Charter Offers

Concept of Compatibility
in Shipping
Fuzzy Set Theory and Case-Based Reasoning Approaches
Setyo Nugroho
Technische Universität Berlin

2005
D83
Concept of Compatibility in Shipping
- Fuzzy Set Theory and
Case-Based Reasoning Approaches -
vorgelegt von
ir. Setyo Nugroho

geb. in Tuban, Indonesien
an der Fakultät V Verkehrs- und Machinensysteme
Technische Universität Berlin
zur Erlangung des Grades Doktor-Ingenieur
-Dr.-Ing.-
genehmigte Dissertation
Promotionsausschuss:
Vorsitzende: Prof. Dr.-Ing. Gerhard Hüttig

Berichter: Prof. Dipl.-Ing. Horst Linde
Berichter: Prof. Dr.-Ing. Erhard Konrad
Tag der wissenschaftliche Aussprache: 13. Juni 2005
BERLIN 2005
D83
Dedicated to:
my children,
my wife
and
my parents
i
Summary
This thesis aims at contributing a new perspective on the way living pro-
blems in shipping practice are addressed.
Shipping is the workhorse of the world economy. It connects nearly all
parts of the world. State of the macro economy, weather and political events
affect the sector very much. The magnitude of their influence is unclear
and is difficult to justify objectively. Those aspects are taken into account
when determining of freight rates or charter hire. Therefore shipping can be
viewed as a complex system.
The existing tools including market forecasts and shipping indexes are
less useful for conducting daily shipping practice. Information is available
in abundance, but the useful one is still scarce and expensive.
In spite of the complexity of the living problems in shipping, an experi-
enced shipping practitioner can solve problems quickly and -frequently- sa-
tisfactorily. An experienced ship broker, for example, can assess the value
of ships better and faster than any value assessment method. This merit
leads to the idea, that it would be useful to have a better insight on this
phenomenon that experience and intuition play an important role in practi-
ce and that similar problems tend to have similar solutions. Therefore the
capability to recognize similar problems will be helpful to find the desired
solution.
Compatibility, a concept proposed as an attempt to explain and to em-
brace the way problems-solvings (value assessment and planning tasks)
are conducted in daily shipping practice. The concept of compatibility invol-
ves an act of grouping of similar attributes of similar objects, for example
in the case of a ship replacement. The concept concerns also an act of
matching between objects of different roles or functionalities, for example
between a ship and route, or between a ship and a charter hire value. It
implies that the concept of compatibility means an act of problem-solving.
Fuzzy set theory and case-based reasoning are used, given the capa-
bility for addressing the notions of vagueness and learning respectively,
which mark the concept of compatibility. Three models have been deve-
loped : (a) fuzzy arithmetic-based voyage estimation (b) tailor-made ship-
ping index and (c) case-based stowage planning. The implementation of
the concept delivers a new and promising way of addressing the problems
which are not addressed satisfactorily at present.
ii
Kurzfassung
Kompatibilität in der Schiffahrt:

Perspektiven der Theorie von Fuzzy-Mengen und des Fallbasierten
Schließens
Mit dieser Arbeit wird versucht, eine neue Perspektive für die Lösung
von Problemen in der Handelsschifffahrtspraxis zu schaffen.
Schifffahrt ist in der Weltwirtschaft der wichtigste Transporteur, vor allem
für Güter. Sie verbindet fast alle Teile der Welt miteinander. Die Welt-
wirtschaft, die Politik einzelner Länder, Einzeleinflüsse wie Ölpreis, Klima
oder Wetterbedingungen beeinflussen den Wirtschaftssektor Schifffahrt in
großem Maße. Die Größenordnungen der Einflüsse sind veränderlich und
schwierig objektiv fassbar. Sie sind der Hintergrund auch für den Wert
eines Schiffes sowie für Fracht- und Charterraten. Schifffahrt ist daher ein
hoch komplexes System.
Existierende Hilfsmittel, wie Schifffahrts-Indexe, Bewertungsmodelle und
Marktprognosen, sind keine hilfreichen Werkzeuge im täglichen Schifffahrts-
geschäft. Viele Informationen sind verfügbar, aber die wirklich nützlichen
sind knapp und teuer.
Trotz der Komplexität der realen Problematik können erfahrene Schiff-
fahrtspraktiker ihre Probleme oft schnell und zufriedenstellend lösen. Zum
Beispiel können Schiffsmakler den Wert von Schiffen besser und schneller
abschätzen als veröffentlichte Bewertungsmodelle. Diese Fähigkeit führt
zu der These, dass es nützlich wäre, eine verbesserte Einsicht in das
Phänomen zu gewinnen, dass Intuition und Erfahrung viel zum täglichen
Problemlösen beitragen und ähnliche Probleme dazu neigen, zu ähnlichen
Lösungen zu führen. Das Erkennen ähnlicher Situationen kann daher zu
wichtigen Hinweisen für die Lösung eines Problems führen. Der Begriff
Kompatibilität wird benutzt, um die Art und Weise zu erklären, in der Prob-
lemlösungen in der Praxis (z.B. Wertermittlung und Beschäftigungsplanung)
erfolgen.
Der Begriff Kompatibilität enthält einen Akt von Gruppierung ähnlicher
Attribute oder ähnlicher Objekte, z.B. im Zusammenhang mit dem Ersatz
eines Schiffes durch ein anderes. Kompatibilität bedeutet ferner auch ein
Zusammenpassen von Objekten unterschiedlicher Funktionalitäten oder
Aufgaben, z.B. zwischen Schiff und Hafen oder zwischen Schiff und Char-
terrate. Es zeigt sich, dass die Feststellung von Kompatibilität einen Akt
der Problemlösung darstellt.
iii
Die Theorie der unscharfen Mengen und das Fall-basierte Schließen

werden ausgewählt aufgrund ihrer Lernfähigkeit und ihrer Fähigkeit zur Ver-
arbeitung unscharfer Phänomene. Drei Modelle sind entwickelt worden: (a)
Fuzzy-arithmetische Reiseberechnungen, (b) individuell formulierte Schiff-
fahrts-Indexe und (c), als Exkurs, die fallbasierte Stauplanung für Contain-
erschiffe. Die vorgeschlagene Implementierung liefert somit ein neues und
vielversprechendes Konzept zur Lösung von Problemen in der Schifffahrt,
insbesondere im Chartergeschäft.
iv
Preface and
Acknowledgement
Human experts are not systems of rules, they are libraries of experiences
Riesbeck and Schank 1
This dissertation can perhaps be viewed as a journey. It is a journey to few

places and situations. It is a journey through viewpoints and experiences.
Without supports of many, the end of the journey would have not been
visible.
Firstly, I would like to thank Prof. Horst Linde (Department of Marine
Transport, TU Berlin) who has given me the liberty to explore new areas,
called AI. I am also very grateful for having been given the opportunity to
join a research project C OMSTAU (Computer Aided Stowage Planning for
Container Ships) with TU Hamburg-Harburg and Müller+Blanck software
firm.
Views on AI have affected my views on looking at my shipping domain
very much. For this, I owe many thanks to Prof. Erhard Konrad (Depart-
ment of Knowledge-Based Systems, TU Berlin).
I will miss colleagues and friends, with whom I could share ideas and
problems. Imad Khemlichi, Frauke Baumgärtel, Felix Fliege, Hanurani Pra-
janto, Aceng Hidayat, Wayan Karyasa, Peter Horstkorte, Heike Vogeley,
Frank Laue, Jens Heyer, Csaba Piller are among a few.
Last but not least, I would like to thank my wife, Herlin, and our children,
Dipto and Saraswati, for their understanding when I frequently came late at
home. Without them this dissertation would not have been possible. For
them too, this dissertation is written.
1
[66]
v
vi
Contents
I Observations 1
1 Introduction 3
1.1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.1.1 Few scenes from shipping practice . . . . . . . . . . . 3
1.1.2 State of the art of shipping research . . . . . . . . . . 6
1.2 Hypothesis and problem formulation . . . . . . . . . . . . . . 8
1.2.1 Hypothesis . . . . . . . . . . . . . . . . . . . . . . . . 8
1.2.2 Problem formulation . . . . . . . . . . . . . . . . . . . 9
1.3 Scope and structure . . . . . . . . . . . . . . . . . . . . . . . 9
1.3.1 Scope of work . . . . . . . . . . . . . . . . . . . . . . 9
1.3.2 Report structure . . . . . . . . . . . . . . . . . . . . . 10
2 Nature of Dry Bulk Shipping 13

2.1 Dry bulk shipping . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1.1 Definition . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1.2 Seaborne trade . . . . . . . . . . . . . . . . . . . . . . 14
2.1.3 World Fleet . . . . . . . . . . . . . . . . . . . . . . . . 16
2.2 Chartering and Sale & Purchase . . . . . . . . . . . . . . . . 20
2.2.1 Chartering . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.2.2 Sale & Purchase . . . . . . . . . . . . . . . . . . . . . 32
2.3 Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.3.1 Running . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.3.2 Ship’s performance . . . . . . . . . . . . . . . . . . . 39
2.3.3 Maintaining knowledge as asset . . . . . . . . . . . . 50
2.4 Multifaceted aspects of shipping . . . . . . . . . . . . . . . . 52
2.4.1 The role of quality . . . . . . . . . . . . . . . . . . . . 52
2.4.2 Decision hierarchy . . . . . . . . . . . . . . . . . . . . 54
2.4.3 Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . 55
2.4.4 Experience, knowledge and education . . . . . . . . . 56
2.4.5 Imprecision and uncertainty . . . . . . . . . . . . . . . 60
2.4.6 Value of information . . . . . . . . . . . . . . . . . . . 62
2.5 Oldendorff Carriers: a profile . . . . . . . . . . . . . . . . . . 64
2.6 Conclusions of the chapter . . . . . . . . . . . . . . . . . . . 66
vii
Contents viii
3 Existing Resources and Tools 69

3.1 Chartering negotiations . . . . . . . . . . . . . . . . . . . . . 69
3.1.1 Short logbooks . . . . . . . . . . . . . . . . . . . . . . 71
3.1.2 MV L UCY O LDENDORFF/ Panocean . . . . . . . . . . 75
3.1.3 Supporting information . . . . . . . . . . . . . . . . . . 77
3.1.4 Decision making . . . . . . . . . . . . . . . . . . . . . 78
3.2 Usable resources . . . . . . . . . . . . . . . . . . . . . . . . . 81
3.2.1 Tasks . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
3.2.2 Fixture reports . . . . . . . . . . . . . . . . . . . . . . 83
3.2.3 Forecasting reports . . . . . . . . . . . . . . . . . . . 84
3.2.4 Market index . . . . . . . . . . . . . . . . . . . . . . . 89
3.3 Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
3.3.1 Voyage estimation . . . . . . . . . . . . . . . . . . . . 89
3.3.2 Statistics . . . . . . . . . . . . . . . . . . . . . . . . . 91
3.3.3 Econometric modelling . . . . . . . . . . . . . . . . . 95
3.3.4 Decision theory . . . . . . . . . . . . . . . . . . . . . . 97
3.3.5 Views on shipping practice . . . . . . . . . . . . . . . 100
3.3.6 Research agenda . . . . . . . . . . . . . . . . . . . . 101
II Concept building and implementation 105
4 Towards the Concept of Compatibility 107

4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
4.1.1 Lessons learned . . . . . . . . . . . . . . . . . . . . . 107
4.1.2 Determining directions . . . . . . . . . . . . . . . . . . 109
4.2 Foundations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
4.2.1 Bounded Rationality . . . . . . . . . . . . . . . . . . . 110
4.2.2 Information and complexity . . . . . . . . . . . . . . . 112
4.2.3 Precision, accuracy and detail . . . . . . . . . . . . . 113
4.2.4 Intuition, reasoning and experience . . . . . . . . . . 118
4.3 A survey on methods . . . . . . . . . . . . . . . . . . . . . . . 124
4.3.1 Expert systems . . . . . . . . . . . . . . . . . . . . . . 124
4.3.2 Fuzzy Set Theory . . . . . . . . . . . . . . . . . . . . 126
4.3.3 Case-Based Reasoning . . . . . . . . . . . . . . . . . 136
4.4 Examples from our neighbours . . . . . . . . . . . . . . . . . 140
4.4.1 Residential property valuation . . . . . . . . . . . . . . 140
4.4.2 Weather forecasting . . . . . . . . . . . . . . . . . . . 142
4.4.3 C LAVIER Project . . . . . . . . . . . . . . . . . . . . . 143
4.5 Concept of compatibility . . . . . . . . . . . . . . . . . . . . . 146
4.5.1 Definition . . . . . . . . . . . . . . . . . . . . . . . . . 146
4.5.2 Entity compatibility . . . . . . . . . . . . . . . . . . . . 147
4.5.3 Relation compatibility . . . . . . . . . . . . . . . . . . 149
ix Contents
4.5.4 Properties . . . . . . . . . . . . . . . . . . . . . . . . . 150

4.5.5 Choice of methods . . . . . . . . . . . . . . . . . . . . 154
5 Proposed Implementations 157

5.1 Fuzzy arithmetic-based voyage estimation . . . . . . . . . . . 157
5.1.1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . 157
5.1.2 Interpretation problem . . . . . . . . . . . . . . . . . . 158
5.1.3 Fuzzy voyage estimation model . . . . . . . . . . . . . 161
5.1.4 Discussion . . . . . . . . . . . . . . . . . . . . . . . . 164
5.2 Tailor-made shipping index . . . . . . . . . . . . . . . . . . . 168
5.2.1 Coverage problem of shipping index . . . . . . . . . . 168
5.2.2 Tailor made shipping index . . . . . . . . . . . . . . . 169
5.2.3 Discussion . . . . . . . . . . . . . . . . . . . . . . . . 172
5.3 Case-based stowage planning . . . . . . . . . . . . . . . . . 173
5.3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . 173
5.3.2 Foundation . . . . . . . . . . . . . . . . . . . . . . . . 174
5.3.3 C ASESTOW procedure . . . . . . . . . . . . . . . . . . 176
5.3.4 Properties . . . . . . . . . . . . . . . . . . . . . . . . 186
6 Conclusion 189
A MV Lucy Oldendorff 201
B Glossary 205
C Shipping terms and abbreviations 211
D Lebenslauf 225
Contents x
List of Figures
1.1 Suitable and not suitable ships . . . . . . . . . . . . . . . . . 3

1.2 More suitable, less suitable and not suitable ships . . . . . . 5
1.3 Research focus . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1 MV L UISE O LDENDORFF . . . . . . . . . . . . . . . . . . . . . 17

2.2 MV C AROLINE O LDENDORFF . . . . . . . . . . . . . . . . . . 18
2.3 Number of ports of call versus size of ship . . . . . . . . . . . 19
2.4 Development of T/C rates (1997-1999) . . . . . . . . . . . . . 20
2.5 Deployed tonnage . . . . . . . . . . . . . . . . . . . . . . . . 21
2.6 Vessels’ speed . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.7 Age of ships . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.8 Age versus Time Charter rate . . . . . . . . . . . . . . . . . . 22
2.9 Fuel consumption versus T/C rate . . . . . . . . . . . . . . . 23
2.10 Deadweight versus fuel consumption . . . . . . . . . . . . . . 23
2.11 Deadweight versus age . . . . . . . . . . . . . . . . . . . . . 24
2.12 Deadweight versus T/C rate . . . . . . . . . . . . . . . . . . . 24
2.13 Deadweight versus speed . . . . . . . . . . . . . . . . . . . . 25
2.14 Time Charter Index . . . . . . . . . . . . . . . . . . . . . . . . 25
2.15 CC’s fixtures: dwt vs unit T/C rate . . . . . . . . . . . . . . . 32
2.16 CC’s fixtures: period vs unit T/C rate . . . . . . . . . . . . . . 33
2.17 CC’s fixtures: age vs unit T/C rate . . . . . . . . . . . . . . . 33
2.18 EO’s fixtures: deadweight vs unit income . . . . . . . . . . . 34
2.19 EO’s fixtures: deadweight vs unit operating costs . . . . . . . 34
2.20 EO’s fixtures: deadweight vs unit market values . . . . . . . . 35
2.21 EO’s fixtures: deadweight vs market value depreciation . . . 35
2.22 Allship’s estimation: deadweight vs price . . . . . . . . . . . . 37
2.23 Allship’s estimation: age vs price . . . . . . . . . . . . . . . . 37
2.24 Chartering and operations departments . . . . . . . . . . . . 38
2.25 Deadweight versus sailing and port days . . . . . . . . . . . . 45
2.26 Deadweight versus actual length of voyage . . . . . . . . . . 45
2.27 Deadweight versus actual/estimate of port expenses . . . . . 46
2.28 Age versus actual/estimate voyage length . . . . . . . . . . . 46
2.29 Deadweight versus actual/estimate of voyage length . . . . . 47
xi
List of Figures xii
2.30 Deadweight versus actual results . . . . . . . . . . . . . . . . 47

2.31 Age versus actual results . . . . . . . . . . . . . . . . . . . . 48
2.32 Deadweight versus actual/estimate of TCE and result . . . . 48
2.33 Year of built versus actual/estimate of TCE and result . . . . 49
2.34 Deadweight versus actual/estimate of ballast days . . . . . . 49
2.35 Price-demand relationships . . . . . . . . . . . . . . . . . . . 52
2.36 Buyer-seller relationships . . . . . . . . . . . . . . . . . . . . 53
2.37 NYPE Time Charter Party Form . . . . . . . . . . . . . . . . . 59
3.1 Inquiry from broker . . . . . . . . . . . . . . . . . . . . . . . . 70

3.2 Swazi Sugar - an early phase of negotiation . . . . . . . . . . 72
3.3 Mapping the situation and guessing the response . . . . . . . 73
3.4 J.E. Hyde Index . . . . . . . . . . . . . . . . . . . . . . . . . 78
3.5 J.E. Hyde Time Charter Index . . . . . . . . . . . . . . . . . . 90
3.6 J.E. Hyde Voyage Charter Index . . . . . . . . . . . . . . . . 90
3.7 Voyage Estimation . . . . . . . . . . . . . . . . . . . . . . . . 93
3.8 Decision tree . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
3.9 Shipping as a blackbox . . . . . . . . . . . . . . . . . . . . . 102
4.1 Relationships during chartering negotiations . . . . . . . . . . 112

4.2 Relations during and after operations . . . . . . . . . . . . . . 114
4.3 Accuracy and precision . . . . . . . . . . . . . . . . . . . . . 115
4.4 Evolving degrees of details . . . . . . . . . . . . . . . . . . . 116
4.5 Degree of details . . . . . . . . . . . . . . . . . . . . . . . . . 117
4.6 Recognizing the average . . . . . . . . . . . . . . . . . . . . 121
4.7 Pain measurement . . . . . . . . . . . . . . . . . . . . . . . 121
4.8 Transfer of expertise . . . . . . . . . . . . . . . . . . . . . . . 125
4.9 A crisp set A and its complement . . . . . . . . . . . . . . . . 127
4.10 A fuzzy set A and its complement . . . . . . . . . . . . . . . . 128
4.11 Membership function of a crisp and a fuzzy set . . . . . . . . 128
4.12 Mapping crisp relations ’belong to’ . . . . . . . . . . . . . . . 129
4.13 Mapping fuzzy relations ’fit to’ . . . . . . . . . . . . . . . . . . 131
4.14 Crisp and fuzzy numbers . . . . . . . . . . . . . . . . . . . . 133
4.15 Trapezoidal membership function . . . . . . . . . . . . . . . . 133
4.16 Representation of a fuzzy number with λ−cuts . . . . . . . . 134
4.17 Fuzzy arithmetic operation: addition . . . . . . . . . . . . . . 135
4.18 Defuzzification . . . . . . . . . . . . . . . . . . . . . . . . . . 136
4.19 Spaces of problems and solutions . . . . . . . . . . . . . . . 137
4.20 Basic idea of CBR [43] . . . . . . . . . . . . . . . . . . . . . . 137
4.21 Case-Based Reasoning methodology . . . . . . . . . . . . . 139
4.22 Attribute preference membership functions . . . . . . . . . . 141
4.23 Difference as a measure of similarity . . . . . . . . . . . . . . 143
4.24 Ratio as a measure of similarity . . . . . . . . . . . . . . . . . 144
4.25 Clavier - task . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
xiii List of Figures
4.26 Clavier - process . . . . . . . . . . . . . . . . . . . . . . . . . 146

4.27 Entity compatibility . . . . . . . . . . . . . . . . . . . . . . . . 147
4.28 Relation compatibility . . . . . . . . . . . . . . . . . . . . . . 149
4.29 Recycling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
4.30 Changing compatibilities . . . . . . . . . . . . . . . . . . . . . 151
4.31 Crisp and fuzzy compatibilities . . . . . . . . . . . . . . . . . 151
4.32 Concept of compatibility: an overview . . . . . . . . . . . . . 153
5.1 Current procedure’s input: Amount of cargo . . . . . . . . . . 159

5.2 Current procedure’s input: Vessel speed . . . . . . . . . . . . 160
5.3 Current procedure’s input: Cargo handling speed . . . . . . . 160
5.4 Current procedure’s output: voyage duration . . . . . . . . . 161
5.5 Current procedure’s output: gross profit per voyage . . . . . 162
5.6 Current procedure’s output: time charter equivalent . . . . . . 162
5.7 Voyage estimation model . . . . . . . . . . . . . . . . . . . . 163
5.8 Fuzzy input: amount of cargo . . . . . . . . . . . . . . . . . . 164
5.9 Fuzzy input: vessel’s speed . . . . . . . . . . . . . . . . . . . 165
5.10 Fuzzy input: cargo handling speed . . . . . . . . . . . . . . . 165
5.11 Fuzzy output: voyage duration . . . . . . . . . . . . . . . . . 166
5.12 Fuzzy output: total costs per voyage . . . . . . . . . . . . . . 166
5.13 Fuzzy output: total income per voyage . . . . . . . . . . . . . 167
5.14 Fuzzy output: gross profit per voyage . . . . . . . . . . . . . 167
5.15 Fuzzy output: time charter equivalent . . . . . . . . . . . . . 168
5.16 Coverage measurement of J.E. Hyde Index - Route 1 . . . . 170
5.17 Coverage measurement of J.E. Hyde Index - Route 1 (con-
tinued) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
5.18 Tailor-made shipping index (normalized) . . . . . . . . . . . . 172
5.19 Tailor-made shipping index performance . . . . . . . . . . . . 173
5.20 Current stowage planning procedure [58] . . . . . . . . . . . 177
5.21 Methods applied stowage planning system developments . . 178
5.22 Procedure of C ASESTOW [58] . . . . . . . . . . . . . . . . . . 179
5.23 Similarity measurement . . . . . . . . . . . . . . . . . . . . . 180
5.24 Trapezoidal fuzzy membership function . . . . . . . . . . . . 180
5.25 Cross sectional similarity criteria . . . . . . . . . . . . . . . . 181
5.26 Longitudinal similarity criteria . . . . . . . . . . . . . . . . . . 183
5.27 Retrieval session . . . . . . . . . . . . . . . . . . . . . . . . . 184
5.28 Retrieved cases . . . . . . . . . . . . . . . . . . . . . . . . . 185
5.29 Transforming arrival plan into departure plan . . . . . . . . . 187
5.30 Contents of the casebase . . . . . . . . . . . . . . . . . . . . 187
List of Figures xiv
List of Tables
1.1 Vessels available for employment . . . . . . . . . . . . . . . . 4

1.2 Past fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Seaborne trade . . . . . . . . . . . . . . . . . . . . . . . . . . 14

2.2 Major and minor bulk cargoes . . . . . . . . . . . . . . . . . . 14
2.3 Major export and import areas . . . . . . . . . . . . . . . . . 15
2.4 Database of Time Charter Fixtures . . . . . . . . . . . . . . . 16
2.5 World Fleet . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.6 Shipment values . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.7 Ships: value assessment survey . . . . . . . . . . . . . . . . 29
2.8 Estimation survey by Pacific desk . . . . . . . . . . . . . . . . 30
2.9 Estimation survey by Pacific desk . . . . . . . . . . . . . . . . 31
2.10 Correlation of time charter fixtures of Concept Carriers . . . . 31
2.11 Bunker price . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.12 Actual bunker price in Rotterdam . . . . . . . . . . . . . . . . 41
2.13 Bulk carriers’ fleet according to practitioners . . . . . . . . . 61
2.14 Trades and activities of Egon Oldendorff in 2000 . . . . . . . 65
2.15 Trades and activities of Oldendorff Carriers in 2004 . . . . . . 66
3.1 MV Lucy Oldendorff: a chartering negotiation summary . . . 80

3.2 Usage of information . . . . . . . . . . . . . . . . . . . . . . . 82
3.3 Availability of information . . . . . . . . . . . . . . . . . . . . 82
3.5 Lorentzen-Stemoco Handy Size Outlook . . . . . . . . . . . . 86
3.7 Lorentzen-Stemoco Panama Outlook . . . . . . . . . . . . . 87
3.9 J.E. Hyde Shipping Index . . . . . . . . . . . . . . . . . . . . 88
3.10 Baltic Index panelists . . . . . . . . . . . . . . . . . . . . . . . 92
3.11 Sensitivity analysis of a V/C negotiation . . . . . . . . . . . . 94
3.12 Pay-off and loss tables . . . . . . . . . . . . . . . . . . . . . . 98
3.13 Applying the probabilistic pay-off and loss tables . . . . . . . 101
4.1 Crisp relation table ’fit to’ . . . . . . . . . . . . . . . . . . . . 130

4.2 Fuzzy relation table ’fit to’ . . . . . . . . . . . . . . . . . . . . 130
4.3 Crisp equivalence relation . . . . . . . . . . . . . . . . . . . . 130
4.4 Fuzzy equivalence relation . . . . . . . . . . . . . . . . . . . 131
xv
List of Tables xvi
4.5 Attributes versus error . . . . . . . . . . . . . . . . . . . . . . 141

4.6 Number of bedrooms - fuzzy relation . . . . . . . . . . . . . . 142
4.7 Nominal attribute similarity table . . . . . . . . . . . . . . . . 144
5.2 Calculation sessions . . . . . . . . . . . . . . . . . . . . . . . 158

Part I
Observations
1
Chapter 1
Introduction
1.1 Motivation
1.1.1 Few scenes from shipping practice
Chartering is the heart of bulk shipping. Ships are chartered-in and chartered-
out everyday. Bulk shipping plays an important role in the world economy,
as bulk carriers transport most of cargoes world wide. It is a very economi-
cal transport mode.
Intensive exchange of information marks the activity of chartering and
operations departments everyday. A ship practitioner, either in chartering or
operations department, communicates endlessly with brokers, cargo own-
ers, agents and partner shipping companies, through phone conversations,
faxes, e-mails and postal letters. Messages containing cargo owners seek-
ing suitable tonnage or ship owners seeking for employment for their ves-
sels is received and transmitted daily. In many cases such messages are
sent by brokers.
Besides, information from newspaper or television concerning the oil
not suitable
ships
suitable
ships
Figure 1.1: Suitable and not suitable ships
3
1.1. Motivation 4
MV KALKAYAN MV HANDY ISLANDER

TUR FLAG/ 1977 LGR MAN 1985
27306 MTONS ON 10.594 MTRS 26584 DWT ON 9.54 M
GRT/NRT 16050/8665 G 33917 CBM
LOA/BEAM 177.3/22.84 5 HH, 4 X 30 CR
GR 1116276/BALE 1060742 12.5 / 19 + 1.5 MDO
4X15T ALL ABT
LR 100A1 - PANDI MUTUAL OPEN HAMBURG
11.5 KNOTS ON 24MTONS IFO 180CST
+ 2MTONS AT PORT
OPEN GLASGOW
Table 1.1: Vessels available for employment
price, world economy, events, usually political ones, which may affect the
world trade, fuel price is followed closely. Most of messages received do
not contain something useful. One needs to filter out useless messages
from unreliable sources or messages containing irrelevant topics. The most
useful and compact information is still scarce and expensive.
This section portrays three scenes describing the tasks in ship charter-
ing and operations. Firstly, consider the following conversation in a char-
tering department:
We see an opportunity to obtain cargo from Rotterdam to Mum-

bai. Can you find us a suitable 40.000 dwt bulker 1 ?
From the pile of faxes and e-mails received, a chartering staff will find nu-
merous ships available for charter. The message is usually brief containing
a summary of the particulars of the ship and its position when available, as
shown in Table 1.1.
From the ships offered to him, he will make a selection. Few can be
viewed as suitable ships and the remaining are not suitable ones, as shown
in Figure 1.1. What has he been doing actually? Can one categorize those
ships simply into suitable and not suitable ships? Can one do that objec-
tively? On which considerations does he base his selection? How well can
current methods address the above situation?
In the following steps, as the negotiation has been started, he has ex-
changed some information with the broker. More details become available
for both parties, i.e. charterers’ and owners’ wishes, expectations or prefer-
ences2 . The size of information available to both parties grows. It becomes
1
a synonym to bulk carrier, a ship carrying dry bulk/ unpacked cargoes
2
The plural forms of ’owner’ and ’charterer’ are often used in communications, i.e. own-
ers/ ship owners and charterers, though those usually denote a single organisation (one
ship owner or one charterer)
5 Chapter 1. Introduction
less suitable not suitable

ships ships
more suitable
ships
Figure 1.2: More suitable, less suitable and not suitable ships
evident that he needs to narrow his selections. Among the suitable ships,
one can divide into two finer groups, more suitable or less suitable ships,
see Figure 1.2. The process goes on until he finds the most suitable one.
The above tasks teach us the idea of grouping as a part of decision
making task. It is a task of grouping of ships into suitable and not suitable
ships, or in a finer fashion. The concept ’suitable’ reflects the degree of
preference of the chartering practitioner. The immediate striking question
lies before us. The concept ’compatible’ will be used to embrace concepts
such as ’suitable’ 3 .
Consider now the second situation. A ship practitioner is seeking a ship.
His ship broker offers him a ship available for employment, with following
brief particulars:
MV FOREST CHAMPION
LGR, PAN, 1993
26472 DWT ON 9.54 M
G 33917 CBM
14/22 + 2 MDO
ALL ABT
OPEN GLASGOW
Few brokers and shipping consultants publish recent charter fixtures

regularly and distribute them to their clients. Such a report contains brief
information on ship, her delivery and redelivery ports and reported charter
hire, as shown in Table 1.2.
He wants to have an idea on the prevailing charter rate of MV F OREST
C HAMPION. As, an experienced practitioner can guess the charter hire of
MV F OREST C HAMPION well and quickly. He does not need any mathemat-
ical equations. He simply knows it. He would say, for example, a charter
3
Compatibility means the capability of existing or performing in harmonious or congenial
combination [3]; more on this, see Chapter 4 and Glossary.
1.1. Motivation 6
MV IRA MV ARISTOTELES MV ERMIONI

1979, 26697 TDW 1985, 23286 TDW 1977, 66157 TDW
DEL SPORE DEL NORTH CHINA DEL US GULF
REDEL KOSICHANG REDEL TAIWAN REDEL SKAW/
VIA PADANG 13 K, 18 T CAPE PASSERO
14 K, 24 T PROMPT 14 K, 38 T
PROMPT US$ 6500/DAY PROMPT
TRIP OUT TRIP OUT + 175500 BONUS
US$ 5500 / DAY US$ 9000 / DAY
Table 1.2: Past fixtures
hire of about $ 6,000 / day would be appropriate for that ship. In other
words, a charter hire of approximately $ 6,000 is compatible to such a ship.
The third situation. It may appear that a ship, say MV F OREST C HAM -
PION , serving a route regularly has to be docked soon. Another vessel
must replace her. The task is to find the most suitable vessel to replace
her. Ships having similar characteristics to her are strong candidates. But
this criterion is far from adequate. The most compatible ship must comply
with an array of criteria such as having a reasonable charter hire and her
current location must be in the vicinity of MV F OREST C HAMPION ’ S current
sailing area.
1.1.2 State of the art of shipping research

The above illustrations can be summarized as follows:
Situation 1. Determination of a ship suitable for a certain route or trade.
Its solution can be expressed, for example, as follows: “MV K ALKAYAN is
suitable to this trip Rotterdam-Mumbai”.
Situation 2. Determination of a ship’s value (charter rate). Its solution
can be expressed, for example, as follows: “Current charter hire of MV
F OREST C HAMPION is approximately $ 6,000/day”, in other words “I sup-
pose assuming the charter hire of MV F OREST C HAMPION US$ 6,000/day
is appropriate”.
Situation 3. Determination of a replacement ship. Its line of reason-
ing can be expressed, for example, as follows: “MV X’ & MV Y’s design
characteristics are similar to those of MV F OREST C HAMPION. The loca-
tion of the MV X’s delivery port is closer than that of MV Y to MV F OREST
C HAMPION ’ S redelivery port. So MV X is more suitable one to replace her”
Shipping research is apparently interested in the second situation, name-
ly the value assessment task; the remaining situations do not seem to
attract attention. Newbuilding and second hand prices, time and voyage
charter rates are affected very much by numerous factors, from supply and
demand of ships, exchange rates, fuel price till macro economy [46]. This is
an initial sign that shipping is a complex system. Efforts have been under-
taken to address valuation problems in shipping. A valuation task focusing
on the future is called forecasting. Beenstock, Vergottis, Wergeland and
Tang, to name a few, developed forecasting models, which might help us to
predict the future charter rate movements of a market segment [8, 23, 75].
This market segment means a set of ships of a range of sizes, operating in
few standard main routes. Those forecasts are of use for macro-economic
analysis purposes, but as we will find later in Chapter 2, those forecasts
are of a little use in shipping practice.
Resources such as shipping indexes are published regularly. Indexing
is in fact an attempt to describe the whole shipping market using few main
shipping trades. Those may give an adequate overview of the whole ship-
ping market, but a chartering staff cannot rely very much on those indexes.
Most of routes or trades are very specific, whilst those indexes are too gen-
eral to be practicable. Therefore the shipping indexes are not much of use
in conducting daily chartering negotiations.
Intuition plays an important role in shipping practice. Various tasks con-
cerning the value assessment and decision making in operations, charter-
ing and sales and purchase involve intuitive judgments. Datz adds [16]:
In examining the decision-making processes associated with

merchant fleet operations one is struck by its great reliance on
intuitive type judgment. Management appears to be more of an
art than a science. Traditionally it has been conceived as an
esoteric process occurring within the mind of skilled manager.
The role of intuition and experience has been widely acknowledged [46,
63]. But efforts to understand and to make use of it seem to be non ex-
istent. Shipping research seems to have been marked with its preference
for quantitative methods, statistics and operation research [23, 79, 75]. Ad-
land and Pace’s efforts to address the valuation tasks in shipping illustrate
this view very clearly [60, 5]. Terms such as intuition and experience are
vague and subjective. Those seem to be less accessible to many. Many
researchers do not consider those aspects seriously.
Decision making is a process of determining an action. In real world, the
situations are far less than ideal. There are many things which are unknown
or partially known. The probabilities of certain events are not always avail-
able. Therefore, Simon argues in his Theory of Bounded Rationality, that
it is hardly possible to make decisions rationally [72, 71]. Goncalves’ ar-
gument that shipowners do not make decisions rationally confirms Simon’s
view [27]. In spite of his advocation for using mathematical approaches,
Adland admits that the results can not yet challenge the existing intuitive
valuation method in shipping [5].
1.2. Hypothesis and problem formulation 8
Shipping practitioners are exposed to situations, in which no tools are

available which support them to conduct their job. Nevertheless, in spite
of the complexity of shipping system, they can do many tasks well and
quickly, based on experience and intuition, ranging from assessing port and
cargo handling performance, charter rate estimation, voyage performance
till stowage planning.
The above illustrates that today’s shipping research has not been ad-
dressing problems living in daily shipping practice adequately. This re-
search aims at contributing to address daily shipping problems, through
building a sound foundation, before making the next step to make a solu-
tion tool.
The choice of method follows after elaborating the state of problems.
Apparently this ’journey’ has produced a way of looking at shipping prob-
lems, which differs from the main stream of shipping research undertakings
today.
1.2 Hypothesis and problem formulation

1.2.1 Hypothesis
The above three situations share one thing in common, namely the concept
of compatibility. The concept of compatibility involves the notion of uncer-
tainty, which is not a probability concept [36]. It is not a probability of an
event that a ship is compatible to a particular route or not. The concept of
compatibility involves a concept of imprecision, inexactness or vagueness.
Analogously, the meaning of a suitable ship or an appropriate price or a
low charter hire or about $ 6,000/day is imprecise or vague. As we will find
in Chapter 2, an experienced ship practitioner knows instantly, if a ship is
suitable for a certain route or not. Those concepts are often to be inter-
preted contextually. A fresh graduate of a shipping school does not know if
a charter hire of $ 6,000/day is low, moderate or high. Therefore knowing
the context involves knowledge. This leads to the first hypothesis:
Concept of compatibility is related to or contains information or

knowledge on shipping.
It makes difference whether someone is an experienced shipping practi-

tioner or not. Being experienced can be viewed as having done and mem-
orized many problem-solving situations. Experience is a form of knowledge
accumulation. And knowledge is useful to solve problems. If the first hy-
pothesis is correct then, the second hypothesis:
Applying the concept of compatibility opens a new perspective

to address shipping problems.
Findings from
shipping practice
Understanding
Proposed
the concept of
implementations
State of the art compatibility
of shipping research
Figure 1.3: Research focus
1.2.2 Problem formulation

