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Legal and Economic Analysis of Tramp Maritime Services

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Legal and Economic Analysis of Tramp Maritime Services EU Report COMP/2006/D2/002 LEGAL AND ECONOMIC ANALYSIS OF TRAMP MARITIME SERVICES Submitted to: European Commission Competition Directorate-General (DG COMP) 70, rue Joseph II B-1000 BRUSSELS Belgium For the Attention of Mrs Maria José Bicho Acting Head of Unit D.2 "Transport" Prepared by: Fearnley Consultants AS Fearnley Consultants AS Grev Wedels Plass 9 N-0107 OSLO, Norway Phone: +47 2293 6000 Fax: +47 2293 6110 www.fearnresearch.com In Association with: 22 February 2007 LEGAL AND ECONOMIC ANALYSIS OF TRAMP MARITIME SERVICES LEGAL AND ECONOMIC ANALYSIS OF TRAMP MARITIME SERVICES DISCLAIMER This report was produced by Fearnley Consultants AS, Global Insight and Holman Fenwick & Willan for the European Commission, Competition DG and represents its authors' views on the subject matter. These views have not been adopted or in any way approved by the European Commission and should not be relied upon as a statement of the European Commission's or DG Competition's views. The European Commission does not guarantee the accuracy of the data included in this report, nor does it accept responsibility for any use made thereof. © European Communities, 2007 LEGAL AND ECONOMIC ANALYSIS OF TRAMP MARITIME SERVICES ACKNOWLEDGMENTS The consultants would like to thank all those involved in the compilation of this Report, including the various members of their staff (in particular Lars Erik Hansen of Fearnleys, Maria Bertram of Global Insight, Maria Hempel, Guy Main and Cécile Schlub of Holman Fenwick & Willan) who devoted considerable time and effort over and above the working day to the project, and all others who were consulted and whose knowledge and experience of the industry proved invaluable. Our thanks also to Filippo Lorenzon, Lecturer in of the School of Law and member of the Institute of Maritime Law, University of Southampton, the member of the project team with specific responsibility for coordinating and compiling the legal case law and literature review in Chapters 7 and 8. We are particularly grateful to the following lawyers for their contributions to Chapter 7: Omar Khelifa in Algiers, David Roylance of Holman Fenwick & Willan in Melbourne, Neil Montgomery of Felsberg, e Associados in São Paulo, Toshiaki Shimoyamada of Shimoyamada Law Offices in Tokyo, Igor Nikolaev of I.N. Law Office in St. Petersburg, Tony Norton of Garlicke & Bousfield Inc. of Durban and Robert Magovern of Sher & Blackwell LLP in Washington D.C. Sverre Bjørn Svenning, Fearnleys, Oslo Frédéric Avierinos, Global Insight, Paris Philip Wareham, Holman Fenwick & Willan, London LEGAL AND ECONOMIC ANALYSIS OF TRAMP MARITIME SERVICES TABLE OF CONTENTS EXECUTIVE SUMMARY INTRODUCTION 1. TRAMP MARKET FUNDAMENTALS ........................................................................................................... 2 1.1 GENERAL INTRODUCTION ....................................................................................................................2 1.1.1 The Freight Market ................................................................................................................................. 7 1.1.1.1 The Contract Of Affreightment ...................................................................................................................... 7 1.1.1.2 The requirements contract .............................................................................................................................. 8 1.1.1.3 The Time Charter ........................................................................................................................................... 8 1.1.1.4 The Bare Boat Charter.................................................................................................................................... 8 1.1.1.5 The Voyage Charter ....................................................................................................................................... 8 1.1.1.6 The cross-space charter .................................................................................................................................. 9 1.1.1.7 Co-service agreements.................................................................................................................................... 9 1.1.2 Ownership Structure................................................................................................................................ 9 1.1.3 Commercial And Technical Management .............................................................................................10 1.2 DEFINITION OF TRAMP MARKETS – SOME ISSUES ........................................................................ 11 1.3 TEN KEY POINTS CHARACTERIZING "TRAMP SHIPPING" ............................................................ 14 1.3.1 Globally Competitive Markets............................................................................................................... 15 1.3.2 Close To Perfect Competition Model .................................................................................................... 16 1.3.2.1 Atomicity...................................................................................................................................................... 17 1.3.2.2 Homogeneity ................................................................................................................................................ 19 1.3.2.3 Perfect and complete information................................................................................................................. 19 1.3.3 Different Sub-Market Segments In Response To Customer Needs ........................................................ 20 1.3.4 Competition Between Sub-Markets For Cargo in Terms of Vessels...................................................... 20 1.3.5 Volatile And Unpredictable Demand .................................................................................................... 22 1.3.5.1 Seasonality ................................................................................................................................................... 24 1.3.5.2 Climate and Weather .................................................................................................................................... 25 1.3.6 Many Small and entrepreneurial companies......................................................................................... 27 1.3.7 Global Trading Patterns ....................................................................................................................... 27 1.3.8 Ease of Entry and Exit........................................................................................................................... 27 1.3.9 Cost effectiveness .................................................................................................................................. 30 1.3.10 Responsiveness to development of market and shipper's needs........................................................ 30 1.4 BUYER POWER ....................................................................................................................................... 31 1.5 THE PLAYERS IN THE FREIGHT MARKET......................................................................................... 33 1.6 CONTRACTS............................................................................................................................................ 36 1.6.1 Contracts used in the tramp shipping market........................................................................................ 36 1.6.1.1 Voyage Charter............................................................................................................................................. 37 1.6.1.2 Time Charter................................................................................................................................................. 38 1.6.1.3 Bareboat Charter........................................................................................................................................... 38 1.6.1.4 Pools and other horizontal arrangements...................................................................................................... 40 1.7 ROLE OF BROKERS ................................................................................................................................ 41 1.7.1 Scope ..................................................................................................................................................... 41 1.7.2 Definition............................................................................................................................................... 41 1.7.3 Development of ship broking................................................................................................................. 42 1.7.4 Major shipbrokers and the services they provide.................................................................................. 42 1.7.5 Market intelligence................................................................................................................................ 43 1.7.6 How are vessels fixed? .......................................................................................................................... 44 1.7.6.1 Voyage charters (and, broadly, CoAs) – Dry Cargo..................................................................................... 47 1.7.6.2 Voyage charters – Wet Cargo......................................................................................................................
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