Future of Shipping the Shipping

Future of Shipping

The shipping industry has a long history, but the nature of the business changes over that history. It has been changing in recent years because of the pressures for change caused by internationalization, globalization, technological advances, economic shifts in different parts of the world, and so on. Where the tradition has been for companies to sail their own ships, carrying cargo for a fee, more and more companies are finding different ways to accomplish the same business, such as by chartering vessels for the job at hand, or having other companies handle the procedures as a form of third-party management, or some other approach to cut costs, reduce risk, and yet increase business all at the same time. The changes in the global marketplace can mean bringing in more and more local players who can handle some of the difficult tasks involved in working through the bureaucracy, while chartering for shipping can involve more experienced people for certain specific runs.

The nature of competition now is such that shippers are no longer in the traditional port-to-port operations. Today, shipping goes further as shippers look for effective and credible ways to reduce costs, reduce transit times, increase flexibility, improve customer services, and, most importantly, remain competitive. In these circumstances, outsourcing their logistics needs to professional third party logistics providers serves the goal of supply chain management, which is to link the marketplace, the distribution network, the manufacturing process, and the procurement activity in such a way that customers are serviced at higher levels and yet at a lower total cost. Logistics on the other hand is all about gaining competitive advantage in the marketplace.

Some combination of the two approaches is not uncommon, either, as the shipping company may use a third-party management outfit to handle the chartering as well. It is important to ascertain the kinds of changes taking place at this time and to be able to make a more reliable forecast of how the business will be conducted in the future and how to take advantage of any changes that are made. The Greek shipping industry is a key one in the world, and as will be seen, much of the rest of the world follows the lead of the Greek companies, especially other European companies. An analysis of the state of the business today and the sorts of changes being made leads to a consideration of the forces shaping the course of shipping for the future. It is hypothesized that the major impetus for major changes today is economic, indicating a desire to cut costs and improve efficiency at the same time, and it is also believed that this trend will continue so long as charter shipping in all its forms continues to lower costs.

Methodology

The method of analysis begins with database searches followed by hand searches of various printed materials to develop an idea of the nature of the shipping industry, how it is change in the Greek industry, and what these changes say for the industry as a whole. In addition to descriptive analyses by various writes on the subject, the research will consider any relevant government documents, industry data, and other information that can be accessed and that then can be used in gaining a better picture of the issues involved, the changes being made, and what might be coming in the future. There are limitations to such an approach, but it is also the best approach when there is no likelihood of developing original data without a good deal of time to gather data directly. Industry reports and the like are useful because they take a longer term perspective than the individual is able to do without an organization backing the gathering of massive amounts of data over a period of years. The historical data in any case has to be gathered from what has already been published, and information on the current business climate can be gleaned from a variety of sources dedicated to keeping track of just that sort of change.. The analysis begins with an extensive review of literature and then analyzes the data found on the basis of careful reading, comparison, and a consideration of the sorts of data found, any themes that emerge, and a contrast between data from the past and data from the present, the organization of the industry in the past vs. that in the present, and trends that can be seen in any change.

Review of Literature

The Shipping Industry

The nature of the shipping industry today is demonstrated using data from the publication of Maritime International Secretariat Services Ltd. (2005), stating that there are some 10,000 companies operating some 50,000 ships worldwide, with shipping being an international industry (p. 3). The ships used in this industry are high-value assets often costing more than $150 million to build. Merchant ships can generate an estimated annual income of more than $380 billion in freight rates, and this makes up approximately 5% of the total global economy (Maritime International Secretariat Services Ltd. 2005, p. 2).

Maritime transport of goods has been a necessity for centuries, increasing in importance as the countries of the world have developed, and it is also a competitive means of transport in terms of costs today. The industry changes as needed and makes use of new technologies adapted for shipping, including the switch to new types of container and high-tech navigation systems. Most such changes bring benefits, and increasing automation has also been used to achieve greater cost savings because improved cargo-handling techniques produce shorter turn-round times. New types of container enables ship, road, and rail transport to be integrated more effectively, allowing for the transport of goods in a single container over each of these methods of transport. At the same time, ships have increased in size and achieved a substantial reduction in unit costs. Communications have also been greatly improved with the advent of space satellites, allowing for navigators and monitors to fix a ship's position to within a few meters by a GPS (global positioning satellite) system. Spoeeds have been increased as ships have been redesigned, and this can be a strong advantage on short-sea routes where speed is especially important. Some of the innovations made do have drawbacks, as can be seen with reference to the giant tankers carrying vast amounts of oil, though their use also means that an accident can produce pollution over a wide area. While the use of radar has helped reduce the number of collisions, radar has "also resulted in the new phenomenon of the radar-assisted collision. The roll-on/roll-off ship led to dramatic improvements in short-sea services, but the design features that are essential to its success have also led to major tragedies. It is now possible for a distress message to be sent automatically if something goes wrong, but up to 99 per cent of the distress messages sent by emergency position-indicating radio beacons turn out to be false, because of faults in design or operation. High-tensile steel was introduced in the early 1980s because it is stronger than conventional steel and enables the plates with which ships are constructed to be thinner (and cheaper), but it corrodes at the same rate. Serious concern is being expressed about the condition of some ships built of high-tensile steel" (Shipping: The shoreline of time and technology 1997, p. 85).

Technology only benefits shippers when they also take account of the necessary safety and environmental elements and not just the economic benefits. Economic benefits can be lost if a tanker leaks massive amounts of oil and costs the company for cleanup, for example. In the sixties and seventies, shipping did have several years of economic growth, but this ended suddenly when there were steep rises in the price of oil in the 1970s. this meant a decline in demand and a resulting massive oversupply of tankers, a problem that continues to this day. After the change in demand, there followed two decades of economic depression. With the decrease in the demand for new tonnage, many shipyards closed, after which the average age of the world's ships in 1997 was 19 years, a major increase from 12.8 in 1980. Owners faced with less business and falling profits had to find ways to cut costs, and unfortunately this was often accompanied by a lessening in safety (Shipping: The shoreline of time and technology 1997, p. 85).

The industry faced other changes as well, including a more international focus than had been true before:

Fifty years ago, shipping companies generally registered their ships in the country in which they themselves were based, recruited personnel from the same country, and classed and insured the ships with companies that were of the same nationality. There were relatively few countries involved in shipping and they had nearly all inherited several centuries of experience. Procedures, systems and institutions were all well established. This meant that however competitive they were, they were organized on a national basis and therefore more easily regulated by national Governments (Shipping: The shoreline of time and technology 1997, p. 85).

