There was a record number of papers this year and an improved overall performance with some excellent papers. However. some students are still not prepared for the rigour of essay answers requiring discussion of the issues, not just lists of facts. In particular generalisations need to be avoided; statements such as “Management will handle top level discussions” or “The technical staff must know all sorts of technical issues” add nothing at all to an answer and must be extended by specific example.
Too often time is wasted in long, often historical, introductions to questions and explanations of terms used in the question. Candidates need to identify and directly address the issues raised.
QUESTION 1 – MERGERS OF CONTAINER CARRIERS .
This is a very open question giving plenty of scope for broad discussion. It required some awareness of recent merger activity among major carriers as well as a number of smaller or local ones. The question asked about the impact on specific players which if followed would have assisted structured answers; many answers ignored that.
Impact on customers should include reduction of choice and potential monopolistic tendencies, contrasted with greater global cover through single carrier. Impact on competitors - possible unfair use of dominant market position, rate and market leadership; on partners, the ongoing reshaping of alliance agreements and rescheduling. Mergers do not necessarily produce lower freight rates or more frequent services as some answers suggested they have more to do with economy of scale and market position.
Discussion of the future might include discussion of maximum economy of scale, market domination, intervention of regulators and the optimum number of main players.
QUESTION 2 – CONTAINER TRADE ROUTES
This geography question was very popular but sadly, very badly answered! The majority of answers were supported by a map of the chosen routes but most were poorly presented while other candidates did not include one. The routes offered gave a broad spread of options while avoiding the main east west trades and are all are served by end to end options in competition with hub and spoke services although some are dominated by the latter. There was confusion about end to end services - just because a service offers some transhipment to through destinations this does not make it hub and spoke. In some cases the end to end alternatives are specialist services such as reefer and needed to be identified as such. The question was about “Container Trades so there were no marks for discussion of dry bulk or tanker cargoes. It was necessary to identify about 6 ports at each end of the trade (it was not enough to just identify hubs) and a similar number of commodities. In the case of commodities some basic information about characteristics is expected. There was considerable weakness in this, “etc” is neither a port nor a cargo. Also some problems with the areas nominated - Japan, Korea, Northern China are not in South East Asia, Red Sea and Egyptian ports are not in the Gulf but New Zealand is part of Australasia and was not mentioned by those choosing that option.
QUESTION 3 –EUROPEAN UNION DECISION ON CONFERENCES
This question did not require a detailed knowledge of the Commission’s decision although the final report of the consultants was published in October 2005. What is required here is discussion of the underlying arguments in favour of retention or removal of Conference exemptions from competition law, or more simply the advantages and disadvantages of Conference operation. A reasoned discussion of this and some view of the spin off effect on trades outside the EC will be sufficient for a reasonable pass mark. The question was generally well answered, the best answers included examination of future liner structures including consortia/alliances and the possible impact on other regulators including FMC. Too many candidates were sidetracked into a lengthy history of the conference system which was not needed; more worrying were those who thought that ‘fighting ships’, deferred rebate systems or other historic Conference practices still exist together with references to 40/40/20 rules also those who believe that Consortia can indulge in rate fixing. All these practices are either illegal or obsolete.
QUESTION 4 – FUTURE OF GEARED CONTAINER SHIPS
The answer should include discussion of the circumstances where geared ships are still needed including the needs of the very many remote feeder/spoke operations and underdeveloped ports. There was some very good commentary on this including recognition of the pressure from major players for efficient exclusive terminals. A reasoned argument was looked for rather than a specific view on the validity of the statement or otherwise. However too many answers were dominated by descriptions of the mainline trade routes. Some discussion of the traffic volumes needed for adequate terminal facilities was also appropriate. The Ro-Ro discussion should cover the pros/cons of carrying containers on such vessels including costs of trailers as well as capital cost of vessels. The extent to which small geared container ships are replaced by Ro-Ro is perhaps best exemplified by archipelago island services although there are other good examples including West Africa. There was confusion between Ro-Ro ships and PCC/PCTC and the question did not ask for a broad discussion about Ro-Ro services, only about their potential role in handling container traffic.
