THE EFFECTS OF CREDIT FROM COMMERCIAL BANKS ON SHIPPING TRADE IN THE NIGERIA MARITIME SECTOR

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THE EFFECTS OF CREDIT FROM COMMERCIAL BANKS ON SHIPPING TRADE IN THE NIGERIA MARITIME SECTOR

CHAPTER ONE

INTRODUCTION

Introduction

Shipping as a service industry constitutes an invaluable component of the national economy, with a significant contribution to the Gross Domestic Product (GDP). Shipping also creates a lot of jobs.

In Nigeria, shipping is an industry with the potential to be a major revenue earner for the country. But unfortunately, the country has not been able to tap the full potential of this industry for the simple reason that activities in the industry are dominated by a few foreign companies. However, the federal government has made some interventions that are expected to correct this imbalance. They include direct funding for shipping through the Ship Acquisition and Ship Building Fund (SASBF), Cabotage Vessel Financing Fund (CVFF), and the Cargo Reservation and Outright Cabotage legislation. Despite these efforts, the shipping industry is still dominated by foreign companies that rely on the traditional method of ship financing – bank financing.

Until recently, the idea of alternative ship financing seemed unattractive, as it was considered too limited. In the wake of the global economic crisis of 2008, however, there arose a compelling need to look for new and alternative means of ship funding.

In order to fully understand what ship financing entails, it is important to look at the different businesses that comprise maritime shipping. These include shipbuilding, ship ownership, ship operation (container ships), ship financing, and ship scrapping. Others are ship classification, ship registration, ship insurance (protection and indemnity), as well as seafarer supply and port operation (container terminal operators). All the aforementioned shipping activities have prospects for growth. What has remained a major challenge is finding an appropriate financing solution for them. This has to do with the capital-intensive nature of shipping, a situation made worse by the absence of a dedicated financing bank for shipping in Nigeria. There is, therefore, a compelling need for an alternative ship financing solution in Nigeria.

Before the enactment of the Cabotage Act to address the challenges associated with shipping in Nigeria, the maritime sector was in a precarious state, characterized by ineffectiveness. The act was therefore introduced to stimulate, empower and reposition indigenous shipping companies for active participation in sub-Sharan shipping transactions.

In addressing the challenge of shipping financing, many options are open as possible sources. These include commercial banks, mortgage finance institutions, mezzanine finance (top-up finance); bond market, and equity market (IPOs and follow-on equity offerings). Others are private equity, which is becoming a growing trend of medium-term investment into shipping; leasing, which has a tax-efficient structure; insurance market, with its historical involvement in the tanker industry – like RV insurance; ECA, which is government-supported financing to clients of local exporters, like shipyards, as well as insurance.

Bank lending has proved to be one of the most reliable and sustainable sources of ship financing. Although shipping is a cyclical industry, bank financing has been consistent, even during periods of economic slowdowns. It is easy and convenient for shipping companies to obtain bank loans using vessels as collateral, and for decades, they have been using this option of financing. However, this source of financing seems to have dried up in recent times. The financial crisis of 2008 literally battered the banking sector, drastically reducing banks’ lending capacity and resulting in a situation in which many of them gradually pulled out of the shipping industry. By 2012, the total global industry debt was put at $500 billion, 80 percent of which was financed by European banks.

In order to enhance easy shipping financing in Nigeria, the exercise must be private sector-driven, devoid of political influence, interference, and undue government control, which are all capable of stifling banking operations. Ship acquisition and fleet expansion through debt financing provided by banking institutions should be encouraged. Financial facilities should be provided to support the exercise. This would enable indigenous shipping companies to derive maximum benefits from the Cabotage Act.

There is, therefore, an urgent need for the establishment of Maritime Bank of Nigeria to address the challenges shipping companies face in obtaining financing from commercial banks. A maritime bank is an absolute necessity because of the capital-intensive nature of the industry. Having the bank in place would also enhance shipping operations, and also attract local and foreign investors into the industry.

