Tag: trade

alexanderchristodoulakisship

The Global Shipping Industry of Today

Inside the last century, the global merchant shipping industry has seen the increasing trade volumes along with the expansion of free trade and the increased demand for consumer and industrial goods. However, it is inside the last 50 years that shipping has become the predominant means of merchant transportation globally, making it responsible for the transportation of approximately 90% of global trade.  Main reasons for this leading position of shipping are of course globalization of trade and important technological advances that have taken place in the industry. Although the industry is growing, shipping is cyclical as well as capital intensive. By this, we mean that it is highly affected by the aggregate global demand for industrial or consumer goods whereas the global macroeconomic and financial events can affect the values of the shipping assets and their financing levels. Despite this, shipping industry as a whole is already diversified at some level.

Screen Shot 2017-07-05 at 11.30.53 AM

Different types of vessels are employed concurrently at every phase of the business cycle but with different performances depending on the phase of the cycle and the global demand levels.  So in the main categories of shipping, we meet tankers which transport crude oil, petroleum and chemical products, bulk carriers which transport unpackaged bulk cargo, such as grains, coal, iron ore, and cement, container ships which carry most of the world’s manufactured products, specialist ships like offshore supply vessels, anchor handling tug supply, platform supply vessels and construction support vessels among others. Finally, we meet Ferries which are passenger and vehicle ships (roll-on – roll-off, RoPax etc.). All these different types of vessels support today’s global transportation industry by offering a good diversification for those considering an investment in the shipping sector.

Shipping faced a serious economic downturn in the 2008 global financial crisis. From then on, it has faced and continues to face constant challenges and interesting changes. From recent collapses of shipping giants to good M&A activity that has taken place in the last 12 months and with the bigger deals taking place inside the last 3 years, the industry adjusts itself to the new policies and environmental regulatory standards that are about to be established soon and to those already implied. All these are expected to increase the financial burdens of shipping companies which are already facing increased pressures on their margins. Proactive anticipation has become the new norm in the industry, and it is definitely a realistic way for shipping managers and ship-owners to face the regulatory stakeholders.

Despite all the challenges, the existing functions of shipping like the proper management of security standards, the operational and technical management of ships, the management of the chartering function, the ship selection and acquisition process and the management of human resources and multicultural diversity are being kept at a very good quality level worldwide and this good level is expected to increase further also due to increased competition in the market. For the coming years and according to a consensus by many analysts’, we expect on average for the industry’s benchmark players the Earnings per share and Return on Equity ratios to be higher than the last 5-year average. It will take a long way, however, before seeing again pre-crises rates. Under these new circumstances, shipping companies will still have to optimize their fleet, acquire new vessels, hedge against macroeconomic, geopolitical and environmental risks while confronting at the same time the extra costs of the new policies. Therefore it is crucial for the shipping companies to manage cautiously the financing activity as an on-time and well-structured financing will determine the quality and types of fleets that will dominate the seas the coming years. The longer-term view for an industry moving in parallel with the increase of the global population, and new infrastructure developments that are expected to take place in major economic hubs of both east and west, suggest that the industry can proliferate enough from the estimated increase in demand.

Screen Shot 2017-07-05 at 11.31.09 AM

World seaborne trade has increased in a steady manner the last years and this is also reflected on major shipping stock benchmarks. Shipping transportation remains efficient, safe and economical and is set to remain competitive as an industry. Even if the current year is not an easy one, global maritime trade is expected to increase.

Air Freight vs. Ocean Freight

International shipping connects the global trade market. Exporters have major business choices to make in terms of how they transport their shipping. In the logistics industry, transporting goods requires a lot of consideration. Air freight and ocean freight are the two choices of transportation when shipping overseas. So how do businesses decide how they ship? Take a look at the factoral differences between air freight and ocean freight.

freightalexanderchristodoulakis

Cost  

Many people assume that ocean freight is cheaper than air freight, however, that is not always the case. Depending upon the chargeable weight, which is how carriers charge for international shipping, size will determine whether air or ocean freight is cheaper. When calculating which option is cheaper, a company has to compare the transportation fees with the value of the goods. Whichever way the company ships, they still have to consider the customs and destination fees. Warehousing fees at seaports are typically more expensive than airports. As a general rule, when we have to deal with heavier and larger shipments, it is often more economical to choose sea freight transportation. However, as a shipment becomes significantly smaller, margins between the prices of the different transportation means get smaller and sometimes air freight could even turn out to be less expensive.

 

Speed 

It’s no question that time is money. Speed is a priority for many companies, including cargo shippers and their clients. Air freight is much faster than ocean freight, only taking about a day or two for arriving at the destined airport. The faster a business can provide goods to their customers, the greater customer satisfaction is.

As technology expands, so does the ability to track shipping because it’s a component of a positive experience. There’s a level of comfort that consumers have when they know where an item that they paid for is at all times, even if it’s in transit. Consumers expect a speedy delivery. Airfreight provides tracking and shows how quickly a package arrives from location to location until it’s delivered to a consumer’s door.

