Creating Innovation through CollaborationPartnering in the Maritime SectorSchleimann, Henriette

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PARTNERING IN THE MARITIME SECTOR

CREATING INNOVATION THROUGH COLLABORATION

Henriette Sophia Groskopff Tvede Schleimann

Doctoral School of Business and Management PhD Series 23.2019

PhD Series 23-2019CREATIN

G INN

OVATION THROUGH COLLABORATION

– PARTNERIN

G IN THE M

ARITIME SECTOR

COPENHAGEN BUSINESS SCHOOLSOLBJERG PLADS 3DK-2000 FREDERIKSBERGDANMARK

WWW.CBS.DK

ISSN 0906-6934

Print ISBN: 978-87-93744-88-2Online ISBN: 978-87-93744-89-9

1

Creatinginnovationthroughcollaboration

- Partneringinthemaritimesector

ByHenrietteSophiaGroskopffTvedeSchleimann

PrimarySupervisor:ChristinaD.TvarnøSecondarySupervisor:CarstenØrtsHansen

DoctoralSchoolofBusinessandManagementCopenhagenBusinessSchool

Henriette Sophia Groskopff Tvede SchleimannCreating innovation through collaboration – Partnering in the maritime sector

1st edition 2019PhD Series 23.2019

© Henriette Sophia Groskopff Tvede Schleimann

ISSN 0906-6934Print ISBN: 978-87-93744-88-2Online ISBN: 978-87-93744-89-9

The Doctoral School of Business and Management is an active nationaland international research environment at CBS for research degree students who deal with economics and management at business, industry and country level in a theoretical and empirical manner.

All rights reserved.No parts of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage or retrieval system, without permission in writing from the publisher.

3

Preface In this globalized world, the markets and industries are getting increasingly

interdependent.Therefore, especially theold, traditional, andheavy industries

arefacingchallengestoinnovateandredefinethemselves.Inmostindustries,the

utmostfocusistoensureahealthycashflow;i.e.tomakemoney.And,arguably,

forbusinessestomakemoney,theyhavetoensurethatthepremiseshereofare

beneficial. Although, how is this possible in the old, traditional, and heavy

industriesthatfindinnovationsocomplicated?

Theanswermaylieinthecontract.

In industries such as the maritime industry, the lifespan is long-term, the

machinesarecomplicatedandexpensive,anditiscrucialtoavoidberthdays,as

the shipowner would then lose precious income. Therefore, arguably, the

shipownermaybenefitfromapartnershipwithasupplier,asthesuppliermaybe

able to share information about its products with the shipowner, so that the

parties can in combination find theultimateproducts for the shipsat thebest

possible price. On the other hand, the shipowner will be able to provide the

supplierwithcontinuousordersandaclearoverviewofwhentheproductswill

beneededwhichmeansthatthesupplierwillbeabletoplanahead.

Inthisway,theasymmetricalinformationbetweenthepartieswoulddecrease

andinnovativeproductsarelikelytooccur.Buthowwillthepartiesachievethis

partnershipandstarttorelyononeanother?

Arguably,thereliancecanbeachievedthroughtrust.

Trustcanbedefinedinmultipleways,but-ingeneral-itcoverstheconceptof

relying on the truthfulness or the accuracy of a statement. Although, how do

businesspartiesgaintrustinanenvironmentbasedoneconomicreliance,where

–fromagametheoreticalperspective–thepartnershipwillalwaysbebasedon

betrayal?

Inthiscontext,theanswermaybearelationalcontractbetweentheparties.

4

Thismeans that the intersection between economics and lawmay be able to

illustratetheoptimizedpartnershipbetweenthepartiesinthemaritimeindustry.

Although, this intersection has not yet been exploitedmuch in academia. The

inspirationcomesfromotherindustries,suchasthepharmaceuticalindustryand

the construction industry, where the relational aspect of the partnership has

resulted in renewed innovation and increasing income. Consequently, it is

relevant to look into the concept of relational contracting in the maritime

industry, as it is likely that itwillbe as successful as ithasbeen inother, yet

similar,industries.

Thisisthecontributionthatthisdissertationwillprovideduringthenexteight

chapters.

ThisdissertationwaswrittenbetweenSeptember2015andJanuary2019atthe

BM Doctoral school of Management at CBS Law. The accomplishment of the

dissertation,isdoneduetoimmensesupportandguidancefromcountlesspeople.

ThisdissertationisapartofBlueINNOship’sproject#15Servitization . Inthat

sense I would like to expressmy gratitude to the DanishMaritime Fund and

Orient’sFund,forthefinancingofmyPh.D.

Iwould like toacknowledge thekey roleplayedby the research stays atUBC

SauderSchoolofBusiness,Vancouver,CanadaandColumbiaLawSchool,New

York,USA.Myresearchstayatbotheducationalinstitutions,wasveryfruitfuland

my writing process and thoughts regarding my dissertation, was highly

influencedbythis.

The research stay at both educational institutions was made possible by the

supportoftheOttoMønstedsFond;SkibstekniskSelskabsFond;KVFondenand

RudolphAlsFondet,forwhichIamextremelygrateful.

5

Tomysupervisors,ProfessorChristinaD.TvarnøandProfesser(MSO)Carsten

Ørts Hansen, and colleagues at CBS Law – I cannot thank you enough for the

tremendoussupport,kindness,encouragementsandunderstandingthatyouguys

haveshowedmethroughouttheyears.AspecialthankstoSofieEmilieDrewsen

delaPorteforyourproofreadingskills.

Lastbutnotleast,Iwouldliketoexpressmydeepestgratitudetoallmyfriends

andfamily,especiallyMichael.Youguyshaveshowedmenothingbutimmense

loveandsupportandyouhavealwaysbeenthereforme-forthatIamforever

grateful.

Copenhagen,February2019

HenrietteSophiaGroskopffTvedeSchleimann

6

Abstract Innovationandoptimizationareessentialelementsfororganizationsworldwide,

asthesewillensurethesurvivalaheadfortheorganizations.Thecompetitionin

themarketsaredifferentfromthat10yearsago,andwillprobablyhavechanged

again10yearsfromnow,becauseofthetechnologicaldevelopment.Thismeans

that–toagreaterextent–itisimportanttobefirstmoverintheattempttocreate

new and improved products. Additionally, it is important to optimize the

organization’s processes by focusing on its primary business purpose and

outsource those elements which are not value creating. In the organization’s

strivingtowardoptimizedproductsandprocesses,strategicalliancesaregetting

increasingly important between industries and between various global

organizations.

Themaritimeindustryisanoldandproudindustrywithmultipleactorsinthe

marketwhichiswhyitmayeasilybecharacterizedasmassiveandcomplex.This

oldandconservativeindustryisdistinctivebecauseofitslackofinnovationand

technologicaldevelopmentcomparedtootherindustries.Currently,theprimary

interactionbetweentheshipownerandthesupplieristhroughordinarypurchase

and sales of products, although, this dissertationwill attempt to alter this by

suggestingalong-termcollaborationbetweenthepartiesand,thereby,createa

foundationforinnovationandoptimization.

Therefore,thedissertationanalyzesrelationalcontracting,includingpartnering,

as an alternative to the parties. This contract form ought to create more

innovationandmutualoptimization for theparties.Hence, this thesis analyzes

relationalcontractinginordertodefinehowtoshapetheoptimalcontractfora

successfulcollaboration.

Bycreatingacollaboration,itispossiblefortheparties–together–tocreatethe

productsneeded.Thus, thedissertation attempts to alter the current, classical

purchaseandsalessituationintoacollaborationwheretheshipownerandthe

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supplierenterintodialogueabouttheproducts,thedevelopmentandtheproduct

performance.Acollaborationisnotachievedfromday-to-day,butmaybereached

throughintroductorydialoguesandthecontractitself.Theprimarypurposeof

thecontractis,however,tocreatetheincitementforboththeshipownerandthe

supplier, which will make them choose to collaborate, as they will be legally

boundby it.The incitement structuredoesnotonlyensurethe legallybinding

collaboration, but is also a tool for the parties to gain a mutual trust in one

another. Some of these incitements,which are included in the contract, are –

among others – the shared risk; openness about the finances concerning the

products,whichthepartiesarecollaboratingon,inordertoensurethatnoparty

feelsneglected;aswellasamutualpurposeandgoalforthecollaboration.

In theattempt toestablish a long-termcollaborationbetween theparties, this

dissertationisdividedintofourparts.Thepurposeofthefourpartsistoclearly

illustratehowrelationalcontractingcancreatevalueandoptimizethesituation–

both for the shipowner and the supplier. It is demonstrated through a

characterizationofthemaritimeindustryinanattempttodefinethemarketand,

thereby,whichrulesareapplicable to theshipownerandthesupplier. This is

essential inordertounderstandhowthecollaborationbetweentheshipowner

and the supplier ought to appear to meet the industry specific elements.

Moreover,thisthesiswillconductatransactioncostanalysisinordertoeliminate

managementasapartywhichcurrentlyfunctionsasthirdpartyintheclassical

purchaseandsalessituationbetweentheshipownerandthesupplier.Hereafter,

the dissertation will analyze the concept of relational contracting by defining

whatitentailsandtheadvantageshereof,includingthepossibilityofcreatinga

successfulcollaboration.

