operations.

These are summarized briefly in the following paragraphs. It should, however, be recalled from the earlier discussion on these points that the benefits are by no means certain and, in particular circumstances, they could be negative.

3.80 The earlier discussion (Section C(ii) of this chapter) has indicated that sound investments in shipping are likely to result in some net savings of foreign exchange. The relative savings will be greatest where, at least after an initial build-up period, the country can utilize domestic rather than foreign shipping resources, e.g., crews, management and overhead, insurance, communications, vessel repairs, spare parts and supplies, and possibly even the ships themselves. The net foreign exchange savings may be relatively greater from the more labor-intensive types of vessels, and from the use of second-hand vessels, but careful consideration should be given both to the competitive efficiency of different vessel types and the possible availability of new ships on special low financial terms.

3.81 Another potential benefit from sound shipping investments.is the positive effect on the foreign trade balance. This can occur through reduced freight rates on existing exports/imports or the traffic generated through improved or more-suitable shipping services. Participation of an LDC shipping line in a particular liner conference may have a favorable impact on freight rates. This is not necessarily so, however, where a country invests in liner vessels that cannot be operated profitably at the prevailing conference rates or the effect of participation of the national flag vessels is to strengthen the conference's control over the trade. Consideration should also be given, on a case-by-case basis, to assess whether similar trade promotion effects could be achieved through the establishment of locally owned and financed freight forwarding industry or through the strengthening of shippers' organizations and consultations between shippers and conferences in liner trades.

3.82 Trade promotion prospects are possible from sound investments in liner, small tramp or specialized bulk vessels, especially to provide new or expanded services between developing countries, provided they are not under- - 51 - taken in isolation but integrated with a comprehensive, coordinated program of trade expansion, or as a part of specific export-oriented projects related to fertilizer production, coal mining, etc. Further potential for trade promotion exists when the current vessels and shipping technologies do not provide the most economic total transport chain and coordinated improvements in vessels, ports and inland transport are required to achieve a least-cost transport system.

3.83 The potential for profitable shipping operation is a major consideration. The earlier discusssion of profitability-in shipping (Section B (ii) of this chapter) indicated that some public sector LDC shipping companies appear to have been profitable. The rapid expansion of some private sector LDC shipping companies in recent years suggests a similar experience. Never- theless, there is evidence that a number of LDC shipping companies either have been losing money or earning only marginal returns.

3.84 Economic benefits from national investments in shipping, and the potential broader development effects of such investments, are likely to depend significantly on the extent to which shipping is integrated with, and contributes to, the economic development of the country. Such was the case in Korea. Backward linkages (as discussed in Section C (v) of this chapter) will depend on the resource allocation of the country and the extent the national fleet draws on the service industries such as ship-repair yards, marine insurance, ship finance organization, ship classification services, marine telecommunication services, marine training institutes, marine research institutes, etc.

3.85 Finally, to those countries dependent on regular supplies of essential raw materials and with a difficult geopolitical situation, the question of security of service is an important consideration.

(iii) Potential Negative Factors in Shipping Investments by Particular LDCs

3.86 There are a number of factors which may adversely affect the potential benefits to LDCs from shipping investments. These include:

(i) the increasingly capital-intensive nature of many types of shipping;

(ii) the riskiness of some sections of the industry;

(iii) the existence in some cases of alternatives to transport by owned vessels;

(iv) the fact that some developed countries directly or indirectly subsidize their shipping industries;

(v) competition from the increasing involvement of some CPE and tramp shipping lines in liner routes on a non-conference, lower-than-conference-freight-rate- basis; and

(vi) protectionism. - 52 -

These factors are discussed below.

3.87 Shipping, as already discussed, is generally a capital-intensive industry with modest direct employment creation effects. This is particularly true for modern vessels such as container ships, LNG, LPG, and large bulk carriers. Capital needs, however, may be reduced by focusing on the relatively less capital-intensive sectors, by using second-hand vessels and, even more, by using leased or chartered vessels to some extent. From a countryWs point of view, a joint venture with an established shipping line could also be a way of reducing the investment needs as well as acquiring operational experience and market contacts.

3.88 Shipping is generally considered a risky business. This, however, varies significantly with the types of shipping and operating pattern. It is relatively small in bulk shipping as part of an integrated project or under long-term charter arrangements; liner shipping in a country s foreign trade is also relatively less risky than cross-trading in liner trades or in bulk trades.

3.89 In many cases there may be alternatives related to shipping which do not involve heavy investments. For general cargo, this includes development of a domestic forwarding industry to achieve lower transport costs through international door-to-door freight control over cargo movements between inland points. It also involves strengthened shippers organizations as a means of balancing the powers of shipping conferences and providing a medium for commercial consultations with them as discussed in Chapter II. In the bulk trades, long-term chartering of vessels by shippers or the operation of chartered or leased vessels by a national shipping line may be alternatives to actual investment in vessels. Whether this would be more or less advantageous to a particular country would have to be evaluated on a case-by-ca^b basis. An important factor in anv comparison is the timing, as long-term chartering near a market peak could be very costly.

3.90 The potential comparative advantage which some LDCs have in shipping may be offset by open registry shipping using crews from other LDCs or low- wage developed countries. However, this could change as a result of continuing ITF efforts to raise wage levels on open registry vessels as well as the present efforts of many LDCs and UNCTAD to phase out open registries. The practice by some developed countries of assisting their own shipping industries through various direct or indirect subsidies or other measures may also negatively affect the potential benefits from sound shipping investments by individual LDCs.

3.91 The increasing involvement of several NIE shipping lines in liner shipping, frequently operating outside the conferences and offering lower freight rates, may also negatively affect the potential benefits to some LDCs from investments in shipping, but favor trading by lower freight rates. - 53 -

3.92 A more difficult factor to assess is the potential trend towards cargo sharing and protectionism as reflected in the Convention on a Code of Conduct for Liner Conferences and the proposals for "equitable participation" by LDCs in bulk shipping. These proposals could assist some LDCs to develop their shipping industries and might avoid more serious unilateral or bilateral regulation. However) they could also encourage uneconomic investments, restrict the growth of the fleets of those LDCs that have been more successful and competitive, cause less efficient use of shipping capacity and, therefore, tend to increase freight rates.

3.93 The above factors which may adversely affect shipping investments obviuu-sly do not mean that all LDCs should refrain from such investments. Rather, they suggest the need for careful inter-sectoral analysis, determination of priorities and the undertaking of feasibility studies before actual investments are made.

(iv) Shipping Investments by Types of LDCs and Circumstances

3.94 The potential benefits and costs from investments in ocean-going shipping need to be considered on a case-by-case basis due to the large number of variables involved. It may, however, be useful on the basis of the earlier discussion to try t,o identify types of LDCs and the circumstances wherein investments in ocean-going shipping are more likely to be beneficial. These are summarized below:

(i) the country has an environment that seems to offer comparative advantages in the sector such as a maritime or naval background and resources such as trained or partly-trained personnel (officers and ratings as well as management); an appropriate institutional framework (both from the national and company point of view), and a potential for significant economic linkages to make possible efficient and economical operation of national flag vessels in its foreign trade, possibly discounting an initial "learning" period. It is assumed that the vessel technology adopted would take into account the trade characteristics, as well as the relative resource costs to the country, both for shipping and related services;

(ii) the country has a potential for substantial net foreign exchange savings from shipping because of the size and nature of its trade and resource situations. This may be particularly important for countries where freight payments to foreign lines represent a significant drain on the country's foreign exchange;

(iii) the country has sufficient capital resources to permit investments in a relatively capital-intensive industry or, alternatively, that capital for vessel acquisition can be obtained from abroad on reasonable terms, either in the form of joint ventures or loans; - 54 -

(iv) the country has a good potential for new or increased foreign trade with specific other countries that is presently being inhibited by the cost and service limitations of its shipping services. This is less likely to be the case for standard bulk commodities or liner services to major established trading partners. It is more likely to be the case for potential new trades in manufactured products between two or more developing countries and then particularly from the more industrialized to the less industrialized LDCs as discussed in Chapter III (D);

(v) seaborne foreign trade is important for the economy and sufficient in volume and composition to justify appropriate vessels and where the existing organization of trade gives, or can be modified to give, national shippers a voice in the shipping arrangements;

(vi) the country is an important exporter or importer of bulk commodities, but the trade partner controls the shipments of the bulk commodities and the freight costs used in deriving their f.o.b. export values or c.i.f. import values are higher than those available on the open market or under national flag operations;

(vii) regular and reliable shipping services are important for the import of essential raw materials and/or the export of important commodities;

(viii) the vessels and shipping technologies currently being used in major trades are not the most economical from a total transport and distribution chain point of view;

(ix) the country is developing a major project which will give rise to significant exports or imports where tailor-made shipping services may be the most economical solution.

A further condition could be where the existing conference liner services are not operated efficiently and result in higher-than-necessary freight rates. However, identifying such cases would involve extremely complex issues and would also require careful consideration of whether the shortcomings could be overcome through shippers' councils and similar institutions as well as the encouragement of non-conference competition.

3.95 The LDC countries meeting several of the above criteria are more likely to be the larger, more industrialized countries with important existing seaborne trade volumes and some maritime background (e.g., from coastal or inter-island shipping or the provision of crews to open registry fleets as in the case of the Philippines). It is, however, possible that some smaller countries could take advantage of special cilcumstances and develop modest shipping fleets for cross-trading as done by the Maldives Islands. It is also possible for relatively small and less-industrialized countries in a region to form a multinational shipping comp'any or joint shipping operation as in the case of WISCO in the Caribbean. - 55 -

IV. VESSEL ACQUISITION - SOURCES OF SHIP FINANCE AND TECHNICAL ASSISTANCE

A. Introduction

4.01 In principle, several different sources of ship finance and technical assistance may be considered. However, not all of the sources may be available or appropriate in a particular case.

4.02 The main sources of ship finances are:

(a) Equity investment by the public and/or private sector in LDCs, including in some cases partial foreign investment by foreign joint venture partners;

(b) National shipping finance funds or local development finance companies;

(d) Bilateral asssistance;

(e) Commercial banks and ship mortgage lenders;

(f) Leasing; and

(g) International financial or development institutions (IFIs).

These are discussed briefly in the following paragraphs. It should, however, be emphasized that no comprehensive information system presently exists for the collection and compilation of ship financing data. However, according to one estimate 1/ the amount spent on ship acquisition during 1970-1978 was about US$120 billion or about US$13 billion p.a. and expenditures for ship acquisition during the early 1980s were unlikely to fall below US$15 billion p.a. No separate figures were given for LDCs.

B. Sources of Finance

(i) Equity Investment

4.03 Self-financing through the use of prior earnings or depreciation reserves has traditionally been an important source of ship finance for established shipping companies. This may also be the case for well established shipping companies in developing countries but they may face particular

1/ Paul Slater, An Analysis of the Future Financial Needs of World Shipping. Paper presented at the 1979 Baltic and International Maritime Conference in Cannes, May 29 - June 1, 1979. It excludes the fleets of centrally planned economies. -56 - problems in using such resources for acquisition of vessels abroad due to currency restrictions. In some joint ventures between parties in developing countries and established shipping interests in developed countries, the equity participation of the established company may in part be in the form of foreign currency or ships. In addition they may contribute important operational experience.

(ii) National Shipping Finance Funds or Development Finance Corporations

4.04 Some developing countries have created special funds for the establishment or expansion of their merchant marines, or included ship finance under public development finance corporations. Special shipping funds or government shipping loans for ship acquisition are available in Argentina, Brazil, India, Korea, Kuwait, Pakistan and Peru. These may, however, depending on Government policy and the foreign exchange situation, apply only to ships built at national yards. As mentioned earlier, special shipping credit units have been established in Indonesia and the Philippines.

(iii) Export Credits

4.05 Export credits, probably the most widely used method of financing new buildings for developing countries, basically consist of suppliers' credits financed by the banking system with Government backing in the form of export credit insurance. In 1969, the Governments of the OECD countries signed an "Understanding on Export Credit for Ships" by which they agreed to harmonize official ship loan terms. The current understanding provides for a minimum downpayment of 20%, 8-1/2 years maximum loan duration and minimum interest rate to 8%. Clause 6 of the "Understanding" provides that

"any Government participating in the Understanding which wishes, for genuine aid reasons, to concede more favorable terms in a particular case is not precluded from doing so; provided that adequate notice of this decision is given to all the parties of the Understanding in accordance with the procedures established for this purpose" 1/.

(iv) Bilateral Assistance

4.06 Comprehensive information on bilateral assistance for ship finance is not available but such assistance appears to have gained more prominence during the last few years. This may be due to an increased effort by developing countries to obtain bilateral assistance for their merchant marine development plans or the realization by some shipbuilding countries that orders from developing countries are one way of partly alleviating the existing surplus capacity. Bilateral assistance is thus more likely to be available for the acquisition of new ships from the donor country and less likely for purchase in other countries or for rehabilitation of existing fleets or acquisition of second-hand vessels. In some cases very favorable financing terms may result. It has, for instance, been reported that Pakistan obtained a 30-year loan at 3% with a 10-year moratorium 2/.

1/ OECD Press Release, February 1, 1980.

2/ Fairplay International Shipping Weekly, February 21, 1980, p. 27. - 57 -

(v) Commercial Banks and Ship Mortgage Lenders

4.07 Financing of new or second-hand vessels can also be arranged through commercial banks or ship mortgage lenders, sources which were particularly active in ship finance during 1972-1973, although how much of this was for developing countries is not known. Such financing is normal for a maximum of 50-60% of vessel cost or market value. The existence of adequate national maritime laws to provide the proper legal basis for ship mortgage and other loan guarantees is a common requirement in this type of financing.

(vi) Leasing

4.08 In contrast to regular acquisition, lease financing allows the lessee the economic use of the ship while the lessor retains title to it. The lessor can be a ship yard, finance company, bank or special leasing company. Leasing can avoid heavy capital investment for ship acquisition, particularly if the agreement provides for a later purcbase option, but the attractiveness of such financing may depend on the particular tax regulation in the country of the lessee and the lessor. Korea is known to have used a hire-purchase system with the ship becoming Korean at the end of the charter. A particular aspect requiring consideration is the extent to which a leased vessel can be registered in the lessee's country or must be registered in that of the lessor.

(vii) International Development Institutions

4.09 Past direct or indirect lending by the Bank for ship acquisition has been discussed earlier in this paper. As far as it is known, lending by regional development institutions such as the Asian Development Bank, the African Development Bank, the Caribbean Development Bank has not been significant; the Caribbean Development Bank has lent to the regional shipping line WISCO.

C. Finance and Technical Assistance

4.10 In recent years many international, bilateral, and commercial organizations have assisted LDCs to establish or expand their merchant fleets. Foreign finance for ship acquisition appears to have been mostly through export credits by foreign yards and commercial banks or ship mortgage lenders, although bilateral assistance may also have been particularly significant in the last few years but specific data are not readily available. Lending by the international development banks, mainly the World Bank, appears to have been modest. Much of the financing through export credits or bilateral assistance has been tied to procurement from particular yards in particular countries. How far this tying of finance has resulted in a compromise between financing terms and ship price or design flexibility is uncertain. That finance is more readily available for new rather than for second-hand vessels may be a temptation for some LDCs to invest in the former. Some LDCs wishing to expand or renew their fleets through the acquisition of a significant number of new vessels have explored possible package deals, sometimes on a government-to-government basis. - 58 -

4.11 Several international organizations and some bilateral agencies have provided various forms of maritime technical assistance in recent years. In addition, some LDCs have contracted directly for the assistance of shipping management firms, consulting firms or individual experts. Maritime technical assistance covers many different aspects such as training courses or establishment of national or regional maritime training institutes (for both crew and ship management), on-the-job training with shipping companies or shipping authorities in other countries, feasibility studies, shipping operational assistance and assistance for the development of needed shipping infrastructure and institutions (e.g., maritime legislation' ship classification, marine insurance). International organizations such as ILO, IMCO, UNCTAD and the United Nations regional commissions have provided shipping technical assistance in the form of advice and training for LDCs. The World Bank's assistance to particular LDCs for ocean-going shipping has been discussed in Chapter 1B. Although detailed information is not available, several developed countries have also arranged training courses for the shipping' industry of developing countries and provided funds on a bilateral basis for feasibility studies or other forms of technical assistance.

4.12 Four recent developments concerning maritime training and technical assistance are worth mentioning. Firstly, the UNCTAD secretariat established in 1979 a new SHIPASSIST service which will provide a global inventory of technical assistance sources available to LDCs in the development of their national merchant marines, ports, shipping services and maritime transport technologies 1/. Secondly, a technical assistance project, "Training Develop- ment in the Field of Maritime Transport," which is financed by UNDP and exe- cuted by UNCTAD, aims at developing training methods and pilot courses, as well as instructors, for the maritime sector on a national or regional basis. The four training courses to be developed under the project include shipping operations and maritime legislation, as well as two port-related courses 2/. Thirdly, IMCO is establishing a special fund for financing technical assistance projects concerned with maritime training. This fund, which will be based on voluntary contributions, would be for the provision of training, demonstration or pilot equipment; expert services, fellowships; or support for short-term seminars for personnel engaged in maritime training 3/. Fourthly, the second ACP-EEC Convention of Lome includes a joint declaration (Annex XIX) which paves the way for an examination of subjects of common interest in the field of sea transport, with the Community declaring itself prepared to help develop this sector in any ACP State that may so request (the development of shipping companies--setting up joint ventures--technical assistance for training and management, etc.) 4/.

1/ UNCTAD Press Release (TAD/INF/1017), January 11, 1979 and Directory of Services for Technical Assistance in Shipping and Ports to Developing Countries (UNCTAD/SHIP/196), prepared by the UNCTAD Secretari'at, Geneva, February 1980.

2/ UNDP Project Document (INT/79/016/A/01/40) and UNDP background note The TRAINMAR Project (undated)

3/ IMCO News, Number 1, 1980, p. 12

4/ The Courier, ACP-EEC, No. 58, Special issue, November 1979, p. 33 and pp. 101-102. - 59 -

4.13 It would appear that, besides development banks such as the World Bank and some bilateral agencies, most of the assistance to LDCs is available only for finance for ship acquisition or for technical assistance, but not for both. Joint ventures with an existing shipping company would in most cases involve both finance and operational experience. There might, however, be a need for an independent review of the joint venture proposals before public funds were committed to particular joint ventures.

D. General Considerations

4.14 LDCs have, on numerous occasions, sugge,sted that the lack of availability and high terms of financing pose important obstacles to 'their plans to develop their shipping 1/. It would appear that this has not applied equally to all LDCs. Some of the larger countries have given priority to developing the sector and by allocating significant resources to it through national financial institutions, have been able to build up substantial fleets, as is illustrated by Brazil, India and Korea. Under present conditions of excess shipbuilding capacity (although significantly less than during 1975-1977), keen competition between yards, and government assistance in several developed countries to their shipbuilding industry, the supply of financing for acquisition of new ships would appear to be less of a problem than in the past. However, the terms of their financing, including grace and repayment periods, the suitability of a vessel's design and its costs need to be carefully considered since these may significantly affect vessel capital and operating costs as would the timing of the investment in relation to market conditions and ship prices. As capital costs may account for one-quarter to one half of the total vessel operating costs, differences in price and/or financing terms may have a significant impact on the operating costs and, therefore, the prospects for competitive and profitable operations. With regard to the acquisition of second-hand vessels or vessel conversions, financing is less readily available or may only be available on rather hard terms. In this connection an UNCTAD Group of Experts on Improved Methods of Financing Ship Acquisition by Developing Countries concluded in 1978, inter alia, that the lack of finance on suitable conditions has been a factor which has restricted the establishment and/or growth of the merchant marines of developing countries. Specific mention was made that the prevailing commercial loan periods (seven years) were too short, based on expected vessel earnings 2/. It recommended, inter alia, consideration of using

1/ This subject was also discussed at UNCTAD V and covered in resolution 121(V) of June 3, 1979, reproduced in Annex 7. Annex 8 includes the operational parts of some earlier UNCTAD resolutions on this subject.

2/ For a new handy-sized bulk carrier purchased at say US$14 million with a 70% loan at 8%, the annual loan repayments would be about US$1.88 million if repaid in equal amounts over seven years as compared with US$1.14 million per annum if repaid over 15 years. For comparison it may be mentioned that based on mid-1979 charter rates such a vessel might have received US$2.2 million per annum on a time charter basis. - 60 - bilateral and multilateral development aid for the acquisition of second-hand ships 1/. It may be added that direct Bank loans have, in the past, been used for the acquisition of second-hand vessels and for rehabilitation of existing vessels (e.g. in Indonesia) as have indirect loans through DFCs.

4.15 The existing situation - surplus yard capacity, keen competition, and government assistance to shipyards for attracting orders - may assist LDCs in establishinig or expanding their national merchant marines. However, to the extent that such investments are not preceded by careful feasibility studies, including proper sensitivity analysis, to determine the economic jus- tification and financial viability of the investment, and the suitability of the particular type of vessel proposed, this could result in uneconomic investments. This appears already to have taken place. With finance more readily available for new ships and for certain types of new ships, there is a weighty inducement to build new ships even when the acquisition of new vessels of different types, or the acquisition of second-hand vessels or the conversion of vessels might be more economical.

1/ Annex 9 reproduces the summary of conclusions and recommendations of the group. - 61 -

V. CONCLUSIONS

5.01 The previous chapters, while generally confirming the relatively high capital intensity, low profitability and risky nature of ocean-going shipping, have highlighted the wide-ranging differences both between and within all sectors of the industry. Although based on very incomplete information, it has been suggested that investment in shipping for some developing countries has yielded benefits in terms of positive returns on net fixed assets and in savings of foreign exchange. Additional benefits may have been achieved through backward linkages and assistance to foreign trade and the economy through increased security of service, improved service, the opening up of new trade routes, and a positive impact on freight rates. These desirable benefits, however, are not certain and could well be negative, e.g., where inefficient operations of vessels leads to increases in freight rates. While pointing out the increased potential for intra-LDC shipping, both for general cargo and bulk or for specialized cargoes related to specific projects, attention is also drawn to a number of potentially negative factors for LDC shipping investments. These have to be considered on a case-by-case basis, with a satisfactory determination of inter-sectoral priorities and detailed feasibility studies being pre-conditions for any investment in the sector.

5.02 The discussion has also indicated that while financing for new vessels may be readily available from various sources, particularly export credits or a combination of such credits and bilateral aid, careful attention needs to be given by LDCs to the total package of financing terms, ship prices and particular ship designs in light of traffic requirements. The relatively easy availability of foreign financing for new vessels in recent years may have induced some developing countries to invest in shipping without proper prior assessment of the economic, financial, technical, employment, market and other issues covered in Chapter III. The discussion has also brought out that obtaining finance for the acquisition of second-hand vessels and conversions is much more difficult than for new vessels.

5.03 Many LDCs have taken steps in recent years to establish or expand their merchant fleets to carry part of their foreign trade in national flag vessels (paras. 1.37 and 2.03), and further expansion is likely. The Conven- tion on a Code of Conduct for Liner Conferences, supported by the LDCs but not yet entered into force (para. 1.28), provides a basis for national liner shipping companies to claim a share (such as 40%) of the country's conference trades (para. 1.29). LDCs, as a group, are also pressing their right to an "equitable participation" in the maritime transport of their foreign trade in bulk commodities (para. 1.35) and the gradual phasing out of open registries (para. 1.33).