 

Reliability

 In the world of international shipping, businesses and consumers want reliability with their shipments. Ocean carriers are nowhere near as reliable as air freight. Not only does air freight transport goods in a matter of days, but trackability is much more efficient as well. Ocean freight can take multiple days, or even weeks to arrive at the destination. Although air freight has a shorter history than ocean freight, it’s quickly progressed in terms of reliability and matching up to the expectations exporters have in the logistics industry.

 

Following an ocean carrier arriving at a seaport, there’s still land travel time that must be accounted for. Air freight has the ability to arrive closer to the final destination because of the numerous airports inland vs. the seaports on the coasts.

 

Legitimate Uses For Offshore Companies: Past and Present

Offshore financial facilities have evolved remarkably due to economic globalization, political and economic instability, technology advances and evolution in telecommunications. These dimensions have led to a significant increase in the demand for offshore operations. The offshore company industry has developed into a major international business, linking all regions, comprising, in one way or another, roughly half of the world’s international lending and deposits by value. However, despite the fact that we live in a globalized and open economy that offers numerous options for investments and capital mobility, still offshore companies and offshore financial structures are often in the middle of worldwide controversies, attracting considerable attention which eventually harms the reputation of these financial and trade facilities. The undisputable fact is that these low- tax overseas jurisdictions are an important and indispensable part of the global financial system and the reason, of course, is not their illegal use by some entities. Nevertheless, before seeing the real reasons that offshore companies have legitimate and important uses in the global trade and economy we will first take a look on the origins of these tax-efficient economic zones.

Old Map Light Blue

Historically, in order to boost trade, increase capital movement, and secure trade gains, free-tax economic zones were developed, since the 2nd century B.C. in the Mediterranean region and especially in the area of Greece with the Delos island playing the role of the special economic zone. The type of trade that was taking place there, was free of customs duties and it faced no taxes. Important role to this economic regime of that time, played of course the geographical positioning of the island. Throughout the history, the generation of low-tax states always serviced the needs of traders and seamen.  From the medieval period to the industrial revolution, the need for friendlier towards the commerce regimes never stopped. The important fact here is that most of the times these beneficial economic zones existed in islands and ports, the places where the real risk takers, the seamen traders were living and working when they weren’t in the sea. By reaching the 19th century and the 2nd industrial revolution with the respective expansion of capitalism, these tax-friendly jurisdictions also grew. It was after the First World War that European and United States tax rates started rising. This, combined with the increased global uncertainty of that period and the easy methods of incorporation in the offshore jurisdictions, led to the growth of these jurisdictions like for instance the ones in the British overseas. In a post-colonization era, and as the economy was becoming more interconnected and the foreign direct and indirect investments grew, the demand for international financial services increased. The Demand for global offshore financial facilities also grew in the 1970s, partially because of the substantial amount of money that petrostates needed to reutilize after OPEC effectively raised oil prices. Moreover, the downfall of the Bretton-Woods system also increased the risks from the exchange rate fluctuation. The international nature of cross-border businesses led to the increase of cross-currency transactions in all the quarters of the world and the need for international management of cash and tax planning by the companies, made the need for offshore companies and offshore structures and financial services to flourish. Of course, in the course of history, there were entities that misused these business friendly offshore facilities in order to promote illegitimate practices and this is something that can only be regulated with global efforts and cooperation between countries. However, there is a global legitimate use and need for these jurisdictions that make the global trade easier and more efficient, especially in a period where the global economic, political and geopolitical risk is elevated.

There is a variety of reasons for the utilization of offshore companies and structures both for legal and physical entities. The focus of this article is on the corporate users of the offshore companies and facilities.  

From Holding companies to royalty and intellectual property companies, major financial institutions, shipping companies, middle market companies that seek international expansion, multinational corporations, and conglomerates, they may need at some point of their corporate structuring to conduct their operations through offshore entities that will facilitate the specific characteristics of a particular business need. For instance, it is common practice in the shipping industry to use constantly offshore companies in order to facilitate its global trade and banking needs in the most efficient way particularly when there is the need for a ship registration or for a Flag of Convenience. Another example has to do with treasury management operations. The ultimate goal of treasury management is managing the firm’s liquidity and mitigating its operational, financial and status risk by concurrently taking care of the investment and funding activities. The treasurers of corporations often allocate their money market instruments and cash resources between their subsidiaries which as a process, is regularly carried out through offshore facilities and structures. It is also common for International joint ventures to be often structured as offshore companies when the parent entities want to keep the venture as jurisdiction neutral. Other important legitimate uses for offshore companies is that they can be used as asset holding companies where risky assets are held isolated from the main entity, thus reducing any unnecessary risk transition to the rest of the group. In the case of a company having non-risky assets that it wants to protect from a politically unstable environment where the rest of the firm operates, then with the use of an offshore company can accomplish that goal also. Investment companies also use offshore companies at a great extend in order to invest in derivatives and securities trading without facing regulatory limitations for their investment and trading undertaken risk. Finally, companies expedite their capital raising needs both in equity and debt capital markets, by forming offshore companies. This usually happens as in many occasions, a more efficient and simple structure may be needed or the existing legal framework of the main country of operation, may not support or help the company raise capital in a non-conventional way.

Powered by WordPress & Theme by Anders Norén