Newly independent countries joined in the shipping industry as a way of demonstrating their economic independence, leading to an increase in the number of open registers as owners in the traditional maritime countries could now register in countries with less demanding tax laws and lower costs for workers. Shipbuilding, which had long been dominated by Europe and North America, moved instead to East Asia. Other changes also took place in the industry:

Shipowners, still seeking to cut costs, looked to the developing countries for seagoing personnel, and multinational crews became more and more common. Some owners left the operation of their ships to specialist ship management companies. Manning agencies supplied an increasing proportion of the world's seafarers. Some, or indeed all, of these companies may come under different jurisdictions (Shipping: The shoreline of time and technology 1997, p. 85).

Ship management was not immediately affected by these changes, but the changees did lessen the authority of individual governments, leading to more safety violations:

Some newer shipping nations lack the trained personnel, systems and institutions required to run a shipping administration effectively, and some shipping companies have seen this as an advantage. While no Government sets out to run substandard ships, statistics show clearly that some flags have more of them on their register than others. Clearly, the weakness of the administration concerned is regarded as an advantage by shipowners who know that their vessels are in such bad condition that they would not be allowed to operate under other flags (Shipping: The shoreline of time and technology 1997, p. 85).

As the industry moved from major nations to smaller countries, there was also a reaction to some of the technological changes made, such as the use of new standardized container boxes. This change began in 1955 and made it possible to deliver goods by ship in a box that could then be unloaded directly onto transport truck trailers. One problem with this was an increase in conflict among shipping lines, trucking firms, railroads, and unions, delaying full implementation of the change until 1966:

In the years that followed, standardized containers were constructed, generally twenty or forty feet long without wheels, having locking mechanisms at each comer that could be secured to a truck chassis, a rail car, a crane, or other containers inside a ship's hole or on its deck. The use of standardized containers also meant that intermodalism of international trade, the movement of cargo from an origin in one country to a destination in another by more than one transport mode, became commercially feasible (Talley 2000, p. 933).

Among the long-term changes brought about by the switch to this technology was a restructuring of the ocean transportation of general cargo, leading to the formation of container shipping lines, or ocean carriers specializing in the transport of containers. In 1980, the twenty largest container shipping lines controlled 26% of the world's capacity. By 1995, the twenty largest lines controlled almost 50% of this capacity (Brooks 1996).

Of this fifty percent, 49% belong to Asian operators, 33% to European operators, and 14% to the United States, while the remaining four percent were controlled by others. By 1997, the twenty largest container shipping lines accounted for 78.2% of the traffic (Dow 1998, 8D). The top three of these were Sea-Land, Evergreen, and Maersk, and these three accounted for 33.2% of the traffic (Talley 2000, p. 933). Data showing the countries involved and the tonnage they carry, in terms of twenty-foot equivalent unit (TEU), can be seen below:

International Seaborne Trade: Container

Throughput of World Ports

TEUs (Millions)

Source: Global Container Port Demand and Prospects, Surrey, United Kingdom.

The major ports of the world are indicated in the chart below:

Ocean Shipping Consultants, 1997

The World's Twenty Largest Container

Ports (for 1997)

Rank

Port

TEU Throughput

Country (1,000s)

Hong Kong

China

Singapore

Kaohsiung

Taiwan

Rotterdam

Netherlands

Busan

South Korea

Long Beach

United States

Hamburg

Germany

Antwerp

Belgium

Los Angeles

United States

Dubai

United Arab Emirates

Shanghai

China

New York/New Jersey

United States

Yokohama

Japan

Tokyo

Japan

Felixstowe

United Kingdom

Manila

Philippines

Kobe

Japan

Keelung

Taiwan

Tanjung Priok

Indonesia

20 Bremen/Bremerhaven

Germany

Source: A survey conducted by the American Association of Port Authorities. (Talley 2000, p. 933).

The greater concentration of shipping has produced greater financial deterioration for the container shipping line industry. In 1966, the estimated collective losses of container shipping lines operating in the transpacific, transatlantic, and Europe/Far Asia trades reached $411 million (Porter 1996), with losses thought to show the continuing imbalance between market supply and demand, as represented by excess ship capacity and declining freight rates. Facing this change, container companies have found it difficult to raise rates to make up for their losses. They have therefore attempted to improve their financial situation by reducing costs, and they have done this by forming alliances, merging, and investing in more cost-efficient ships. Many of the largest container shipping lines have formed such alliances so they can share vessels and other assets (such as terminals), helping to reduce operating costs without any sacrifice in the frequency of service. At the same time, they can remain independent in their operations: "By reducing its number of port calls, an alliance line would save ship capacity as well as improve transit times. The saved ship capacity, in turn, could be diverted to new service routes" (Talley 2000, p. 933).

The Greek Shipping Industry number of studies of the shipping industry use the Greek shipping industry as a representative of the whole industry, largely based on the clannish nature of the Greek branch of the industry, assuming then that any change in management style is significant. Choi and Grammenos (1999) note that many industries are undergoing changes because of globalization, and they find that this is affecting the Greek shipping industry as well. They state that this industry is traditionally based in Greece with a wide international network, but it is being forced to make structural adjustments in response to changes in the regulatory environment and requiring different methods of financing. The authors also note that there will also be inevitable change to the competitive structure of the industry as a whole. The authors write,

Ethnic homogeneity can provide market signals that can compensate for the contract uncertainty arising from the absence of legal means of contract enforcement. We also consider the implications for shipping finance and organizational structure of recent changes in international shipping regimes such as those involving shipping cartels and safety and environmental concerns (Choi and Grammenos 1999, p. 34).

The Greek shipping industry as it exists today was created over a period of two centuries, and the major European powers considered the Greeks to be middlemen in their trade with the Ottoman Empire. Later, Greece would become a maritime nation in its own right:

Two factors have contributed to the global competitiveness of Greek shipping industry. First, the Greeks, using the opportunities in their trade as middlemen, organized themselves into an international shipping network resembling a clan where members form a clublike arrangement. Such an arrangement generates positive network externalities such as transaction cost saving, buildup of reputation capital, and quality assurance through trust, which stems from "Greekness." This type of arrangement based on ethnically homogeneous grouping is akin to the Chinese middlemen network in Southeast Asia and the Maghribi traders in the medieval Mediterranean, so that "Greekness" or the Greek ethnic identity has a special meaning in the shipping industry (Choi and Grammenos 1999, p. 34).