5.04 To meet these objectives, on a public sector and country by country basis, w1l1 involve not only large capital investments but also considerable technical assistance for pre-investment studies and project implementation and training for operations. These should be done with due consideration to available alternatives, to long-term comparative advantages, to institutional requirements, and with proper feasibility studies. Without such considerations, ship acquisitions could prove uneconomic. - 62 -

ANNEX 1A

World Bank Group Lending for Shipping through June 30, 1979

Number of Loans or Amount (US$m.) Approximate Sub-Loan-s Related Ships Deadweight

Direct Lending

Inland Waterways, River 6 23.6 13.5 n,a. a/ Ships 8 - 14,5.0 382,000 Coastal or Inter-Island 3 6.4 76.1 192,000a/ As Part of Broader Projects 4 102 98.6 38,000 -

Indirect Lending via Development Finance Companies b/

Inland Waterways and River Transport 8 - 6.0 Coastal, Inter-Island & Ocean Going Shipping 87 - 182.1 826,000 116 31e2 521.3 1,438,00a!

a/ Incomplete as tonnage data for early projects for the Netherlands and Norway not available. b/ Includes only sub-loans approved as of June 30, 1979. 63 ANNEX IB a/ WORLDBANK GROUP LENDING FOR OCEAN-GOING SHIPPING FISCAL YEARS 1975-1979

Typo of Lending Number of projects Loan amount Vessel tonnage Number and TvDes of Vessals and Country or sub-projects US$m dvt (000) Bulk Container/ Other Total of which Ro-Ro Nw second-hand FY75: Indirect Londing

Korea 2 6.8 31 2 - 2 1 1 Morocco 1 1.3 2 - 1 1 - 1 Thailand 1 1.2 6 1 - 1 - 1 Sub-total FY75 4 9.3 39 3 - 1 4 1 3 eY76: Direct Lending b/

Turkey 1 9.5 3 - 1 - 1 1 - Indirect Lending

Indonesia 1 4.9 15 2 - - 2 - 2 Korea 9 21.4 79 8 1 - 9 3 6 Philippines 1 5.0 13 2 - - 2 2 - Tanazania 1 .7 1 - - 1 1 I1 Sub-total FY76 13 41.5 111 12 2 1 15 6 9 FY77: Indirect Lending

IndonesiA 3 12.0 37 5 - - 5 - 5 Korea 3 7.2 28 3 2 - 5 3 2 Sub-Total FY77 6 19.2 65 8 2 - 10 3 7 FY78: Indirect Lending

Indonesia 1 1.7 6 1 - - 1 - 1 Korea 3 6.6 42 4 - - 4 2 2 Philippines 1 5.0 20 2 - - 2 - 2 Thailand 1 2.4 27 3 - - 3 - 3 Sub-Total FY78 6 15.7 95 10 - - 10 2 8 FY79: Indirect Lending

Indonesia 4 12.4 47 7 - - 7 - 7 Korea 3 16.5 81 2 - 5 3 2 Sub-Total FY79 7 28.9 128 10 2 - 12 3 9 FY75- Combined FY79 Direct Lending

Turkey 1 9.5 3 - 1 - 1 1 - Indirect Lending

Indonesia 9 31.0 105 15 - - 1S - 15 Korea 20 58.5 261 20 5 - 25 12 13 Morocco 1 1.3 2 - - 1 1 - 1 Philippines 2 10.0 33 4 - - 4 2 2 Tanzania 1 .7 1 - - 1 1 - 1 Thailand 2 3.6 33 4 - - 4 - 4 Sub-Total Indirtct 35 105.1 435 43 5 2 50 14 36 Grand Total 36 114.6 438 43 6 2 51 15 36 a/ Excluding lending for inland waterways transport and coastal/inter-island shipping b/ Loan amount for shipping coaponent only of a larger agricultural credit and agro-industry project which involved a total loan of $63 million. - 64 -

ANNEX 2 Page 1

SEABORNE TRADE

1. Maritime transport is an essential service industry for world trade which in turn is of great importance for the world economy. Seaborne trade has, in recent years, increased faster than world trade which has in turn grown faster than the world economy. Thus, in constant 1975 prices, the value of world exports, excluding those from non-market industrial economies (NIEs), increased from 13% of the world gross domestic product (GDP) in 1960 to 20% in 1975; for developing countries it was 23% in 1975. During the period as a whole, exports in constant dollars increased by an average of 7.2% per annum while GDP increased by 4.5% per annum 1/. During the same period the tonnage of goods loaded in international seaborne trade, excluding NIEs, trebled from 1,030 million tons in 1960 to 3,144 in 1975, thus growing by an average of 7.7% per annum 2/. As the average distances over which the trade was carried increased by almost 5'1% 3/ during the period, the growth in shipping demand was actually much faster than the growth in seaborne trade tonnage or in GDP. Although data are not available, it is clear that the bulk of the world trade depends on maritime transport and that this is even more the case of developing countries 4/. According to one estimate the cost of carriage of the world seaborne trade was about US$90 billiorn 5/. The ocean freight bill for the exports and imports of the ESCAP countries in 1976 has been estimated at US$28

1/ World Bank data (EPD).

2/ Derived from UN Monthly Bulletin of Statistics, January issue, various editions.

3/ Based on OECD Maritime Transport 1970 and Fearnley and Egers Chartering Co. Ltd. Review 1977. In 1975, the average distance of international seaborne trade was about 5,050 nautical miles as compared with about 3,500 in 1966 and about 5,200 in 1977.

4/ According to a position paper by the ICC about 90 percent of the world trade (by volume) is seaborne. The main overland trade is between Canada and the United States, and between countries in Continental Europe. International air freight, although increasing rapidly, is still of minor importance in terms of the overall volume of international trade.

5/ Professor E. Georgandopoulos in International Maritime Economists Conference, Piraeus 16-18 September 1976 p. 21. The source does not specify the base year for this estimate, nor the basis used in der"iving the figure. - 65 -

ANNEX 2 Page 2 billion 1/. Efficient and low cost maritime transport is therefore of great importance to world trade and the world economy and particularly to developing countries as these may often bear most of the freight costs on both their exports and imports 2/. Maritime freight costs may add a significant percentage to the f.a.s. export value of their major export commodities and in other cases be a barrier to exports to particular markets. Although according to an UNCTAD estimate for the year 1970 maritime freight costs represented about 11% of the c.i.f. value of seaborne trade or an addition of 12% to the f.o.b. value, the share is much higher for some of the relatively low value commodities exported by many developing countries 3/.

2. International seaborne trade can be divided into three broad categories of commodities, i.e., petroleum and petroleum products (POL); important dry bulk commodities which tend to move in full ship loads (e.g., iron ore, grains, coal, etc.); and a large number of other items commonly classified as "general" cargo. Petroleum and petroleum products in 1976 accounted for about 53% of the world seaborne trade (66% in terms of ton-miles in 1977 due to the longer average haul of petroleum of 7,300 nautical miles as compared with an average of just under 5,200 for all seaborne trade) 4/, the important bulk commodities for about 25% (23% of ton-miles) and general cargo for about 22% (11% of ton-miles with an average distance of only about 2,300 nautical

1/ Review of Developments in Shipping, Ports and Inland Waterways (E/ESCAP/STC.2/30), pp. 26-27. These countries accounted for respectively 21 percent and 27 percent of the seaborne trade tonnage loaded and discharged.

2/ This depends on the elasticity of demand and supply as discussed in UNCTAD-s TD/B/C.4/38 Chapter VII, and TD/B/C.4/105 Chapter VIB also Benham and Ogley op. cit. Appendix III, E. Bennathan and A.A. Walters, Economics of Ocean Freight Rates, New York 1969 and S.R.C. Wanhill, "Freight Rates, Conferences and Developing Countries" Maritime Studies and Management, No. 2, 1975 pp. 231-43. As far as is known no comprehensive study is available on this point.

3/ According to an order of magnitude estimate of the UNCTAD secretariat the maritime freight bill in 1970 was about US$23 billion or about 11 percent of the estimated c.i.f. seaborne import value in that year [Review of Maritime Transport 1972/73, United Nations Publication Sales No. E75.11.D.3]. Freight ratios for certain primary commodities are quoted in UNCTAD's annual publicatic-n Review of Maritime Transport. Other information can be found in different studies, e.g., A.J. Yates "An Evaluation of the Incidence of Transportation Costs and Tariffs on Indonesia's Exports to the United States", Bulletin of Indonesian Economic Studies, November 1976.

4/ Review 1977. - 66 -

ANNEX 2 Page 3 miles) 1/. General cargo products are mostly moved in regularly scheduled or vessels 2/, although some are transported by smaller tramp vessels, few of which have been built in recent years, and by specialized carriers. Three major developments in international shipping in recent years have been the increased use of unit loads in liner shipping, particularly in the trades between industrialized countries; the relative shift of certain so called neo-bulk commodites from liners to bulk carriers or specialized vessels; and the increasirg size of tankers and bulk carriers 3/.

1/ UN Monthly Bulletin of Statistics, January 1978 and Fearnley and Egers Chartering Co. Ltd., Review 1977 and World Bulk Trades 1976. Bulk commodities include the five main bulk commodities (iron ore, grains, coal, phosphate and bauxite and alumina) as well as shipments of so called minor bulk commodities by bulk carriers of 18,000 dwt and over. For a list of these commodities see World Bulk Trades 1976.

2/ According to one estimate, liners accounted for about one-half of the gross revenue from shipping as compared with less than one-quarter of the tonnage Liner Shipping in the US Trades, a UWIST study for the Council of European and Japanese National Shipowners' Association (CENSA), University of Wales Institute ef Science and Technology (UWIST), April 1978, p. 31.

3/ The average size of tankers increased from about 16,000 dwt in 1965 to about 49,000 dwt in 1977, while the average size of bulk carriers (including combined carriers) increased from 20,000 to 40,000 dwt Lloyd's Register of Shipping Statistical Tables, various edit'ibns. - 67 -

ANNEX 3 Page 1

TYPES OF SHIPPING SERVICES AND COMPETITION

1. Normally shipping services are divided into three broad categories - scheduled or liner services, tramp services, and industrial or private carriage. Although these categories generally differ in the kind of services offered to the users (shippers), the general types of goods carried, and to some extent the kinds of vessels used, there exists a considerable overlap between the categories l/.

a) Liner Services

2. Liner shipping generally involves regular scheduled services of break- bulk or unitized cargo between specified ports, or ranges of ports, for the transport of parcels of heterogenous cargoes. The types of vessels used in liner services 2/ can in broad terms be referred to as conventional general cargo vessels, container vessels, ro/ro vessels and barge carriers. However, the distinction between these types of vessels is becoming blurred by the increase in multipurpose vessels. Because of the large capital costs involved, long-range ocean container operations are commonly carried out by consortia of two or more traditional liner companies. Container services are particularly common between high labor cost industrial countries, but are also spreading to trades between these countries and certain LDCs. Ro/ro services have been particularly prominent in short-sea-trades in the Mediterranean and North and Baltic Seas and in the Gulf of Mexico, but have also been spreading to deep-sea trades, particularly in the routes between developed countries and the Middle East and West Africa, where port congestion has been prevalent.

3. The shipowners involved in liner service offer their services to any shipper wishing to use them at fixed freight rates 3/. Studies of conference pricing have generally concluded that conference rates are based

l/ A particular operator may for instance use a vessel partly in a liner service and partly as a tramp depending on the directional trade balance at a given time or the relative market conditLons over time. Similarly, some industrial carriers have also operated partly as common carrier liner services.

2/ Westinform Shipping report No. 313, A Review of the World Conference Liner Fleet contains an analysis of capacity, nuimber, flag, etc.

3/ Some commodities facing special competition from non-conference liners or tramp vessels may sometimes be "open rated" to give the companies more freedom to compete for the cargoes. Conferences commonly operate loyalty arrangements to secure continued and exclusive patronage of shippers to the conference (not a particular conference line). All "loyal" shippers are supposed to pay the same irrespective of volume. -68 -

ANNEX 3 Page 2 on what the traffic will bear and are related to both the value of the goods and, to a lesser extent, to their size/weight ratios and other value or volume characteristics 1/. Such rates apply to a range of ports. In most liner trades, most operators serving a particular trade join together in cartel like organizations called shipping conferences (see Annex 4 for more details). While most public inquiries have, with qualifications, supported the conference system 2/, some studies have indicated that conferences which do not regulate sailings and cargo capacity may, as a result of competition for serv-ce have excess capacity, and not optimal vessel numbers, types or sizes and therefore result in relatively high freight rates 3/. b) Tramps

4. A tramp vessel has been defined as "a freight vessel that does not run in any regular line but takes cargo wherever the shippers desire" 4/ and

1/ E.g. Level and Structure of Freight Rates, Conference Practices and Adequacy of Shipping Services, (TD/B/C.4/38), report by the UNCTAD secretariat, B. Bryan, "Regression Analysis of Ocean Liner Freight Rates in Some Canadian Export Routes", Journal of Transport Economics and Policy, 1974, Vol. VIII, No. 3. T.D. Heaver, "Trans Pacific Trade, Liner Shipping and Conference Rates" Transportation and Logistics Review, Spring 1972. D. Shneerson, "The Structure of Liner Freight Rates", Journal of Transport Economics and Policy, Vol. X, No. 1, January 1976.

2/ E.g. Royal Commission on Shipping Rings (United Kingdom, Report 99, 1909); Report on Steamship Agreements and Affiliations in the American Foreign and Domestic Trade (United States - Alexander Com- mittee, H.Doc.No.805, 1914); Report of the Overseas Shipping Conference (Australia 1929); Report of the Ad Hoc Committee of the Inter-American Economic and Social Council for the Study of the System of Freight and Insurance Rates (Organization of American States Report, 1957); House of Representatives Report No. 498 and Senate Report No. 868 (United States 1961 and following the so-called Bonner Hearings); Report of the Committee of Inquiry into Shipping (United Kingdom, H.M.S.O. Cmd. 4337, May 1970 commonly referred to as the Rochdale Report); also The Liner Conference System (TD/B/C.4/62), Report by the UNCTAD secretariat - United Nations Publications 1"ales number E.70.11.D.9), New York, 1970.

3/ E.g. Devanney, Livanos and Steward, Conference Rate Making in the West Coast of South America, Technical Report 72-1, MIT, Commodity Transport- ation and Economic Development Laboratory, 1972 and The Regulated Ocean Shipping Industry op. cit.

4/ Rene de Kerchore, International Maritime Dictionary, second edition quoted from Gunnar Alexandersson and Goran Norstrom, World Shipping, John Wiley & Sons 1963, p. 34.

h - ~~~~~~~~~~~~~~...... ,,...... d..... - 69 -

ANNEX 3 Page 3 normally in full shiploads. The original tramp ship is a general purpose carrier designed to carry most types of cargo. It is even occasionally hired or chartered by liner companies for use in their liner trades. However, the term may also include specialized ships such as oil tankers, ore carriers, etc. which operate under similar commercial conditions 1/.

5. Depend-ing onI tlhe contractual arrangements by which the services of the vessels are made available, a distinction is often made between open market fixtures or charters and negotiated fixtures. Voyage and time charters for one year or less are generally fixed through brokers on the open market, e.g., at the Baltic Shipping Exchange in London, while on the other hand time charters for three years and more and contracts of affreightment involving the transport of a given quantity over a certain time period are normally fixed through direct negotiations 2/. Only a small proportion of all long- term, dry cargo, charter business is reported 3/. The "open" charter market generally represents close to perfect competition for short-term requirements, with freight rates fluctuating substantially over time depending on changes in

1/ Excluding such vessels owned and operated by industrial concerns for their own transport as discussed under Section B (ii) (c) below. Some authors limit the term tramps to non-specialized general purpose tramp vessels, e.g. B. N. Metaxas, The Economics of Tramp Shipping, The Athlone Press, London 1971, p. 6.

2/ Freight Markets and the Level and Structure of Freight Rates (TD/B/C.4/38), report by the UNCTAD secretariat, United Nations Publication, Sales No. E.69.11.D.13, p. 11. This report describes the open market as follows:

"The open market embraces the aggregate at any given time of tramp shipowners seeking employment for their vessels and shippers requiring the services of tramp ships for a limited period. The keynote of the open freight market is the quick and easy communication of information. The basis is an international network of shipowners, shipbrokers and charterers needing a ship of a certain size and type available at a specific port on or about a specified date can be assured that his needs will be made known to shipowners in all countries which possess merchant fleets. In the reverse direction, by circulating through the same network the positions of his fleet and the cargoes most actively sought by individual vessels the shipowner informs all potential hirers/charterers of the shipping space he can offer, its nature and when and where it will be free and available for service".

3/ According to one source only about 10% of the total tonnage carried by non-liner methods are covered by fixtures reported on the open market with the remaining 90% carried under private fixtures or by industrial carriers [Merchant Fleet Development (UNCTAD/SHIP/127) p. 11]. With reference to dry bulk trades H.P. Drewry (Shipping Consultants) Ltd. concluded that although reported time charts and contracts of affreightment represent an extremely small proportion of all long-term chart business, they are sufficient to gauge the market as a whole [Organization and Structure of the Dry Bulk Shipping Industry p. 57]. - 70 -

ANNEX 3 Page 4 demand and the relative demand/supply balance 1/. This is in turn influenced by a host of factors, e.g., wars, political upheaval, weather, strikes, etc.

6. Due to the absence of comprehensive information on chartering, particularly time chartering and contracts of affreightment, it is not possible to indicate what proportion of the tramp fleet is under voyage or time charter. This proportion also changes over time as most shi'P-c-tners tend to favor time charter relatively more during periods of high rates than during periods of low rates 2/. c) Industrial or Private Carriage

7. Industrial cr private operations are captive services in which both ships and cargoes are controlled by a single entity. These are not, however, completely isolated markets as the companies tend to supplement their own tonnage by time or spot fixtures and may, on occasion, also charter out some tonnage or make part of the space available to other shippers. Vessels chartered by industrial operators on bareboat charter closely resemble owned tonnage insofar as they are usually operated by the charterer as if he were the real owner during the period of the charter.

1/ The single voyage dirty tanker freight rate index (Worldscale = 100) increased from 56 in the first quarter of 1972 to 357 in the third quarter of 1973 and fell to 65 in the first quarter of 1975. Similarly, the United Kingdom Chamber of Shipping tramps time charter index increased from 98 (1968 = 100) in the third quarter of 1972 to 358 in the fourth quarter of 1973 and fell again to 94 in the second quarter of 1975. During this latter period the liner freight rate index of the Ministry of Transport of the Federal Republic of Germany increased continuously, although at different rates, from 132 to 148 and 201 [Review of Maritime Transport, 1974 and 1976, reports by the UNCTAD secretariat (TD/B/C.4/125 and 169].

2/ The reported single voyage dry cargo chartering increased from 69.9 million cargo tons in 1973 to 81.7 million tons cargo in 1977. With regard to time chartering, trip chartering increased from 31.6 million tons dwt to 53.7 million tons dwt while long-term time chartering declined from about 17.1 million tons dwt in 1973 to 5.7 million in 1977. For tankers, reported spot cargo fixing (dirty single voyage and clean single voyage chartering) increased from 176.5 million cargo tons in 1973 to 385.9 million in 1977 while period chartering declined from a record 65.0 million tons dwt in 1973 to 31.3 million in 1977. Also while only 33% of the period chartered tonnage was for 12 months or less in 1973, it accounted for 76% in 1977. [H.P. Drewry (Shipping Consultants) Ltd. Shipping Statistics, July 1977 and January 1978, Tanker Chartering Through the 1970s, study number 53 and and Organization and Structure of the Dry Bulk Shipping Industry, study number 63.] - 71 - ANNEX 3 Page 5

8. According to H.P. Drewry (Shipping Consultant) Ltd., the seven major petroleum companies owned about 69 million dwt of tanker tonnage or 21% of the fleet in mid-1977, while other oil companies owned 19% and the independent owners 60%. The increasing tanker ownership of the other oil companies, including companies of the developing oil exporting countries, can be seen from the fact that these companies accounted for about 46% of new tanker tonnage on order in mid-1977 and that the tonnage on order for these companies represented aboi 24% of their existing tonnage as compared with 5% for the seven major and 7% for the independents 1/. Although similar information is not available for the dry cargo trades, it is known that certain mining, steel-making and other companies control directly or indirectly through shipping subsidiaries or beneficially-owned offshore companies considerable tonnages of bulk carriers, including combined carriers 2/. As in the case of tankers, these vessels are often registered under flags of convenience 3/.

(d) Competition by Type of Shipping

9. Shipping is often looked upon as an example of a free trade industry. While this is largely true for open market chartering, it is not true for shipping as a whole, nor has it really been true for any length of time in the past 4/. This situation varies, however, by shipping service and from trade to trade or country to country.

1/ Shipping Statistics and Economics, July 1977.

2/ See for instance Organization and Structure of the Dry Bulk Shipping Industry, p. 25-42 and The Maritime Transportation of Iron Ore (TD/B/C.4/105), report by the UTCTAD secretariat, United Nations Publication Sales No. E.74.11.D.4. New York 1974, p. 34-35.

3/ Economic Consequences of the Existences or Lack of a Genuine Link between Vessel and Flag of Registry (TD/B/C.4/168), report by the UNCTAD secretariat 1977, Report of the Ad hoc Intergovernmental Working Group on the Economic Consequences of the Existence or Lack of a Genuine Link between Vessel and Flag of Registry, (UNCTAD - TD/B/C.4/177), H.P. Drewry Shipping Consultarts, World Shipping under Flags of Convenience, study no. 37, and R.S. Doganis and B.N. Metaxas, The Impact of Flags of Convenience, Transport Studies Group Research Report No. 3, among others, discussess the reasons for the rapid growth in recent years of the open registry fleets and their economic impact. Information on the beneficial ownership and trade routes of open registry fleets are contained in Beneficial Ownership of Open Registry Fleets (UNCTAD/SHIP/126) and Trade Routes of Open Registry Vessels (TD/222/Supp. 5), reports by the UNCTAD secretariat.

4/ See for instance S.G. Sturmey, Shipping Economics, Collected Papers, London 1975 paper 14 entitled "A consideration of the ends and means for national shipping policies", also G.E. McDowell and H.M. Gibbs, Ocean Transportation, New York 1954. J.E. Saugstad, Shipping and Shipbuilding Subsidies, Trade Promotion Series No. 129, United States Government Printing Office 1932 and Maritime Subsidies, U.S. Department of Commerce, U.S. Government Printing Office 1976. - 72 - ANNEX 3 Page 6

10. Furthermore, the shipping industry has certain oligopolistic or semi- oligopolistic features which have become more pronounced as a result of increases in containerization, with its large capital requirements, increased vessel sizes and the trend towards consortia or pools for both containers and bulk shipping. The conference system tends to eliminate price competition between member companies in a particular trade, although service competition may continue, 'as may competition between conference lines on the one hand and non-conference lines, tramps or other modes of transport on the other. The strength of conferences and the degree of outside competition varies, however, significantly between trades 1/. In part of the bulk trades, both liquid and dry, the existence of a relatively limited number of large shippers (e.g., major petroleum companies, steel companies, etc.) who control substantial shipping tonnages through direct vessel ownership or long-term charters or contracts of affreightment also introduces some oligopsonistic features.