Background of the study

Small and Medium Enterprises (SMEs) have long been recognised by the World Bank and other multinational agencies as critical to economic growth and poverty reduction. They have increasingly attracted targeted assistance of these international organizations in their increasingly attracted targeted assistance of these international organizations in their interventions in developing countries. SMEs include a wide range of businesses, which differ in their dynamism, technical advancement and risk attitude. Many are relatively stable in their technology, market and scale, while others are more technically advanced, filling crucial product or service niches. Others can be dynamic but high-risk, high-tech

“start-ups” (Darlberg Global Development Advisors, 2011). SMEs are critical to job creation, contribute to economic growth and provide a platform for the development of entrepreneurial capabilities including indigenous technology. Thus, national governments have been making efforts toward providing for sustainable growth and development of economy through private sector led initiatives. However, one area attracting increasing global attention in the quest for private sector led development is SMEs in maritime shipping sector.

Maritime shipping comprises a large variety of different businesses which according to UNCTAD (2011) can be categoried as follows: Shipping building, ship owning, ship operation (container ships), ship financing, ship scrapping, ship classification, ship registration, ship insurance (Protection & Indemnity), seafarer supply and port operation (container terminal operators). These areas of maritime activities have prospects for sustained growth as supported by the positive trends in value of exports on ships, floating structures and the world seaborne trade.

Shipping as a service sector is an important component of the national economy. It makes a direct significant contribution to GDP, job creation and provides crucial inputs for the rest of the economy. Unfortunately, activities in this sector in Nigeria are dominated by a few foreign firms which afford the enormous capital required in this sector. For example, in terms of ship owning and operation, Okoroji and Ukpere (2011) document that only about eight (8) percent of the total number of vessels that called at the Nigerian port terminal between 1997 and 2006 are owned by Nigerians. Igbokwe (2006) finds that Nigeria has only three vessels duly certified for cabotage shipping services out of one hundred and fourty (140) needed by the oil industry. These statistics indicate negative implications on the growth and viability of indigenous SME’s in the maritime sector as they basically lack adequate capacity to operate competitively. Special intervention policies (albeit unproductive) have been initiated by the federal government in the past to correct this imbalance. These include direct funding through Ship Acquisition and Ship Building Fund (SASBF), Cabotage Vessel Financing Fund (CVFF), cargo reservation and outright Cabotage legislation. However, as is tradition in developed maritime nations, ship acquisition and fleet expansion is better done through debt finance which can only be provided by the banking institutions. This fact questions the commitment of the Nigeria’s banking institution especially the commercial banks in providing entrepreneurial finance to SME’s in the shipping sector.

Existing studies have identified funding as a major constraint to entrepreneurs in establishing and managing SMEs in developing countries; notable among such studies include: Abereijo and Fayomi (2005), Beck (2007), Hoff et al. and Gibson (2008). According to Dalberg Global Development Advisors (2011), SMEs which play a crucial role in furthering growth, innovation and prosperity in developing countries are unfortunately, strongly restricted in accessing the capital that they require to grow and expand, with nearly half of SMEs in these countries rating access to finance as a major constraint. A number of factors have been adduced to this development; at one extreme the government has been blamed for not providing direct funding or adequate legislative support for financial institutions to do so; see Cumming et al (2006), Lerner and Antoinette (2005); at the other extreme, financial institutions point to entrepreneurship related factor: lack of lender information, risk profile and legal environment etc. Thus, further research is needed to identify the constraints hindering banks funding in development of SMEs or the maritime businesses in the shipping sector. The outcome of this study would provide insight into factors affecting the commercial banking institutions in the provision of credit to private sector led SME development. The findings from this study would also provide basis for designing intervention policies aimed at addressing the funding issues of SMEs in the maritime sector. The rest of the paper is structured as follows: in section two, we develop the conceptual framework of this paper and examine related literature. Section three presents the methodology while results of data analysis of the study is presented and discussed in section four. In section five, we discuss the policy implication of the results and conclude the work.

Over the years the Central Bank of Nigeria had stipulated the amount of interest and lending rates that are obtainable in our commercial banks, with a view to harmonize these rates in all commercial banks in all the country it will be of interest to note that the central banks credit policy guideline had been a reflection of the country’s economy form year to year.

The monetary and credit policy measures were designed to accelerate the rate of domestic production maintain healthy balance of payment position reduce the arte of domestic price inflation. Monetary policy measures were also aimed at increasing the flow of credit to the priority sectors of the economy particularly the agricultural and manufacturing sectors so as to expand the production of home made goods and services. The stand of monetary policy continued to be tight to complement a disciplined fiscal policy in order to achieve moderation in inflection any measure and ensure exchange rate stability.