In addition, the Greek government has sought to attract overseas Greek shipping companies to Greece and has also worked to keep existing shipping companies in place by offering favorable tax agreements.

In spite of this, the Greek industry has been changing as changes take place in the international regimes governing the shipping industry. These changes are expected in time to make it necessary for shipping companies "to increase their capital base, make new investments, disclose more information about their operations, and professionalize their management structure" (Choi and Grammenos 1999, p. 34). Shipping companies should also be able to affect the functioning of the shipping network and its relationships with the environment and to do so because international regimes influence the behavior of actors in the global economy by setting the "rules of the game":

One area of shipping management that is most profoundly affected is shipping finance, because it ultimately involves the governance system of shipping companies. The stringent vessel requirements and enhanced quality standards of shipping industries are forcing Greek shipping companies to rely on global financial capital markets for financing; this, in turn, requires changes in business processes through increased disclosure and an enhanced investor relationship, because the rules in global financial markets are set by the Anglo-Saxon capitalist system where shareholder value takes precedence over other claims. The use of capital markets, therefore, will force the shipping companies to grow in size (Choi and Grammenos 1999, p. 34).

One change is cited by King and Mitroussi (2003) when they note the growth of third-party management in Greek shipping, and they compare the Greek maritime industry to the British industry in terms of what shipowners in each industry say. They agree that the outsourcing of management taking place by many Greek owners is especially significant because the Greeks tend to be clannish and insular and keep management within the family. The fact that they are now acting in a different manner suggests that owners see a special benefit in using outside management so as to remain competitive.

In spite of the actions being taken by Greece in outsourcing management, arguably the Greek shipping industry is as strong as it is because it is an industry that has focused on building and owning ships and on managing ships directly. The prominence of Greece in shipping is likely to increase in the future, based in part on Greece's continually expanding economy, vast coastal waterways, and geographic location so that the nation is a natural gateway to the central Balkans and the Middle East. The industry is guided largely by domestic considerations, and many foreign businesses partner with Greek companies, with British and Dutch interests prevailing, though American maritime transportation service providers are also well represented. The ship building industry is also affected by Greece. The average age of Greek controlled vessels has been decreasing, standing at an average vessel age under the Greek flag of 11.6 years in March 2005, which marked a decrease from 12.7 years in 2004. The age of the Greek-controlled fleet in March 2005 averaged 15.9 years, an improvement over the 2004 statistic of 16.8 years. The Greek-controlled fleet is still older than the world average of 15 years, though that is changing.

Greek ship owners also power the second-hand market of ships even as they are continuously upgrading their own fleets with the purchase of new ships. Greek ship owners are also considered leading clients throughout the world's shipyards, showing the strength of Greek ship owners at world shipyards with a multi-billion dollar investment in fleet renewal. Greeks purchase ships primarily from Japan, South Korea, China, Germany, Norway, Finland, and the Ukraine and, to a lesser extent, France and Italy. There are six privately owned shipyards in Greece, but they are not involved in ship building for shipping companies so much as in ship repairs, conversions, and shipbuilding for the Greek Navy. Greek owners in fact spend billions each year for repairs, dry-docking, equipment upgrading and general maintenance of their vessels in order to keep the commercial fleet in business and properly running. Also, International Maritime Organization (IMO) rules and stiffer regulatory and safety standards result in major investments by fleet managers in cutting-edge navigation and shipboard technology, as well as in the installation of customized software and it systems onboard and ashore. As the U.S. Department of Commerce (2006) notes,

Overall, the Greek maritime community represents a huge market for shipbuilders, ship servicing-and-repair facilities, and suppliers of equipment and services. Also, maritime financial services, insurance and other institutional services, which have traditionally supported sea-borne trade, are in demand.

Greece is also seen as having a major opportunity because of economic growth and the opportunity to supply the Balkans and the Middle East via sea routes, and Greece is thus making a massive port expansion to cope with the traffic. The various projects are valued in the hundreds of millions of dollars.

The status of the Greek shipping industry can be seen from the following charts, presented by the U.S. Chamber of Commerce (2006):

FLAG ANALYSIS of SHIPS OWNED by GREEK PARENT COMPANIES (SHIPS GREATER THAN 1,000 GROSS, in SERVICE and CURRENTLY on ORDER)

FLAG ANALYSIS of SHIPS OWNED by GREEK PARENT COMPANIES (SHIPS GREATER THAN 1,000 GROSS, in SERVICE and CURRENTLY on ORDER)

FLAG

SHIPS

DEADWEIGHT

GREECE

MALTA

PANAMA

CYPRUS

LIBERIA

BAHAMAS

SAINT VINCENT & the GRENADINES

MARSHALL ISLANDS

25 GREEK SHIPOWNERS

OWNERS

COMPANY

OCEANGOING

VESSELS

VICTOR RESTIS

RESTIS GROUP

P. & T. LASKARIDIS

LASKARIDIS SHIPPING

VASSILIS CONSTANTACOPOULOS

COSTAMARE SHIPPING

PANAGIOTIS TSAKOS

TSAKOS GROUP

HELLENIC FLYING DOLPHINS

MICHAEL SPANOPOULOS

SPANOPOULOS S.A.

DINOS MARTINOS

THENAMARIS SHIPS Management

DIAMANTIS DIAMANTIDIS

MARMARAS NAVIGATION

PETER GEORGIOPOULOS

GEORGIOPOULOS

LOU KOLAKIS

CHARTWORLD SHIPPING

EVANGELOS MARINAKIS

MARINAKIS

PROKOPIS VASSILIOU

KOINOP EPIVAT SALAMINOS

JOHN COUSTAS

DANAOS SHIPPING

S. HATZIGRIGORIS

KRISTEN NAVIGATION

TH. MARTINOS

EAST MED MARITIME

HARRIS VAFIAS

VAFIAS SHIPPING

G. GIOUROUKOS & a. STENGOS

TECHNOMAR SHIPPING

SPYROS & ADAM. POLEMIS

POLEMBROS SHIPPING

POLIS HAJIOANNOU

HAJIIOANNOU

DRYSHIPS

IOANNIS POLYCHRONOPOULOS

ENVIRONMENTAL MARINE

VARDIS VARDINOYIANNIS

VARDINOYANNIS

I.S. VEKRIS

MINERVA

GREGORY HATZIELEFTHERIADES

ELETSON CORP.