11. The competitive situation in particular trades can also be influenced by a large number of actions taken by Governments, particularly those taken to develop or assist their national merchant marines. These measures, as listed in more detail in Annex 12, can be divided into measures involving (i) flag discrimination or reservation and (ii) subsidies and tax advantages or other direct and indirect forms of financial assistance. Another way of looking at these measures is to separate them into measures aimed at increasing revenues for national flag lines and measures aimed at reducing costs, including measures to offset particular competitive disadvantages which may be partly related to government policy 2/. The competitive situation in shipping affected by the existence and rapid expansion of the fleets registered in so- called open registry countries where shipowners may benefit inter alia from (i) freedom from taxation of profits and income and uncontrolled use of the cash flow and (ii) the possibility of reducing operating costs by inter alia using lower paid crews 3/. Finally, the competitive situation in certain liner trades has also been influenced in recent years by the expansion of the fleets of centrally planned economies which in several cases (particularly the USSR) operate independent services quoting rates significantly below those of the shipping conferences.

1/ With regards to the U.S. liner trades, a 1977 study by the U.S. Depart- ment of Justice concluded inter alia that "conference power is not effectively constained by market forces or by regulation "(The Regulated Ocean Shipping Industry, U.S. Government Printing Office, January 1977, p. 237). However, this conclusion was disputed by the earlier cited UWIST study.

2/ E.g. to offset the effects of an unrealistic exchange rate, to com- pensate for a requirement to build vessels at relatively high cost national yards, etc.

3/ Economic Consequences of the Existence or Lack of a Genuine Link Between Vessel and Flag of Registry (TD/B/C.4/168), report by the UNCTAD secretariat, March 1977. Table 21 provides indicative information on crew costs under different flags. - 73 - ANNEX 3 Page 7

12. From the point of view of LDCs considering developing or expanding their national merchant marines, several of the above-mentioned factors may negatively affect the potential benefits from such investments. Thus, the existence of direct or indirect subsidies to shipping and the relative lower cost of shipping under open flag registry may reduce or eliminate the comparative advantage that developing countries might have due to lower crew costs, reduce the benefits which might accrue to these countries through reduced taxes, etc 1/. On the other hand the existence of subsidies, special tax provisions, etc. may result in lower freight rates than would be the case without such subsidies and therefore benefit international trade in highly price-sensitive cargoes. The oligopolistic features of some shipping markets and control of cargoes by trading partners may also make entry into shipping more difficult. Such entry is, however, relatively easier in liner shipping where price competition is restricted and where the conferences increasingly have come to accept the "right" of national flag lines to a share of the trade to and from that country or in bulk trades (liquid and dry) if there is national control of the cargoes or agreement between trading partners.

1/ The above UNCTAD report argues, although without evidence, that a serious consequence of open registry shipping is that "resources which would logically be directed towards the development of the national fleets of developing countries which can provide the necessary labor are in fact being diverted in such a manner that the industrialized countries are retaining the benefits of shipowning." (ibid. p. 74.). - 74 - ANNEX 4 Page 1

SHIPPING CONFERENCES

1. The United Nations Code of Conduct for Liner Conferences defines a liner conference as:

"A group of two or more vessel-operating carriers which provides international liner services for the carriage of cargo on a particular route or routes within specified geographical limits and which has an agreement or arrangement, whatever its nature, within the framework of which they operate under uniform or common freight rates and any other agreed conditions with respect to the provision of liner services" 1/.

The organization and scope of the conferences, of which there are about 360 2/, vary widely ranging from fairly informal associations to a tightly structured organization with a permanent secretariat. The most tightly organized type of conference is the "closed" conference operating a rationalized service and pooling arrangement whereby the number of sailings and vessel types and capacities are tailored to the expected traffic volumes and thus potentially, although not necessarily in practice, minimizing the costs of providing the service but also greatly reducing the competition between member liners 3/. On the other hand weaker "open" conferences concerned mostly with establishing freight rates, while not reducing competition to the same extent, may tend to encourage over-tonnaging, low profitability and steadily increasing freight

1/ United Nations Conference of Plenipotentiaries on a Code of Conduct for Liner Conferences, Final Act (including the Convention and resolutions) and tonnage requirements, United Nations Publication Sales No. E.75.11.D.12, p. 4.

2/ B.M. Deakin and T. Seward, Shipping Conferences, A Study of their Origins, Development and Economic Practices, Department of Applied Economics, University of Cambridge Occational Papers 37, 1973 p.l. Details on the coverage and membership of different shipping conferences are contained in Croner's World Directory of Freight Conferences; Croner Publications Limited. An extensive discussion of the nature of shipping conferences can also be found in The Liner Conference System, op. cit.

3/ Through various loyalty arrangements, the conference may also try to minimize the outside competition from non-conference liner operators and tramps. The market power of a conference depends on its own organization, the extent of outside competition from non-conference liners and tramps and other modes of transport or services as well as market competition for individual commodities in that too high a rate might make the commodity uncompetitive. - 75 - ANNEX 4 Page 2

rates; rates may be much higher than under an efficient system 1/. This is particularly important to developing countries as these may often bear most of the freight cost of both their exports and imports. However, as far as is known, no study has been undertaken regarding the relative position of rationalized and unrationalized conference operations.

2. Most public inquiries, such as the Rochdale report, as well as most liner companies and major organizations of shippers, have favored some form of conference system over unregulated free competition in liner trades due to the cost structure and other characteristics of liner shipping and the stated need of shippers for stable freight rates and regular service. The need for some regulation of conferences has gained increasing, although far from unanimous, acceptance 2/.

1/ Devanney, Livanos and Steward have referred to this process as the "cartel spiral". Starting from a conference having agreed to a tariff level and structure which would provide an acceptable level of profit "Given such a profitable level of rates, an individual firm can increase its profits by increasing tie tonnage on the route. However, the other firms reason in a similar manner. Hence, more tonnage is supplied, utilization goes down, and with it the profits. The conference meets and increases in rates, whereupon it becomes profitable to add tonnage and the process repeats itself". The authors concluded that the cost of the existing conference operation was twice as high as under an efficient system. [Conference Rate Making in the West Coast of South America, 1972] B.J. Abrahamsson," A Model of Liner Price Setting, Journal of Transport Economics and Policy, September 1968, pp. 321-331 distinguished between freight rate increases due to 1) monopoly power 2) shift in the average cost curve, 3) compersatory increases and 4) higher unit costs from withdrawal from tramp market.

2/ To a different degree this is reflected in (i) the existing United States maritime legislation and regulation, (ii) the liner code agreed between the Council of European and Japanese National Shipowners' Association and The European National Shippers' Council following a recommendation of the Consultative Shipping Group (representing the Governments of twelve Western European Countries and Japan), and (iii) the Utnited Nations Convention on a Code of Conduct for Liner Conferences. Two recent and opposing studies of the conference system with particular reference to the US trades and which also contain references to most earlier inquiries and studies are The Regulated Ocean Shipping Industry op. cit. (favoring free competition) and Liner Shipping in the US Trades, op. cit. (supporting the conference system). - 76 -

ANNEX 5 Page 1 of 5

EXCERPT FROM THE CONVENTION ON A CODE OF CONDUCT FOR LINER CONFERENCES

Chapter II

RELATIONS AMONG MEMBER LINES

Article 1

MEMBERSHIP

1. Any national shipping line shall have the right to be a full member of a conference which serves the foreign trade of its country, subject to the criteria set out in article 1, paragraph 2. Shipping lines which are not national lines in any trade of a conference shall have the right to become full members of that conference, subject to the criteria set out in article 1, paragraphs 2 and 3, and to the provisions regarding the share of trade as set out in article 2 as regards third-country shipping lines.

2. A shipping line applying for membership of a conference shall furnish evidence of its ability and intention, which may include the use of chartered tonnage, provided the criteria of this paragraph are met, to operate a regular, adequate and efficient service on a long-term basis as defined in the conference agreement within the framework of the conference, shall undertake to abide by all the terms and conditions of the conference agreement, and shall deposit a financial guarantee to cover any outstanding financial obligation in the event of subsequent withdrawal, suspension or expulsion from membership, if so required under the conference agreement.

3. In considering an application for membership by a shipping line which is not a national line in any trade of the conference concerned, in addition to the provisions of article 1, paragraph 2, the following criteria, inter alia, should be taken into account:

(a) The existing volume of the trade on the route or routes served by the conference and prospects for its growth;

(b) The adequacy of shipping space for the existing and prospective volume of trade on the route or routes served by the conference;

(c) The probable effect of admission of the shipping line to the conference on the efficiency and quality of the conference service;

(d) The current participation of the shipping line in trade on the same route or routes outside the framework of a conference; and

(e) The current participation of the shipping line on the same route or routes within the framework of another conference. - 77 -

ANNEX 5 Page 2 of 5

The above criteria shall not be applied so as to subvert the implementation of the provisions relating to participation in trade set out in article 2.

4. An application for admission or readmission to membership shall be promptly decided upon and the decision communicated by a conference to an applicant promptly, and in no case later than six months from the date of application. When a shipping line is refused admission or readmission the conference shall, at the same time, give in writing the grounds for such refusal.

5. When considering applications for admission, a conference shall take into account the views put forward Dy shippers and shippers organizations of the countries whose trade is carried by the conference, as well as the views of appropriate authorities if they so request.

6. In addition to the criteria for admission set out in article 1, paragraph 2, a shipping line applying for re-admission shall also give evidence of having fulfilled its obligations in accordance with article 4, paragraphs 1 and 4. The conference may give special scrutiny to the circumstances under which the line left the conference.

Article 2

PARTICIPATION IN TRADE

1. Any shipping line admitted to membership of a conference shall have sailing and loading rights in the trades covered by that conference.

2. When a conference operates a pool, all shipping lines members of the conference serving the trade covered by the pool shall have the right to participate in the pool for that trade.

3. For the purpose of determining the share of trade which member lines shall have the right to acquire, the national shipping -lines of each country, irrespective of the number of lines, shall be regarded as a single group of shipping lines for that country.

4. When determining a share of trade within a pool of individual member lines and/or groups of national shipping lines in accordance with article 2, paragraph 2, the following principles regarding their right to participation in the trade carried by the conference shall be observed, unless otherwise mutually agreed:

(a) The group of national shipping lines of each of two countries the foreign trade beLween which is carried by the conference shall have equal rights to participate in the freight and volume of traffic generated by their mutual foreign trade and carried by the conference; - 78 -

ANNEX 5 Page 3 of 5

(b) Third-country shipping lines, if any, shall have the right to acquire a significant part, such as 20 percent, in the freight and volume of traffic generated by that trade.

5. If, for any one of the countries whose trade is carried by a conference, there are no national shipping lines participating in the carriage of that trade, the share of the trade to which national shipping lines of that country would be entitled under article 2, paragraph 4 shall be distributed among the individual member lines participating in the trade in proportion to their respective share.

6. If the national shipping lines of one country decide not to carry their full share of the trade, that portion of their share of the trade which they do not carry shall be distributed among the individual member lines participating in the trade in proportion to their respective shares.

7. If the national shipping lines of the countries concerned do not participate in the trade between those countries covered by a conference, the shares of trade carried by the conference between those countries shall be allocated between the participating member lines of third countries by commercial negotiations between those lines.

8. The national shipping lines of a region, members of a conference, at one end of the trade covered by the conference, may redistribute among themselves by mutual agreement the shares in trades allocated to them, in accordance with article 2, paragraphs 4 to 7 inclusive.

9. Subject to the provisions of article 2, paragraphs 4 to 8 inclusive regarding shares of trade among individual shipping line or groups of shipping lines, pooling or trade-sharing agreements shall be reviewed by the conference periodically, at intervals to be stipulated in those agreements and in accordance with criteria to be specified in the conference agreement.

10. The application of the present article shall commence as soon as possible after entry into force of the present Convention and shall be completed within a transition period which in no case shall be longer than two years, taking into account the specific situation in each of the trades concerned.

11. Shipping lines members of a conference shall be entitled to operate chartered ships to fulfill their conference obligations.

12. The criteria for sharing and the revision of shares as set out in article 2, paragraphs 1 to 11 inclusive shall apply when, in the absence of a pool, there exists berthing, sailing and/or any other form of cargo allocation agreement.

13. Where no pooling, berthing, sailing or other trade participation agreements exist in a conference, either group of national shipping lines members of the conference, may require that pooling arrangements be introduced, in respect of the trade between their countries carried by the conference, in - 79 -

ANNEX 5 Page 4 of 5 conformity with the provisions of article 2, paragraph 4; or alternatively they may require that the sailings be so adjusted as to provide an opportunity to these lines to enjoy substantially the same rights to participate in the trade between those two countries carried by the conference as they would have enjoyed under the provisions of article 2, paragraph 4. Any such request shall be considered and decided by the conference. If there is no agreement to institute such a pool or adjustment of sailings among the members of the conference, the groups of national shipping lines of the countries at both ends of the trade shall have a majority vote in deciding to establish such a pool or adjustment of sailings. The matter shall be decided upon within a period not exceeding six months from the receipt of the request.

14. In the event of a disagreement between the national shipping lines of the countries at either end whose trade is served by the conference with regard to whether or not pooling shall be introduced, they may require that within the conferenice sailings be so adjusted as to provide an opportunity to these lines to enjoy substantially the same rights to participate in the trade between those two countries carried by the conference as they would have enjoyed under the provisions of article 2, paragraph 4. In the event that there are no national shipping lines in one of the countries whose trade is served by the conference, the national shipping line or lines of the other country may make the same request. The conference shall use its best endeavors to meet this request. If, however, this request is not met, the appropriate authorities of the countries at both ends of the trade may take up the matter if they so wish and make their views known to the parties concerned for their consideration. If no agreement is reached, the dispute shall be dealt with in accordance with the procedures established in this Code.

15. Other shipping lines, members of a conference, may also request that pooling or sailing agreements be introduced, and the request shall be considered by the conference in accordance with the relevant provisions of this Code.

16. A conference shall provide for appropriate measures in any conference pooling agreement to cover cases where the cargo has been shut out by a member line for any reason excepting late presentation by the shipper. Such agreement shall provide that a vessel with unbooked space, capable of being used, be allowed to lift the cargo, even in excess of the pool share of the line in the trade, if otherwise the cargo would be shut out and delayed beyond a period set by the conference.

17. The provisions of article 2, paragraphs 1 to, 16 inclusive concern all goods regardless of their origin, their destination or the use for which they are intended, with the exception of military eqjipaent for national defence purposes.

Note: As of January 14, 1980 the Convention had not entered into force--see para. 1.28 of the main text. - 80 -

ANNEX 5 Page 5 of 5

Resolution 2 of the Conference

2. Non-conference shipping lines

The United Nations Conference of Plenipotentiaries on a Code of Conduct for Liner Conferences.

Having prepared the Convention on a Code of Conduct for Liner Conferences with a view to improving the liner conference system.

Bearing in mind tht the Convention is applicable to liner conferences and their external relations,

Resolves that:

1. Nothing in that Convention shall be construed so as to deny shippers an option in the choice between conference shipping lines and non-conference shipping lines subject to any loyalty arrangements where they exist;

2. Non-conference shipping lines competing with a conference should adhere to the principle of fair competition on a commercial basis;

3. In the interest of sound development of liner shipping service, non- conference shipping lines should not be prevented from operating as long as they comply with the requirements of paragraph 2 above.

9th plenary meeting 6 April 1974

Source: United Nations Conference of Plenipotentiaries on a Code of Conduct for Liner Conferences, Final (including the Convention and Resolution) and Tonnage Requirements, United Nations Publications Sales No. E.75.11.D. 12, New York 1975. - 81 -

ANNEX 6 Page I of 4

PARTICIPATION OF DEVELOPING COUNTRIES IN WORLD SHIPPING AND THE DEVELOPMENT OF THEIR MERCHANT MARINES

Resolution 120 (V) of June 3, 1979 by the United Nations Conference on Trade and Development 1/

The United Nations Conference on Trade and Development,

Recalling its resolution 70 (III) of 19 May 1972, which recognized that developing countries should have an increasing and substantial participation in the carriage of maritime cargoes,

Recaliing also General Assembly resolution 3202 (S-VI) of 1 May 1974, which called for efforts to be made to promote an increasing and equitable participation of developing countries in the world shipping tonnage,

Recalling further resolution 28 (VIII) of the Com-iittee on Shipping, which considered that past efforts on the part of developing countries to develop their merchant fleets had not been successful to the extent desirable, and which noted with concern the present position of the fleets of developing countries among the world merchant fleets, in particular .>mong the tanker and bulk carrier fleets,

Noting that no appreciable progress has been made in the area of shipping under the International Development Strategy for the Second United Nations Development Decade and the Programme of Action on the Establishment of a New International Economic Order,

1/ For: Afghanistan; Algeria; Argentina; Bahrain; Bangladesh; Barbados; Bhutan; Brazil; Burma; China; Colombia; Comoros; Congo; Cuba; Democratic Kampuchea; Democratic Yemen; Djibouti; Dominican Republic; Ecuador; Egypt; Ethiopia; Fiji; Gabon; Ghana; Guatemala; Guinea; Guinea-Bissau; India; Indonesia; Iran; Iraq; Ivory Coast; Jamaica; Kenya; Lesotho; Liberia; Libyan Arab Jamahiriya; Madagascar; Malawi; Malaysia; Mali; Malta; Mauritius; Mexico; Morocco; Mozambique; Nepal; Niger; Nigeria; Oman; Pakistan; Peru; Philippines; Qatar; Republic of Korea; Romania; Rwanda; Sao Tome and Principe; Saudi Arabia; Senegal; Singapore; Somalia; Sri Lanka; Sudan; Swaziland; Syrian Arab Republic; Thailand; Togo; Trinidad and Tobago; Tunisia; Turkey; Uganda; United Arab Emirates; United Republic of Tanzania; Uruguay; Venezuela; Viet Nam; Yemen; Yugoslavia; Zaire; Zambia.

Against: Australia; Austria; Belgium; Canada; Denmark; Finland; France; Germany, Federal Republic of; Greece; Ireland; Israel; Italy; Japan; Luxembourg; Netherlands; New Zealand; Norway; Portugal; Spain; Sweden; Switzerland; United Kingdom of Great Britain and Northern Ireland; United States of America.

Abstaining: Bulgaria; Byelorussian Soviet Socialist Republic; Czechoslovakia; German Democratic Republic; Hungary; Mongolia; Poland; Ukrainian Soviet Socialist Republic; Union of Soviet Socialist Republics. - 82 -

ANNEX 6 Page 2 of 4

Considering that the insignificant share of developing countries in the carriage of bulk cargoes and refrigerated cargoes is a matter for serious concern,

Recognizing the right of all countries to an equitable participation in the carriage of cargoes generated by their own foreign trade, especially in th bulk sectors,

Convinced that there is a particular need to overcome the obstacles in increasing participation of developing countries in international shipping,

Taking note of the desire of many countries to phase out open-registry operations,

Taking note also of the report of the Ad Hoc Intergovernmental Working Group on the Economic Consequences of the Existence or Lack of a Genuine Link between Vessel and Flag of Registry which met in Geneva in February 1978 and of the resolution adopted by it,

1. Calls upon governments to take steps to ensure for developing countries equitable participation in the transport of all cargoes, and more specially bulk cargoes, generated by their own foreign trade by national vessels of the respective trading countries or by vessels otherwise operated by them;

2. Recommends the application of the following principles, taking into account pragmatic considerations:

(a) That the transport of regular bulk and refrigerated cargo between a pair of exporting and importing countries should have equitable participation by the national lines of the respective trading countries, or by vessels otherwise operated by them;

(b) That other bulk and refrigerated cargoes should be the subject of bilateral agreements between the trading partner countries providing for the equitable participation in the trades by the national lines of these trading partner countries;

(c) That until developing countries achieve an equitable share of world tonnage, contracts between developing and developed countries for the sale or purchase of bulk cargoes, or for the exploitation of natural resources which give rise to bulk cargoes, should stipulate that a substantial and increasing portion of cargoes shall be carried by the national vessels of developing countries or by vessels operated by them;

3. Urges developing countries which import bulk cargoes especially in less-than-ship-load quantities to take measures among themselves for joint bulk shipping operations in cooperation with the exportirng developing countries. - 83 -

ANNEX 6 Page 3 of 4

4. Requests:

(a) The UNCTAD secretariat to identify the movements of bulk cargoes between developing countries which might form the basis of joint fleet development by developing exporting and developing importing countries, and also the less-than-ship-load bulk imports of developing countries which might form a basis for joint bulk shipping operations;

(b) The Secretary-General of UNCTAD to call a meeting of representatives of interested governments with a view to taking measures which would ensure that, as far as feasible, all bulk cargoes shipped between developing countries should be carried on vessels of the national lines of the respective trading countries or by vessels otherwise operated by them;

5. Requests the UNCTAD secretariat to undertake in-depth studies of the possibilities of expanding bulk fleets of developing countries on specific bulk trade routes, and to examine the manner in which the cargo is currently tied to Jrading partner countries or to transnational corporations;

6. Requests the UNCTAD secretariat to investigate, in cooperation with the appropriate bodies, the controls which are exercised by transnational corporations over bulk movements of commodities such as iron ore, coal, grain, phosphate, and bauxite/alumina;

7. Requests the UNCTAD secretariat to undertake in-depth studies on trade and maritime transport of refrigerated cargoes, both liner and non- liner, and to recommend measures to promote the increasing participation of developing countries in the carriage of such cargoes;

8. Requests the UNCTAD secretariat to:

(a) Prepare guidelines to assist developing countries in the introduction of containerization and multimodal transport and the modernization and improvement of their infrastructure, including ports, so that those countries can derive the maximum benefit from new technologies;

(b) Carry out, in cooperation with ICAO, appropriate studies, on air-cargo movements in the context of multimodal transport so as to increase the air transport fleets of developing countries and to facilitate the export of goods by air as desirable;

9. Calls upon the Committee on Shipping to review at its regular sessions the whole question of the participation of developing countries in vorld shipping and the development of their merchant fleets, and the problems with which developing countries are confronted;

10. Calls upon the UNCTAD secretariat, in consultation with other related agencies to: 84 -

ANNEX 6 Page 4

(a) undertake further studies in respect of the repercussions of phasing out open registries, its economic and social impact on the economies of developing countries, its effect on world shipping, and how the phasing out of open registries would ensure simultaneous development of the merchant fleets of developing countries, with a view to taking a decision on the desirability of phasing out;

(b) Simultaneously study the feasibility of establishing a legal mechanism for regulating the operations of open-registry fleets during the corresponding period, stressing the need to adopt such legislative measures as might enable them to ensure that substandard vessels do not operate to their disadvantage;

11. Requests the Secretary-General of UNCTAD to reconvene the Ad Hoc Intergovernmental Working Group for the purpose of considering these studies on phasing out of open-registry operations.