History of Banking In Nigeria

The Nigerian banking ordinance of 1952 and the banking act of 1958 and various amendments and innovations through 1969 laid the foundation for the operation of commercial banking in Nigeria. The number of commercial banks operating in the country rose from eight (8) in 1959 to twenty five (25) in 1983. as at 1995 there are 65 commercial banks in Nigeria with 1634 branches in urban areas 763 branches in rural area and 6 branches abroad totaling 2403 branches a significant increase. While bank branches and offices increased from 160 to 1108 branches and offices in these period. The total deposit liabilities also rose from 13.6 million Naira in December 1969 to 13.9 billion Naira at the end of 1983. Since 1977 and following the enactment or promulgation of Nigeria Enterprises promotion decree 1972 it has become mandatory for all banking institutions in the country to be at sixty percent (60%) Nigeria owned. This showed that with the promulgation of Nigeria enterprises promotion decree Nigeria have started loving more than fifty percent (50%) shores in the commercial banks operating in the country following the current capitalization that us map out by the central banks on all the commercial banks operating in Nigeria.

The commercial banks have over the years proved to be the most important financial intermediary. They have facilities for the rapid transformation and improvement of our economy far and ways they are the largest single group in financial sector out weighting by shore volume of transactions all the other non-banks financial institution joined together throughout the whole world the commercial banks is playing a big role in shaping the economy. They provide the tools contact and expand the money in circulation through the mass of bank rates. In Nigeria however the government has sustained shareholding in the equity capital of the banks. They have contributed immensely to the economic development through their deposit holding and credit to the Nigeria economy.

1.2 Statement of Problem

This study entitled “ empirical analysis of commercial banks lending policies to the private sector” attempt to appraise the various ways through which the commercial banks disburse money in from of loans and advances to the private sector with a view to determine the extent of compliance with the central banks of Nigeria credit guidelines.

For sometime now there have been a large stream of articles books and researches on commercial banks lending polices. This is so because of the need for fund by both the private and public sectors for development purposes. Frankly commercial banks do not have their individual lending policies but can adjust within the stipulated standard with an aim to utilize their customer’s deposit to attain the goal of optimum profit.

It is disheartening to team that the efforts of various government (federal and state) towards the attainment of industrialization have been on persistent increase. There have been great loss of reveneue of most of the essential infrastructural maritime infrastructure. They do not seem to be any significant improvement with regard to output or productivity of maritime sector. In the area of loans and advances that people now cast doubt over the ration ate of commercial and allied bank loans or credit scheme.

1.3 Research Questions

What are the sources of commercial banks funds and types of advances

What are Credit policy guidelines as projected to direct by the central banks of Nigeria (CBN) with a view to determine the sectoral allocations to the maritime sector

What are typical commercial banks lending policies to determine the extent of its compliance with that of central bank. And based on this of review an analysis is made based on the requirement used to advance money to individual and companies. Hence my decision to appraise the commercial banks lending policies to maritime sector.

Through what sources do you raise your find?

What find of loans do you grant to your customers?

What type of securities qualifies one for your loans?

1.4 Objectives of the Study

This study entitled “ empirical analysis of commercial banks lending policies to the private sector” is discuss toward appraising the central banks of Nigeria credit policy guideline regarding loans and advance disbursed by the commercial banks to individual and companies with a view to determine it’s effectiveness and compliance to the rules laid down. Whether the individual/ companies that benefited from the loan actually make use of the fund for the purpose they applied the money for.The researcher will also have on insight (understanding) into the sectoral allocations of these loans and advances from the view point of preferred and less preferred sectors of the economy. The study is directed towards determining the use to which this borrowed money are put by the beneficiaries with a view to determine whether or not the loans are utilized for the purpose for which they are meant for.The study is also geared towards borrowing whether these commercial banks actually give these loans or they give these with stringent conditions making it impossible for poor individuals or small-scale industries to obtain these and repay with much high interest rate accompanying it.

1.5 Significance Of The Study

This study is important in the sense it shows the ways loans and advances made available to individuals and companies by commercial banks with a view to enable them carry on their business and operations with intention to repaying back such loans at an agreed future period and the agreed interest rate being the cost of the loan.

