An Innovation in Liner Shipping : the Round-The-World Service As a Global Strategy
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World Maritime University The Maritime Commons: Digital Repository of the World Maritime University World Maritime University Dissertations Dissertations 1986 An innovation in liner shipping : the round-the-world service as a global strategy Cheon Kyu Kim WMU Follow this and additional works at: https://commons.wmu.se/all_dissertations Recommended Citation Kim, Cheon Kyu, "An innovation in liner shipping : the round-the-world service as a global strategy" (1986). World Maritime University Dissertations. 779. https://commons.wmu.se/all_dissertations/779 This Dissertation is brought to you courtesy of Maritime Commons. Open Access items may be downloaded for non- commercial, fair use academic purposes. No items may be hosted on another server or web site without express written permission from the World Maritime University. For more information, please contact [email protected]. WORLD MARITIME UNIVERSITY MALMO,Sweden AN INNOVATION IN LINER SHIPPING THE ROUND-THE-WORLD SERVICE AS A GLOBAL STRATEGY by Kim, Cheon Kyu Korea , A paper submitted to the Faculty of the World Maritime University in partial satisfaction of the requirement for the award of a MASTER OF SCIENCE DEGREE in (GENERAL MARITIME ADMINISTRATION!) The contents of this paper reflect my personal views and are not necessarily endorsed by the UNIVERSITY. Signature; Date; November,04,19S6> Supervised and assessed by: Professor' <?»age Os WMU Co-assessed by; Professor E. Q. Frankel MIT ABSTRACT In recent, years, one of the major events in the container liner market was the introduction of the Round-the-WorId serviceCRTWl, whereby the intensity of competition among carriers has been exacerbated. Consequently, because of its significant impact on the market, there have been many arguments which were rather superficial, while few have dealt with the subject in detail. However, this study has a different approach based on three assumptions. Those are, firstly, the assumption that innovation is an essential factor in economic chang es, secondly, the RTW concept is an innovation in the liner market, and thirdly that the innovation influences the future liner market. With these assumptions, I undertook to explore the fol lowing series of questions, 1. What are the major innovations in the liner market and the interactions on changes in the liner market? 2. What is the significance of the RTW concept as an innovation? 3. What are the core of the RTW concept in its principle and its application to the real world? A. What would the advantages and disadvantages of this concept and the result of its analysis be? 5. What would the impact of the RTW concept in a future projection be? The above questions were dealt with in the relevent chap ters through various methods;of theoretical, practical and analytical access,and summarized, at the end of each ■r part. The summary of major findings in these processes are; 1. If we define the core of containerisation as the unification of cargo through the change of its charac teristics being heterogeneous toward being homoge neous, the RTW concept is the unification of both car go and trades. 2. If the penetration of containerization in internatio nal liner cargo trades represents the level of accomp lishment of standardization of the liner industry, the standardization in the production process of the ser vice commodity in liner shipping has almost completed in the three mainstream trades. 3. This means that market integration in a global point of view can be realized through the establishment of a international marketing strategy. 4. Among various global strategies, the RTW concept is categorized as the overall cost-leadership strategy which is very effective in penetrating the market with its low cost structure and bargaining power in order to build up a defensive position to be able to cope with the competitive market. Accordingly, this paper concludes that the RTW concept as a global strategy should be built in such a way that the concept does not bring about friction with the reality in its application, keeping flexibility and adaptability in the business entity. Finally, the study leaves a further discussion concerning the behavioristic strategies of rivalry and the economic and manageral effectiveness to the market for a future study. •^1 ACKNOWLEDGMENTS A research paper of this kind should be a reflection of contemporary thoughts in the liner shipping industry, particularly in container shipping, and it should be an integration of theoretioal knowledge with paractical experience in the industry. Therefore, a great deal of time and efforts in writing this paper were spent to gather the necessary information through personal interviews, library researches and many visitings to related organizations, taking the opportu nities at the field-trips to various countries such as Li.K. ,France, Norway, Sweden, U .S.AG e r m a n y and Denmark. 