GBTT 252 Fall 2011

1. 2011 quote: “It will take one or two years before the market gets balanced again...of course what kind of industry emerges at that point is much less certain…..” Michael Bodouroglou Paragon Shipping - CEO NYSE: PRGN GBTT 252Fall 2011 12 Sep 2011 Chapter 3 & 4

2. Chapter 3 Maritime Security • Although maritime security is not a new topic the terrorist attacks focused the vulnerability of transportation infrastructure. • National security and specifically maritime security has undergone many changes.

3. Chapter 3 – Maritime Security • The USS COLE attack in Yemen – OCT 2000 indicated what vulnerabilities existed that were possible in the maritime domain. • Unsophisticated plan with great consequences. • Conventional thinking remained focused on military targets

4. Chapter 3 – Maritime Security • M/T LIMBERG – Also attacked in Yemen in October 2002 using same tactics as attack on USS COLE. • First time a commercial vessel was subject of attack intending to disrupt mercantile shipping.

5. Chapter 3 – Maritime Security • The federal government has an obligation to legislate with national interest as the motivating factor • The Oil Pollution Act of 1990 (OPA 90) was sweeping legislation in the wake of the Exxon Valdez accident in 1989. • The Maritime Transportation Security Act of 2002 (MTSA 2002) was the Congress response to the terrorist attacks of 2001. • The legislative mandate established regulatory requirements designed to protect US ports and waterways infrastructure from terrorist actions while maintaining an efficient flow of cargo. • Components of MTSA include • MARSEC Level - Security Plans • Automatic Identification System (AIS) • TWIC - CSO/VSO/FSO

6. Chapter 3 Maritime Security 1. MARitime SECurity – (MARSEC) • Indicates a security level determined by a USCG Captain of the Port • MARSEC Levels are three categories - I; II; or III 2. Security Plans – Vessel (VSP) / Facility (FSP) - Submitted by vessel or facility operators to the USCG for vetting and approval - Once approved – valid for 5 years subject to periodic inspections 3. Automatic Identification System (AIS) - Satellite communication system that transmits vessel identification, location and status. 4. Transportation Worker identification Card (TWIC) - Implemented in 2009 for all personnel accessing restricted areas as per MTSA definition.

7. Chapter 3 – Maritime Security • Key component of the MTSA 2002 was the establishment of personnel responsible and accountable for maintaining compliance with security protocols. • Company Security Officer (CSO) – Responsible for overall compliance with vessel/facility security • Vessel Security Officer (VSO) – Carries out security measures as per vessel security plan • Facility Security Officer (FSO) – Carries out security measures as per facility security plan

8. Chapter 3 – Maritime Security • International Maritime Organization (IMO) created an international security code to recognize the changing developments requiring attention to the international shipping business. • They developed the International Ship and Port Security code (ISPS) • It is closely aligned with the MTSA and was implemented in 2004. • Flag states issue an International Ship Security Certificate (ISSC) to vessels that meet all the ISPS requirements. • A vessel that visits a port facility and does not meet either the MTSA or ISPS security requirements may face significant port state control issues.

9. Chapter 4 – Tramp Shipping • A tramp is a ship that does not operate on a fixed schedule. They engage in spot freight, picking up contracts as they become available. The terms "tramp," "tramper," and "tramp freighter" are more appropriate today, as very few ocean-going vessels of any kind are steamers, and fewer still are tramp steamers. The use of the term "tramp" in no way refers to the physical condition of the vessel, although some tramps can be quite run down.

10. Chapter 4 – Tramp Shipping • Tramps, known also as general-service ships, maintain neither regular routes nor regular service. Usually tramps carry shipload lots of the same commodity for a single shipper. • Such cargoes generally consist of bulk raw or low-value material, such as grain, ore, or coal, for which inexpensive transportation is required. About 30 percent of U.S. foreign commerce is carried in tramps. • Tramps are classified on the basis of employment rather than of ship design. The typical tramp operates under a charter party, that is, a contract for the use of the vessel.

11. Chapter 4 – Tramp Shipping • The center of the chartering business is the Baltic Exchange in London, where brokers representing shippers meet with ship owners or their representatives to arrange the agreements. • Freight rates fluctuate according to supply and demand: When cargoes are fewer than ships, rates are low. Charter rates are also affected by various other circumstances, such as crop failures and political crises. • Prime examples of circumstances which cause charter rate fluctuation could be the recent flooding of the Mississippi River which affected agriculture shipping in New Orleans. Or of course the stability of loading crude oil product in Libya

12. Chapter 4 - TrampShipping How to contract a Tramp Ship…. • Charter parties are of three kinds, namely, the voyage charter, the time charter, and the bareboat charter. • The voyage charter, the most common of the three, provides transport for a single voyage, and designated cargo between two ports in consideration of an agreed fee. • The charterer provides all loading and discharging berths and port agents to handle the ship, and the ship owner is responsible for providing the crew, operating the ship, and assuming all costs in connection with the voyage, unless an agreement is made to the contrary.

13. Chapter 4 – Tramp Shipping • The time charter provides for lease of the ship and crew for an agreed period of time. • The time charter does not specify the cargo to be carried but places the ship at the disposal of the charterer, who must assume the cost of fuel and port fees. • The bareboat charter provides for the lease of the ship to a charterer who has the operating organization for complete management of the ship. • The bareboat charter transfers the ship, in all but legal title, to the charterer, who provides the crew and becomes responsible for all aspects of its operation.

14. Chapter 4 – Tramp Shipping Liner Service vs. Tramp Shipping Liner shipping is contrasted with so-called "tramp" shipping, which involves ships setting sail at indeterminate dates, often only when they have filled their cargo or passenger capacity. Liner services involve higher fixed costs than tramp shipping not only because of larger administrative overhead, but also because the necessity of following a fixed schedule creates more stringent capacity requirements. Liner services involve higher fixed costs than tramp shipping not only because of larger administrative overhead, but also because the necessity of following a fixed schedule creates more stringent capacity requirements.

15. Chapter 4 – Tramp Shipping Liner Service vs. Tramp Shipping The number of vessels required for a given liner service is determined principally by frequency, distance and speed. For example, a weekly liner service between New York and Hamburg may require four ships. Some of those vessels may depart the ports only partially full; a tramp service carrying the same amount of cargo between New York and Hamburg could conceivably require fewer ships, because the tramps can wait until they are full before departing.

16. Chapter 4 – Tramp Shipping Liner Service vs. Tramp Shipping • A principle difference between liner services and tramp services is the concept of COMMON CARRIAGE. • Common Carriage refers to the idea that a transportation provider is open to the public and “rents” SPACE on board the ship to transport cargo using a contract called a Bill of Lading. This is what is used if you want to ship a container from New York to Rotterdam for example. • Common Carriage is the type of transportation service provided by a liner service.

17. Chapter 4 – Tramp Shipping Liner Service vs. Tramp Shipping • Tramp Shipping is the opposite of Common Carriage. The premise behind tramp shipping is that a ship owner will rent the ENTIRE ship to a cargo interest on the spot for transportation of an entire cargo using a contract called a charter party. • Modern day tramp shipping does not typically happen with ships waiting around a harbor waiting for a contract. However, during a shipping environment as dictated by the current global economy, there are many ships in port worldwide doing just that.