12. Requests the Ad Hoc Intergovernmental Working Group to report its conclusions and recommendations to the Trade and Development Board or the Committee on Shipping, whichever session takes place earlier, for decisions, as might be appropriate. - 85 - ANNEX 7 Page 1 of 3

SHIP FINANCING AND TECHNICAL ASSISTANCE

Resolution 121 (V) of June 3, 1979 by the United Nations Conference on Trade and Development 1/

The United Nations Conference on Trade and Development,

Recalling its resoluLions 6 (II) of 22 March 1968 and 67 (III) of 19 May 1972,

Recalling also resolutions 24 (VII) of 21 November 1975 and 32 (VIII) of 22 April 1977 of the Committee on Shipping,

Expressing concern that the recommendations of Conference resolution 70 (III) of 19 May 1972 on the development of merchant marines have not been fully implemented,

Recognizing that urgent action needs to be taken to enable the developing countries to have an increasing and substantial participation in the carriage of maritime cargoes, and in particular to facilitate the financing of ship acquisition.

Noting that the lack of competently prepared feasibility studies is sometimes an important restricting factor in ship finance,

Recognizing the need for technical and rinancial assistance for the development oi the shipping industries, as well as of pDrts, in developing countries,

1/ The Conference adopted this resolution by a roll-call vote of 91 to 0, with 23 abstentions. The result of the voting was as follows:

In favor: Afghanistan; Algeria; Argentina; Bahrain; Bangladesh; Barbados; Bhutan; Brazil; Bulgaria; Burma; Byelorussian Soviet Socialist Republic; China; Colombia; Comoros; Congo; Cuba; Czechoslovakia; Democratic Kampuchea; Democratic Yemen; Djibouti; Dominican Republic; Ecuador; Egypt; Ethiopia; Fiji; Gabon; German Democratic Republic; Ghana; Guatemala; Guinea; Guinea-Bissau; Hungary; India; Indonesia; Iran; Iraq; Ivory Coast; Jamaica; Kenya; Lesotho; Liberia; Libyan Arab Jamahiriya; Madagascar; Malawi; Malaysia; Mali; Malta; Mauritius; Mexico; Mongolia; Morocco; Mozambique; Nepal; Niger; Nigeria; Oman; Pakistan; Peru; Philippines; Poland; Qatar; Republic of Korea; Romania; Rwanda; Sao Tome and Principe; Saudi Arabia; Senegal; Singapore; Somalia; Sri Lanka; Sudan; Swaziland; Syrian Arab Republic; Thailand; Togo; Tonga; Trinidad and Tobago; Tunisia; Turkey; Uganda; Ukrainian Soviet Socialist Republic; Union of Soviet Socialist Republics; United Arab Emirates; United Republic of Tanzania; Uruguay; Venezuela; Viet Nam; Yemen; Yugoslavia; Zaire; Zambia. Against: None.

Abstentions: Australia; Austria; Belgium; Canada; Denmark; Finland; France; Germany, Federal Republic of; Greece; Ireland; Israel; Italy; Japan; Luxembourg; Netherlands; New Zealand; Norway; Portugal; Spain; Sweden; Switzerland; United Kingdom of Great Britain and Northern Ireland; United States of America. - 86 -

ANNEX 7 Page 2 of 3

Recognizing also the role being played by UNCTAD, the Intergovernmental Maritime Consultative Organization and other United Nations organizations, developed countries and international financial institutions offering development aid in providing technical assistance, including training, to developing countries in the above-mentioned fields,

Noting that existing resources within the United Nations system, including UNCTAD, may not be sufficient to meet the requirements of developing countries in the above-mentioned fields,

1. Urges Governments of States members of UNCTAD, in view of the urgent economic problems of developing countries and their limited resources, to consider carefully the proposals made by the developinig countries at the fifth session of the Conference that credit for the acquisition of ships should be extended to them on the following minimum terms and conditions:

(a) a maximum loan duration of not less than 14 years for new ships and 10 years for second-hand vessels, including a period of grace of at least three years after the delivery of the vessels;

(b) down-payments not exceeding 10 percent of the contract price;

'(c) the rate of interest for such deferred payment should not exceed 5 percent per annum;

2. Requests the Governments of States members of UNCTAD, as well as the international financial institutions offering development aid, to assist developing countries so that they have access to bilateral and multilateral development aid for the purchase of new ot second-hand ships, and for the improvement and development of port facilities and infrastructure, taking account of the developing countries- own development priorities and in accordance with the aid policies of the donor countries and institutions concerned;

3. Requests international financial institutions, in accordance with their aid policies, to provide financing and refinancing facilities to governmental and intergovernmental (including regional) financial institutions of developing countries in their lending for ship acquisition;

4. Calls upon developed and developing countries to encourage companies which have the required managerial and operational expertise in shipping to participate in joint ventures with companies in developing countries where a suitable framework exists. Joint ventures enable developing countries to acquire vessels as well as managerial and operatioinal expertise. They can take place either amongst companies from developed and developing countries or amongst companies from developing countries;

5. Requests the Secretary-General of UNCTAD to establish an ad hoc unit within UNCTAD to assist developing countries with feasibility studies for ship acquisition, subj(ect to the necessary resources being made available. -87 -

ANNEX 7 Page 3 of 3

6. Calls upon the developed countries, in accordance with their aid policies, to provide technical assistance in the maritime! field within the context of the development plans and programmes of the developing countries concerned, in such sectors as:

(a) establishing shipping administrations and fleet development, including projections for the fleet and service requirements and the acquisition of vessels;

(b) operational and financial management of shipping and ports covering, inter alia, liner operations, container control, cargo handling and forwarding, and ship accounting systems;

(d) training of personnel in such matters as, inter alia, ship maintenance and management; and

(e) economic and commercial aspects of multimodal transport;

7. Invites the United Nations Development Programme to consider providing resources for UNCTAD and other appropriate organizations for the provision of technical assistance, including training, in the economic and commercial aspects of shipping and ports in matters such as those specified in the preceding paragraph;

8. Instructs the Committee on Shipping:

(a) to keep the subject of shipping finance on its agenda, to review the matter at regular intervals, and to recommend measures which may be necessary; including the possibility of establishing a consultative group on ship finance;

(b) to give particular attention to the financing of the improvement and development of port facilities and infrastructure. - 88 -

ANNEX 8

EXTRACT FROM RESOLUTIONS BY THE UNITED NATIONS CONFERENCE A TRADE AND DEVELOPMENT AND THE UNCTAD COMMITTEE ON SHIPPING ON SHIPPING FINANCE

A. United Nations Conference on Trade and Development Resolution 70(III) of May 19, 1972 inter alia:

Urges that:

1. Developed countries and international financial institutions should substantially increase where appropriate their financial and technical assistance to developing countries, and simplify as far as possible the procedures and conditions for granting credits to developing countries for the acquisition by these countries of new and second- hand ships, within the overall context of both established project criteria and national development plans and programmes, for their national and multinational merchant marines; [Proceedings of the United Nations Conference on Trade and Development, Third Session, Report and Annexes (TD/180. Vol 1)].

B. Resolution 26 (vii) of November 21, 1975 inter alia:

"4. Urges international financial institutions, in particular the World Bank Group and the regional development banks, to consider increasing the availability o:- finance and granting more favorable terms to the developing countries for the acquisition of vessels, within the overall context of both established project criteria and national development plans and programs and;

5. Request the developed countries and international, financial institutions to consider giving high priority, in their financial and technical assistance, in assisting the least developed, land-locked and island developing countries to acquire and expand their national merchant marines, within the overall context of both established project criteria and national development plans and programs." [Official Records of the Trade and Development Board, Seventh Special Session, Supplement No. 3 (TD/B/591), Annex 1.]

C. Committee Resolution 28 (viii) of April 22, 1977 inter alia:

"Request further the Secretary General of UNCTAD to discuss with the international financial institutions, in particular the World Bank Group and the regional development banks, the implementation of para. 4 of resolution 26 (vii) of the Committee on Shipping and to report to the ninth session of the Committee". [Official Records of the Trade and Development Board, Seventeenth Session, Supplement No. 3 (TD/B/648), Annex 1.] - 89 - ANNEX 9 Page 1

EXTRACT FROM THE REPORT OF THE GROUP OF EXPERTS ON IMPROVED METHODS OF FINANCING SHIP ACQUISITION BY DEVELOPING COUNTRIES (TD/B/C.4/179)

Summary of Conclusions and Recommendations

At its closing meeting, on 2 June 1978, the Group of Experts adopted the following conclusions and recommendations:

(1) In the assessment by the Group of Experts, about US$2 billion to US$3 billion would be required per annum to finance the shipping investments necessary to enable developing countries to reach and maintain the target of 10 percent of total world deadweight tonnage by 1980.

(2) The lack of finance on suitable conditions has been a factor which has restricted the establishment and/or growth of the merchant marines of developing countries. In many instances financing as such is available on commercial terms but does not materialize as a result of other factors. A major problem for developing coun 'Jes is the terms and conditions of such credits.

(3) Most credits which do not involve development aid are not suitable to meet the needs of developing countries. In particular, the maximum loan duration should be increased to 12-14 years, including an adequate period of grace. Similarly, down payment should be 10 to 20 percent of the contract period.

(4) Notwithstanding the world surplus of tonnage, it is generally easier to arrange for financing of new buildings than for second- hand ships, for the time being especially because financial credit resources are being directed towards maintaining employment in shipyards.

(5) Developed and developing countries should explore together thoroughly the possibilities of using bilateral and multilateral development aid for the acquisition of second-hand ships.

(6) Although ship-leasing arrangements could be suit-:ble in a number of cases, this would not be a workable method for the acquisition of a large number of ships by developing countries.

(7) Joint ventures between developed and developing countries, as well as among developing countries themselves, offer considerable possibilities for developing countries to acquire vessels as well as management and operational expertise.

(8) Lack of competently prepared feasibility studies is a very important restricting factor for ship finance. To assist developing countries with feasibility studies a unit could be established within UNCTAD. - 90 - ANNEX 9 Page 2

(9) Countries wishing to borrow for ship financing need appropriate maritime legislation, arbitration provisions, a proper ship register and appropriate inspection services. Assistance for such purposes is provided by multilateral bodies or may be obtained on a bilateral basis.

(10) Lack of secure employment or access to profitable cargoes for the vessels lias restricted the availability of finance to developing countries. Developing countries should, where feasible, renegotiate the relevant contracts so as to secure a portion of cargoes for their own vessels.

(11) Setting up a new financing institution specialized in shipping does not seem necessary. The existing multilateral aid bodies are adequately structured to meet the needs of developing countries in this respect if these bodies pay more attention to shipping development.

(12) An information service on ship financing should possibly be attached to the Information Service on Technical Assistance in Shipping which is being established in the UNCTAD secretariat.

(13) Concerning ship financing there is a need for regular assessments of the financial needs of developing countries and for suggestions on the mobilization of financial resources. These tasks could be carried out by the Shipping Committee or by a consultative group, as may be considered appropriate and necessary. - 91 - ANNEX 10 Page 1

EXTRACTS FROM SELECTED INTERNATIONAL RESOLUTIONS REGARDING MERCHANT FLEETS OF DEVELOPING COUNTRIES

1. United Nations General Assembly Resolution 2626(xxv) of October 24, 1970

The General Assembly:

1. Proclaims the Second United Nations Development Decade starting from 1 January 1971;

2. Adopts the following International Development Strategy for the Decade:" ...

4. invisibles, including shipping

"The objective is to promote, by national and international action, the earnings of developing countries from invisible trade and to minimize the net outflow of foreign exchange from those countries arising from invisible transactions, including shipping. In pursuance of the objective, action should be taken, inter alia, in the following areas, by Governments and international organizations and, where necessary, appropriately involving liner conferences, shippers' councils and other relevant bodies.

(a) The principle that the national shipping lines of developing countries should be admitted as full members of liner conferences operating in their national maritime trade and have an increasing and substantial participation in the carriage of cargoes generated by their foreign trade should be implemented in the Decade ...

(b) In order that the developing countries may have an increasing and substantial participation in the carriage of maritime cargoes, and recognizing the need to reverse the existing trend whereby the share of the developing countries in the world merchant fleet has been declining instead of increasing, developing countries should be enabled to expand their national and multinational merchant marines through the adoption of such measures as may be appropriate to permit their shipowners to compete in the international freight market and thus contribute to a sound development of shipping" ...

2. United Nations Conference on Trade and Development Resolution 70(iii) of May 19, 1972 [United Nations Publication Sales No.E.73.II.D.4, Vol. 1 pp. 101-102]

The United Nations Conference on Trade and Development:

"Taking note of the aim of the developing countries to acquire, by the end of the Second United Nations Development Decade, at least 10 percent of the deadweight tonnage of the tot:al world Fleet as compared to 7.1 percent in 1970"... - 92 - ANNEX 10 Page 2

"Urges that ...

The States members of UNCTAD should as far as possible take part in contributing to the achievement of the aim of the developing countries to acquire at least 10 percent of the deadweight tonnage of the total world fleet by the end of the Second United Nations Development Decade; Governments of States members of UNCTAD should invite liner conferences.operating in the national maritime trade of developing countries to admit national/or multinational shipping lines of the developing countries concerned as full members and also consider favourably, fairly and on equal terms applications of the national and/or multinational shipping lines of developing countries for admission as full members of wayport trades related to these countries- own foreign trade subject to the rights and obligations of conference membership the objective being that shipping lines of developing countries should have an increasing and substantial participation in the carriage of cargoes generated by their foreign trade;

Since tankers and bulk carriers constitute the main growth points of the world fleet, developing countries may give special attention to the establishment, expansion and sound operation of bulk carrier and tanker fleets in order to realize their desired level of participation in world shipping and in this task the developed countries may consider assisting the developing countries where appropriate consistent with paragraph 1 of the present resolution; Since, to the extent that traders in developed countries buy on f.o.b. terms and sell on c.i.f. terms in trade transactions with developing countries, shippers in developed countries are generally in a position to nominate the carrier, this situation should not prevent developing countries from participating on a fair basis in the trade concerned;

It is being recognized that developing countries should have an increasing and substantial participation in the carriage of maritime cargoes, they should be enabled to expand their national and multinational merchant marines through the adoption of such measures as may be appropriate to permit their shipowners to compete in the international freight market and thus contribute to a sound development of shipping;

Groups of developing countries should examine the feasibility of establishing multinational merchant marines, possibly on a regional or subregional basis, with a view, inter alia, to securing increasing participation.in the carriage of maritime cargoes and in earnings therefrom; - 93 - ANNEX 10 Page 3

3. United Nations General Assembly Resolution 3202 (S-VI) of May 1, 1974 [Official Records: Sixth Special Session Supplement No. 1 CA/19559] The General Assembly Adopts the following Program of Action ...

"4. Transportation and insurance

All efforts should be made:

(a) To promote an increasing and equitable participation of developing countries in the world shipping tonnage;

(b) To arrest and reduce the ever-increasing freight rates in order to reduce the costs of imports to, and exports from, the developing countries"...

4. Bangui Charter on Maritime Transport

The ACP ... Have Decided:

"..8. to unite their efforts in order to ensure that traffic to and from their countries is effected on the most advantageous terms for their economies;

9. to create and develop their merchant fleets;

10. to coordinate, within each of the three regions, the activities of each country's shipping companies to enable them to make optimum use of transport capacity through organizing in concern their shipping lines and agencies with a view to pooling."

5. Global Strategy for the Implementation of the United Nations Transport and Communications Decade in Africa (1978-1988)

Maritime Transport - Goals and Objectives (E/CN/ECO/138/REV. 1 p. 14]

"... Encourage the establishment of national/regional and/or subregional shipping companies. The setting up of a shipping company with vessels and technical and administrative personnel requires very substantial investment and presents considerable risks; the viability of such investment is closely linked to the management efficiency and guaranteed annual tonnage, since below a certain cargo tonnage threshold, the vessels generally operate at a loss. This fully justifies pooling of their technical facilities in setting up multinational companies which, by carrying the quotas of several countries, will result in viable operations... During the Decade every effort should be made to discourage investment in open registry vessels, and correspondingly to encourage development of national regional shipping lines." - 94 -

ANNEX 11

BASIS FOR THE COMPUTATION OF THE SHIPPING CORPORATION OF INDIA'S CONTRIBUTION TO INDIA'S BALANCE OF PAYMENTS

(i) Earnings

The operating earnings of the Corporation can be broadly categorized as under:

(1) Actual collections in foreign currencies.

(2) Actual collections from bilateral countries where transactions are in rupees.

(3) Collections in Indian Rupees in respect of overseas services.

(4) Rupee earnings in respect of coastal trade.

Items (1) and (2) are considered as direct foreign exchange earnings and item (3) is treated as indirect foreign exchange saving on the assumption that if an Indian Line were not to operate, these freight earnings would have been repatriated out of India by foreign shipping companies. On this basis, the entire operating earnings with the exclusion of coastal trade earnings, have been treated as a foreign exchange earning and saving.

(ii) Expenditure

All direct or indirect operating expenses and charter hire outgo actually incurred/disbursed in foreign currencies as well as payments to bilateral countries have been treated as foreign exchange outgo. In addition, direct operating expenses incurred in Indian ports, excepting on bunker, have been treated as indirect foreign exchange outgo on the assumption that, if a foreign shipping line were to operate, the freight earnings in Indian ports would have been repatriated out of India only after making disbursements for direct operating expenses in Indian ports. As regards bunker, it has been assumed that the bunker lifted in Indian ports by foreign operators would be insignificant.

The above basis had been explained earlier to the Ministry of Finance, Department of Economic Affairs, and was accepted by them.

Source: The Shipping Corporation of India Ltd. - 95 -

ANNEX 12 Page 1 of 2

SELECTED MEASURES USED TO ASSIST NATIONAL SHIPPING

(i) Flag discrimination or preference:

(a) Legislation, regulation or other administrative measures reserving cargo for national flag vessels and covering either Government--owned or spons- ored cargoes or commercial cargo.

(b) Bilateral treaties and trade agreements or arrangements reserving cargo for ships of the contracting parties, including pooling requirements.

(c) Use of terms of shipment, i.e. buying f.o.b. and selling c.i.f. to promote the carriage of goods by national flag ships.

(d) Exchange control measures such as blocking of foreign currencies earned by foreign ships, converting it at unfavorable rates, etc.

(e) Refusing import or export licences and bank credit for goods carried on foreign flag ships.

(f) Higher port dues and charges for foreign ships and higher taxes and fees on cargoes carried on foreign ships.

(g) Priority in berthing for national flag vessels or simplified administrative procedures for such vessels or limited port access. -

(h) Monopoly in ancillary services rendered to foreign shipping.

(ii) Subsidies

(a) Direct subsidies for the construction, purchase or improvement of ships or scrap and buy schemes.

(b) Direct subsidies for the operation of ships.

(c) Indirect subsidies including loan at no or low interest rates, accelerated depreciation provisions or investment allowances, exemption from income taxation or other tax privilages, reimburse- ment of certain charges such as harbor dues, preferential low cost insurance etc.

(d) Mail contracts at favorable rates.

(e) Losses on state owned shipping lines and shipyards borne by General taxation. - 96 -

ANNEX 12 Page 2 of 2

(f) Payment of freight above prevailing rates for carriage in natiotial flag ships.

Source: Compiled on the basis of S.G. Sturmey, Shipping Economics; Collection Papers, London 1975, Paper 14 entitled "A Consideration of the Ends and Means of National Shipping Policies", and Development of the Merchant Marines of Commonwealth Developing Countries, prepared by A. Behman and B. Ogley, University of Wales Institute of Science and Technology. Maritime Subsidies (1976 and 1978) by the U.S. Department of Commerce contains information on specific measures in selected countries. - 97 -

Table 1

World Seaborne Trade 1965-1977 Average percent change per annum 1965 1973 1977 1965-1977

(a) Seaborne trade in terms of million tons of goods loaded 1633 3276 3475 6.5

(b) Seaborne trade in terms of ton-miles (thousand million)

Crude oil 2480 9206 10464 12.8 Petroleum products 640 1010 995 3.7 Major bulk commodities 1260 2917 3124 7.9 of which - iron ore [527] [1398] [1386] [8.4) grain [386] [760] [801] [6.3] coal [216] [467] [610] [9.1] bauxite [ 46] [133] [167] [11.3] phosphate [ 85] [159] [160] [5.4] Minor bulk commodities by bulk carriers 35 585 1047 33.0 Other - so-called general cargo 1434 1685 1849 2.1

Total 5849 15403 17479 9.6

Source: Compiled on the basis of

(a) United Nations Monthly Bulletin of Statistics, January edition

(b) Fearnley and Egens Chartering Co. Ltd., Review and World Bulk Trades, various editions Merchant fleet. and sceaborne trade of developing countries 1970-1977

Merchant fleet (million dwt.) Seaborne trade - tonnage loaded and discharged (million tone) Regtion Bulk Percent o-f Petroleum and Products Dry Cargo Combined Percent of Year T*nkers Carriers Others Tot&t World Total Loaded Discharged Combined Loded Discharged Combined Total World Total Eastern Africak 1970 - - 0.2 0.2 - 1.3 9.0 10.3 16.7 9.4 26.1 36.4 0.7 1974 - - 0.4 0.4 0.1 1.3 9.8 11.1 16.9 10.4 27.3 38.4 0.6

kI 1977 - - 0.5 0.5 0.1 . .. .. Western Africa 1970 - - 0.4 0.4 0.1 61.4 6.6 68.0 59.5 13.5 73.0 141.0 2.7 197-4 - 0.6 0.6 0.1 129.1 7.1 136.2 63.4- 16.5 79.9 216.1 3.3 1977 0.5 - 0.8 1.3 0.1 . .. .. last Asia and Pacific 1970 1.1 0.8 2.7 4.6 1.4 57.8 59.7 117.5 71.6 59.5 131.1 248.6 4.8 1974 1.9 1.4 3.8 7.1 1.4 89.1 82.0 171.1 89.7 80.8 170.5 341.6 5.2 1977 3.6 3.1 5.0 11.7 1.8 . .. .. South AeLa 1970 0.5 1.3 2.8 4.6 1.4 1.2 19.6 20.5 34.1 17.1 51.2 72.0 1.4 1974 0.9 2.6 3.2 6.7 1.4 0.6 24.6 25.2 36.1 23.9 60.0 85.2 1.3 1977 2.2 4.2 3.7 10.1 1.,. . . .. Europe, Middle Zast & North 1970 Africa hI 0.6 1.1 2.5 4.2 1.1 350.9 35.6 386.5 38.1 36.Y 74.8 461.3 9.0 1974 1.1 1.3 2.8 5.2 1.1 475.3 47.6 522.9 44.6 59.3 103.9 626.8 9.6 hI 1977 5.1 1.9 3.9 10.9 . .* .. Latin America & the Caribbean 1970 3.7 1.0 3.5 8.2 2.4 255.2 122.5 377.7 152.2 43.4 195.6 573.3 11.2 1974 5.2 2.2 '3.7 11.1 2.3 227.8 163.8 391.6 196.1 63.2 259.3 650.9 9.9 ~.O 1977 6.4 3.5 5.1 15.0 2.3 ...... Total 1970 5.9 4.2 12.1 22.2 6.5 727.8 253.0 980.8 372.2 179.6 551.8 1,532.6 29.8 1974 9.1 7.5 14.5 31.1 6.3 923.2 334.9 1,258.1 446.8 254.1 700.9 1,959.0 29.9 cl1977 17.8 12.7 19.0 49.5 7.6 . .. .. World 1970 148.5 76.2 114.2 388.9 100.0 1,440.1 1.402.8 2,842.9 1,165.0 1,126.9 2,291.9 5,134.8 100.0 1974 238.5 135.6 119.9 494.0 100.0 1,832.9 1,782.2 3,615.1 1,471.3 1,471.3 2,942.6 6.557.7 100.0 1977 335.2 174.4 139.2 648.8 100.0 ...... Share of developLng countries 1970 4.0 5.5 10.5 6.5 50.5 18.0 34.5 31.9 15.9 24.1 29.8 1974 3.8 5.5 12.0 6.3 50.4 18.8 34.8 30.4 17.3 23.8 29,9 1977 5.3 7.2 13.6 7.6 ......