The above hypothesis can be summarized as follows: Firstly, “what do we
understand under compatibility?” Secondly, “what can we do about it”?
The following array of questions describe the steps conducted:
How are shipping tasks conducted? What are the tasks in shipping?
Which tools and resources are used today? How well do they serve the
needs?
Research: state of the art and views. What is the contribution of ship-
ping research to address tasks in shipping. How well are their methods
used in practice? How is the view of the research community concerning
the way to address the problem?
Survey of methods. Which direction should we look at? From whom or
from where can we obtain ideas? What can we learn from successes and
failures from the past research or applications, when necessary of domains
other than shipping? Does experience really matter? What is experience?
What is intuition? What is imprecision?
Building the concept. What is the concept of compatibility? Why does
this concept offer a promising perspective towards addressing the prob-
lem?
Demonstrating its usage. Few preliminary implementations are intro-
duced.
1.3 Scope and structure
1.3.1 Scope of work

The daily running of shipping business stands on the foreground of this
research. This involves all activities related to daily decision making, in
particular (but not merely) in the operational management level in the fields
of chartering and operations.
1.3. Scope and structure 10
A five-month field research was conducted in 2000 at Egon Oldendorff

shipping company in Lübeck. Egon Oldendorff owns and operates some
200 ships of 10,000 dwt and above of various types, mainly bulk carriers
trading worldwide. They own also other types of vessels from multipurpose
ships till ferries, which are chartered out. Furthermore, few scenes are
recalled from the author’s previous job at the chartering and operations
desk at Meratus shipping company in Surabaya, Indonesia, in 1994-1997.
Meratus owns and operates multipurpose and container ships in South East
Asian waters. It is soon evident that there is no strict distinction between a
plain bulk carrier and a multi-purpose tween-deck ship, from the chartering
viewpoints. Therefore the topics elaborated in the research, to some extent,
are applicable to other types of ships.
The study presents empirical findings on the way few shipping tasks are
conducted, on how much the shipping research has contributed to address
shipping practice’s problems. Furthermore it outlines the needs for consid-
ering more natural and human aspects in developing of tools or methods
addressing shipping problems, and it appeals for having an eye on the
Artificial Intelligence (AI), in order to raise our insight on the concept of
compatibility.
The emphasis is put on enhancing our understanding on the concept of
compatibility supported by empirical findings from shipping practice and by
existing theories and methodologies, see Figure 1.3.
1.3.2 Report structure
This thesis consists of six chapters, structured as follows:

Chapter 2 starts with an overview of the bulk shipping sector, size of
supply and demand. It portrays few scenes showing the tasks to run the
shipping business. This involves tasks which support decision-making. A
special attention is paid to the chartering and operations matters.
Chapter 3 elaborates the efforts for understanding shipping tasks. A
reconstruction of chartering negotiations is made to show aspects and con-
siderations which play a role in negotiations. A striking question now is
how do the shipping research papers view those? What do they propose
to solve the problems of valuation and decision making?
Chapter 4 raises a question concerning the choice of directions and, in
turn, the choice of methods. Learning from the ’failure’ of previous efforts,
it becomes evident that the complexity of the shipping problems has not
been adequately addressed. This complexity deals a.o. with imprecision,
knowledge intensity. Attention is paid to understanding the tasks, the en-
vironment in which those tasks are conducted. This leads to a survey into
the world of AI methods, which is then followed with a few implementations
from our ’neighbors’.
Chapter 5 presents the concept of compatibility and its implementa-

tions. It elaborates the ’anatomy’ of the concept of compatibility and how
it is used and interpreted. The implementation is enabled using estab-
lished methods, in particular, Fuzzy Set Theory and Case-Based Reason-
ing. Tasks in shipping are addressed implementing the idea of this con-
cept: shipping index coverage measurement, voyage estimation, tailor-
made shipping index and stowage planning.
1.3. Scope and structure 12
Chapter 2
Nature of Dry Bulk Shipping
2.1 Dry bulk shipping
2.1.1 Definition
From the size of shipment, the carriage of cargoes can be divided into two
main categories, partial or full shipments. In partial shipments, a ship car-
ries a number of cargo units, or cargoes belong to more than one shippers.
Such a cargo is called general cargo or break bulk cargo. In the second
category, cargoes are shipped as a homogeneous mass, usually without
packing and in large quantities or bulk. Its shipment is also known as a
“one ship, one cargo” shipment. This cargo is called bulk cargo. This cargo
can either be liquid, such as crude oil, product oil, liquefied gas or dry, such
as coal and iron ore. An additional class of cargoes, called neo-bulk, are
a combination of both definitions mentioned earlier. Neo bulk cargoes are
physically break bulk cargoes usually packaged; but those are shipped in
large quantities, such as coils or bundled wood products1 . Unless stated
otherwise, the term ’bulk’ in this thesis refers to the dry bulk.
The physical manifestation of the cargo determines the type of ship
used to carry it. Tanker and bulk carrier are ships used to carry liquid and
dry bulk cargoes respectively. A multipurpose dry cargo vessel is used to
transport break bulk cargoes. Other types of ships denoting the combi-
nation of types, such as Ore Bulk Oil (OBO) carrier, or emphasizing spe-
cific feature of the ship, such as self-unloader (for a bulk carrier having
own discharging gear on board) are also used widely in practice. MPTW
stands for a multipurpose tween deck ship, OHBS stands for open hatch
bulk ship). Unfortunately the categorization of cargoes and types of ships
used in statistics and in practice involves some inconsistency [47].
1
For a more details, see [47, 73, 80].
13
2.1. Dry bulk shipping 14
C OMMODITY MILLION % BILLION %

TONNES TONNES -
MILES
Iron ore 475 8.6% 2700 11.6%
Coal 575 10.4% 2570 11.1%
Grain 220 4.0% 1250 5.4%
Crude oil 1565 28.2% 7860 33.8%
Oil products 422 7.6% 2090 9.0%
Other cargoes 2292 41.3% 6781 29.2%
Total 5549 100 23251 100
Table 2.1: Seaborne trade 2002 [83]
M AJOR BULKS M INOR BULKS

iron ore bauxite/alumina
coal phosphate rock
grain agribulk
fertilizer
iron and steel
forest products
other ores and miner-
als
Table 2.2: Major and minor bulk cargoes [80]
2.1.2 Seaborne trade

Approximately 60% and 70 % of all cargoes, in tonnes and tonnes-miles
respectively, carried across the oceans in 2002 were dry and wet bulk car-
goes, as shown in Table 2.1. The transport of three major dry bulk cargoes,
iron ore, coal and grain, contribute some 22.9% and 28.0% of the total
transported cargoes in tonnes and tonnes-miles respectively. Seaborne
bulk commodities are divided into two groups, major and minor bulk car-
goes [80], see Table 2.2.
The nature of bulk shipping is to transport large shipments of cargoes
from and to almost any ports in the world. It has no fixed schedule, as
known in liner shipping. A bulk shipping company usually has a lean shore
organization. The handling of shipowners’ matters at those remote ports
are handled by owners-appointed agent.
Table 2.3 shows major export and import areas of dry bulk commodities.
Some 16 major export areas and 8 import areas dominate the dry bulk
cargo carriage world wide.
15 Chapter 2. Nature of Dry Bulk Shipping
M AJOR EX - mill dwt %

PORT AREAS
IRON ORE
Brazil 151.1 13.0
West Aus- 119.6 10.3
tralia
India 94.5 8.2
South Africa 23.0 2.0
Venezuela 5.7 0.5 M AJOR IM - mill dwt %
COAL PORT AREAS
East Australia 179.9 15.5 Western 531.4 34.6
South Africa 78.7 6.8 Europe
Indonesia 59.3 5.1 Japan 373.7 24.4
Columbia 35.0 3.0 China 211.1 13.8
Poland 22.1 1.9 South Korea 131.2 8.6
Hampton 8.1 0.7 Black Sea 90.6 5.9
Roads Taiwan 75.4 4.9
GRAIN Hong Kong 70.2 4.6
US Gulf 130.3 11.2 Baltic/ Former 48.8 3.2
River Plate 46.6 4.0 USSR
Australia 22.6 1.9 Total 1532.4 100.0
PHOSPHATE
Morocco 24.3 2.1
OTHER
BULK
Canada 116.0 10.0
Australia 42.3 3.6
(rest)
Total 1159.1 100.0
Table 2.3: Major export and import areas of dry bulk commodities [83]
F IELDS
Week ending
Port of delivery
Port of redelivery
Name of vessel
Year of built
Deadweight
Speed
Fuel consumption
Date of laycan
Terms
Charter rate
Charterer
Table 2.4: Database fields of Time Charter Fixtures 1997-1999 [50, 51,
52]
Database of charter fixtures
The transportation of cargoes are arranged by conducting chartering ne-

gotiations, see later in Section 2.2. The result of a negotiation, a charter
fixture, is officially documented in Charter Parties. Many, not all, charter fix-
tures are published by ship brokers and some research institutions, daily,
weekly, monthly or annually.
This Chapter presents analysis based upon the annual time charter fix-
tures of Maritime Research Inc 1997-1999. 8181 time charter fixtures are
contained in this database. The aim is to obtain an insight on the dry bulk
shipping, in particular the time charter sector. The original table structure
containing ten columns is cumbersome. The fourth and sixth columns con-
tain different data types, vessel name & years of built and main engine’s &
auxiliary engine’s fuel consumptions respectively. Each of both columns is
then split into two columns. After renaming them, the table now consists of
twelve columns or fields, as shown in Table 2.423 .
2.1.3 World Fleet

Table 2.5 shows the fleet composition of ships of over 500 dwt size. In terms
of number General Cargo ships dominate the world fleet. But in terms of
the capacity, expressed in deadweight, tankers and bulk carriers compose
about 80% of the total world fleet.
2
Not all fixtures contain a complete data set. All data are input manually.
3
Laycan: laytime canceling
Figure 2.1: MV L UISE O LDENDORFF

S HIP TYPES N UMBER % 1000 DWT %

Bulk carriers 5,970 15.15 284,066 34.80
OBO carriers 183 0.46 12,789 1.57
Oil tankers 7,937 18.77 305,248 37.39
Chemical tankers 1,290 3.27 8,334 1.02
Liquid gas tankers 1,120 2.84 19,594 2.40
Container ships 2,905 7.37 83,744 10.26
General cargo ships 16,668 42.29 96,754 11.85
Passenger ships 3,882 9.85 5,856 0.72
Total 39,415 100.00 816385 100.00
Table 2.5: World fleet 2002 [83]
Figure 2.2: MV C AROLINE O LDENDORFF

Number of
ports of call
Deadweight
Figure 2.3: Number of ports of call versus size of ship
Bulk carrier is a ship used to carry dry bulk cargoes. Figure 2.1 shows
MV L UISE O LDENDORFF , a Panamax class bulk carrier. She was built at
Samsung Heavy Industries, South Korea, delivered in 1994. She is gear-
less, has a deadweight of 72,873 tdw and seven cargo holds with average
volume of about 11,500 cbm. The vessel’s construction is strengthened and
capable to carry heavy cargoes. Her overall length is 224.95 m, breadth
32.24 m.
MV C AROLINE O LDENDORFF , a handy size bulk carrier of 22,159 is a
tdw, see Figure 2.2. She is log-fitted, built in 1993 at Onomichi Shipyard,
Japan. She is equipped with four cranes of each 30 t lifting capacity. Fur-
ther principal dimensions: overall length is 157.50 m, breadth 25.00 m.
A ship has basically three main functionalities namely: (a) holding car-
goes (b) moving cargoes from port to port (c) transferring from ship to
shore and vice versa (optional). Deriving from the above, the following de-
sign aspects of utmost important: (a) size of cargo spaces (b) power of
main engine, speed of ship and its fuel consumptions (c) cargo gear, such
as a crane or self-unloading belt conveyor.
Speeds of Handymax bulk carriers vary between 10 and 19 knots. The
speed of Handymax bulk carriers vary between 10 to 19 knots. Few op-
erators prefer to have speedier ships in return for more potential carrying
capacity (in ton miles annually).
According to its size, bulk carrier sector can be divided into three classes:
Handy size, Panamax and Cape size. Handy size bulk carriers have a size
of 10,000-50,000 dwt. Panamax bulk carriers have the maximum size for
passing the Panama Canal, which is restricted to a width of 32.25 m. Their
typical deadweight is approximately 60-80,000 dwt. Cape size is the largest
2.2. Chartering and Sale & Purchase 20
Time Charter Hire 1997-1999

30000
25000
Time Charter Hire (US$ /day)
20000
15000
10000
5000
0
01/97 04/97 07/97 10/97 01/98 04/98 07/98 10/98 01/99 04/99 07/99 10/99
Date
Figure 2.4: Development of T/C rates (1997-1999) [50, 51, 52]
ship’s class. All ships beyond the Panamax class are categorized into this
class, their deadweight is usually over 100,000 dwt.
2.2 Chartering and Sale & Purchase
Figure 2.4 shows the development of time charter fixtures 1997-1999. This
section highlights the time charter fixtures for all bulk shipping segments,
Handy size, Panamax and Cape size. From the chartering and opera-
tions viewpoints, the way the chartering negotiations, the operations are
managed, there is basically no difference between all the above-mentioned
segments. A separate detailed analysis for each segment is less relevant
and goes beyond the scope of the research. Figures 2.5 and 2.6 show the
sizes (deadweight) and speeds of vessels deployed in charter market.
Ships are employed until approximately they reach the age of 27 years,
see Figure 2.7. Figure 2.8 shows the relation between the age of the ves-
sels and their charter hire. Whilst the relations between the fuel consump-
tions of the main engine and time charter rate and ship’s deadweight are
shown in Figures 2.9 and 2.10.

250000
200000
Deadweight (ton)
150000
100000
50000
0
01/97 01/98 01/99 01/00
Date
Figure 2.5: Deployed deadweight (1997-1999) [50, 51, 52]

19
18
17
16
Speed (knots)
15
14
13
12
11
10
01/97 01/98 01/99 01/00
Date
Figure 2.6: Deployed speed (1997-1999) [50, 51, 52]


40
35
30
25
Age (years)
20
15
10
0
01/97 01/98 01/99 01/00
Date
Figure 2.7: Age of ships deployed (1997-1999) [50, 51, 52]
Time Charter 1997-1999

30000
25000
Time Charter Hire (US$/day)
20000
15000
10000
5000
0
0 5 10 15 20 25 30 35 40
Age (years)
Figure 2.8: Age versus Time Charter rate [50, 51, 52]

25000
20000
15000
10000
5000
0
10 20 30 40 50 60 70 80
Fuel consumption (ton/day)
Figure 2.9: Main engine fuel consumption versus T/C rate [50, 51, 52]

80
70
60
Fuel consumption (ton/day)
50
40
30
20
10
0
0 50000 100000 150000 200000 250000
Deadweight (ton)
Figure 2.10: Deadweight versus ME fuel consumption [50, 51, 52]


40
35
30
25
Age (years)
20
15
10
0
0 50000 100000 150000 200000 250000
Deadweight (ton)
Figure 2.11: Deadweight versus age [50, 51, 52]

30000
25000
20000
15000
10000
5000
0
0 50000 100000 150000 200000 250000
Deadweight (ton)
Figure 2.12: Deadweight versus T/C rate [50, 51, 52]


20
18
16
Speed (knots)
14
12
10
8
0 50000 100000 150000 200000 250000
Deadweight (ton)
Figure 2.13: Deadweight versus speed [50, 51, 52]
Time Charter Index 1997-1999

270
260
250
240
230
220
210
200
190
01/97 04/97 07/97 10/97 01/98 04/98 07/98 10/98 01/99 04/99 07/99 10/99
Date
Figure 2.14: Time Charter Index [50, 51, 52]

2.2.1 Chartering
Chartering is a basic form in shipping. A ship is hired from a shipowner
to a charterer either directly or through one or more brokers. A charter
party is an agreement which states the details of the terms and conditions
concerning the operations of the ship.
Two types of Charter Parties dominate the chartering market4 : (a) Time
Charter consisting of Trip Time and Period Time Charters and (b) Voyage
Charter. In a Time Charter Party, a vessel is hired for a specified period of
time for payment of a daily, monthly or annual fee. In its first variant, Trip
Time Charter Party, the vessel is chartered on the basis of a time charter
period of a specified voyage and for the carriage of a specified cargo. The
shipowner earns a lump-sum per day for the period determined by the voy-
age. Whilst in its second variant, Period Time Charter Party, the ship earns
a daily hire, paid monthly or semi monthly in advance. The shipowner re-
tains possession and mans and operates the ship under instructions of the
charterer who pays voyage costs, including bunkers.
In the Dry Voyage Charter Party, the ship earns freight per ton of cargo
transported on terms, set out in the charter party, which specifies the pre-
cise nature and volume of cargo, the ports of loading and discharge and
the lay-time and demurrage. All costs are paid by owners.
In order to conduct chartering, a party which helps smoothen the ne-
gotiation between shipowners and charterers is called a broker. There are
three types of broker, (a) owners’ broker (b) cargo broker (c) competitive
broker [81]. An owners’ broker acts in the best interest of the shipowners
and is often a part of a shipping company. A cargo broker acts in the direct
interest of the owner of the cargo ad is often a part of its organization. A
competitive broker has no links with either the owner of the ship nor the
owner of the cargo. He acts as a pure intermediary with the only objec-
tive of concluding a deal, a fixture and earns his 1.25% commission of the
freight revenues.
Shipping costs
There are four cost categories distinguished in the running of ships. These
are [73, 81]:
1. Capital costs, which cover interest and capital repayments and are
determined by the way in which the ship has been financed.
2. Operating costs, which constitute the expenses involved in the day-
to-day running of the ship such as including manning costs, stores
and maintenance.
4
Other types of charter parties, such as Bareboat Charter Party, are not elaborated in
this research, as this type of Charter Party does not occur frequently.
No Bad paying cargoes Good paying cargoes

1 Petcoke All forest products
2 Rice Glass
3 Fertilizer Rubber
4 Cement & clinkers Hot briquette iron (RDI)
5 Scrap
Table 2.6: Shipment values of few cargo examples5
3. Voyage costs, which comprise the variable costs associated with the
actual sailing of the ship, such as bunker, port charges and canal
dues.
4. Cargo handling costs, which are the costs for stowing, loading and
discharging of the cargo.
The first two costs, namely capital and operating costs, do not depend
on whether a sea voyage is made or not (i.e. voyage independent costs).
In contrast to the former, voyage and cargo handling costs are voyage de-
pendent costs, i.e. the costs arise only when a voyage is made.
Handy size bulk carriers contain numerous and non-standardized niches.
Market reports give an overview on the tendencies in the charter market.
Relevant events, such as oil prices, or some political events somewhere
are well considered. When it comes to a real negotiations, the market re-
ports are far from adequate. An aspect which plays an important role in the
assessments of shipping players (consultants, brokers and charterers) is
that the assessment is heavily affected by qualitative factors.
Shipment values
Cargoes have a range of properties, beside their inherent selling price.

Few may require careful handling, other cargoes do less. Cargoes which
require a good care (loading, discharging and during transport) and which
are transported in small quantities are generally high paying cargoes. Their
typical shipment size varies as well, see Table 2.6.
Back-haulage cargoes
When fixing a contract, a vessel can be delivered in any place in the world.
It is not unusual that a vessel has to perform a carriage to remote places,
meaning far away from cargo centers, i.e. ports or areas from which car-
goes are easily to be obtained. Therefore anticipating the period after the
redelivery of the vessel is important. At which level, a shipowner will be
willing to charter out his ship, depends upon the market situation.
Back-haulage cargoes is important in a depressed market. In

a rising market, it has to be short higher paying business to
justify tieing the ship up but the strategy is to get more back-
haul cargoes so we always look at this type of business.6
Basically you look at your result on a round voyage basis. In a
good market, the point is how to avoid areas where you poten-
tially would have difficulties to find cargoes.7
This shows that a ship’s geographical position determines its charter hire
value, besides the aspect of time. More precisely, the distance to the near-
est cargo center could be decisive in determining the charter rate of a ves-
sel.
Conducting value assessment tasks: a survey
Service is difficult to judge. In most markets the role of non-price variables

play a more important role. Therefore a task of assessing a situation is not
always easy, even for an experienced market researcher, like Lorentzen &
Stemoco :
The market of modern Handymaxes is getting increasingly diffi-

cult - even last week’s rate of very low USD 10’s for short period
unfixed and even with owners’ rats down to mid/high USD 9’s
failed to attract any interest. 8
The following survey was conducted to illustrate the difficulty of a value

assessment task. A list of ships taken from the inquiries received by the
chartering department is distributed to two handy size chartering desks of
Egon Oldendorff9 , i.e. the Pacific and Atlantic, see Table 2.7. For survey
purposes, the dates and ports of delivery of the ships are altered. All ships
are to be delivered in Japan and laycan dates are assumed to be prompt.
Both, Pacific and Atlantic desks, were asked to estimate the charter
hire values in two situations, all with a focus or involvement of the Pacific
market : (a) Delivery: Japan, redelivery: Madagascar with a voyage length
of about 45 days (b) Delivery: Japan, redelivery Singapore with a voyage
length of about 25 days. The assessment of the Pacific desk is shown in
Table 2.8 10 .
For all ships, the first situation (del/redel Japan/Madagascar) delivers
higher charter rates than the second one (del/redel Japan/ Singapore), all
6
Viveka Mansukhani, E-Mail and interview, 31 May 2000
7
Patrick Hutchins, interview, 9 May 2000.
8
Lorentzen & Stemoco - Weekly Market Outlook, 22 June 2000; USD 10’s means US$
10,000
9
Shipping company located in Lübec, see also seb-section 2.5.
10
Del: delivery, redel: redelivery
1. MV KALKAYAN 2. MV HANDY ISLANDER 3. MV FOREST CHAM-

PION
TUR FLAG/ 1977 LGR MAN 1985 LGR PAN 1993
27306 MTONS ON 10.594 26587 DWT ON 9.54 M 26584 DWT ON 9.54 M
MTRS
GRT/NRT 16050/8665 G 33917 CBM G 33917 CBM
LOA/BEAM 177.3/22.84 5 HH, 4 X 30 CR 5 HH, 4 X 30 CR
GR 1116276/BALE 12.5 / 19 + 1.5 MDO 14/22+2 MDO
1060742
4X15T ALL ABT ALL ABT
LR 100A1 - PANDI MU- OPEN JAPAN OPEN JAPAN
TUAL
11.5 KNOTS ON
24MTONS IFO 180CST
+ 2MTONS AT PORT
OPEN JAPAN; PREF DIR
MED/CONT
4. MV SEA BAISEN 5. MV ZI YUN SHAN 6. MV HUA NAN
LGR PAN 1998 PRC FLAG 1978 BLT PRC FLG BLT 1977
26637 DWT ON 9.51 M DWT 33633 MT ON 10.94 DWT 40542 ON 12.07 M
M SSW SSW
G 36782 G/B 41524/39142 CBM LOA/BEAM 183.7M/27.6M
5 HH - 4X 30 CR 5X15T SWL 5HX5H 16T/5 DRK
14/23+2 5HX5H GRAIN 47717 CBM
ALL ABT OPEN JAPAN, AA OPEN JAPAN, AA
OPEN JAPAN
7. MV FU AN CHENG
PAN FLG MPP 94 BLT
22765 MT ON 10 M SSW
LOA/BEAM 173.6/25.6M
GRAIN 33433 CNM
4HX7H 2X25T+2X20T CRN
SPEED ABT 15 KN ON
30 MT IFO+ 3MT MDO
OPEN JAPAN, AA
Table 2.7: List of ships: value assessment survey

Ship Del/redel Del/redel

Japan/ Japan/ Singapore
Madagascar
1. MV K ALKAVAN 6200 6000
2. MV H ANDY I SLANDER 6400 6200
3. MV F OREST C HAMPION 6900 6700
4. MV S EA B AISEN 6900 6700
5. MV Z I Y UN S HAN 6800 7000
6. MV H UA N AN 7500 7500
7. MV F UA A N C HENG 5900 5500
Table 2.8: Estimation survey by Pacific desk
are without ballast bonus. In Madagascar area, they believe, they would
face difficulty to find back-haulage cargoes. Therefore they would charge
a higher rate for redelivery in such an area. Though MV Z I Y UA S HAN is
larger than MV S EA B AISEN, the time charter rate of MV Z I Y UN S HAN
is lower than the later due to its age. Qualitative aspects such as their
perception on flags and reputation of the shipowners are not considered.
The Atlantic desk was represented by Sebastian Dohrendorff who has
been working at EO for six months at the time when the survey was con-
ducted. Two situations are considered: (a) Delivery: Hamburg, redelivery:
Le Havre via: Norfolk with a voyage length of about 45 days (b) Delivery:
Hamburg, redelivery Norfolk with a voyage length of about 25 days. A gen-
eral remark he made is that redelivery of the previous voyage in Japan
would make an unrealistically high charter hire or ballast bonus if the ves-
sel is to be put in service in Atlantic. Assumption is made that those ships
are to be redelivered in the vicinity of Hamburg in the previous voyage. His
assessment is shown in Table 2.9.
Dohrendorff suggests that the ones of the Concept Carriers (CC)11 must
know better the estimated values of all unanswered spaces. All have filled
out the questionnaire quickly, they do not need to use any calculator. It
shows that the capability of estimating charter values involves reoccur-
rence. The above valuation assessment task does not involve intensive
calculation processes. The one who has never been in touch with a simi-
lar case, would have a difficulty to assess the charter value. Recognizing
similar situations apparently have contributed very much to conduct an as-
sessment task intuitively and quickly.
Figures 2.15, 2.16 and 2.17 show the charter transactions of the Con-
cept Carriers (CC) in 2000. The vessels are time chartered-in vessels by
the Concept Carriers and chartered out, in this case, as period time charter
11
a subsidiary of Egon Oldendorff, see 2.5.
Ship Del/redel Del/redel

Japan/ Japan/ Singapore
Madagascar
1. MV K ALKAVAN n/a 5250
2. MV H ANDY I SLANDER 7000 6500
3. MV F OREST C HAMPION 7500 7000
4. MV S EA B AISEN 7500 7000
5. MV Z I Y UN S HAN n/a 6000
6. MV H UA N AN n/a n/a
7. MV F UA A N C HENG 6000 6000
Table 2.9: Estimation survey by Pacific desk
dwt yrblt period rate rate/dwt

dwt 1.00
yrblt 0.54 1.00
period -0.26 -0.24 1.00
rate -0.11 -0.33 0.61 1.00
rate/dwt -0.85 -0.60 0.45 0.53 1.00
Table 2.10: Correlation of time charter fixtures of Concept Carriers

Deadweight versus unit charter rate

0.4
CC vessels
0.35
Unit time charter hire ($/dwt_day)
0.3
0.25
0.2
0.15
0.1
0.05
20000 30000 40000 50000 60000 70000 80000
Deadweight (ton)
Figure 2.15: CC’s fixtures: dwt vs unit T/C rate
parties too. There is a tendency, as expected that a smaller ship tends to

have a higher unit charter hire. A glimpse at the correlation is shown by
the Table 2.10. A regression function showing the relation between dead-
weight and its unit charter hire, y = -0.2017 ln (x) + 2.3804, will produce a
very rough charter hire determination. In remaining paragraphs, only the
graphical relations will be presented.
Figure 2.16 shows that there is no relationship between the period of
charter and it charter hire value. As mentioned elsewhere in this chapter,
the choice of charter party, either time or voyage charter, may be affected
by the fuel price.
Figure 2.17 shows a slight relation between age of ship and it time char-
ter (T/C) rate meaning that age does not play a dominating role in deter-
mining the charter hire.
2.2.2 Sale & Purchase
The market values of the ship are estimated to decrease $ 500,000,- till
$ 1,100,000 annually, see Figure 2.21. Some still believe that the Greeks
are well-known for their outstanding knowledge on the movements of ships’
prices. The shipping community keeps watching closely when the Greeks
Period versus unit charter rate

0.4
CC vessels
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0 5 10 15 20 25 30 35 40
Period (months)
Figure 2.16: CC’s fixtures: period vs unit T/C rate
Age versus unit charter rate

0.4
CC vessels
0.35
0.3
0.25
0.2
0.15
0.1
0.05
-0.05
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998
Year of built
Figure 2.17: CC’s fixtures: age vs unit T/C rate

Deadweight versus unit income
EU vessels
0.5
0.4
Unit income ($/dwt_day)
0.3
0.2
0.1
10000 20000 30000 40000 50000 60000 70000 80000

Deadweight (ton)
Figure 2.18: EO’s fixtures: deadweight vs unit income
Deadweight versus unit operating costs

0.35
EO vessels
0.3
0.25
Unit operating cost ($/dwt_day)
0.2
0.15
0.1
0.05
0
10000 20000 30000 40000 50000 60000 70000 80000
Deadweight (ton)
Figure 2.19: EO’s fixtures: deadweight vs unit operating costs

Deadweight versus estimated unit market value

1100
1998
1000
900
800
Unit market value($/dwt)
700
600
500
400
300
200
100
10000 20000 30000 40000 50000 60000 70000 80000
Deadweight (ton)
Figure 2.20: EO’s fixtures: deadweight vs unit market values
Deadweight versus market value depreciation

3000
EO vessels
2500
Market value depreciation (x$1000/year)
2000
1500
1000
500
0
10000 20000 30000 40000 50000 60000 70000 80000
Deadweight (ton)
Figure 2.21: EO’s fixtures: deadweight vs market value depreciation

start selling or buying tonnage in a huge scale 12 . There is some rule of

thumb for estimating a ship’s price, e.g.:
The value of a Panamax bulk carrier drops about US$ 750,000

annually, meanwhile a Handy size Bulker US$ 500,000. And
a 15 year old vessel is valued about 31 of current new-building
price.
It is difficult to assess a ship’s value well. An experienced practitioner may

still need an independent opinion, e.g. from a ship broker. Valuation ser-
vices are provided by several shipping research companies, such as Clar-
ckson. An internet-based valuation services are also available today13 .
Important features as input are the type, age and size of vessel. For con-
ducting such a valuation task, they ask a fee of approximately $ 750. An
assessment for an identical sister ship needs a lower fee (negotiable).
An assessment is usually based on the main particulars of the vessel
and few other information such as age and the ship management. An as-
sessment sheet may start with the following wordings:
We have neither inspected the vessels nor their records - how-

ever under the assumption that the ships are reasonably kept
and there is a willing seller and willing buyer ...14 15
It implies that more details are needed to obtain more accurate assess-
ment16 .
Trade-off in freight rate might take place. For example in grain seasons
in South America, EO is willing to discount freight rate to South America,
for the sake of positioning the vessel in that region17 .
There are a lot of market niches in the handy bulk shipping. There
are many ships with specific properties. It covers properties such as the
suitability for log carriage or for container carriage, gear type and capacity.
It is difficult to estimate or assess charter rates reasonably. 18
Pistorius believes that Panamax on the other hand shows a cyclical pat-
tern. It has never reached a $12,000 level19 . An important main question
concerning running those vessels is how to route this type of vessel. Two
12
Peer Gröpper, interview, 22 May 2003
13
For example: www.bnp-paris.com and http://www.shipvalue.net/default.asp, down-
loaded 29 September 2003
14
Fax from Allship to EO, 2 June 2000
15
This implies, that if a site inspection were made, the values stated in the sheet might
differ.
16
From methodological point of view, see also Chapter 4, sub-section 4.4.1 and Table 4.5
17
Patrick Hutchins, interview
18
Mark Pistorius, interview on 4 July 2000
19
Compare with Wijnolst’s findings in [79]
Deadweight versus estimated market value

10
bulk
8
Estimated market value ($ million)
2
15000 20000 25000 30000 35000 40000 45000 50000 55000 60000 65000 70000
Deadweight (ton)
Figure 2.22: Allship’s estimation: deadweight vs price
Age versus estimated market value

10
bulk
8
Estimated market value ($ million)
2
2 4 6 8 10 12 14 16 18
Age (years)
Figure 2.23: Allship’s estimation: age vs price

2.3. Operations 38
Figure 2.24: Role of chartering and operations departments
alternatives are available either to stay at a port waiting for the right time
for fixing cargo at a reasonable rate or to position to more promising areas
20 .
Two VLCC21 tankers “ MV B ERGER F OREST” and “ MV B ERGER F IS -

TER ” were purchased in 1991 for US$ 35 million each. In May 2000 the
vessel was sold for US$ 8 million each to Egon Oldendorff. Within 9 years
its value dropped by US$ 27 million. The estimated scrapped value of the
vessels are US$ 6 million each. These ships have actually been tied since
March, subject to inspection. Since then the charter rate of VLCC rose from
US$ 25,000 to US$ 35,000. End of May the rate has risen even further up
to US$ 65,000 per day. EO gained a lot of profit from this deal by chartering
out the vessel immediately. And Clarckson praised it, and concluded the
article with “... shipping is all about timing”[13] .
2.3 Operations
2.3.1 Running
The chartering department represents the commercial face of the company.
The initiative and the main role in negotiation for ship’s employment are per-
formed by this department, see Figure 2.24. The duo between chartering
and operations department seems indispensable in running the shipping
20
Mark Pistorius, interview, 4 July 2000
21
Very Large Crude Carrier
business. As a chartering negotiation is opened, the role of chartering de-

partment is very dominating. After signing the Charter Party, as an agree-
ment of the employment of the ship, its role begins to decrease, and the
role of the operations department comes into the foreground.
Port disbursements and claims of a particular voyage or charter party
may take months even years to complete. Before all these payments are
settled, the operations department takes over ’the command’.
Handy size bulk carriers spend 25-30% of their time in ballast voyages,
Panamax 35-45%. It is difficult to mention a sailing condition ballast voyage
or not, since a vessel is very often only partially filled.22
Bunker prices of neighboring areas tend to be within a close range, see
Table 2.11. Bunker price is closely related to the preference for type of
Charter Party. If the bunker prices increase, the shipowners tend to let their
ship fixed in a Time Charter Party, releasing the exposure to the volatility of
bunker price, see Table 2.12.
Prices continue to escalate and any large increase will reflect

Owners’ concerns as to how to approach voyage business in
the days ahead. Of course Time Charterers will also have a say
in the matter and reflect the ’status quo in their rates. 25
2.3.2 Ship’s performance

General performance
What determines the economic performance of a ship? The following report

illustrates the situation:
Handysize - Pacific. This sector continues to move sideways,

however, there has been a slight dip in rates for the smaller ves-
sels, but modern handymaxes continue to attract good rates.
The market is currently fairly stable but a summer lull seems
quite likely.26
It raises a suspect, if a ship’s design characteristics determine very much

the commercial success of a ship. The design characteristics do not prove
to be the decisive factors for a ship’s commercial success [79].
Age of vessel does not reflect automatically her performance. It matters
a lot whether the vessel is owned or chartered-in. Chartered-in vessels
22
Mark Pistorius, interview, 4 July 2000. Patrick Hutchins estimates, on the other hand,
that Handy size bulk carriers spend 5-10% of their operational time in ballast. Meanwhile
Panamax vessels approximately 50%
25
Robert Matthews, J.E. Hyde London Freight Market Comment dated Friday 1 June
2000
26
Lorentzen & Stemoco, Weekly Market Outlook , 03/08/00
2.3. Operations 40
North Europe IFO380 IFO 180 MDO

Rotterdam 143 148 217
Antwerp 142 148 218
Hamburg 155 165 227
Le Havre 148 158 255
Gr. Belt 149 155 230
St. Petersburg 137 143 231
South Europe IFO380 IFO 180 MDO
Gibraltar 162 168 259
Genoa 160 167 253
Piraeus 155 164 240
Istanbul 164 169 249
North America IFO380 IFO 180 MDO
New York 145 151 274
Philadelphia 146 152 275
New Orleans 141 144 240
Houston 140 144 239
Los Angeles 159 165 253
Vancouver 199 204 285
South/Center America IFO380 IFO 180 MDO
Panama 164 175 282
St. Eustatius 166 171 298
Venezuela 144 149 272
Buenos Aires NA 185 268
Santos 158 162 292
Mid /East Africa IFO380 IFO 180 MDO
Suez 160 164 280
Jeddah NA 156 255
Fujairah 160 164 248
Kuwait 159 165 247
Durban NA 167 254
Las Palmas 166 172 253
East Asia IFO380 IFO 180 MDO
Singapore 165 169 232
Hong Kong 182 184 236
Tokyo 192 196 274
Korea 178 183 264
Melbourne 200 206 283
Table 2.11: Bunker price, 22-28 June 200023