Additionally,thedissertationconverspartneringcontractsasatypeofrelational

contracting in termsofhowa relational contractmaybeoutlinedbetweenthe

shipowner and the supplier and how the incitement structure should be

8

conducted.Afterwards,thedissertationwillillustratehowarelationalcontactis

apossibilityfromagametheoreticalpointofview.Intheend,thedissertationwill

discuss relational contracts in order to conclude on the purpose of the

dissertation. Through the above, the dissertation concludes that relational

contracting could benefit and contribute to a stronger collaboration - and,

thereby, create innovation between the parties. Thus, this dissertation

contributestoresearchandaddressthegoalsofthepurposestatementwherethe

focalpointwastocreatevaluebetweenthepartiesinthemaritimesector.The

conclusion is supported by both economic theories, including transaction cost

theoryandgametheory,andfromalegalperspective,wheretheimportanceof

thecontractformulationbetweenthepartieshasbeenstressed.

Consequently, based on this dissertation, the future for themaritime industry

mustwithoutadoubtberelationalcontractingfortheparties.

9

AbstractinDanish/Resumépådansk Innovationogoptimeringeressentielleelementerforallevirksomhederverden

over, da disse skal sikre virksomhedens overlevelse fremadrettet.

Konkurrencesituationeneridaganderledesendfor10årsidenogvilformentlig

ogsåværeanderledesom10år,grundetdenteknologiskeudvikling,hvorfordet

ihøjeregradgælderomatværefirstmoveriforsøgetpåatskabenyeogbedre

produkter. Dog gælder det ligeledes også om at optimere virksomhedens

processer ved at fokusere på virksomhedens egentlig forretningsformål og

dervedoutsourcedeikkeværdiskabendeelementer.Ivirksomhedernesstræben

efteratoptimereprodukterogprocessererstrategiskealliancervedatfindestort

indpasindenforforskelligeindustriermellemforskelligeglobalevirksomheder.

Denmaritime industri er en gammel og stolt industri medmange aktører på

markedet, hvorfor at den kan karakteriseres sommassiv og kompleks. Denne

gamleogkonservativeindustribærerprægafmanglendeinnovationogmanglede

teknologisk udvikling, som ellers er set i andre industrier. På nuværende

tidspunkt sker skibsejeren og leverandørens primære interaktion gennem

almindeligekøbogsalgafprodukter,hvorforatafhandlingenforsøgeratændre

pådette,vedatetablereetlængerevarendesamarbejdemellempartnerne-og

derigennemskabegrobundforinnovationogoptimering.

Afhandlingenanalysererderforrelationellekontrakter,herunderpartnering,som

et alternativ til partnerne. Denne kontraktform skal forsøge at skabe mere

innovation og fællesoptimering for partnerne. Afhandlingen analyserer

relationelle kontrakter, for at konstatere hvorledes sådan en kontrakt skal

udformes,såledesatderkanetableresetsuccesfuldtsamarbejde.

Ved at skabe et samarbejde er det muligt for parterne sammen at skabe de

produkter,somdeharbehovfor.Derforforsøgerafhandlingenatændrepåden

nuværendeklassiskekøb-og-salgsituation,tiletsamarbejdehvorskibsejerenog

leverandøren går i dialog omkring produkterne, udviklingen og product

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performance. Etsamarbejdeopstårikkefradag-til-dag,hvorforatdetteskaltil

dels opbygges via indledende dialoger, samt selve kontrakten. Kontraktens

primære målsætning er at skabe incitamenter for både skibsejeren og

leverandøren,såledesatbeggevælgeratsamarbejde,iogmedatdeerjuridisk

bundet af den. Incitaments strukturen i kontrakten er ikke blot den juridiske

binding, men også et måde at skabe fælles tillid til hinanden. Nogle af disse

incitamenter,der skal indgå i kontrakten, erblandt andet delt risiko; åbenhed

omkringregnskaber i forholdtildeprodukter,dersamarbejdesom,såledesat

ingenafparternevilfølesigsnydt;samtenfællesmålsætningforsamarbejdet.

I forsøgetpåatetablereetlængerevarendesamarbejdemellemparterne,daer

afhandlingen delt op i fire forskellige dele. Formåletmed disse fire dele er at

tydeliggøre hvorledes relationelle kontrakter kan skabe værdi og optimere

situationen for skibsejeren og leverandøren. Dette er gjort ved at fremstille

hvorledesdenmaritimebrancheserud,ietforsøgpåatdefinerehvilketmarked

og hvilke regler, som skibsejeren og leverandøren er underlagt. Dette er

væsentligt for at forstå hvorledes et samarbejde mellem skibsejeren og

leverandørenskalseudiforholdtilbranchespecifikkeelementer.Derudovervil

afhandlingen foretage en transaktionsomkostningsanalyse til at eliminere

managementparten,derpånuværendetidspunktforekommersomtredjeparti

denklassiskekøb-og-salgsituationmellemskibsejerenogleverandøren.Herefter

vil afhandlingen behandle relationelle kontrakter, ved at definere hvad dette

indebærer,samthvilkefordele,derforekommerherved,blandtandetmuligheden

foratskabeetsuccesfuldtsamarbejde.

Desudenbehandlespartneringkontrakter,somenformforrelationelkontrakti

forholdtilhvordanenrelationelkontraktskaludformesihenholdtilskibsejeren

og leverandøren, og hvorledes deres incitamentsstruktur bør udformes.

Afhandlingenvildernæstbelysehvorledesenrelationelkontrakterenmulighed

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setudfraetspilteoretisksynspunkt.Slutteligtvilafhandlingenrundeafmeden

diskussionafrelationellekontrakter,samtkonkluderepåafhandlingensformål.

Gennemovenståendedelekonkludererafhandlingen,atrelationellekontrakter

vil kunne bidrage til et stærkere samarbejde, og dermed innovation, mellem

partnerne. Dermed bidrager denne afhandling til forskningen og besvarer

derigennem også formålet. Konklusionen er således understøttet af både

økonomiske teorier såsom transaktionsomkostningsanalyse og spilteori, men

ogsåfraetjuridiskperspektiv,hvorvigtighedenafkontraktudformningenmellem

partnerneunderstreges.

Fremtidenfordenmaritimeindustrimåderfor–baseretpådenneafhandling-

unægteligværerelationellekontraktermellemdetopartnereimpliceret.

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ListofAbbreviationsBIMCO: TheBalticAndInternationalMaritimeCouncil

Dwt: Deadweighttonnage

GHG: GreenHouseGas

GT: GrossTonnage

IMCO: Inter-GovernmentalMaritimeConsultativeOrganization

IMO: InternationalMaritimeOrganization

ILO: InternationalLabourOrganization

LNG: LiquifiedNaturalGas

MARPOL: The International Convention for the Prevention of

PollutionFromShips

MLC: MaritimeLabourConvention

OBC: Outcomebasedcontracting

OBHRM: Organizational behavior and human resource

management

OECD: OrganisationforEconomicCo-operationandDevelopment

OPRC: The International Convention on Oil Pollution

Preparedness,ResponseandCo-operation

PSD: Parcelsizedistribution

Ro-ro: Rollon,rolloff

SAJ: Shipbuilders’AssociationofJapan

SOLAS: TheInternationalConventionfortheSafetyofLifeatSea

STCW: The International Convention on Standards of Training,

CertificationandWatchkeeping

UN: UnitedNations

UNCLOS: TheUnitedNationsConventionontheLawoftheSea

WTO: WorldTradeOrganization

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Glossary Ballast:Seawaterpumpedintocarefullylocatedballasttanks,orcargospaces,

whentheship isnotcarryingcargo, to lowertheship in thewaterso that the

propellerissufficientlysubmergedtoperformefficiently.

Berths:Designatedareaofquaysidewherea ship comesalongside to loadog

dischargecargo.

Bulkcarrier:Single-deckshipwhichcarriesdrycargoessuchasore,coal,sugar

orcereal.Smallervesselsmayhavetheirowncranes,whilstlargeronesrelyon

shorebasedequipment.

Coffinships:Termusedregardingsunkenships.Whichsank,andtookthecrew

tothebottomoftheoceans,duetooverloadorbadconstruction.

Charterer:Personorcompanywhohiresashipfromashipownerforaperiodof

time(timecharter)orwhoreservestheentirecargospace forasinglevoyage

(voyagecharter).

Drybulk:Acommodityofarawmaterial,which isshipped in largeunpacked

parcels,suchascoal,ironandgrain.

Exogenous:Havingandexternalcauseororigin.

Flyingtheir flag:Which flagaship issailingunder,meaningthe flagstate i.e.

nationalityoftheship.

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Freight rate: Amount ofmoney paid to a shipowner or shipping line for the

carriageofeachunitofcargobetweennamedports.

GNT:GrossNetTonnage.

Gross Ton: Internalmeasurements of the ship’s open spaces. Now calculated

fromaformulasetoutintheIMOTonnageConvention.

Her:Shipsareusuallyalwaysfemale,thusacommonreferencetoships.

Layingthekeel:Theformalrecognitionofthestartofaship’sconstruction.

LNG:Referencetotankers,thatarespeciallybuild,tocarryLiquefiedNaturalGas.

Merchantships:Isashipthattransportcargoorcarriespassengersforhire.This

incontrasttopleasurecraft,whichareusedforpersonalrecreation.

Newbuildcon: Contract template set out by BIMCO regarding newbuilding of

ships.

One-off transaction: Is used as an expression for the sale and purchase of a

product.

Overhaul:Expressionusedforrepair.

PPC2000:TheAssociationofConsultantArchitects’StandardFormofContract

forProjectPartnering.

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Promissory Estoppel: Legal principle, that is enforceable by law. When a

promisorhasmadeapromisetoapromisewhothenreliesonthatpromisetohis

laterdisadvantage.

Ports:Aplacewhere loading andunloading of ships andboats are done. Not

necessarilyequivalenttoaharbour.

Retrofitting: Refers to the addition of new technology or features to older

systems.

Scrubbers:Asystem(e.g.gasscrubbersorairscrubbers)ofadiversegroupof

air pollution control devices,which can be used to remove some particulates

and/orgasesfromindustrialexhauststreams.