TH. VENIAMIS & G. GABRIEL

VENIAMIS/GABRIEL

GREEK CONTROLLED SHIPPING

Greek-owned ships registered under various flags, including Greece's flag (ships over 1,000 gt)

SHIPS

DEADWEIGHT

GROSS TONS

Source: Greek Shipping Co-operation Committee based on data provided by the Lloyd's Register - Fairplay

SHIPS in the GREEK NATIONAL REGISTRY

Ships over 1,000 gt under the Greek-flag)

DATE NUMBER of SHIPS GROSS TONS

December 1983 3,422 37,707,377

December 1984 2,788 32,334,886

December 1985 2,456 28,646,166

December 1986 2,138 24,792,516

December 1987 2,061 22,706,257

December 1988 2,015 21,368,976

December 1989 2,004 20,898,119

December 1990 2,031 22,524,329

December 1991 2,062 24,082,483

December 1992 2,095 26,055,932

December 1993 2,166 29,671,983

December 1994 2,149 30,535,560

December 1995 2,051 30,220,636

December 1966 2,013 27,935,053

December 1997 1,927 25,708,074

December 1998 1,876 25,689,500

December 1999 1,850 25,002,463

December 2000 1,905 26,769,502

December 2001 1,956 29,038,847

December 2002 1,967 29,970,053

December 2003 1,979 30,690,165

December 2004 2,074 31,457,642

These charts show the size and strength of the shipping industry in Greece on the basis of numbers, tonnage, and associations with other countries. Tracing the industry over time shows that it continues to grow in size and in its ability to serve more and more countries and more and more clients. The increasing tendency to outsource the management of vessels might be seen as evidence of this success, as if the companies had decided they could not handle the volume facing them and need external assistance, which may be as strong a force as the desire for lower costs.

Ship Management

Ship management can be broadly defined as the technique of managing vessels from a shore-based organization and including all the revenue, expenditure, investment, and overall policy, including both day-to-day and long-term aspects of the business. The term thus covers all the support services needed by a ship in order to carry cargo and passengers safely and economically from one port to another, while complying with local and international regulations. Ship management may be an in-house or third party operation.

Third party ship management is the term used for when a shipping company transfers or entrusts the management of a ship or fleet to a third party. In the very competitive maritime world of today, the regulations covering ship management are becoming more extensive all the time, with the result that smaller companies have fewer resources to enable them to cope with new laws and regulations. According to the Rochdale Report in 1970, there is an important part to be played by good independent ship management companies to help the small owner in developing his business. There may also be special circumstances where some larger companies may benefit from their employment. We regard the existence of good independent professional management companies as conducive to efficiency in the industry (Panayides 2000, p. 1).

Shipping today in terms of tonnage increases at the rate of 4 per cent per year, and ships are becoming larger even as their survey, maintenance, and port turnaround time is becoming shorter. This means improved ship productivity, but it also requires closer monitoring to reap the benefits. In addition, the increase in competition, introduction of national and international regulations like the ISM code, STCW and ISMA codes, and, most importantly, the need to manage profitably in compliance with these regulations means that ship owners are looking for more cost effective ways of managing their trade.

Third Party Ship Management is today an important industry in its own right, meaning that the client may not follow the traditional approach of doing business with the ship owner who is also the ship manager, and instead doing business with an owner and a manager whoa re two different persons entirely. Mitroussi (2004) describes this shift as similar in principle and practice to the separation of ownership and management in many industrial fields, as seen with the development of the salaried manager in the last half of the nineteenth century (p. 325). A large proportion of the world fleet today is operated by companies providing this sort of management service, meaning that ship owners are not merely chartering other vessels but are turning over the management of the process to a third party. The world fleet stands at about 50,000 ships, and currently about 10% are under third party ship management. The top ten ship managers do about 40% of the outsourced business, and they are followed by a number of smaller ship managers (Special report, 2003, para. 2). The ship manager conducts such operations as crewing and training, insurance, and managing the loading and unloading of the ships and the scheduling of deliveries.

While this approach has been growing, argument over whether this is the best approach and whether it is more or less costly for the shipping industry continues. Several different types of ships serve in the world fleet, performing slightly different tasks. Container ships carry most of the world's manufactured goods, and the most recent generation of such ships can carry the equivalent of 10,000 heavy trucks. Bulk carriers are used to transport raw materials such as iron ore, coal, and foodstuffs, and the largest of these ships can carry up to 20,000 tons of grain, which is enough for half a million people for a year. Tankers carry crude oil, chemicals, and petroleum products, and these ships can carry more than 300,000 tons of oil, enough to heat a city for a year. Among the other types of ships used are car carriers, gas carriers, heavy lift vessels, and ships for support of the offshore oil industry, as well as a number of smaller general cargo ships (Maritime International Secretariat Services Ltd. 2005, p. 6). Any of these ships may be managed by a third-party ship management company, a company that takes over management from the registered owner and then acts in the place of that owner. This system developed for several reasons, including as an imitation of other industries. In general, though, this form of management is considered to be more cost-effective and can also help reduce the costs of management and create greater efficiency in the operation of a fleet. The fact that only about ten percent of the world's cargo fleet is managed in this way today suggests that this approach is not yet considered a standard, though it may become so in the future.

Several definitions of ship management can be cited, such as that by Downward (1987, p. xi), who states,

The functions of taking care of a ship, i.e. responsibility for manning, maintaining, supplying and insuring the ship, and ensuring that the ship is available to the operators for the maximum amount of time possible. In other words, all the activities not carried out by the operators.

Spruyt (1994, p. I) says that ship management is "The contracted and professional supply of all on-board services, together with their shore supervision, which would normally enhance, a vessel from a bareboat into a time charter description, by a management company usually separate from the vessel's ownership." Rodger (1993, p. 3) says that ship management is "the management and sustenance of the ship itself rather than of the trade in which it is engaged." Most definitions show that ship management involves a number of functions that could be done by the owner or could be farmed out to a separate entity. Panayides offers his own definition when he states that "professional ship management may be defined as the rendering of services under contract related to the systematic organization of economic resources and transactions required for the sustenance of a ship as a revenue-earning entity. The advantage of this definition is that it recognizes that ship management involves the organization of economic resources and not the mere supply of services" (Panayides 2000, p. ).