Rotterdam IFO380 IFO 180 MDO MGO

24 May 2000 132 136 208 220
31 May 2000 142 149 213 225
Table 2.12: Actual bunker price in Rotterdam24
breakdown more frequently than owned vessels. Based on each vessel’s

performance, she is usually dedicated for a particular trade. The history
of vessel play also an important role in terms of their past cargoes and
records. 27
MV I RENE O LDENDORFF is a bulk carrier built in 1991 at DMS Ship-
yard, 66785 dwt, gearless. She is an old Panamax vessel (9 years old
in 2000) and a bad-maintained ship. Her value is low, therefore this ves-
sel is dedicated to carry low value cargoes, such as cement, clinkers or
coal. Nevertheless good paying cargoes, such as grain, will always be an-
other target, when available. To carry this type of cargo, the holds must be
cleanly swept, prior to loading28 .
Bad performing chartered vessels cause delays and in turn losses and
eventually claims. A current claim filed to a shipowner in London, amount-
ing $120,000.- is held by our company. This is a difficult area and gray area
in terms of interpretations, which needs energy and time to get it paid by
the owners.
There are only two types of vessels: badly and well-maintained

vessels. Every single ship has her own market niche. Second
hand vessels or older vessels perform better in economic terms
due to her lower fixed costs.29
Performance at port
In handy size sector, charterers play a very important role for achieving a
reasonable ship performance at ports of call. An owner’s protecting agent
is usually appointed to deal with charterer’s agent in order to achieve the
above goal. Saving is not that much at port and agency expenses, but
more on time-related costs, namely fixed costs (capital costs, fixed operat-
ing costs) 30 .
Time is an important factor which determines the profitability of a ship
operation. It is not easy to estimate port time. Port congestion, cargo han-
27
Mark Pistorius, interview, 4 July 2000; Gunnar Eisenecker & Jan-Henning Asmussen,
interview
28
Mark Pistorius, interview, 4 July 2000.
29
30
2.3. Operations 42
dling rate, weather, labor, to name a few, play an important role. Published
information can be helpful but it is far from adequate. Shipowners rely very
much on information provided by their local agent, since they have local
knowledge of the conditions 31 .
Tariffs at few ports are much more expensive. At these ports the ship
operators watch and guide the operations of their ship very carefully, since
they will pay in cash for any delay. Meanwhile at other cheaper ports,
operation staffs are ’allowed’ to be less careful. Most costs are actually
caused by the time-related fixed costs. Saving on unnecessary extra due
at expensive ports can be substantial:
“Japanese ports are very strict and very expensive. Laycan is

a very important cost factor. Wharfage costs for a Panamax
are about $ 10,000 per day. For the whole fleet, 240 voyages
are made annually. Our operational policy: if we have to pay
additionally $ 2000 for every voyage due to unpunctual laycan,
it means 240 x $2,000.- is approximately $ 0.5 million. It is a
scale effect, that everyone of us must realize”, 32
Every country and every port has its own typicality. A shipment to a partic-
ular port may experience things which make ship operators, shippers and
consignees care more about their operations in future.
Due to some recent cases we would like to remind Members

of the exacting standards of the Australian Quarantine and In-
spection Service (AQIS). Members should remind their crews
that “Grain Clean” now takes on a different meaning when trad-
ing to Australia.
The Club is presently involved in a case where just 13 grain
seeds were found in 19,000 mt of fertilizer and can confirm the
strong stance being taken by AQIS as it is likely this cargo will
be totally rejected.
As a consequence of this the cleaning standards for ships load-
ing Australia-bound fertilizers must now be extreme and metic-
ulous and require the use of mechanical lifts, “cherry pickers”
and water blasters. Each frame, beam and stiffener including
those at the upper extremities of the holds MUST be cleaned at
close quarters to ensure that not one grain of organic material
remains. 33
31
Mark Pistorius, e-mail, 14 August 2000.
32
33
Loss Prevention Bulletin - no. 147, 07/00 - New Standards of Hold Cleanliness + Re-
ceivers and Shippers Checklist - Australia
There was an issue in the year 2000, concerning the Asian gypsy moth.
Gypsy moth caterpillars decimate forests. The caterpillars feed on the
leaves of trees and shrubs. Masters/ owners of vessels which have called
at Russian far-east ports, China (north of latitude 30 degrees) Korea and
Japan (Hokkaido) between September and October should arrange for a
thorough inspection of their vessel to ensure that there are no egg masses
of larvae 34 . In relation to an on-going chartering negotiation a confirmation
of applying the above the so-called Gypsy Moth Clause can be necessary,
as illustrated by the following:
OWNS CONFIRM VSL HAS NOT CALLED CIS PACIFIC PORT(S)
BETWEEN 40 AND 60 DEGREES NORTH
BETWEEN JULY AND SEPTEMBER IN LAST TWO YEARS
GYPSY MOTH CLSE APPLY
35
Weather is an important factor which determines the operational perfor-

mance of a ship. At port cargo handling which depends heavily on shore
gangs will depend very much on weather situations. Those are an impor-
tant source of delay and cargo damage. In Vancouver, it rains 200 days
annually. A cautious planning for cargoes such as pulp or paper or even
timber, is of utmost important.36
For self-unloading bulk carriers equipped with discharging gears on
board, the consequences of harsh weather situations can be reduced. Those
vessels discharge cargo using scrapper or belt conveyor or pneumatic dis-
charging equipments; they can discharge cargoes such iron ore or grain
well, in almost any weather situations without shore gangs employed.
In spite of the company’s high dependence on its agent, it is not always
wise to rely too much upon it. By calling a particular port, a ship operator
must be aware of fraudulent practices, which appear in the bills showing
expenses for few services, for example:
In one case a Member received an invoice for garbage removal

in the Port Said. The invoice had apparently been signed by the
ship’s master and stamped with the ship’s stamp. On further
investigation the document was found to be fraudulent. The
master’s signature and the ship’s stamp had been scanned from
an official document.
Two weeks later the same Member received another fraudulent
invoice for a different ship.
34
An internal company circular, Section 6 “Asian Gypsy Moth”, page 33-34.
35
A draft Charter Party clause of MV B ALTIC M ERMAID; Markus Eller, e-mail 24 March
2000.
36
Mark Pistorius, interview on 4 July 2000
2.3. Operations 44
In an earlier case a more substantial sum was demanded from

a tanker operator for clean up costs following an oil spill which
had not occurred 37
Operation evaluation
A brief evaluation of 22 voyages, the estimated values when fixing the char-
ter parties and the actual values after the operations are entirely completed
are compared. The focus is paid to the predictability in terms of time (port
and sailing time) or money (income and result). Those are the main con-
cerns for all parties (chartering, operations and technical departments) in-
volved in a charter party agreed.
Port days are in general not easy to predict, in contrast to it, sailing
days are in general more predictable. Figure 2.25. Panamax vessels tend
to have longer voyages than the smaller Handy size bulk carriers. The
smaller vessels have more ports of choice to call, see Figure 2.26. Handy
size bulk carriers call more various types and sizes of ports. Their perfor-
mances concerning cargo handling speed, claims, waiting time and tariff
vary considerably. The types of cargoes are less uniform, involvement of
’new’ ports agents appears to be more frequent than in the case of Pana-
max vessels. It mounts in the form of low predictability of port time. Handy
size vessels’ port expenses are therefore less predictable than those of the
Panamax vessels, see Figure 2.27.
The difficulty to estimate the length of voyage is evident. Years of built of
vessels do not affect very much on the sailing time predictability very much,
see Figure 2.28. But the Handy size vessels’ sailing time predictability is
better than that of Panamax vessels, Figure 2.29. There is no guarantee
that younger vessels produce a higher result (gross profit per voyage), Fig-
ure 2.31. Voyage lengths of Panamax vessels are frequently longer than
estimated. The higher contribution of ballast voyages plays an important
role here, since the duration of ballast voyage is difficult to predict, see
Figure 2.34.
Figures 2.32 and 2.33 show that the actual result is less predictable
than the time charter equivalent. These confirm the low predictability of the
voyage duration and the need for having a capability to better estimate the
performance of ship at port, see also sub-section 2.3.3.
37
Joern Jentzsch, e-mail dated 4 July 2000 and Loss Prevention Bulletin, 146 - 06/00. A
member means a shipping company which hold a membership of the association issuing
the above-mentioned bulletin.
Deadweight versus sailing and port days
Sailing days
Port days
2.5
Actual/estimate of sailing and port days
1.5
0.5
0
10000 20000 30000 40000 50000 60000 70000 80000
Deadweight (ton)
Figure 2.25: Deadweight versus sailing and port days
Deadweight versus actual voyage days

90
EO vessels
80
70
60
Actual length of voyage
50
40
30
20
10
0
10000 20000 30000 40000 50000 60000 70000 80000
Deadweight (ton)
Figure 2.26: Deadweight versus actual length of voyage

2.3. Operations 46
Deadweight versus port expenses

2
Port expenses
1.5
Actual/estimate of port expenses
0.5
0
10000 20000 30000 40000 50000 60000 70000 80000
Deadweight (ton)
Figure 2.27: Deadweight versus actual/estimate of port expenses
Age versus actual/estimated voyage days

2.5
EO vessels
2
Actual/estimated length of voyage
1.5
0.5
0
1975 1980 1985 1990 1995 2000
Years of built
Figure 2.28: Age versus actual/estimate voyage length

Deadweight versus actual/estimated voyage days

2.5
EO vessels
2
Actual/estimated length of voyage
1.5
0.5
0
10000 20000 30000 40000 50000 60000 70000 80000
Deadweight (ton)
Figure 2.29: Deadweight versus actual/estimate of voyage length
Deadwight versus result

400000
EO vessels
200000
Actual result ($/voy)
-200000
-400000
-600000
10000 20000 30000 40000 50000 60000 70000 80000
Deadweight
Figure 2.30: Deadweight versus actual results

2.3. Operations 48
Age of ships versus result

400000
EO vessels
200000
Actual result ($/voy)
-200000
-400000
-600000
1975 1980 1985 1990 1995 2000
Years of built
Figure 2.31: Age versus actual results
Deadweight versus actual/estimated TCE and Result

10
tce
result
5
Actual/estimation
-5
-10
10000 20000 30000 40000 50000 60000 70000 80000
Deadweight (ton)
Figure 2.32: Deadweight versus actual/estimate of TCE and result

Age versus actual/estimated TCE and Result

10
tce
result
5
Actual/estimation
-5
-10
1975 1980 1985 1990 1995 2000
Years of built
Figure 2.33: Year of built versus actual/estimate of TCE and result
Deadweight versus ballast days

3
Ballast days
2.5
Actual/estimate of ballast days
1.5
0.5
0
10000 20000 30000 40000 50000 60000 70000 80000
Deadweight (ton)
Figure 2.34: Deadweight versus actual/estimate of ballast days

2.3. Operations 50
2.3.3 Maintaining knowledge as asset

Usage of programs
The company collects issues from practice concerning chartering, opera-

tions, legal and local issues, called ’Cargo Care’ and organize them sys-
tematically according their subject. The collected information has become
a knowledge asset for the company. This is useful in order to minimize the
occurrence of similar mistakes.
The usage of computer programs for conducting various tasks, from
voyage calculation and stability calculations have helped them very much.
But one must use it with a great care, as noted by Ian Barclay, a senior staff
of the operations department:
Most vessels have approved computer calculations on board

now, thank heavens. However is the case of all computers ’rub-
bish in .. rubbish out’. I have seen during my time some incredi-
ble false conclusions reached by these programs. Primarily be-
cause of limited information used. So my advice is look it over
carefully before submitting it 38
Re-education & information directory
To ensure that all parties, at least starting internally, appointed agents and
later the broker or partner charterer/shipowner, are performing the agree-
ment accordingly one may need to influence and reeducate others. Since
this could be a very important factors. Few terms may differently under-
stood and interpreted, with financial consequences. As an operation direc-
tor, Mark Pistorius, may need to interfere in very fundamental operational
and legal aspects in shipping.
We have lost money in the past through this misunderstanding

that we are forcing the issue with all charterers in an attempt to
re-educate and bring everyone into line. 39
Kindly note Jeanette has ascertained that Mr. Schofield (of Lay-
time and Demurrage fame) has made an error in explaining the
differences between all laytime saved, all working time saved
and all time saved.40
The number of vessels handled, the number of parties and persons in-
volved increase the volume of information handled dramatically. In any
38
Ian Barclay, Posting to ’Cargo Care’, 20 June 2000.
39
E-Mail form Mark Pistorius to Department of Chartering, on 29 June 2000
40
E-Mail form Mark Pistorius to Department of Chartering, on 16 June 2000
stage of chartering negotiations and ship operations, the accuracy and the
completeness of information is an important aspect. Few past information
for a particular port can be used safely, but for some other ports are not
the case. The need for information on the actual performance of a ves-
sel, cargo handling speed in relation to the cargoes handled, the conges-
tion situation and actual port-related costs is huge. An intensive exchange
of information between the chartering and operations departments are in-
evitable. A documentation on the past experience employing a vessel for a
particular trade is extremely useful, as illustrated by the following:
This will enable those immediate estimates to be made and in-

formation given to vessels when time is right. This of course
does not relive responsibility to check the latest updated infor-
mation on the port at the earliest opportunity and advise the
master /person involved accordingly of any variations on the
initial advices. 41
Security
This aspects can be a grey area. How secure is secure? How far is a
company willing to let their ship trade in a particular area, which is said to
be insecure. Which information sources should we trust?
Usually a very close cross-check actions and close co-operations with
the other departments and the company agents are arranged. They do not
solely depend on the official report either from local governments or from
international organizations. Intensive communications are made, and fre-
quently by phone42 . From various sources, one may build a better assess-
ment and his conviction on the real situation in the trading area in concern.
It is likely that all these information, including hearsay and gossips are as
important as the scarce and not timely available official information43 . Usu-
ally the company has a general policy regarding this44
41
E-Mail form Mark Pistorius to Department of Chartering, on 18 May 2000
42
“We have to be cautious if we enter new areas. We rely fully upon the information of
our agents. We put additionally few days for safety reasons. The more insecure there area
is, the higher this safety margin would be”, Patrick Hutchins, interview, 9 May 2000.
43
More reports and data, within reason, cannot hurt, but much more important are real-
life stories meaningful to the manager. Much of an executive’s daily time, according to
Henry Mintzberg’s careful observations of managerial behavior, is spent seeking just that.
Mintzberg observes that businessmen prefer concrete information, even gossip, specu-
lation, and hearsay, to the abstracted summary information contained in routine reports
flooding their offices. Page 164 [18]
44
Security is important but generally the troubled regions are the ones that we do not
regularly trade anyway so this does not come up often. Viveka Mansukhani, E-Mail and
interview, 31 May 2000
2.4. Multifaceted aspects of shipping 52
premium
Price supplier
Price
standard
supplier
commodity
supplier
Quantity
Quantity
(b) Segmented price-demand

(a) Price-demand relationship
relationship
Figure 2.35: Price-demand relationships (source: OECD Working
Party 1990, in [34])
2.4 Multifaceted aspects of shipping
2.4.1 The role of quality

In a classical price-demand relationship as shown in Figure 2.35 (a), the
quantity of products sold increases as the price decreases. A closer look at
it, we find that the companies position themselves at in a certain segment,
where the effects of price changes on the sold products differ from one
segment to another, see Figure (b).
The players are segmented into three categories [34]:
1. premium supplier, who provides enhanced quality at a high price.

2. standard supplier, who provides guaranteed quality at a moderate
price
3. commodity supplier, who provides basic quality at a low price.
A premium supplier provides products at a high price. The number of

products sold are not very much affected by the price changes. The clients
rely very much on the perceived quality they have on the products, which
is usually closely associated with the name or reputation of the company.
A commodity supplier on the other hand chooses a lower price segment. A
slight change of price affects the sale. A standard supplier is the one which
sells his product at a moderate price, which lies between both extremes.
The quality is difficult to compare, moreover in a service sector, like
shipping. In a service sector the relationship between client and seller is
Figure 2.36: Buyer-seller relationships in manufacturing and service-

oriented sectors [34]
closer than in manufacturing sector, see Figure 2.36. This properties ap-
ply to shipping as well. Maritime business is largely based on personal
relationships, Panayides notes [62].
The quality is difficult to asses objectively, moreover in this service sec-
tor. What practically exists is the perceived quality. It is usual that a com-
pany consciously maintains their good name. It is sometimes costly, for
example, preferring not to carry low-paying cargoes over a temporary bal-
last voyage or idle time. In shipping index, such a segmentation is not
clearly visible.
Such a perception on other companies’ reputation is a company-wide
knowledge. Except in the case of black-listed companies, see Chapter 2,
it is hardly possible to formalize it, for example, in numerical scores or a
black-and-white policy. Within this ’allowed area’ there is still a huge gray
area which is subject to subjective interpretation.
The voyage charter hire, time charter hire and selling price of a ship de-
pend upon not only the physical aspects of the ship itself, but other factors
may play a more important role, see also Chapter 3. Those decisive factors
are the reputation of the ship manager, the potential of obtaining cargoes
in the voyages to follow, the assessment of consequences of international
political events. These are not objectively verifiable.
Few success stories are marked with the success of shipping compa-
nies of obtaining contracts of affreightment in difficult time or fixing a longer
time charter party just short before the rates are tumbling down. The capa-
bility or, some may entitle it a luck, for achieving an astonishing return, is
evident.
2.4.2 Decision hierarchy

Decisions must be made every day from the small one like sorting which
clients’ faxes are to be considered seriously or not till choosing a certain op-
tion out of few on-going chartering or sale & purchase negotiations. There
is always risk, since one is never sure if his decision is fully based on a
strong foundation, i.e. information. The reality in daily practice shows that
the information is rarely complete nor reliable. A decision maker must have
a dare or boldness to take a risk to decide 45 . Postponing a decision is also
a decision which has its price too.
Preferences of the company, manifested in the form of those of the
chairman, directors and managers in hierarchical fashion, are important
information. One knows them after sometime working or having been in-
volved with the company or the persons of the company. With understand-
ing those preferences, it is hardly possible to be able to make a reasonably
good decision.
Providing a transportation service involves a chain of processes, a co-
ordination among departments and their peoples. There are situations
where interests of department collide. If it happens, the first thing is en-
suring that the commercial interest of the company remains the highest
priority. In a normal situations, where the ship in concern is in good condi-
tions, the company follows the following hierarchy from the most important
to the lesser ones: sale & purchase, chartering, operations and then tech-
nical (including crewing) 46 .
Information on available vessels or available cargoes is relayed to all
chartering staffs. Identical sister ships managed by different ship managers
may have different interpretations, in terms of quality and price. The role of
brokers can be decisive to start and to conclude a negotiation successfully.
Doubtful brokers are definitely filtered out, without reading what they offer:
Everyday I ignore the e-mails from certain brokers without even

reading what they say. This is because mostly they have stuff
which is not of interest, they do not seem reliable (typical inter-
net brokers) and just send our lists to everyone they can find. I
would be wary of fixing with them and hence ignore them. I also
skim over anything that says Panamax.
The ones I take a closer look at are the ones that are addressed
to me, from the brokers I regularly talk to or that we know of well
45
“The most important thing is, that you must have the boldness or dare to make a deci-
sion. Risks are always there, since you may never have a 100% certainty”, Sjarief Hadiwid-
jaja, Branch Manager of Meratus Shipping, Surabaya, conversation, 1996.
46
Jan Hagemann, Senior Director, interview, 2000.
and that suit the ships I am working specifically or that are the
size/area that we usually work. Generally the most important
e-mails come to my personal box as then I see it immediately,
can respond immediately etc and the brokers/ clients I work with
closely, always send their messages to my personal box.
Reliability of a broker is important. Charterers that we have
worked with before, who have a track record and we have a
charter party with them and we know them well, always get pri-
ority. 47
Such qualitative aspects are definitely not to be overlooked in real-world
shipping practice 48 .
2.4.3 Strategy
In general the Sale and Purchase Department of Egon Oldendorff49 acts
very actively in the sale and purchase market. It follows the rule:
If a vessel is attractive and its price is low then buy it. Then
charter it out.50
They bought two Ro-ro vessels recently, and both are immediately chartered-
out. The expertise of the organization does not make it possible to operate
both vessels by themselves. The aspect of skill at the organization level is
considered seriously. End of 1999, four vessels of Hoegh Lines (Norway)
were bought by Egon Oldendorff. Those are multipurpose ships serving
worldwide, Asia-West Europe-North America. Hoegh Lines and Egon Old-
endorff agree to transfer the operations later in 2000, in order to enable
learning from Hoegh Lines’ current operations. Since 2000 Egon Olden-
dorff operates the vessels after setting up offices in several countries. Its
service is called Indotrans Service. In 2003 the vessels were sold to the
China Navigation Company Limited. Another rule is:
If the company badly needs a vessel but the price is high, the
company prefers waiting. 51
47
48
“I would be working with brokers, whom I know very well or they work exclusively with
certain charterer”, Sebastian Dohrendorff, interview, May 2000
49
A shipping company located in Lübeck, see later in sub-section 2.5.
50
Peer Gröpper, interview, 22 May 2000. Sale and purchase of ships is basically carried
out solely by Peer Gröpper. Since it involves a huge amount of money and longterm strategy
of the company, he consults closely with Henning Oldendorff, Chairman. And the final
decision lies at the later as well.
51
Peer Gröpper, interview, 22 May 2000. Sale and purchase of ships is basically carried
out solely by Peer Gröpper. Since it involves a huge amount of money and longterm strategy
of the company, he consults closely with Henning Oldendorff, Chairman. And the final
decision lies at the later as well.
There are measures of the company to be selective in charter negotiation:

the company is not willing to fix a charter at any price52 . Accepting too low
charter rates too easily may harm the image of the company in general,
since the company intends to position on the upper market segment, be-
yond the average market level 53 . Therefore a strong preference towards
younger ships is to show to clients on their intention to provide a first class
service.
A few companies pay a lot of attention at securing a high reputation,
in order to secure a longer confidence among their client. This would ex-
pectedly ease them in turn to secure a higher volume or a longer term of
contract. As a consequence of this, they would also be willing to accept
rates, even lower than the failing market rate, as long as they could secure
a close relationship with their important clients.
Long term strategy is also very important and we have often

done a fixture which may not appear so attractive but that suits
our long term plans, including positioning for next business or
building up a relationship with a certain client.54
A good reputation has been built on EO name. Many chartering
deals rely very much upon this. As an illustration how useful
this can be: due to a missed laycan, renegotiation on the freight
rates was only possible, if the charterers trust us. And many
contracts are based on this reason, moreover for high paying
cargoes which require cargo handling expertise and skills in or-
der to guarantee smooth shipments.55
Proper functioning of service by the company’s fleet is important. To obtain

and maintain commercial success, it involves more. A good reputation must
be maintained. The company strongly maintains the image that they are a
first class shipping company, see also sub-section 2.4.1 earlier.
2.4.4 Experience, knowledge and education

In the course of time during conducting the shipping practice, a lot of valu-
able knowledge on how to conduct shipping business can be found in mar-
ket reports sent by brokers or market research institutes. The following are
examples:
52
“Rate or volume attractiveness is important, but we would not even look at the business,
if their size does not suit and we can only find out rate once we looked at the business”,
Viveka Mansukhani, interview, 31 May 2000.
53
I would reject rates which are below the market level. Sebastian Dohrendorff, interview,
May 2000
54
55
.. and with bunker price still rising the interest in time charter
rather than voyage charter seems apparent 56 .
On center of cargoes:
In the Med there seems a small activity at the moment for stan-
dard types, and again Charterers are trying to push rates lower.
Some cement and mineral stems were open for standard Handy
types to both Continent and US Gulf destinations.
Knowledge is spread in many places, departments and people. In order

to be able to conduct a task well, for example, a chartering negotiation or
bunker planning, one relies very much on advice from others. Information
on cargo handling performance is obtained form the operations department.
If it is not available, which is not unusual in bulk shipping, this department
contacts agents at the ports of call. Bunker planning, can only be done in a
close relationship between chartering and operation desks. Operations de-
partments nominate few alternative bunkering ports, and they provide some
idea on bunker price. The chartering department uses that information for
an on-going chartering negotiations.
From experience one has learned a lot, for example:
“If the fuel price is high, then the voyage charter rate is also
high. Time Charter becomes preferable”.
“If the rate is low and the technical department approves it,
then low paying cargoes, such cement clinkers or scraps, would
likely be accepted”.
“A ship laid up for a long time tends to have a lower value”.
“Our company’s fixtures tend to be beyond the market level”.
There must e a long list of rules, if one wants to express them all. It be-
comes hardly possible to make it practicable. One cannot perform his job
well using the above rules only. There is still some vague area which is
difficult to express without ambiguity or which needs to be understood in
context, for example:
“Reliability of partners, i.e. shipowners, charterers and brokers,

are very important”.
“The market is firming”.
“We are willing to accept lower rate in order to maintain a rela-
tionship with important clients”.
56
J.E. Hyde Freight Market Comment (6 June 2000)
Furthermore the knowledge is changing over time. The views on ideal ships
may change over time, for example:
“Such a ship is no longer suitable for our company”.
The above showed also that expressing information in qualitative terms is

inevitable. Numerical expressions are often meant as an approximation,
for example : the bunker price monitor on 28 June 2000 in Gibraltar, see
also Table 2.11. That IFO380 costs $162/tonne, means that the fuel costs
approximately $162/tonne. The company will still accept it, if the price is
slightly above that level. How much the deviation from that price he will
accept may vary from person to person, or from company to company. It
depends also the knowledge of the person in charge on the company, how
well he understands the tendencies or preferences of the company (in this
case manager or director), how they would have reacted, if he had ordered
bunker there.
Nevertheless obtaining knowledge and expressing it as hard terms like
the above is not an easy task, when possible. On the question which factors
which determine the performance of a port, Pistorius responds with the
following:
I have raised more questions than answer. But the question is a

complex one that depends on the facts of the matter and cannot
be answered simply. We would rate the business against our
expectations on our experience at the port against the terms/
discharge rate that charterers wish. This will of course either
raise or lower the freight rate dependent on the terms against
the expected actual working conditions of the port. It is of course
prudent to fix a vessel that is not only good for the cargo but
suits conditions at the expected port of trade as this will maxi-
mize your turnaround. 57
57
Mark Pistorius, e-mail of 14 August 2000
59
Figure 2.37: NYPE Time Charter Party Form

Chapter 2. Nature of Dry Bulk Shipping
Experience is useful. It teaches us not to repeat the same mistakes or

to guide us to a prospective solution. Past experience helps also very to
improve the efficiency of management. In chartering, every charter party is
unique. But it contains similar situations, form time to time. Standardiza-
tion is an effective tool. Its functionality is like a checklist for both parties,
shipowner and charterer. Its design gives a good overview, and helps the
user reminding if something is missing or forgotten. There are various stan-
dard forms are in use today. The forms of BIMCO58 and NYPE59 still seem
very much in use today. Figure 2.37 show the front page of the NYPE Time
Charter Party Form.
Education
Sebastian Dohrendorff was, at time of this research, a junior chartering

manager, responsible for the Atlantic market. He works there since six
months ago immediately after finishing his shipping education at Ludwig-
Erhard-Schule in Kiel 60 . This is his first professional job in shipping. Pre-
viously he took an apprenticeship at Egon-Oldendorff too. He believes that
formal education only is inadequate to conduct jobs in shipping.
Viveka Mansukhani, is chartering manager responsible for Pacific mar-
ket, has been working in international shipping for quite some time. She
pursued his shipping education in Hong Kong. After having been in ship-
ping practice in a.o. Hong Kong and Singapore, she joined Egon Olden-
dorff.
Mario Giaffreda, a student of a shipping school Ludwig-Erhard-Schule
in Kiel (Ausbildungsberuf zum Schifffahrtkauffrau/-man der Berufsschule an
der Ludwig-Erhard-Schule) in Kiel61 , is apprentice at Egon Oldendorff. At
the operations department he assists in particular Horst Nowak and Markus
Eller. One of his tasks is collecting and distributing information concerning
the actual positions of vessels and their expected time of arrival. At school
he learns a.o. the basics of shipping, trading, economics and shipping laws.
2.4.5 Imprecision and uncertainty
It is of great importance to keep informed of the developments. Information

overflow is inevitable. Nevertheless there is a way to keep the things sim-
pler and under control, i.e. by allowing imprecision selectively. Table 2.13
illustrates the differences of the size of the bulk carriers’ fleet according to
58
The Baltic and International Maritime Council
59
New York Produce Exchange
60
see Mario Giaffreda
61
http://www.les-kiel.de/frame.html
Class Size (DWT) Manager Statistics

Handy size 10,000- 50,000 3500 4048
Panamax 50,000-10,000 1000 812
Capsize over 100,000 400 482
Table 2.13: Bulk carriers’ fleet according to practitioners
a shipping practitioner62 and the statistics63 . It is still not worrying some,

for having this differences. Otherwise, having a rough idea on the size of
vessels, charter rates or ship’s prices are very helpful. Published reports
can be imprecise, as shown by the followings:
Reports say that the Atlantic rates today are firm. It is not en-
tirely correct. To be more specific, there are no cargoes coming
from East Coast of both North and South America. It is in fact
difficult to rely fully upon market reports, since those are not
always relevant for daily negotiations64 .
Many assessment and analysis can be very effectively expressed in a qual-

itative way. Or a vague way. On the other hand it is hard for example to
express the forecasting in an exact numerical value:
Freight rates continue at a slow rise but the modern Eco types
do attract good numbers. There is a good activity activity with a
steady flow of new orders. We feel that the expected improve-
ment on the freight level has still not reached its anticipated
level. 65
It is difficult for a novel chartering officer, a student or an outsider of the

business to figure out what it is exactly meant with ’anticipated level’ in the
above context. The context plays a decisive role in interpreting a textual
assessment, like the following.
The larger Handymaxes are in demand and attracting the best

offers. The smaller Handy sizes have seen a more marginal
increase in earnings but this increase has to a large extent
been absorbed by increased bunker prices, subsequently the
smaller ships of the sector are not doing quite well as their larger
cousins.
62
Dieter Gast, interview, August 2000
63
[81]
64
Sebastian Dohrendorff, interview, May 2000
65
Lorentzen & Stemoco: Weekly market outlook week 36 (07/09/00)
Large and small Handy sizes are there. No clear and sharp distinction
between those groups is necessary to have the texts easily understood, by
the readers.
J.E. Hyde Freight Market Comment (6 June 2000):
What was clear was that the lack of fixing being done is not
because there is a lack of business around but due to the dis-
crepancy between Owners’ and Charterers’ respective ideas in
freight values.
For an experienced shipping practitioners, such qualitative and imprecise

expressions are an effective way to relay message. On the other hand, for
a novice that might lead to incorrect interpretation.
If the charter rates are firming, less paying cargoes, such as

scrap, would have difficulties to be transported 66 .
Assessment on situations may differ considerably among experts. As illus-

trated by the following:
We noticed an article in last month’s IBJ 67 magazine, a first

class publication, continuing to predict some gray clouds on the
horizon for ’Panamax’ tonnage, mainly based on the new build-
ing programs. We do accept the reasoning but still maintain that
for this year and into next, increased activity in the commodity
markets will enable the overall freight market to cope with the
influx of the new tonnage (famous last words?). 68
2.4.6 Value of information

Information available is hardly complete and it can be quantitative and/or
qualitative. Information may need further analysis and subject to subjec-
tive interpretation. Information is available in abundance, and most of it is
not relevant or useless. Useful information, on the other hand, is still scarce
and expensive. As the charter party may involve any company of any part in
the world, a challenge is always there to make sure that the operator deals
with a reliable partner. MRC Business Information holds information on
hundreds of thousands of companies world-wide. MRC provides informa-
tion and make research on the company of interest concerning legal details
and persons behind the company, business fields and prospects, finance
and reputation. Furthermore MRC provides also information on ships. This
66
J.E. Hyde, 30 June 2000
67
International Bulk Journal
68
J.E. Hyde Freight Market Comment, 6 June 2000
service, called CharterCheck, provides information concerning the history

of the ship69 , the ownership, commercial and technical management and
recent contracts.
CharterCheck’s fee for vessel and cargo are $290 and $460 respec-
tively. The interest towards providing information is not dominated by MRC.
Others provide slightly similar services, such the Lloyd’s Marine Intelligence
Unit that asks $255 per week for providing the vessel tracking information,
i.e. positions of the vessel (last reported location and estimated time of
arrival). Clarksons Sale and Purchase Division offers a service for valuing
specific ships for a fee of U.S. $ 750 for each valuation.
Influence of external factors
The transportation sector, which shipping belongs to, connects ports, ar-
eas and countries all over the world. All these possess its own situations
and typicalities, in terms of macro economic, politics and cultural typicali-
ties. The shipping faces these situations and react upon them immediately.
Shipping companies have the necessity to have a close contact with their
partner shipping companies, brokers, shippers, consignees and govern-
ment officials. Their interpretations are important, since these may play a
very important role in determining the selling price of their product, charter
hire, see also ??. The following is noted by Maersk Broker:
Japanese land prices dropped by 8 per cent in 1999 while res-

idential prices dropped by 4 per cent on average. According
to IMF this will continue to be a major threat on the Japanese
recovery, as further provisions might be needed in the already
strained banking sector.
Following last months’ bank mergers (the third of its kind in just
8 months) a new problem also faces Japanese corporations.
Since banks are beginning to consolidate their loan portfolios
due to mergers, a stricter and firmer attitude toward corporate
debt and weak companies is assumed.
This materialized by bankruptcy rates jumping to a record level
in February, especially with the largest retailer bankruptcy in his-
tory, with increased pressure on bad debt portfolios and weak
companies, Corporate Japan will now have to speed up its own
restructuring and consolidation process to keep up with the pace
of the Japanese banks. 70
69
This can be of utmost importance, since ship’s name and nationality can be easily
changed.
70
Maersk Broker - Japanese Market/economy Update for April / May 2000; fax dated 15
May 2000
2.5. Oldendorff Carriers: a profile 64
2.5 Oldendorff Carriers: a profile

Egon Oldendorff GmbH Co KG is presented here as a dry-bulk shipping
company, though it is neither a typical nor a pure bulk shipping company.
The company was established in 1920, and is located in Lübeck. The com-
pany employs 2400 persons as a ship’s crew and 185 persons in its eleven
branch offices in five continents. Most of shore personnel at the head-
quarter (about 85%) are in the thirties or even younger, including its Senior
Directors Jan Hagemann and Peter Twiss. The company structure is flat.
The company does not have even an organization chart71 . The organiza-
tion is lean; important decisions are delegated to their staffs. Ten persons
have a full responsibility to decide and sign the Time and Voyage Charter
Parties respectively.
The affinity towards new technology, especially the information tech-
nology characterizes the company very much. The company employs an
advanced IT infrastructure. The atmosphere is young, most employees are
of below 30 years old. All facsimile messages are automatically scanned
and distributed accordingly to the addressee’s e-mail account. The usage
of printers is organized in a group of desks. These printers are a combo
facsimile and copier machine, where a fax can also be sent manually.
The lean organization and its efficient IT infrastructure enable them to
move and to make decisions quickly. A lot of meetings for specific char-
tering and operations matters are often organized informally among 2-5
people just on the gangway, or just standing near someone’s desk. The
atmosphere is in general informal. Wearing a jogging suit is acceptable,
when someone does not expect to welcome a guest.
None of personnel holds a university degree except two of them, Jan
Hagemann and Tony Pearkes who hold a master degree. Apprenticeship
seems to be an ideal way to participate in educating and equipping a trainee
with real-world experience. It is also an ideal way to select and recruit future
employees.
Egon Oldendorff is a parent company, having two subsidiaries Flens-
burger Schiffbau-Gesellschaft (FSG) and Concept Carriers. The FSG is
a shipyard located in Flensburg in Northern Germany close to the Danish
border and just north of the Baltic entrance to the Kiel Canal. The ship-
yard had been rescued, in March 1990, by Egon Oldendorff, after a 4 year
bankruptcy period without any single orderbook. Since then, the shipyard
has achieved a remarkable turn-around. It has booked a total of about 70
orders worth around DM 3 billion for delivery until 2004, fifteen years af-
ter the company was acquired. It represents a successful come-back for a
yard, which has a reputation for quality workmanship, solid steel construc-
tion methods and for keeping delivery dates. The yard produces 7 to 8
71
Jan Hagemann, interview, 2 May 2000
E GON O LDENDORFF C ONCEPT C ARRIERS

Self-unloading bulk trade Steel parcel trade from Black
Sea and from Asia Pacific
Handy/ Panamax bulk trade Handymax bulk trade
Indotrans parcel trade Scrap trade
Inter Asia bulk trade Logistic projects
West coast parcel trade
Multi purpose vessels
Open Hatch Box Shaped Ves-
sels
Sale and Purchase / Projects
Bulk transhipments
Table 2.14: Trades and activities of Egon Oldendorff in 200072
vessels of 20,000 tons deadweight per year with 600 employees73 .