Trampshipping:Aboatorashipthatdoesnothaveafixedscheduleorpublished

ports of call. Tramp ships trade on the spotmarketwith no fixed schedule or

itinerary.

Tonnage:Anonlinearmeasureofship’soverallinternalvolume.Measurements

ofa ship’svolume.NowcalculatedfromaformulasetoutintheIMOTonnage

Convention.

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TableofContentsPREFACE .................................................................................................................................................. 3 ABSTRACT ................................................................................................................................................ 6 ABSTRACT IN DANISH/RESUMÉ PÅ DANSK ...................................................................................................... 9 LIST OF ABBREVIATIONS ............................................................................................................................ 12 GLOSSARY .............................................................................................................................................. 13 LISTOFTABLESANDFIGURES ................................................................................................................ 20

PART I: INTRODUCTION AND METHODOLOGY .................................................................................... 23

Part I summary .................................................................................................................................... 24

CHAPTER1:INTRODUCTIONANDMETHODOLOGY .................................................................... 25

1.INTRODUCTION ................................................................................................................................. 25 2. SERVITIZATION .................................................................................................................................... 30 2.1 SERVITIZATION – THE NEW “BUZZWORD” ................................................................................................. 31 2.2 THE SUCCESS OF THE SUPPLIER – SERVITIZATION IN THE AIRCRAFT INDUSTRY .................................................... 34 2.3 FROM SERVITIZATION TO RELATIONAL CONTRACTING .................................................................................. 36 3.PURPOSESTATEMENT ....................................................................................................................... 38 4.CASESTUDYANDTHECONTRACTPARTIES .......................................................................................... 39 4.1 THE PARTIES INVOLVED ........................................................................................................................ 40 4.1.1 The shipowner ............................................................................................................................ 43 4.1.2 The management ........................................................................................................................ 47 4.1.3 The supplier ................................................................................................................................ 47 5. METHODOLOGY ................................................................................................................................... 48 5.1 PHILOSOPHY OF LAW ........................................................................................................................... 48 6. METHOD ............................................................................................................................................ 52 7. OVERVIEW OF MARITIME LAW SUBJECTS ................................................................................................... 53 8. LAW AND ECONOMICS .......................................................................................................................... 58 8.1 THE ECONOMIC METHOD ...................................................................................................................... 60 8.1.1 Transaction cost theory ............................................................................................................... 62 8.1.2 Game theory ............................................................................................................................... 62 9. DELIMITATION ..................................................................................................................................... 63 10. STRUCTURE ....................................................................................................................................... 65

CHAPTER 2: MARITIME MARKET AND LEGISLATION............................................................................ 68

1. INTRODUCTION .................................................................................................................................... 68 2. MARKET CHARACTERISTICS OF THE MARITIME INDUSTRY .............................................................................. 70 2.1 THE FINANCING AND PRODUCTION OF GOODS ........................................................................................... 70 2.2 SUPPLY AND DEMAND .......................................................................................................................... 71 2.3 HOW REGULATIONS AFFECT MARITIME ECONOMICS.................................................................................... 73 3. THE INTERNATIONAL MARITIME ORGANIZATION (IMO) .............................................................................. 75 3.1 THE IMO CONVENTIONS – THE FOUR PILLARS OF INTERNATIONAL MARITIME LAW............................................ 79 4. THE CHOICE OF FLAG STATE - THE ULTIMATE DECISION ................................................................................. 84

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5. GO GREEN – AN ENVIRONMENTAL NECESSITY ............................................................................................ 90 6. MARITIME CONTRACTS .......................................................................................................................... 93 7. THE FOUR MARKET PLACES WITHIN MARITIME LAW ..................................................................................... 96 7.1 THE NEWBUILDING MARKET .................................................................................................................. 99 7.1.1 Shipowners and shipyards in the newbuilding market ............................................................... 100 7.1.2 Newbuilding contracts ............................................................................................................... 103 7.1.3 Newbuilding prices .................................................................................................................... 105 8. CONCLUDING REMARKS ....................................................................................................................... 107

CHAPTER 3: TRANSACTION COSTS IN A RELATIONAL CONTRACTING PERSPECTIVE ........................... 109

1. INTRODUCTION .................................................................................................................................. 109 2. THE ECONOMIC FOUNDATION FOR UNDERSTANDING TRANSACTION COSTS ..................................................... 112 2.1 BEHAVIORAL ECONOMICS ................................................................................................................... 112 3. THE PARTIES AND THEIR MARKET ROLE IN A BEHAVIORAL PERSPECTIVE .......................................................... 117 3.1 THE SUPPLIER ................................................................................................................................... 118 3.2 THE MANAGEMENT ........................................................................................................................... 118 3.3 THE SHIPOWNER ............................................................................................................................... 119 4. TRANSACTION COST THEORY ................................................................................................................. 121 4.1 EX ANTE AND EX POST TRANSACTIONS.................................................................................................... 123 4.2 THE TRANSACTION COST ANALYSIS ........................................................................................................ 127 5. TRANSACTION COSTS IN THE RELATIONS .................................................................................................. 131 5.1 THE FIRST SITUATION ......................................................................................................................... 134 5.1.1 Ex ante cost ............................................................................................................................... 135 5.1.1.1 The shipowner vs. the management ....................................................................................... 135 5.1.1.2 The supplier vs. the management ........................................................................................... 139 5.1.1.3 The supplier vs. the shipowner ............................................................................................... 140 5.1.2 Ex post cost ............................................................................................................................... 141 5.1.2.1 The shipowner vs. the supplier ............................................................................................... 141 5.2 THE SECOND SITUATION ..................................................................................................................... 141 5.2.1 Ex ante cost ............................................................................................................................... 142 5.2.1.1 The shipowner vs. the supplier ............................................................................................... 142 5.2.2 Ex post cost ............................................................................................................................... 144 5.2.2.1 The shipowner vs. the supplier ............................................................................................... 144 6. CONCLUDING REMARKS ....................................................................................................................... 145

PART II – RELATIONAL CONTRACTING ............................................................................................... 147

Part II summary .................................................................................................................................. 147

CHAPTER 4: RELATIONAL CONTRACTING ........................................................................................... 149

1. INTRODUCTION .................................................................................................................................. 149 1.1 AN INTRODUCTION TO RELATIONAL CONTRACTING ................................................................................... 151 1.1.1 Macneil’s classification of contracts ........................................................................................... 153 1.1.2 The classical model .................................................................................................................... 158 1.1.3 The interpretation of the contractual relation............................................................................ 159 2. ”CONTRACTING” AS A BUZZWORD ......................................................................................................... 163

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2.1 OUTCOME-BASED CONTRACTS ............................................................................................................. 164 2.1.1 Equipment-based services ......................................................................................................... 168 2.1.2 Performance as a relational asset .............................................................................................. 170 3. CONCLUDING REMARKS ....................................................................................................................... 173

CHAPTER 5: PARTNERING – A RELATIONAL CONTRACTING SOLUTION ............................................. 175

1. INTRODUCTION .................................................................................................................................. 175 2. RATIONALES FOR COLLABORATION ........................................................................................................ 178 3. THE THEORY OF PARTNERING ................................................................................................................ 182 3.1 WHY PARTNERING IS A NECESSITY ......................................................................................................... 185 3.2 PARTNERING AND STRATEGY ............................................................................................................... 189 3.3 PARTNERING IN A PRACTICAL MATTER ................................................................................................... 192 3.4 PARTNERING IN OTHER INDUSTRIES ....................................................................................................... 195 4. VALUE CREATION IN THE PARTNERING AGREEMENT ................................................................................... 202 4.1 SHARED EXPERTISE ............................................................................................................................ 203 4.2 COMPETITIVE ADVANTAGES ................................................................................................................ 204 5. STRUCTURING THE PARTNERING AGREEMENT .......................................................................................... 206 5.1 COMMON UNDERSTANDING ................................................................................................................ 208 5.2 JOINT INCENTIVES ............................................................................................................................. 209 5.3 PLANNING – WITH A TOUCH OF FLEXIBILITY............................................................................................. 210 6. THE RISKS OF PARTNERING AGREEMENTS ................................................................................................ 211 6.1 RISK REDUCTION ............................................................................................................................... 215 7. CONCLUDING REMARKS ....................................................................................................................... 217

CHAPTER 6: A LEGAL ANALYSIS OF THE CONTRACT CLAUSES BETWEEN THE SHIPOWNER AND THE SUPPLIER ........................................................................................................................................... 219

1. INTRODUCTION .................................................................................................................................. 219 2. PRE-ENGAGING PARTNERING AGREEMENT PROCESS .................................................................................. 220 3. THE ALLIANCE AGREEMENTS ................................................................................................................. 225 4. NEGOTIATING A PARTNERING AGREEMENT .............................................................................................. 227 4.1 THE SHIPOWNER VS. THE SUPPLIER ....................................................................................................... 228 5. INCENTIVES ....................................................................................................................................... 230 5.1 SHIPOWNER INCENTIVES AND MOTIVATIONAL FACTORS ............................................................................. 231 5.2 SUPPLIER INCENTIVES AND MOTIVATIONAL FACTORS ................................................................................. 234 6. THE CONSTRUCTION OF THE PARTNERING AGREEMENT .............................................................................. 239 6.1 ANALYSIS OF THE CONTENT OF THE AGREEMENT ...................................................................................... 239 6.2 AUTHORIZATIONS AND CERTIFICATE ...................................................................................................... 240 6.3 REPRESENTATIVES ............................................................................................................................. 241 6.4 COLLABORATION .............................................................................................................................. 242 7. RESPONSIBILITIES ............................................................................................................................... 246 7.1 GUARANTEE .................................................................................................................................... 246 7.2 LIABILITIES ...................................................................................................................................... 247 8. PRICING AND SERVICES ....................................................................................................................... 248 9. RISKS ............................................................................................................................................... 249 10. CONCLUDING REMARKS ..................................................................................................................... 250