1 am grateful to many individuals and organizations who were kind enough to help me in this study. I am particularly grateful to my country for providing me this opportunity to study here. Special thanks are extended to the following individuals and organizations: 1. Federal Maritime Commission: Dr. Robert A.Ellsworth, Director,Office of Pollioy Planning and International Affairs, Mr.Bob Blair,Economist, 2. Maritime Administration,U.S.Dept.of Transportation: Mr.F.J.0'donnel1,Director,Eastern Region, 3. Institute of Shipping Economics And-Logistics Bre men ,Dr.Rolf W .Stuchtey,Director, A. Maryland Port Administration, Baltimore: Mr.J.MeIvin Bafford, National Accounts Representative, 5. Port Authority of New York & New Jersey: Mr.Thomas J.Morrow, Senior Representative Regional 3 Port Sales Office, 6. Port Autonome Du Havre, Port of Le Havre: Mr.Jean-Pierre Hucher, Statisticien Economiste, Chef Du Service Des Etudes Economiques Et Du Plan. 7. The World Bank, Washington D.C.: Mr.John R.Lethbridge,Senior Port Engineer Transportation Department, Mr.John Arnold,Jr. 8. Hochschule Bremen/FB. Nautik: Prof.Kapt.E.K.MangeIs 9. Mr.Richard Poisson, Librarian, The World Maritime University. \ My deepest gratitude goes to prof.Pierre Buchet, Certre National De La Recherche Scientifique, who encouraged me at the first stage of my research. I also owe a great debt to prof.Ernst G.Frankel who has given me indispensable guidance, especially for computer analysis at the World Bank as a part of the on—the—job training program and I would like to thank Dr.A.A.Monsef and Dr.Hans Ludwig Beth, borth of whom shared erudite lectures and offered sagacious criticism. The study would not have been possible without the enthu siasm of my course professor Aage Os who has provided a unique setting of study program in which to do this research, and ceaseless support and encouragement in my study. Finally my overriding debt is to my wife who pro vided me the time for wordprocessing and inspiration nee ded to do this work. It is truely our product. A TABLE OF CONTENTS ABSTRACT ---------------------------------------- ^ ACKNOWLEDGEMENTS -------------------------------- 3 LIST OF TABLES---------------------------------- S LIST OF FIGURES--------------------------------- 10 INTRODUCTION ------------------------------------ 1 PART I INNOVATIONS IN LINER SHIPPING Chapter 1. WHAT IS INNOVATION ? ------------------------ 8 2. SOME CONSIDERATIONS REGARDING THE RELATIONSHIP BETWEEN THE MAIN CHARACTERISTICS OF LINER CARGO AMD LINER SHIPPING------------ 13 2.1 Characteristics of Liner Cargo ---------- 13 2.2 Characteristics of Liner Shipping-------- 16 2.3 The Relationship Between the Main Characteristics of Liner Cargo and Liner Shipping-------------------------- 24 3. HISTORICAL APPROACH OF INNOVATIONS IN LINER SHIPPING------------------------------------- 26 3.1 Hardware-Oriented Innovations ----------- 27 3.2 Software-Oriented Innovations ----------- 28 4. THE RESULT OF THE CONFERENCE SYSTEM AND CONTAINERIZATION ---------------------------- 36 5 4.1 The Result of the Conference System ----- 36 4.2 The Result of the Containerisation ------ 48 5. THE ADVENT OF THE RTW CONCEPT AS AN INNOVATION---------------------------------- 53 5.1 Economic Environment of the Liner Market— 54 5.2 The Advent of the RTW, Concept----------- 67 5.3 The RTW Concept as a SOFTWARE-ORIENTED INNOVATION------------------------------ 73 PART II THE CORE OF THE RTW CONCEPT 6. THE DEFINITIONS AND PREREQUISITES------------ 76 6.1 Global Strategy------------------------ 76 6.2 The RTW Concept------------------------ 78 6.3 The Prerequisites of the RTW Concept --- 79 7. THE RTW CONCEPT IN PRACTICE: A CASE STUDY OF US LINES AND EVERGREEN LINE--------------- 89 7.1 Operational Aspect --------------------- 69 7.2 The Practice in US Lines------------- 90 7.3 The Practice in Evergreen Line---------- 102 7.4 The Comparision of the Two Practices - 112 PART III THE ANALYSIS OF THE RTW PRACTICES AND CONCLUSION 8. THE ADVANTAGES AND DISADVANTAGES OF THE RTW--- 127 CONCEPT 6 8.1 The Advantages------------------------- 128 8.2 The Disadvantages---------------------- 132 9. CASE STUDIES ON COSTS COMPARISONS----------- 135 9.1 The Comparison of the Cost at Sea in Terms of TEU Mile between the Contaiherships of US Lines, Evergreen Line and Hapag-Lloyd Line ------ 136 9.2 The Comparison of Average Voyage Costs between US Lines and Hapag-Lloyd Line in the Segment of Transatlantio Trade Route------------------------------------ 151 9.3 The Conclusion of the Comparisons ------- 159 10. CONCLUSION---------------------------------- 163 10.1 Impact of the RTW Concept on Future Liner Shipping