Concept Carriers GmbH & Co KG was setup in 1995 to focus on ob-
taining cargoes using primarily time-chartered vessels. CC consisted of
a team of 15 young staffs of below 30 years old in average. The objec-
tive of CC is being a pure cargo operator, without having won tonnage,
within a shipowner’s environment. Four persons have a full responsibility
to decide and sign Voyage and Charter Parties. With financial and logistic
backing of Egon Oldendorff, CC has better access to cargoes and to estab-
lish contacts. The parent company believes that “the youth of the company
ensures the best motivation and eagerness to provide an excellent service
to customers”74 .
The success of the Concept Carriers has ’infected’ the parent com-
pany. Oldendorff becomes more cargo-oriented, meaning employing time-
chartered tonnage. In 2000 half of the tonnage was chartered-in vessels.
A screenshot of the fleet by end of 200475 120 from 191 ships or 5,552,000
tdw from 7,765 000 tdw in other words 62% in number, 71% in deadweight
are chartered-in vessels. This was also largely a result after the merger
of both companies on 1 January 2001, which resulted a total fleet of 170
ships of around 7 million tons deadweight. Since then the company offi-
cially carries a new name, Oldendorff Carriers GmbH & Co KG, lead by Jan
Hagemann (30) and Peter Twiss (31), as managing directors, and Henning
Oldendorff as chairman.
Today Oldendorff Carriers the largest bulk shipowner in Germany, em-
ploys 3,400 people form 66 nations in shipping and shipbuilding. Usually
73
http://www.oldendorff.com/index.htm, downloaded on 30 December 2004
74
www.oldendorff.com/trades/trades2.htm, downloaded on 4 May 2000
75
30 December 2004
2.6. Conclusions of the chapter 66
O LDENDORFF C ARRIERS
Self-unloading bulk trade
Panamax bulk trade
Handy size bulk trade
CONCEPT steel trades (Handymax parcelling Black
Sea/Asia, Asia/Med)
Breakbulk service South East Asia/Europe and North
America
AUSTRANS bulk parcel service
Multi purpose vessels
Open Hatch Box Shaped Vessels
Bulk Logistics (Transhipment, Lightering, Topoff, Self-
unloading barge)
Sale and Purchase, Newbuilding brokerage
Logistics Projects
Table 2.15: Trades and activities of Oldendorff Carriers in 200476
they operate some 200 vessels, 80 are owned, and 120 are chartered-in
vessels. Its fleet performs 8,000 port calls in 120 countries, and carries
some 80 million tons of bulk and unified cargoes across the ocean77 .
The above company description does not suggest that a company of
a completely different organisation style would not work well. The above
is not the recipe to ideally conduct shipping business either. The above
description emphasized the importance of knowledge, the formal and infor-
mal one, in an organisation. The formal knowledge is well-documented and
clear, can be obtained from books and, usually from, formal education. The
informal knowledge comes from own or someone else’s experience. The
usage of informal knowledge marks the role of intuitive actions and contex-
tual understanding becomes evident, especially when the environment is
complex, see also Chapter 4.
2.6 Conclusions of the chapter

1. Shipping is marked by an interplay of factors which are hardly, when
possible, to express clearly and objectively.
2. Shipping indexes and shipping forecasts are inadequate to assist ship

practitioner to conduct daily shipping tasks in chartering. Informa-
tion and opinion from local agents, brokers, newspapers concerning
77
www.oldendorff.com/hp/hp.htm, downloaded on 30 December 2004
rate prediction, backhaulage potential, cargo handling performance

or claim risk play a much more significant role.
3. Shipping practice does not use any computer programs for assessing
the charter value or selling price of ships assessment as a foundation
for their decision. They rely very much upon experience and intuition.
4. The capability to understand the mechanisms and to precisely asses

the size of the market (supply and demand) does not necessarily re-
flect the capability to conduct the shipping business in practice.
5. The shipping industry realizes the importance of maintaining the knowl-

edge as asset of the company by collecting operational experiences
and making them accessible to all departments. Formal knowledge,
obtained from school or course, serves as a foundation. Nevertheless
much of the knowledge, necessary to conduct the business accord-
ingly, is gained mainly from experience.
Chapter 3
Existing Resources and Tools
This chapter elaborates the views and perspectives of the past research on
shipping problems, and their ways addressing problems. A special atten-
tion is paid to the tasks which support the decision-making processes. In
order to be able to make a decision satisfactorily, a decision makers relies
on two things, namely resources and tools. Resources include information
on the state of the shipping, world economy, forecasting, S+P and charter
reports. Tools embrace methods or programs used to assist decision mak-
ing or to generate information such as forecasting models or ship’s value
assessment methods.
3.1 Chartering negotiations
A chartering logbook does not exist actually. It is to denote the elabora-

tion of this section which aims at reconstructing chronological processes of
few chartering negotiations. Normally only recent or important documents
are filed well. Ms. Viveka Mansukhani has provided copies she could col-
lect on recently completed chartering negotiations. Some of her personal
scratches are included as well. It is hardly possible to obtain a complete set
of documents describing all stages of the chartering negotiation. Many de-
tails of telephone conversations and informal minutes of meetings are not
documented in writing. Nevertheless the exchange of information shown
in this section illustrates the functioning of ship chartering in practice. This
’logbook’ reveals thoughts and considerations leading to the final decision.
Most of the ’conversations’ use standard terms and abbreviations widely
used in ship chartering, which can be looked up in Appendix C.
69
3.1. Chartering negotiations 70
Figure 3.1: Inquiry from broker

71 Chapter 3. Existing Resources and Tools
3.1.1 Short logbooks

MV G IUSEPPE L EMBO
25 August 2000. She receives hundreds of e-mails, faxes and letters

from brokers, cargo owners and shipping companies. They offer their ships
for an employment, as illustrated in Figure 3.1. She has to decide either to
keep the mails for further consideration or to throw it into the trash bin. This
is a filtering process. The action is unambiguous, either keep it or ignore it.
MV G IUSEPPE L EMBO is a Cape size vessel of a 170,000 dwt class.
Mansukhani is responsible for Handy-Class of 10,000-45,000 dwt. This
vessel does not attract her attention at all. This file is removed.
Beside the size of ship or volume of cargoes, another very important
thing is know who is behind that fax or e-mail. There is a company-wide
list of companies that are not allowed to make a commercial deal with, the
so-called blacklisted companies, see also Chapter 2. This list is clear and
binding for all. Then a grey area follows, there are still a plenty of not-
blacklisted companies sending inquiries. From ad-hoc preferences of the
director or company, her own or her colleagues’ past experiences play a
role now.
Swazi Sugar Association
Swazi Sugar Association let Galbraith London find a ship to carry sugar
from Maputo to London. Galbraith informed Mansukhani, that they needed
a vessel for the above-mentioned purpose.
30 May 2000. An inquiry from Galbraith London concerning the car-

riage of sugar is received by Patrick Hutchins, from the Atlantic desk. This
matter is then taken over by Viveka Mansukhani, as this carriage can be of
interest for MV L UCY O LDENDORFF’s next employment. She is trading in
the Pacific for which Ms Mansukhani is responsible. The cargo is 20,600
ton of bulk sugar to be transported from Maputo to London River. The lay-
can is 14-17 June 2000. Loading and discharging speeds are 2,000 and
1,500 ton per hour respectively.
During some telephone conversations, as she noted few more details
concerning this inquiry. She notices that the laycan dates are critical. The
Swazi Sugar Association, cargo owner, wishes a sate of about US$ 20/ton.
Mansukhani demands a rate of over $30/ton, see Figure 3.2.
31 May 2000. She offers US$ 31.50 per ton, and adds extra clauses
concerning demurrage, US$ 300 and US$ 5,000 per day at loading and
discharging ports respectively. She responds:
Figure 3.2: Swazi Sugar - an early phase of negotiation

Figure 3.3: Mapping the situation and guessing the response
DISCHARGE 1SP 1SB LONDON RIVER

LAYCAN 14TH-19TH JUNE 2000 (VESSEL NOW AT BOMBAY WHERE ETD
4TH JUNE AND ETA MAPUTO 15 JUNE SUB AGW WP AND UCAE)
FREIGHT US$ 31.50 PMT FIOST 1-1
LOADRATE: 2000MTS SATPM SHEX
DISCHARGE RATE: 1500 MTS SAT SHEX
DEMURRAGE US$ 3000 PD PR HDLTS AT LOAD
DEMMURAGE US$ 5000 PD PR HDATS AT DISCHARGE
OWNERS AGENTS LOAD/CHRTS AGENTS DISCHARGE
SUB DETAILS BSS CHRTS EXECUTED CP
6.25% ADDCOMM PLUS 1.25% TO GALBRAITHS LONDON
It is of necessity to have an idea what the charterers want. Mansukhani

tries to map the situations and to guess the likely achievable charter hire,
the negotiability concerning the laycan dates and the degree of seriousness
of the Swazi Sugar Association in this early stage of negotiation, see Figure
3.3. The negotiation is interrupted, see also the next sub-sections 3.1.2 and
3.1.4 concerning the decision making OF MV L UCY O LDENDORFF ’s Charter
Party.
MV W ORLDSTAR
On 2 May 2000 Ernst Russ, a broker, offered MV W ORD S TAR to Egon Old-
endorff. Mansukhani was interested to charter-in this vessel. The ship was
to be delivered in St Petersburg, and to be redelivered in Boston-Galveston

range in East Coast of USA. The trade would take about 40 days. Man-
sukhani sent a quick reply.
2 May 2000, 16:23 H. Ernst Russ Chartering resumes the intentions

of Mansukhani:
MV WORLD STAR / ACCT EO

DELIVERY AFSPS ST PETERSBURG ATDNSHINC
LAYCAN 11/13 MAY 2000 0000-24000HRS
ONE TCT VIA GD AND SF PORTS AFLOAT ALWAY WITH IWL, IN/OUT
GEO ROTATION, MULTIPLE LOADING
HIRE USD 4275 DAILY INCLOT PAYABLE EVERY 15 DAYS IN ADVANCE
REDELIVERY DLOSP 1 SP BOSTON/GALVESTON RGE PICO ATDNSH-
INC
DURATION ABT 40 DAYS WOG
SUB CARGO/TRADING EXCLUSIONS
SUB BUNKER CLAUSE/ PRICE/ QUANTITIES
SUB CHARS BOD APPROVAL TO BE LIFTED 1800 HRS HBGF TIME 3RD
MAY 2000
SUB FURTHER TERMS/DETAILS AS PER CHRTS EXECUTED NYPE
2 May 2000 16:45. Ernst Russ adds some additional information re-
quired by Mansukhani concerning the load capacities on tanktops, weather
decks, hatch covers and tween deck. This information can be of use, in
case Mansukhani intends to use the vessel for transporting heavy cargoes.
MV WORLD STAR / ACCT EO

TANK TOP - 26 MTS PER SQM
W/DECK - 3,5 MTS PER SQM
H/COVERS - 3,5 MTS PER SQM
T DECK - 2,5 MTS PER SQM
8 May 2000 13:30. Ernst Russ informs that the shipowners would ex-
pect a charter hire of US$ 4,800 per day. They gives a hint to Mansukhani,
if she is really serious about the vessel, she would very likely get the vessel
at US$ 4,700 daily 1 . Mansukhani comments on the fax sheet, that she
expects a charter hire of US$ 4,650 per day.
1
This method is also used to show the clients, how the broker works hard for them.
MV WORLD STAR / OLDENDORFF

LAYCAN 12/15 MAY
HIRE 4800 (DISCR AT USD 4700 FOR FIXING ONLY) 2
TRADE EXCLS ISRAEL/TURKISH/CYPRUS OCC/LEBANON/
EX YUGO/NORWAY/SWEDEN/DENMARK/FINLAND/CUBA
CGO EXCL PLS PROPOSE
BOD 320/380 MT IFO/MDO
ALL SUBS DECL LATES COB TOM
SUB DETS
8 May 2000 14:28. Ernst Russ informs Mansukhani that the owners
insists a charter hire of US$ 4,800 daily. More details pertaining a.o. al-
lowed trading area are provided. A standard Charter Party form is pro-
posed by the owners, namely the New York Produce Exchange (NYPE)
Charter Party form. This phase is still not binding yet; a clause states that
all agreement is subject to approval of the board of directors.
MV WORLD STAR/ ACCT EO
DELIVERY AFPS ST PETERSBURG ATDNSHINC
LAYCAN 12/15 MAY 2000 0000-2400 HRS
ONE TCT VIA GD AND SF PORT(S)/BERTH(S)/ANCHORAGE(S)
FM BALTIC TO USEC ALWAS AFLOAT ALWAYS WITH IWL, IN/OUT GEO
ROTATION, MULTIPLE LOADING
TRADE EXCLS ISRAEL/TURKISH/CYPRUS OCC/LEBANON/
EX YUGO/NORWAY/SWEDEN/DENMARK/FINLAND/CUBA
HIRE USD 4800 DAILY INCLOT PAYABLE EVERY 15 DAS IN ADV
REDELIVERY DLOSP 1 SP BOSTON/GALVESTON RGE PICO ATDNSH-
INC
DURATION ABT 40 DAYS WOG
SUB CARGO EXCLUSIONS
BOD ABT 320 MT IFO AND ABT 130/150 MT MDO SAME ON REDELY
SUB CHARS BOD APPROVAL TO BE LIFTED 1800 HRS COB TIME 9 MAY
2000
SUB FURTHER TERMS/DETAILS AS PER CHRTS EXECUTED NYPE
The negotiation is interrupted, with unknown reasons.
3.1.2 MV L UCY O LDENDORFF/ Panocean

MV L UCY O LDENDORFF is currently trading in the Pacific. She has been
offered to various brokers and ship operators, before her current Charter
Party ends soon.
2
Scratch of a chartering manager: “USD 4650, Cargo reverting”, E-Mail 8 May 2000
30 May 2000 12:35. Mansukhani receives a response from Clarckson-

Dry Cargo, a broker, on her offer to them. The charterers, Panocean, intend
to employ MV L UCY O LDENDORFF for a bulk cargo carriage in Singapore-
Japan range, with a duration of approximately 30-40 days. The ship is to
be delivered in Singapore. The redelivery will be at a port with Singapore-
Japan range. Laycan dates are 9-12 June 2000. The charterers expect a
charter hire of US$ 7,250 daily.
1. MV LUCY OLDENDORFF; {AND DETS}

2. ACCT : PANOCEAN
3. DELY: DLOSP3 SINGAPORE ATDNSHINC
4. LAY/CAN: 9-12 JUNE 2000
5. ONE TCT VIA SA(S), SB(S), SP(S) AA, AWIWL TO S’PORE/JPN GE
WITH L/HSS CGO IN BULK DUR ABT 30-40 DAYS WOG
6. REDEL: DLOSP 1 SP S’PORE/JPN RGE PICO ATDNSHINC
7. HIRE: USD 7250 DIOT PABLE 15 DAYS IN ADV
8. PAYMENT: 1ST HIRE AND VALUE OF CONSUMABLE BUNKER TB PAID
W(I BKG DAYS AFT VSL’S DELY N CHTRS ARE ENTITLED TO DEDUCT
FROM LAST SUFFICIENT HIRE PAYMENTS EST WONS DISBSMT
9. ILOHC: USD 25004 LUMPSUM
C/E/V FEE: USD 1000 PMPR
10. BUNKER CLS: PLS PROPOSE BEARING IN MIND CARGO IS 20,600
MTS M/M
11-22 . {hidden.}
She does not agree with point 9. She wants a US$ 3,500 lumpsum as an
incentive for crew for hold cleaning.
30 May 2000 13:07. Mansukhani insists the laycan informed earlier5 .
LAYCAN : REPEAT CHRS LAST (NO BALTIME CLS)
30 May 2000 15:40. Clarckson wants a daily charter hire of US$ 7,3006 .
LAYCAN : REPEAT CHRS LAST (NO BALTIME CLS)

4. LAYCAN : REPEAT CHRTRS LAST (NO BALTIME CLS)
5. AS PER CHRSTRS LAST
6. REDEL: AS PER CHRSTRS LAST
3
Mansukhani’s note: ’passing’
4
Mansukhani strikes it with ’$3500’
5
E-Mail from Viveka Mansukhani to Clarksons Dry Cargo, 30 May 13:07
6
E-Mail from Clarksons Dry Cargo to Viveka Mansukhani, 30 May 2000 15:40
7. HIRE USD 73007 DIOT PABLE 15 DAYS IN ADV

8. PAYMENT: OK EXCEPT MAX USD 1000 PER PORT
9. ILOHC: USD 3000 LUMPSUM
C/E/V FEE: USD 1000 PMPR
10. BUNKER CLS: OK EXCEPT MIN IFO 550 MTS
13. AS PER CHRTS LAST
14. AS PER CHRTS LAST
17. REVERTING
30 May 2000 15:56. Mansukhani wants a charter hire of US$ 7,850

per day including overtime.
LAYCAN : REPEAT OWNERS LAST, OKAY SUBJECT TO CHRTS ADVIS-

ING INTENDED CARGO TO BE PART OF THIS WORDING
REDEL: REPEAT OWNERS LAST
HIRE USD 7850 DIOT PABLE 15 DAYS IN ADV
REPEAT OWNES LAST (WE ARE NOT ITF BUT THE BOYCOTT CLASE IN
CP COVERS CHRTS AS DONE ON GRETKE OLDENDORFF)
Viveka scratches her thoughts, she believes that a fixture of $7,500 is fea-
sible. Time is a critical factor. This seems to be the decisive factor:
LUCY OLDENDORFF /PANOCEAN

LAYCAN: 9- 14 NOON, NO BALTIME
INTN GRAIN
REDELY REPEAT, INTN FEAST
HIRE $7350 (feels $7500)
STOWPLAN REVERTING
SUBS + 24 HRS, STOW +24 HRS
I HAVE SAID I WOULD DO $ 7500 ON ERNST TO FIX.
LEAVE LUCY ALONE, DATES TOO TIGHT
No additional documents are available. The negotiation is interrupted.
3.1.3 Supporting information

How does Mansukhani estimate the charter hire? How does she know
an appropriate charter value for her MV L UCY O LDENDORFF. Figure 3.4
illustrates the the J.E. Hyde Index dated 1 June 2000. A shipping index is
made to provide a representative overview of the ship chartering.
7
Mansukhani expects and notes it ’$7850’
Charter negotiation (8 June 2000)

J.E. Hyde Shipping Index
Route Type Size Details 01-06 08-06
1. T/C 40,000-43,000 dwt del Continent, trip Far East 9700 9500
2. V/C 25,000 mt 5% HSS, USG/Algeria 21.50 21.50
3. T/C 40,000-43,000 dwt del/redel Spore-Japan, 1oTpac rv 9800 9700
4. T/C 27000-30,000 dwt del/redel Skaw/Passero, one Tatlantic rv 6600 6600
5. T/C 30,000-33,000 dwt del South Africa trip Continent 8700 8900
6. V/C 25,000 mt 10% HS, USG/Venezuela 1250 12.50
7. V/C 30,000-35,000 mt scrap, USNH/South Korea 29.00 28.00
8. T/C 35,000-40,000 dwt del Singapore trip Biston-Galveston 9250 9100
9. V/C 20,000-25,000 mt steels, Black Sea/China 27.00 27.00
10. V/C 25,000-35,000 mt grain (sf 55’), Brazil/Antwerp-Hamburg range 19.10 19.10
11. V/C 26,000-27,000 mt bulk sugar, Queensland/Japan 18.00 18.00
??
? Acct: Shinwa Acct: Swazi
MV Lucy Oldendorff
logs fitted bulkcarrier Time Charter Voyage Charter
1992 onomichi (Japan) Del: S’pore Cargo: sugar
22.160 dwt/ 29,301 cbm grain Redel: Japan Lport: Maputo
4 hold/4 hatches Vlength: 35 days Dport: London
gear 4x30 t TCE: $ 5639day Vlength: 50 days
speed: 14 knots TCE: $ 5832/day
Figure 3.4: J.E. Hyde Index dated 1 and 8 June 2000
The J.E. Hyde Shipping Index uses the size of ship, namely deadweight,
as the only attribute representing a ship’s characteristics. Eleven main bulk
trades represent the main world’s bulk trades. It becomes evident that such
an index is inadequate to address the need of the industry. The negotiations
MV L UCY O LDENDORFF /Shinwa and MV L UCY O LDENDORFF/Swazi are
not covered by those indexed adequately.
How does she then know certain appropriate charter hire values for
the ships, for those trades? Shipping Index gives too rough information
about the industry; and a chartering practitioner cannot do about it. On
should listen to views of brokers, cargo owners, media and all possible
sources. From recent charter fixtures one can see the tendencies of the
market. Such charter fixtures, published by brokers, are a collection of
specific fixtures, see 3.2.2.
3.1.4 Decision making

The above are screenshots of communications of Mansukhani with brokers.
Parallel negotiations of MV L UCY O LDENDORFF with a number of candidate
charterers are conducted with a variety of speeds of progress. New options
may evolve in the course of negotiations. Doo Yang, for example, intends
to employ another vessel, MV A NTONIE O LDENDORFF, should they fail to
obtain MV L UCY O LDENDORFF. Table 3.1 shows nine serious options taken
for further considerations. Both popular types of charter parties, Voyage

and Time Charter, are handled. Most negotiations are carried out through a
broker, some details of the charterers, such as name and location, are not
disclosed yet.
Negotiation 1 would expectedly deliver the highest Time Charter Equiv-
alent (US$/day); that means Negotiation 1 is the most profitable one. TCE
and Gross Profit per voyage prove not always to be the only considerations
for making the decision. She decided to choose Negotiation code 8, with
the following reasonings:
The negotiation with Shinwa on MV L UCY O LDENDORFF, ne-

gotiation code 8, is chosen since the negotiation has reached
at an advances stage. The Charterers are willing to pay more
than the market, perhaps due to the time limit the charterers
have. They have most likely nominated a ship. The market in
Pacific is better at this moment than in Atlantic. T/C is somehow
less risky.8
Panocean and Shinwa are willing to pay a much higher charter higher for
MV L UCY O LDENDORFF, i.e. $7,500/day and $ 7,850/day respectively,
whilst the average time charter hire for its class, a 22,000 dwt bulk car-
rier is about $ 5,900 /day.
J.E. Hyde reported9 that the fuel price tend to increase. Increasing fuel
price drives the shipowners to release their ship in a time charter nego-
tiation, in order to avoid risks involving the voyage costs volatility due to
the uncertain fuel price. At the moment of negotiation the Pacific market
is firmer than the Atlantic market. Therefore she is reluctant to let the ship
trade the Atlantic market after the end of the charter party, even though the
time charter equivalent is highest among the others, see the negotiation
code 1.
The last reasoning, says Mansukhani, is that the negotiation has reached
an advanced stage. More details related to the negotiated charter party
have become known to her. Those details include the delivery date, pos-
sible background information concerning the reputation of the charterers,
potentials and risks related to the development of fuel price and ideas for
the next charter party 10 .
The above negotiation shows that the objective of the chartering ne-
gotiation is to obtain an acceptably satisfying result, instead of an optimal
result. Probabilities of events of all available alternatives are not quantifi-
able.
8
Viveka Mansukhani, E-Mail and interview on 31 May 2000
9
J.E. Hyde report dated 30 May 2000
10
The company expects from the staff to be able to make decision quickly too [21]
SHIP LO LO LO LO LO LO LO LO AO
Swazi Pan- Doo Doo
CHRS - Toepfer - - Shinwa
Sugar ocean Yang Yang
C/P V/C T/C T/C V/C V/C V/C V/C T/C V/C
3.1. Chartering negotiations
CGO sugar - - - urea pig iron soda ash - -

LPRT/ Visakha- Visakha- Momba- Visakha-
Maputo S’pore S’pore Shuiba S’pore
DEL patnam patnam sa patnam
S’pore/
DPRT/ Port
London S’pore S.Korea/ Inchon Haiphong Jakarta Japan Inchon
REDEL Kelang
S.Japan
DURATION 50 35 30 35 38 20 42 35 36
TCE 5,832 5,358 4,131 4,991 4,714 5,715 5,205 5,639 5,403
Code# 1 2 3 4 5 6 7 8 9
Table 3.1: MV L UCY O LDENDORFF / MV A NTONIE O LDENDORFF : a chartering negotiation summary

80
3.2 Usable resources

Resources contain information which materializes many forms, such as
published shipping indexes, market forecasts, market reports, expert’s esti-
mates, news and port information form local agents. Shipping practitioners
spend a lot of time to obtain reliable information, to enable assessing the
situations satisfactorily. Extensive phone calls, visits or lunches become im-
portant since one cannot rely merely on official and published information.
The later is often too late or too inaccurate or too general. Few situations
are unclear, which can be subject to interpretation. In practice subjective
opinions and even gossips can therefore be valuable11 . In this section the
contents of those reports will be illustrated.
3.2.1 Tasks
Maritime forecasting and market research studies are the most common
applications of maritime economics [73]. Maritime forecasting is concerned
with predicting events on the shipping market as a whole, the prospects as
a broad category of ship types and the overall level of supply and demand,
see for examples Beenstock and Vergottis, Wergeland or Tang [8, 81, 75].
Maritime forecasting has a little relevance with the daily tasks of chartering
and operations at operational management level.
Shipping market research is concerned with studying the economic ac-
tions of individuals or companies within the market or a market segment. It
means a study of a specific ship, ship type, trade flow or business unit, gen-
erally relating to a specific business decisions [73]. Those matters concern
the chartering and operations departments very much. The staffs of those
departments are concerned with the prevailing rates of specific routes of
interest for their ships.
Tasks addressed in the market research are a.o. [73]:
1. How will freight rates develop on the route?

2. What is the size of the market that is accessible to me and what share
might I win?
3. What ship type will be cost effective in providing this service?
In daily practice, a chartering staff perhaps is not interested in the sec-

ond and third questions, which usually the task of his manager. To perform
his task, forecasts are irrelevant. The emphasis in market research is iden-
tifying the factors that will significantly influence the success or failure of a
commercial decision. Estimating the value of a ship belongs to this cate-
gory, as illustrated below.
11
Henry Mintzberg and Tom Peters in [19, p. 166]
3.2. Usable resources 82
Usage of Now and short Long term

Past
information term future future
Insurance & Strategic
Specific Negotiation
claims management
Strategic Strategic Strategic
Market
management management management
Table 3.2: Usage of information
Form of Now and short Long term

Past
information term future future
Expert’s
Expert’s
Specific estimates None
estimates
Fixture reports
Shipping Shipping Shipping
Market
Index Index Forecasts
Table 3.3: Availability of information
Information is used by all levels of management and for various pur-

poses. Past information, such as past newbuilding and secondhand prices
of ships, past time charter hire and freight rates, can be of interest, see
Table 3.2. The operational management level concerns in particular with
specific matters, i.e. a certain ship’s price or freight rate levels of a specific
route which is usually not covered by shipping index. The interest in spe-
cific matters marks this level of management, since upon this information
they can conduct the job. As shown earlier in Section 3.1, a shipping index
does not cover most of information needed for daily chartering activities.
Such a shipping index is useless to conduct a chartering negotiation well.
Recent fixture reports can be of interest, in order to be able to estimate
the prevailing rates of a specific size of ship, of a specific route or trade.
Past prevailing rates or secondhand or newbuilding price of a ship can
be of interest in case of marine casualty. In case of cargo claims or hull
and machinery claims, one needs to trace back to the past situations, past
charter rates or past prices.
The operational management level does not concern very much with
long term forecasting. Information of a market segment, for example a
segment of a shipping index, does not concern them very much either. Its
information is too general to be useful. The later is of interest to the strategic
management level, the chairman or president director of the company.
Not all information is needed. Long term forecast of a very specific trade
or of a certain ship is not that useful, and it is rarely available. Specific
information on current prevailing rates is very relevant for daily shipping

practice. A chartering staff must have the capability to estimate the pre-
vailing rates of her/ his ship. They must act as an expert in his own field,
see Table 3.3. In a bigger issue concerning S+P or huge damage claims,
it is a common practice, to ask an independent broker’s opinion. Such a
step is useful in order to make sure that the company, even a successful
one, assesses the values more accurately. It is evident that daily activities
cannot rely on available information, both shipping indexes and shipping
forecasts. Nevertheless attention has been paid very much in developing
forecasting methods instead, as will be shown later in this section. A little
effort has been made for addressing daily shipping problems.
3.2.2 Fixture reports

Time charter, voyage charter, sale and purchase fixtures are useful informa-
tion. Those are published daily by Baltic Exchange, and distributed daily
or weekly by various ship brokers, such as Wonsild & Sons A/S or Ernst
Russ. Those fixture reports contain solely fixtures settled few recently. The
information is plain, brief without comments, for example as follows12 :
TIME CHARTER
“MV WASHINGTON T RADER” 2000 74000 dwt dely S Korea 9/15
June trip via Queensland redel Far East $ 1250 daily - NYK
“MV G LOBAL F” 1998 73729 dwt dely Hong Kong 15/25 June
trip via Indonesia redel Japan $ 12500 daily - MOL-Navix
GRAIN
“MV L ARA” 6000/5 hss US Gulf/Egypt + options end June $16.50
fio 10000/7000 - Cargill
COAL
“MV C APE M ARIA” 150000/10 Richards Bay/ Hadera 1/10 July
appprox $9.30 fio scale/20000sx - NCSC
MISC
“MV AVRA” 55000/10 phosrock Casablanca/Lasero Cardenas
mid June $11.85 fio 12000sc/8000sc
Such fixtures contain specific chartering situations. Those are helpful, and
often used as a reference during chartering negotiation, to estimate the
prevailing rates for a specific trade.
12
Wonsild & Son A/S Shipbrokers, dated 06 August 2000
3.2.3 Forecasting reports

Describing carefully and precisely situations, either past, current or future,
involve not only numerical but qualitative information as well. Long term
forecasts are not closely relevant to daily shipping practice, but those can
be of use for the top management to shape the mid and long term strategic
decisions of the company. Numerous exogenous factors, experts’ opinions
on on-going events and their effects to shipping become important to them.
Some differences in the opinions may occur:
We noticed an article of the last month’s IBJ magazine13 con-

tinuing to predict some grey clouds on the horizon for Panamax
tonnage, mainly based upon the new building programs. We do
accept the reasoning but still maintain that for this year into the
next, increased activity in the commodity markets will enable the
overall freight market to cope with the influx of new tonnage.14
In shipping maritime forecasts have a poor reliability. Nevertheless, fore-

casts are still needed, since one needs to have a view of the future [73].
The following sub-sections highlight few forecasting reports.
Maersk broker report
Reports on a country’s economy involve qualitative aspects which are to be

digested before arriving at an action. Maersk Broker’ report on Japanese
Market/Economy is an example of it. It comprises for points: political is-
sues, general economics / macro factors, company / industrial views and
financial markets.
Political issues elaborate on the dissatisfaction of the public on the poli-
cies and the overall management of the government concerning the han-
dling of the government upon the casualties of natural disasters (volcanic
eruptions). Japan has been hit by more than 100 earthquakes in 2000
some measuring more than 6.5 on the Richter scale.
Under “General economic factors” it mentions the improvement of the
consumer confidence and the improved GDP growth. The Moody’s ratings
on yen-dominated domestic securities issue has been lowered. Under the
section “Company / industrial news” it illustrates few figures reflecting the
industry and its conclusions:
Japanese bankruptcies soared by 21 percent per year-on-year

in July with 1,617 bankruptcies in July alone. Total accumu-
lated corporate debt in bankruptcies doubled in July compares
13
International Bulk Journal
14
Robert Matthews, J.E. Hyde London Freight Market Comment dated Friday 7 July 2000
to June and has now reached a post-war high of yen 4,260 bil-
lion. Most of debt is though attributed to the bankruptcy of the
retail chain Sogo totalling yen 2,290 bn.
To match the recent recovery in demand for steel, major steel
makers have been increasing output at their main production
plants, and the crude steel output is expected to reach the psy-
chologically important figures of 100 million tons this fiscal years
for the first time in three years.15
Financial markets elaborate the appreciation of the Japanese Yen, which

was primarily seen as a result of the Bank of Japan ending of the zero in-
terest rate policy, in place since 1995. The Yen /US$ started the month of
August around the 109 level ending the month at around 106, a strength-
ening of about 103.
Fairplay Forecast
This forecast is written by Maritime Strategies International for Fairplay.

The report starts with a general overview on the world economy:
... forecast for the next ten years based on annual growth rate of
2.6 percent, and has assumed a sustained recovery in Asia - in-
cluding stronger grain imports and a much improved economic
performance in Japan. MSI has also excluded any major eco-
nomic recessions during the coming decade and a significant
upwards shift in energy prices.16
In the supply side, assumptions are made based upon the MSIS’s belief
that the old tonnage of over 20 years old will grow. Their assumption on
the supply side is that the key factor in assessing future development is the
size of 25+ year-old fleet that is potentially available for scrapping. Their
further assumptions:
1. Increasing scrapping
2. Vessels of over 30 years old will still be allowed to sail
3. New-building tonnage’s delivery is higher than the scrapping.
On the demand side they assume that steam coal will play a more im-
portant role in the coming decade, as India and South East Asia have been
building new coal-fired power plants. West European stem coal demand is
also expected to rise, continuing a revival that started after a major inter-
ruption in the first half of the 1990s, caused mainly by the UK’s ’dash for
gas’.
15
Japan Market Update by Maersk Broker, Copenhagen, fax dated 25 September 2000
16
Fairplay Market Forecast - Dry Bulk 2000
Last This
Route / Deadweight (t) Charter Outlook
week week
Duration min max type US$/d US$/d
Trans 45000 47000 V/C 8250 8250 steady
Atlantic r/v 42000 43000 V/C 7500 7500 steady
37000 38000 V/C 6750 6750 steady
28000 32000 V/C 6250 6250 steady
USG/ 45000 47000 V/C 10250 10250 steady
Far East 42000 43000 V/C 9750 9750 steady
37000 38000 V/C 9000 9000 steady
28000 32000 V/C 8250 8250 steady
Pacific r/v 45000 47000 V/C 8400 9300 softening
42000 43000 V/C 8800 8700 softening
37000 38000 V/C 7400 7400 softening
Continent/ 45000 47000 V/C 10000 10000 steady
37000 38000 V/C 8500 8500 steady
28000 32000 V/C 7500 7500 steady
Mediterra 45000 47000 V/C 10250 10250 steady
nean/ 42000 43000 V/C 9500 9500 steady
28000 32000 V/C 7500 7500 steady
Far East/ 45000 47000 V/C 9000 9000 softening
Europe 42000 43000 V/C 8400 8400 softening
37000 38000 V/C 7500 7500 softening
12 months 45000 47000 T/C 10000 10000 steady
T/C 42000 43000 T/C 9400 9400 steady
37000 38000 T/C 8200 8200 steady
28000 32000 T/C 7500 7500 steady
Table 3.5: Lorentzen-Stemoco Handy Size Outlook, dated 22 June

2000
In the grain trades, the 1990s have been a decade of under-achievement.

But the decade is set to end on a more positive note, MSI believes, point-
ing to underlying growth in imports by Latin America, Africa, the Middle
East and much of developing Asia. Population growth alone will drive grain
expansion, but this will be coupled by limitations on production growth, not
least because of limited potential to increases harvest areas in importing
countries.
As a result, grain imports will rise faster than consumption over the
next ten years and seaborne cargoes will average more than 200M tonne
Last This
Route/duration Cargo Charter Outlook
week week
(ton) type US$/d US$/d
hss Gulf/Continent 55000 V/C 15.75 16.00 firm
hss Gulf/Japan 52000 V/C 23.75 24.00 firm
Trans Atlantic r/v - T/C 12000 12250 firm
Pacific r/v - T/C 11500 11500 easing
Trip Atlantic/ Far
- T/C 12000 12250 firm
East
Trip Far East / At-
- T/C 11400 11250 easing
lantic
12 months T/C - T/C 11000 11250 firm
Table 3.7: Lorentzen - Stemoco Panamax outlook, dated 22 June 2000
per year, reaching 240M tonne at the end of the decade. As imports by
developing countries rise, so will the incentive to develop cargo-handling
facilities, which will be the greatest benefit to Panamaxes, MSI believes.
But sub-50,000 DWT handy tonnage will remain the main workhorse of the
grain trade, accounting for almost 60 per cent of required DWT demand in
2010.
Lorentzen and Stemoco
Lorentzen & Stemoco publishes the Weekly Market Outlook for both dry
and wet bulk cargo. The dominant markets are Pacific and Atlantic markets,
which are highlighted and commented, for example :
Better rates could appear for handy size tonnage plying the
Black Sea to Far East steel trade. Since there is a shortage
of suitable vessels in the area, this could eventually have an
effect on the trade.17
17
Lorentzen & Stemoco Weekly Market Outlook, on Handy size sector of the dry bulk
shipping, 11 August 2000.
Charter Delivery/ Redelivery/
Route Deadweight (t) Cargo/ Remarks
type Loading ports Disch. ports
min max
1 35,000 45,000 trip time Continent Far East -
2 25,000 - voyage US Gulf Algeria 5% HSS
3.2. Usable resources
Transpacific
3 40,000 45,000 trip time Singapore Japan
round voyage
Transatlantic
4 25,000 30,000 trip time Skaw Passero
round voyage
5 30,000 35,000 trip time South Africa Continent -
6 20,000 - voyage US Gulf Venezuela 10% HSS
7 30,000 35,000 voyage USNH South Korea scrap
Boston-
8 35,000 40,000 trip time Singapore -
Galveston
9 20,000 25,000 voyage Black Sea China steels
Antwerp-
10 25,000 35,000 voyage Brazil Hamburg any grain (sf 55’)
range
11 20,000 23,000 voyage Queensland Japan bulk sugar
Table 3.9: J.E. Hyde Shipping Index

88
Handy size tonnages are divided into few classes, according their size
and trading area. Lorentzen & Stemoco uses a ’standard’ bulk carrier of age
less than 15 years old and having cranes on board. The sizes of ships of
handy size class are clustered into five groups, see Table 3.5. For Panamax
class bulk carriers, all ships are groups into one, see 3.7. Those definitions
on the ship are apparently adequately accepted and understood by the
shipping practitioners. The outlook is expressed in qualitative terms, such
as stable, firm, easing or softening.
3.2.4 Market index

J.E. Hyde Handysize Index divides the Handy size bulk shipping into eleven
routes. Each has its own typical size of ships, see Table 3.9. Figures 3.5
and 3.6 show the development of the Time Charter and Voyage Charter
Indexes.
Efforts to provide a more objective assessment on the development of
dry bulk market is performed by the Baltic Freight Future Exchange (BIF-
FEX). The index they publish is made by a number of panelists consisting
of influential shipping market research companies and ship brokers, in Lon-
don.
3.3 Tools
Tools comprise methods or programs assisting shipping practitioners to
conduct their job. To this date the tools used basically do not differ very
much from those used in the past. Apart from the fact that computers have
become an important part of running ship business, the way the things
are conducted are still manual. Many assessment and planning tasks are
still performed manually. No computer program supports the employee for
assessing the values of ship or to generate forecasts. The shipping practi-
tioners rely much on the skill to conduct their job.
The next section elaborates a simple and very useful tool to help assess
the merit of a voyage, called the voyage calculation. Then it will be elab-
orated on methods used shipping research to address shipping problems,
particularly concerning valuation and decision making tasks.
3.3.1 Voyage estimation

Voyage estimation is a procedure for calculating the return/ profitability a
ship will make for a particular voyage [61]18 . The calculation is made by a
18
There is not standard term for denoting this procedure. Many prefer using the term ’es-
timation’ instead of ’calculation’ to indicate that the values used are meant as estimations
or approximations. As port or canal disbursements, claims, charter hire and other outstand-
3.3. Tools 90
JE Hyde Handysize T/C Index

11000
Route 1
Route 3
Route 4
10000 Route 5
Route 8
9000
8000
7000
6000
5000
4000
01/99 02/99 03/99 04/99 05/99 06/99 07/99 08/99 09/99 10/99 11/99 12/99
Date
Figure 3.5: J.E. Hyde Time Charter Index 1999
JE Hyde Handysize V/C Index

40
Route 2
Route 6
Route 7
35 Route 9
Route 10
Route 11
30
Freight Rate (US$/ton)
25
20
15
10
5
01/99 02/99 03/99 04/99 05/99 06/99 07/99 08/99 09/99 10/99 11/99 12/99
Date
Figure 3.6: J.E. Hyde Voyage Charter Index 1999

chartering staff in the beginning of a chartering negotiation. He may need

to adjust some values in it as the negotiation progresses. Figure 3.7 shows
a classical voyage estimation form. To this date such a structure does not
change very much. Available software enables the user to accomplish such
a calculation faster plus additional facility such as sensitivity analysis.
The voyage estimation incurs all aspects involved with the operation of
a ship. Important variables are time, cost and income:
1. Time depends upon: (a) voyage distance between redelivery ports