19

PART III – RELATIONAL CONTRACTING FROM A LAW AND ECONOMIC PERSPECTIVE ........................ 252

Part III summary ................................................................................................................................. 252

CHAPTER 7: RELATIONAL CONTRACTING FROM A GAME THEORETICAL PERSPECTIVE ...................... 253

1. INTRODUCTION .................................................................................................................................. 253 2. WHAT IS GAME THEORY ....................................................................................................................... 254 2.1 NASH EQUILIBRIUM ........................................................................................................................... 258 2.2 THE PRISONER’S DILEMMA .................................................................................................................. 259 3. GAME THEORY IN THE MARITIME INDUSTRY ............................................................................................. 262 3.1 THE CONSEQUENCE OF ONE-TIME GAMES ............................................................................................... 265 4. REPEATED GAMES............................................................................................................................... 266 4.1 FIXED GAMES ................................................................................................................................... 270 4.2 INFINITE GAMES................................................................................................................................ 274 5. THE MODIFIED PRISONER’S DILEMMA ..................................................................................................... 276 6. CONCLUDING REMARKS ....................................................................................................................... 279

PART IV – DISCUSSION AND CONCLUSION......................................................................................... 281

Part IV summary................................................................................................................................. 281

CHAPTER 8: DISCUSSION ON RELATIONAL CONTRACTING................................................................. 283

1. RELATIONAL CONTRACTING AS A STRATEGIC ALLIANCE ............................................................................... 283 2. RELATIONAL CONTRACTING BETWEEN THE SHIPOWNER AND SUPPLIER .......................................................... 291 3. THE GAME THEORETICAL PERSPECTIVE ON RELATIONAL CONTRACTING ........................................................... 294 4. STRUCTURING THE MARITIME INDUSTRY AROUND THE MANAGEMENT .......................................................... 295 5. CONCLUDING REMARKS ....................................................................................................................... 298

CHAPTER 9: CONCLUSION .................................................................................................................. 299

APPENDIX I: BIBLIOGRAPHY ..................................................................................................................... 302 APPENDIX II: LEGAL SOURCES ................................................................................................................... 313 APPENDIX III: INTERNATIONAL AND DANISH SOURCES ................................................................................... 314 APPENDIX IV: OTHER SOURCES ................................................................................................................. 318 APPENDIX V: LIST OF IMO MEMBERS ........................................................................................................ 321 APPENDIX VI - OVERVIEW OVER THE IMO CONVENTIONS THAT DENMARK HAS RATIFIED .................................... 326 APPENDIX VII: LIST OF TOP TEN FLAG STATES’ RATIFICATIONS ......................................................................... 328

20

ListofTablesandFigures

Figure1.1-Maritimemarketoverview

Figure1.2-Caseoverview

Figure1.3-Thethreesegmentsofthemaritimeindustry

Figure1.4-Theshipowner’sportfolio

Figure1.5-Theallocationofships

Figure2.1–Legaloverview

Figure2.2–Thefourpillarsofmaritimelaw

Table2.3–Stagepayments

Figure3.1–Therelationaltriangle

Figure3.2–Thetwotransactionsituations

Figure3.3–One-offtransaction

Figure3.4–Relationalcontractingtransaction

Figure3.5–Transactioncostoverview

Figure3.6–Transactioncostinrelationalcontracttransaction

Figure4.1–Caseoverviewrevised

Figure4.2–Thethreedimensions

Figure4.3-Fourelementsofabusinessmodel

Table5.1–Motivationalfactorsforpartnerships

Table5.2-Partneringintheconstructionindustry

Table5.3-Partneringagreementsindifferentindustries.

Figure 5.4 – Necessary considerations before entering a partnering

agreement

Figure6.1–Allianceagreements

Table6.2–Theincentivesoftheparties

Figure 6.3 – Relevant parameters in a relational contract between the

parties

21

Figure6.4–Whatisincludedinthecollaborativeelement

Figure7.1–Partiesintherelationalcontract

Table7.2–Prisoner’sdilemma

Table7.3–Theshipownerandsupplierdilemma

Table7.4–Totalutilityofafixedgame

Table 7.5 – The shipowner and supplier dilemma from a partnering

perspective

Table7.6–Totalutilityofaninfinitegame

Table7.7–Themodifiedprisoner’sdilemma

Table7.8–Modifiedprisoner’sdilemma,totalutilityof7gamesexample1

Table7.9-Modifiedprisoner’sdilemma,totalutilityof7gamesexample2

Table7.10-Modifiedprisoner’sdilemma,totalutilityof7gamesexample3

22

‘Whoevercommandsthesea,commandsthetrade;whosoevercommandsthe

tradeoftheworldcommandstherichesoftheworld,andconsequentlytheworlditself.’

-SirWalterRaleigh,early17thCentury1

1KnightSirWalterRaleigh,Britishwriterandpoet.(c.1552or1554–October29th,1618)JudiciousandSelectEssaysandObservationsbytheRenownedandLearnedKnight,Upon theFirst InventionofShipping,H.Moseley,1650. SeealsoStopford,M.(2009).Maritimeeconomics.Routledge,p.655.

23

PartI:IntroductionandMethodology

Part IV- Discussion and Conclusion

Chapter 8: Discussion on relational contracting Chapter 9: Conclusion

Part III - Relational contracting from a Law and Economic perspective

Chapter 7: Relational contracting from a game theoretical perspective

Part II - Relational contracting

Chapter 4: Relational Contracting Chapter 5: Partnering - a relational contracting situation

Chapter 6: A legal analysis of the contract clauses between the shipowner and the

supplier

Part I - Introduction and Methodology

Chapter 1: Introduction and Methodology Chapter 2: Maritime market and legislation Chapter 3: Transaction costs in a relational contracting perspective

24

PartIsummaryPart1isdividedintothreechapterswhichwillsetthesceneofthedissertation.

First, chapter1willbe an introduction to themaritime industry, the case, the

specificresearchquestion,andthedelimitationofthedissertation.Also,chapter

1 will discuss the used methodology both from an economical and a legal

perspective. Afterwards, chapter 2will be defining themaritime industry and

maritimecontractsbylookingintomarketcharacteristicsasanintroductionto

howthe industryworks.Finally,chapter3containsa transactioncostanalysis

whichwilldiscussthepartiesofthecasefromatransactionalcostperspective.

Thiswillbedoneinordertooptimizetheparties’ situationbyeliminatingthe

redundant party to create a stronger foundation for the relational contract

betweentheremainingparties.

Overall,thesechapterswillcreatethebroadfoundationforourunderstandingfor

themaritimeindustry,asitisimportanttounderstandtheindustryinordertobe

abletocomprehendtheindustryandthecasein-depth.

25

Chapter1:IntroductionandMethodology

1.IntroductionToday,themaritimesectorhandlesmorethan80percentoftheglobalindustry

trade2 and is therefore a very important sector in our globalized world. In

connectionwithDenmark,thenationalmerchantfleetcomprises666vessels,3

andthevesselsaccountfor15.2millionGrossTonnage(GT)and71.4millionGT

includingbothDanish-ownedvesselsandthosecharteredorregisteredunder

foreignflags.4Asaresult,thismakesDenmarkthefifthlargestshipping5nation

intheworld6with10percentoftheworldtradebeingtransportedbytheDanish

shippingcompanies.7

2AccordingtotheInternationalMaritimeOrganization(IMO),themaritimetimeindustryhandlesmorethan80percentoftheglobaltrade.LastvisitedJanuary12th2019.http://www.imo.org/en/About/Pages/Default.aspxAlthoughmorethan90percentofglobalfreightistransportedbysea,Eddings,G,Chamberlain,A.&Warder,R.(2017).Theshippinglawreview(4thed).LawBusinessResearch,p.vii.3AsofNovember2016accordingto ‘DanishShippingStatisticsNovember2016’,Table2.1., publishedby theDanishShipowners’Association.SeealsoEddings,G,Chamberlain,A.&Warder,R.(2017).Theshippinglawreview(4thed).LawBusinessResearch,p.157.4Flagstateswillbefurtherdiscussedinchapter2,section4.5Phrasesas‘Maritime’and‘Shipping’canbeusedinterchangeably,thoughshippingisthemorecommonphrasetouse,this canalso refer to as ‘sendinggoodsoverseas’ – thus thisdissertationwill use thephrase ‘shipping,’ as anoveralldefinitionequallywiththephrase‘maritime’andnotasinfreightofcommodity.source;https://dictionary.cambridge.org/dictionary/english/shippingLastvisitedJanuary30th2019.6 ´Danish Shipping StatisticsNovember 2016´, published by the Danish Shipowners Association, further informationwww.Shipowners.dk;Eddings,G.,Chamberlain,A.&Warder,R.(2017).Theshippinglawreview(4thed).LawBusinessResearch,p.157.7 In2015theearningsfortheshipping industryreachedapprox.205billionDKKandtheDanishshippingcompaniesemployapprox.23,000oftheroughly100,000employedintheDanishmaritimecluster;ReportmadebyTheEconomicCounciloftheLabourMovementpreparedfortheDanishMaritimeAuthority,www.dma.dk;Eddings,G,Chamberlain,A.&Warder,R.(2017).Theshippinglawreview(4thed).LawBusinessResearch,p.157.