IL/ The clacaificetion differs somewhat from that generally uaed by the Bank as Indiceted In footnote I to para. 1. -Itexcludes capital surplus oil exporting countries; Kuwait, Libya, Om~an,Qatar, Saudi Arabia antd United Emirates. kIExcluding the fleet tonnage regiatered in so-called open registry countires - Cyprua, Liberia, Oman, Panama, Singapore and Somalia, ciWorld tonnage Including United States Reserve Fleet and the United States and Canadian Great Lakes fleets.

Sourcez Compiled on the basis of Lloyd's Register of Shippingt Statistica? Tables and United Nation. Statistical Yearbook various edItion.. - 99 -

Table 3

Changes in World Fleet 1965-1978

Changes in Eercent p.a. Principal Percent of Vessel Types 1965 1970 1978 1965-70 1970-78 Total 1978

number 5,307 6,103 6,882 2.8 1.5 10.0 Oil tankars 000 grt. 55,046 86,140 175,035 9.4 9.3 43.1 average size/grt. 10,372 14,114 25,433 6.4 7.6

number 1,403 2.,528 4,557 12.5 7.6 6.6 Bulk carriers including 000 grt. 18,757 46,652 106,545 20.0 10.9 26.3 combined carriers average size/grt. 13,369 18,454 23,381 6.7 2.7

number 22,366 22,368 n.a. -- 32.4 General cargo, including 000 grt. 1/ 72,396 79,675 n.a. 1.2 19.6 passenger/cargo ships average size/grt. 3,237 3,562 n.a. 1.2

number 12,889 19,987 n.a. 5.6 28.9 Fishing vessels, including 000 grt. 1/ 7,804 12,372 n.a. 5.9 3.0 fish factories and carriers average size/grt. 605 619 n.a. 0.3

number 167 531 n.a. 15.6 0.8 Container shipp (fully ono grt. 1,908 8,674 n.a. 20.8 2.1 cellular) average size/grt. 11,425 16,335 n.a. 4.6

number 145 3/ 2,960 nr.a. 5/ 4.3 Ferries and passenger 000 grt. 1/ 2,991 3/ 6,864 n.a. / 1.7 vessels average size/grt. 20,628 3/ 2,319 n.a. 5/

number 288 536 n.a. 8.1 0.8 Liquified gas carriers 000 grt. 2/ 1,350 5,530 n.a. 19.3 1.4 average size/grt. 4,688 10,317 n.a. 10.4

number 216 527 n.a. 11.8 0.8 Chemical tankers 000 grt. 451 1,930 n.a. 19.9 0.5 average size/grt. 2,088 3,662 n.a. 7.3

number - 159 -- 0.20- Vehicle carriers 000 grt. - -- 1,200 - 0-.3 average siza/grt. 7,547 number - - 29 - - -- Lighter carriers 000 grt. - 773 - 0.2 avarage size/grt. - - 26,655

number - 114 - Miscellaneous - 0.2 tankers 000 grt. - - 189 - average size/grt. - 1,657

number 35 155 4/ 7,742 10,370 5/ 3.3 15.0 All other vessels 000 grt. 86:589 -/ 7,798 7,215 D/ (1.0) 1.8 average size/grt. 2,463 1,007 696 5/ (4.5)

number 41,865 52,444 69,020 4.6 3.1 100.0 Total 000 grt. 160,392 227,490 406,002 7.2 7.5 100.0 average size/grt. 3,831 4,338 5,882 2.5 3.9

1/ Included under category other vessels as separate data not available. / The number of such vessels was limited and has been included under other vessels. 3/ Only passenger vessels. 4/ Comprising mostly general cargo vessels and fishing vessels. 5/ Not relevant. - 100 - Table 4

Liner freight rate index 1968-1979 ' (1965 = 100)

Average Index Percent Year for Year annual change

1968 107 1969 109 1.9 1970 114 4.5 1971 126 10.5 1972 132 4.8 1973 140 6.1 1974 187 33.6 1975 205 9.6 1976 215 4.9 1977 229 6.5 1978 241 5.2 1979 266 10.4

a/ Liner index compiled by the Ministry of Transport of the Federal Republic of Germany and covering cargoes via north continental ports on German account by liners of all flags.

Source: Compiled on the basis of indices reported in OECD's Maritime Transport, and UNCTAD's Review of Maritime Transport, various editions. - 101 -

Table 5

Indicative variations in selected freight rate indices selected years 1950-1978

Norwegian Shipping News Dry Cargo Trip charter a/ Time charter b/ Tanker Index c/ (Worldscale)

1950 Low 73.3 63.3 99.6

1951 High 192.0 249.5 407.4

1952 Low 89.5 60.4 150.8

1955 Low/high 134.8/181.2 160.8/255.0 127.4/435.4

1957 Low 88.6 73.5 51.0

1958 Low/high 74.8/83.2 57.8/68.7 39.0/66.6

1959 Low/high 75.5/89.0 58.6/79.4 4722/62.1

1960 Low/high 79.6/85.7 65.9/77.2 40.8/75.4

1972 Low 65.8 85.4 57.6

1973 High 241.2 318.0 389.7

1977 Low/high 128.9/136.1 155.8/174.8 n.a.

1978 Low/high 133.1/149.9 175.7/211.9 n.a.

a/ July-December 1947 - 100 for 1950-1960 and July 1965-June = 100 for subsequent years.

b/ July-December 1947 = 100 for 1950-1960 and 1971 = 100 for subsequent years.

c/ Worldscale since 1969. Worldscale is a freight index designed to express tanker rates, irrespective of vessel size and route, in terms of the costing of a standard vessel, Worldscale 100. Worldscale has been used since 1969. Prior to that the index was based on the International Nominal Flat Scale (Intascale) and the U.K. Ministry of Transport (MOT) rates.

Source: Compiled on the basis of Norwegian Shipping News, various issues. - 102 - Table 6

Indicative Ship Prices 1970 - 1979 (end of year in million US dollars)

1977 as percent of 1970 1973 1974 1975 1976 1977 1978 1979 1973 or 1974 A. Contract Prices for New Buildings

5000 dwt. ro-ro vessel 5.3 9,9 14.6 16.2 10.0 10.0 12.0 14.0 68 30,000 dwt. bulk 8.7 12.0 16.5 13.5 11.0 11.0 12.0 15.5 67 30,000 dwt. prod. tanker 10.0 17.5 20.0 18.0 15.0 15.0 16.0 23.0 75 70,000 dwt. bulk 11.9 20.5 25.0 20.0 16.0 16.0 19.0 26.0 64 87,000 dwt. tanker 17.0 25.0 28.0 22.0 16.0 16.0 20.0 30.0 57 96,000 dwt. OBO 23.0 29.0 33.0 33.0 23,0 21.0 24.0 35.0 64 120,000 dwt. bulk 17.2 31.0 35.0 32.0 24.0 22.0 26.0 33.0 63 210,000 dwt. tanker 31.0 47.0 42.0 38.0 34.0 32.0 38.0 45.0 68 400,000 dwt. tanker .. 78.0 65.0 62.0 56.0 45.0 54.0 3 60.0 58 75,000 m LPG .. 45.0 52.0 52.0 42.0 40.0 45.0 60.0 3 77 125,000 m LNG .. 105.0 125.0 125.0 105.0 115.0 115.0 125.0 92 B. Average Second Hand Values

6600 dwt.cargo liner built 1958 1.0 1.1 1.5 1.3 1.2 0.7 0.5 0.8 47 12,500 dwt.cargo liner built 1956 1.5 1.5 2.2 1.7 1.4 0.7 0.5 0.8 32 16,000 dwt.cargo liner built 1963 3.0 3.4 4.5 4.0 3.8 2.1 1.5 2.0 47 18,000 dwt.bulk built 1963 2.8 4.5 4.8 3.5 3.0 1.5 1.8 . 31 20,000 dwt.tanker built 1959/60 3.3 4.0 2.7 1.3 1.0 0.8 1.0 4.0 20 25,000 dwt.bulk built 1966 4.8 6.5 7.2 6.0 5.3 2.8 3.5 5.6 39 25,000 dwt.tanker built 1958/59 4.0 5z0 3.0 1.4 1.2 1.0 1.5 . 20 35,000 dwt.bulk built 1965 6.0 8.0 9.0 6.5 5.5 2.9 3.9 5.8 32 35,000 dwt.tanker built 1958/59 6.0 7.5 3.5 1.6 1.5 1.2 1.8 5.2 16 50,000 dwt.bulk built 1967 9.0 11.5 13.0 7.0 6.5 3.1 4.4 8.5 24 50,000 dwt.tanker built 1963/64 10.0 13.0 7.0 2.7 3.5 2.0 2.6 6.5 15 60,000 bulk built 1972 11.0 17.0 17.0 10.5 9.5 6.2 809 14.5 36 60,000 dwt.tanker built 1964/65 12.0 16.0 8.0 3.5 4.0 2.4 2.9 7.2 15 80,000 dwt.tanker built 1966/67 19.0 25.0 9.5 4.8 5.0 3.5 3.5 8.5 14 200,000 dwt.tanker built 1969/70 40.0 52.0 23.0 10.0 9.0 5.0 4.8 11.0 10 350,000 dwt.tanker built 1975/76 ...... 28.0 16.0 22.0 44.0

Source: Compiled on the basis of Fearrley & Egers Chartering Co., Ltd., Review 1977 and 1979, Oslo. - 103 - Table 7

Comparison in trends of indicative ship prices and wholesale prices fbr other capital goods 1968-1977 (1970 - 100)

1968 1970 1972 1974 1975 1976 1977 A. Indicative New Ship Prices 30,000 dwt bulk 62 100 86 190 155 126 126 30,000 dwt prod. tanker 60 100 114 200 180 150 150 70,000 dwt bulk 73 100 126 210 168 134 134 96,000 dwt OBO 47 100 91 143 143 100 91 87,000 dwt tanker 55 100 88 164 129 94 94 120,000 dwt bulk 67 100 127 203 186 140 128 210,000 dwt tanker 54 100 100 135 122 110 103 B. United States Wholesale Prices

Iron and steel 89 100 112 155 175 187 200 Transportation equipment 96 100 109 120 135 144 154 Industrial commodities 93 100 107 140 156 165 177 C. Wholesale Prices for Selected Other Countries

Germany, F.R. - Producers' goods 100 100 108 130 137 142 145 Japan - Capital goods 98 100 101 139 143 144 147 United Kingdom - Building and civil engineering materLal 89 100 116 175 206 240 296

Source: Compiled on the bas:Ls of Fearnley and Egers Chartering Co. Ltd., Review 1977, U.S. Bureau of Labor Statistics, Handbook of Labor Statistics 1977, and United Nations, StatisticaL Yearbook 1975 and Monthly Bulletin of Statistics October 1978. - 104 - Table 8 Developing Countries a with Merchant Fleet Tonnage of 100,000 dwt and above

in 197QbI and 1978

Merchant Fleet Tonnage (in 000 dwt) Percent increase Countries or Territories 1978 1970 (deLcrease) India 9,238 3,781 144 Brazil 6,007 2,417 149 Korea, Republic of 4,681 1,291 263 Yugoslavia . 3,588 2,216 62 Bermuda 3,068 1,132 171 Argentina 2,803 1,621 73 China, Republic of 2,428 .- 1,695 43 Iraq 2,342 [23] 10,082 Iran 1,805 166 987 Philippines 1,778 1,296 37 Algeria 1,770 [36] 4,817 Indonesia 1,644 745 121 Hong Kong 1,234 997 24 Venezuela 1,081 524 106 Mexico 978 546 79 Malaysia 811 [44] 1,743 Peru 714 447 60 Chile 688 416 65 Egypt 591 267 121 Pakistan 584 762 (23) Israel 563 1,062 (47) Morocco 530 [69] 668 Thailand 505 101 400 Nigeria 504 135 273 Bangladesh * 394 W Lebanon 383 269 42 Colombia 345 296 17 Uruguay 275 210 31 Ecuador 274 [51] 384 Cayman Islands 246 [26] 846 Vietnam 225 [41] 449 Ghana 217 177 23 Ivory Coast 197 [27] 629 Tunisia 152 [28] 443 Gabon 143 1 1. 14,200 Honduras 141 [57] 147 Malta 134 [50] 168 Cameroon 126 [ 2] 6,200 Sri Lanka 126 [ 4] 3,050 Maldive Islands 119 [231 417 Bahamas 107 393 (73) Total 53,539 23,444 Percent of World Fleet 8.0 6.9 a/ Excluding the so-called "open registry"countries of Cyprus, Liberia, Pama and Singapore as well as the capital surplus oil exporting countries. As indicated in para.l the following additional countries are not classified as developing countries in this paper: Greece, Portugal, Spain and Turkey.

] For comparison purposes the tonnages of countries having more than 100,000 dwt in 1978 but less than 100,000 dwt in 1970 have been put in brackets [] but included in the total..

./ Estimated.

A/ Not listed separately.

Source: Compiled on the basis of Lloyd's Register of Shipping Statistical Tables, 1978 and 1970. - 105 -

Table 9

Approximate share of foreign trade of selected countries a/ carried by national flag vessels in recent years (based on tons carried)

Share of national flag vessels Country Total Exports imports Colombia 57 b/ 42k 60Ibr Israel 50 n.a. n.a. Finland 44 40 46 Japan 42 (70)-E/ 20 (35)c 44 (74)c Korea, Rep. of 42 27 47 Greece 39 45 36 Norway 39 41 31 India 38 24 55 United Kingdom 35 40 33 France 29 24 d/I 30 Od Canada 29 (0)4/ 21 (0)- 45 (0) Yugoslavia 27 34 26 Italy 25 22 25 Philippines 22 n.a. n.a. Argentina 21 n.a. n.a. Sweden 20 30 15 Pakistan 16 n.a. / n.a. c/ Peru 16 (26)-' 12 (14)- 23 (48)- Indonesia 15 c/ 9 43 Chile 15 (27)- 10 (18)- 27 (47)- Uruguay 15 n.a. b n.a. b Brazil 12 (51)- 8(17)- 16 (92)- Denmark 11 28 8 Venezuela 10 n.a. n.a. Ecuador 9 11 4 Bangladesh 7 7 6 Mala.ysia 6 n.a. n.a. Belgium 6 3 8 Egypt 5 e/ n.a. n.a. United States 5 6 5 Thailand 4 5 3 Netherlands 3 8 2 Australia 2 1 4 a/ Source (i) does not indicate year of data while the information from sources (ii), (iii) and (vii) refer to either 1976 or 1977 source (iii) to 1975 and source (iv) to 1976. b/ Including chartered vessels c/ The figures in brackets include tonnages carried by vessels on long-term charter to Japan or chartered by Brazil, Chile and Peru. d/ The share was less than 0.5 percent when excluding trade with the U.S. e/ 31 percent for liners, 4 percent for tankers and 2 percent for dry bulk. Source: Compiled on the basis of: (i) U.S. Department of Commerce, Maritime Administration, Maritime Subsidies, Table 1, October 1976. (ii) OECD, Maritime Transport 1978 and referring to 1977. (iii) ESCAP, Review of Developments in Shipping, Ports and Inland Waterways, (E/ESCAP/STC.2/30), Annex 7 and covering Japan, Korea, India. Indonesia, Bangladesh, Thailand and Australia. (iv) Institute of Shipping Economics (Bremen), Shipping Statistics Yearbook 1977, and covering France and Germany. tv) U.S. Department of Commerce, Maritime Administration, MARAD '77, Table 13 covering the United States. (vi) U.K. Department of Industry, Trade and Prices and Consumer Protection, General Trends in Shipping, November 1978 and referring to 1977. (vii) CEPAL, International Maritime Transport in South America (E/CEPAL/R.213/ Rev.l), December 1979. FINANCIAL DATA ON KOREAN OCEAN-GOING SIIIPPING INDUSTRY. 1970-78 (In million Won and %)

1970 1971 1972 1973 1974 1975 1976 1977 1978 Total 1970-78

Total revenues 19,408 26,241 35,617 73,552 133,752 157,951 221,903 282,715 350,985 1302,124

Vessel operating expenses, administration & misc. expenses 12,682 18,023 26,137 49,763 92,281 109,162 161,623 212,694 281,277 963,6)42

Net Working Surplus 6,726 8,218 9,480 23,789 41,471 48,789 60,280 70,021 69,708 338,482

Depreciation 4,173 4,232 5,190 12,117 22,064 29,063 40,573 43,857 42,638 203,907

Net Operating Surplus Before Interest 2,553 3,986 4,290 11,672 19,407 19,726 19,707 26,164 27,070 134,575

Interest 2,140 2,784 3,791 5,460 8,058 12,077 17,242 23,052 35,311 109,915

Net Income 413 1,202 499 6,212 11,349 7,649 2,465 3,112 (8,241) 24,660

Average equity / n.a 6,562 8,14o 16,095 38,478 57,113 69,682 82,367 87,o96 45,692

Average net fixed assets / n.a 58,783 56,525 84,445 177,633 257,5412 328,242 422,748 516,513 237,80i 1

Net income as % of equity n.a 18.3 6.1 38.6 29.5 - 13.4 3.5 3.8 (9.5) 6.6 0 Net operating surplus before interest as % of fixed assets n.a 6.8 7.6 13.8 10.9 7.7 6.o 6.2 5.2 6.9 Net working surplus as 5 of fixed assets n.a 14.0 16.8 28.2 23.3 18.9 18.4 16.6 13.5 17.4

Debt/equity ratio 91/9 89/11 88/12 84/16 82/18 82/18 83/17 85/15 88/12 85/15

Working ratio 65, 69 73 68 69 69 73 75 80 74

Operating ratio 87 85 88 84 85 88 91 91 92 90

/ Average at end of current and preceding year values. KSA in calculating net income as percent of equity,used end of current year values.

g Average for 1971 and 1978.

4 Average annual net income 1971-78 as percent of average equity.

/ Average operating surplus or vorking surplus as percent of average net fixed assets 1971-78.

Source: Compiled on the basis of data made available by Korea Shipowners Association. Relative profitability of shipping versus other industries in selected countries and periods

Period Country/industry covered Type of return indicated Average % return

United Economist - shipping sample 1950-1969) Net income before taxes as 6.2 Kingdom: Economist - all cos. sample 1950-1969) % of capital employed 15.0

India: Public ltd. cos. - shipping 1970/71-1975/76) Gross profit as % of total 8.1 Public ltd. cos. - sample of 1,650 cos " ) capital employed 11.1 Public ltd. cos. - shipping 1970/71-1975/76) Profit after tax as % of net 18.3 Public ltd. cos. - sample of 1,650 cos. " ) worth 10.9

Germany, Hapag-Lloyd AG - shipping 1976 Return on capital employed 5.3 F.R.: Hansa - shipping 1976 " o I' 2.8 Ruhrkohle AG 1976 " " 1.2 Preussen-Elektra 1976 " " 5.0 Schering 1976 " " 10.5 Hoechst 1976 " " 13.0 Daimler-B. 1976 " " 24.0

France C.G.T. - shipping 1976 Return on net worth (2.3) Hachette 1976 " " " " 0.5 Moet Hennessy 1976 " " " 2.2 Michelin 1976 " H ' ' 6.5 Peugeot 1976 " " " " 7.5 BIC 1976 " " " " 16.1 Skis Rossignol 1976 " " " 23.0

Belgium Compagnie Maritime Belge - shipping 1976 Return on equity 4.5 Metallurgie Hoboken 1976 " " 4.9 CBR 1976 " I 6.9 Gevaert 1976 " " 9.3 Bekaert 1976 " " 10.1 EBES 1976 " " 12.4 Petrofina 1976 " " 15.3

H Source: Compiled on the basis of the United Kingdom: Rochdale Report op. cit.' India: Economic Situation of India (2008-IN) Table 8.8. Germany, F.R.: Maritime Policy and Management, Vol. 5, No. 3, July 1978, p. 257. France: Maritime Policy and Management, Vol. 5, No. 3, July 1978, p. 257. Belgium: Maritime Policy and Management, Vol. 5, No. 3, July 1978, p. 258. Capital employed or equity as at end of year, not mid-year, - 108 -

Table 12

UNITED STATES: Profitability measures in shipping and other industries

A. Net profits as percent of net worth 1968

Subsidized shipping lines 3.4 Non-subsidized shipping lines 24.6 Airline A 2.8 Airline B (7.3) Airline C 2.4 Trucking A 9.3 Trucking B 13.1 Farm machinery manufacturers 8.5 Commercial machines and 7.4 equipment wholesaling Motor vehicle retailing 9.2 Electrical component and manufacturers 10.3 Electrical contracting 13.3 Airplane parts manufacturing 13.8

B. Return on total invested capital 1955-1962 for 50 industry groups (percent)

1. Drugs 19 2. Metals and metals fabricating 19 3. Confectionery 16 4. Radio-TV Broadcasters 16 5. Soft Drinks 15

46. Synthetic Textiles & Textile Weavers 6 47. Air Transport 5 48. Home Furnishing 5 49. Motion Pictures 5 50. Shipping - Committee of American Steamship Lines Companies 5

Composite Average for 50 industry groups 10

Source: A- Ernst G. Frankel and Henry S. Marcus, Ocean Transportation MIT Press, pp. 506-510. B- Financial and Economic Data on the American Merchant Marine and the Shipping Fleets of other Nations, Committee of American Steamship Lines. - 109 -

Table 13: ANNUAL RETURN ON EQUITY OF CLIENTS OF A KOREAN FINANCIAL INSTITUTION 1976 AND 1977

Number of Annual return on equity Industry Companies 1976 1977

Marine Transport 16 0.2 1/ (12.5) 1/

Fisheries 17 (27.8) 32.8

Cement and Ceramics 5 9.4 7.5

Chemical, rubber and plastics 13 13.4 14.0

Transportation equipment n.a. 13.1 14.3

Financing 2 11.7 16.0

Industrial machinery 3 15.3 13.4

Metal products 17 12.8 22.5

Mining and quarrying 4 18.4 19.7

Pe-er and paper products 5 28.1 10.6

Food and beverages 11 19.4 19.8

Textiles, wearing apparel and leather 24 26.0 13.2

Electronics 7 27.5 19.2

Others 15 11.3 36.1

Total 10.6 14.3

1/ It should be recalled that 1976 and 1977 were years of depressed market conditions in ocean-going shipping. Relative Profitability of Selected Firms in Selected Indian Industries 1965/66 - 1976/77