(b) possible deviations (c) cargo handling time
2. Costs are determined by (a) port and canal dues (b) claims (c) com-
missions
3. Income is determined by: (a) amount of cargo loaded (for voyage
charter) (b) length of voyage (for time charter)
Two important information delivered by the voyage estimation are Time

Charter Equivalent (TCE) and Gross Profit per Voyage (GP). TCE and GP
play an important role in decision making, beside other factors such as the
progress of negotiation and some subjective preferences.
Table 3.11 shows a sensitivity analysis of a voyage chartering negotia-
tion of MV L UCY O LDENDORFF. The redelivery port of the previous charter
party is Mumbai (Bombay), and the voyage estimation is assumed to start
from Bombay too. The cargo to be carried is soda ash. Mansukhani has an
eye on obtaining cargo from Bangkok area, therefore the redelivery port will
be in Bangkok. Its route will become Mumbai - Mombasa - Port Kelang -
Jakarta - Bangkok. She applies safe assumptions on loading and discharg-
ing rates, bunker price, sailing days are reasonable, as she has included
1.2 days as extra sailing days and 2 extra port days. And those assump-
tions are fixed. The sensitivity analysis gives her a good overview on the
relation between freight rates and their results. It helps her very much to
respond fast in this negotiation.
3.3.2 Statistics
There are two categories of statistics, descriptive and inferential statistics
[26]. Descriptive statistics is used to organize and summarize the data in
samples and populations. This includes procedures of ordering and group-
ing data into distributions and procedures for representing the data graph-
ically. Inferential statistics is used to make educated guesses (inferences)
about populations based on random samples from the populations. The
ings are still open, approximations are useful information, as the company’s management
wants to be kept informed on the merits of the operations of their ships.
3.3. Tools 92
Baltic Capesize Index

1 Arrow Chartering (UK) Baltic Panamax Index
Ltd.
1 Branchero Costa & C SpA
2 Branchero Costa & C SpA
2 H Clarkson & Co Ltd
3 Braemar Shipbrokers Ltd.
3 Fearnleys A/S
4 Galbraith’s Ltd
5 Fearnleys A/S
5 E A Gibson Shipbrokers
6 Galbraith’s Ltd.
Ltd
7 EA Gibson Shipbrokers
6 Howard Houlder & Part-
Ltd
ner
8 Howard Houlder & Part-
7 Howe Robinson & Co Ltd
ners Ltd
8 Ifchor SA
9 John F Dillo & Co
10 Ildo Chartering Group
10 Simpson, Spence &
11 Simpson, Spence, Young
Young Shipbrokers Ltd
Shipbrokers Ltd
11 Yamamizu Shipping Co.
12 Sobelnord SA (Dry Cargo
Ltd
Dept.)
13 Socomet Chartering
Baltic Handy Index

1 Angus Graham & Part-
ners
3 Fearnleys A/S
5 J.E. Hyde & Co Ltd
6 John F Dillon & Co
7 Lawrence (chartering) Ltd
8 A N Peterson A/S
9 Simpson, Spence &
Young Shipbrokers Ltd
10 Yamamizu Co Ltd
Table 3.10: Baltic Index panelists19

Figure 3.7: A classical form of voyage estimation [61]

3.3. Tools 94
TCE Freight TCE Freight TCE Freight

4450 34.19 4950 36.05 5450 37.91
4550 34.56 5050 34.42 5550 38.29
4650 34.93 5150 36.80 5650 38.66
4750 35.31 5250 37.17 5750 39.03
4850 35.68 5350 37.54 5850 39.41
Table 3.11: Sensitivity analysis of a V/C negotiation : MV Lucy Olden-

dorff - Mombasa/Jakarta, dated 30 May 2000
later is a very powerful tool which is available in statistics, which is fre-

quently used to reveal ’the secret’ knowledge hidden by the data. Statistical
procedures are tools for learning about the world by learning from data [26]
A very important notion in statistics is the concept of probability. Pro-
bability indicates the relative amounts of a certainty that an event will occur.
An event is a value or range of values on the variable being measured. An
example of an event is the size of vessel lower than 10,000 dwt. All ob-
servations on ships smaller than 10,000 dwt are instances of this event.
Very similar to the concept of probability is the relative frequency. A relative
frequency refers to what has been observed in the past, and it is obtained
by collecting data. On the other hand probability refers to the future. It
indicates the chance of some event occurring in the future. As far as the
numbers are concerned, the mean, variance or distribution of both relative
frequency and probability are the same, except the interpretation is quite
the opposite. Probability may also be interpreted as giving an estimated
relative frequency of an event in future random sampling from the popula-
tion.
Regression and correlation are procedures for describing how the scores
in two populations are related. Regression is used to find the best fitting line
that relates the scores. Correlation is used to describe the strength of the
linear relationship, it does not describe the causality of a relationship.
Design characteristics and performance
Wijnolst and Bartelds [79] endeavored to answer the question “Are there
bulk carriers consistently over-performing or under-performing the overall
market ?” using the period time charters and grain charter index of Pana-
max bulk carriers 1989 - 1994.
After some indexing procedures, middle values are removed, leaving
the data split into two poles, ships with low and high charter rates. Cor-
relation techniques are then applied for both groups, to find out whether
design characteristics including age of vessels play inherently a role in its
commercial success.
A factor which plays an important role is the quality of the ship manage-
ment. This is in fact the perceived quality or reputation of the ship manage-
ment. And this is a subjective factor. An assessment on the value of ship
are expectedly to produce a better result, if the subjective perception on
the way the ship is managed is the same. This can be achieved when the
valuation is made from the view of one party, i.e. one shipping company
with its own philosophy and its own way to conduct the business.
He reveals that there are no specific design characteristics resulting in
an outstanding economic performance. He concludes:
1. Only a small number of bulk carriers either overperform or underper-

form the market systematically.
2. The overperforming and underperforming vessels do not show typical
design characteristics, except fuel consumption. The more subjective
factors like the quality of management may play an important role.
3. Sum of charter hire and fuel costs are more or less constant, at ap-
proximately US$ 13,000 per day for all ships, irrespective of age.
4. Really one factor which determines the average charter rates, namely
fuel consumption. And that the charter market is almost perfect.
Price-volume relationship in sale and purchase market
Alizadeh and Nomikos investigate the price-volume relationships in the

market for second-hand dry bulk vessels [6]. Econometric techniques are
employed to investigate both relationships between price changes and level
of trading activity, for three different vessel classes as well as a general dry
bulk price index. They found the existence of a significant positive relation-
ship between price changes and activity in the sale and purchase market
for dry bulk vessels.
3.3.3 Econometric modelling

It appears that a huge number of research papers have been focusing
on understanding the functioning or mechanisms of the shipping system.
Freight rate and ship’s price movements have attracted many shipping re-
searchers’ attention; and there is a large literature on the properties of
freight rates [76]. Tinbergen believes that ship’s prices and freight rates
tend to move cyclically. He suggests that a sinusoidal function would be
adequate to model the ups and downs of the prices and rates.
Evidences from modern literature show that freight rates and the second
hand values of ships follow random walks. Berg-Andreassen studies the
freight rates of the dry bulk markets of the Baltic Freight Index (BFI). He
3.3. Tools 96
concludes from the indexes within the 1985-1988 period are not cyclical,
but they move randomly. That means that high prices are not necessarily
followed by lower prices.
Goncalves develops a method for determining the optimal policies for
ship chartering [27]. He believes that forecasting models are useful, but
inadequate to solve the problem. Nevertheless forecasting is at he first
step towards a more rational decision making process 20 . His views on the
method development for obtaining optimal chartering policies “.. to con-
sider a stochastic process of freight rates with some sort of mean rever-
sion. In this way, the effects of shipping cycles and short term seasonality
would be included. For this case, I expect a more complex mathematical
development in particular with respect to optimal policies and parameter
estimation. Possibly, the discrete time version with simpler policies will be
a starting point”.
Forecasting has a poor reputation in maritime circles. The argument
that forecasts are never right is often put forward with a great conviction
by shipowners who have been far too successful in business to have their
opinions taken rightly [73].
Evans evaluates the performance of shipping markets [22]. In short
term he believes that shipowners are profit maximizers and that market
rates are equal to marginal costs. It is an evidence that the existence of
allocative efficiency of resources. He relies his analysis on the assumption
that the knowledge of the market is perfectly known. The exchange of infor-
mation between ship brokers in local, regional or international exchanges
ensures that the current state of supply and demand is known with some
degree of certainty.
Adland [5] investigated the performance of theoretical models for vessel
evaluation and investment decisions in shipping. He introduced non para-
metric freight rate models in maritime economics, a methodology that is
often used in empirical financial research but has yet to be applied to ship-
ping. The research can possible uncover the efficiency of the second-hand
market or can yield superior return from asset play.
He shows a relationship between time charter rate and the values of a
vessel. Freight rate and time charter rate have a very close relationship.
These represent long-term expectation of earning. Second hand values lie
between newbuilding and scrap values. The price of new vessels generally
represent the steel, outfitting material, labor costs and yard’s profit. Like-
wise, the scrap value is the price the demolition yard is willing to pay for the
recoverable steel and material content of the ship.
Adland believes that the capacity adjustment is the main driving force
20
Rational means a. relating to reason; not physical; mental. b. agreeable to reason; not
absurd, preposterous, extravagant, foolish, fanciful, or the like; wise; judicious; as, rational
conduct; a rational man [1].
in freight market mechanism. The supply-demand mechanism is viewed as

a process: “when there is too little supply, the market rewards the inven-
tors with high freight rates until ships exit from lay-up and more ships are
ordered...”
3.3.4 Decision theory

Decision theory is an attempt to formalize the decision process by taking
account of the expected circumstances and by involving probabilities where
they are quantifiable, either from previous experience or from market re-
search [23]. The consequence of any decision is expressed in terms of a
payoff or a loss and is the result of the interaction of the action taken and
the actual state of the world which prevails.
Non-probabilistic criteria for decision making

Decision is made based upon three options, see Table 3.12:
1. Maximin rule: which is based on finding the smallest payoff for each
action and the choosing the action for which this is largest.
Maximin (Ai ) = max(min(xi1 , xi2 , xi3 ))
2. Maximax rule finds the largest possible payoff for each action ad
chooses for which this the largest.
Maximax (Ai ) = max(max(xi1 , xi2 , xi3 ))
3. Minimax rule is based upon the idea to make a very cautious decision
based which is least harmful, i.e. least loss. This rule finds the max-
imum loss for each action and then chooses the action where this is
the smallest
Minimax (Ai ) = max(min(yi1 , yi2 , yi3 ))
Applying the negotiation data of Mansukhani to the above:

The above table is not sufficient to describe the decision making pro-
cess really conducted in practice of shipping. Other aspects pay an impor-
tant role, namely the reputation/ name of the charterer, stage of negotiation,
cargo potential at main world’s regions. The information of the later is not
always numerical. It is not clearly either the degrees of importance of those
aspects among each other.
More complicated problems are best considered using a decision tree
[23]. A decision tree is a graphical method of expressing, in chronological
order, the alternative actions that are available to the decision maker and
the choice determined by chance [30].
The diagram grows from left to right as a logical sequence of events
unfolds. The decision tree diagram comprises decision forks and chance
3.3. Tools 98
Pay- Situations
Loss Situations
off
Action Θ1 Θ2 Θ3
Action Θ1 Θ2 Θ3
A1 y11 y12 y 13
A1 x11 x12 x13
A2 y21 y22 y23
A2 x21 x22 x23
A3 y31 y32 y 33
A3 x31 x32 x33
A4 y41 y42 y43
A4 x41 x42 x43
(b) Loss table
(a) Pay-off table
Table 3.12: Pay-off and loss tables
Figure 3.8: Decision tree

forks. The probabilities and expected payoffs at each chance fork are com-
puted and at each decision fork the action with the largest expected payoff
is chosen.
Remarks
The decision theory requires that all information must be input and pre-
sented numerically. And the degrees of importance among the variables
must clearly / numerically be defined. All decision-making problems con-
tain similar features [23], see also Chapter 4, sub-section 4.2.1:
1. a choice or a sequence of choices

2. information is partly available or if information is available it can be
subjective
3. possibility of obtaining further information at a cost.
Applying the decision theory: a case of chartering negotiation

Now we explore the feasibility of applying the decision theory for a real
case, the chartering negotiation of MV L UCY O LDENDORFF by Ms Man-
sukhani, mentioned earlier in this Chapter. Table 3.13 shows the probabilis-
tic pay-off and loss tables. Many fields of the above tables are empty, or
not known. The decision maker does not quantify the values for various si-
tuations and their respective chances. The values in the table are changing
continuously during the negotiation, and she still does not attempt quanti-
fying the empty fields. Quantifying the payoffs in various situations and the
probability of occurrence of those situations are not viewed necessary.
Decision making has also a time limit. The limitation is not only deter-
mined by the the laycan dates of the ship, but also the assessment on the
state of negotiations with other parties on the very same object. Just short
before a negotiation reaches a mature stage, where only minor terms are
to be agreed upon, a decision maker will make a clear cut, which one will
be chosen.
All processes of negotiations can suddenly be halted. In most on-going
negotiations there is a clause stating that the board of director may lift the
agreement. This is a risk which has to be taken into account. The things
which seem to be very promising during the process of negotiation can
suddenly be meaningless, when the other party decided to make a deal with
another party. A point to note which considerations are decisive: Not only
to a negotiation with a reasonable return, but also a negotiation which best
lead to fixing the charter party, as shown by the Mansukhani’s chartering
negotiation illustrated earlier in Section 3.1.
The decision theory proves impracticable in ship chartering. The ship-
ping practitioners assess the chances of success of fixing a charter party,
3.3. Tools 100
but they do not force themselves into quantifying the probabilities of events.
They are comfortable with they way it is carried today. And it is the natural
way of decision making. Formalizing today’s natural way of decision ma-
king to a mechanistic way laid out by the decision making theory would slow
down the process of decision making and it would simplify the complexity
of decision making very much.
Expressing a strategic alliance consideration, which may allow a low
time charter equivalent, in the way it is expressed qualitatively, is better
and more understandable than in the form of scores. Applying the method
would mean degrading the expertise degree of the expert [19].
3.3.5 Views on shipping practice

Newbuilding market is fluctuative. Macro-economy, demand for and supply
of ships, exchange rates affect the S+P prices of ships. In order to develop
the right strategy (right time, right place, right currency), sufficient informa-
tion and experience is required [45, p. 145]. What kind of experience is
it? Gardner et al examined the role of seafarers in UK. For some 70% of
shore-based shipping jobs it is considered essential for the candidate em-
ployees to have gained seafaring experience [15]. Jobs falling under this
category are from survey, maritime operations till financial positions (insur-
ance, banking, chartering). The remaining 30% is seen of advantage if
the candidate has seafaring experience. Therefore a number of success-
ful shipping managers have seafaring experience in the past. The British
government recognizes ’the need to maintain the pool of people with sea-
faring skills and experience to fill jobs in the shore-based maritime-related
economy’.
Intuition always plays an important role in shipping practice. Various
tasks concerning the value assessment and decision making in chartering,
sales and purchase involve intuitive judgments. Ship valuation is an impor-
tant task in shipping. Prices recommended by a shipbroker rely very much
upon his knowledge, his experience and, which Pineus calls “the feeling
in his little finger”. The reality of shipping today is still relevant with the
description of Pineus. Further more Pineus argues [63]:
To know the market and its tendencies in the overall field is the
professional talent of the broker, acquired after long experience.
There may be particular trades where the specialist broker may
be the greater authority. The assessment of the ’trend of the
market” is no exact science, it is rather a knack of the profes-
sional man, the broker.
Norman (1979) argues that shipowners are too strongly influenced by cur-
rent spot rates in their assessments of future market conditions, and that
Pay-off Situations
Action Θ1 Θ2 Θ3
Swazi x11 N/A N/A
Panocean x21 x22 x23
Doo Yang x31 N/A N/A
Toepfer x41 N/A N/A
P(Θj ) N/A N/A N/A
(a) Pay-off table

Loss Situations
Action Θ1 Θ2 Θ3
Swazi N/A N/A N/A
Panocean N/A N/A N/A
Doo Yang N/A N/A N/A
Toepfer N/A N/A N/A
P(Θj ) N/A N/A N/A
(b) Loss table

Table 3.13: Probabilistic pay-off and loss tables applied for Man-
sukhani’s negotiation
this is the reason why owners are seemingly irrational in their contracting
decisions21 [27].The valuation process in practice follows the following pro-
cedure: first is look at similar vessels sold recently or currently offered for
sale [5]. Then compare its age. A rule of thumb: ship is depreciated over
15-20 year. the depreciation is 5-6% annually . Third, speed. 2% value
difference per knot. Clearly valuation process is quite simplistic and sub-
jective, and is not directly related to the expectations of future earnings .
Adland observes that the shipowners do not always decide rationally
[5]. This adds to the irregularity of the market. "Since shipowners are
constantly trying to second-guess the cycle, crowd psychology is believed
to play an important role in this game and adds to the irregularity". In spite
of his advocation for using mathematical models, he admits The results can
not yet challenge the existing valuation method in shipping.
3.3.6 Research agenda

The methods mentioned earlier in sub-sections 3.3.2 and 3.3.3 can be sum-
marized as follows: They treat shipping system as a blackbox, see Figure
3.9 (a). Then they aim at making it more transparent, to make the relations
21
Spot market is a clearance market for vessels and cargoes immediately available in a
small geographical area.
3.3. Tools 102
input blackbox output (a)
input output=f(input)
output (b)
input output (c)
Figure 3.9: Shipping as a blackbox
between input and output ’more visible’, Figure 3.9 (b), e.g. using statistical
techniques. Or, sometimes the system is treated as a causal process, see
Figure 3.9 (c), e.g. using econometric modelling.
A lot of research has been undertaken and has contributed very much
for conducting macroeconomic analysis. But shipping index, forecasts and
forecasting models, for example, are of less use for those who conduct
daily shipping practice.
Datz suggests that manager should decide based on facts and not on
intuition. On the other hand, he believes that in order to make forecasts
useful it is imperative to include the user’s view on the developing situa-
tions, as he sees it [16]. Apparently this seems a general view of the ship-
ping research agenda today, see also for example Beenstock and Vegottis,
and Evans and Marlow [8, 23].
The fact that rational decision making procedure does not apply well in
many decision making tasks in daily shipping practice seems to be over-
looked, see Section 3.1. Intuitive way of accomplishing tasks has not been
considered as a research subject seriously. The paradox between the
views on the way shipping is run and the fact that rational decision mak-
ing does not work satisfactorily in daily shipping practice, on one hand, and
the selection of topics and the ’mechanistic’ views on the shipping system
and the choice of methods conducted in shipping research to this date, on
the other hand, confirms the necessity to have a new way of looking at the
shipping tasks. By doing so, the development of tools usable for shipping
practice can be implemented.

1. In value assessment, soft factors, such as the quality of management,
play a significantly more important role than the physical aspects of
the ship.
2. Solving a problem does not always require thoroughly analytical and

theoretical understanding on the matter. Problem solving frequently
means imitating or repeating the way past similar problem was solved.
Knowledge for solving problem seems to be hidden behind the term
’experience’.
3. All specific information, e.g. price estimation, is provided by experts

(brokers or consultants), that base upon their experience and views
on the prevailing market. Shipping indexes are too general to be
useful for addressing daily chartering matters.
4. The decision making in practice does not follow the rational decision
theory. The objective is not to obtain the optimal solution, but to obtain
an acceptable solution.
5. Qualitativeness, vagueness, subjective preferences, experience and

intuition are treated as important factors in shipping. Nevertheless,
those aspects do not seem to have been seriously taken into account
in the shipping research agenda today.
Part II
Concept building and

implementation
105
Chapter 4
Towards the Concept of

Compatibility
4.1 Introduction
4.1.1 Lessons learned
Chapter 2 showed us that ship practitioners rely very much upon their in-
tuition. Their experience, information and views from brokers, shipping
agents and newspapers are very important sources for assessing generally
prevailing charter hire values and sale & purchase prices of ships more ac-
curately. Published indexes and statistics can be useful too. They are
viewed as a rough guide. But they are not always of direct relevance to
actual daily negotiations. Many trades and ships, with their specific design
characteristics, are not covered adequately by those index. The indexes
are too general to be practicable.
The shipping research community has been working hard to support
the shipping industry by developing e.g. forecasting tools. Shipping market
models have been developed in order in order to understand the process,
the functioning of the market, and in turn it can be used for a.o. predicting
the shipping market tendencies. To conduct daily tasks in shipping, such
models are of little use.
Shipping practice is still marked by decision-making processes which
are fast and intuitive. Ship’s value assessment tasks or forecasting tasks
rely very much upon the capability of the managers to assess, and they do
not rely on fancy tools.
The gap between both worlds, that of research and shipping industry
respectively, in terms of the way they view the problems, is probably not
that small. Findings shown earlier in Chapter 3 show that rational decision
makings are not necessarily practicable. Intuitive actions which mark many
decision-making actions in the industry, seem to be less appreciated by the
107
4.1. Introduction 108
shipping research community.

The daily portraits of shipping business can be summarized as follows:
1. Information manifests in various degrees of precision, accuracy and

detail. Information can be quantitative (numerical) or qualitative (tex-
tual, graphical). It is hardly free from subjectivity.
2. Time frame for making a decision is limited.
3. Knowledge needed for running shipping business comes mainly from
evolving experience. Formal knowledge alone is not adequate to con-
duct shipping business accordingly.
4. Past information and past experiences on operations in various ports
and situations are very useful.
The above points will be elaborated in Section 4.2.

Shipping research today seems to be interested in addressing the ship-
ping system as a process, as a mechanism. Efforts to reveal and to un-
derstand the functioning of the system have received a lot of attention.
Modeling and statistical techniques are frequently used. It is not surprising
and it does not deviate very much from the point of departure of most mod-
ern social and physical sciences resting on the assumption that processes
whether natural or artificial, could be mathematically analyzed and under-
stood [48]. This viewpoint seems still to apply to today’s shipping research.
The state of the art of shipping research today can be described by a
combination of the following two factors: (a) view differences (b) unsatis-
factory results. Firstly, the way a practitioner addresses problems may be
substantially different from the way models are supposed to work. Practi-
tioners may know things but they are not always in position to explain them
precisely and consistently.
Secondly, current forecasting tools, for example, are not usable in daily
practice of shipping business. Forecasting models, which may produce
more accurate figures, are designed for a sector of shipping. These figures
are usually of no direct relevance for conducting chartering or sale and
purchase negotiations.
Whilst shipping research today is still predominantly process-oriented,
see sub-sections 3.3.5 and 3.3.6, another way of looking at things done
in shipping is regarded as necessary. A decisive point has been reached
now to rethink about the direction. Given the failures of the approaches
employed in shipping research today, we believe it would be of a great
use to take a few steps back, to understand the circumstances of shipping,
persons involved in it, how tasks are conducted, before jumping in a hurry
proposing a (probably new) solution path.
109 Chapter 4. Towards the Concept of Compatibility
4.1.2 Determining directions

In addition to empirical findings and the state of the art of shipping research
in Chapters 2 and 3, a striking question to be answered is to choose a
direction, which way to choose.
The history of science and technology is marked a.o. by learning from
the nature. We have benefited very much from this learning, which may
prevent us from ’reinventing the wheel’. From animals or plants, we may
borrow or even copy the superior designs, concepts, experiences or ideas,
and apply those to our problems. Learning from others provides also the
opportunity to awaken our inner warning system not to repeat the same
or similar mistakes [55]. And as every choice in life it is always exposed
to risks, risks of failure, risk of not finding the right answer or risks of not
reaching the objective.
The shipping sector is managed, its problems are solved on daily basis.
Some operators or persons have shown superior performance over the
others. Some others may have shown the contrary, at least for a certain
period of time. This highlights two things of interest: human and time.
Human performance in solving problems, some are very complicated ones,
can be of superior quality. The capability to foresee the future charter rates
or sales prices can be astonishing. It is not intended to categorize it as a
luck or not. What we can notice are the hard facts.
Another point: the above performance may be inconsistent. In certain
time, some are superior over the other, and at some other period of time
vice versa. Given this real example, having two sides of properties, we
believe we would benefit very much from understanding ourselves, as a
human. In the relation to the shipping tasks, a human can be associated in
the role he plays, for example as a decision maker or a chartering manager
or a shipbroker or a local agent.
Artificial Intelligence (AI) is proposed to offer a fresh perspective on the
way we look at the shipping problems today. AI research has both borrowed
from and contributed to research on human problem solving [72]. It is a
branch of computer science that studies the computational requirements for
tasks such as perception, reasoning and learning, and develops systems to
perform those tasks1 [44]. AI is a diverse field whose researchers address
a wide range of problems, use a variety of methods, and purse a spectrum
of goals, for example:
1. studying the requirements for expert performance for specialized tasks

2. modelling common sense tasks
3. studying behavior in terms of low-level processes using models in-
spired by the computation of the brain
1
For more definitions on AI, see the glossary.
4.2. Foundations 110
4. studying planning as a psychological process

5. developing devices that cooperate with people to amplify human abil-
ities.
4.2 Foundations
4.2.1 Bounded Rationality
A classical view on decision making
Decision making is a process by which a manager responds to opportu-

nities and threats by analyzing options and making decisions about goals
and courses about actions [20]. And a decision is a choice among available
alternatives, see also 3.3.4.
The classical model of decision making rests on the following assump-
tions, namely that a manager
1. has perfect information

2. can clearly define the problem
3. knows all relevant criteria and could accurately weight the criteria ac-
cording to their preferences
4. does not change their preferences
5. does not have any time constraint
6. chooses the decision with the maximum payoff.
The processes of the classical model of decision making involve the

followings:
1. listing alternatives and consequences

2. ranking alternatives from low to high
3. selecting the best alternatives.
The empirical findings in shipping practice contradict the above classi-

cal model of decision making2 . A decision maker does not define the goals
explicitly; he does not have all information needed. The degrees of pre-
cision, detail and accuracy of information are initially low.These improve
along with the process of negotiation and during the operations. In line with
the changing size of information, in terms of its degrees of detail, precision
and accuracy, his preferences may change. Human preferences are not
always consistent.
2
see also the chartering negotiation performed example of Mansukhani in sub-section
3.1.2
Information is available excessively, but useful information is still scarce

and expensive. For example, information on the cargo handling perfor-
mance of a remote port can of huge importance, but it is not always easy to
obtain. To obtain more precise and more detailed information, it takes time
and costs. Moreover when an operator has never called the port; this situ-
ation is not unusual, since bulk carriers basically do not have fixed routes
nor fixed schedules. Appointing a local agent who is not well-known before
hides some risks and costs. Reliable information is not always guaranteed
available.
Time is an important factor concerning the decision making. It may re-
late to the progress of the negotiation and external events which may drive
him to decide timely. Profitability is a very important factor for decision mak-
ing. But it does not necessarily mean that the decision maker strives for the
profit maximization. It seems that a decision maker strives for acceptable
solution instead of an optimum solution.
Bounded Rationality
Chapter 2 and 3 have taught us that many decisions in shipping practice are
not made rationally. Objective probabilities of future events of, such as bad
weather, high fuel prices or magnitude of cargo damage, are not explicitly
known. Shipping practitioners may use some subjective probabilities, but
they do not quantify them numerically. As shipping connects nearly all parts
of the wold, this sector is volatile to exogenous factors, such as weather
and political events of a country. The influence of exogenous factors on the
shipping system is tremendous. This enhances the size of complexity of
the system. The uncertainty plays an important role.
In his theory of bounded rationality, Herbert Simon3 argues that the ca-
pacity of a human is limited and it is too small to address the complexity
of the real world rationally. The complexity of the world is marked with
the incompleteness and inadequacy of human knowledge, the inconsisten-
cies of individual preference and belief, the conflicts of value among people
and groups of people. Nevertheless a human is able to solve the complex
problems by simplifying the problem formulation drastically. By applying
approximate and heuristic techniques, the complexity of the problem can
be downsized [72].
Optimization techniques, under the umbrella of the operations research,
are a prominent content in management science. Linear and dynamic pro-
gramming are among a few which are frequently used to solve managerial
problems, see [30]. Simon argues that the usage of optimization tools will
only be of use if the uncertainty is absent or full probability distributions for
uncertain events are available. The classical theory of decision making will
3
Nobel Prize Laureate in Economics 1978
ship
Shiping company
Chartering Operations Technical

Department Department Department
Broker Shipper Cargo owner
Figure 4.1: Main communication relations between parties in during

chartering negotiations
never handle any real problem satisfactorily, unless the uncertainty does
not play a central role [70].
4.2.2 Information and complexity

Data is a collection of facts. Data materializes in the form of numbers,
characters, or pictures [3, 2]. Data on its own has no meaning. After some
processing or analysis, data becomes information, which is meaningful to
the user. The meaning of information to a person may differ to another
person. A shipping index which is useful for ship chartering community may
be meaningless to non-shipping people. Shipping indexes highlighting the
market of ships over 10,000 dwt size are basically useless for operators of
3000 dwt bulk carriers, since those ships are not covered at all. Besides
the value of information depends also on the skill of the person in concern.
A system is a collection of entities and relations. Shipping as a system,
contains entities, e.g. ships, cargoes, ports, operators, and relationships,
e.g. route, broker-shipowner relationship. Figure 4.1 shows main commu-
nication relationships between the shipowner, and the charterer during a
chartering negotiation. The charterer has a main contact with the charter-
ing department representing the shipowner. The shipowner is a shipping
company, a system, consisting of few sub-systems namely departments
and ships.
After signing the Charter Party and the ship is then delivered to the char-
terer, the department of operations of the ship owning company takes over
the command. This department becomes the main contact with the charter-
ers. Depending on situations, the relationships may vary from one case to
another, see Figure 4.2. The way all parties act reflects the quality of their
relationships. Between close long-time partners, the parties may allow late
payments or being friendly to claims. The other extreme exists as well, a
new partner, or company which is supposed to have a bad reputation. The
space between them is huge. These relationships will be known after one
knows the preferences of the management. Since it is hardly possible to
express it sharply, a consultation between managers is necessary.
Many variables affect the shipping industry, from fuel price until political
events. Their effects to the industry is difficult to determine. Many informa-
tion exists in qualitative form and is subject to interpretation. The complex-
ity of a system arises when information is unreliable, or irrelevant,or when
there are too many interacting variables which possess some non-linearity
properties [9, 68, 84]. A system can be viewed as a complex system when
it is composed of sub-systems and its nature of relationships is imperfectly
known [74]. Shipping can therefore be viewed as a complex system.
In order to handle such a complex system, the size of the problem must
be cut down, Simon argues . By doing so problems can be solved more
easily. Using approximation or heuristic heuristic techniques, among a few,
may open a way to better handle complex problems [72].
4.2.3 Precision, accuracy and detail

In daily conversations accuracy and precision are mixed up inappropriately,
as illustrated by the Webster Unabridged Dictionary: precision is the qual-
ity or state of being precise, exact limitation; exactness; accuracy; strict
conformity to a rule or a standard: definiteness [1].
Accuracy is a synonym for correctness. It describes the nearness of
the value to the true or standard value. Precision is the degree to which
all measurements are close to each other4 . The more precise the data,
the closer to each they are, the smaller is the scatter area of the data, see
Figure 4.35 .
It is difficult to estimate the situations weeks or days ahead. Estimated
arrival date (ETA), estimated remaining bunker on board at arrival (ROB)
are few things which are of importance for many parties involved. Cargo
owners makes sure the cargo readiness. Other items such as crew change,
bunker, ship inspection depend very much on this information. Therefore
4
http://webphysics.iupui.edu/NH/Projects/TEAMS%5B2%5D/err6.htm, downloaded 2
August 2004
5
Suppose we are aiming at a target, trying to hit the bull’s eye (the center of the tar-
get) with each of few darts. The figures show some representative pattern of darts in the
target; http://honolulu.hawaii.edu/distance/sci122/SciLab/L5/accprec.html, downloaded on
2 August 2004
ship
Shipping company

Cargo
Broker Shipper
owner
(1) during operations
ship
Shipping company

Cargo
Broker Shipper
owner
(2) after operations

Figure 4.2: Main communication relations during and after operations
(1) Precise and accurate (2) Precise but inaccurate
(3) Imprecise but accurate (4) Imprecise and inaccurate
Figure 4.3: Accuracy and precision

30 May 2000 30 May 2000, 12:35
Ship’s Ship’s Laycan Account Ports Charter Hire Fees Bunker

particulars particulars dates
Del Redel ILOHC C/E/V
Amount Payment
terms
Trading
area
30 May 2000, 13:07
Ship’s Laycan Account Ports Charter Hire Fees Bunker

particulars dates
Amount Payment
terms
Trading
area
30 May 2000, 15:56
Ship’s Laycan Account Ports Charter Hire Fees Bunker Cargo:

particulars dates grain
Amount
Payment
terms
Trading
area
Figure 4.4: Evolving degrees of details

(1) Not detailed (2) Rather detailed
(3) Detailed
Figure 4.5: Degree of details
the information is regularly updated. The information becomes more pre-

cise in the course of time, as illustrated below6 :
PRIOR NOTICE OF ARRIVAL 5/3/2/1 DAYS.

OWNERS CONFIRM VESSEL IS SELF TRIMMING, SINGLE DECK BULK
CARRIER FOR GRAIN
LAST THREE CARGOES: PEAS/SUGAR/CONCENTRATES7
FULL ITINERARY UP TO DELIVERY: VESSEL IS IN BOMBAY NOW, DIS-
CHARGING PEAS, WHERE ETD 4 JUNE AND THEN BALLASTING TO SIN-
GAPORE FOR BUNKER AND DELIVERY WHERE ETA 11 JUNE, SUB AGW
WP AND UCAE
LOCATION OF CRANE: REVERTING
During the negotiation some inaccuracies are corrected as well. Accuracy

and precision improve in the course of time.
6
Viveka Mansukhani, E-Mail, 5 June 2000
7
Concentrate is the desired mineral that is left after impurities have been removed from
mined ore [3]. Example of concentrates are lead, copper, nickel iron or zinc sulfide concen-
trates.
Another property of data which is used daily concerns the degree of

details of data. It describes the size of variables or branches contained in
or presented by the data, see Figures 4.4 and 4.5. At the beginning of a
negotiation, the content of information is very brief. Usually it contains the
data of the ship offered, or on the cargoes offered for carriage. In spite of
such incompleteness, a chartering staff may guess other details. This is
enough to obtain the first impression, whether he is interested in it or not.
It leads to the first action, he asks to the broker for more information.
The degree of details of information evolves in the course of time, see
Figure 4.4. More branches are growing in the course of time, which means
more details are available and those are subject for negotiation. Italic bold
letters are topics which have not been agreed by both parties, charterers
and owners. The topics circled are subject mentioned in fax during the
negotiation. It does not necessarily mean that the remaining topics have
been agreed by both parties.
4.2.4 Intuition, reasoning and experience

Knowledge is an informal notion describing something that a human, a for-
mal system or a machine can possibly use in order to perform a certain
task of functionality [65]. Knowledge engineering is a process for formaliz-
ing the expert’s knowledge into the knowledge base. The knowledge base
is where the program stores fact and associations it ’knows’ about a subject
area [11].
Heuristics are strategies usually based on past experiences, that sim-
plify the task of problem solving and generally will lead to the correct an-
swer. This approach is optimal in the sense that this has a reasonably high
probability of success coupled with low costs or efforts 8 .
The way the problem solving is carried out is related closely to the skill
degree of the person. Dreyfus and Dreyfus [19] categorize five degrees
of expertise: beginner, advanced beginner, competence, proficiency and
expert. A beginner learns and does things strictly following a certain or-
der or flow chart or rule. His horizon is limited to the formal knowledge,
and context-free. On the other extreme, an expert does not need to follow
procedures strictly. He does things in context, intuitively and fast.
An example from ship operations: stowage planning. It is a task to
allocate the positions of cargo to be loaded onto ship. The diagram showing
the positions of cargoes on board is called a stowage plan.
A closer look at the way a student is taught in a course, how he carries
out his first planning tasks and a glimpse at how an experienced planner
carrying out his job, confirm the argument of Dreyfus. A student must follow
8
www.general.wa.edu.au/u/kraepeln/bs/bs130/bounded.htm downloaded on 17
September 2004
procedures of creating a stowage plan strictly. Aspects concerning the state

of ship such as draught, trim, stability and strength, cargo properties must
be taken into account. The following items taken from a stowage plan-
ning course of a shipping school illustrate a part of the above-mentioned
stowage planning procedure9 :
1. Differentiate different types of containers.

