Oil transportation world wide, for a long time, has been a business that has been done with a lot of care and concern. This is because the product being transported is very important to every nation, and also each every individual in the world. However, oil and gas can be very dangerous. Large scale transportation of oil, especially in long distances, has been being done by the use of ships as well as pipelines. These two means of transport have been taken to be the safest and most reliable. This is because the rate of disturbance while transporting oil is less as compared to when it is done through road transport. However, much shipping and pipeline have for a long time been used in transportation, not only for oil, but also other products and goods. There are certain aspects that have had to be looked into in order to make transportation a smooth procedure and process.
This paper explores issues concerning determination of shipping freight rates and factors that influence that, advantages and disadvantages of word scale systems in negotiating and fixing tanker ships for oil transportation, LAYCAN and LAYTIME periods under voyage party, the purpose that bill of lading serves and advantages and disadvantages of pipelines in transportation of oil and gas commodities.
1. Explain how shipping freight rates are determined in the short, medium and long terms and what factors are important in determination of freight under each time frame.
Short, medium and long term shipping rates are determined based on certain factors that act to the advantage of the whole system. Shipping freight rates are determined by the nature of the demand and supply within the market. More over, the demand and supply are the major determinants of whether rates will be short, medium or long term. The demand and supply are in turn determined by the need to transport oil and the capacity of the transportation services. In other instances, the shipping rates are determined by the distance in which the oil has to be transferred. The length of time that will be taken in transporting the oil determines the rate. So, the longer the distance the long term the rates take.
Another factor that determines the shipping freight rates is the political situation and events that are present at that point in time. For example, in instances where one route is nationalized like the Suez Canal, the shipping freight rates go high because transporters avoid the route. This, in the end, creates overhaul of the oil while others decide to use longer routes (Miller and Spoolman, 2008, p 551).
Protecting a country's deep sea transporters affects the pricing largely. For example, Asia protects local transporters from encroachment by foreign deep sea transporters. This means that the rates will be high rather than when there is a free trade agreement, which is likely to lower the rates considerably.
In addition, fuel prices also affect shipping freight rates. When the fuel price is high ship owners compensate for the rising rates from the consumer. There are also other factors that determine the shipping freight rates. For example, the contact length for ships, nature of route, time of contract initiation, cargo size as well as consumer supplier agreement.
2. Discuss advantages and disadvantages of using Word scale system in negotiating and fixing tanker ships for oil transportation.
World scale system is defined as a unified system that is used in the establishment of payment of freight rates for a certain oil tanker's cargo. It was established in 1952 by London tanker brokers' panel, this having been requested by the British petroleum and shell. World scale system has certain advantages to the shipping of oil (Branch, A.E (2007).
Firstly, it ensures that there is accuracy in calculation of the distances between load and discharge ports, ensuring that here is consistency by using the AtoBviaC system. Secondly, the world scale system strategy also ensures that oil transports get no loss because of miscalculation of the distances and the duration of transporting the oil. It ensures that they get paid for the exact distances and time that they take while transporting the oil.
Thirdly, World scale system also ensures that it strengthens the transporters and consumer operations through accurate delivery of oil products ensuring efficiency and better planning. However, although world scale has advantages, it does have some disadvantages too. While the route drawn between two routes may appear perfect, on a map it may not be the correct route that the ship should take, when issues such as traffic separation schemes and other navigational restrictions are brought into consideration. Thus, this may be misleading and cause a ship to take a longer duration in the ea searching for its way into the destination port (Branch, A.E (2007, 327).
3. Explain the terms and importance of LAYCAN and LAYTIME periods under a voyage charter-party.
Many of vessel charter parties have provisions that provide for a charter to be cancelled under certain circumstances when need arises. LAYCAN is the cancellation clause which is an important provision in the charter. The wording that is provided in a LAYCAN is very important when a vessel experiences delays in delivery. This is especially the case in voyage charters that are entered before a voyage is performed.
