RISKS IN CONTAINER SHIPPING INDUSTRY

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1 RISKS IN CONTAINER SHIPPING INDUSTRY SNEHA LATHA ABSTRACT All businesses have risks. The shipping industry is no exception and there are several factors that should be taken into consideration. Safety, problem resolution, timely delivery, accurate delivery, lost merchandise, fees, taxes, and insurance are some factors that should be examined when dealing with the shipping industry to minimize as many risks as possible. This paper aims to understand the significant risks in major shipping companies in Bangalore, India. The statistical tool used was correlation and descriptive statistics. The research findings indicate that Industry specific risk is the most significant risk in container shipping Industry. Keywords: risk, shipping company, correlation, industry specific risk. Introduction: The Indian Shipping Industry performs a vital role in the development of country s economy. In India, more than 88% of the trade volume is carried out through sea. Currently India has close to 1100 ships with nearly 722 coastal and 350 overseas ships. India is one of the largest merchant shipping industries among the emerging economies. The Indian shipping industry supports movement of national and international cargoes in addition to providing other facilities such as ship building/repairing, lighthouse facilities, freight forwarding etc. With the introduction of globalisation and liberalisation, shipping industry in India has shown a rapid growth interms of demand as well as infrastructural development. Inorder to compete with the international competition, the Indian shipping industry is making its best efforts to bring rapid growth and transformation. This includes liberalisation of rules and regulations allowing for growth of foreign investment. Another notable development for lenders to shipping companies is the current improvement in the procedure for registration of ships as well as registration for mortgages for ships. Beforeit used to be a tedious process for registration with lot of complexities, causing delay in the registration of ships as well as in recording mortgages reducing one of the major inconveniences hurdling the growth of the industry. Shipping Industry is one of the major drivers of growth in the economy. So, it is very essential to understand the risks in these markets, for instance, rapid changes in these areas could lead to high volatility. Therefore this research study addresses a comprehensive picture of risk in container shipping operations in particular reference to Bangalore India. The complex operations within the entities and the long distance of physical process may give rise to various types of risks, which could negatively affect the performance of container shipping companies. This makes it important to analyze the extent to which each risk factor affects a logistics service company s performance and to identify the relative importance of these risk factors.there are many kinds of risks in container shipping operations; however, this study focuses on the three main categories- Environmental risk, Industry specific risk and organisational risk. Objective of the study: The main objective of the study is i) To identify significant risks in container shipping industry. ii) To measure if there is any relationship between the different types of risk icmrrjournal@gmail.com

2 Literature Review: Prahalathan. SVijay and Renuka (2010) in the study titled, Indian Shipping Industry: A Catalyst for Growth, discusses the Indian Shipbuilding scenario and global scenario along with challenges and strategies of the Shipping Sector. Secondary data collection is used in the study. According to the research paper, Shipping industry faces significant tax burden such as dividend distribution tax, minimum alternate tax, sales tax, wealth tax, services tax etc. Another challenge faced by the industry is Multiplicity of Regulations. Other major problems faced by the shipping industry are shortage of manpower, High port calling costs, congestion in port and connectivity with hinderland. The research provides a positive response on the issue and concludes that the recommended strategies if used effectively will lead to optimal contribution towards developing the shipping industry. Ramachandran.S.,Nakhava.M., and Pratik.Kumar (2015) in their study titled, Logistics in India: Challenges and Scope discusses the challenges faced by Logistics industry with the help of secondary data and formulated effective strategies to overcome the challenges. Descriptive analysis is used for the study. The issues faced by the port sector are High turnaround times, inadequate depth at ports and inadequate port and land side information that hampers large scale use of it for freight movements. The study concludes on a positive note that Indian logistics industry future lies in the value propositions and these can be engineered only if the complex strands of supply chain are together seamlessly. Sundar.P (n.d.) in his paper titled, Port structuring in India discusses the structure of ports and governing legislation. Methodology used in the study is secondary data collection. Due to long distances between ports and poor interface of ports with the transport network, the inter port competition does not exist in India. There is a huge gap between the labour required to handle cargo technology and actual labour in the port and the tariff structures vary widely and is extremely complex. Hence, Labour reforms and Tariff regulations should be the need of the hour. The researcher concludes that the government should not involve itself in the future investments of ports and should left it to the private sector. Government should develop an integrated approach for the commercialisation and privatisation of port services. Chandra.P., and Jain. Nimit (2007) in their paper titled, The Logistics Sector in India: Overview and Challenges outlines the challenges and provides some perspective on the issues. Methodology used in the study is secondary data collection. Movement beyond the golden quadrilateral is required to bring goods from upcountry production sources to main shipment areas. Inter-state check posts, unauthorized hold ups to establish authencity of the cargo create bottlenecks. Another bottle neck discussed in the paper is Entry taxes into ports. The researcher concludes that harmonization of polices, procedures and taxes are required to facilitate a seamless flow of goods and services. Kumar and Aravind (2014) in their paper titled, Freight Logistics and Intermodal Transport Implications for Competitiveness main objective is to find the areas that have created present problems and to recommend certain strategies to address these problems. The problems or constraints identified in this paper are time cost of transport, cost of detention on Inter-state Check posts, Draft and Vessel size, Cargo Evacuation by Transport Modes and absence of hub port. Other barriers to intermodal transport like Organizational barriers, legal barriers, infrastructural barriers and technical barriers etc. are addressed in the paper. The researcher concludes that there is a need to create Intermodal and Logistics National Plan to provide a framework for the implementation of IMT and logistics icmrrjournal@gmail.com