2. Identify the importance of the metacentric height.
3. Identify the concepts involved in calculating GM of a ship.
4. Plot a ships position on chart
5. Calculate distances from port to port and work out ETA.
For a student or an unexperienced stowage planner stowage planning

activities are effortful. He has to consider a lot aspects before he can start
creating a plan. He has to calculate every aspects on the state of the ship
involving trim, draught, stability and strength. A change in the number of
containers to be loaded affects the state of the ship in terms of her stability,
bending moment etc. He does not have the capability to assess the degree
of importance of numbers yet. For every slight change in number of con-
tainers to be loaded, he may find it necessary to recalculate. To create a
simple stowage plan, it would cost him hours.
As one has gained months or years of experience in this field, the above
situation looks different. He does not need to calculate the state of ship for
every slight change of cargo amount. He knows that a slight change does
not affect the state of ship very much. He knows what a slight change
means. Understanding this vague term ’a slight change’ is very useful.
It enhances the efficiency to accomplish the task: if the magnitude of the
change of cargo amount belongs to the set ’slight change’, then he does not
need recalculate the state of ship pertaining her actual stability etc. After
taking a quick glance at the loading list and the arrival conditions of the
ship, an experienced planner knows roughly and quickly, how the problems
should be solved.
Stowage planning is a search process, a search for the best slots to
where the containers to be allocated. In contrast to a beginner, an expert
does not try all possible alternatives. He guesses a few promising solution
concepts which may lead to a reasonable solution. A new planning task
reminds him of past similar planning sessions. By doing so, an experienced
planner may accomplish a stowage planning task in a much shorter time,
and perhaps with a better quality too, than a novel one.
The above capability of performing a task better and/or faster is result
of learning. That marks a shift from a beginner to an expert. Learning
9
Taken from the curriculum of the course “Container ship planning, stowage and stability”
(code ND CC 203) at the Colombo International Nautical and Engineering College (CINEC).
http://www.cinec.edu/departments/nd_cc203.htm downloaded on 11 December 2004
enhances the capability of solving problems. What does he do when he

does problem-solving? Riesbeck and Schank believe that ’human experts
are not systems of rules, they are libraries of experiences’ [66]. A new
problem reminds an experienced person similar problems he faced in the
past, stored in his library of experiences. By doing so it enables him to
perform a similar task better. Simon calls it ’learning’ [48].
Wittgenstein explored our understanding about language, meanings of
words and objects. He suggests that an object, like a table or chair, is poly-
morphic and cannot be classified by a single set of necessary and sufficient
features but instead can be defined by a set of instances that have family
resemblances [78]. In learning a foreign language, besides from grammati-
cal rules, one may learn form examples how to use a word. Immitating how
to use words for similar situations helps expedite mastering a language
[64].
Chapter 2 showed us that a formal education only is not adequate to
be able to run shipping business. Learning directly, or learning by doing,
how shipping practitioners communicate with shipping communities (e.g.
agents, authorities, brokers, charterers and owners), how they assess sit-
uations and try to understand the tendencies of market is of necessity.
Apparently this idea has widely been accepted by shipping schools. Ap-
prenticeship is obligatory for students. He learns how chartering inquiries
are processed, how negotiation is conducted, how to handle special clients
etc. He may look at and learn from past voyage records, past charter par-
ties. He will learn that old charter parties are reused. After some neces-
sary modifications on the parties involved, delivery and redelivery ports and
dates and some additional clauses, a new charter party can be prepared in
a short time. It is more efficient to use a past charter party than to draw it
from scratch. It prevents him from reinventing the wheel.
He learns how the company acts towards special requirements of spe-
cial clients, he learns also to figure out the preferences of the company
concerning partnership with other companies, or even learns to figure out
less desirable profile of companies. By listening from more experienced
chartering practitioners, he will receive uncountable amount of hints and
actual information.
He learns understanding contexts. He learns ’reading’ situations, char-
ter rate trends, influence of events, local or international events on the oper-
ation and commercial aspects of operating the ship. He learns from cases.
The higher the degree of expertise, the better he is to perform things
fast and intuitively. It is not exaggeration to mention that “an expert does
not think, he simply knows it”. Since intuition is knowledge. The higher de-
gree of expertise, the more intuition is used. Dreyfus and Dreyus mention,
“When things are proceeding normally, an expert does not solve problems
and does not make decisions; they do what normally works” [19].
In his experiments, Kahneman shows a few vertical bars with different
Figure 4.6: Recognizing the average as intuitive process [35]
Figure 4.7: Pain measurement [35]

lengths to viewers, see Figure 4.6. The viewers can estimate well the aver-
age length of the bars. But they have a difficulty to estimate the total length
of the bars. Higgins uses the concept ’accessibility’, which means the ease
with which particular mental contents come to mind . Average is more ac-
cessible than the sum. They can estimate the average length of the bar not
by calculating the sum of bars’ lengths divided by the number of bars. The
sum operation is not an intuitive act, it is a deliberate act, and it is effortful
and much slower compared to the intuitive act [35].
Another finding of Kahneman concerns the way a human perceives
events. Figure 4.7 shows a graphic containing the degrees of pain of a
patient. Viewers believe that patient B suffers more than patient A. But the
patient A feels he is more suffering. The worst moments and the values in
the end episode are weighted heavier.
Kahneman suggests that intuition is automatic, effortless, associative
and difficult to control or modify. Reasoning, on the other hand, is slow,
effortful and deliberately controlled. Intuitive thinking operates on basic
representations with relatively little elaboration or extra computation. The
basic representation of sets includes average values of features, but does
not normally include their sums [35].
Experience is the accumulation of knowledge or skill that results from
direct participation in events or activities [3]. Remembering past successes
are useful. The ways those problems were solved, can be reused or copied
to solve current problems. Past failures can be useful too. Those failures
mean warnings. Hints and warnings are very powerful knowledge, heuristic
knowledge. Remembering all experiences are not practicable and are not
possible, due to limited human capacity to store those. Selectively forget-
ting unuseful experiences are necessary.
Every chartering negotiation is unique. The parties, ship’s and cargo
conditions, weather, macro-economic and political situations are different.
The details of Charter Parties are therefore always different from previous
ones. But one realizes very much that a big part of the Charter Party is
standard. It is efficient if one does not have to draw a Charter Party from
scratch every time he concludes a chartering negotiation. A standard Char-
ter Party form is helpful to address this problem.
It is helpful to expedite accomplishing the chartering tasks, and to ease
preventing from forgetting or overlooking essential clauses. There are a
number of standard Charter Party forms available, such as those of the
New York Produce Exchange (NYPE) or of the Baltic and International
Maritime Council (BIMCO). This is an act of reusing good clauses which
are applicable for current case. The practice has gone a bit further. Not
only the use of standard Charter Party is widely popular, one uses also
past Addendum or Rider’s Clauses.
The above method is efficient, and it works. Inappropriate or even in-
correct data can easily be modified, when necessary. The Charter Party for
MV L UCY O LDENDORFF reuses another past Charter Party with Shinwa.

Few lines/ clauses are incorrect. That not all data can be taken over from
an old similar Charter Party is taken for granted. In turn those can be log-
ically amended. By doing so, improvements of as past Charter Party can
be performed easily 10 .
MV LUCY OLDENDORFF
ACCT: SHINWA KAIUN KAISHA. LTD., TOKYO
DEL DLOSP SINGAPORE ATDNSHINC
LAYCAN 0000HRS 11 JUN/ 2400HRS, 2000 LOCAL TIME
FOR ONE TCT VIA SA(S)/SB(S)/SP(S) AUSTRALIA TO SE ASIA AA AWIWL
WITH LAWFUL CGO INTENTION GRAIN DURATION ABT 30-40 DAYS WOG.
REDEL DLSOP 1 SP JAPAN/SPORE INCL. S.KOREA/MALAYSIA/FULL IN-
DONESIA/PIPICAO ATDNSHINC
HIRE USD 780 PDPR INCLOT PAYABLE 15 DAYS IN ADVANCE
BOD TO BE ABOUT 400-650 MTS IFO AND 50/80MTS MDO. OWNERS
GUARANTEE VSL HAS SUFFICIENT BUNKER TO PERFORM CHRTRS IN-
TENDED VOYA EX ESPERANCE, WEST AUSTRALIA TO JAPAN. BUNKER
ON REDELIVERY TO BE ABT SAME QTTY AS ON DELIVERY PRICES AS
AGREED IFO 170/MDO 230 PMT BENDS.
First group: logical amendments and additional lines:
REDEL DLSOP 1 SP JAPAN

LINE 2: HALFMOON SHIPPING CORP AS OWNERS
LINE 58: DELETE ’SEOUL’ AND INSERT ’FRANKFURT’
LINE 115: DELETE ’TOKYO’ INSERT ’LONDON’
Second group: Improvement of past Charter Party, the following lines are
to be added:
LINE 171: AFTER ’VESSEL’ INSERT ’HER SEAWORTHINESS, MAINTE-

NANCE’
CLAUSE 46: DELETE, INSERT: ’OWNERS TO APPOINT THEIR OWN AGENTS
FOR AVERAGE AND REPAIRS AND ALSO FOR ANY OTHER OWNERS
BUSINESS WHEN REQUESTED BY THE CHARTERERS. OWNERS (PRO-
VIDING CHARTERERS DO NOT THEMSELVES INCUR ANY AGENCY FEE
IN WHICH CASE SAME TO BE FOR OWNERS ACCOUNT) ARE ALWAYS
ENTITLED TO AVAIL THEMSELVES WITHOUT ANY AGENCY FEE TO OWN-
ERS, OF CHARTERERS AGENTS FOR CREW MAIL AND SIMILAR NOR-
MAL MINOR VESSEL ITEMS AS FAR AS AGENTS CAN MANAGE’
CLAUSE 71: INSERT VESSEL DESCRIPTION AND ADD FOLLOWING ’WITH-
OUT PREJUDICE TO OTHER TERMS AND CONDITIONS OF THIS CHAR-
TER PARTY, VESSEL’S SPED AND CONSUMPTION AS DESCRIBED SHALL
BE APPLICABLE THROUGHOUT THE DURATION OF THIS CHARTER PARTY;
ALWAYS IN GOOD WEATHER CONDITIONS OF UP TO BF 4 AND DSS 3"
10
E-Mail Viveka Mansukhani, dated 5 June 2004
4.3. A survey on methods 124
CLAUSE 86: ’CHARTERERS TO SUPPLY BUNKERS IN ACCORDANCE

WITH INTERNATIONAL STANDARD ISO 8217:1996, CLASS RME 25 (FOR
IFO 180 CST) AND DMB (FOR MDO).
CLAUSE 87: INSERT ’OWNERS TO GIVE CHARTERERS NOTICE UPON
FIXING AND THEN 5/3/2/1 DAYS NOTICE OF DELIVERY. OWNERS TO
KEEP CHARTERERS CLOSELY ADVISED OF VESSEL’S POSIT
Sharing experience proved to be useful and necessary. Especially in branches

where the situation changes rapidly, such in the field of finance and high
technology. In the filed of corporate venture capital for example, an sys-
tematic experience sharing is organized. The importance of experience is
well realized. But not everybody has the opportunity to obtain the experi-
ence by doing. Benchmarking studies and seminars are few things which
can contribute to improve the knowledge in an organization effectively [33].
4.3 A survey on methods

4.3.1 Expert systems
An expert system is a program which uses the heuristic expert knowledge
for analysis, or synthesis purposes [48]. MYCIN is a well-known example
of an expert system whose task is to provide diagnostic and therapeutic
advice about a patient with infection [11]. The description of expert system
below is largely borrowed from MYCIN. The MYCIN’s knowledge is repre-
sented as an array of rules, such as:
IF: There is evidence that A and B are true,

THEN: Conclude there is evidence that C is true.
The above form is also presented in one of the following shorter forms:
If A and B, then C
A & B →C
The antecedent of the rule is the premise or left-hand side (LHS) and the
consequent is the action on the right-hand side (RHS).
A chained mechanism can be illustrated as follows:
Rule 1 If A, then B
Rule 2 If B, then C
Now we have input data equal to A. The consequent or the result is C. This
is called forward chaining or data-directed inference. The fact that the data
is known (A), it drives to deduce a conclusion (C). In full form the above is
written as follows
Knowledge Expert
Expert engineer system
Data, Knowledge
texts base
Figure 4.8: Transfer of expertise [12]
Rule 1 If A, then B
Rule 2 If B, then C
Data A
Conclusion C
MYCIN on the other hand uses the backward chaining or a goal-directed

control strategy. For the same implicit rule as above “If A, then C”, the
backward chain rule looks like this:
Goal Find out about C
Rule 1 If B, then C
Rule 2 If A, then B
Question Is A true?
The MYCIN expert system contains a large collection of rules, which

are collected by a knowledge engineer. He translates it into a form suitable
for the expert system, see Figure 4.8. This process is called knowledge
engineering. A finished rule may look like this [12]:
RULE 200
IF 1. The site of the culture is blood, and
2. The stain of the organism is gramneg, and
3. The morphology of the organism is anaerobic, and
4. The portal of entry of the organism is GI
THEN There is strongly suggestive evidence (certainty de-

gree = 0.9) that the organism is bacteroides.
It is noteworthy to mention that the consequent (RHS) mentions the so-
called certainty degree, which means the degree of truth of the statement in
concern. The concept of certainty degree is comparable to the membership
value in the fuzzy set theory.
The process of transferring knowledge from an expert to a knowledge

engineer is not an easy task, as the knowledge engineer has far less knowl-
edge of the discipline - medicine - than the expert does. In this discipline,
a knowledge engineer can be viewed as a novice. A communication prob-
lem, which often arises, is , for example, the vocabulary used by the expert
uses to talk about his discipline with a novice is probably inadequate for
high-performance problem-solving. The knowledge engineering process is
laborious and manual. After a period of time of service, the program has
not automatically become smarter, since the program has no capability of
learning from every diagnosis session made.
Applying the rule-based expert system in the domain of chartering, the
rules may look like these, see also Chapter 2:
RULE 01
IF Fuel price is high
THEN Time Charter Party is preferred over Voyage Charter
Party (certainty degree = 0.9)
RULE 02
IF 1. Ship is smaller, and
2. Ship calls more ports
THEN Profitability is less accurate
RULE 03
IF Charter rates are firming
THEN Less paying cargoes like scraps have difficulties to
find carriers
An expert system can be implemented well if the experts can can ex-
press the domain knowledge unambiguously and consistently [40]. It be-
comes evident soon, that applying expert system in ship chartering is im-
practicable, for the following reasons: a. it is difficult, when possible, to ex-
press the chartering knowledge sharply, unambiguously, and consistently.
b. the rules will hardly be complete c. modifying and adding rules are man-
ual and laborious. Nevertheless, an expert system can still be of use for a
limited scope of a very specific area.
4.3.2 Fuzzy Set Theory
Sets
A crisp set is marked by its sharp boundary expressing ’an object either
belongs to this set or not’. Suppose Ā is a complement of a set A, defined
as a set of all elements in the universal set which are not in A, see Figure
4.9. X is defined as the universal set. Its important properties are:
Figure 4.9: A crisp set A and its complement
Union A ∪ Ā = X
Intersection A ∩ Ā =
The union property represents the law of excluded middle.

The first scene in Chapter 1 raised a question whether a ship is suitable
for the company’s trade. This situation can expressed as “whether a ship
belongs to a set of suitable ships”. Suppose the size of ship to be searched
is approximately 10,000 dwt. When a broker offers a ship of 150,000 dwt,
then such a task can very easily answered, namely rejecting it. At this
point there is no ambiguity at all, that a 150,000 dwt ship definitely does not
belong to the set of suitable ships.
It soon becomes clear that when the ship offered is a 10,250 dwt or
a13,000 dwt bulk carrier, the matter becomes different. It is apparent that
the reality addresses such a matter not in a binary term, i.e. either yes or
not, one or zero. Such a black-and-white categorization does reflect the
reality well. There is a grey, ambiguous area within which an object may
belong to more than one sets. A particular ship can be viewed as both
suitable or unsuitable. It is far more realistic to reformulate the question
into “to which degree can we view this ship as a suitable one?”. Whether
an object belongs to a set or not, it is a matter of degree.
This phenomenon is not a probability problem “what is the probability
that a 10,250 dwt can be viewed as a 10,000 dwt?” or “what is probability
that a 13,000 dwt ship can be viewed as a small handy size bulk carrier”.
The probability concerns with an event. The above concerns the vague-
ness or the imprecision of a concept of “a 13,000 dwt bulk carrier” or “a
small handy size bulk carrier”, see [37].
The above is the underlying idea behind the fuzzy set theory, proposed
by Lotfi Zadeh in 1967. A fuzzy set is defined as a set with an unsharp
boundary, see Figure 4.10. The degree to which an object belongs to a
Figure 4.10: A fuzzy set A and its complement
(a) Crisp set (b) Fuzzy set
Figure 4.11: Membership function of a crisp and a fuzzy set

ship A1
company B1
ship A2
ship A3 company B2
ship A4
Figure 4.12: Mapping crisp relations ’belong to’
set is called a membership value, which can be determined by a so-called

fuzzy membership function.
Consider a universal set X and a two fuzzy sets Ã and B̃ defined on X.
The standard fuzzy union of ÃandB̃ is defined by the membership function
via the formula: (Ã∪B̃)(x) = max [Ã(x),B̃(x)] for all x∈ X. The standard
fuzzy intersection is defined as (Ã∩B̃)(x) = min [Ã(x),B̃(x)].
The standard fuzzy operations do not satisfy the following two laws of
the crisp set operations, namely the law of excluded middle and the law of
contradictions. This is a consequence of the imprecise boundaries of fuzzy
sets, see the Table below
Crisp set Fuzzy set

Law of excluded - A ∪ Ā = X ¯
A ∪ Ā = max [Ã(x), Ã(x)]
middle
Law of contradiction A ∩ Ā = ¯
A ∩ Ā = min [Ã(x), Ã(x)]
Relations
Crisp relations describe the presence or absence between elements. Map-
ping is a method to represent the relations visually. Figure 4.12 shows ’be-
longs to’ relations, between elements of the sets ’ships’ and ’companies’.
Another representation is using coordinates, like: R={<ship A1, company
B1>, <ship A2, company B2>, <ship A3, company B1>]. Those relations
can be then presented in a Cartesian diagram too [37]. Furthermore an-
other way of presentation is also available, using a matrix or a crisp relation
Rcrisp company B1 company B2

ship A1 1 0
ship A2 0 1
ship A3 1 0
ship A4 0 0
Table 4.1: Crisp relation table ’fit to’
Rf uzzy company B1 company B2

ship A1 0.8 0.7
ship A2 0.2 1.0
ship A3 1.0 0.4
ship A4 0.3 0.2
Table 4.2: Fuzzy relation table ’fit to’
table, as illustrated in Table 4.1:

The crisp relations provide information solely about either the presence
or the absence of relations. In various situations such a way of describing
a relation does not very much capture the reality. In a relation ’fits to’ for the
above ships and companies the relation may look different. Few ships may
fit very well, the other less well or not at all. There is a certain degree of
how well the ships may fit to a company, which is not taken into account in
the crisp relations. Fuzzy relations view the quality of a relation as a matter
of degree, how true the relation is, as illustrated in in Table 4.2:
Properties of relations [37]:
1. Reflexivity: an element is equivalent to itself; <x,x>

2. Symmetry: <x,y>=<y,x>
3. Transitivity: <x,y>, <x,z>=<x,z>
Equivalence relation is defined as a set of elements which can be viewed

as equivalent in terms of a specified characteristic. The equality among el-
ements of a set marks this equivalence relation. For a crisp relation ’belong
Belong Ships mbv

to
B1 A1, A3 1.0
B2 A2 1.0
None A4 0.0
Table 4.3: Crisp equivalence relation

ship A1
0.8
0.7
0.2 company B1
ship A2 1.0
1.0
0.3
ship A3 0.4 company B2
0.2
ship A4
Figure 4.13: Mapping fuzzy relations ’fit to’
Fit to Ships
mbv≥ 1.0 mbv≥ 0.9 mbv≥ 0.6 mbv≥ 0.3
B1 A3 A3 A1, A3 A1, A3, A4
B2 A2 A2 A1, A2 A1, A2, A3
None A1, A4 A1, A4 A4 -
Table 4.4: Fuzzy equivalence relation
to’, a ship is defined clearly whether she belongs either to a company B1 or

B2 or none of the companies, see Table 4.3. A fuzzy relation ’fit to’ means
that if a ship fits to a certain company is a matter of degree, see Table 4.4
Another type of relation called proximity relation, or tolerance or compat-
ibility relation, is a generalization of the equivalence relation. This relation
is reflexive, symmetric but not necessarily transitive. Elements that are re-
lated by a proximity relation are viewed as compatible (in some prescribed
way) but not necessarily equivalent. A proximity relation can be defined
using two or more characteristics, for example defined as ships (a) hav-
ing size of about 10,000 dwt (b) with charter rate of about US$ 5000/day
and (c) belonging to company Bx. The classes as a result of compatibility
relation are called compatibility classes.
Fuzzy numbers
What is the meaning of approximately 14 knots? This implicitly contains
two things:
• it contains a subjective concept of interval. Values around 14 knots

can be treated as 14 knots. These values may lie within a range, for
example between 13.5 up to 14.4 knots.
• it contains a concept of degree of membership for its each value
members. A value 14 is closer to 13.95 rather than to 13.00. There-
fore it is a higher degree of membership to claim that 13.95 is equiv-
alent with 14, rather than to claim 13.00 equivalent with 14.
This is the underlying reason for applying the fuzzy set theory11 for ad-
dressing the notions of imprecision. An approximative number, like approx-
imately x, is called a fuzzy number x eis a set of numbers
e. A fuzzy number x
around an exact number x. When a vessel sails at an actual speed of
13.97 knot, which deviated very slightly from the can be treated fully the
same as a meaning a set of exact numbers around 14, which may have
various degrees of truth. This degree of membership, also called member-
ship value, has a value between 0 and 1, meaning totally wrong and fully
true respectively.
An exact number we use everyday, called also a crisp number, is a
special case of a fuzzy number. An exact number can defined as a fuzzy
number having only one member with a degree of membership 1. Degrees
of truth are defined using a function, called a membership function. This
membership function, may take several forms, and can be expressed in
straight mathematical functions12 , see Figure 4.14.
For the sake of computation efficiency, a trapezoidal function will be
chosen, see Figure 4.15. This trapezoidal membership function is defined
as follows: 
 0, x≤a
x−a

 b−a , a ≤ x ≤ b



membership value(x) = 1, b≤x≤c
d−x
, c≤x≤d



 d−c


0, d≤x
DSW Algorithm
Arithmetical operations with fuzzy numbers are operations with sets. First
of all a fuzzy number is to represented in such a way which can easily
11
The fuzzy set theory was introduced by Lotfi Zadeh in 1965.
12
This function may remind us to a probability function. The probability theory deals with
expectation of a future event, based on something known now[37]. From its point of view,
the question addressed would be “What is the probability that 13.50 can be viewed as
14.00?”, which makes less sense.
The uncertainty resulting from the imprecision of meaning of a concept is addressed by
the fuzzy set theory in different way. The question will be “How true is it to view 13.50 as
14.00?” Further extensions to nun numerical values can easily be implemented, such as
“How true or acceptable is it to view a 35,000 dwt as a big ship?”
Figure 4.14: Crisp and fuzzy numbers
Figure 4.15: Trapezoidal membership function

handle arithmetical operations. A trapezoidal membership function, taken

as an example see Figure 4.16, are sliced into a few partitions, according
to the fuzzy number’s representative membership values.
So a fuzzy number approximately 14, denoted as 14,
f can be defined in
various ways:
using 2 λ−cuts, i.e. λ = 0 and λ = 1:
n o
0 1 1 0
14
f=
12.25 + 13.75 + 14.25 + 15.75
using 3 λ−cuts, i.e. λ = 0 , λ = 0.5 and λ = 1:

n o
0 0.5 1 1 0.5 0
14
f=
12.25 + 13.00 + 13.75 + 14.25 + 15.00 + 15.75
For every λ−cut, e.g. 14

f 0+ , it gives an interval of values, see also Figure
4.16.
14
f 0+ = [12.25, 15.75]
14
f 0.5 = [13.00, 15.00]
14
f 1.0 = [13.75, 14.25]
Figure 4.16: Representation of a fuzzy number with λ−cuts
The next step is to implement arithmetical operations, for example, ap-

proximately 14 plus approximately 5, or 14
f+e 5. The DSW algorithm (Dong,
Shah, and Wong 1983 in [68]) is applied. The DSW is described as follows:
1. Select a value where .

2. Find the interval(s) in the input membership function(s) that corre-
spond to this .
3. Using standard binary interval operations, compute the interval for the
output membership function for the selected -cut level.
4. Repeat steps 1-3 for different values of to complete a -cut represen-

tation.
The following calculation session is instructive for explaining the DSW

algorithm. To be calculated: 14
f+e 5. Number of lambda cuts is three, i.e.
λ = 0, 0.5 and 1.0.
n o
0 0.5 1 1 0.5 0
14
f=
12.25 + 13.00 + 13.75 + 14.25 + 15.00 + 15.75 and
n o
0 0.5 1 1 0.5 0
5=
e
4.00 + 4.45 + 4.90 + 5.10 + 5.55 + 6.00
Fuzzy numbers
1.4
About 14
About 5
About 19
1.2
1
Membership value
0.8
0.6
0.4
0.2
0
5 10 15 20
Number
Figure 4.17: Fuzzy arithmetic operation: addition
Beλ+ = [min(fλ ), max(fλ )], where fλ is an arithmetical operation for the

corresponding λ- cut. Now the results are:
14
f+e f where
5 = 19,
19
f 0+ = [12.25, 15.75] + [4.00, 6.00] = [16.25, 21.75]
19
f 0.5+ = [13.00, 15.00] + [4.45, 5.55] = [17.45, 20.55]
f 1.0 = [13.75, 14.25]+[4.90, 5.10] = [18.65, 19.35], as illustrated

19
in Figure 4.17. Applying other operations, such as multiplication
or division, follows the same procedure.
mbv
exact
value
Figure 4.18: Defuzzification
Defuzzification
Decisions or actions are usually sharply determined, for example a voyage

charter party is fixed at US$ 25/ton exactly, not approximately US$ 25/ton.
The purpose of defuzzification is to convert a fuzzy set into an exact num-
ber that, in some sense, best represent the fuzzy set. A common process
is to determine the value for which the area under the graph of the mem-
bership function is equally divided. This method is called a center of gravity
defuzzification method, as illustrated in Figure 4.18.
4.3.3 Case-Based Reasoning

It is safe to assume that problems are unique; all problems are different.
Taking a closer look at this statement, the reality shows that a majority
of problems have a resemblance to one or more past problems [38]. A
certain degree of similarity to the past problems is evident. It explains the
phenomenon that an experienced practitioner solves problem much faster
that a novice. He can do that since he has collected numerous problem-
solving sessions. He recognizes similarities between his current problem
to the past ones. Only in very few occasions, he needs to think hard to
accomplish his job, otherwise he simply does it, without thinking [19].
Similar problems tend to have similar solutions, see Figure 4.19. Con-
sider two spaces, problem and solution spaces respectively. Case-Based
Reasoning can be seen as using the principles of similarity acting on two
different spaces, problem and solutions. A known similar problem is re-
trieved. Usually its solution is close to the solution of current problem.
Figure 4.20 shows the basic idea of the Case-Based Reasoning method-
ology. If one faces a new problem, he is reminded of similar problems
known in the past. Those known problems are not necessarily the prob-
known
similar Problem
problem space
Retrieve
current
problem
known
Solution
solution
space
Adapt current
solution
Figure 4.19: Problem and solution spaces [42]
reminding of
similar problem
Current problem Old problem
borrowing the way

the idea how the old problem
the old problem was solved
was solved
Old problem’s
Solution
solution
Figure 4.20: Basic idea of CBR [43]

lems he faced personally, but those can also be problems faced by his
colleagues. The problems are indexed according to their similarities to the
new problem. The way (one of) the most similar problem was solved can
be borrowed to solve the new problem. By doing problem solving can be
accomplished efficiently.
The root of CBR is found in the works of Roger Schank on dynamic
memory and the functioning of reminding of earlier situations (episodes or
cases) in 1982 [4]. CBR has benefited very much from earlier works on phi-
losophy, in particular that of Wittgenstein on the meaning of language. He
stated that the meaning of any object is hardly possible to define precisely.
The meaning of an object depends also on the context. And, comparing
objects is easier than defining the properties of an object. An effective way
of describing an object is by presenting it in association of or in a set of
other objects [48, 78].
In the reality of shipping, it is difficult to define ’a good ship’. Framing it
within a context of a certain shipping company and a certain trading route,
the difficulty of defining ’a good ship’ decreases. And this task becomes
much easier, when we associate it with an existing ship.
The following definition is applied within the CBR. A case is an object
which represents specific knowledge. It contains knowledge at operational
level [39]. A case contains three major elements, and it can be expressed
as a tuple as follows:
Case = < stored problem, stored solution, outcome13 >

Query = < new problem >
Outcome is additional information on the problem-solving session, which

can be textual and/or numerical. Casebase is where cases are stored and
organized. This is where the knowledge of the system is stored, called also
knowledge-base.
The concept of ’being experienced’ is defined as having faced numer-
ous situations, having solved a variety and/or numerous problems. A shift
from being a beginner to being an expert involves learning. Therefore learn-
ing is defined: collecting cases. CBR is capable of learning by storing the
newest experience into their casebase.
Aamodt and Plaza proposed a four-step CBR methodology, to embrace
the aspects of reminding of similar problems, using the way a similar prob-
lem was solved, see also Figure 4.21 [4]:
R ETRIEVE. A new problem is matched to known problems stored in the
casebase. Their similarity values are calculated. Cases are then indexed.
One or a few most similar cases are then proposed to the user and the
user chooses one of them. Alternatively this procedure can be defined in
13
or called ’effects’ [65].
Retrieve
New Indexed
problem cases
Case- Reuse
base
Retain
Confirmed Proposed
solution solution
Revise
Figure 4.21: Case-Based Reasoning methodology
advance, for example the most similar one is, or n most similar ones are
automatically chosen. There are two types of similarity value calculations,
local or global similarity calculations. Local similarity deals with the values
of a single attribute or a feature. The global similarity calculations represent
the holistic view of the case. The relative importance of the attributes is
reflected by their weights. For more details, see below.
R EUSE. The chosen case acts as a guide for solving current problem.
The problem is solved by borrowing the idea how the chosen case was
solved. To do this, one can simply copy or adapt the solution concept of the
chosen case, whenever necessary.
R EVISE. This phase is complementary to the previous one. If the pro-
posed solution is not satisfactory, then the solution is modified.
R ETAIN. Retain phase is the learning phase of the system. After com-
pleting a session, e.g. problem-solving or a planning session, the result
is added with a remark. The result is then saved into the casebase. This
session is now instantly available for the next task session.
Similarity measurement
The notion of similarity plays an important role in cognitive processes. Sim-

ilarity values range from 0.00 to 1.00. Equivalence is the state where the
4.4. Examples from our neighbours 140
similarity value is maximum, i.e. 1.00. Similarity is defined as the deviation

from the equivalence. A common method to measure the similarity is by
calculating the distance, which is called the nearest neighbor method [78].
An object may be of simple structure or of complex one. An simple
object contains one attribute only, such as deadweight or time. A complex
object is composed of more than one attributes, such ship, which can be
described using deadweight, speed etc. The attribute similarity value can
be calculated using a distance measurement or using a fuzzy membership
function. The usage of a fuzzy membership function is preferred, see its
illustration in Figure 5.24. The global similarity value is calculated for all
attributes of the case and query.
P
f (Qi ,Ci )×wi
Similarity(Q, C) = P
wi
, where
Q : query
C : case
i : individual attribute
f : similarity function for attribute i
w : weighting of attribute i
The function f is the attribute similarity function in the form of,
for example, a trapezoidal function or a fuzzy associative map,
as illustrated in Figure 4.22 and Table 4.6 respectively.
4.4 Examples from our neighbours

By taking few steps back from our shipping domain, we may observe the
domain differently. And to observe and understand it well we may need
new ways of doing things which we have not known before. In our domain
we are not familiar with those tools yet, but to some these are well-known
tools or even toys. And this is the case with this research. To enable
developing a method which effectively address the problems in practice,
it could very useful to have an eye on methods and their applications in
performing similar tasks, eventually in domains other than shipping.
Applications can be distinguished as follows:
1. according to domain: e.g. airline, mechanical engineering, law, trans-

port.
2. according to task: e.g. classification, diagnosis, design.
4.4.1 Residential property valuation

Financial institutions grant mortgages and purchase mortgage packages on
the secondary market as investments. Appraisals are needed to grant most
Data needed Method used Error (median)

2 attributes $/f t2 10%
10 attributes Statistical formula 8%
10 attributes Fuzzy-neural net 7%
11-30 attributes Fuzzy CBR 5%
Site inspection Human appraiser 3%
Table 4.5: Attributes versus error
Months since date of sale Living area

1.0 1.0
0.0 0.0
3 6 9 12 75% 94% 106% 125%
months
Distance form subject Lot size

1.0 1.0
0.0 0.0
3 6 9 12 50% 87.5% 112.5% 150%
miles
Figure 4.22: Attribute preference membership functions
new mortgages and to evaluate the current value if mortgage packages that
may be purchased. The usual way of appraising the value is by inspecting
the site and assessing it manually. This process is costly, about $500 per
object, it lasts about three to four days.
The Table 4.5 shows that such a manual method produces the least
error compared to other methods. Another finding shown there is that the
increasing number of attributes used leads to an increasing accuracy of
the assessment [10]. The site inspection producing the best assessment
accuracy may be interpreted as an act which incurs more attributes; their
size and details are unidentifiable.
Bonissone et al. at General Electric developed a Fuzzy CBR - based
method, called P ROFIT (Property Financial Information Technology) for tack-
ling this task. After entering the attributes of the property in question,
P ROFIT retrieves similar cases form the casebase. Six attributes are con-
sidered: address, date of sale, living area, number of bathrooms and bed-
rooms. Similarity calculations are performed between the property in ques-
Case
1 2 3 4 5 6+
1 1.00 0.50 0.05 0.00 0.00 0.00
2 0.20 1.00 0.50 0.05 0.00 0.00
Query 3 0.05 0.30 1.00 0.60 0.05 0.00
4 0.00 0.05 0.50 1.00 0.60 0.20
5 0.00 0.00 0.05 0.60 1.00 0.80
6+ 0.00 0.00 0.00 0.20 0.80 1.00
Table 4.6: Number of bedrooms - fuzzy relation
tion (query) and the cases stored. The similarity value of each attribute
is calculated using the a trapezoidal fuzzy membership function, see 4.22.
The attribute similarity value of two other attributes, i.e. number of bed-
rooms and bathrooms, is calculated using a fuzzy relation, see 4.6. The
combined similarity value is obtained using weighted aggregation. Similar
cases are then ranked.
The best four to eight cases are selected. The relative of importance of
each case is determined from its total similarity value. The values of those
cases are than used to calculate the price of the house in concern, using
weighted sum method.
4.4.2 Weather forecasting

Reliable forecasting is important for the airline industry. It determines the
schedules of the flights. very airport need specific and short-term weather
forecasts, the so-called Terminal Aerodrome Forecasts (TAFs). Two as-
pects of weather are regarded very important, i.e. the cloud ceiling height
and the horizontal visibility. These are of importance to guarantee a safe
air traffic from and to the airport [67].
There are two types of weather forecasts: (a) long-term and wide area
(b) short-term and specific location. Numerical Weather Predictions (NWP)
conducted are based upon data sent by weather stations, weather buoys,
satellite images and atmospheric probes. The NWP models are run stati-
cally and produce weather forecasts on a six hourly basis. The output of
the NWP forecasts are long-term oriented and cover a wide area. These
serve as a basis for many other forecasts depending on purposes .
For a fine grain forecasting, as TAFs, knowledge on the climate of the
immediate region is used by human forecasters. A reliable and widely used
technique for accomplishing this task is called the Persistence Climatol-
ogy (PC) forecasting. PC forecasting bases the prediction for the present
weather situation on the outcomes of similar past cases. This is a way
1.00 very
near
0.75
near
0.50
slightly
0.25
near
-c 0 c
Figure 4.23: Difference as a measure of similarity
solving a new problem by analogy. This resembles the idea of the CBR
methodology [28].
Hansen developed the WIND-1 system, a CBR-based forecasting model
[29]. This system contains two parts, first a large database of weather ob-
servations containing over 300,000 hourly observations. The second part
is the fuzzy k-nearest neighbors algorithm. This algorithm applies the CBR
methodology. The fuzzy set theory is applied to conduct the similarity mea-
surement. Expert forecasters determine the fuzzy relationships between
attributes. Three types of basic measurements: (a) difference of values
(x1 − x2 ) (b) ratio of values (x1 /x2 ) and (c) nominal attributes. Figures 4.23
and 4.24 illustrate the usage of the difference and ratio for determining the
similarity value. The similarity value between nominal attributes is deter-
mined using a table, called also the fuzzy associative memory, see Table
4.7.
The relative importance of the case is determined from its similarity.
Then the cloud ceiling heights and horizontal visibilities are estimated using
weighted sum method.
4.4.3 C LAVIER Project

C LAVIER used at Lockheed Missiles and Space Company is one of the first
commercial CBR applications [78], developed in 1987 and used in 1990.
Elements used at aircrafts and missiles are made up from composite ma-
terials. These expensive materials are made from layers of carbon-fiber
products, such as Kevlar. To form them into single laminated components
Figure 4.24: Ratio as a measure of similarity
Nil Drizzle Showers Rain Snow

Nil 1.00 0.02 0.03 0.01 0.01
Drizzle 0.02 1.00 0.50 0.50 0.05
Showers 0.03 0.50 1.00 0.75 0.10
Rain 0.01 0.50 0.75 1.00 0.25
Snow 0.01 0.05 0.10 0.25 1.00
Table 4.7: Nominal attribute similarity table

Figure 4.25: Clavier - task
before using them, those components are treated, or called cured, in a large
oven, called an autoclave. If curing is not successful, the components must
be discarded.
The components of various sizes are placed in the autoclave simultane-
ously, see Figure 4.25. In practice the operators relied upon the drawings
of previous layouts to inform how to layout the autoclave. Since the com-
ponents are rarely identical the risk of failure always exists. The curing
characteristics of the autoclave are unknown, and each component has its
own curing characteristics too.
Rule-based expert system was developed. It failed, the operators were
unable to formulate the rules for curing the components adequately. Ther-
modynamic modeling failed too. Learning from the success of the natu-
ral way the operators solved the layout problems, the following strategy is
taken: reuse previously successful loadings.
The process is described schematically by Figure 4.26. Parts or compo-
nents are categorized according to their priority. For any given list of parts,
Clavier seeks to retrieve past layouts that successfully cured the highest
4.5. Concept of compatibility 146
Figure 4.26: Clavier - process
number of high-priority parts. The operator chooses one of the layouts,

called the chosen case, and he may adapt it when necessary. When the
chosen case is not completely filled by parts on waiting list, Clavier can
substitute a non-matching part with a similar part.
The benefits of employing Clavier are evident: pressure of work de-
creases, the expertise of the experts as a corporate asset is secured, the
system can be used to train new personnel.
4.5 Concept of compatibility

4.5.1 Definition
The concept of compatibility serves two purposes: (a) It describes the way a
shipping practitioner conducts tasks, solves problems. (b) It is a foundation
on which the development of solution tools will be based.
The following summarizes two situations. A ship practitioner knows that
a certain ship can replace another vessel which has to be docked soon.
Secondly, an experienced shipping practitioner is capable to assess a char-
ter hire quickly. The above addresses two types of situations. The former
deals with comparing a ship with another ship to serve the same purpose,
Compatible Not compatible
Figure 4.27: Entity compatibility
whilst the latter concerns with the question if a vessel fits to a certain charter
hire.
Being ’compatible’ means being capable of existing in harmony or be-
ing capable of bein in combination with others14 . The above definition em-
braces two important concepts, namely grouping and matching. Grouping
concerns with entities having the same role to serve a certain purpose, for
example. Matching concerns entities having different roles to serve a cer-
tain purpose. Entities are object in concern, for example ships. Purpose
of having a ship is associated with operating a ship, e.g. coal carriage. A
decisive factor is not only the physical properties of the ship, e.g. design
characteristics and age, but the capability to fulfill her role to accomplish
a task or job or to serve a purpose. The above leads us to two types of
compatibility: (a) entity compatibility, and (b) relation compatibility.
4.5.2 Entity compatibility

Entity compatibility concerns with the degree of fitness of two or more en-
tities, elements or objects which have the same functionalities or roles to
serve a purpose. It represents the concept of inter-changeability, see Fig-
ure 4.27.
Sister ships can be regarded as (almost) exactly the same, as both have
exactly the same design characteristics. A ship may not be compatible to
replace her sister ship, if important requirements are not fulfilled satisfacto-
rily.
14
More on this definition see Glossary.
Suppose ship A carries coal, fixed for a long term contract. Due to
collision she is damaged, ship A must be replaced by a compatible one
immediately. The contract states that the ship owner guarantees the coal
carriage, and any problems related to the ship, e.g. damage, the owner
must find another ship to maintain the service. Her sister ship B is located
far away from the traded area of ship A. It would involve high mobilization
costs, long, non-operational time, loss of income and possible breach of
contract, if ship B is to be employed. A plausible solution is to take another
ship, say ship C, having less similar characteristics, located in the vicinity
of the traded route. She can be put into service within shorter time. Ship
C is more compatible to ship A to serve the purposes (due to her shorter
mobilization time in maintaining the existing service).
The above showed the application of the concept to an entity of a com-
plex structure such as a ship. The concept applies as well for an object
of a simple structure; that is an object which can sufficiently be described
using one variable only, such as time, deadweight, or length. For example:
length of port stay of 5.05 days and 5 days are regarded as similar or even
equivalent in practice.
Entity compatibility can be viewed as an entity similarity measurement.
This can be either numerical, textual, graphical or of other form. The fuzzy
set theory may accommodate this matter well, by viewing the entity com-
patibility as proximity relations.
Examples of problems which are viewed to belong to the entity compat-
ibility are:
1. "Is this ship suitable to replace that one?"