History

Panayides (2000) finds that third party management began during the 1973 oil crisis, an economic crisis in which a significant number of vessels were repossessed or otherwise taken over by banks. The shipping markets then faced poor conditions and experienced low freight rates and poor sale and purchase market values, making it virtually impossible for ship owners to repay their debts. Many ship owners Did not survive these poor conditions, being forced into liquidation. They thus abandoned their vessels to their creditors, the banks, and the banks then entrusted these vessels to the hands of ship managers. After all, the banks did not have the expertise to operate these vessels and so needed to outsource. As Panayides writes,

This initial demand for third party ship management services encouraged experts from within the shipping industry to form offices and limited liability companies and tender for contracts. The fact is that the formation of such companies was an easy task since it required little capital investment encouraged their further development. Ship managers were not required to have an equity stake in the ship and hence faced little risk, as they were not directly affected by the vagaries of freight rates and shipping markets.

Panayides also finds that the ship management industry would have never become what it is today "if many of the traditional shipowners themselves had not recognized the opportunities offered by ship managers and handed over their own vessels for management," which they did because they recognized that third party management offered financial and administrative advantages and also because of "the increasingly regulated environment the shipping arena had grown to be" (Panayides 2000). One of the reasons for entrusting vessels to third-party managers was to "overcome national and international legal, ecological, public and trade union pressures and to enjoy the fiscal advantages of economies of scale" (Panayides 2000).

The idea of third-party management has been analyzed from those taking both a pro and a con view even as its use has increased. Third party ship management offers many significant advantages to those choosing to outsource, and it can also contribute to efficiency in a given shipping operation and for the shipping industry as a whole. As Paniyides writes,

It is also true that third party ship management does not appeal to many types of shipowners with various size and type fleets and based in various countries. The reasons for the choice not to entrust vessels to third party ship management may be very well justifiable in the context of the particular owner's circumstances. What is important, however, is for the owners to seek to satisfy the needs and wants of those, yet untapped, market segments (Paniyides 2000).

Among the arguments used to support third party management are improvements in efficiency, reductions in costs, and increased professionalism. For a traditional shipowning company, the primary issues will be efficiency and cost reduction. For companies like oil majors or banks, the primary consideration is that outsourcing is seen as a logical option given that shipping and ship management is not their primary activity:

Efficiency arises from the competency and ability of professional ship management firms in performing the ship management functions. It also arises from the global presence and networks of ship management firms that facilitate the capability to source crew from any of the various low cost supply centers throughout the world (Panayides 2000).

Given the tight labor market, the expertise of the ship's manager is invaluable, and ship managers also have contacts through global networks allowing them to obtain low cost crews and so cost reductions. Such a reduction in costs can be vital in shipping because of the volatility of the markets and a possible concurrent oversupply of tonnage that may mean depressed freight rates and an erosion of operating margins, and economies of scale can be in the service of third party managers:

This can be exploited by ship managers who can achieve low operating costs by reaping the benefits of scale economics and bargaining power by virtue of the number of vessels under their management. Bargaining power is used in the purchase of supplies for a large number of vessels and culminates in the achievement of large discounts. The prices that can be obtained by big ship management companies cannot be matched by small shipowners.

By achieving the right balance between the benefits to accrue to the company and those passed to clients, ship managers can assure profitability and competitiveness, and increase the attractiveness of outsourcing ship management (Panayides 2000).

Ship management firms are able to supply owners with crews on short notice when a fleet is being expanded. These companies also have a greater pool of managed vessels, which means that if faced with divestiture by shipowners, these companies can employ the crews elsewhere, which helps reduce the externalities or social costs:

The ship manager also relieves the owning company from the need to maintain a ship management department. Hence, the owner may concentrate on other aspects of the shipping business like sales and purchase or chartering, which are the two functions that are most often not entrusted to third party managers from traditional shipping companies. In other instances, it has been noted that many owners, being captains and engineers, are very good on the technical side of the business and prefer to concentrate on that and outsource commercial management (Panayides 2000).

Such outsourcing also contributes to cost reduction.

Panayides (2006) also notes the application of third party management because of changes in the prevailing concept of shipping. Panayides notes first that the conventional view says that the demand for maritime transport is a derived demand, specifically derived from the demand for goods. However, he then notes that "the demand for maritime transport nowadays cannot be solely considered to be a derived demand emanating from the need for products, but rather as an integrated demand emanating from the need to minimize costs, improve reliability, add value, and a series of other dimensions and characteristics pertaining to the transportation of goods from the point of production to the point of consumption" (Panayides 2006, para. 1).

Today, the nature of maritime transport has given rise to another concept, that of maritime logistics, noting that demand for maritime transport is differentiated from demand for maritime logistics ":on the basis of the added significance gained by specific dimensions and characteristics pertaining to the transportation of goods by sea. Hence, nowadays it is not simply the possession of products that is important, but rather the possession of products on time and at least cost. In fact, integrated demand in maritime logistics goes further, to demand for the possession of goods that have been transformed and have improved in value through their supply chain journey, on time, at least cost in the right quantity/level of quality and so on. This evolution in the characteristics of demand regarding the possession of goods brought about by globalization in production, consumption, changing consumer needs and global competition has opened up new areas for research in maritime economics and logistics" Panayides para. 2).

There has been a merging of the idea of logistics with that of supply chain management to alter the focus of much ship management. The supply chain is the first important issue. Virtual integration harnesses the economic benefits of two very different business models by offering the advantages of a tightly coordinated supply chain that have traditionally come through vertical integration, while at the same time, it benefits from the focus and specialization that drive virtual corporations. Supply chain management has as its goal keeping the supply chain running smoothly. Traditional methods used in vertical integration are altered to fit the virtual integration approach, but the ultimate goal remains the same. Swaminathan et al. (1995) offer the definition that the supply chain is "a network of autonomous or semi-autonomous business entities collectively responsible for procurement, manufacturing, and distribution activities associated with one or more families of related products" (Swaminathan et al. 1995). Ganeshan and Harrison (1995) offer the following definition:

supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers (Ganeshan & Harrison 1995).

Coates (2002) points out how retailers have taken a leading role in developing supply chain management and in innovating methods.