1965/ 1966/ 1967/ 1968/ 1969/ 1970/ 1971/ 1972/ 1973/ 1974/ 1975/ 1976/ 66 Simple 67 68 69 70 71 72 73 74 75 76 77 Averame Profitability Measure and Industry (a) Net Operating Surplus j¶efore interest) as percent of Net Fixedl Assets -

Agriculture and allied activities 20.8 23.4 23.8 16.3 19.9 26.3 24.2 21.1 24.7 49.9 39.8 n.a. 26.4 Mining and quarrying 13.0 12.6 19.7 19.5 20.6 15.2 0.7 13.5 7.5 36.7 26.7 n.a. Processing and manufacturing--foodstuffs, textiles, 16.9 tobacco, leather and products 21.9 24.0 20.7 22.0 25.5 26.7 27.6 32.2 40.4 36.7 19.7 26.0 27.0 Processing and manufacturing--metals, chemicals and products 29.3 24.6 20.7 19.8 23.8 27:3 29.6 28.3 30.7 40.7 37.7 42.8 29.6 Processing and manufacturing--others 18.8 21.1 19.7 19.7 23.5 25.0 24.8 20.9 20.4 32.2 30.4 18.1 22.9 Othet industries 20.6 18.6 17.2 17.7 17.4 16.7 16.6 15.8 16.7 22.7 17.4 9.1 17.2 of which shipping 6.2 5.9 8.7 11.2 10.6 11.0 9.4 7.7 11.2 17.6 10.5 6.3 9.73/ Combined 23.7 22.7 20.2 20.0 23.3 25.5 26.6 26.3 29.3 35.8 28.6 29.0 25.9 (b) Net Income before Tax as percent of Equity (including Reserves) -i

Agriculture and allied activities 14.7 16.6 17.5 11.1 14.1 19.9 18.3 16.3 17.6 35.9 29.0 n.a. 19.2 Mining and quarrying 10.5 10.4 19.6 18.7 19.9 10.7 (4.0) 8.3 6.8 36.0 33.6 n.a. 15.5 Processing and manufacturing--foodstuffs, textiles, tobjecco, leather and products 13.7 F 15.7 12.2 13.6 16.6 17.0 15.4 20.4 28.1 24.8 7.7 12.1 16.4 Processing and manufacturing--metals, chemicals and prodticts 23.0 20.0 15.1 13.5 17.5 21.4 22.2 20.6 22.1 27.8 24.5 28.2 21.3 Processing and manufacturing--others 14.4 16.8 15.3 15.7 18.7 20.6 19.5 16.1 15.7 25.4 22.7 15.2 18.0 Other industries 16.8 15.3 13.1 12.9 12.5 14.3 14.8 15.4 17.3 25.3 21.3 14.3 16.1 of htich shipping 5.7 5.9 10.0 12.8 11.8 13.6 13.9 14.0 19.9 31.3 22.9 9.2 14.3 - Combined 17.8 17.5 14.4 13.9 16.9 19.4 19.2 19.2 22.1 26.7 20.0 22.3 19.1

Agriculture and allied activities 6.5 8.1 7.8 4.8 5.1 9.6 8.2 6.9 8.7 15.4 12.6 n.a 8.5 Mining and quarrying 8.3 8.1 16.9 12.1 11.0 5.9 (7.4) 4.9 4.3 14.8 13.6 n.a. Processing and manufacturing--foodstuffs, textiles, 8.5 tobacco, leather and products 6.1 7.2 4.9 6.3 8.8 8.8 7.6 11.0 16.4 12.5 (0.8) 3.2 7.7 Processing and manufacturing--metals, cIsemicals and products 11.7 10.8 7.7 6.4 9.6 12.6 12.2 10.8 11.0 13.8 10.9 13.6 10.9 Procesuing and manufacturing--others 7.4 9.5 8.0 8.9 12.0 13.0 11.8 9.4 8.1 12.8 10.1 7.0 9.8 Other industries 9.0 7.7 7.6 8.0 8.3 9.0 8.8 8.7 10.4 16.7 13.0 9.1 9.7 of which shipping 4.4 5.4 9.4 10.8 11.3 12.5 12.8 12.7 18.6 29.6 18.3 6.8 12.7 - Combined 8.9 9.1 7.3 7.0 9.5 11.2 10.5 10.3 11.9 13.7 8.2 10.5 9.8 H

Source: Compiled on tl,ebasis of data given in Reserve Bank.of India Bulletin, various editions r 1/ Net fixed assets .nd equity are end of year figures rather tihanaverage for year. 2/ The sample for 1976/77 is more limited thianthat of previous years both wib regard to tilenisnber of firms and sub-industries in each industry. 3/ lhe weighted average is 10.0, 16.5 and 14.6 percent. Relative Profitability of Selected Major indu:strial and Conmercial Undertakings of India's Central Government--1969/70-1977/78 A. Net operating surplus (gross profit before interest) as percant of net fixed assets .- 1969/ 1970/ 1971T1972/1T973el974 1975 1976 1977/ Wleighted Selected Companies 70 71 72 73 74 75 76 77 78 Average

Air India 16.5 10.6 2.0 5.1 6.2 (2.5) 9.9 20.5 25.2 10.7 Eharat Aluminuim Co. Ltd. n.a. n.a. n.a. n.a (7.1) (15.0) 1.8 0.9 0.7 (2.4) Bharat Coking Coal Ltd. ni.a. r.a n.a (6.6) (90.1) (191.8) (16.5) (14.8) (23.2) (28.1) Brharat Ueavy Electricals Ltd. 6.6 6.3 8.0 15.8 24.8 45.9 55.1 48.9 38.3 :31.0 Bolaro Steel Ltd. n.a. n.a n.a. (2.7) (3.5) (2.8) (3.4) 0.6 (0.9) (1.6) Cerntral Coalfields Ltd. n.a n.a n.a. n.a n.a. n.a n.a. 7.7 4.5 5.8 Coal India Ltd. n.a. n.a. n.a. n.a. (39.3) (41.1) (1.1) . (2.5) (3.6) (9.7) Daz:odar Valley Corp. 3.5 3.7 4.7 4.6 2.0 3.7 9.8 15.7 15.3 7.3 aast.ern Coalfields Ltd. n.a. n.a, n.a. n.a. n.a. n.a. n.a. (18.1) (28.4) (24.1) Fertilizer Corporation of India 6.4 5.3 5.3 4.0 1.4 1.5 (14.1) (8.2) (19.7) (5.3) Food Corporation of India 53.3 38.4 60.8 51.1 43.0 40.6 90.4 215.3 239.9 108.8 h.eavv Engineering Corp. Ltd. (7.8) (5.8) (5.1) (5.9) 1.7 5.9 9.4 11.4 (14.5) (1.2) Ilindustan Aeronautics 8.3 10.3 10.6 6.6 10.9 10.2 11.2 10.9 11.1 10.1 I Hindustan Copper Ltd. n.a. n.a. n.a. 1.7 2.0 2.8 6.5 11.2 (18.0) 3.3 ' Hlindustan Shipyard Ltd. 5.7 8.3 7.7 9.9 8.6. 8.3 26.9 18.8 22.6 15.6 i Hir.dustan Steel I.d. 2.6 3.5 (3.2) (0.1) 5.8 14.5 15.6 22.5 15.3 7.6 Indian Airlines 10.3 (3.3) (1.8) 9.3 9.1 8.2 17.6 19.0 15.7 11.7 lndizan Iron and Steel Co. Ltd. n.a. n.n. in;a. n.a. n.a. n.a. 5.0 9.4 12.4 9.6 Indian Oil Corporation Ltd. 19. 18.2 29.2 39.1 27.3 37.5 34.7 58.8 58.0 36.5 lndian Petrochemnicals Corp. n.a. ni.a. n.a. n.a. (6.3) 32.3 55.4 47.6 3.2 17.1 National Mineral Development Corp. 3.1 (7.4) (9.6) 1.9 8.5 6.8 5.5 0.2 (4.6) ().0 National Textile Corp. Ltd. (100.0) 1.61.8 702.0 769.1 569.3 Neyveli. Lignite Corp. Ltd. 0.7 (3.9) (5.2) (3.3) (.8) (6.0) 0.7 9.9 6,5 0.5 Oil and natural Gas Commission 16.3 14.2 14.3 8.1 19.0 51.7 26.8 14,9 21.4 20.0 Rural Electrification Corp. f'V AV A- f'...1 Steel Authority of India Ltd. n.a. . n.a. n.a. - 68.8 808.3 Shipping Corporation of India Ltd. 9.2 10.7 10.3 7.7 9.2 13.7 5.9 5,3 2,2 6.8

Combined 6.3 5.7 5.3 7.0 'i.7 11.5 11.9 18.0 13,8 11.1 Source: Compiled on the basis of Annual Report on the Workirg of Indil.sLrial and Commercia.l Undertakings of the Central Government, various editions, Bureau of Puulic Enterprises, Ml.ni:try of Finance, New Delhi. . .

Notes: r indicates figures in excess of 1.000 percent. . 1/ At the end of year, rathler thian average for yenr. Relative ProfitabilityLof Selected Major Indu-strial. and Commercial Undertakings of India's Central Government-1977/78

B. Niet ope:atinL surplul s (rsos5 profit before interest) as percent ofr cap ta eplvoyed-t-

1969/ 1970/ 1971/ 197:2/ 1973/ 1974/ 1975/ 1976/ 1977/ Weighted Selected Companies 70 -7 72 73- 74 75 76 77 78 Avc.rage Air India 8.1 5.5 1.4 3.9 4 ° (1.9) 7.9 14.5 16.6 7.6 Bharat Aluminum Co. Ltd. n.a. n.a. n.a. 11.n. (3.7) k7.8) 1.2 0.6 o.5 (1.6) Eharat Coking Coal Ltd. n.a. n.a. n.a. (2.5) (39.3) (65.7) (8.9) (8.4) (16.7) (16.2) Bharat Heavy Electricals Ltd. 5.0 4.9 5.7 9.8 12.0 16.2 17.7 22.8 19.5 15.1 Bokaro Steel Ltd. n.a. n.a. n.a. (1.6) (2.5) (2.0) (2.4) 0.4 (0.7) (1.2) Central Coalfields Ltd. n.a. n.a. n.a. n.a. n.a. n.n. n.a. 5.0 3.2 4.2 Coal India Ltd. n.a. n.a. n.a. n.a. (34.1) (24.8) (0.7) (6.7) (2.9) (6.8) Danodar Valley Corp. 3.2 3.3 4.1 4.0 1.8 3.3 9.1 15.1 14.2 6.6 Eastern Coalfields Ltd. n.a. n.a. n.a. n.a. n.a. n.a. n.a. (15.9) (24.5) (21.0) Fertilizer Corporation of India 40.8 3.0 3.1 3.3 1.2 1.3 (11.0) (6.7) (16:6) (4.5) Food Corporation of I 1idia 7.5 4.8 6.2 7.8 6.5 6.0 4.9 9.5 12.4 8.4 Heavy Enoineering Corp. Ltd. (6.8) (4.9) (4.3) (4.8) 1.3 4.1 6.0 6.7 (9.3) (0-9) llndustan Aeronautics 3.9 5.0 5.2 4.6 7.6 6.8 5.7 7.4 7.0 5.9 hinioustan Copper Ltd. n.a. n.a. n.a. 1.1 1.4 2.9 4.1 7.0 (13.8) 2.2 H Hindustan Slhipyard Ltd. 2.7 3.6 4.6 5.9 4.7 5.5 12.4 9.8 10.0 7.8 Hindustan Steel Ltd. H 2.1 2.7 (2.4) (0.1) 4.0 8.7 8.5 11.3 8.7 5.0 Indian Airl'nes 7.2 (2.5) (1.4) -6.7 5.9 6.3 13.5 14.2 11.9 8.7 IndIan Iron and Steel Co. Ltd. n.a. n.a. n.a. ni.a. n.a. n.a. 3.0 5.3 8.2 5.9 Indian Oil Corporation Ltd. 15.7 14.8 22.6 33.5 19.6 25.8 29.4 55.2 60.6 30.8 Indian Petrochemicals Corp. n.a. n.a. n.a. n.a. (4.3) 16.5 22.9 16.7 2.2 9.5 National Mineral Developmeent Corp. 2.3 (5.5) (6.8) 1.5 5.3 4.5 3.2 0.2 (3.7) (0.4) National Textile Corp. Ltd. (0.3) 4.8 4.5 5.8 6.5 5.0 3.0 6.8 6.3 5.4 Neyveli Lignite Corp. Ltd. 0.6 (3.6) (4.8) (3.0) (4.2) (5.0) 1.0 15.3 10.1 0.5 Oil and Natural Gas Commission 7.3 7.8 8.6 6.3 14.1 31.7 17.0 11.6 17.0 13.8 Rural Electrification Corp. 0.5 1.6 2.2 3.1 3.8 3.5 4.2 4.5 4.4 4.0 Steel Authority of India Ltd. n.a. n.a. n.a. --- 0.1 0.7 0.6 1.2 1.9 1.2 Shipping Corporation of India Ltd. 8.3 9.8 9.0 7.0 8.8 12.7 5.6 5.3 2.2 6.6 Combined 4.5 3.7 3.2 4.4 4.6 6.2 5.5 8.3 6.8 5.9 Source: Compiled on the basis of AEnnual Report on the Working of Industrial and Commercial Undertakings of Lihe Central Government, various editions, Bureau of Public Enteiprises, Minis'try of Finance, New Delhi. . otes. 1/ At the end of year, rather than average for yeair. Relative Profitability of Selected Major Indut:rial and Commerical UndertakiIgs of India's Central Government--1977/78 C. Net income (before tax) as percent of net worth!.'

1969/ 1970/ 1971J/ 1972/ 1973/ 1974/ 1975/ 1976/ 1977/ Weighted Selected Companies 70 71 72 73 74 75 76 71 78

A.ir India 14.4 12.2 3.9 (1.9) 0.6 (18.3) 11.4 25.0 24.4 9.1 Bharat Altuminum Co. Ltd. n.a. n.a. n.a. n.a. (6.4) (8.1) (6.1) (4.6) (3.5) (5.5) Bharat CoUkng Coal Ltd. n.a. n.a. n.a, 2/ 2/ 2/ (122.9) (69.1) (127.4) (100.8) Eharat Heavy Electricals Ltd. (3.9) 1.6 5.2 22.1 28.2 34.9 34.8 32.0 26.7 26.3 Bo'karo Steel Ltd. n.a. n.a. n.a. (0.9) (1.8) (2.1) (3.1) 0.3 (1.1) (1.4) Cer, tral Coalfields Ltd. n.a. n.a. n.a. n.a. n.a. n.a. n.a. .1.0 (2.7) (0.8) Coal India Ltd. n.a. n.a. n.a. n.a. (8.2) (21.7) (12.4) (0.3) (0.3) (5.8) Damodar Valley Corp. (1.1) (1.1) (0.5) (0.8) (3.1) (1.7) 3.9 8.6 6.1 1.2 Eastern Coalfields Ltd. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 2/ 2/ --- wertilizer Corporation of India 2.2 1.3 1.3 0.1 (0.4) (0.2) (4.6) (5.7) (29.6) (4.5) Food Corporation of India 5.0 2.5 2.5 0.8 1.2 1.1 1.4 1.0 1.0 1.5 Heavy Engineering Corp. Ltd. (56.3) (111.1) (24.2)(35.9) (17.9) . (11.7) 5.3 7.5 (211.6) 31.3 Ilindustan Aeronautics 5.. 7.5 7.0 5.5 11.1 9.3 10.5 9.8 9.7 8.7 Hind,istaa Copper Ltd. n.a. n.a. n.a. 0.6 1.1 2.7 (2.8) 2.1 (45.1) (5.4) Hin^ustan Shlipyard Ltd. 2.4 4.4 6.2 5.8 3.8 1.5 13.3 11.6 14.2 8.7 Hindvstan Steel Ltd. (2.9) (1.2) (12.4' (7.8) 1.3 10.5 7.9 10.8 5.1 3.0 In2lian Airlines 7.5 (26.2) (39.3% 0:.1 (7.0) 6.9 34.8 47.6 24.8 1.5.8 Indian Iron and Steel Co. Ltd. n.a. n.a. n.a. n.a. n.a. n.a. --- 0.1 (3.2) (0.?) Indian Oil Corporation Ltd. 20.4 16.8 23.7 29.8 18.0 26.6 23.8 39.0 31.9 27.6 Indian Petrochemicals Corp. n.a. n.a. Ii.a. n.a. (6.1) 8.6 8.3 6.0 1.1 4.0 liational Mineral Development Corp. (1.)) (7.6) (7.3) (1.9) 2.2 1.7 0.9 (2.2) (15.9) (4.0) .ational Textile Corp. Ltd. (2.6) 10.3 5.5 6.8 6.4 2.3 O.? 1.7 0.9 1.8 Neyveli Lignice Corp. Ltd. (7.7) (24.0) (41. )(0.9 ) (28.9) (18.9) (5.6) -3,r5 6.0 (7.5) Oil and Natural Gas Conm-ission 7.5 5.5 6.4 3.2, 11.5 29.8 3.7.0 12.1 14.0 12.1 Rural Electrification Corp. 0.5 1'6 2.4 3.1 3.3 3.9 2.0 5.1 2.3 2.7 Steel Authority of India ltd. n.a. n.a. n.a. - - 0.1 --- Shipping Corporation of India Ltd. 13.2 17.4 13.5 11.5 1'.5 28.5 3.0 3.3 (12.3) 10.0

Corabined 1.1 0.6 (0.9) 0.7 1.3 .3 3.0 4.7 1.3 2.2

Source: Compiled on the basis of Annual Report on Lhe WorkinLiol rduatril. antil Commercial Ulndertakings of the Central H Government, various editions, Bureau of Public Enterprises, MLnistry of Finance, New Delhi.

Notes: 1/ At the end of year, rather than average for year. 2/ Negative equity. - 114 - Page 1 of 2 Table 16

Selected Information on Profitability of Shipping Companies

Net working Net working Net operating Net income befora Period surplus as Z surplus as Z surplus as Z taxes as % of net Country Company of fixed assets of net fixed of net fixed worth Lor capital at acquisition assets assets mi.oved/ value

Unitad Rochdale Commission Sample. 1958-1969 6.2 11.2 4.4 /3.6/ Kingdom Econouist:Shipping Companies Sample 1950-1969 n.a. n;a. n.a. /6.2/ Economist:Shipping Companies Sample 1950-1957 n.a n.a. n.a. /10.3/ Economist:Shipping Companies Sepl% 1958-1969 n.a. n.a. n.a. /3.5/ United Subsidized shipping States companies 1970-1976 n.a. 12.0 7.5 5.6 Unsubsidized dry cargo shipping companies 1970-1976 n.&. 17.3 9.9 6.3 Unsubsidized tanker shipping companies 1970-1976 n.&. 18.1 12.1 13.7 Combined 1970-1976 n.a. 14.0 8.8 6.8 Combined 1976 n.a. 19.9 14.0 13.7 Norway Ship owning joint stock companies 1945-1965 n.a. n.a. 7.5 Ship owning joint stock companies 1945-1957 n.a. n.a. 10.2 Ship owning joint stock companies 1958-1965 n.a. n.a. 3.2 International shipping 1970-1974 11.1 n.a. n.a. n.a' International shipping 1975-1976 5.6 n.e. n.a. (23.5) India Aggregate of 10 large companies 1970/71-1972/73 10.5 14.3 8.2 13.0 Aggregate of 13 companies 1974/75 n.a. n.a. n.a. 30.7 " " 1975/76 n.e. n.a. a.a. 11.5 SCI 1967/68-1976/77 n.e. n.a. n.e. 12.9

Sri Lanka Ceylon Shipping Corp. 1975-1976 38.9 48.3 39.2 35.2

Chile Empresa Maritima del Estado 1975 12.1 15.5 10.3 11.0 Empresa Maritima del Estado 1976 5.1 6.3 1.2 1.2

Bangladesh Bangladesh Shipping Corp. 1971/72-1975/76 10.5 11.9 5.1 12.1 " " " 1976/77 3.0 2.6 (2.9) (21.1)

Morocco COMANAV 1969/70-1971/72 21.3 68.9 35.6 10.6 COMANAV 1975/76-1976/77 6.6 10.4 4.7 (1.3)

Germany Hapag Lloyd AG 1970-1976 n.a. n.a. n.a. /359 (F.R.)

Sources: Compiled on the basis of various sources. Value of fixed assets or net worth as at end of year, not mid year: - 115 - Page 2 of 2 Table 16 Selected Information on Profitability of Shipping Companies- Average Profitability of a Sample of Shipping Lines in 1975 and 1976 (in percent)

Net Working Net Operat ng Net Income Before Tax as Percen SurplusA/ Profit of Equity as Percent of as Percent of I Book Value Book Value as Derivedo/ as Reported_/ Lloyd Triestino, Italy 62.0 48.8 220b8 (7.3) Mistui O.L.K. Line, Japan 47.6 32.6 41.6 Norske Amerika-Lijne, 6.5 Norway 39.0 17.1 51.6 5.1 Nippon Yusen Kaisha, Japan 35.2 19.7 12.2 4.8 Kawasaki Kisen Kaisha, Japan 31.9 21.5 26.4 .1 Yansahita Shinnihon Steamship, Japan 31.6 21.4 31.5 5.6 Societe Navale Delmas-Vieljeux, France 30.9 (2.1) (14.3) 8.3 D.F.D.S., Denmark 28.6 21.0 22.4 17.5 K.N.S.M.Group, the Netherlands 28.5 12.6 11.4 7.0 Cie. Auxiliaire de Navigation, France 27.2 6.9 .5 1.6 Showa Line, Japan 25.5 14.9 21.2 4.0 Japan Line, Japan 20.5 5.3 (2.1) 4.3 Ocean Transport and Trading, U.K. 19.3 9.8 2.1 13.0 Nedlloyd Group (N.S.U.), the Notherlands 19.1 7.4 6.6 8.6 Sanko Steamship, Japan 18.7 8.4 (1.2) 4.0 Overseas Shipholding Group, U.S.A. 18.4 13.0 20.4 23.9 Holland-Amerika-Lijn Holding, the Netherlands 16.0 1.5 .2 9.6 Italia di Navigazione, Italy 15.7 8.9 (176.4) (18.5) American President Line, U.S.A. 13.0 2.8 (2.7) 5.9 Brostrom Group, Sweden 8.1 (.9) (11.2) (.7) Cie. des Mess. Maritines, France 7.2 (.2) (9.9) (7.5) Cie. Maritime des Chargeurs Reunis, France 6.9 (22.2) (21.3) (6.5) Stockholms Rederi AB., SVEA, Sweden 5.5 2.1 (11.0) (5.2) Cie. Generale Transatl, France 3.5 (7.7) (15.3) (9.6) American Export Lines, U.S.A. .5 (6.9) (12.7) (1.7) Cie. Generale Maritime (7.4) (20.1) (38.9) (25.6) Societe Navale Caennaise (26.5) (42.6) (153.6) (46.5) Combined 23.0 11.2 5.8 5.1 a/ Operating revenues less operating costs, less personnel costs. b/ Net working surplus less depreciation. c/ Net operating profit less interests. d/ Net profit/loss plus allowance for taxes.