2. "Does this ship belong to the so-called standard handy size bulkcar-
rier according this J.E. Hyde Index?"
3. "Shall we consider the inquiries from this broker/ charterer?"
The following example is an implementation of the concept of entity

compatibility in chartering 15 . Egon Oldendorff offers Finora, the Charterer,
MV G RETKE O LDENDORFF. The vessel will carry 20,700 ton of cargo from
Vancouver to Mumbai.
MV GRETKE OLDENDORFF (OR SUB) /FINORA

CPDD VANCOUVER BC 05 JULY 2000
20,700 MT/100 MOLCO
VANCOUVER / MUMBAI FOR 25 JULY/ 05 AUGUST
In case MV G RETKE O LDENDORFF has been fixed earlier for another Char-
ter Party, he will be offered another ship which more or less comparable
15
E-Mail Viveka Mansukhani, dated 10 July 2004
fully compatible
less compatible
less compatible
not compatible
Figure 4.28: Relation compatibility
to MV G RETKE O LDENDORFF, denoted as ’sub’ meaning a substitute. A

ship compatible with MV G RETKE O LDENDORFF is viewed as a possible
substitute of MV G RETKE O LDENDORFF .
4.5.3 Relation compatibility

The relation compatibility concerns with the fitness between entities of dif-
ferent functionalities or roles for accomplishing a certain task or to serve a
certain purpose, see Figure 4.28. It represents the concept of matching,
such as between ship and route, ship and company, or ship and a char-
ter hire. In a more general term it may be viewed as a matching between
problem and solution. It address the fitness of a problem to its (proposed)
solution. Therefore the relation compatibility concept can be viewed as a
way to solve problems.
Examples of situations or problems belonging to the relation compati-
bility are:
1. "This ship B is approximately US$ 5000/day worth".

2. "I believe the prevailing rate for this trade would be about US$ 6500
per day"
Figure 4.29: Recycling
3. "This ship A is currently operating in South East Asian waters, and it

has more or less the same size as that of that ship B. I believe this
ship A would be an ideal ship to replace that ship B, which has to be
docked soon"
4. "Based on our past experience with our previous C/P, we should put
additional clause on the matter X when the ship is to trade to port Y".
Elaborating the first example, the above is a result of a problem-solving

situation:
“Charter hire of ship A (deadweight is 30,000 ton) is $ 5,000/day.

The deadweight of ship B is 31,000 ton. Today’s charter hire of
ship B will likely be close to $ 5000/day”.
The above implies this: if the problems are similar (ship’s sizes are similar),
their solutions (their charter hires) are likely to be similar too.
4.5.4 Properties
The concept of compatibility involves the capability of seeing the relation-
ships between elements. The following aspects mark the concept:
(a) Compatibility may change over time.
The suitability of, e.g. a ship, to serve a certain purpose may change
over time. Her compatibility depends on trade and on the ship owners too,
see Figure 4.30.
(b) Compatibility involves vagueness. It is a simple fact that is no longer
sufficient to describe things in a black-or-white fashion. The definition of,
e.g. a good ship and a poor ship, is a matter of degree. The boundary of ’a
good ship’ is vague, unsharp, see Figure 4.31. To be noted here, that when
it comes to the final decision, decisions are usually sharply defined: either
yes or not. This involves a defuzzification process.
Figure 4.30: Changing compatibilities
Figure 4.31: Crisp and fuzzy compatibilities

(c) The concept of compatibility is an outcome of a learning process.

The capability of ship practitioners to recognize things is extremely valu-
able. This capability is largely from experience. It is the experience to
handle similar tasks in the past. The capability to recognize groups and
relations, for example between ship and its value, enables a practitioner to
conduct his job efficiently and fast. This process is called an intuitive pro-
cess, see Kahneman in sub-section 4.2.4. This process is effortless and
fast. The capability of using the intuition marks the difference between a
novice and and an expert.
(d) It involves reusing past experiences. It asserts the role of experi-
ence. ’Reinventing the wheel’ is expensive and effortful. An experienced
practitioner recognizes the compatibilities as he has faced numerous cases
in the past. As he faces a new task or problem, he tries to look up, if it re-
minds him of similar cases in the past. One or more cases are perhaps
quite similar to the actual one. It takes a lot time and energy, if one has
always to solve things from a scratch. In many occasions, one can reuse
his own, his friend’s or his superior’s experiences. One can borrow the way
things were solve. Figure 4.2916 , taken from a waste recycling campaign,
symbolizes this idea. Past stowage plans or past solutions are not useless.
Those can be ’recycled’ and ’reused’. Remembering similar problems and
their solutions may help us solving a new problem.
(e) The concept can be of a great use, especially in case of incomplete
knowledge. Formal knowledge only is not adequate to conduct shipping
business well. Some type of knowledge is hard, when possible, to express.
There are some codes, which are simply inexpressible. Expressing as a
rule, or a hint has an tentative character. It is vague, it can be subject to
interpretation. And it can be inconsistent too. Time and context play an
important role. Even key ideas of someone else’s experience may guide
us toward a solution [25].
(f) It is an attempt to alleviate the difficulty of defining things precisely.
It implements the assertions of Wittgenstein, that it is hardly possible to
define objects precisely. Even for physical objects it is hardly possible to
define precisely and objectively what we understand under ’ a good ship’ or
’a good stowage plan’. Comparing objects alleviates the burden to define
things precisely and objectively.
(g) It is task-oriented. A successful practitioner does not have to know
the exact size of the world fleet before he puts a newbuilding order. Nor he
needs someone to make a market model before he make a decision. But
he can do complex tasks, such as assessing value of ships, intuitively. It is
a straightforward and an efficient way, considering the limited capability of a
human to address complex problems, see Simon in sub-section 4.2.1. Ex-
16
adapted from http://www.mygeo.info/cliparts_umwelt.php?startimage=90, snapshot of
18 December 2004
Figure 4.32: Concept of compatibility: an overview

tracting the knowledge on the mechanism or the process of the functioning

of a system is laborious, not easy and not always possible.
4.5.5 Choice of methods

The entity compatibility deals with grouping of entities. This involves vague-
ness. The fuzzy set theory would be an ideal method to address it. In the
frame of similarity measurements or other calculations, the fuzzy set theory
can be of a great use.
The relation compatibility is marked with the notion of problem-solving.
Rule-based expert systems are less practicable to be applied widely in ship-
ping practice. It is difficult to obtain expert’s knowledge, which is complete
and consistent. Nevertheless, for a specific and narrowly defined task,
applying expert system can be worthwhile. To circumvent the knowledge
acquisition problems, case-based reasoning is regarded as a good option
for addressing problem-solving tasks.

1. Theory of bounded rationality suggests that the human capability to
address complex problems is limited. Fully rational decision making
is hardly possible, since a human has never a complete knowledge
and a full and reliable access to information.
2. The concept of compatibility is a framework aiming at better elabo-

rating the way a shipping practitioner conducts his daily tasks. The
concept serves two purposes: a. aiming to explain the phenomenon
of compatibility in shipping b. aiming at laying a foundation for solving
problems in shipping. The capability of addressing imprecision, re-
cognizing similar events and learning marks this concept of compati-
bility in shipping. Adopting the concept of compatibility, it will provide
a foundation for addressing the shipping problems in a more natural
way.
3. As the real world of shipping practice involve aspects such as vague-

ness, complexity, intuition, knowledge intensity, we may need a new
way of how to look at and to treat the problem. The Artificial Intel-
ligence concerning with understanding the notion of human intelli-
gence and aiming at building intelligent systems, can viewed as an
opening gate towards understanding and appreciating the above as-
pects.
4. Expert systems are programs which aimed at mimicking expert knowl-

edge. The heuristic knowledge is captured and expressed as if-then
rules. This method of solving problem can be very efficient for a lim-
ited scope of problems. Real problems grow in size in the course of
time. It is the source of difficulty. The program is not getting smarter
because of having solved more problems. The program must be fed
manually with new rules. Modification and maintenance of rules is
laborious and difficult.
5. Fuzzy set theory is a superset of the crisp set theory. The fuzzy set
theory aims at addressing the notion of imprecision marking the ship-
ping system. This fuzzy set theory, in combination with other methods
when necessary, may contribute to address the entity compatibility
problem.
6. Case-based reasoning methodology solves a problem by remember-

ing how similar problems in the past were solved. It relies on specific
knowledge contained in a case. The CBR is capable of learning.
7. Fuzzy set theory and case-based reasoning, in combination or sepa-

rately, are proposed methods to implement the concept of compatibil-
ity.
Chapter 5
Proposed Implementations
5.1 Fuzzy arithmetic-based voyage estimation1

5.1.1 Motivation
Conducting voyage estimation is laborious. A chartering staff spends con-
siderable time on voyage estimation [81]. It is necessary to have an idea or
a ’control’ on the likely profitability of the voyage charter party he is negoti-
ating for. Given the high pressure to handle few negotiations in parallel and
to act timely, therefore he must be able to estimate speedily and accurately
[23].
Chartering staff has long been supported with voyage estimation pro-
grams. To address the uncertainty of, say ship’s speeds, he uses the con-
cept of interval, called sensitivity analysis. The sensitivity analysis performs
calculation through varying the values of a variable. The staff analyzes it,
if the ship will still generate a certain profitability in the worst situations or
vice versa.
The sensitivity analysis can easily be performed. In practice sensitivity
analysis is usually conducted by varying only one variable. Varying the
values of more variables can also be done easily. In this case, the number
of scenarios will explode. Suppose si is the number of scenarios of variable
i and v is the number of variables. The number of scenarios (=n) will be
n = s1 × s2 × s3 × ... sv . If the number of scenarios are the same for each
of all variables, then n = sv . For s=3, the scenarios can be expressed
as low, mid and high. If the number of variables is 4, then the number of
scenarios produced is 34 = 81.
The problem does not lie in the effort of conducting the sensitivity anal-
ysis. The problem lies now in the difficulty to use the result of the sensitivity
analysis. The abundance of information produced does not ease the deci-
sion maker to interpret the increased complexity of result of the sensitivity
1
This section is adapted from [57]
157
5.1. Fuzzy arithmetic-based voyage estimation 158
analysis.
To address the interpretation complexity, it would be of use to loose
the intention of using high precision. One may cut down the complexity
using approximation, see Simon et al in sub-section 4.2.2. If the precision
is higher, the complexity increases exponentially [Ross1996].
5.1.2 Interpretation problem
No. variables Total number of scenarios (n)

(v) s=2 s=3 s=4
1 2 3 4
2 4 9 16
3 8 27 108
4 16 81 432
5 32 243 2160
Table 5.2: Calculation sessions
The following voyage estimation example is taken from Evans and Mar-
low [23], with some necessary additional information and modifications for
demonstration purpose. MV U NIVERSE C ARDIFF, a bulk carrier, is to carry
25,500 ±5%ton scrap from New Orleans to Yokohama. The freight rate
is US$ 25.00/ton fio2 , loading and discharging speeds are 3,750 ton/day
average, 7 day respectively, SHEX3 .
The above statement has legal and operational consequences. From
operational viewpoints, the above can expressed as approximations, as
follows:
1. The vessel will carry approximately 25,000 ton, ranging between 24,225
and 26,775 ton of scrap.
2. The loading and discharging speeds are about 3,750 ton/day. In prac-
tice these speeds may deviate from this value due to weather, avail-
ability of cargo and performance of cargo gears. This value of about
3,750 is interpreted as 3,750 ±5%, meaning all values ranging from
3,563 - 3,938 ton/day.
3. Speed of the vessel will be about 14.5 knots. Weather play an im-
portant role for the deviation of speed. A speed of about 14.5 knots
2
free in/out
3
Sunday Holiday Excluded
159 Chapter 5. Proposed Implementations
is interpreted as 14.5 ±5%, meaning all values ranging from 13.77 -

15.22 knots.
A classical sensitivity analysis is by varying the values of the variables each

in, say, three variations for simplicity. The sensitivity analysis is performed
according to one of the following fashions:
1. Only amount of cargo varies

2. Only cargo handling speed varies
3. Only the vessel’s speed varies
4. Amount of cargo and cargo handling speed vary
5. Amount of cargo and the vessel’s speed vary
6. Cargo handling and the vessel’s speeds vary
7. All variables vary
This sub-section concerns with the last point 7, as it covers all previous
sensitivity calculations. Figures 5.1, 5.2 and 5.3 show the input of amount
of cargo to be transported, vessel’s speed and cargo handling speed for all
27 scenarios.
Amount of cargo
27000
26500
26000
Amount of cargo (ton)
25500
25000
24500
24000
0 5 10 15 20 25 30
Scenario
Figure 5.1: Current procedure’s input: Amount of cargo

Vessel’s speed
15.4
15.2
15
14.8
Vessel’s speed (knots)
14.6
14.4
14.2
14
13.8
13.6
0 5 10 15 20 25 30
Scenario
Figure 5.2: Current procedure’s input: Vessel speed
Cargo handling speed

3950
3900
3850
Cargo handling speed (ton/day)
3800
3750
3700
3650
3600
3550
0 5 10 15 20 25 30
Scenario
Figure 5.3: Current procedure’s input: Cargo handling speed

It becomes soon evident that the abundance of information becomes a

problem. Figure 5.4 shows the duration of the voyage in the scenarios. Fig-
ures 5.5 and 5.6 show possible the gross profit and time charter equivalent
values of the intended voyage charter party. It is difficult to recognize which
scenario is likely to happen. A shipping practitioner reduces the complexity
of sensitivity analysis by using one one variable varied and keeping other
variables constant.
Voyage duration
68
66
64
Voyage duration (days)
62
60
58
56
0 5 10 15 20 25 30
Scenario
Figure 5.4: Current procedure’s output: voyage duration
5.1.3 Fuzzy voyage estimation model

A fuzzy arithmetic - based voyage estimation model, named F-Voyage, has
been developed to demonstrate its use in assisting decision making in char-
tering. The idea is to capture the imprecision by employing fuzzy numbers.
Figure 5.7 shows the flowchart of this model.
Gross Profit per Voyage

90000
80000
70000
60000
Gross profit per voyage (ton)
50000
40000
30000
20000
10000
-10000
0 5 10 15 20 25 30
Scenario
Figure 5.5: Current procedure’s output: gross profit per voyage
Time Charter Equivalent

5600
5400
5200
Time Charter Equivalent (US$/day)
5000
4800
4600
4400
4200
4000
3800
0 5 10 15 20 25 30
Scenario
Figure 5.6: Current procedure’s output: time charter equivalent

163
Freight rate Income
Unit
T/C Hire
Capital &
Unit Fuel Cons Operating costs Gross Profit
at Sea per Voyage
Distance
Sea Time
Total costs
Speed
Voyage
Length
Waiting Time Voyage costs
Cargo
Volume Port Time
Cargo Handling Cargo Handling
Speed Time
Unit Fuel Cons
Cargo
at Port Time Charter
Weight
Equivalent
Port Charges
Canal Dues
Unit Cargo Cargo

Handling Cost Handling Cost
Figure 5.7: Voyage estimation model

Chapter 5. Proposed Implementations
Amount of cargo
0.8
0.6
mbv
0.4
0.2
0
22000 22500 23000 23500 24000 24500 25000 25500 26000 26500 27000
Amount of cargo (ton)
Figure 5.8: Fuzzy input: amount of cargo
Figures 5.8, 5.9 and 5.10 show the amount of cargo, vessel’s speed
and cargo handling speed represented as fuzzy numbers using a triangular
fuzzy membership function. The approximative values are represented by
these fuzzy numbers.
Figures 5.11, 5.12 and 5.13 show the likely voyage duration, total costs
and income of the charter party. Finally, Figures 5.14 and 5.15 show the
results, i.e. gross profit and time charter equivalent. In words the gross
profit will likely be about US$ 40,000 and its time charter equivalent ap-
proximately US$ 4,650/day.
5.1.4 Discussion
The problem of sensitivity analysis is caused by the difficulty of interpreting

the abundance of calculation results. The above is an attempt to reduce
the complexity of interpretation by capturing the notion of imprecision, using
fuzzy numbers.
Information significance is a feature of the model. It presents the user
the idea that some numbers are more significant than the other. Values of
high membership function can be interpreted as more likely to happen than
those of the lower ones.
Vessel’s speed
0.8
0.6
mbv
0.4
0.2
0
13 13.5 14 14.5 15 15.5 16
Vessel’s speed (knots)
Figure 5.9: Fuzzy input: vessel’s speed
Cargo handling speed
0.8
0.6
mbv
0.4
0.2
0
3300 3400 3500 3600 3700 3800 3900 4000 4100
Cargo handling speed (ton/day)
Figure 5.10: Fuzzy input: cargo handling speed

Voyage duration
0.8
0.6
mbv
0.4
0.2
0
56 58 60 62 64 66 68 70
Voyage duration (days)
Figure 5.11: Fuzzy output: voyage duration
Total costs
0.8
0.6
mbv
0.4
0.2
0
500000 520000 540000 560000 580000 600000
Total costs per voyage (US$)
Figure 5.12: Fuzzy output: total costs per voyage

Total income
0.8
0.6
mbv
0.4
0.2
0
520000 540000 560000 580000 600000 620000 640000
Total income per voyage (US$)
Figure 5.13: Fuzzy output: total income per voyage
Gross Profit per Voyage
0.8
0.6
mbv
0.4
0.2
0
-20000 0 20000 40000 60000 80000 100000
Gross Profit per Voyage (US$)
Figure 5.14: Fuzzy output: gross profit per voyage

5.2. Tailor-made shipping index 168
Time Charter Equivalent
0.8
0.6
mbv
0.4
0.2
0
4000 4500 5000 5500 6000
TCE (US$/day)
Figure 5.15: Fuzzy output: time charter equivalent
5.2 Tailor-made shipping index
5.2.1 Coverage problem of shipping index
Chapter 2 and 3 have shown that shipping indices are not adequate to as-
sist shipping practitioners to conduct their daily job in chartering. Using the
Time Charter fixtures used in Chapter 2, a quick glimpse on the coverage of
the J.E. Hyde Index can be made. Using a trapezoidal fuzzy membership
function, ships having similar deadweight to a route of J.E. Hyde Index is
determined. Furthermore the Index describes that the index is appropriate
for ’modern ships’. The definition of modern ships is usually based on age.
More precise definition on ship’s characteristics are not available. Another
important property of an index is the route. The charter fixtures record the
delivery and redelivery ports. Since no port database is available, deter-
mining the ’route compatibility’ using the charter fixtures used in Chapter 2
is impossible.
The coverage of the J.E. Hyde Index is measured on two variables,
size and age. For Route 1, the ship’s size is defined as (a=25,000 b=27,000
c=43,000 d=50,000 dwt) using a trapezoidal membership function, see sub-
section 4.3.2.The age of ship is defined a=0 b=0 c=5 d=12 years.
From 7719 fixtures having complete information on ship’s deadweight
and age, 7377 having membership value (mbv) of 0.0, meaning that the
fixtures are not covered by the Index at all. 342 fixtures (4.6%) having an
mbv ≥ 0.0, 315 fixtures (4.2%) with an mbv ≥0.25, 226 fixtures (3.0%)
having an mbv≥ 0.50 and 103 fixtures (1.3%) ≥>=0.75. Only 47 fixtures
(0.6%) have an mbv =1.00, meaning that only 47 fixtures are well covered
by the Index. Some of them are illustrated in Figures 5.16 and 5.17.
The fixtures contain important geographical aspects which affect the
charter hire very much, namely the delivery and redelivery ports of the
ship. Measuring the geographical similarity is ideally based on the sail-
ing distances, and not based on the straight line distances. Due to the size
of the data and the unavailability of complete sailing distances, geograph-
ical similarity calculations cannot be performed. Therefore the coverage
figures mentioned above are still a too optimistic figure since other criteria,
such as the geographical criterion (trade route), are not included. There-
fore adding other ten indexes of J.E. Hyde would not affect the conclusion
on the coverage of the index, as confirmed by findings in shipping practice,
see also 3.1.2.
5.2.2 Tailor made shipping index

Given the fact that the shipping indexes do not serve shipping practitioners
well, it would be of use if a company has the opportunity to make its own
index. That is an index specific for any particular ship, route or cargo. The
so-called tailor-made shipping index. This new index is made, based on
the existing indices published.
Ships trade all over the world. They transport almost any kind of car-
goes, connect all ports worldwide, use all currencies. The sector has has
always an international character from the very beginning. Any event af-
fects the sector considerably. A changing trend of one route may affect
other routes as well.
The idea is that an index, representing a route, is always in connection
with other routes. This route must have a certain degree of similarity with
one or more routes. By considering ’the distances’ with other known routes,
the index can be determined.
In this experiment a new index is calculated based upon three known
indexes, Routes 1 till 3 of J.E. Hyde Index, using the Case-Based Reason-
ing methodology. The fourth index resembles the Route 4 of the J.E. Hyde
Index, for evaluation purposes. The new tailor-made index is assume to
resemble the Route 4 of the J.E. Hyde Index. The procedure is as follows:
1. The values of the known indexes are normalized.

2. The similarity between the new index and the three known indexes
are measured using a bell-shaped fuzzy membership function.
Compatibility JE Hyde Index - Route 1

30000
lambda=0
25000
20000
15000
10000
5000
01/97 04/97 07/97 10/97 01/98 04/98 07/98 10/98 01/99 04/99 07/99 10/99
Date
(a)
30000
lambda >=0
25000
20000
15000
10000
5000
01/97 04/97 07/97 10/97 01/98 04/98 07/98 10/98 01/99 04/99 07/99 10/99
Date
(b)
Figure 5.16: Coverage measurement of J.E. Hyde Index - Route 1
Compatibility JE Hyde Index route 1

30000
lambda>=0.50
25000
20000
15000
10000
5000
01/97 04/97 07/97 10/97 01/98 04/98 07/98 10/98 01/99 04/99 07/99 10/99
Date
(c)
30000
lambda =1.00
25000
20000
15000
10000
5000
01/97 04/97 07/97 10/97 01/98 04/98 07/98 10/98 01/99 04/99 07/99 10/99
Date
(d)
Figure 5.17: Coverage measurement of J.E. Hyde Index - Route 1 (con-
tinued)
Tailor-made shipping index

1.4
Route 1
Route 2
Route 3
1.2 Route 4-ref
New index
1
Normalized index
0.8
0.6
0.4
0.2
0
0 10 20 30 40 50 60 70
Week
Figure 5.18: Tailor-made shipping index (normalized)
3. Then the weights are determined based on: (a) the similarities be-
tween indexes, see previous points, and (b) the recency of the trans-
actions. The recency of the transactions measures the relevance of
a transaction, i.e. older transactions are to be forgotten.
4. Then using weighted sum method, the value of the new index is cal-
culated using weighted sum method.
Figure 5.18 shows the normalized indexes. The performance of the new
index is compared with its reference, i.e. Route 4 of J.E. Hyde Shipping
Index, is shown in Figure 5.19.
5.2.3 Discussion
The above tailor-made index shown above produces an error of approxi-
mately 10%. When the difference between the peaks and troughs is small,
the values match well. If it is not the case, the estimated value misses the
reality. The method probably still does not match the capability of an ex-
perienced shipping practitioner. Nevertheless the usage of the method is
far cheaper than the usage of an experienced estimator. Therefore for the
usage in normal situations, which are believed to be dominating, is still of
advantage.
Tailor-made shipping index

7500
Route 4-reference
New index
7000
6500
Charter hire (US$/day)
6000
5500
5000
4500
4000
0 10 20 30 40 50 60 70
Week
Figure 5.19: Tailor-made shipping index performance
This tool can also be of use to roughly reconstruct the past, meaning
to assess for example the charter rate of the past. This can be useful in
case of insurance claims. Secondly, this tool can be useful, for educational
purposes, for trainees, less-experienced junior managers or experienced
managers just moved in from other business sectors.
5.3 Case-based stowage planning

5.3.1 Introduction4 5 6
Tasks in shipping, especially in chartering and operations departments, in-

volve synthesis tasks, such planning, routing or scheduling. A synthesis
task is marked with the activities of shaping, designing, composing or build-
ing an object. These tasks are conducted daily. Those tasks in bulk ship-
4
The development of the Case-Based Stowage Planning method (C ASESTOW) was ini-
tiated within the C OMSTAU (Computer-aided stowage planning for container ships) project,
a joint-research project with TU Hamburg-Harburg and Müller+Blanck, sponsored by the
German Ministry for Education and Research (BMBF), August 2001-June 2004.
5
This section is mainly adapted from [59].
6
The method was filed at the German Patent Office (Deustches Patent- und Markenamt)
Berlin, 25 June 2004.
5.3. Case-based stowage planning 174
ping are generally quite similar to those in other shipping sectors, such as
container shipping.
This section elaborates an implementation of the concept of compat-
ibility in addressing stowage planning problems in container shipping, as
mentioned briefly in sub-section 4.2.4. Stowage planning problems are as
old as the history of the ship itself. It is the task to allocate containers to be
loaded to slots on board the ship. The product of a stowage planning task
is called stowage plan, that is a two-dimensional diagram showing the po-
sitions of containers stowed into a container ship. Increasing efficiency of
terminal and ship operations and increasing size of container ships become
a pressure to stowage planners. Those make the task prone to human er-
ror.
Before the arrival of a container ship, the planning department receives
a container loading list (CLL) and the expected arrival conditions of the
ship. A fundamental problem is the inaccuracy and imprecision of the CLL.
It is not unusual that the CLL is still changing until very short, two hours
or even shorter, before the departure of the ship. That means during the
discharging and loading, new containers can still be added or some other
containers are cancelled.
In spite of the advancement of the information technology, and comput-
ers have become indispensable to conduct daily planning tasks, the core
process of planning, namely creating the plan itself is still performed man-
ually. The planner still has to create the plan himself, then when the plan
is finished he checks, if the criteria are met or not. Figure 5.20 shows the
way the stowage planning task is performed today.
Today stowage planning software provides powerful modules which en-
able the planner to obtain information on the state of the ship and its car-
goes concerning stability, strength, dangerous cargoes, crane split, draught,
trim and visibility check. Those modules expedite the calculation tasks. If
the plan shows that the ship does not have a sufficient static stability, for
example, the user is not assisted with any help as to what to do, which
containers have to be moved and to which slots. A number of efforts to
automate the stowage planning have been undertaken over the past three
decades, see Figure 5.21.
5.3.2 Foundation
In view of the slow research progress made in the last decades, it is of
necessity to take few steps back, to rethink what we understand under
stowage planning. Stowage planning is a search problem and a constraint
satisfaction problem [53]. It is a chained process too, a modification in a
stowage plan of a loading port will change all plans of the following ports.
And stowage planning covers more than the technical aspects of planning,
it involves some aspects of authority with the decision making process in
the company. It is not unusual that important clients want that their cargoes
are stowed in specific slots. At this point, technical stowage planning con-
siderations alone are not adequate to address the problem. Commercial
considerations play a more important role. Therefore the sales or market-
ing department’s decisions will contribute in determining the end look of the
stowage plan.
Every ship, every route is specific. Each has its own typicality. Even sis-
ter ships trading the same route under different ship operators, may have
different stowage plans. Furthermore situations may change, some are
predictable, some other are not. Therefore we believe it hardly possible to
formalize the knowledge contained in the stowage planning objectively in
terms of mathematical formulas or if-then rules. We should find an alterna-
tive direction to address the problem effectively.
Creating a stowage plan means also accepting a fact that the container
loading list (CLL) is less correct and less precise. The loading list may
change during loading and until short before the departure of the ship, the
degree of precision and correctness improve in the course of time. The
knowledge for creating a stowage plan is not stored centrally. It is spread
among many, i.e. books (concerning the technical aspects of planning
such as stability, strength or dangerous cargoes), human (stowage plan-
ning, sales and operations departments) and past stowage plans. The type
of knowledge can be formal, such as stability, or informal, such as subjec-
tive preferences or rules of thumb. It is hardly possible to define desirable
properties of a stowage plan precisely and consistently. In daily practices
one knows if a stowage plan is favorable or less favorable, after seeing it
and comparing with his expectations. But a planner cannot define precisely
what we understand under a good stowage plan7 .
As we have learned form the history of technology advancement, the
nature has been our great inspiration for solving various problems. In
stowage planning, the success story is not far away out of reach. A human
planner solves planning problems everyday. He succeeds addressing plan-
ning problems satisfactorily. Planning is in fact an easy task for a human
planner, but it is still difficult to automate [56]. Viewing the stowage plan-
ning as a search process, a planner does not apply a brute search force,
exploring all possible combinations of slots. He does not need reinvent the
wheel. From experience he has collected numerous problem-solving ses-
sions. Therefore he is in position now to use this knowledge effectively. He
can select only one or a few planning concepts which may likely lead to
an acceptable solution. In fact he reuses old solution concepts, with few
modifications or improvements when necessary.
The strategy must be pragmatic, in order to make it useful and appli-
7
Survey at a Hamburg-based shipping company and two container terminals in Hamburg
and Bremerhaven, 2001.
cable in practice. A new method must be capable to assist the planner

accordingly, in the stages of planning [24]. The method is not designed to
generate a fully finished plan in the first place. The final goal is the duration
of planning will be shorter, and the input data (CLL) will be more accurate.
5.3.3 C ASESTOW procedure

We can safely assume that all planning problems are unique; they are dif-
ferent from each other. Taking a closer look at it, it is easy to recognize that
a majority of problems show a certain degree of resemblance. That ex-
plains why an experienced planner knows instantly, how to approximately
solve a majority of problems. Case-Based Reasoning (CBR) methodology
rests on the idea that if two problems are similar, its solution is perhaps
similar too. CBR solves a problem by remembering how a known similar
problem was solved.
The usage of the Case-Based Reasoning approach is inspired by the
success of Clavier addressing autoclave planning problems of in the air-
craft industry, where approaches such as rule-based expert system, ther-
modynamic modelling and inductive learning were considered impractical
[54, 78], see also Chapter 4 Sub-section 4.4.3. The Case-Based Stowage
Planning system, called C ASESTOW, solves a new planning problem by re-
membering how a similar planning problem was solved. Its way of solving
the planning problem is borrowed or even copied to solve the new planning
problem.
Procedure
Every stowage plan contains information how a planning problem is solved.