One model is reflected in companies like Dell Computer, which builds to specification. In the area of supply chain management, it has been found that in some cases, even though demand should remain relatively stable over time, there is a marked variability noted in the way orders are placed and supplies are restocked by retailers. The phenomenon is called the "bullwhip effect" and is named for the variations in reaction down the length of a whip after it is cracked. The effect happens in manufacturing when information about consumer demand becomes increasingly distorted as it moves upstream in the manufacturing process, a distortion which leads to excessive inventory throughout the system, poor product forecasts, insufficient or excessive capacities, product unavailability, and higher costs generally. Dell has made the supplier effectively into a partner. The company builds to specifications: "It's almost ideal from a supplier standpoint because we have real time information on what the demand is, and all the supplier has to do is get the product to us" (Coates 2002, p. 38).

The general operation of business today is described as follows:

Products reach customers through a chain of retailers, distributors, wholesalers, manufacturers, and component suppliers. Supply chain management is intended to accelerate the flow of goods, information, and capital in both directions, along the chain's entire length, and to help companies monitor that flow (Agrawal & Pak, 2001, p. 22).

More and more companies have used supply chain management (SCM) as a more comprehensive system to gain control of operations:

Businesses that adopt SCM generally view the entire supply chain as a single, integrated entity. Cost, quality, manufacturing, delivery, and customer service considerations are shared by every company in the chain, and inventory is the last resort for resolving the risk of supply-and-demand imbalances between suppliers and customers. Under this approach, a company and its suppliers work together to optimize the design, planning, production, and delivery of materials and other resources used in delivering or creating the end product or service (Harcourt & Hutchinson, 2004, p. 8).

As noted, there are different ways of ordering the supply chain, through production channels that may be horizontal or may be vertical. The decision as to which is preferred depends on the type of manufacturing system being used and the source of materials as well as the nature of the customers.

Another way of describing the difference between the two involves how different businesses are combined:

contrast is often drawn between vertical integration and horizontal integration. The latter arises when firms combine productive activities at the same stage of production. Horizontal integration would occur, for example, if one car manufacturer merged with another, such as when BMW took over the Rover Group; whereas vertical integration would occur if a car manufacture merged with a tire company, or a car battery manufacturer (Chrystal & Lipsey, 1997, p. 14).

A combination of companies is not necessary in either case, for the concept applies to companies with different business units. In the vertical organization, the units are arranged in a hierarchy, while in the horizontal organization, they are independent until their goods are combined.

Horizontal integration is a strategy for a company seeking to sell a type of product in different markets by creating several small subsidiary companies, each of which markets the same product to its own market segment or geographical territory. The horizontal integration of production is found when the company has plants in several locations to produce the same product or similar products. Horizontal integration of marketing is common, while horizontal integration of manufacturing is less so. Vertical integration is also a style of ownership and control, but here the companies are joined by means of a hierarchy with a common owner. Each unit of the hierarchy may produce a different product, and the central organization combines the products to satisfy a common need. Vertical integration can be for marketing and for manufacture alike.

Horizontal integration is more common, in part because of the perception that vertical integration does not work. This assessment is a fairly recent management idea, and there is still a good deal of debate on the issue. However, investigation shows that the "most successful industries of the past few decades -- personal computing, networking, and anything Internet-based -- are all aggressively horizontal" (Transparent horizontal integration equals bad customer experience, 2005, para. 1). Some analysts see this as a good thing given that horizontal integration has a number of advantages by allowing for maximal innovation and competition in every piece of a product or service, which in turn drives down costs and advances technology. At the same time, some significant risks can be cited, with one noted in particular: "if not handled carefully, horizontal integration leads to a really bad customer experience. It is no coincidence that some of the most infamous examples of bad products and services today -- personal computing and mobile phones, for example -- and also industries which are either the most aggressively horizontal, or industries which are moving from being vertical to horizontal." (Transparent horizontal integration equals bad customer experience, 2005, para. 3).

Coates further cites a number of specific issues involved in supply chain management for retailers and how they address the issues. The first is vendor managed inventories, which goes beyond Just in Time supply and is used by Wal Mart and Procter & Gamble, which have worked together in a partnership for soaps, detergents, and the like to be placed in retail stores, with title passing at the check out counter.

Second are pull through operations, made possible by it improvements, "where real time data and collaboration between supply chain members make it possible for demand at the point of sale to drive the order cycle and the supply chain" (Coates 2002, p. 38). Companies such as Polo Ralph Lauren and Bloomingdale's "make market demand the driving force" (Coates 2002, p. 38) and ask the same of their logistics providers.

Third is postponement and merge in transit, a practice that seeks to redefine the decision points for the supply chain:

Companies such as FedEx and UPS have implemented sophisticated merge in transit solutions for their retail clients. but, it's companies like Target which drive postponement, where cargo from various origins, including domestic, is taken out of the origin container and matched with products going to the appropriate stores or distribution centers (Coates 2002, p. 38).

Fourth is global sourcing, and retailers more than any other industry literally search the globe for the best combination of price, quality, and production availability. The Internet is one of their favorite tools for this process.

Fifth is door to door focus, the management of which enables the retailer to determine in store dates and landed costs so as to manage their margins and product offerings:

Retailers are less concerned with speeds over the water, ground or air, and more with the time in the order cycle and in the pipeline. Time is money to the retailer, and logistics outsourcing has been the result of this process in many instances (Coates 2002, p. 38).

Sixth is quantification, and both Home Depot and Wal Mart are well-known for using every available tool, particularly it, to measure and manage every phase of the operation:

They work with companies like NYK and MaerskSealand to develop measures of supply chain cost and performance, which in turn helps the retailer to determine modal trade offs, inventory strategy, and price point (Coates 2002, p. 38).

An issue that impacts supply chains is the question of life cycle. As Bradshaw notes,

Inventory is an asset that, if managed efficiently, can work to the retailer's advantage. Yet all too frequently, it goes the other way. Often, retailers find themselves saddled with excess merchandise that they can't move. The surplus goods languish in warehouses, their obsolescence growing with each passing day, accruing storage and carrying charges and impairing a buyer's cash flow (Bradshaw 2002, p. 178).

Keeping the issue of life cycle in mind provides a way to control this:

Every transaction has a life span that consists of various moving parts: shipping, inventory control, information services and financing solutions, among others. Integrating these parts into a single, uninterrupted flow is pivotal to avoiding the scenario described in the ad. In fact, it is absolutely essential to optimizing the efficiency of an entire enterprise (Bradshaw 2002, p. 178).