Note: It is assued that the differences between net income before tax as derived under methods c and d are due to the inclusions of net non-operating profits or losses in the latter.

Source: Compiled on the basis of sumary profit and loss data as well as balance data for some 41 major shipping lines obtained from Instituts fur Bilanaanalysen, Frankfurt, Germany. Companies for which a breakdown of costs was not available have been omitted for this comparison. - 116 - Table 17

Distribution of working surplus as percent of vessel acquisition costs for selected Norwegian ships 1974

Return before depre- Tramp Com- ciation and interest under bined costs % Liners 15,000 dwt Bulk Carriers Tankers Total

45-50 1 1 2 -- 1 5 40-45 1 - 3 4 35-40 3 7 3 -- -- 13 30-35 3 7 11 1 9 31 25-30 6 6 20 -- 10 42 20-25 15 6 35. 4 16 76 15-20 20 10 37 6 20 93 10-15 24 7 19 9 20 79 5-10 21 5 27 5 16 74 0-5 11 7 16 1 25 60 (5)-0 9 2 5 2 11 29 (10)-(5) 3 2 -- -- 4 9 (15)-(10) 3 ------2 5

Number of vessels 120 60 175 28 137 520

Unweighted average 1974 12,3 18,3 16,5 13,3 12,4 14,5 i" 1973 5,7 10,6 10,3 19,5 14,0 11,9 " " 1972 7,0 4,7 7,5 19,5 13,7 10,2 " " 1971 2,5 3,3 11,5 24,9 12,7 11,1 "i " 1970 5,0 10,9 17,6 -- 13,8 13,5

Source: Norwegian Shipowners Association as reported in St. Meld. Nr. 23 (1975-76), p. 101 Relative profitability of other developing country's shipping lines-

4orking or Gross opera- Net income (before-/ ting surplus as X of net Cash flow as or after b/ tax) as Revenues as 'Dof Company Year fixed assets 7 of revenues 'Dof net worth net fixed assets

Brazil Companhia de Navogacao 1976 19.7 n.a. 13.5 b/ 120.1 Lloyd Brasileiro Brazil Docenave 1976 19.2 16.5 16.5 a/ 0.9 b/ 116.0 India South India Shipping Corp. 1975/76 14.6 18.7 8.1 b/ 63.6 Kuwait Kuwait Shipping Co. 1975 17.9 83.3 13.5 / 21.5 lislaysia Halaysia International Shipping Corp.1975 7.0 n.a. 39.0 a/ n.a. Pakistan National Shipping Corp. 1975/76 44.4 n.a. 9.1 b/ n.a.

Thailand Thai Haritime Navigation Co. Ltd. 1974/75 5.5 3.4 9.4 b/ 161.6 Zaire Compagnie tiaritime Zairoise 1974 18.7 .55.1 3.8 b/ 24.9

1/ Excluding companies already covered in preceding tables. Net fixed assets 'nd net worth as of end of year, not mid year.

Source: Compiled on the basis of information reported in Fairplay World Shipping Year Book 1978. - 118 - Table 19

Laid up tonnage 1966-1979

Laid up tonnage ('000 dwt) Laid up tonnage as a! End of year 1966-1978 Tankers Dry Cargo Total percent of world tonnag

1966 440 640 1,080 0.5 1967 280 830 1,110 0.5 1968 230 480 710 0.3 1969 1-60 340 500 0.2 1970 210 390 600 0.2 1971 1,240 3,050 4,290 1.2 1972 1,450 1,640 3,090 0.8 1973 360 520 880 0.2 1974 2,250 440 2,690 0.5 1975 41,300 7,410 48,710 9.0 1976 31,000 5,330 36,330 6.1 1977 29,300 11,700 41,000 6.6 1978 24,000 8,000 32,000 5.1 1979 (May) 19,100 5,200 24 ,300 4.0 1979 7,700 2,600 10,300 1.6

a/ Laid up tonnage at the end of year as percent of world fleet as of January 1 of the following year.

Source: Compiled on the basis of Fearnley and Egers Chartering Co. Ltd. Review 1978 and 1979 and Lloyd's List, July 13, 1979. Indicative composition of costs for selected ship tvpes under United Kingdom falag /976t (in percent)

Year Adminis- Repairs & FuelS & Capital Total daily cosb- Vessel type Size (dwt.) of build Crew tration maintenance Insurance lubricant costs c/ Total in US$

Liner 3,751 1968 26 3 7 5 26 33 100 3,985 Liner 12,100 1971 19 2 7 5 32 35 100 6,395 Liner 20,000 1977 13 1 8 6 31 41 100 9,439 Container 4,580 n.a. 20 2 8 4 27 39 100 6,008 Container 25,045 n.a. 5 - 9 5 39 42 100- 28,502 Twindecker 7,580 1968 24 1 7 3 28 37 100 3,427 Reefer 2,676 1968 24 ~ 2 7 4 30 33 100 4,510 Reefer 12,782 1968 12 1 6 4 40 37 100 10,973 Bulk 13,500 1968 18 1 7 3 36 35 100 5,296 Bulk 24,115 1968 13 1 8 3 37 38 100 Bulk 62,356 7,231 1968 10 1 8 5 36 40 Product carrier 100 12,313 1 3,245 1970 28 1 7 3 25 Product 36 100 3,172 H carrier 25,244 1973 13 1 9 6 26 45 100 8,746 H Tanker 34,812 1968 14 1 7 4 38 36 100 8,344 Tanker 70,191 1968 10 1 8 5 37 39 ioo 12,047 Tanker 240,231 n.a. 6 1 1 8 10 34 41 100 29,063 OBJ 68,400 1967 10 1 8 6 34 41 100 12,216 LNG 65,661 n.a. 2 - 13 11 21 53 100 61,513

Source: Compiled on the basis of data provided by MICRO. a/ Excluding port costs (including atevedoring costa)u.kLh vary widely from port to port and vessel type to vessel type. Aa an order of nagnitude port charges for liner vessels may account for about 5 percent of liner freight rates and cargo handling costs for 25 percent. b/ Assuming a 50:50 sea/port time for liners, twindeckers and reefers and 67:33 for container vessels, bulk carriers and tankers. 0 cl Based on estimated construction cost, not price or market value, with 10-year straight line depreciation without interest as used by source. Alternatively this would correspond to 20-years straight line depreciation with 8 percent interest and nominal scrap value. Indicative differences in daily ve ssel costs 1976 (in Swedish crowns)

15,000 dwt. liner vessel 20,000 dwt. bulk carriers 250,000 dwt. tankers Total daily Total daily Total daily Flag of Registry Manning Others costs Manning Others costs Manning Others costs

Sweden 10,400 6,400 16,800 10,800 7,200 18,000 16,000 22,500 38,500 Norway 7,800 6,900 14,700 8,000 7,200 15,200 12,600 23,400 36,000 United Kingdom 6,300 5,500 11,800 6,700 5,800 12,500 8,000 23,000 31,000 Greece 4,500 4,700 9,200 5,000 5,000 10,000 5,500 22,500 28,000 Liberia 4,500 4,700 9,200 5,000 5,000 10,000 5,500 22,500 28,000 Liberia (ot ITF) a 3,300 4,300 7,600 3,700 4,700 8,400 n.a. n.a. n.a.

Liberia not ITF A as percent of: Sweden 32 67 45 34 65 47 n.a. n.a. n.a. Norway 42 62 52 46 65 55 n.a. n.a. n.a. U.K. 52 78 64 55 81 67 n.a. nea. n.a. Greece 73 91 83 74 94 84 n.a. n.a. n.a. Q

Source: Sj-6fart No. 10, 1976 quoted from Institute of Shipping Economics (Bremen), Shipping Statistics Yearbook 1977,

a/ ITF = International Transport Workers' Federation.

I-A 0D

I-J

EH - 121 -

Table 22

Contribution of British shipping to the balance of payments, 1952, 1958, 1960

Item 1952 1958 1960 Em. Em. Em. Credits 1. Freight on imports (total) 345 408 453 2. Export freights of British ships 145 150 148 3. Cross-trades freight earnings 305 339 345 4. Fares from British passengers 32 34 32 5. Fares from foreign passengers 43 51 53 6. Charter hire of British ships 17 23 26 Total credits 887 1,005 1,057

Debits A 7. Disbursements abroad 234 291 308 8. Charter hire of foreign ships 54 137 195 9. Consumption of imports 56 38 40 10. Disbursements by foreign shipowners 115 145 140 Total debits A 459 611 683

Total cost to balance. of payments if all shipping services had been provided by foreign ships 428 394 374 B 11. Import freights paid to foreigners 132 172 193 12. Fares paid to foreign shipowners 6 6 6 13. Less actual disbursements by foreign shipowners -70 -72 -74 Total debits B 68 106 125

Additional cost to the balance of payments if national flag shipping disappeared, i.e. contribution of British shipping to the balance of payments 360 288 249

Source: S.G. Sturmey, British Shipping and World Competition, London 1962, p. 417.

9 -rl ...... 4/Ss[-t.,,s,o..QX...... 1....4 Page 1 of 2 - 122-

Table 23

Hypothetical balance of payments effect of substituting a national for a foreign liner ship in an average year of the ship's life for profitable and unprofitable ships (E OOO) A. Profitable Shipping Operation Balance of payments effects Losses By Ship increased By non- Item account Gains spending receipt Total Deb. Cr. REVENUE (freight) 546 546 COSTS: Commissions at 27 - 14 14 27 5% Stevedoring at 136 - 68 68 136 25% Bunkers 28 - 28 - 28 Canal tolls 13 - 13 - 13 Port charges 50 - 25 25 50

Wages 55. - 5 5 11 Provisions 8 - 4 4 8 Stores 11 - 5 5 11 Repairs 46 - 23 23 46 Insurance 20 - 20 - 20 Sundries 4 - 2 2 4 Management 20 - - - 418

SUB-TOTAL 128 546 208 147 354

CAPITAL CHARGES:

Depreciation 50 Interest 39 89 Profit cr. 39

Maximum net improvement in the balance of payments, as percentage of freight earnings, with the ship built wholly at home or received as a gift is

(546 - 354) x 100 = 35.2%. 546

Minimum net improvement in the balance of payments as percentage of freight earnings, with the ship built abroad and paid for over ship's life at 6% is

546 - (354 + 50 + 39)1 x 100 = 18.9%. 546

Note. Figures may not add to totals, nor assumptions appear to be precisely followed, because of rounding. Page 2 of 2 - 123 -

Table 23 (cont'd)

B. Unprofitable Shipping Operation Balance of payments effects Losses By Ship increased By non- Item account Gains spending receipt Total Deb. - Cr. REVENUE (freight) 464 464 COSTS: Commissions at 23 12 12 23 5% Stevedoring (as in 136 68 68 136 Table 3.1) Bunkers 28 28 - 28 Canal tolls 13 13 - 13 Port charges 50 25 25 50 (E per day) Wages 150 55 5 5 11 Provisions 21 8 4 4 8 Stores 30 11 5 5 11 Repairs 125 46 23 23 46 Insurance 55 20 20 - 20 Sundries 4 2 2 4 Management 20 - - - 414 SUB-TOTAL 464 205 144 350 50 CAPITAL CHARGES:

Depreciation 50

Profit

Maximum net improvement in the balance of payments, as percentage of freight earnings, with the ship built wholly at home or received as a gift is (464 - 350) x 100 = 24.6% 464 Minimum net improvement in the balance of payments as percentage of freight earnings, with the ship built abroad and paid for over ship's life at 6% is

[464 - (350 + 50 + 39] x 100 = 5.4% L 464 Note. Figures may not add to totals, nor assumptions appear to be precisely followed because of rounding.

Source: Extracted from R.O. Goss, Studies in Maritime Economics, "Investment in shipping and the balance of payments." It should be pointed out that the source did not include interest of 39 in part B in contrast to part A. The inclusion of this interest would produce a financial loss of 39. - 124 - Table 24

Sample Balance of Payments Effects of a National Shipping Line in an Average Year (000 units of national currency)

Assumptions: (1) 3 SD14 vessels owned by the line (2) Cooperation with the Conference (3) Carriage of sugar and general cargo in sugar season and otherwise general cargo from East Africa (4) Fully national crew (5) Management in the country (6) An average annual interest charge (at 8 percent) of 5.67 million units per annum (7) A straight line depreciation charge of 9.6 million units (8) 51 percent national held equity (9) An average annual taxation of 20.3 percent of net profits throughout the 15-year period

Gross freight earnings 62,111 credit Fuel costs 3,604 debit Insurance 2,628 debit Port charges 3,611 debit Cargo costs 11,497. debit Canal dues 1,435 debit Rebates and commission 8,978 debit Surveys, dry docking and repairs 2,236 debit 20 percent of management costs 377 debit 70 percent of stores 1,207 debit 25 percent of labor costs 1,357 debit Depreciation 9,600 debit Interest 6,144 debit Foreign post-tax profits 1,455 debit Net balance of payments effect if interest paid abroad (i.e. 12.9 percent of gross receipts) 7,982 credit Net balance of payments effect if interest paid locally (i.e. 22.1 percent of gross receipts) 13,742 credit

Source: From a feasibility study for a developing country made available to the Bank on a confidential basis. - 125 - Table 25

Indian Shipping's Earnings/Savings in Overseas Trade (In Crores of Rs.)

1973-74 .1974-75 1975-76

1. Total Freight-Bill (Freight 756.4 1280.0 958.9 on imports and exports)

2. Earnings/Savings of Indian Ships

(a) Freight on exports 156.1 212.7 214.1

(b) Freight in cross trades 24.4 37.1 6.3

(d) Time charter hire received by Indian Ships from foreign parties 37.4 69.3 32.2 Total 334.4 525.9 464.7 3. Disbursements of Indian ships at foreign ports a/ 148.5 228.3 216.2