The study is also significant because the finding will be help to commercial banks customers (the beneficiaries) and there fore help the policy makers to make amend the exists lending policy and formulate new and appropriate lending polices or facilities in such a way to reduce these problems to list minimum.

It will also be of immense benefit to future researchers on the same subject matters or in similar circumstances. The study will also provide data for planning purpose.

Furthermore it will help central banks of Nigeria to know whether their credit guidelines are being followed as prescribed.

1.6 Definition Of Terms

Cross Firing: This means lodgment of cash and cheques in the bank only to meet cheques presented for payment at a branch.

Illiquid: A state of affairs or balance sheet of a concern is said to be illiquid when it is unlikely that advances can be repaid on demand. It simply means insufficient cash to meet demand of a firm.

Pledge: This is a delivery of goods or document of title by a debtor to his creditor as a security for debt or for any other obligation.

Mortgage: Is the conveyance of a legal or an equitable interest in real (movable property) or personal property as security for a dent or for the discharge of an obligation

Assignment: This is a transfer by a creditor to an assignee of the right to receive a benefit from a debtor.

Profitability: This is a total net profit or gain made by a concern from its sales or business activities.

Turnover: This is value of daily weekly monthly quarterly and year’s lodgment of cash cheques or transfer made by an individual in the banks.

Commercial Bank: This means any person who transact banking business in Nigeria and whose business includes the acceptance of deposits withdrawal by cheques.

Acceptance House: This means any person who transacts banking business in Nigeria and whose business includes the acceptance of deposits withdrawable by cheque.

Loans: This is the transfer of funds from one economic entity to another which must be regard with interest over an agreed prescribed period of time.

Credit: The word credit comes from a Latin word credo meaning I believe it mean ability to command capital of another in return for a promise to repay at a specified time in the future (usually with cost represented by repayment of interest).

Hypothecation: An agreement to give a charge over goods or over the documents of title to goods in circumstance in which it take it impossible for the lender to have procession of the goods.

Set Off: The combination of the debit and credit accounts so as to arrived at a particular or full payment of a debt.

Literature review

Around 90% of world trade is carried by the international shipping industry. Without shipping the import and export of goods on the scale necessary for the modern world would not be possible. Seaborne trade continues to expand, bringing benefits for consumers across the world through competitive freight costs. Thanks to the growing efficiency of shipping as a mode of transport and increased economic liberalization, the prospects for the industry’s further growth continue to be strong.

There are over 50,000 merchant ships trading internationally, transporting every kind of cargo. The world fleet is registered in over 150 nations, and manned by over a million seafarers of virtually every nationality.

Shipping is a growth industry

Shipping plays a vital role in world trade and is the backbone of the world economy. Without ships and the transportation services these ships provide, the world would not be as prosperous as it is today and many countries would not be able to participate in world trade.

In recent years, shipping has proven to be a growth industry witnessing the increase in gross tonnage of the world fleet by millions of tonnage every year. Since the worldwide economic downturn set in late 2008, the interdependence of global economies has become even more evident. International trade – by any mode of transport – has been affected immediately and dramatically.

Shipping Development over Last 5,000 years

The history of trade can be divided into three phases. The first started in the Mediterranean, spreading west through Greece, Rome and Venice, to Antwerp, Amsterdam and London. During this phase a global trading network gradually developed between the three great population centres in China, India and Europe. At first this trade was by land and was slow and expensive, but when the voyages of discovery opened up global sea routes in the late fifteenth century, transport costs fell dramatically and trade volumes escalated.

The second phase was triggered by the industrial revolution in the late eighteenth century. Innovations in ship design, shipbuilding and global communications made it possible for shipping to be conducted as a global industry, initially through the Baltic Exchange, whilst reliable steamships and technical innovations such as the Suez Canal made it possible for liner companies to operate regular services. For the next century trade grew rapidly, focused around the colonial empires of the European states and the framework of sea trade was radically changed.

Finally in the second half of the twentieth century another wave of economic and technical change was triggered by the dismantling of the colonial empires which were replaced by the free trade economy initiated at Bretton Woods. Manufacturers set out to track down better sources of raw materials and invested heavily in integrated transport systems which would reduce the cost of transporting these goods. During this period we saw the growth of the bulk carrier markets, the containerization of general cargo and specialist shipping operations transporting chemicals, forest products, motor vehicles, gas, etc. An important part of this revolution was the move of shipping away from the nation states which had dominated previous centuries towards flags of convenience. This brought greater economies and changed the financial framework of the industry, but it also raised regulatory problems.