This is another definition of and rationale for a supply chain management approach. Managing the supply chain effectively can be key to maintaining a competitive advantage.

Supply chain management has become the focus for many different types of operation, both wholesale and retail. More specifically, a B2B marketplace has developed, defined as "a virtual market where buyers, suppliers, and distributors find and exchange information, conduct trade, and cooperate via portals, trading exchanges, and collaboration tools" (Knolmayer, Mertens, & Zeier 2002, p. 66). Online auctions, or virtual auctions, are seen as a highly developed form of virtual procurement. Such auctions started in 1995 and have since evolved to the point where they are an important element of electronic markets. Such auctions have certain advantages in that there are no costs for offices, personnel, or travel. Time pressure is much reduced as well, meaning there is less pressure on those participating (Knolmayer, Mertens, & Zeier 2002, p. 74).

The way this system works is that a company may need a particular product in a particular quantity. The company may institute a search using full-text retrieval or may search by product or manufacturer names. Sealed bid auctions may be used, and the end of an auction may be determined when a certin time is reached or based on a decision by the auctioneer or the supplier (Knolmayer, Mertens, & Zeier 2002, p. 75).

Such a means of acquiring needed products or materials has become more common as the Internet has become a necessary business tool and as companies have learned the value of conducting business online. B2B transactions in particular can streamline the process for both buyer and seller. There are certain problems inherent in the auction process, such as uncertainty about the success of a given transaction. If a company simply orders the goods it needs from another company on the Internet, it saves money because of lower overhead and is assured delivery in a timely manner. If a company engages in an online auction for the goods, the cost my be reduced even further, though the company cannot be certain it will be the winning bid and so will have to make numerous bids on different sites or have a second plan for how to purchase the goods. Such auctions are used for a wide variety of types of goods, including more and more for raw materials in bulk that can be turned into products for resale. Shipping has become part of the process and can now deliver raw godos to ports from which those goods can be delivered by truck to individual manufacturers.

Still, the fact that the practice has become more common suggests that it saves a good deal of money for companies in spite of possible drawbacks. Purchasing by computer for B2B transactions is more efficient, and a network has grown to serve these sellers and buyers and to make the process easier and more efficient, always serving the needs of supply chain management by keeping the goods moving between the two. Managers at the purchasing company need to recognize the time frame in which they can make bids and receive goods and the alternatives that will assure that the supply chain is not broken in any case.

Some companies have found that using such an e-procurement system leads to a case of automating failure, setting up a system that spends money but does not reduce costs sufficiently to make the system worthwhile. Such failures are usually attributable to not using proper or sufficient human oversight. An automated system can only make decisions on the basis of the program used and the data fed into that program. Human managers have to monitor the process and make changes when the system is not performing as desired. There are many ways to do this, Wal-Mart and Sara Lee both created collaborative forecasting programs by distributing demand data by e-mail (SCM Information Technology 2007, para. 4). Their success shows that the technology need not be complex to assure success but only that it needs to have the necessary data available when needed.

In the shipping industry, such requirements for supply chain management and just-in-time delivery requires concentration on not just the business of the shipping company but the business of clients. This adds a layer to what has to be considered in fulfilling shipping needs, and this can be another reason for turning to third party management, the need to see to it that the specific delivery requirements are given precedence over internal business issues facing the shipping company at a given time.

In the past, maritime shipping has been seen as an uncertain element in the supply chain, based on the view that trucks, planes, and trains are more reliable for deliveries, while delivery by sea can be more problematic. This is an old view and ignores the reality that the supply chain is best served by the new partnership among the different transportation modes, more and more using it as a way of assuring delivery and coordination among the different modes of transport. Transport of goods by sea then leads to the transfer of those goods to rail or truck, often using the same containers, as noted. Indeed, the use of such containers has increased the level of coordination among the different modes of delivery, and delivery by ship has had to become much more reliable in order to compete with the greater speed possible by air. Some goods simply lend themselves more to delivery by some type of sea-going vessel, especially between countries and different parts of the world, such as oil. Ships are also able to carry far more of a given good than can other forms of transport, which helps reduce shipping costs and so serves the needs of manufacturers and retailers. Shipping by sea is more and more a key component in the supply chain and has been adapted to the needs of even such time-sensitive methods as just-in-time delivery, aided by the use of technology and by more stringent management methods applied both in-house and by third parties.

Panayides sees shipping as made up of two areas, those being maritime transport and logistics and supply chain management. Maritime transport involves the transportation of goods and/or passengers between two seaports by sea. Logistics and supply chain management has been harder to define:

In general, logistics is the function responsible for the flow of materials from suppliers into an organization, through operations within the organization and then out to customers. A supply chain consists of the series of activities and organizations that materials (raw materials and information) move through on their journey from initial suppliers to final customers. Supply chain management involves the integration of all key business operations across the supply chain (Panayides 2006, para. 3).

The shift to logistics and supply chain management is a shift from simple transport to transport under very controlled conditions clearly requiring more management intervention. Panayides makes this clear when he writes,

The characteristics of logistics and supply chain management mean that maritime logistics as a concept largely applies to the transportation of containerized cargoes via a liner shipping service as opposed to the transportation of bulk cargoes say in a tramp shipping situation. There are instances, of course, where maritime logistics concepts can apply to the transportation of bulk cargoes, especially with regard to the integration of cargo owners and shipowners via alliances and the focus on the achievement of logistics goals such as timeliness, reliability, low cost, etc. (Panayides 2006, para. 5).

Traditional customers of maritime transport firms have shifted their focus to door-to-door service from a single provider. This shift is in keeping with the use of containers that can be transferred directly to truck beds, as noted, and delivered whole. Panayides indicates why ship managers are tending toward logistics rather than the traditional system when he writes,

The overall aim of logistics is to achieve high customer satisfaction by providing a high-quality service with low - or acceptable - costs since the key task, according to the Institute of Logistics and Transport, is the time-related positioning of resources. Arguably the time-related positioning of resources is also a key aim for liner shipping and maritime transport. Logistics adds value by making products available in the right place at the right time. Logistics adds the so-called place utility if it makes a product available at the place it is needed. It adds time utility if the product is delivered at the right time. Maritime transport and liner shipping in particular also aim for adding place and time utility in performing their related operations. Logistics has a number of indicators that measure the extent to which the broad logistics goals are achieved. These include the management of demand and supply to avoid surpluses and shortfalls, the full utilization of resources, minimization of losses in transportation, cost reduction in transportation and storage, meeting customer needs in order fulfillment and improving customer service and customer communication. These are indicators that also apply in measuring the performance of liner shipping operations (Panayides 2006, para. 7).