4. Net earnings and savings of Indian ships (2-3) 185.9 297.6 248.5

5. Earnings of foreign ships on national trade:

(a) Freight on exports carried by foreign ships 262.7 401.7 263.4

(b) Freight on Imports carried by foreign ships 221.1 458.8 269.4

Total earnings of ioreign ships in national trade 483.8 860.5 532.8

6. Disbursements in India by foreign ships 121.0 215.1 133.2

7. Net foreign exchange outgo due to national cargo carried by foreign ships (5-6) 362.8 645.4 399.6

8. Net out flow of foreign exchange on shipping A/c in Overseas trade (4-7) -176.9 -347.8 -151.1

Source: Indian Shipping, p. 28 Vol. 29-No. 3/1977 a/ Excluding capital costs.

~~~~~~.- .. -.....,-.. ... - 126 -

Table 26

Format for Estimating Foreign Exchange Effect of a National Shipping Line (NSL)

1. Foreign Exchange Equivalent Receipts for:

a) Carrying national exports in its ships b) Carrying national imports in its ships c) Carrying passengers in its ships d) Carrying mail in its ships e) Carrying third country trade in its ships f) Chartering its ships to foreigners g) Acting as agent for foreign lines

2. Foreign Exchange Equivalent Expenditures

A) Direct

a) Payments by NSL ships and crews in foreign ports for

(i) foreign goods and services, including for foreign crew members

(ii) port charges, harbor dues, taxes, etc. (iii) fuel (iv) pier and warehouse rentals (v) agency services (its own and others) b) Payments by NSL for crew movements between ports on foreign airlines c) Payments by NSL for marine insurance abroad d) Payments by NSL for imported fuel in the country's ports (net) e) Payments by NSL for servicing loans on ships B) Indirect (i.e., foreign exchange foregone by the country as result of NSL existence).

a) Sales of national goods and services to foreign ships and crews b) Port charges, harbor dues, taxes, etc., from foreign ships and crews c) Port charges, harbor dues, taxes, etc., from foreign ships and crews d) Pier and warehouse rentals to foreign shipowners e) Agency fees of national firms acting for foreign shipowners - 127 - Table 27

Gross capital stock at 1970 replacement cost per employee in shipping and selected other industries in the United Kingdom 1966-1975

Capital stock per employee (V 000) Percent increase Selected industries 1966 1970 1975 1966-1975

Electricity, gas & water 34.4 45.3 54.4 56 Shipping 28.2 38.5 51.1 81 Railways 26.3 32.0 32.0 22 Ports & inland water 11.5 15.7 21.3 85 transport Postal, telephone & 9.5 11.7 15.8 66 communications Air transport 15.1 14.1 15.4 2 Agriculture, forestry & 6.7 7.7 10.7 60 fishing Mining & quarrying 3.8 5.6 9.9 161 Manufacturing 3.9 4.9 6.2 59 Construction 1.0 1.7 2.2 120

Source: Compiled on the basis of National Income and Expenditures 1966-76, Central Statistical Office, HMSO and Britain, 1977 and 1968, HMSO. Also B.N. Metaxas, "Notes on the internationalization process in the maritime sector", Maritime Policy and Management, Volume 5, Number 1, January 1978 p. 55 and supplementary information made available by the author. Capital intensity In Selected Major Industrial and Commerclal Undertakings of India'a Central Government 1977/78

Number of Gross Net flxed Capital Gross Net fixed Selected Major Enterprises Employees Capital Percent of Sales fixed assets assets employed fixed assets assets eMployed 3-31-78 TuLrnover (net) to (Rs million) (Ho 000 per employe or cloBedt ) Capital employed Air India 10,260 2,316 1,381 2,097 Bharat Alusinum Co. Ltd. 226 135 204 135.1 2,797 1,200 984 1,317 429 352 BharatCoking Coal Ltd. 164,843 '470 39.9 1,388 1,097 1,520 8 7 Bharat Heavy Electrical* Ltd. 56,137 3,344 9 111.9 2.128 4,167 60 38 74 Bokaro Steel Ltd. 35,527 9,o84 7,729 120.2 15,750 256 218 443 27.5 Central Coalfield Ltd. 112,089 2,880 1,935 2,695 Coal India 26 17 24 54.3 Ltd. 4,449 200 192 (253) Eastern Coalfields 45 43 (57) - Ltd. 186,243 1,321 1,102 1,275 Fertilizer Corporation 7 6 7 151.8 of India 26,737 4,756 2,531 3,005 178 Heavy Engineering Corporation Ltd. 21,484 95 112 89.2 2,018 1,242 1,9341 94 58 90 Hindustan Aeronautics 40,455 2,016 30.6 I 1,252 2,006 50 31 .50 60.8 Hinduatan Copper Limited 22,235 1,545 1,162 Hindustan 1,512 69 52 68 54.6 Machine Tools Ltd. 20,943 881 494 1,160 Hindustan 42 23 55 99.9 oo Shippyard Ltd. 3,000 251 174 393 Hinduatan Steel Ltd. 84 58 131 71.9 121,948 13,683 4,940 8,535 112 41 Hindustan Steel Works Conat.Ltd. 20,039 70 27.1 330 234 170 16 12 8 Indian Iron and Steel Co.,Ltd. 42,230 2,194 6Q8.3 1,168 1,775 52 28 42 139.0 Indian Oil Corporation Ltd. 16,597 3,573 1,769 Indian 1,696 215 107 102 1,771.7 Petrochemicals Corp. Ltd. 3,857 1,437 1,229 1,772 373 National Mineral Deaveopment Corp. 319 459 25.8 Ltd. 8,041 1,548 1,095 1,358 193 136 169 Neyr .li Lignite Corp. 10,965 2,008 23.6 1,974 1,271 183 - Oil and Natural Gas Corp. 24,802 180 u6 52.1 6,647 3,469 4,352 268 140 175 Sbipping Corporation of India Ltd. 12,101 7,721. 5,984 66.6 a 5,891 638 4195 487 45.9 C

Source; Compildd on the basis of Annual Report on the Working of Industrial and Commercial Undertakings of the Bureau of Public Enterprises, Central Government 1977-78, Ministry of Finance, India, and for employment by the Shipping Corporation of India 28th Annual Report 1977-78. Ltd., its - 129 - Table 29

KOREA: Capital Investment per Incremental Employee in selected DFC Sub-Projects (mid-1978)

Investment (US$'000) Purpose of Industry Per Incremental Employee

A. Shipping ProJects

New general cargo vessel for short haul tramp service 69 New multipurpose cargo vessel for regional liner service 101 New bulk cement tanker for coastal trade 173 New bulk cement tanker for coastal trade 234 New bulk cement tanker for coastal trade 294

B. Other Sub-ProJects

Industry a/ Textiles 3 Metal 4,10,19,20,53,162 Glass cloth 7 Machinery 8, 34 Others (not specified) 9 Electronic 11 Basic metals 16 Rope making - 16 Plastics 21 Fisheries 21, 46 Construction 22,54,56, 74 Chemicals 27, 30 Agriculture 33 Paper 39, 95 Nonmetallic 44,45,161 Marine transportation 155,234 Petrochemical 183 Weighted average for 32 Sub-Projects 43

C. Sample of other Sub-Projects

For 13 shipping Sub-Projects: highest 226 lowest 25 simple average 115 For 33 other Sub-Projects: highest 152 lowest 6 simple average 39

D. Small and Medium Industry Sub-Projects

Highest investment cost per incremental job 96 Lowest 2 Weighted average of 195 Sub-Projects I a/ Where more than one sub-loan was involved for a particular industry, the cost per job is indicated separately for each sub-loan. - 130 - Table 30

Potential ranges in capital intensity in shipping

Investment cost per Estimated Crew size crew member (US$'000) Veusel Cost Assumed L-rger Period (US$ million) Assumed Larger crew size crew size

New-buildings

"Fairplay" 11-13,000 dwt. liner end 1974 8.7 30 40 290 220 "Fairplay" 11-13,000 dwt. liner end 1977 9.0 30 40 300 230 'Fairplay" 25,000 dwt. container ship end 1974 51.7 30 40 1,720 1,290 "Fairplay' 25,000 dwt. container ship end 1977 52.4 30 40 1,750 1,310 5,000 dwt. ro-ro vessel end 1974 14.6 25 35 580 420 5,000 dwt. ro-ro vessel end 1977 10.0 25 35 400 290 "Fairplay"25,000 dwt. bulk carrier end 1974 11.7 30 40 ' 390 290 "Fairplay"25,000 dwt. bulk carrier end 1977 13.0 30 40 430 330 30,000 dwt. bulk carrier end 1974 16.5 30 40 550 30,000 dwt. bulk carrier 410 end 1977 11.0 30 40 370 270 70,000 dwt. bulk carrier end 1974 25.0 30 40 830 G20 70,000 dwt. bulk carrier end 1977 16.0 30 40 530 400 120,000 dwt. bulk carrier end 1974 35.0 30 40 1,170 120,000 dwt. bulk carrier 880 end 1977 22.0 30 40 730 96,000 dwt. 080 550 end 1974 33.0 32 42 1,030 96,000 dwt. 790 BO end 1977 21.0 32 42 660 30,000 dwt. product 500 tanker end 1974 20.0 30 40 670 30,000 dwt. product tanker 500 end 1977 15.0 30 40 500 370 87,000 dwt. tanker end 1974 28.0 32 42 67,000 880 670 dwt. tanker end 1977 16.0 32 42 500 210,000 dwt. tanker 380 end 1974 42.0 35 45 1,200 930 210,000 dwt. tanker end 1977 32.0 35 45 125,000 910 710 cbm. LNG end 1974 125.0 25 35 5,000 125,000 cbm. L1NG 3,570 end 1977 115.0 25 35 4,608 3,290 secondhand vessels

6,600 dwt. CDS built 1958 end 1974 1.5 35 45 43 6,600 dwt. CDS built 1958 33 end 1977 0.7 35 45 20 16 12,500 dwt. CDS built 1956 end 1974 2.2 40 50 55 44 12,500 dwt. CDS built 1956 end 1977 0.7 40 50 18 14 25,000 dwt. bulk carrier built 1966 end 1974 7.2 35 45 206 160 25,000 dwt. bulk carrier built 1966 end 1977 2.8 35 45 80 62 60,000 dwt. bulk carrier built 1972 end 1974 17.0 35 45 490 380 60,000 dwt. bulk carrier built 1972 end 1977 6.2 35 45 180 140 35,000 dwt. tanker built 1958/59 end 1974 3.5 35 45 100 78 35,000 dwt. tanker built 1958/59 end 1977 1.2 35 45 34 27 80,000 dwt. tanker built 1966/67 end 1974 9.5 37 47 260 80,000 dwt. tanker built 200 1966/67 end 1977 3.5 37 47 95 37 200,000 dwt. tanker built 1969/70 end 1974 23.0 40 50 580 460 200,000 dwt. tanker built 1969/70 end 1977 5.0 40 50 125 100

Source: Compiled on the baiis of vessel prices reported in Fairplay International Shipping Weekly, January 19, 1978 and Review 1977, by Pearnley and Egers Chartering Company Ltd. - 131 -

Table 30a

NORWAY: Average crew size for selected vessel types in international trades mid 1977

Average number of persons per vessel per 1,000 dwt. Liners

Under 6,000 dwt. 24 18.0 6,000-15,000 dwt. 28 2.7 Over 15,000 dwt. 28 1.4

Tramp vessels

Under 6,000 dwt. 16 9.2 Over 6,000 23 2.3

Tankers

Under 6,000 dwt. 25 12.8 6,000-40,000 dwt. 31 1.6 100,000-200,000 32 0.2 Over 200,000 33 0.1

Bulk carriers

15,000-40,000 28 1.0 Over 100,000 29 0.3 Reefers 32 7.6 Cruise ships 55 n.a. Ferries 68 n.a.

Source: Skipsfartsneringen, November 1978 No. 13, p. 9. Data refers to crew if all vessels active, i.e. adjusting for laid up vessels. Selected Information on Capital Intensity of Shipping

Average investment in vessels per employee (in USS 000) Average employees Average acquisition Book value Country Company Period costs after depreciation Remarks per vessel

Sri Lanka Ceylon Shipping 8 liner vessels, Corporation Dec.1976 27 21 1 tanker-built 74 around 1960 Nigeria Nigerian National 1971-72 Shipping Line n.a. 27 12 liner vessels 64 Argentina ELMA Dec.1976 n.a. 53 Liner vessels,average 135 built around 1967 Korea 2 major DFC Dec.1976 n.a. 42 Mixed general cargo, tramp 30 assisted shipping and coastal vessels companies Chile Empreso Haritina Dec.1976 64 -50 Mostly liners with larger 38 del Estado built 1970 onwards India Shipping Corp. March 1976 61 51 129 vessels mixed; average 90 H of India built around 1965 (partial) Turkey Turkish Cargo Dec.1977 n.a. 76 Mostly liners, also other 69 Lines types average built 1967 United Subsidized comp- Dec.1976 n.a. 150 a 41 States anies a Nonsubsidized Dec.1976 n.a. 210 -/b ) 34 - tankers b Nonsubsidized Dec.1976 n.a. 130 -/- ) 40 a cargo Norway International Dec.1976 230 n.a. Modern fleet emphasizing 29 shipping bulk a// Mixed Overseas Ship- Dec.1977 267 -/ 208- Tankers and bulk carriers- 34 - holding Group average built around 1969 m Inc.

a/ Seagoing personnel only. b/ Derived by using Maritime Administration vessel investment data for 45 companies and assuming that average crews on the vessels of these companies is the same size as for all subsidized US vessels and nonsubsidized tankers and cargo respectively. The Maritime Administration sample covered 94% of subsidized vessels, 38% of nonsubsidized cargo vessels and 14% of nonsubsidized tankers. Source: Compiled on the basis of various company reports or other national publications. - 133 - Table 32

Selected average capital investment in vessels/output ratios

Ratio end of year vessel costs to output Acquisition Depreciated Year cost Book Value Argentina: ELMA 1976 n.a. 1 .2 :1A' b/ Bangladesh: BSC 1.9:1 1.6:1la/ b/ Chile: Empresa Maritina del Estado 1976 1.3:1 1.0:1 India: SCI 1977/78 2.8:1 2.2:1 Great Eastern Shipping Co. 1976/77 4.0:1 3.5:1 Ivory Coast: SITRAM 1978 2.3:1 n.a. Korea: All ocean-going shipping 1977 n.a. 1.7:1 Morocco: COMANAV 1976/77 3.4:1 2.1:1 Netherlands: Nedlloyd Group 1976 n.a. 0.7:1 Norway: International 1976 3.4:1 n.a. Sri Lanka: Ceylon Shipping Corp. 1976 0.8:1 0.6:1 Sweden: Brostrom Group 1976 n.a. 1.0:1 United Kingdom:Furness, Withy.& Co. Ltd.. 1977 n.a. 1.0:1 Shell Tankers (U.K.) Ltd. 1977 n.a. 2.1:1 Sugar Line 1977 n.a. 1.1:1 Texaco Overseas Tankship 1977 na. 0.7:1 United States: Subsidized 1976 n.a. 0.7:1 Non-subsidl.zed Cargo 1976 n.a. 0.4:1 Non-subsidized Tanker 1976 n.a. 2.0:1 Combined 1976 n.a. 0.7:1 Mixed: Overseas Shipholding 1976 3.2:1 2.6:1 Group Inc. a/ Excluding revenues earned by chartered vessels. b/ Revalued assets.

Source: Compiled on th9 basis of: Sri Lanka, Argentina, Bangladesh, Indij.a, OSG: Company Reports U.S.: MARAD'77 op. cit.

Norway - NOV 1978:13 and Norwegian Shipping News, No. 16/77 p.43. United Kingdom: ICC: Business Ratio Report - Shipowners. Netherlands, Sweden: Unpublished data. Korea:- Information from Korea Shipowners Association - 134 - Table 33

Indicative evolution in seagoing employment in shipping in selected OECD countries 1955-1977 a/

1955 1961 1969 1977

Persons per ship 45 43 36 33

Persons per 1,000 grt. 8.7 7.0 4.3 2.4

a/ The number of countries covered in each year differ somewhat. Number of vessels and tonnage exclude vessels of under 500 grt. while personnel refers to vessels of 100 grt. and above (except for the United States where vessels of over 1,000 grt. is considered). The figures for 1977 may not be strictly comparable with those for earlier years as they have been calculated separately.

Source: Maritime Transport 1970 by OECD for years 1955-1969 and calculated from Maritime Transport 1977 and Lloyds Statistical Tables 1977 for 1977. - 135 - Table 34

Ratio of officers/ratings in the merchant marine of OECD countries

1965 1:2.35

1970 1:2.04

1974 1:1.74 a/ 1977 1:1.66

a/ Due in part to differences in fleet composition the ratio varied from 1:3.91 in the case of Portugal to 1:1.02 for Belgium. For 15 OECD countries for which information was available the crew composition as of end 1977 was as follows (in percent):

Master and deck officers 19 Engine and room officers 18 Deck and engine room ratings 41 Catering staff 19 Miscellaneous 3 Total 100

Source: Maritime Transport, various editions by OECD. - 136 - Table 35

Development of International Trade between Developing Countries -/ 1970-1978 (in million US$)

Importing Region

Exporting Region Year Africa America Middle East Other Asia Oceania Total

1970 650 235 115 235 1 1,240 Africa 1975 4,873 2,228 451 372 6 4,930 1979 2,365 4,213 814 473 3 7,868

1970 115 2,860 37 - 215 7 3,230 America 1975 967 9,603 612 302 1 11,487 1979 1,593 16,884 1,144 1,121 5 20,746

1970 395 190 770 640 23 2,010 Middle East 1975 1,744 5,045 3,960 7,565 215 18,529 1979 2,234 9,116 8,217 17,816 67 37,450

1970 475 180 375 3,210 58 4,300 Other Asia 1975 1,424 1,085 2,318 9,139 210 14,178 1979 2,467 2,178 5,717 22,290 423 33,075

1970 --- 1 --- 3 14 19 Oceania 1975 1 --- 25 28 54 1979 ------56 54 111

1970 1,630 3,460 1,290 4,310 105 10,800 Total 1975 6,010 17,961 7,341 17,404 461 49,177 1979 8,658 32,391 15,891 41,756 552 99,248

1970 3.5 Percent of world) 1975 5.6 trade ) 1979 6.1

a/ Based on classification used by the United Nations which differs somewhat from that used in the rest of this paper, most importantly by including the capital surplus oil exporting countries. Due to roundings in the source the original figures may not add up to the totals.

Source: Compiled on the basis of data in United Nations, Statistical Yearbook 1975, and Monthly Bulletin of Statistics, July 1980 - 137 - Table 36

Quantum Index of International Trade 1977 (1970 = 100)

1977-Quantum Index (1970 - 100) for Exports From -

Developing Developing Areas Developed Developing Areas Areas to to Developed Areas to to Developed Developing Areas Developing Areas By Commodity Class Areas Areas

Food beverages and tobacco 149 109 163 146 Raw materials excl. fuels 144 102 180 122

Fuels, etc. 128 124 124 106

Chemicals ) 172 ) Machinery ) 261 195 206 155 ) Other manufactures ) 185 147

Total 175 132 189 148

Source: Compiled on the basis of data in United Nations, Monthly Bulletin Statistics, June 1979. International Trade between Developing Countries by Coamodity Class 1970 and 1977 a (million of 'US$) Exporting Region/ Importing Region Commodity Class Africa America Middle East Other Asia Oceania Total 1970 1977 1970 1977 1970 1977 1970 1977 1970 1977 1970 1977

Africa 650 2010 235 2590 115 640 235 330 1 4 1260 5570 of which food, beverage, and tobacco (225) (500) (8) (15) (58) (195) (77) (79) (1) (3) (370) (800) crude materials excl. fuels, oils ( 80) (230) (7) (77) (18) (54) (135) (175) -- (1) (240) (540) minerals fuels and related ( 92) (550) (200) (2440) ( 8) (290) ( 3) (25) -- -- (305) (3300) chemical. ( 32) ( 74) (2) (12) ( 4) (20) ( 7) (32) -- -- ( 46) (140) machinery and transport equip. ( 32) ( 58) -- -- ( 6) ( 8) -- ( 2) -- -- ( 38) ( 68) other manufactured goods (180) (590) (13) (48) (20) (68) (40) (19) -- -- (250) (730)

America 120 1500 3020 12100 36 770 160 700 8 1 3340 15070 of which food, beverages and tobacco (59) (710) (490) (1700) (29) (388) (56) (305) (1) -- (640) (3110) crude materials excl. fuels, oils ( 9) ( 64) (245) ( 730) ( 5) (125) (66) (280) -- (1) (325) (1200) minerals fuels and related (28) (435) (1390) (5690) -- (120) (17) ( 16) (7) -- (1400) (6260) chemicals ( 2) ( 19) (165) ( 730) -- ( 29) ( 5) ( 23) -- -- (175) ( 800) machinery and transport equip. ( 4) (165) (180) (1250) -- ( 42) ( 3) ( 17) -- -- (190) (1470) other manufactured goods (17) C 73) (530) (1980) (1) ( 41) (12) ( 61) -- -- (560) (2150)

Middle East 335 1470 210 7520 710 5480 670 10310 14 185 2140 24960 of which food, beverages and tobacco (25) (62) (1) (1) (150) (470) (12) (22) (185) (560) crude materials excl. fuels, oils ( 8) (17) (3) -- (49) (135) (14) (105) -- -- C 73) (260) 1- minerals fuels and related (260) (1240) (205) (7510) (345) (3230) (830) (10110) (14) (185) (1660) (22280) U3 chemicals ( 5) (20) -- (9) (28) (83) ( 8) C 38) -- -- (42) (150) machinery and transport equip. ( 9) (46) -- -- (33) (620) -- (12) -- -- ( 43) (680) 1 other manufactured goods (26) (78) -- (1) (105) (940) ( 4) (23) -- -- (135) (1040) other Asia 480 2110 180 1580 375 4150 3210 13330 58 285 43,0 21450 of which food, beverages and tobacco (76) (475) (12) (40) (125) (830) (660) (2350) - (6) (12) (880) (3710) crude materials excl. fuels, oils (59) (165) (46) (185) ( 44) (300) (80C) (2640) (1) ( 2) (940) (3290) minerals fuele and related (11) ( 95) ( 6) (620) ( 2) ( 81) (460) (2270) (12) (175) (490) (3240) chemicals (14) ( 47) ( 2) ( 28) ( 8) ( 83) (160) ( 750) ( 1) ( 3) (185) ( 910) machinery and transport equip. (56) (380) (15) (250) ( 22) (560) (280) (1920) ( 4) ( 9) (375) (3110) other manufactured goods (260) (940) (95) (450) (170) (2280) (820) (3310) (34) (84) (1380) (7070)

Oceania -- -- 1 ------3 .- 43 14 20 19 63 of iiicli food, beverages and tobacco ------(2) (31) (1) (14) (3) (45) crude materials excl. fuels, oils -- -- (1) ------(2) (12) (9) C 3) (12) (11) minerals fuels and related ------chemicals ------(1) -- (1) machinery anfdtransport equip. ------.(2) -- ( 2) -- other manufactured goods ------(2) (2) (2) (2)

Combined 1580 7090 36/." 23790 1230 11030 4500 24710 97 495 11050 67120 of which food, beverages and tobacco (385) (1750) (5iu> (1760) (360) (1880) (800) (2790) (9) (29) (2070) (8210) crude materials excl. fuels, oila (155) ( 475) (305) ( 990) (115) (610) (1010) (3210) (10) ( 7) (1590) (5300) minerals fuels and related (395) (2320) (1800) (16260) (355) (3730) (1300) (12420) (32) (360) (3890) (35080) ,-3 chemicals (54) (160) (170) ( 780) ( 40) ( 215) (180) (840) ( 1) ( 4) (445) (2000) machinery and transport equip. (100) (650) (195) (1500) ( 61) (1220) (280) (1950) ( 6) ( 9) (650) (5330) other manufactured goods (485) (1690) (630) (2470) (295) (3330) (880) (3410) (36) (86) (2330) (10990) 0 Mineral fuels and related as percent of total 25 33 49 68 29 34 29 50 33 73 35 52

a/ Based on classification used by the United Nations which differs som#what from that used in the rest of this paper, most importantly by Including the capital surplus oil exporting countries. Due to rounding. in the source the individual figures may not add up to the totals.

Source: Compiled on the basis of data in United Nations Statistical Yearbook 1978, New York 1979. - 139 - Table 38

Number of Conventional Liner and Tramp Vessels Engaged in Selected Intra-LDC Trades in 1973

Liner Vessels Tramp Vessels Combined % of % of Vessels Vessels Number Built Number Built Number of Before of Before of Selected Trade Routes Vessels 1954 Vessels 1954 Vessels South America Inter 33 24 118 58 151 South East Asia Inter 15 47 105 41 120 South Asia Inter 34 24 56 38 90 Africa Inter 26 15 46 48 72 Indonesia-Philippines Inter 7 14 51 39 58 India/Pakistan to South East Asia 20 35 33 33 53 East Africa and Red Sea to India/Pakistan/Burma 21 33 32 34 53 Far East to West Africa 40 23 11 27 51 Africa to South America and Caribbean 12 17 30 27 42 Africa to South East Asia 17 41 20 30 37 South East Asia-Philippines and Indonesia 5 80 31 52 36 East Africa and Red Sea to Persian Gulf 9 44 16 88 25 Persian Gulf and India/Pa1.istan to South America and Caribbean 4 - 15 27 19 South America East Coast to West Coast 13 15 4 25 17 Persian Gulf to South East Asia 5 20 11 45 16 West Africa to South and East Africa and Red Sea 3 33 11 36 14 South America East Coast to North 8 38 6 67 11 Coast and the Caribbean Caribbean Inter 3 - 7 100 10

Source: Compiled on the basis of Maritime Economic Research Center World Liner and Tramp Fleets, Ship Trade Route Employment, Second Report, The Hague, December 1974. Seaborn. Tr.de in S.1..tc.d-Hajr Bulk C.-useltl.. by Selected D eoigCou-tries 1975 or 1976 (Ln thoimand. of r.ns)

Import. of .elected bulk conedities E:qrt. felecrtd bulk --oditt.s Major dry bulk in Petroleum Ctu.d. Petroleum liaJordiry b,,lk In Crude Petroleum Petroleu Co,ubL-d main trades 1976 1975 product main trodes 1976 1975 prod.cts Counltry Total 1976 CoibiLnd 1976 Combined

Iran 1,026 - - 1,026 - 233,720 6,470 240,190 241,216 Vena..u.,, 1,017 - - 1,017 21,100 Brazil 76,718 37,606 135,424 136,441 6,936 34,220 1,176 42,326 63,369 896 219 64,484 Nigeria 106,810 378 - 6)6 1,014 - 84,908 340 85,248 Netherlands, 86,262 Antilles - 27,440 3,615 31,055 1,000 27,768 28,768 Indon..ial 59,823 859 - 2,991 3,850 1,386 52,412 660 54,458 58,308 Iraq 412 - - 412 - 54,129 734 India 54,863 55,275 6,718 13,550 2,109 22,377 22,060 22,060 44,437 Syria 158 2,410 1,369 3,937 400 34,817 .377 35,594 39,531 Algeria 1,393 - 749 2,142 800 33,414 1,697 Singapore 35,911 38,053 816 16,620 6,210 23,846 248 11,641 11,889 35,735 Trinidad aixiTotago 105 7,9100 - 8,005 - 6,835 13,204 Bahamas 20,039 28,044 - 17,170 - 889 18,059 - - 7,082 -7,082 25,141 UJ.8.VirginIslands - - 248 248 - 22,949 22,949 23,197 Korea 5,045 15,210 - 20,255 - 871 871 21,126 Leano-n 258 2,150 212 2,620 -18,182 Liberia - 18,182 20,802 - 510 - 570 17,800 - - 17,800 18,370 Morocco 802 2,620 329 3,751 14,100 - - 14,100 Chile 919 17,851 3,530 - 4,449 9,200 424 - 9,624 14,073 Pbtlippinea 580 8,800 753 10,133 1,600 - - 1,600 jamaica 11,733 117 1,400 1,449 2,966 7,936 - - 7,936 Malaysia 10,902 434 3,050 t,501 4,985 790 4,443 419 5,652 10,637 Pe.ru 1,075 2,400 384 3,859 -6,000 200 - 6,200 10,059 Angola - - - - 3,100 6,880 -9,980 9,980 Mexico 2,042 -2,865 4,907 4,983 -4,983 9,890 REcudor 202 1,16i, - 1,36i2 - 7,814 -7,814 Arun.t- 9,176 - - .9,033 - 9,033 Bahrain 9,033 230D - 230 - - 8,623 8,623 8,853 Arge.t0-L 2,395 2,120 877 5,395 3,147 - 3,147 8539 Mauritr. - - - 8,500 lstha!1z, - -8,500 8,500 ,97 ,3 ,2 1,476 - 1,476 8.303 Cube 704 5,550 1,870 8,124 - -- 8.124 Bgypt 3,687 2,080 - .5,767 100 923 1,953 Gna--272 1,153 6:920 272 6,494 - - 6,494 6,766 Ihng Kong 130 - 5,533 5,663 200 -- 200 5,863 Pakistan 1,802 3,200 740 5,542 - -275 215 5,817 Panama. - 4,140 376 4,516 -- 642 642 5,158 Panama Canal Zone - - 3,157 3,157 -- - 3,157 Renal - 2,830 - 2,830 - 985 985 3,815 Surinam - - 585 585 3,069 - 3,069 3,654 £ngl-700 865 1,565 1,500 - 1,500 3,065 Dominican lapublic 109 1,250 753 2,112 940 949 3,061 Sierra Leonps - 310 - 310 2,554 -- 2,544 2,854 Dem.R.public of Ymo 1,200 320 1,520 - -1,205 1,205 2,725 Pacific 5Isadse (Mlauru) -- - - 2,600 -- 2,600 2,600 bangladod, 1,868 600 - 2,468 - --- 2,468 Jordan - 870 - 870 1,300 -- 1,300 2,1711 Sri Lanka 300 1,850 - 2,150 - -- - 2,150 Meana 110 1,300 - 1,410 325 -35 602,070 Wnoabia 329 - 31.2 641 100 -1,324 1,424 2,065 Uruguay - - 1,910 1,910 - -- - 1,910 Sudana 119 1,150 505 1,854 Cong - -1,854 - - - - 1,780 1,780 1,780 Guyana - 565 565 1,210 - -1,210 Togo 1,775 - - - 1,700 - 1,700 1,770 Guamt I'115 457 1,607 - - - 1,607 Guatamaa 970 415 1,386 --- lImly 1,386 Cooas -~ 1,180 - 1,380 - Zaire - - 1,380 620 504 1,124 -- 200 200 1,324 Tanzania, 287 730 - 1,017 - --- MozambLqua, - 1,017 810 - 81 200 - 200 1,010

S-,rce: Compitledon the basis oft (i TD1222/Supp,2 for importmand esports of five main dry bulk cosetditi.s aQdco-ering only tradesL.nW,lIng 100,000 tone or -nro in 1976. (ii) TDj?222jSupg.2 for imports .nd sxports of petroleum producta in 1976 and covering only countries here the export or isporL Volume Was at least luu,uuu tons. (LIi) TDI222/Supp.2 for Imports of crude petroleum and covering only countries importing at least 200,000 tons in 1975. (iv) United Nations Statistics Yearbook 1979 for e.ports of crude petroleum nricovering only countries exporting at least 200,000 tons in 1975. EVOLUTION OF DRY CARGO AND TANKER FREIGHT RATE INDICES 1950-1979

Norwegian Shipping News Dry Cargo Trip ChartenIndex Ju.l 1 December 1947 - 100 for1947-1966 end July1965/June 1966 -100 for 1965-1979. Norwegian Shipping News Dry Cargo Time Charter Index: July 1 Decenber 1947 - 100 fbc 1S47-1965 and July 1965/Ji.e19G6 100 for 1965-1971. from 1972 1971 - 100. Norwegian Shipping News Tanker Single Voyage Chiter Index: MOT - 100 from 1947. Scale111 1957. Intarcale until ...-...... *>. . 9/15-1969 and Worldscie from 9/15-1969.

Average Freight Rate Assmrnent- AFRA - ITankerti by London Tanker Broker' Panel - General pwpose tankers.

- Arage Fraiilit Rate Amssnent - AFRA - fTankers) by London Tanker Docern' Pel - Large 2 (80,000 - 159.999 dwt1

300.0 i_ - 3300.0 311II

200.0300.0 :1 ,00.0 2 00.0H

1950 1954 98 1 1962 966~1 1 970 1 974 i 978 - 142 -

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