26

Themaritimesectordealswithmanyanddiverseproblemsinitsoperationsand

anyimperfectionsorcostinefficiencieshavesignificantimplicationsonglobal

trade.8

Theshippingindustryisverycost-intensiveandcurrentlynotverylucrativedue

to a tightmarketwhere ships are expensive,which obviously tie up a lot of

capital.Shipsareahugeassetforshipownersandareoftenhighlyleveraged.9

Tankers and container ships can cost up to 150 million USD each, which is

approximately thesameasa jumbo jet.10However,withacostof225million

USD11pership,themostexpensivehereofistheLNG12tankers.13Consequently,

capitalallocatedforshippurchasescanaccountforupto80percentofthetotal

costsofrunningabulkshippingcompanywitha fleetofmodernships.14 It is

therefore important that shipowners are cost-efficient in order to have a

profitablebusinessandmarket.15

Shipbuilding is a heavy engineering business dealing with large and

sophisticated products which are mainly built in facilities located in

industrializedmarketsofJapan,Europe,SouthKorea,andChina.Thisproduction

requires substantial capital investments and a high level of expertise both

technicallyandmanageriallyinordertodesignandproduceamerchantship.16

Althoughthemaritimeindustryiscost-intensive,additionally,itisanimmensely

andcomplexindustry,withcountlessmarketoperators-allwithdifferentparts

toplayinthemarketandalloperatingwithinthedifferentmarkets.Figure1.1.

below illustrates a simplified supply-chain17 within the industry, in order to

8Eddings,G.,Chamberlain,A.&Warder,R.(2017).Theshippinglawreview(4thed).LawBusinessResearch,p.vii-viii.9Stopford,M.(2009).Maritimeeconomics.Routledge.p.269.10Ibid.11Thesenumbersare2009level.12LiquefiedNaturalGas13Transportationofliquefiedgas.Stopford,M.(2009).Maritimeeconomics.Routledge,p.269.14Ibid.15Ibid.16Ibid.,p.613.17Thisistheauthorsattempttodefinethe“entire”shippingindustrywithinonesinglemodel.Althoughthismodelframestheindustry,itisworthnotingthatthisisaverysimplifiedversion,whyitcannotbeclassifiedascomplete,thereforejustaguideline.

27

present an overview of the complexity of the industry – and, thus, to give a

broaderunderstandingoftheindustry.

Figure1.1–Maritimemarketoverview

Source:theauthor’screation18

18Thismodeliscreatedfrominformationgathereduponthemarkets,playersandlegalandeconomicframeworke.g.setoutbyStopfordinhisbookMaritimeEconomicsandbaseduponseveraldiscussionsandinputsmadebythemaritimeindustryatclosedmeetingsandBlueINNOshipseminars.

28

Thepurposeofthefigureistoillustratethecomplexityoftheindustryandthus

explainwhythedissertationwillhavetointroducetermsandconceptsthatmay

atfirstappearlessrelatedtorelationalcontracting,but-inamaritimecontext-

itisnecessaryinordertodiscussrelationalcontractingbetweentheshipowner

andthesupplier.

Whilebeingacomplexmarket,withmanymarketplayers,themaritimebusiness

is an old and conservative industrywhich has led to a lack of innovation and

development,19 as seen inother industries (e.g. the ITbusinessor the aircraft

industry).20Duetotheeconomicpressure,manyofthebusinessesaretryingto

redefinetheirrole in the industry.21Someof the shipownersare restructuring

theirbusinessmodelwhichhasledtonewproducts,moretechnology,andfewer

crewmembersontheships22-whilesuppliersarecompetingtokeeptheirmarket

shares.

Theaimforthefutureshipistobefullytechnology-basedand,thereby,sailed

autonomously-therebynoshipcrewatall.23Althoughstretchingfaroutinthe

19Makkonen,T.,&Repka,S.(2016)"Theinnovationinducementimpactofenvironmentalregulationsonmaritimetransport:aliteraturereview."InternationalJournalofInnovationandSustainableDevelopment,10.1:P.70-72.SeealsoAndersen,J.A.B.,McAloone,T.C.,&GarciaiMateu,A.(2013).IndustryspecificPSS:Astudyofopportunitiesandbarriersformaritimesuppliers.InDS75-4:Proceedingsofthe19thInternationalConferenceonEngineeringDesign(ICED13),DesignforHarmonies,Vol.4:Product,ServiceandSystemsDesign,Seoul,Korea,19-22.08.2013.20Smith,D.(2013).“Power-by-the-hour:TheroleoftechnologyinreshapingbusinessstrategyatRolls-Royce.”TechnologyAnalysis&StrategicManagement,25(8):987-1007.RollsRoycehaswithinthelasthalf-century,revolutionizedtheaircraftindustry,withtheirPower-by-the-HourÒ.21Someofthepartieswithinthesupply-chainsetoutinfigure1.1,needstoredefinetheirrolesinordertobecomemorecompetitiveandforsomeofthem,tokeepbeinginbusiness.22Thisisawayofoptimizing,costcuttingandinorderfortheorganizationstooptimizethestructureandbusiness,somefunctionsmaybeoutsourcedtocontractors.Komianos,A.(2018).“TheAutonomousShippingEra.Operational,Regulatory,andQualityChallenges.”TransNav: International JournalonMarineNavigationandSafetyofSeaTransportation,12(2):335-348.23Thisisthefutureoftheshippingworldandseveralcompaniesintheindustryaredevelopingtheseimprovements.Thefirst”crew-less”shipisabouttobedoitsfirsttestruns.Ifthissucceeds,thenthesuppliersofthecomponentswillhavetofollowthedevelopment,inordertostayinbusinessandaimingatkeepingorimprovingmarketshares.Butitisworthmentioning that this thought is still far out in the future. Formore information regarding unmanned ships seealso;Komianos, A. (2018). “The Autonomous Shipping Era. Operational, Regulatory, and Quality Challenges.” TransNav:International Journal on Marine Navigation and Safety of Sea Transportation, 12(2): 335-348. andhttps://worldmaritimenews.com/archives/247204/interview-unmanned-ships-are-we-there-yet/ Last visited January2nd2019.SeealsothestrategicalliancebetweenSamsungHeavyIndustriesandAmazonsAWS.AWSwillbethecloudserviceprovider,inregardstothedevelopmentofautonomousshippingplatforms.Source;PressReleasefromAmazon,“SamsungHeavy IndustriesSelectsAWS as its preferred Cloud Provider”,August8th 2018.AlsoDenmark’smaritimecluster is calledBlueDenmark.Thedevelopment indigitalization, automationandautonomous technologies isahighprioritywithin BlueDenmark,while this can have great impact on BlueDenmark’s competitiveness and their globalorganization of shipping. Therefore the Danish government – based on recommendations from Blue Denmark, hasacknowledgedthatBlueDenmarkneedstobeleadinginthisarea.Thatimpliesthattheframeworkisinplace,withoutanytechnicalorlegislativesbarriers.OriginalLanguage;Danish;Source;Søfartsstyrelsen,rapport,december2017-Analyse

29

future,thisdevelopmentshould,fromtheperspectiveoftheshipowners,create

betterandmorecost-efficientshipsandbusinessesinthefuture,asthenumber

ofemployeescanbedecreasedwhilemakingproductimprovements.24Fromthe

perspectiveofsuppliers,therewillbemorecompetitionandtheythereforeneed

tobeonestepaheadinordertobeapartofthedevelopmentbyrethinkingtheir

productsandhowtheycanbeoptimized,orhowtocreatenewandmoreefficient

productswithincreaseddurabilityandcompliancewiththeactualneedsofthe

customers.25Hence, as in anyother industries, it is important toadapt to the

marketinwhichoneoperates,meaningthatthepartiesofthemaritimeindustry

needtorethinktheirpositionsandthepossibilityofoptimization.Asanexample,

it isessentialthattheshipownersarecost-efficient,forinstance, inrelationto

theon-goingserviceandmaintenanceof theships,whichareprovidedbythe

marketsuppliers.

Basedontheabove,theimportanceofeconomicefficiencyandinnovationhas

beenstressed,thusthemaritimebusinessneedstobeeconomicallyefficientin

ordertocreateormaintainmarketshares.However, incontemporarysociety,

this economic efficiency has turned out to require collaboration between the

parties.26 Through collaboration, the parties will arguably be able to sub-

optimize and will therefore gain equal competitive advantages within the

afreguleringsmæssigebarrier foranvendelseafautonomeskibe–afsluttenderapport.UdarbejdetafRambøllogCoreAdvokatfirmap.1https://www.dma.dk/Presse/temaer/DetBlaaDanmark/Sider/default.aspx-LastvisitedJanuary2nd2019.24Søfartsstyrelsen,rapport,december2017-Analyseafreguleringsmæssigebarrierforanvendelseafautonomeskibe–afsluttende rapport. Udarbejdet af Rambøll og Core Advokatfirma, p. 1-2. Link to final report;https://www.soefartsstyrelsen.dk/Documents/Publikationer/Analyse%20af%20reguleringsm%C3%A6ssige%20barrierer%20for%20anvendelse%20af%20autonome%20skibe%20Dec2017.pdf. Last visited January 2nd 2019. Authorstranslation.25ThisisbasicallywhatRolls-RoycehassucceededwithbytheirPower-by-the-Hour.Smith,D.(2013).“Power-by-the-hour:TheroleoftechnologyinreshapingbusinessstrategyatRolls-Royce.”TechnologyAnalysis&StrategicManagement,25(8):987-1007andBaines,T.&Lightfoot,H.(2014). ‘ServitizationintheAircraft Industry:UnderstandingAdvancedServices and the Implications of Their Delivery’ in Servitization in Industry edited by Lay, G. Springer InternationalPublishing,p.45.26Bustinza,O.,Bigdeli,A.,Baines,T.,&Elliot,C.(2015).“ServitizationandCompetitiveAdvantage:TheImportanceofOrganizational Structure and Value Chain Position”. Research-Technology Management, 58(5): 53-60. According toBustinzaetal,inthemanufacturingindustry,thereisaconnectionbetweenservicerevenuesandprofitmarginsandthatthisisleadfromcollaborativeelements.Forcompaniestodeveloptheirbusinesses,thecompaniesmustaddressanumberofissues,includingorganizationalstructureandpositiononthevaluechain.Bycollaborationandinnovation,thereisapossiblecompetitiveadvantage.