Shipping’s ‘industrial revolution’

Trade expansion on this scale would not have been possible without a major reform of the transport system. During the next 35 years many new ship types were developed, including bulk carriers, supertankers, liquefied gas tankers, chemical tankers, vehicle carriers, lumber carriers and, of course, container-ships.

Congestion and the Economy

Many industries have adopted transportation-dependent strategies designed to reduce non-transportation costs, or improve customer service. These include siting facilities in areas where large numbers of potential employees live within commuting distance, implementing “just-in-time” manufacturing and delivery concepts, and siting facilities where package express air services can pick up a parcel in the evening and still deliver it the next day.

Transportation supports regional economies in three distinct ways. One is providing some form of access to/from other economies. Another is through the provision of services and infrastructure that have the ability to reduce transportation costs. Finally, transportation supports economies by ensuring the services and infrastructure provided are managed and operated in a manner that allows industries to minimize production costs as well as transportation costs. In particular, this means it is very important to find ways to reduce congestion or at least keep it from getting worse.

The Global Economic Role of Maritime Shipping

Marine transportation is an integral, if sometimes less publicly visible, part of the global economy. The marine transportation system is a network of specialized vessels, the ports they visit, and transportation infrastructure from factories to terminals to distribution centers to markets. Maritime transportation is a necessary complement to and occasional substitute for other modes of freight transportation. For many commodities and trade routes, there is no direct substitute for waterborne commerce. (Air transportation has replaced most ocean liner passenger transportation and transports significant cargo value, but carries only a small volume fraction of the highest value and lightest cargoes; while a significant mode in trade value, aircraft moves much less global freight by volume, and at significant energy per unit shipped.) On other routes, such as some coastwise or shortsea shipping or within inland river systems, marine transportation may provide a substitute for roads and rail, depending upon cost, time, and infrastructure constraints. Other important marine transportation activities include passenger transportation (ferries and cruise ships), national defense (Naval vessels), fishing and resource extraction, and navigational service (vessel-assist tugs, harbor maintenance vessels, etc.).

Globalization is motivated by the recognition that resources and goods are not always collocated with the populations that desire them, and so global transportation services are needed (and economically justified if consumer demand is great enough). For example, until the 1950s, most crude oil was refined at the source and transported to markets in a number of small tankers [sized between 12,000 and 30,000 deadweight tonnage (dwt)]. However, economies of scale soon dictated that oil companies would be better off if they shipped larger amounts of crude from distant locations to refineries located closer to product markets. Product could then be more efficiently distributed to points of consumption using a host of transportation modes. This realization ultimately led to the emergence of large tanker vessels (e.g., greater than 200,000 deadweight tons) and drove down the per-unit cost of intercontinental energy transportation.

Similarly, rather than palletize grains, minerals, and other commodities, dry bulk cargo ships were designed to deliver cargoes in raw or semi-raw condition from where they were found or grown to processing facilities (e.g., mills and bakeries) closer to final market. Along with containerization and advances in cargo handling and shipboard technology, these measures reduced crew sizes and long-shore labor requirements which also reduced the per-unit cost of ocean cargo transport.

Lastly, globalization identified labor markets overseas that encouraged transport of semi-raw materials and intermediate products where manufacturing costs were lower. With low-cost petroleum energy for vessel propulsion, facilitated by vessel economies of scale, the per-unit costs of semi-finished and retail products were minimized by multi-continent supply chains. Today it is common for agri-products to be harvested on one continent, shipped to another for intermediate processing, transported to a third continent for final assembly, and then delivered to market. For example, cotton grown in North America may be sent to African fabric mills, and then to Asian apparel factories before being returned to North America for sale in retail stores. Orange juice, wine, and other products have also found markets on continents where seasonal or climatic limitations require an offshore source.

Another trend associated with globalization is the pace at which trade occurs. Globalization has encouraged transactions of goods and services in smaller packets delivered “just-in-time”. This has increased the “velocity of freight” which justified in the 1970s faster, small containerized vessels, and over the last two decades justified faster, large containerized vessels. In a globalized economy, containerization offers the advantage of integrated freight transportation across all modes.