QUESTION 5 – STRUCTURE OF A LINER OPERATING COMPANY
This answer needed an organisation chart and the majority provided one. The departments identified should include most of the following with a suitable description of the role of the department. For example and not exhaustive:
Management: Overall policy; service structures, fleet size, independence or co-operation.
Technical: Fleet acquisition and maintenance, crewing, storing & bunkers, equipment.
Operations: Route planning, Scheduling, Ports and Terminals, Co-operation liaison, Agents
Commercial: Capacity planning, allocations, pricing, Marketing & sales.
IT & Accounting: Financial & computer systems, treasury functions, legal & insurance.
It is recognised that different liner companies share out functions among departments in different ways and use different terminology to describe those functions so the requirement is that the answer identifies the key activities and organises them in a sensible structure. The best answers identified the co-operation needed as well as the tensions that arise from the priorities of departments, also those that discussed out sourcing ship management and crewing. There was evidence that not all candidates read the question which was about a medium size, deep sea container liner operator, not about bulk carrier, tanker, short sea or agency companies.
QUESTION 6 – CARGO DELIVERY PROBLEMS
The answer should start with a straightforward description of release procedure including checks against manifest, checks for endorsements, identity of receiver, payment of freight, GA reservation clause, issue of Delivery orders. Need to query any doubt with principal and load port. Many answers reflected some element of local procedure and custom of port which was acceptable but many other answers lacked any detail of procedures. This question was not about letter of credit negotiations as many seemed to believe nor did it require a description of the functions of a bill of lading.
(a) Should deal with need and reasons for a Letter of Indemnity including principal’s approval, checks with load port, no time/value limits. LoIs issued for missing Bills are enforceable, there was confusion with the unlawful act of accepting an LoI for ‘predated’ or ‘clean’ instead of claused bills.
(b) It is clear that many candidates did not know what a ‘straight’ bill is - consigned to a named consignee and not ‘to order (of….)’. Recent court cases have confirmed that straight bills must be surrendered by receivers and that goods cannot be claimed just on proof of identity, also that Hague Visby rules do apply. Thus a straight bill of lading must be treated as any other bill of lading except for negotiability and not as a sea waybill.
(c) The key issue is to identify the need to ensure that performing carrier’s bill is accomplished not just the house bill. Useful additional discussion covered the acceptability of NVOC house bills as ‘carrier’ bills under UCP and the cargo claims trail.
QUESTION 7 – LINER PRICING POLICY
The statement is broadly correct although distance and commodity do play an ancillary role in establishing rate. The question was generally well answered.
The main policy factors are competitors, capacity, trade/volume, market share, imbalances. Shorter routes relatively high priced because less opportunity for economy of scale. Cost factors include: Ship cost (DRC) fixed and operational. Container/equipment cost fixed and operational. Voyage costs including bunkers and port costs. Cargo handling, trucking, feeders. Sales and marketing costs, commissions, administration. A useful extension to the answer might include those box rates where commodity has a bearing such as dangerous, valuable, reefer or other special equipment contrasted with FAK concept. Several candidates still do not understand BAF and CAF - see last year’s examiners report.
It is very important to note that Consortia and Alliances may not discuss pricing under most countries competition laws.
QUESTION 8 – UCP 500
This question was not well answered by many. All that is needed in the first part are broad statements to the effect that UCP500 is published by ICC and that its purpose is to regularise and facilitate common standards in the procedures, handling and negotiation of all documentation required in respect of documentary credits although it was not necessary to detail all those documents. The question only asked about the relevance to “maritime bills of lading and sea waybills”. There is a revision is currently underway, although at a recent check there were no significant changes to the maritime documentary sections. Detail of maritime sections should include the acceptance of ‘carrier’ bills of lading, including sea waybills, and NVOC bills subject to conditions. The clauses covering:- identity of carrier and signatures, clean bills, and container transhipment required discussion and how the clarity of these rulings should prevent invalid rejection of documents presented. Some candidates confused UCP with INCOTERMS.