30

market.Althoughcollaborationappearstobetheoptimalsolutiontodecreasing

marketefficiency,itisimportantthatpartiesbothreceiveequalgainandhave

mutualtrust,astheymayotherwisechoosenottosharevitalinformationinthe

pursuitofbecomingsuccessful.27Hence, it is important thatcollaborationsdo

not provide one party with a substantial advantage or valuable/hurtful

knowledgeabouttheotherpartythatcanbeusedagainstit.28Consequently,to

dealwith thispotential issue/dispute, theparties need a contract inorder to

ensureatrustfulrelation.

Maritimecontracts,i.e.acontractbetweenashipownerandasupplier,referto

contractsdirectlyrelatingtovessels.Theyaredistinctfromgeneralcontracts,as

they comprise an agreement regarding operation, navigation, maintenance,

repairing,and/orprovisioningofavessel.29

Currently, the market is defined by one-off transactions30 which means that

shipownersbuyaproductfromasupplier,installitintheship,andthenmerely

keep doing business as usual. The supplier, on the other hand,would like to

change this one-off business structure, by selling a product with a service

agreement, which is also known as servitization, and thereby achieve new

businessbonds.31

2.ServitizationTheconceptofservitizationisthesuppliers“new”proposaltotheshipowner,as

awaytogainnewbusiness.Thesupplier isexpanding itsproductportfolioby

addingservicestotheproducts.Theaimofthisistobecomemorecompetitive

andgainnewmarketshares,byofferingacompleteproductpackage.Theconcept

27Bagley,C.E.,&Tvarno,C.D.(2014)."Pharmaceuticalpublic-privatepartnerships:Movingfromthebenchtothebedside."HarvardBusinessLawReview,4(2):373-401,p.383-85.28Ibid.29Eddings,G.,Chamberlain,A.&Warder,R.(2017).Theshippinglawreview(4thed).LawBusinessResearch,p.169.30Thedissertationusesone-offtransactionsasatermforaclassicpurchase-salessituationbetweentheshipownerandthesupplier.31ThisdissertationisapartofBlueINNOshipproject#15regardingservitization,thereforethedissertationwillclarifytheconcepthereof.ParticipantsinthisprojectisDanishMaritimeandCopenhagenBusinessSchool.

31

ofsellingaproductwithaserviceagreement isnonewsto themanufacturing

industry,i.e.theaircraftindustryandpharmaceuticalindustry,although,thisis

notacommonconceptwithinthemaritimeindustry.This“new”solutioncalled

servitization has become the new “it” word within the maritime industry,

however,aclarificationofwhatservitizationentailsandhowthisisrelevantfor

theindustryisrequired.

Thedissertationwillbrieflydiscussservitizationasawayofdefiningtheproposal

fromthesupplier,although,thisdissertationwillonlyusethemainelementsfrom

servitizationandincorporatetheseinconnectionwithrelationalcontracting.The

reasonisthatthedissertationwantstointroduceanalternativecontractmodel

whichsuggestsalong-termcollaborativeelement-asacontrasttoservitization

which suggests a fixed product-service system rather than a customized

collaboration.

2.1Servitization–thenew“buzzword”There are several different opinions regarding the exact definition of

servitizationwhichmakesitdifficulttodefineprecisely.Nevertheless,according

to the findingsofTimBaines,32HowardLightfoot,33OrnellaBenedettini34and

JohnKay35(hereinafter,referredtoas,“Bainesetal.”),servitizationis:

“The innovationof anorganizations capabilities andprocesses to shift from

sellingproductstosellingintegratedproductsandservicesthatdelivervaluein

use.Thereareadiverserangeofservitizationexamplesintheliterature.These

tend to emphasize the potential to maintain revenue streams and improve

profitability.”36

32ProfessoratAstonUniversity,istheleadinginternationalauthorityonservitzationandadvancedservices.33Dr.HowardLightfootisaBritishProfessorattheCranfieldUniversity.HeisaprominentfigurewithinServitization.ManagerofOperationsExcellenceInstituteatCranfieldUniversity,DepartmentofManufacturing.34AcademicvisitoratUniversityofCambridgeandUniversityLectureratPolitecnicodebari.35ResearcheratCranfieldUniversity.36Baines, Tim S., et al. (2009). "The servitization of manufacturing: A review of literature and reflection on futurechallenges."Journalofmanufacturingtechnologymanagement20.5,p.547.

32

This is a very broad definition,whichmay easily be simplified. Therefore, in

order to comprise it, the dissertation will use the following definition of

servitization:

“The delivery of a service component as an added value, when providing

products.”37

This definition is considered to be more precise, but still contains the

relevantaspectsofthedissertation.

Fromthesupplier’sperspective,providingaproductwithanaddedvalue,e.g.a

service, is a step further than the classicmanufacturing business, and a step

towards being increasingly a service provider. Back in the days, the supply

service chain was comparatively black and white; suppliers wouldmake the

products,whileservicecompanieswouldbehandlingmaintenance–which is

not the case anymore. Today, boundaries are blurred as trailblazing

manufacturers embark on a transformation – and that is what is known as

servitization.38

Tim Baines and Howard Lightfoot (hereinafter, referred to as, “Baines and

Lightfoot”)statesthefollowing:

“In recent years, more and more manufacturers are competing through a

portfolioof integratedproductsandservices.This isaconsciousandexplicit

strategy for manufacturers, with the provision of product-centric services

providingamaindifferentiatingfactorinthemarketplace.Anditisthiswhich

hasbecomeknownastheservitizationofmanufacturing.”39

37Ibid.38Ibid.39 Baines,T. S., andH. Lightfoot. (2013).Made to Serve:HowManufacturers Can Compete throughServitizationandProductServiceSystems.JohnWiley&Sons,p.3-5.

33

Thisisinreferencetothemovementmentionedabove,wherethesuppliersare

taking a step towards being a service provider rather than a classic

manufacturer. This is – as Baines and Lightfoot states – a strategy for the

suppliers, as a way of becomingmore competitive and gainingmoremarket

sharesbyextending theirproductportfolio. In connectionwith this case, it is

regardedhighlyrelevant.Theyalsopointsoutthatservitizationhasbeenprimed,

duetothefactthatacademicshavebeenencouragingsupplierstofocusonthe

customerextremeofthesupplychainforovertwodecades.40Transformingfrom

theclassicmanufacturingbusiness todeliveringaproduct-centeredservice is

notasmallshift,bymeansoftransformingtheentireorganizationaloperation,

thus,thismaycausesomecompaniestobeslowontheuptake.41

Itisnonewsthatallsuppliersofferservicesalongwiththeirproductsyetsome

ofthemuseservicesasthebasisoftheircompetitivestrategy.42Servitizationhas

become the innovative driving force for capabilities and processes of an

organisation.Theaspirationistocreatemutualvaluethroughashiftfromselling

aproducttosellingaproduct-servicesystem.43,44

Whendiscussing aproduct-service systemor sellinga productwitha service

agreement, therearedifferent“levels”of services,whichmeansthat itranges

from simple to advanced and it depends on the level hereof. The advanced

servicesareconsideredspecialinconnectionwithservitization.45Theyprovide

thecustomerwiththecapabilitieswhicharisefromtheuseoftheproductsofthe

40Ibid.,SeealsoBaines,TimS.,etal.(2009)."Theservitizationofmanufacturing:Areviewofliteratureandreflectiononfuturechallenges."Journalofmanufacturingtechnologymanagement20.5,p.547-549.41 Ibid., SeealsoBustinza,O.,Bigdeli,A.,Baines,T.,&Elliot,C.(2015). “ServitizationandCompetitiveAdvantage:TheImportanceofOrganizationalStructureandValueChainPosition”.Research-TechnologyManagement,58(5):53-60.42 Lee, S.,Yoo,S.,&Kim,D.(2016) "When Is ServitizationaProfitableCompetitiveStrategy?" International Journal ofProductionEconomics173:43-53.43Baines, T. & Lightfoot, H. (2014). ‘Servitization in the Aircraft Industry: Understanding Advanced Services and theImplicationsofTheirDelivery’inServitizationinIndustryeditedbyLay,G.SpringerInternationalPublishing,p.45.44Product-Service-Systemisanactualconcept,whereassellingaproductwithaserviceagreementisthesameidea,thoughnotconsideredaconcept.45Baines,T.S.,andH.Lightfoot.(2013).MadetoServe:HowManufacturersCanCompetethroughServitizationandProductServiceSystems.JohnWiley&Sons,p.5.

34

supplier,anddemandthatthesupplierextendsitselfsignificantlybeyonddesign

andproductionbasedcompetences.46

Thefactisthat,inmanycases,itisthesupplierwhoismovingintotheterritory

ofactivitieswhichwaspreviouslycarriedoutbythecustomers(e.g.shipowners)

themselves,andisthereforedeliveringcapabilitiesthatareamajorcomponent

of the primary business processes of the customer.47 For instance, when a

supplierisengagedinsellingaproductwithaserviceagreementtoashipowner,

this service is the way in which a supplier enters a territorywhich formerly

belongedtotheshipownerwhocarriedouttheserviceinquestion.Furthermore,

advancedservices are commonly combinedwithadditional features.Contract

life-cycles tend tobe long-term(commonpractice is5-15years),48where the

supplier takes the responsibility and risks for ensuring that the capability

performsasexpected,andrevenuepaymentsareoftencoupledtousage.49These

featuresaresoprominentthatadvancedservicesarefrequentlyreferredtoin

these terms. Performance contracting, availability contracts, and risk and

revenue sharing contracts are all terms that are commonly used to describe

advancedservices.