3 Ray.Amit (2004) in his paper titled, Managing Port Reforms in India: Case study of Jawaharlal Nehru Port Trust, Mumbai discusses Indian port sector with the example of Jawaharlal Nehru Port Trust. The methodology used in the study is secondary data collection. The constraints outlined in the paper are Inadequate capacity, underutilization of existing Facilities and Overstaffing and low productivity. These constraints are caused by the poor operational efficiency of Indian ports. Inefficiency resulted in higher through-port and sea transport costs making Indian ports cost inefficient and non-competitive. The researcher concludes that privatisation of the port sector can lead to the port performance and efficiency. Chang.C and Xu. J (2013) in their paper titled, Risk analysis for container shipping: From a logistics perspective explores and analyses the risks that are involved in container shipping. The design used in the paper is the use of case study method along with several interviews. A questionnaire was used to collect the data and the impacts of risks are assessed and ranked using the method of risk mapping. Some of the risk elements discussed in the port are information delay, inaccurate information, IT failure, port strike and Cargo damage, currency exchange, payment delay. The researcher concludes that further research should be conducted in this area to devise appropriate risk mitigation strategies and evaluate their relative performance in managing container shipping operations. Syamanthak. B. (2012) in her paper titled, Sociological factors influencingthe practice of incident reporting: the case of the shipping industry discusses the social and organizational factors affecting the practice of reporting in the shipping industry. The methodology used in the study is the qualitative case study involving two shipping organizations. The findings of the paper show the high gap between the principles and the implementation. One of the main reasons for not reporting is the senior officer s fear of losing their job. The common attributes acting as threats are complying with procedures, human failure, fear of blame and job insecurity. In addition to these attributes, absence of trade unions, weak employment practices are the other factors influencing the practice of incident of not reporting in the shipping industry. The author concludes on a positive note that the study will have a positive impact on the policy makers in the shipping industry. Notteboom (2013) in his paper titled, Slow steaming in container liner shipping: is there any impact on fuel surcharge practices determines whether slow steaming has an impact on fuel surcharge practices. The methodology used in the study is extensive analysis of fuel costs and fuel surcharges. It is found out that slow steaming practices are not implemented on all trade routes instead only on a few trade routes. The empherical results show that slow steaming did not show the relationship between fuel costs and fuel surcharges.the researcher has developed a model to estimate the fuel consumption levels of ships. The author concludes on the positive note that There is no impact on fuel surcharge practices imposed on shippers by ship lines. Hajara.S (2013), in his study titled, The Shipping Corportaion of India: SWOT Profile discusses in detail about the shipping industry in India. The methodology used in the study is the secondary data collection. The study found out that one of the weaknesses of Shipping Corporation of India is the declining operational performance. The company s declining operational performance reduces the investors confidence and will have a negative impact on the company s growth prospects. The major threats discussed in the paper are Threat of sea pirates,stringent environmental regulations. The researcher concludes that there is an urgent need to fight piracy activities by the combined effort of Government, shipping companies, shipping crew, military forces and UN agencies icmrrjournal@gmail.com

4 3. Research design: Statement of Problem: In emerging markets, risks go hand in hand with profitability, and companies need to apply extensive risk analysis and mitigation strategies to survive. This paper helps in identifying significant risks faced by container shipping Industry which is the baseline for shipping companies to frame suitable mitigation strategies. Research Question: What are the significant risks faced by container shipping companies Hypothesis: H0; The container shipping companies do not face any risk H1: The container shipping companies face risks. Scope of the study: The scope of the study focuses on five important container shipping companies in Bangalore, India which includes- SVP logistics, Ocean care forwarders, Pluto shipping consultancy, Pick n Pack and Sea way shipping. Limitations of the study Time and budget constraint The study focussed only on shipping companies in Bangalore. So, the results of the study cannot be generalized. Methodology Data collection method The study includes collection of primary data using questionnaire which contains a set of 16 questions which measures the risks in the container shipping industry categorized into environment risk, industry specific risk and organisational risk. Population The population of the study includes various container shipping companies in Bangalore- India. Sample size The sample size consists of 5 large shipping companies in Bangalore namely SVP Logistics, Ocean Care forwarders, Pluto Shipping consultancy, Pick n Pack Express and Sea way shipping. Sample design The sample design for the study is convenience sampling method (probability sampling). Statistical tool The statistical tool used for analysis is Correlation to determine if there is any significant relationship between different types of risk.further descriptive statistics is used identify the significant risks. 4. Data Analysis Reliability Statistics Cronbach's Alpha N of Items icmrrjournal@gmail.com