LAYCAN is the period of time stipulated within which a vessel should arrive at a loading port and apply for a tender without the risk of rejection by charters. It gives the advantage of setting a specified time range up to the cancellation date, but, which can be extended for a day or two. In addition, LAYCAN allows the ship owners and charterers to come to an agreement of whether to cancel the loading of a ship or not depending on the circumstances.
On the other hand, LAYTIME is the time allowed by the owner of the ship to the voyage charterer to do the cargo loading or discharging operations. This may be expressed in a number of days or tons of cargo loaded or unloaded per day. There are different types of LAYTIME, for instance, average LAYTIME, reversible LAYTIME, non reversible LAYTIME and all purposes LAYTIME. All these types are differentiated based on the time specified for loading and off loading the cargo (Schofield, 2000, p 121).
4. Discuss different purposes which a Bill of Lading normally serves.
A bill of lading is a document that is supplied to the exporter by the shipping company that talks of transporting goods to foreign destinations, listing individual items and the goods that are being transported. It is used to acknowledge the receipt of the shipment of goods. It also shows the vessel that the goods have been placed on, the destination as well as the terms that have been used in that shipment.
There are two types of bill of lading; namely, a straight bill and the order bill. A straight bill is not negotiable and is intended for a specified consignee from which the ship company acknowledges receipt of freight and agrees to take it to its destination. On the other hand, the order bill of lading is produced from the order of the foreign importer or the destination party.
The bill of lading has its own purposes. The first purpose is to acknowledge receipt by the carrier of the exporter's good. This is to ascertain whether a certain shipment company has agreed to ship the cargo to its destination. Another purpose is to indicate the carrier's contractual obligation to transport the goods to their destination in exchange for payment. This ensures that the ship company must deliver the goods first for it to receive the full payment that has been agreed upon.
The bill of lading is also purposed to record transfer of ownership from the person or firm that is selling, to the person or firm that is buying when the payment for the commodity is being done. This ensures that the seller and buyer are all aware of the terms and conditions of the transaction. It is important to note that the bill of lading is done for accountability's sake.
5. Discuss advantages and disadvantages of pipelines in transportation of oil and gas commodities.
Pipeline transportation of oil and gas commodities is the most efficient and cost effective method of transport. Firstly, pipeline transportation of oil and gas commodities saves a lot of expenses; it costs less. Once the pipelines are developed there are no other costs attached to it, for instance fueling costs, like it is done on other means of transport like road and rail transport. More over, the cost of maintenance is very minimal. Through pipelines, oil and gas commodities are transported in large quantities because the process is continuous with no stoppage. This is unlike road and rail transportation where there are a lot of road blocks. Pipelines offer constant flow even in harsh conditions and varying system back pressures as a result of viscosity changes (Rodrigue, Comtois and Slack, 2009).
Pipelines also pass through remote territories and harsh environment where other forms of transportation cannot reach. These ensure that oil and gas commodities are transported to areas that lack other means of transport or have poor networks.
On the other hand, pipelines have their own disadvantages. For example, incase of pipe bursts, the dangers as well as costs that pipelines can cause are very high. Fires that can come up as a result of this are uncontrollable and destroy many things as opposed to other forms of transport.
In addition, there is a limitation that comes in the form of geographical shifts in consumption or production because pipelines do not adjust to changes in demand. It will still transport the same amount of transport that it was intended to transport from one location to another. There can be no increase or decrease in amount. More over, a lessening in supply and or demand may lower revenue and affect the viability of the system as a result of the carrying capacity.
In conclusion, the oil industry and gas commodity industry depend on shipping and pipelines so much for transportation. Over time the two forms of transportation have proven to be the best in terms of efficiency and cost effectiveness. They ensure that there is little wastage, as well as being time efficient. Thus constant improvement in the two transportation channel is very vital in the success of oil and gas commodity industries.