2.2Thesuccessofthesupplier–servitizationintheaircraftindustry

Inordertosucceedwiththedeliveryofadvancedservices,asupplierislikelyto

need some new and alternative organizational principles, structures, and

processes,50 which differ from those associated with traditional product

46 Baines,T. & Lightfoot, H. (2014). ‘Servitization in theAircraft Industry: UnderstandingAdvancedServicesand theImplicationsofTheirDelivery’inServitizationinIndustryeditedbyLay,G.SpringerInternationalPublishing,p.45.47Ibid.,SeealsoChase,R.,&Garvin,D.(1989).Theservicefactory.HarvardBusinessReview,67(4):61–69.48 Baines,T. & Lightfoot, H. (2014). ‘Servitization in theAircraft Industry: UnderstandingAdvancedServicesand theImplicationsofTheirDelivery’inServitizationinIndustryeditedbyLay,G.SpringerInternationalPublishing,p.46.49Ibid.,50Oliva,R.andKallenberg,R.(2003).“Managingthetransitionfromproductstoservices.”Int.J.ServiceIndustryMgmnt,14(2):160–172.

35

manufacture.51 Richard B. Chase (hereinafter, referred to as, “Chase”)52 and

DavidA.Garvin(hereinafter,referredtoas,“Garvin”)53havesuggestedforsome

timethatthereisasubtlemixoforganizationalstructuresthatareappropriate

toaservitizedsupplier.54Thesearedistinctanddifferentfromthoseassociated

witheitheramoretraditionalproductmanufacturer,orapureserviceprovider

–although,theactualchallengeforthesuppliersarenotyetwidelyappreciated.

Aspreviouslymentioned,servitizationisnotacommonconceptinthemaritime

industry, but it has become best-practice within the aircraft industry, which

meansthattheaircraftindustryoffersanexcellentopportunitytogainaninsight

intotheimplicationsofservitizationforasupplier.55Componentsandproducts

forshipsareusuallyclassifiedasadvanced,although,itdependsonthespecific

component.Therefore,thelong-termcollaborationbetweentheshipownerand

the supplier - which will be discussed in this dissertation - is based upon a

complexprocessregardingadvancedproductsandservices.Thiselementwillbe

consideredinconnectionwiththerelationalcontractingsituation.

Many cases of servitization occur in the aircraft industry, which can also be

categorizedasoneof theadvanced industriessuchas themaritime. It seems

inevitablenottocompareittotheaircraftindustry,andthus,intheupcoming

partsofthedissertation,elementsfromthiswillbeappliedindiscussionofthe

relationalcollaborationbetweentheshipownerandthesupplier.

Servitizationintheaircraftindustrycaughtoninthelate1990’swiththeengine

manufacturer Rolls-Royce which structured a “TotalCare” package for its

51Forinstance,itmightbeinsufficienttosimplyattempttoreplicatetheleanprinciplesofToyota.52 Professor Emeritus of Operations Management Marshall School of Business, University of Southern California.Specializedinserviceoperationsmanagement.53FormerProfessorofBusinessAdministrationatHarvardBusinessSchool.54ForfurtherinformationseeChase,R.,&Garvin,D.(1989).“Theservicefactory”.HarvardBusinessReview,67(4):61–69.55 Baines,T. & Lightfoot, H. (2014). ‘Servitization in theAircraft Industry: UnderstandingAdvancedServicesand theImplicationsofTheirDelivery’inServitizationinIndustryeditedbyLay,G.SpringerInternationalPublishing,p.46.

36

customer,AmericanAirlines.56Here,thecustomersimplypaidforhoursflown

by the engine. This type of contract was initially risky and potentially loss-

making.However, over time, three fundamental elementswere introduced to

mitigatetheassociatedrisksindeliveringthisservitizedbusinessmodel.These

are: thedevelopmentofEngineHealthManagement (EHM)systems anddata

analysis software; the establishment of a joint venture betweenMaintenance

OverhaulandRepairfacilitiesattheoperationalhubsofthecustomer(inTexas,

Singapore,HongKong);andtheoperationscontrolcenterinDerby,England.57

Thesetechnologiesandfacilitieshavebeenmajorfacilitatorsoftheeffectiveand

efficient delivery of the service offering. Today, Rolls-Royce makes over 50

percentofitsrevenuesfromadvancedandintermediateservices.58

2.3FromservitizationtorelationalcontractingAsstatedabove,themaritimeindustryisacomplexandcostlyindustryandthe

suppliersaretryingtochangethegameofthemarket,although,thesuppliers

needtocomplywiththemarketandcreatenewproductideas-likeRolls-Royce

didinthe1990’s.Thesuppliersareproposingservitizationtotheshipowners,as

the new thing – meaning that the maritime industry has reached a level of

possibleoutsourcingsituations.Servitizationisanapproachforthesuppliersto

move into the territory of activities carried out by the shipowners, thus

servitizationischaracterisedassimilartooutsourcing.

However, other industries e.g. the pharmaceutical industry and construction

industry have - due to their development -moved even further andpast the

56Smith,D.(2013).“Power-by-the-hour:TheroleoftechnologyinreshapingbusinessstrategyatRolls-Royce.”TechnologyAnalysis&StrategicManagement,25(8):987-1007.Bustinza,O.,Bigdeli,A.,Baines,T.,&Elliot,C.(2015).“ServitizationandCompetitive Advantage: The Importance of Organizational Structure and Value Chain Position”.Research-TechnologyManagement,58(5):53-60.57 Baines,T. & Lightfoot, H. (2014). ‘Servitization in theAircraft Industry: UnderstandingAdvancedServicesand theImplicationsofTheirDelivery’inServitizationinIndustryeditedbyLay,G.SpringerInternationalPublishing,p.46.58Ibid.

37

outsourcingelementtostrategicalliancesi.e.relationalcontracting.Therefore,

the dissertation will discuss relational contracting and how other industries

have used these, in order to clarify how moving even further to relational

contractingcouldbebeneficialtothemaritimeindustry.

Thereforedissertationwillbebasedonacollaborationofcustomizedservices

and products, rather than a fixed product with a service agreement. The

collaborationelementofthedissertation,willbesetoutonalongterm.Thislong-

termrelationalaspect,isthekeyelementtothediscussioninthedissertation,

thusalong-termcollaborationmaybebeneficialforboththeshipownerandthe

supplier.

Oneofthemaindifficultiesinthissituationisthefactthatshipownersaremainly

expertsonshipping(i.e.nottheshipitself)andseektominimizethecostswhile

at the same time strive to find quick solutions that meet the statutory

requirements.Nevertheless,shipownersarenotnecessarilyexpertsonthelong-

termcost-effectivemaintenanceoftheship.Withinanewbuildingsituationorif

they are retrofitting, the shipowners have imperfect knowledge59 and their

decisionsarebasedon limitedinformation.Hence,theshipownersmayprefer

short-term and cheap solutions due to imperfect knowledge. In contrast, the

marketsuppliersareexpertsonlong-termcost-effectivemaintenanceofships.

However,theshort-termandcheapsolutionsarerarelythemostcost-effective

inthelongrunwhichcreatesanimperfectmarketwithunexploitedpotential,

whererelationalcontractsmaybethesolution.

Therefore, as an alternative to servitization, the dissertation will analyze

relationalcontractingbetweentheshipownerandsupplier.Byusingrelational

59Greentransitionwithrespecttoshippingisnotjustaboutnewships.Theglobalfleetishistoricallyhigh,andwhenitisalso relatively young, it is especially necessary for retrofitting existing ships. Retrofitting installation of equipment,components,systemsandsubsystemsonboardexistingships.Whentalkingaboutretrofittingtoday,it'slargelyabouttomakeclimateandenvironmentallyfriendlyupdatesofships,notleastbecauseofnewrequirementsandregulations.

38

contracts as an alternative to servitization there is a possibility for joint

optimizationthroughthecollaborationelement,beneficialforbothparties.

3.PurposestatementThe purpose of the dissertation is to analyze how relational contracts can

optimize the situation for the shipowner and the supplier in regards to the

currentmarketsituationandlackofinnovationinthemaritimeindustry.

Despite the generally fast-growing technology developments, the increasing

amount of regulations and the increasing competition, themaritime industry

lacksinnovation.Accordingly,theindustryhasahugepotentialformoreefficient

business strategies. This dissertation will analyze relational contracting as a

possible business strategy, in order to optimize the situation between the

shipownerandthesupplier.

The aim of using relational contracting is to create value by creating a

collaboration between the parties and thereby develop improved and more

innovativeproducts. In this regard, thedissertationwill analyzeapartof the

contractualaspectsrelevanttorelationalcontracts.Hence,thedissertationwill

discussrelationalcontractingingeneralandanalysespecificpartsofrelational

contractsinspecificandinrelationtotheshippingindustry.

Furthermore, the purpose of the dissertation is to analyze how relational

contractsmightcreatevalueforthepartiesandhowthecollaborationbetween

thepartiesshouldbeestablished inorder tocreateacontractualrelationship

betweenthepartiesthatwillincreasethecompetitiveadvantagesofparties.

39

4.CasestudyandthecontractpartiesInorder toconductananalysis inorder toanswerthe researchquestion, the

dissertationwillbebasedupona case.Figure1.1 illustrates the supply chain

withinthemaritimeindustry,andthecaseisthereforesetoutfromthissupply

chain.Although, thedissertationhas simplified it inorder tomake a complex

situation less complicated. Figure 1.2 below illustrates the updated and

simplified supply chain which the dissertation will use as a case study. In

practice,therewouldbefarmorepartiesinvolvedinasupplychainrelatingtoa

market as the maritime industry,60 which is why this case study mirrors a

simplificationofthesupplychain.