Global Transport Industry

Today it has become a tightly knit global business community, built on communications and free trade. Perhaps that will change. The relationship between transportation and a region’s economy depends upon its industry mix, the location of industry growth, and the location of population growth. Between 1990 and 2010, significant changes took place in the makeup of Oregon’s base industries, but very little change occurred in the relative size of industries supporting household activities. For example, employment in the forestry, lumber and paper industries declined while employment in the instruments and electronic equipment industries increased. At the same time, the proportion of the workforce employed in retail trade and in the finance, insurance, and real estate industries remained about the same.

The modern international transport system consists of roads, railways, inland waterways, shipping lines and air freight services, each using different vehicles. In practice the system falls into three zones: inter-regional transport, which covers deep-sea shipping and air freight; short-sea shipping, which transports cargoes short distances and often distributes cargoes brought in by deep-sea services; and inland transport, which includes road, rail, river and canal transport.

Shipping, Transportation and Economic Development

There is universal agreement among interest groups that transportation facilities and services are necessary to enable economic development to occur. However, there is little agreement among interest groups on a specific definition of “economic development.”

Economists define economic development as activities that result in increased average per capita incomes. However, most common viewpoints of economic development can be generalized as follows:

1- Capital investment in high wage industries resulting from investment (e.g., transportation improvements) that improves the competitiveness of a region;

2- Development of new territory that is separate from similar, existing developed areas;

3- Development/investment in specific built-up areas (e.g., central business districts, along light rail corridors); or Specific developments (e.g., a new paper mill, a new microchip plant) at specific sites.

Factors limiting private-sector capital investment in a region can often be identified. These factors may be a limited water supply, an inadequate land supply, limited sewerage and wastewater treatment capacity, an insufficiently skilled workforce, congested highway segments, or difficult and time consuming access to distant markets. When these factors are constraining and the limits are removed, private-sector investment will create jobs. For instance, the recently improved aviation connection between Portland and Frankfurt, Germany is expected to generate significantly increased trade and tourism between these parts of the world. Highway improvements in the right places will have the same effect. The key element is identification of those factors that constrain private-sector capital investment.

Some areas are characterized by large amounts of vacant land, constrained access to that land, and local citizens’ desire to see it developed. Development of such land may be “economic development” if it attracts new high wage industries along with supporting commercial and housing development that would not otherwise locate in the region, or if it provides housing for population growth that cannot be accommodated in more developed areas of the region. However, land development that merely diverts capital investment or housing from other nearby areas provides little, if any, actual economic development to a region. In any case, areas having roads designed for low-volumes and low-speeds will require new high-speed, high-volume roads to accommodate large-scale urban or suburban development.

The implication of all of this is that transportation access and funds used to encourage or subsidize retail development for the purposes of economic development usually will not be effective for the economy as a whole. The use of transportation funds to subsidize retail development may be an effective way to address other issues.

Finally, there is one universally agreed upon principle concerning transportation and economic development. Modern transportation facilities are necessary, but not sufficient, to ensuring an area’s development. Other necessary factors include available andcompetitively priced land, labor, capital, and natural resources, as well as reasonable tax rates, an acceptable quality of life, and the presence of other types of infrastructure.

The Global Economic Role of Maritime Shipping

The Role of Ports

The facilities provided in a port depend on the type and volume of cargo which is in transit. As trade changes, so do the ports. There is no such thing as a typical port. Each has a mix of facilities designed to meet the trade of the region it serves.

Ports and terminals earn income by charging ships for the use of their facilities. Leaving aside competitive factors, port charges must cover unit costs, and these have a fixed and variable element. The shipowner may be charged in two ways, an ‘all-in’ rate where, apart from some minor ancillary services, everything is included; or an ‘add-on’ rate where the shipowner pays a basic charge to which extras are added for the various services used by the ship during its visit to the port. The method of charging will depend upon the type of cargo operation, but both will vary according to volume, with trigger points activating tariff changes.