5 Reliability test was conducted for 5-point Likert scale (Risk).Cronbach s Alpha value isgreater than 0.7, therefore samples are reliable. Mean INTERCONTINENTAL JOURNAL OF MARKETING RESEARCH REVIEW SVP Logistic s Ocean Care forwarde rs Pluto Shipping consultanc y Pick n Pack Expres s Sea way shipping Environmental Risk Natural disaster and fire War, terrorism and political uncertainty Port congestion Unstable weather Oil price rise Cargo stolen from containers Attack by pirates Excessive handling because of border crossing Industry Specific Risk Industry wide capacity utilization Number of customers Competitive uncertainty Supply and demand uncertainty Organizational Risk Inappropriate/ empty container transportation Lack of flexibility of fleet size Damage to cargo due to terminal operators Payment delay from partners or shippers Average Inorder to analyze what are the major risks faced by the container shipping company, an average (mean) of the different respondents was taken. The major risks under ach specific category was identified Environmental risk It was found out that unstable weather was the significantly highest risk faced by the companies with regard to environmental risk. This was followed by risks due to oil price rise, port congestion and risks due to excessive handling. Previous literatures have also proven that oil price and unstable weather are the major environmental risks for a shipping company icmrrjournal@gmail.com

6 Industry Specific risk On analysing Industry specific risk, it was clearly understood that risks due to uncertainty in number of customers and competitive industry risks are the significant risks. Also industry wide capacity utilization is another major risk. Organisational Risk Lack of flexibility in fleet size and damage to cargo due to terminal operators are the major organizational risks. It can always be seen that fleets are not of appropriate size for the cargo and in many cases it may lead to damage to the cargo which was the major risk identified from the shipping companies. Correlations ER ISR O R Pearson Correlation ER Sig. (2-tailed) N Pearson Correlation ISR Sig. (2-tailed) N Pearson Correlation O R Sig. (2-tailed) N Interpretation: We observe that Organizational risk is negatively correlated to Industry Specific Risk (-.282) and to Environmental Risk (-.079). But it is not significant as sig value is more than Hence we have no evidence to say that as one is high the other is low. But Industry Specific Risk and Environmental Risk are positively correlated (.699). Even here as the significant value (0.189) is more than 0.05 these factors are not dependent on each other. All three risk factors are independent of each other. Descriptive Statistics Mean Std. Deviation N ER ISR O R icmrrjournal@gmail.com

Types of Risk Environmental Risk Industry specific risk Organisational risk The Industry Specific Risk is 4.35 which is at a higher level when compared to Environmental Risk and Organizational Risk.

Industry specific risk is the most commonly faced risk which includes uncertainty in the number of customers, supply demand uncertainty and increase in competition.

7 Types of Risk Environmental Risk Industry specific risk Organisational risk The Industry Specific Risk is 4.35 which is at a higher level when compared to Environmental Risk and Organizational Risk. Conclusion: The research clearly indicates the different types of risk factors in the shipping Industry and how significant is each of these risks. Industry specific risk is the most commonly faced risk which includes uncertainty in the number of customers, supply demand uncertainty and increase in competition. These are the major areas where the mitigation strategies of container shipping companies should focus on. The next important risk is the environmental risks like crude oil price, unstable weather, port congestion etc. As these are environment specific, very less can be done to control this type of risk. References 1. Chang, C., Xu, J., & Song, D. (2015). Risk analysis for container shipping: from a logistics perspective. The International Journal of Logistics Management, 26(1), doi: /ijlm Ramachandran, P., &Rajandran (2011). Logistics Management and Challenges of Infrastructure Development An Operational Approach of A University. Indian Journal of Applied Research, 4(4), 1-4. doi: / x/apr2014/ Prahalathan.S and Vijay.Renuka.(2010).Indian Shipping Industry: A Catalyst for Growth.The Export Import Bank of India. 4. Hajara.S (2013).The Shipping Corportaion of India: SWOT Profile.Indian Journal of Applied Research. 5. Notteboom (2013).Slow steaming in container liner shipping: is there any impact on fuel surcharge practices.international Journal of Logistics Management, 24(1). 6. Bhattacharya.S (2012).Sociological factors influencing the practice of Incident Reporting.Emerald Insight, 34(1). 7. Ray.A (2004).Managing Port Reforms in India: Case study of Jawaharlal Nehru Port Trust, Mumbai.Citeseerx.doi= Kumar.A(2014).Freight Logistics and Intermodal Transport Implications for Competitiveness.Institute for Studies in Industrial Development.New Delhi. 9. Chandra.P., and Jain. Nimit (2007).The Logistics Sector in India: Overview and Challenges.Indian Institute of Management,Ahmedabad 10. Sundar.P (n.d.) Port structuring in India. Citeseerx.doi= icmrrjournal@gmail.com

Factors Affecting Transportation Decisions. Transportation in a Supply Chain. Transportation Modes. Road freight transport Europe

Transportation in a Supply Chain Factors Affecting Transportation Decisions Carrier (party that moves or transports the product) Vehicle-related cost Fixed operating cost Trip-related cost Shipper (party