Figure1.2-Caseoverview

Source:theauthor’screation

60Asillustratedinfigure1.1.

Supplier Management Shipowner

Contract Ship

40

4.1ThepartiesinvolvedEventhoughtheillustrationaboveoutlinesthescenario,themaritimeindustryis

anenormousandcomplexindustry.61Asaconsequence,itisrelevanttofurther

investigatethepartiesinvolvedinordertoprovideaprecisedefinitionhereof.

According to Martin Stopford62 (hereinafter, referred to as, “Stopford”), the

maritimemarkethasovertimedevelopedintothreeseparate-yetcloselyrelated

-segments:

- Bulkshipping

- Specializedshipping

- Linershipping.

Althoughtheyarepartofthesameindustry,eachofthethreecarryoutdifferent

tasksandhavedistinctcharacters.Figure1.3summarizeshowtheworldtradeis

dividedintothesethreestreams.63

61Figure1.1isillustratingtheindustry,thoughduetoseveralmarkets,thedifferentmarketplayerscanhavedifferentpurposes i.e.a shipowner isnot just a shipowner,butcanbe several things, thereforeadefinitionof theparties is anecessity.62Martin Stopford. BritishEconomist, graduate ofOxfordUniversity andhasaPhD in InternationalEconomics fromLondon University. Director of Business Development at British Shipholders; Global Shipping Economist with ChaseManhattanBank;ChiefExecutiveofLloydsMaritimeInformation;non-executivePresidentofClarksonResearchLimitedCRSLandDirectorofMarEconLtd.DrStopford is tooavisitingProfessoratCassBusinessSchool inLondon,DalianMaritimeUniversityinChinaandNewcastleUniversity.HehasanhonoraryDoctoratefromSolentUniversityandhasreceivedalifetimeachievementawardatthe2010LloydsListGlobalShippingAwards.In2013hewasappointedShippingPersonalityoftheYearattheSeatradeGlobalAwardsDinnerinLondonandin2015wasawardedtheOnassisPrizeforShipping.63Stopford,M.(2009).Maritimeeconomics.Routledge,p.61.

41

Figure1.3-Thethreesegmentsofthemaritimeindustry

Source:theauthor’screation64

64AlthoughbaseduponStopford,M.(2009).Maritimeeconomics.Routledge,p.62.Inregardstothesupplystructure,theprimaryfleetisownedbytheprimaryserviceoperatorsshownintheshippersownfleetrow.Additionallycapacityishiredfromindependentshipownerswhobuyshipstocharterout.Thearrowsinthemarketrowarepointingbothways,becauseshippersmaychartertheirshipsoutaswellastheymaychartershipsfromotherownersaswell.Thereforetheshipownerand the shippermay both own a fleet, although the difference lieswithin their business, as the shipowners primarybusinessmaybetochartertheirshipsout,whereastheshipperalsoperformstransportation.

Bulk SpecializedCargo Liner

Seatradeclassifications

BulkCargo(Over2000-3000tons)Cargoisdividedinto:

- Drybulk- Bulkliquid

SpecializedCargoLargeparcelsofnon-homogeneouscargo:

- Motorcars- Forest

products- Refrigerated- Chemicals

GeneralCargo(Under2000-3000

tons)- Loosecargo- Containers- Pallets/flats

BulkCharterSpecializedCharter LineCharter

BulkCargoshippers´

Specializedshippers´

Linercompanies´

Bulkfleet

Specializedfleet

Containerfleet

42

As the figure illustrates, the maritime market is divided into bulk parcels,

specializedparcels,andgeneralcargoparcels(dependingonthePSD65function

forthecommodity,aswellastheservicerequirementsofeachcargoparcel).Iron

ore,coal,andgrain(whicharecharacterizedaslargehomogeneousparcels)are

usuallycarriedbythebulkshippingindustry;thesmallerparcelsofgeneralcargo

arecarriedbythelinershippingindustry;andthespecializedcargoes,whichare

shippedinlargervolumes,aretransportedbythespecializedshippingindustry.66

The three cargo streams create a demand for bulk transport, specialized

transport,andlinertransport.67Animportantremarkontheorganizationofthe

supplyofships,whichcanbeseeninthelowerpartofthefigure,isthatthereare

drawn a major distinction between the fleets of ships owned by companies

shipping their own cargo,68 in their own ships, and the ships owned by

independent shipowners,69 chartered to the cargo owners.70 The charter

markets, which is the place where rates for transport is being negotiated, lie

between the companies’ own fleet and the chartering fleet.71 According to

Stopford, this structure is remarkably flexible,which he exemplifies by an oil

companywhichmightdecidetobuyitsownfleetoftankerstocoverhalfofits

needs in terms of transportation of oil. Chartering tankers from shipowners

wouldcovertheotherhalf.72

Theillustrationinfigure1.3providesan indicationoftheshippingmarketand

howthemarketisdivided.Onepartthatisnotstressedinthefigure,though,is

thedifferentplayerswithinthemarket.Figure1.3revolvesaroundthetransport

65Parcelsizedistribution.Commonlyusedtoexplainthecomplexmixofcargoes.ThePSDfunctiondescribestherangeofparcelsizesinwhichthatcommodityistransported.Stopford,M.(2009).Maritimeeconomics.Routledge,p.58-59.66Ibid.,p.61.67Thisisillustratedinthetransportrow.Thisisinreferencetowhatkindoftransporteachisconducting.68Illustratedintheshippersownfleetrow.69Illustratedintheshipownersfleetrow.70Ibid.71Illustratedinthemarketrow,wherethemarketsaredividedintoBulkCharter,SpecializedCharterandLineCharter.Ibid.72Ibid.,p.63.

43

anddemandsofwhich,anddoesnotinvolvealltheothermarketsandplayers

whicharisefromoftheprimarymarketofshipping.73

As a result, a broad definition of the parties leaves the dissertation with an

obstacle,asthisactuallycallsforaclearandprecisecharacterizationoftheparties

-especiallytheshipowner,thesupplier,andthemanagement.

4.1.1TheshipownerIn themaritime industry, the terms “shipowner” and “shipping company” are

usedvividly.Therefore,aprecisedefinitionofwhichishighlyrelevanttoidentify.

Ashipownercanbedefinedinmultiplewayswhichmaydependonthekindof

industryinwhichitisoperating.74

However, firstof all, a shipowner canbedefinedas an individualwhoownsa

controllinginterestinoneormoreships.75AccordingtoStopford,theshipsare

usuallyregisteredasone-shipcompanies,wheretheownerhasthecontrolling

interest. Within this industry, there is a distinction between the different

ownershipperspectives.The researchof thedissertationwithin relational and

long-termcontractingmightnotberelevantforall theplayersinthemaritime

industry.Thus, inorder tonarrowdownandspecify the termshipowner, it is

relevanttodigdeeperintotheworldofthemaritimeplayerstoclarifywhocould

benefitfromthesecontracttypes.Long-termcontractingmightbedifficultornot

particularlyrelevantfortheparties,whoare/engagedin:

- assetplayers

- shortcontracting,e.g.tramp,76drybulk,ortankers

73 Examples couldbe, for instance, the shipbuildingor the scrapping industrywhich-due todiversifiedmarketsandplayers-makeitdifficulttodistinguishbetweenthespecificparties,astheyhavedifferentroles,yet,alsosimilaritiesinthetermsusedtodescribethedifferentparties.Asanexample,plentyoftermsconcerningthepartiesinvolvedareusedinterchangeably.74Thisisinreferencetowhichmarket/industrytheshipownerisoperatinge.g.whetheritisaspecializedorbulkmarket,orwhetherthepartyisinvolvedinshippingornot,iftheshipownerisinvolvedintrampshipping,assetplayers,drybulketc.75Stopford,M.(2009).Maritimeeconomics.Routledge,p.63.76Aboatorshipengagedinthetramptradeisonewhichdoesnothaveafixedscheduleorpublishedportsofcall.Asopposedtofreightliners,trampshipstradeonthespotmarketwithnofixedscheduleoritinerary/ports-of-call(s).CharteringisdonechieflyonLondon,NewYork,Singaporeshipbrokingexchanges.TheBalticExchangeservesasatypeofstockmarketindex

44

- and/orshipsoperatedwiththirdpartyshipmanagement.77

Ontheotherhand,therearesomeplayerswherelong-termcontractingcanbeof

greatbenefit.Theseare:

- ownerswithlongownerperspective

- specializedvesselsegment

- ownerswithlong-termcontracts(+5years)

- and/orvesselsinfixedtrades,e.g.container,ferries,LNGetc.78

Thedefinitionofashipowneris(simplified)apartywhoisthebeneficialowner

of a ship with a long owner perspective and is operating with a technical

management and commercial management. Accordingly, this will be the

definitionthatthedissertationwilluse,andthisisillustratedinfigure1.4which

concernsthedissertation’sviewupontheshipowner.

forthetrade.Thetrampshipisacontractcarrier.Unlikealiner,oftencalledacommoncarrier,whichhasafixedscheduleandapublishedtariff,theidealtrampcancarryanythingtoanywhere,andareinfluencedbysupplyanddemand.[3]Togeneratebusiness,acontracttoleasethevesselknownasacharterpartyisdrawnupbetweentheshipownerandthecharterer.Therearethreetypesofcharters,voyage,timeanddemise.Stopford,M.(2009).Maritimeeconomics.Routledge,p.23-35.77Itmightnotbeinterestingforthoseplayersast