The Shipping Companies

A striking feature of the shipping business to outsiders is the different character of the companies in different parts of the industry. For example, liner companies and bulk shipping companies belong to the same industry, but they seem to have little else in common. In fact there are several different groups of companies involved in the transport chain, some directly and others indirectly. The direct players are the cargo owners, often the primary producers such as oil companies or iron ore mines and the shipowners (shipping companies). However, in the last 20 years they have been joined by two other increasingly important groups: the traders who buy and sell physical commodities such as oil, for which they need transport, making them major charterers; and the ‘operators’ who charter ships against cargo contracts for an arbitrage. Ship managers and brokers are also involved in the day-to-day commercial operation of the business. Each has a slightly different perspective on the business.

Each of The suppliers, including managers, ship repairers, shipbuilders, equipment manufacturers and shipbreakers are a distinctive business with its own special culture and objectives. Ship finance forms another category, again with distinctive subdivisions, as do lawyers and other associated services such as ship surveying, insurance and information providers.

The Role of Finance in Shipping and Ports

The growth prospects and capital requirement to finance projects, namely shipbuilding, ports development, mergers and acquisitions, have attracted the attention of large financial firms and changed the relationships finance was traditionally having with the industry. Financialization, as a proxy for the growing influence of capital markets, their intermediaries, and processes in contemporary economic and political life—has attracted growing academic, political, and popular attention (Pike and Polllard, 2010). Supported by financial institutions, maritime shipping companies and global terminal operators have built an impressive portfolio of assets. Finance has made a complex industry even more complex with an array of new players such as sovereign funds and various stakes.

While financialization shifted the relations between the port industry and the trade patterns it is servicing, this relation is likely to shift again towards a new paradigm better placed to assess risk. before the economic crisis ports and terminals had experienced the arrival and normalization of what Froud and Williams (2007) termed as a ‘culture of value extraction’: financial principles interpreted port businesses as abstracted bundles of financial assets and liabilities to be traded for higher economic returns than the existing configurations are able to deliver. In the aftermath of the economic crisis, the broken link between, (a) financial institutions whose decisions have assumed a central role in port development and directed towards particular corporate strategies, and, (b) the territorial and relational specialties of economic environments and markets within which ports and terminals develop, might be reestablished in a way that previously ignored concerns, like the organization of production factors, trade developments, regulatory regimes, localized corporate and social cultures, will once more condition decisions to invest. Given this reconnection, uneven geographies of future financialization processes, in terms of assets investments, profitability opportunities, and exclusion potentials, that is observed in other sectors might also apply in the port sector, reversing the observed in the pre-crisis period ‘globalised’ reckless nature of in financial actors involvement.

Conclusion

Because shipping is a service business, ship demand depends on several factors, including price, speed, reliability and security. It starts from the volume of trade, how the commodity trades can be analysed by dividing them into groups which share economic characteristics, such as energy, agricultural trades, metal industry trades, forest products trades and other industrial manufactures. The shape of the PSD function varies from one commodity to another. The key distinction is between ‘bulk cargo’, which enters the market in ship-size consignments, and ‘general cargo’, which consists of many small quantities of cargo grouped for shipment.

Bulk cargo is transported on a ‘one ship, one cargo’ basis, generally using bulk vessels. Some shipping companies also run bulk shipping services geared to the transport of special cargoes such as forest products and cars. To meet marginal fluctuations in demand or for trades such as grain where the quantities and routes over which cargo will be transported are unpredictable, tonnage is drawn from the charter market.

General cargo, either loose or unitized, is transported by liner services which offer regular transport, accepting any cargo at a fixed tariff. Containerization transformed loose general cargo into a homogeneous commodity which could be handled in bulk.

This changed the ships used in the liner trades, with cellular container-ships replacing the diverse fleet of cargo liners. However, the complexity of handling many small consignments remained and the liner business is still distinct from the bulk shipping business. They do, however, go to the charter market to obtain ships to meet marginal trading requirements.

Specialized shipping falls midway between general cargo and bulk, focusing on high-volume but difficult cargoes such as motor vehicles, forest products, chemicals and gas. Their business strategy is generally to use their specialist investment and expertise to give the company a competitive advantage in these trades. However, few specialist markets are totally segregated and competition from conventional operators is often severe.

Sea transport is carried out by a fleet of 74,000 ships. Since technology is constantly changing and ships gradually wear out, the fleet is never optimum. It is a resource which the shipping market uses in the most profitable way it can. Once they are built, ships ‘trickle down’ the economic ladder until no ship-owner is prepared to buy them for trading, when they are scrapped.

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