Clearly, logistics provides not only for the on-time delivery of goods and for full tacking of any given shipment but also contributes to the assessment of how well the system works. In this way, both cost reduction and improved efficiency are achieved.

Efficiency and cost reduction also appeal in the adherence to international shipping regulations, which are becoming more and more stringent. It is seen as increasingly difficult to implement and adhere to the specifications in regulations like the International Management safety (ISM) Code, which requires additional staff that are technically competent:

Bearing in mind the overwhelming need for cost reduction in order to remain competitive, it would seem almost impossible for smaller companies to employ additional staff to oversee the implementation of the Code and adherence to the increasingly regulated shipping environment. Professional ship management firms are able to do this because they can achieve economies of scale by virtue of the size of their managed fleet (Panayides 2000).

Panayides and Cullinane (2002) offer an assessment of the rationale for the vertical disintegration of ship management and find that it suggests that there might be compelling economic benefits for the separation of ownership from management, which is in keeping with the reason most often given for turning to this type of management. The authors note that in order to develop effective marketing strategies, it is important that ship managers know the criteria used by current and prospective clients for ship manager selection and evaluation as they try to make that same choice for their own situation. The authors set out to identify the dimensions for ship manager selection and performance evaluation and to indicate their relative importance in a discussion of the implications for marketing. The methodology they use includes the collection of secondary and primary data, both from ship managers and their clients, using interviews and a mail survey. The researchers find that the most important dimensions in selection today include technical ability, reputation, and competency, while the most important dimensions for evaluation are responsiveness, trustworthiness, and technical ability. The researchers also find that price alone is not perceived to be as important in ship manager selection. The authors conclude that placing an emphasis on these dimensions in the formulation of a marketing strategy will contribute towards the attraction and retention of clients, but that using cost-cutting measures to allow price reduction will be ineffective over the long-term. Of course, this may not mean that companies do not use third party management as a cost-cutting device, but it does indicate that they should not promote their service on that basis.

Legal Environment

Ship managers today face new challenges. They not only must manage more efficiently to ensure growth, expansion and profitability, but they also must ensure full compliance with national and international regulations and to keep up with changes in those regulations. With the introduction of the ISM Code, STCW, additional pressure is felt, and for those belonging to the ISMA, this means an additional "burden" on top of the quality standards already adhered to as required by the ISM Code and STCW.

The ISM Code was developed in response to a number of serious accidents in the late 1980s, accidents that were caused by human error and management faults. Lord Justice Sheen described the management failures as "the disease of sloppiness." In response the International Maritime Organization (IMO) adopted resolution a.647(16), Guidelines on Management for the Safe Operation of Ships and for Pollution Prevention, with the purpose being to provide responsible parties with a framework for the development, implementation, and assessment of safety and pollution prevention management based on good practice:

The objective was to ensure safety, to prevent human injury or loss of life, and to avoid damage to the environment, in particular, the marine environment, and to property. The Guidelines were based on general principles and objectives so as to promote evolution of sound management and operating practices within the industry as a whole (Safety management 2006, para. 5).

To this end, the Guidelines were based on the view that existing international instruments were the most important means of preventing maritime casualties and pollution of the sea, and the Guidelines included sections on management and the importance of a safety and environmental policy. In 1993, IMO adopted the International Management Code for the Safe Operation of Ships and for Pollution Prevention (known as the ISM Code). The Code was made mandatory in 1998.

The Code establishes safety-management objectives and requires a safety management system (SMS) to be established, with the responsible party defined as the shipowner or any person, such as the manager or bareboat charterer, who has assumed responsibility for operating the ship. This places the responsibility on third party managers as well. The responsible party must then establish and implement a policy for achieving these objectives, including providing the necessary resources and shore-based support. It is required that every company "designate a person or persons ashore having direct access to the highest level of management": "The procedures required by the Code should be documented and compiled in a Safety Management Manual, a copy of which should be kept on board" (Safety management 2006, para. 12).

The ISM Code is supported by various international groups and organizations, such as insurance carriers who see the Code as a good starting point for safety management and for the prevention of accidents. Lloyd's Register, for instance, notes the requirement for creating a safety management system, and the group also states that such systems have an important role to play and can help "ensure [that] safety, quality, environmental and business risks are managed while offering opportunity for continuous improvement" (International safety management (ISM) code: Managing risks and improving performance 2005, para. 2). The group also makes various recommendations about the system to be developed, such as to keep it simple and manageable and to concentrate on the benefits it can bring to the business.

Panayides (2000) notes that there is a belief that the demand for ship management services will increase because of the introduction of the ISM Code, and Panayides agrees to a certain extent "because many shipowners may have recognized that it is not economic to implement and maintain the requirements of the ISM Code. Hence they might have turned to managers that have the ability and expertise to implement the requirements of the Code. Nevertheless, this is only true for small shipowning companies. If companies own very fewA vessels, then maintaining an additional department or employing additional personnel for overseeing the requirements of the Code is not a viable option" (Panayides 2000). For large companies with many vessels, though, the economies of scale are achieved by implementing the Code over a large fleet and not necessarily by outsourcing management:

In fact, this is one of the reasons that ship management companies are able to offer this service and obtain ISM Code certification at a relatively lower average cost. Hence, although business has been set to increase prior to the implementation of the first phase of the Code, there has not been a major boom for the ship management industry. Benefits that have accrued to some ship managers are only for the short-term as the increase in business will only be a short-term phenomenon, and problems of competition will again arise as new companies enter the market. Ship managers should not, therefore, view the ISM Code as a long-term solution to their problems. Long-term solutions must be sought by concentrating on clients' needs (Panayides 2000).

Panayides cites Osier (1999, p. 8) on this issue:

Whatever the manifold merits of the International Safety Management Code... It did not spark the widespread flight to third party management many pundits were predicting just over a year ago (cited by Panayides 2000).

The second phase of the Code came in 2000, leading to more speculation about flight to third party managers. Panayides says this came about because of the belief that "owners of general cargo and break bulk vessels are not as well prepared as the tanker and dry bulk owners of phase 1. Nevertheless, it must be pointed out that such types of increase in business, despite being welcome, are not enough to sustain competitiveness and growth" (Panayides 2000).