In C ASESTOW it is not attempted to extract the knowledge of planning from
the plans in the form of mathematical formulas or if-then rules. The planning
sessions are stored systematically in the casebase.
Input: Input:
Loading List Arrival cond.
Stowage planning
modules
Trim & draught
Stability
User creates
Check it
Strength a stowage plan
Visibility
No
OK?
Hazardous
cargoes
Yes
User uses it
for current
planning task
Figure 5.20: Current stowage planning procedure [58]

probability-based Shields (1984)

simulation
heuristic Pape (1980)

modelling Lang (1985)
Sansen (1985)
Martin, Randhawa & McDowell (1988)
Saginaw & Perakis (1989)
mathematical Webster, van Dyke & Cojeen (1969)

modelling Pape, Bohm & Rieger(1979)
Jarke (1980)
Ernst (1982)
Arndt (1984)
Cho (1984)
Shields (1984)
Tholen, Meade, Scott (1984)
Weber, Heine & Oberbeck (1985)
Schott (1989)
Botter & Brinati (1992)
Kujath (1996)
Wilson (2001)
Imai, Nishimura, Papadimitriou & Sasaki (2002)
Ambrosino, Sciomachen & Tanfani (2004)
Vogeley, Laue, Wiechmann & Killat (2004)
rule-based Dillingham & Perakis (1986)

expert system Perakis & Dillingham (1987)
Sato, Itoh & Awashima (1992)
Wilson (1997, 1997, 1999)
genetic Hajime, Tatsuya, Jiichi & Nobuyuki (1996)

algorithm Penn, Mordecai, Shpirer & Witteboon (1998)
Davidor & Avihail (1998)
Dubrovsky, Levitin & Penn (1999)
case-based Nugroho (2004)

reasoning
Figure 5.21: Methods applied in stowage planning system develop-

ments [7, 17, 32, 41, 58, 69, 77, 82]
Input: Input:
Loading List Arrival cond.
Retrieval Casebase
The system
proposes
Stowage planning
few plan concepts
modules
User chooses
Trim & draught a concept
Stability
User modifies
Check it the plan guided
Strength by the chosen case
Visibility
No
OK?
Hazardous
cargoes The system stores
Yes the plan into
Casebase
with its corresp.
remarks
User uses it
for current
planning task
Figure 5.22: Procedure of C ASESTOW [58]

similarity measurement
graphical numerical
similarity similarity
stowage plan CLL
cross sectional longitudinal
Figure 5.23: Similarity measurement
membership
value
1.0
query
0.0
a b c case d
Figure 5.24: Trapezoidal fuzzy membership function

Criterion 1: Being within the same partbay on deck -> similar Criterion 4: Being mirrored against centerline -> similar 181
Criterion 2: Being within the same partbay in hold -> similar Criterion 5: Being rotated 90 degr. -> NOT similar
Criterion 3: Being mirrored against deckline -> NOT similar Criterion 6: Being rotated 180 degr. -> NOT similar
Chapter 5. Proposed Implementations
Figure 5.25: Cross sectional similarity criteria

The procedure of C ASESTOW is shown in Figure 5.22. After receiving

the input, means that the problem is there. The planner is in position to
draw a stowage plan of a port of loading (POL) now. The input consists
of the arrival plan The arrival plan itself can be derived from the depar-
ture stowage plan at the previous port of loading (PPOL) and its container
discharging list (CDL). and the container loading list. Its solution is the de-
parture stowage plan. The above definitions can briefly be expressed as
tuples as follows:
problem = < arrival stowage plan prior to loading, CLL >

solution = < departure stowage plan >
remark = < quality or comments on the plan >
A case is a finished planning session consisting of a stored problem, its

solution and its remark. The actual stowage planning task is called query
consisting only one element: the actual problem.
case = < stored problem, stored solution, stored remark >

query = < actual problem >
The new problem is compared with all problems stored in the casebase.
There are two types of data to be compared: numerical (CLL) and graphical
data (stowage plan). The numerical similarity value is computed using a
trapezoidal fuzzy membership function, see Figure 5.24.
To calculate the graphical similarity value the graphical properties of the
plan must be taken into account, longitudinally and transversally. The cross
section of the ship, the bay, is sub-divided into a few partbays. Containers
placed with the same partbays are considered equivalent or its similarity
value is 1.0. Containers stowed symmetrically along the center line are
considered equivalent. Figure 5.25 shows the graphical similarity criteria.
Longitudinally, the vicinity criterion plays a role, i.e. containers stowed close
to each other in longitudinal direction are considered equivalent or similar,
see Figure 5.26.
query
bays located
1 in the same hold
case
similar
query
bays located
2 in neighbouring holds
case
not similar
query
3 bays located
far from each other
case
not similar
Figure 5.26: Longitudinal similarity criteria

Output
Rank Voy Plan Sim1 Sim2 Remarks

-------------------------------------------------------------------------------
1 5 1 0.8186 0.8691 1
2 3 2 0.6692 0.7449 5
3 4 2 0.6120 0.6878 0
4 1 1 0.5706 0.6615 1
5 1 2 0.5554 0.5792 -5
-------------------------------------
Note
-5 : poor (means warning)
0 : neutral
5 : excellent
--------------------------------------
Enter rank number of your most favourable stowage plan: 1
Figure 5.27: Retrieval session

Figure 5.28: Retrieved cases

After computing the combined similarity values, the cases are then in-
dexed and ranked according to the similarity values. Few most similar
cases are proposed to the user. Now the user has the opportunity to choose
the solution concept which he find the most desirable or favorable one. The
chosen case will act as a guide to modify the arrival plan to the departure
plan. Its way of solving the problem can be applied, i.e. borrowed or even
copied, to solve the new planning problem.
Figure 5.29 shows the usage of the chosen stowage planning concept
to help solve the new planning problem. The upper row is the chosen case
consisting of three elements, from left to right, (a) the arrival plan prior
to loading (b) CLL and (c) the departure stowage plan. The lower rows
are of the new problem, (d) the arrival plan and (e) CLL. To create the
departure plan, the way of allocating containers, modifying an arrival plan
into a departure plan (c) can be reused, imitated or copied. A planning
problem may have more solutions; a stowage planning task may also have
more than one solutions (f) and (g).
The finished plan is then checked using available modules, e.g. stability,
strength etc, if it meets all those criteria. Both favorable and less favorable
plans can be useful for future planning sessions. All information concerning
the stability, strength etc can be included in to the remarks. In general
remark contains information on the quality of the plan either favorable, less
favorable or neutral, textually or numerically. The newly created plan is then
stored into the casebase, and it is immediately available for use in the next
planning session. This last part is the learning mechanism of the system.
The CLL is usually changing over time. It is usual too that for a particular
voyage more planning sessions are performed. The produced departure
plans may be of various qualities. Those all may contribute in enhancing
the richness of the casebase’s contents, see Figure 5.30.
5.3.4 Properties
The system is scalable. It can be applied to any sizes of vessels and for
any routes with a minimum adaptation effort. The system has the capability
of learning. Every newly created stowage plan is stored into the casebase.
This increases automatically the capability of the system to propose so-
lution concepts to the user. This approach assists the human planner in a
natural way. It enhances the remembering capability of a human, by storing
and retrieving cases accordingly whenever required. The system respects
subjective preferences which mark the daily stowage planning tasks by pro-
viding the planner to choose a solution concept which best suits him.
The system is applicable for addressing stowage planning problems
of the whole ship or a part of it, for example for refrigerated containers.
A central aspect of the method is its capability to recognize and retrieve
similar problems stored in the casebase.
Figure 5.29: Transforming arrival plan into departure plan
Similarity 1.0
value 0.9
0.8
0.7
0.6
0.5
New planning problem
0.4
Positive: guide
0.3
Neutral : additional info and limitations
0.2 Negative: warning, to be avoided
0 1 2 3 4 5 6 7 8 9 10
Voyage number
Figure 5.30: Contents of the casebase

C ASESTOW solves a new planning problem by remembering how a sim-

ilar problem was solved. The approach enables the planner to produce a
stowage plan faster and of the same quality. The quality improvement is
achieved as the duration of planning becomes shorter, and the CLL ac-
curacy improves. Existing stowage planning modules can seamlessly be
integrated into the C ASESTOW architecture.
Chapter 6
Conclusion
Shipping is a complex system. Shipping involves aspects such as impreci-

sion, influence of exogenous factors and incomplete information. Forecasts
and indexes are provided for few main shipping routes and of few standard
sizes. A huge majority of transactions are not covered by forecasts and in-
dexes. Local events and weather affect the result of the charter party very
much. probabilities and size of those events are hardly available. Many
involve also qualitative factors and are subject to subjective interpretation.
Information is available in abundance. But the useful one is still scarce
and expensive. The uncertainty can partly be alleviated by obtaining more
useful and accurate information, which is expensive.
The way to address complex problems is by cutting down its complexity.
Higher precision causes much higher complexity. Applying approximation
is a way to alleviate the complexity problem.
Defining and comparing. Defining is not always an implementable task.
It is hardly possible to define " a good ship" or "a good stowage plan" pre-
cisely. Our understanding on a concept or an object is contextual. It proves
to be much easier and practicable to compare objects than to define them.
Practitioners can solve complex problems. In spite of the complexity of
the shipping practice, an experienced practitioner can solve difficult tasks
well. Reoccurrence of similar events contribute very much in enhancing a
human problem-solving capability. Problem-solving is viewed as a process
of reminding of past similar cases. It explains the fact that an experienced
practitioner can estimate values without calculating, he simply knows it. A
similar scene is shown in addressing planning tasks.
Compatibility is a concept of grouping and matching. The capability of
grouping entities, such as "similar ships", involves the level of information
or knowledge. Analogously is the capability of solving problems, such as
"This is ship is approximately US$ 5,000/day worth". The later is viewed
as a matching problem between two entities having different roles, i.e. a
problem and its solution. The more experienced a practitioner, the more
189
190
knowledgeable he is, and the more capable he is to apply grouping and

matching tasks, i.e. to perform tasks. This confirms the first hypothesis.
The concept of compatibility is implementable. The implementation
of this concept involves methods capable of addressing the concepts of
imprecision and learning. Fuzzy set theory and case-based reasoning
methodologies are appropriate for implementing this concept. The imple-
mentations may range from value assessment till planning tasks. This con-
firms the second hypothesis.
Outlook
Forgotten research agenda. The result of this research may concern three
areas: shipping research, industry and education. The findings show us
that shipping practice involves aspects, such as imprecision, intuition, ex-
perience and task-orientedness, which seem to be forgotten by today’s re-
search agenda in shipping. Today’s research agenda seems to be marked
with its preference for addressing macro-oriented problems and its prefer-
ence for having process-oriented views on addressing problems.
More research addressing living problems in daily shipping practice is
necessary. It is also of use for having a wider methodological horizon.
Learning from nature proves to have contributed very much to solve many
of our problems. This includes learning from failures and successes, and
from ourselves, as a human. Having an eye on Artificial Intelligence in
research agenda may contribute towards better developing useful tools for
shipping.
Towards implementation. The concept of compatibility can be imple-
mented in addressing various tasks in shipping and related areas, such
as ship design or fleet scheduling. In areas where knowledge can not be
obtained and formulated satisfactorily, recycling (reusing) past solution con-
cepts and modifying them where necessary are usually an effective way to
address problems.
AI in shipping education. Better understanding soft aspects such as
imprecision and intuition is not something taken for granted in the educa-
tion of shipping, logistic, traffic engineering and marine technology. Intro-
ducing the AI views to them, beside mathematics, statistics and operation
research, would contribute very much for understanding the complexity of
real problems.
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APPENDICES
199
Appendix A
MV Lucy Oldendorff
Liberian flag, call sign ELPA2, Reg.-No. 9705

owners: Halfmoon Shipping Corporation, Monrovia
singledeck bulkcarrier, grainfitted and logs fitted incl stanchions
built 5/1992 at Onomichi Dockyard Co. Ltd., Japan,
first class American Bureau of Shipping (+ A1 E Bulkcarrier + AMS)
loa 157,50 m, lpp 148,00 m, breadth 25,00 m,

international grt 13.696 nrt 7.791
Suez Canal grt 13.920,01 nrt 12.245,30
Panama Canal grt 14.407,55 nrt 11.366,55
immersion abt 33 mts per cm

22.160 mts dwat (21.811 lgts) on abt 9,115 m ssw draft
(21.537 mts dwat on winter loadline abt 8,925 m)
(timber 23.028 mts dwat on abt 9,378 m ssw)
1.034.766 cbft/999.354 cbft grain/bale available for cargo

43.323 m3 lumber loading capacity
4 holds and 4 hatches:

No.1: 20,00 m x 11,68/17,52 m fore/aft
No.2: 20,80 m x 17,52 m
No.3: 20,80 m x 17,52 m
No.4: 20,80 m x 17,52 m
201
202
capacities (cbm) grain bale

No. 1: 221.890 213.626
No. 2: 278.025 268.189
No. 3: 278.422 268.371
No. 4: 256.429 249.168
one twostroke singleacting diesel engine Mitsubishi 6UEC45LA,

6 cylinders, turbocharged, of abt 7.200 bhp at abt 158 rpm,
speed/consumption:
abt 14 kn on abt 19,5 mts heavy fuel oil (180 cst RME25) plus abt
1,5 mts MDO (DMB), (DMB),
vessel burns MDO with main engine whilst on roads, rivers, anchor-
ages, in ports, canals etc.
port consumption:
abt 2,6 mts MDO with cranes working,
abt 1,5 mts MDO without cranes working
gear:
4 x Mitsubishi electro hydraulic deck cranes of
30 mts each (max jib radius 3 x 24 m + 1 x 22 m)
hoisting speed 30 mts x 18,5 m/min,
12 mts x 37,0 m/min,
bunker capacity abt 725 mts (96 %) IFO/abt 253 mts (96 %) MDO,
water ballast abt 7.458 mts, freshwater evaporator (abt 15 mts/day),
grainfitted, CO2 fitted, Australian hold ladder fitted, natural ventila-

tion, all modern nautical aids incl 2 radars with one Arpa, weather
fax, navtex, global positioning system, doppler log, gmdss-satcom
"A" incl fax, Suez/Panama Canal fitted, logs fitted, incl lashing ma-
terial and collapsible steel stanchions
stanchion heights:
hold 1: abt 7,00 m
holds 2-4: abt 8,00 m
maximum permissible uniform loading:

tank top: 17 mts/m2
weather deck: 3.67 mts/m2
weather deck hatches covers: 3.00 mts/m2
Inmarsat B: phone-no. 363625810 fax-no. 363625820

Inmarsat C telex no. 463674390
203 Appendix A. MV Lucy Oldendorff
P& I Club: The United Kingdom Mutual Steamship Assurance As-

sociation (Bermuda) Ltd
all details "about"

204
Appendix B
Glossary
• Algorithm: (1) a sequence of computational steps for solving a well-

specified computational problem [14]. (2) a procedure that is guaran-
teed either to find a correct solution to a problem in a finite time or to
tell you thee is no so solution [11]
• Approach: ideas or actions intended to deal with a problem or situation[3]
• Artificial Intelligence: (1) a branch of computer that studies the com-
putational requirements for tasks such as perception, reasoning, and
learning, and develops systems to perform those tasks [44]. (2) a
program that mimics human intelligence, when exhibited by devices
and applications such as robots or computers with voice recogni-
tion and language processing ability.This human-like intelligence im-
plies the ability to learn or adapt through experience.http: // www.
computeruser. com/ resources/ dictionary/ definition. html? lookup=
296 . (3) a part of computer science concerned with designing intel-
ligent computer systems, i.e. systems that exhibit the characteris-
tics that we associate with intelligence in human behavior - under-
standing language, learning, reasoning, solving problems etc (Barr
and Feigenbaum). http: // www. doc. mmu. ac. uk/ STAFF/ J. Gray/
kbsnotes/ intro/ lecture1. htm . (4) a branch of computer science
that is concerned with the automation of intelligent behavior [49]. (5)
a branch of computer science dealing with symbolic, non-algorithmic
methods of problem solving [11].
• Bounded Rationality: Herbert Simons’s theory arguing that capacity
of a human is too small to address the complexity of the real world
rationally, .
• Case: a set consisting of a problem, solution and their corresponding
effect, i.e case = <problem, solution, effect>
• Case-base: a database containing cases.
205
206
• Case-Based Reasoning: a method for solving a problem by remem-

bering the way how similar past problems were solved.
• Crisp number: exact number, a number having exactly one value,

see also fuzzy number.
• Compatible: (1) capable of existing in harmony; congruous; suitable;

not repugnant; – usually followed by with [1]. (2) having similar dis-
position and tastes[3]. (4) capable of being used with or connected to
other devices or components without modification[3]. (5) able to exist
and perform in harmonious or agreeable combination; "a compati-
ble married couple"; "her deeds were compatible with her ideology".
(6) having similar disposition and tastes; "a compatible married cou-
ple"; "with their many similar tastes, he found her a most sympathetic
companion". (7) capable of being used with or connected to other de-
vices or components without modification. (8) (of a couple) existing
together harmoniously [syn: well-matched] (9) capable of forming a
homogeneous mixture that neither separates nor is altered by chemi-
cal interaction [3]. (10) different systems (e.g., programs, file formats,
protocols, even programming languages) that can work together or
exchange data are said to be compatible[2]. (11) suited to, in accord
with, able to exist together with (ideas, arguments, principles etc)[31].
• Compatibility: (1) the quality or power of being compatible or con-

gruous; congruity; as, a compatibility of tempers; a compatibility of
properties.[1]. (2) capability of existing or performing in harmonious
or congenial combination [3].
• Concept: (1) an abstract general conception; a notion; a universal

[1], (2) an abstract or general idea inferred or derived from specific
instances [syn: conception, construct] [3]
• Data: (1) a collection of facts from which conclusions may be drawn;

[3] data on its own has no meaning, only when interpreted by some
kind of data processing system does it take on meaning and become
information [2].
• Data extraction: summarizing or transforming data into a useful form

in line with requirements.
• Expert system: a program which uses the heuristic expert knowledge

for analysis, or synthesis purposes [48].
• Effect: additional information regarding the qualities of a case, such

as ’good’, ’misleading’, ’important’, ’don’t do this in rainy season’ or
’a hypothetical case’. Its purpose is to guide the planner during the
207 Appendix B. Glossary
retrieval of cases and in the following modification steps, i.e. REUSE

and REVISE.
• Fuzzy logic: a formal system of logic in which numbers on a scale

from 0 to 1 are used instead of the values "true" and "false" as ab-
solutes, to accurately represent the fact that some questions do not
have a simple yes or no answer. Fuzzy logic was developed by
Lotfi Zadeh of the University of California, Berkeley. http://www.
computeruser.com/resources/dictionary/definition.html?lookup=
2095
• Fuzzy number: a set of numbers to describe imprecision attributed to

an object, e.g. approximately 30,000 dwt
• Heuristic: a procedure that is not guaranteed to work, but will often

find solutions in much shorter times than exhaustive trial and error
and other algorithms [11]
• Hypothesis: (1) a tentative theory or supposition provisionally adopted

to explain certain facts, and to guide in the investigation of others[1]
(2) A proposal intended to explain certain facts or observations[3] (3)
a tentative theory about the natural world; a concept that is not yet
verified but that if true would explain certain facts or phenomena [3].
• Information: (1) a message received and understood. (2) a collec-

tion of facts from which conclusions may be drawn; "statistical data"
[syn: data]. (3) knowledge acquired through study or experience or
instruction. (4) (communication theory) a numerical measure of the
uncertainty of an outcome; "the signal contained thousands of bits of
information" [3]
• Intuition: Direct apprehension or cognition; immediate knowledge,

as in perception or consciousness; – distinguished from "mediate"
knowledge, as in reasoning; quick or ready insight or apprehension[1].
• Knowledge: an informal notion describing something that a human,

a formal system or a machine can possibly use in order to perform a
certain task of functionality [65].
• Knowledge base: a program’s part which stores facts and associa-

tions it ’knows’ about a subject area such as medicine [11].
• Knowledge engineering: the process of mapping expert knowledge

into a program’s knowledge base [11].
• Knowledge-Based System (KBS): (1) a computer system that is pro-

grammed to imitate human problem-solving by means of artificial in-
208
telligence and reference to a database of knowledge on a particu-

lar subject http://www.computeruser.com/resources/dictionary/
definition.html?lookup=3775. (2) A computer system in which some
symbolic representation of human knowledge is applied, usually in a
way resembling human. http://www.doc.mmu.ac.uk/STAFF/J.Gray/
kbsnotes/intro/lecture1.htm.
• Logic: (1) the science or art of exact reasoning, or of pure and for-
mal thought, or of the laws according to which the processes of pure
thinking should be conducted; the science of the formation and ap-
plication of general notions; the science of generalization, judgment,
classification, reasoning, and systematic arrangement; correct rea-
soning [1]. (2) the branch of philosophy that analyzes inference. (3)
reasoned and reasonable judgment; "it made a certain kind of logic".
(3) the principles that guide reasoning within a given field or situation.
(4) a system of reasoning [3]
• Logical: (1) capable of or reflecting the capability for correct and

valid reasoning (2) in accordance with reason or logic; "a logical
conclusion"[3]
• Membership function: a function showing the membership values of

a fuzzy number; a fuzzy number’s degree of truth to a particular defi-
nition.
• Method: (1) an orderly procedure or process; regular manner of doing

anything; hence, manner; way; mode; as, a method of teaching lan-
guages; a method of improving the mind[1]. (2) Orderly arrangement,
elucidation, development, or classification; clear and lucid exhibition;
systematic arrangement peculiar to an individual[1].
• Methodology: (1) the science of method or arrangement; a treatise on

method[1]. (2) the branch of philosophy that analyzes the principles
and procedures of inquiry in a particular discipline[3]. (3) a pretentious
way of saying "method" [2].
• Indexing: ordering similar cases to ease retrieval.
• Learning: a process of adding new cases and managing them.
• Query: a current/ new problem
• Rational: (1) relating to reason; not physical; mental. (2) Having rea-
son, or the faculty of reasoning; endowed with reason or understand-
ing; reasoning. (3) Agreeable to reason; not absurd, preposterous,
extravagant, foolish, fanciful, or the like; wise; judicious; as, rational
conduct; a rational man [1]. (4) consistent with or based on or using
209 Appendix B. Glossary
reason; "rational behavior"; "a process of rational inference"; "rational

thought". (5) of or associated with or requiring the use of the mind;
"intellectual problems". (3) having its source in or being guided by
the intellect (distinguished from experience or emotion); "a rational
analysis" [3].
• Similarity: (1) the quality or state of being similar; likeness; resem-

blance; as, a similarity of features [1]. (2) the quality of being similar.
(3) a Gestalt principle of organization holding that (other things being
equal) parts of a stimulus field that are similar to each other tend to
be perceived as belonging together as a unit[3].
210
Appendix C
Shipping terms and

abbreviations
1 AA Always Afloat
AAAA Always Accessible Always Afloat
AAOSA Always Afloat or Safe Aground. Condition for a ves-
sel whilst in port
AARA Amsterdam-Antwerp-Rotterdam Area
ABAFT Toward the rear (stern) of the ship. Behind.
ABOARD On or within the ship
ABOVE DECK On the deck (not over it - see ALOFT)
ABT About
ADCOM Address Commission
ADDENDUM Additional chartering terms at the end of a charter
party
AFSPS Arrival First Sea Pilot Station (Norway)
AFFREIGHTMENT The hiring of a ship in whole or part
AFT At or towards the stern or rear of a ship
AGROUND Touching or fast to the bottom
1
http://www.uq.net.au/~zzksteph/, downloaded 11 January 2005 and http://www.m-i-
link.com/dictionary/acronym_IJK.asp, downloaded on 16 January 2005
211
212
AGW All Going Well

AHL Australian Hold Ladders
AIDS TO NAVIGA- Artificial objects to supplement natural landmarks in-
TION dicating safe and unsafe waters
ALOFT Above the deck of the ship
AMIDSHIPS In or toward the centre of the ship
ANCHORAGE A place suitable for anchorage in relation to the wind,
seas and bottom
ANTHAM Antwerp-Hamburg Range
APS Arrival Pilot Station
ARAG Amsterdam-Rotterdam–Antwerp-Gent Range
ARBITRATION Method of settling disputes which is usually binding
on parties. A clause usually in a charter party
A/S Alongside
ASBA American Shipbrokers Association
ASPW Any Safe Port in the World
ASTERN In the back of the ship, opposite of ahead
ATDNSHINC Any Time Day/Night Sundays and Holidays Included
ATHWARTSHIPS At right angles to the centreline of the ship
ATUTC Actual Times Used to Count
BACKLETTER Where a seller/shipper issues a ’letter of indemnity’
in favour of the carrier in exchange for a clean bill of
lading
BAF Bunker Adjustment Factor. A Fuel Surcharge ex-
pressed as a percentage added or subtracted from
the freight amount, reflecting the movement in the
market place price for bunkers.
BALE CAP. Cubic capacity of a vessels holds to carry packaged
dry cargo such as bales/pallets
BALLAST Heavy weight, often sea water, necessary for the sta-
bility and safety of a ship which is not carrying cargo
BALLAST BONUS Compensation for relatively long ballast voyage
BAREBOAT CHTR. Bareboat Charter - Owners lease a specific ship and
control its technical management and commercial
operations only. Charterers take over all responsi-
bility for the operation of the vessel and expenses
for the duration.
BBB Before Breaking Bulk. Refers to freight payments
that must be received before discharge of a vessel
commences
BDI Both Dates Inclusive
BEAM The maximum breadth or the greatest width of a ship
BELOW Beneath the deck
BENDS Both Ends (Load & Discharge Ports)
213 Appendix C. Shipping terms and abbreviations
BI Both Inclusive
BIMCO The Baltic and International Maritime Council
BL Bale
BL (Bill of Lading) A document signed by the carrier
which acts as a Contract of Affreightment, a receipt
and evidence of title to the cargo.
BM Beam
BN Booking Note
BOB Bunker on Board
BOFFER Best Offer
BOW The forward part of a ship
BROB Bunkers Remaining on Board
BROKERAGE Percentage of freight payable to broker (by owners
in c/p’s) or applicable to sale or purchase
BSS Basis
BSS 1/1 Basis 1 Port to 1 Port
BT Berth Terms
BULKHEAD A vertical partition separating compartments
BUNDLING This is the assembly of pieces of cargo, secured into
one manageable unit. As a rule of thumb it is to
present cargo at a size easily handled by a large (20
tonne) fork lift.
BUNKERS Name given for vessels Fuel and Diesel Oil supplies
(Originates from coal bunkers)
BUOY An anchored float used for marking a position on the
water or a hazard or a shoal and for mooring
BWAD Brackish Water Arrival Draft
CAF Currency Adjustment Factor
CBM Cubic Metres
CBFT (or CFT) Cubic Feet
CFR (or C&F) Cost and Freight
CHART A map used by navigators
CHOPT Charterers Option
CHTRS Charterers
CIF Cost, Insurance & Freight. Seller pays all these
costs to a nominated port or place of discharge.
CKD Completely knocked down
COA Contract of Affreightment - Owners agree to accept
a cost per revenue tonne for cargo carried on a spe-
cific number of voyages.
CIP Carriage and Insurance paid to...
COACP Contract of Affreightment Charter Party
COB Closing of Business
COBLDN Closing of Business London
214
COD Cash On Delivery

COGSA Carriage of Goods by Sea Act
CONGESTION Port/berth delays
CONS Consumption
C/SNEE CONSIGNEE. Name of agent, company or person
receiving consignment
COP Custom Of Port
CP (or C/P) Charter Party
CPD Charterers Pay Dues
CPT Carriage Paid To
CQD Customary Quick Despatch
CR Current Rate
CROB Cargo Remaining on Board
CRN Crane
CRT Cargo Retention Clauses, introduced by charterers
based on shortage of delivered cargo because of in-
creased oil prices
CST Centistoke
CTR Container Fitted
DA Disbursement Account
DAF Deliver At Frontier
DAPS Days all Purposes (Total days for loading & discharg-
ing)
DAMFORDET Damages for Detention. Penalty if cargo is not ready
when ship arrives for working (1st day of Laycan).
This is not detention which is charged for ships
time on delay. If the cargo is ready there is no
DAMFORDET.
DDU Delivered Duty unpaid.
DDP Delivered Duty Paid.
DECK A permanent covering over a compartment, hull or
any part thereof
DEM Demurrage (Quay Rent). Money paid by the ship-
per for the occupying port space beyond a specified
"Free Time" period.
DEQ Delivered Ex Quay
DES Delivered Ex Ship
DESP Despatch. Time saved, reward for quick turnaround-
in dry cargo only
DET Detention (See DAMFORDET)
DEV Deviation. Vessel departure from specified voyage
course
DFRT Deadfreight. Space booked by shipper or charterer
on a vessel but not used
DHDATSBE Despatch Half Demurrage on All Time Saved Both

Ends
DHDWTSBE Despatch Half Demurrage on Working Time Saved
Both Ends
DISCH Discharge
DK Deck
DLOSP Dropping Last Outwards Sea Pilot (Norway)
DO Diesel Oil
DOLSP Dropping Off Last Sea Pilot (Norway)
DOP Dropping Outward Pilot
DOT Department of Transport
DNRCAOSLONL Discountless and Non-Returnable Cargo and/or Ship
Lost or Not Lost
DRAUGHT (or Depth to which a ship is immersed in water.
DRAFT)
DRK Derrick
DUNNAGE Materials of various types, often timber or matting,
placed among the cargo for separation, and hence
protection from damage, for ventilation and, in the
case of certain cargoes, to provide space in which
the tynes of a fork lift truck may be inserted.
DWAT (or DWT) Deadweight. Weight of cargo, stores and water,
i.e. the difference between lightship and loaded dis-
placement.
EBB A receeding current
EC East Coast
EIU Even If Used
ELVENT Electric Ventilation
ETA Estimated Time of Arrival
ETC Estimated Time of Completion
ETD Estimated Time of Departure
ETS Estimated Time of Sailing
EXW Ex Works
FAC Fast as can
FAS Free Alongside Ship. Seller delivers goods to appro-
priate dock or terminal at port of embarkation and
buyer covers costs and risks of loading
FCA Free to Carrier. A modern equivalent of FAS used in
intermodal transport where goods are transferred at
a nominated forwarders premises, depot or terminal
but not actually on board vessel.
FD (FDIS) Free Discharge
FDD Freight Demurrage Deadfreight
FDESP Free Despatch
216
FDEDANRSAO- Freight Deemed Earned, Discountless And Non-

CLONL Returnable (Refundable) Ship And Or Cargo Lost Or
Not Lost
FENDER A cushion, placed between ships, or between a ship
and a pier, to prevent damage
FEU Standard 40? Container
FEU Standard 40? Container
FHEX Fridays/Holidays Excluded
FHINC Fridays/Holidays Included
FILO Free In/Liner Out. Seafreight with which the shipper
pays load costs and the carrier pays for discharge
costs.
FIO Free In/Out. Freight booked FIO includes the
seafreight, but no loading/discharging costs, i.e. the
charterer pays for cost of loading/discharging cargo.
FIOS Free In/Out Stowed. As per FIO, but excludes
stowage costs.
FIOST Free In/Out and Trimmed. Charterer pays for cost
of loading/discharging cargo, including stowage and
trimming.
FIOT Free In/Out and Trimmed. As per FIOS but includes
trimming, e.g. the levelling of bulk cargoes. FIOS in-
cludes seafreight, but excludes loading/discharging
and stowage costs.
FIT Free In Trimmed
FIW Free In Wagon
FIXING Chartering a Vessel
FIXTURE Conclusion of shipbrokers negotiations to charter a
ship - an agreement
FLATPACKING Cargo to be presented stacked and secured as an
integral unit.
FLT Full Liner Terms
FMC Federal Maritime Commission
FME Force Majeure Excepted
FMS Fathoms
FO For Orders
FO (IFO) Fuel Oil/Intermediate FO
FO Free Out
FOB Free on Board. Seller sees the goods "over the
ship?s rail" on to the ship which is arranged and paid
for by the buyer
FOFFER Firm Offer
FOB Free on Board. Seller sees the goods "over the

ship?s rail" on to the ship which is arranged and paid
for by the buyer
FOFFER Firm Offer
FOG For Our Guidance
FOQ Free On Quay
FOR Free On Rail
FORCE MAJEURE Clause limiting responsibilities of the charterers,
shippers and receivers of cargo.
FORE-AND-AFT In a line parallel to the keel
FORWARD Toward the bow of the ship
FOT Free On Truck
FOW First Open Water
FOW Free On Wharf
FP Free Pratique. Clearance by the Health Authorities
FR First Refusal. First attempt at best offer that can be
matched
FREEBOARD The minimum vertical distance from the surface of
the water to the gunwale
FRT Freight. Money payable on delivery of cargo in a
mercantile condition
FREE DESPATCH If loading/discharging achieved sooner than agreed,
there will be no freight money returned.
FREE EXINS Free of any Extra Insurance (Owners)
FREE OUT Free of discharge costs to owners. Includes
seafreight only.
FRUSTRATION Charterers when cancelling agreement sometimes
quote ’doctrine of frustration’ i.e. vessel is lost, ex-
tensive delays.
FWAD Fresh Water Arrival Draft
FWDD Fresh Water Departure Draft
FYG For Your Guidance
FYI For Your Information
GA General Average
GEAR A general term for ropes, blocks, tackle and other
equipment
GLS (GLESS) Gearless
GNCN Gencon (GENERAL CONDITIONS)
GN (or GR) Grain (Capacity)
GO Gas Oil
GP Grain Capacity. Cubic capacity in ’grain’
GR Geographical Rotation. Ports in order of calling
GRD Geared
GRT Gross Registered Tonnage
218
HAGUE RULES Code of minimum conditions for the carriage of cargo

under a Bill of Lading
HATCH An opening in a ship’s deck fitted with a watertight
cover
HBF Harmless Bulk Fertilizer
HDLTSBENDS Half Despatch Lay Time Saved Both Ends
HDWTS Half Despatch Working (or Weather) Time Saved
HHDW Handy Heavy d.w. (Scrap)
HIRE T/C Remuneration
HMS Heavy Metal Scraps
HO Hold
HOLD A compartment below deck in a large vessel, used
solely for carrying cargo
HULL The main body of a ship
HW High Water
ICW Intercoastal Waterway : bays, rivers, and canals
along the coasts (such as the Atlantic and Gulf
of Mexico coasts), connected so that vessels may
travel without going into the sea
ILOHC In Lieu Of Hold Cleaning
IMDG International Maritime Dangerous Goods Code
IMO International Maritime Organisation
IN &/ OR OVER Goods carried below and/or on deck
IND Indication
INTERMODAL Carriage of a commodity by different modes of trans-
port, i.e. sea, road, rail and air within a single journey
ITF International Transport Workers Federation (Trade
Unions). Complies on crewing
ITINERARY Route.Schedule
IU If Used
IUHTAUTC If Used, Half Time Actually To Count
IWL Institute Warranty Limits
KEEL The centreline of a ship running fore and aft; the
backbone of a vessel
KNOT A measurement of speed equal to one nautical mile
(6,076 feet) per hour
LANE METER A method of measuring the space capacity of Ro/Ro
ships whereby each unit of space (Linear Meter) is
represented by an area of deck 1.0 meter in length x
2.0 meters in width.
LASH To hold goods in position by use of Ropes, Wires,
Chains or Straps etc.
LAT Latitude. The distance north or south of the equat
LAYCAN Laycan (Layday Cancelling Date)
LAYTIME Time at Charterers disposal for purpose of load-

ing/discharging
L/C Letter of Credit
LCR Lowest Current Rate
LEE The side sheltered from the wind
LEEWARD The direction away from the wind. Opposite of wind-
ward
LEEWAY The sideways movement of the ship caused by ei-
ther wind or current
LF Load Factor. Percentage of cargo or passengers
carries e.g. 4,000 tons carried on a vessel of 10,000
capacity has a load factor of 40%
LIEN Retention of property until outstanding debt is paid
LNG Liquefied Natural Gas
LOA Length Overall of the vessel
LOAD LINE SEE PLIMSOLL LINE
LOF Lloyds Open Form
LOG A record of courses or operation. Also, a device to
measure speed
LOI Letter of Indemnity
LONGITUDE The distance in degrees east or west of the meridian
at Greenwich, England
LOW Last Open Water
LS (or LUMPS) Lumpsum Freight. Money paid to Shipper for a char-
ter of a ship (or portion) up to stated limit irrespective
of quantity of cargo
LSD Lashed Secured Dunnaged
LSD Lashed Secured Dunnaged
LT Liner Terms
LT Long Ton = 1,016.05 kilogram (2,240 lbs)
LTHH Liner Terms Hook/Hook
LW Low Water
LYCN Laycan (Layday Cancelling Date)
MANIFEST Inventory of cargo on board
MB Merchant Broker
MB Merchant Broker
MDO (DO) Marine Diesel Oil
MIDSHIP Approximately in the location equally distant from the
bow and stern
MIN/MAX Minimum/Maximum (cargo quantity)
MOA Memorandum of Agreement
MOLCHOPT More or Less Charterers Option
MOLOO More or Less Owners Option
220
MOORING An arrangement for securing a ship to a mooring

buoy or pier
MT Mertic Tonne (i.e. 1,000 kilos)
M/V Motor Vessel / Merchant Vessel
NAABSA Not Always Afloat But Safely Aground
NM Nautical Mile. One minute of latitude; approximately
6,076 feet - about 1/8 longer than the statute mile of
5,280 feet
NAVIGATION The art and science of conducting a ship safely from
one point to another
NCB National Cargo Bureau
NESTING Implies that cargo is presented stacked in the con-
tour of similarly shaped cargo, it may be likened to
a stack of plates. This is particularly relevant in the
presentation of tankage strakes for transport
NON-REVERSIBLE (Detention). If loading completed sooner than ex-
pected, then saved days will not be added to dis-
charge time allowed
NOR Notice of Readiness
NRT Net Restricted Tonnage
NYPE New York Produce Exchange
OO Owners Option
OBO Ore/Bulk/Oil Vessel
OSH Open Shelter Deck
OVERBOARD Over the side or out of the ship
OWS Owners
P&I Protection and Indemnity Insurance
PASTUS Past Us
PC Period of Charter
PCGO Part Cargo
PCT Percent
PDPR Per Day Pro Rata
PERDIEM By the Day
PER SE By Itself
PHPD Per Hatch Per Day
PLIMSOLL MARK plimsoll_mark An internationally recognised line
painted on the side of merchant ships. When a
ship is loaded, the water level is not supposed to go
above the line. Water can reach different parts of the
line as its temperature and saltiness varies with the
season and location. From where Plimsoll Shipping
derived its name.
PORT The left side of a ship looking forward. A harbour.
PRATIQUE Licence or permission to use a port
PREAMBLE Introduction to a charter party

PROFORMA Estimated Account
PUS Plus Us
PWWD Per Weather Working Day
RCVR Receiver
RECAP Recapitulation of the terms and conditions agreed
REVERSIBLE (Detention). If loading completed sooner than ex-
pected at load port, then days saved can be added
to discharge operations.
ROB Remaining On Board
RT Revenue Tonne (i.e. 1.0 metric tonne or 1.0 cubic
meter, whichever greater). The overall RT is calcu-
lated on a line by line basis of the Packing List us-
ing the largest amount. The overall freight liability is
calculated on the total RT amount, multiplied by the
freight rate.
SATPM Saturday P.M.
SB Safe Berth
SD (or SID) Single Decker
SEAFREIGHT Costs charged for transporting goods over the sea.
This does not cover haulage or loading/discharging
costs but the sea transport only
SEAWORTHINESS Statement of condition of the vessel (valid certifi-
cates, fully equipped and manned etc.)
SELFD Self Discharging
SEMI-TRAILERS Are usually 12.0 meter flat bed road trailers
SF Stowage Factor. Cubic space (measurement tonne)
occupied by one tonne (2,240 lbs/1,000 kgs) of
cargo
SHINC Sundays/Holidays Included
SHEX Sundays/Holidays Excluded
SKIDS Are bearers (timber or steel) positioned under the
cargo to enable forklift handling at port, and for ease
of rigging and lashing on board ship.
SN Satellite Navigation - A form of position finding using
radio transmissions from satellites with sophisticated
on-board automatic equipment
SOC Shipper Owned Container
SOF Statement of Facts
SP Safe Port
SPIDERING Is the strengthening of circular tanks for transport,
this prevents the tanks from becoming warped. The
tanks are strengthened with steel or wood cross-
beams giving a "spider" appearance
222
SRBL Signing and Releasing Bill of Lading

SSHEX Saturdays, Sundays, Holidays Excluded
SSHINC (or SAT- Saturdays, Sundays, Holidays Included
SHINC)
STABILITY It is paramount that a vessel is stable in all aspects
at all times. When cargo is loaded/discharged, the
stability is monitored by a computer, which takes into
account the weight and position of cargo within the
vessel.
STARBOARD Right side of a ship when facing the front or forward
end.
STEM Subject to Enough Merchandise (Availability of
cargo). Also, the forward most part of the bow.
STERN The aformost or after part of a ship
SUB Subject (to). Depending upon as a condition
SUPERCARGO Person employed by a ship owner, shipping com-
pany, charterer of a ship or shipper of goods to su-
pervise cargo handling operations. Often called a
port captain.
SWAD Salt Water Arrival Draft
SWDD Salt Water Departure Draft
THWARTSHIPS At right angles to the centreline of the ship
TIDE The periodic rise and fall of water level in the oceans
TIME BAR Time after which legal claims will not be entered
TBN To Be Named / To Be Nominated
TC Time Charter - Owners agree to hire a particular ship
for a set length of time and provide technical man-
agement, crewing etc.
TCP Time Charter Party
TEU Standard 20’ Container
TOPSIDES The sides of a ship between the waterline and the
deck; sometimes referring to onto or above the deck
TRIM Fore and aft balance of a ship
TTL Total
TW Tween Decker
USC Unless Sooner Commenced
UU Unless Used
UUIWCTAUTC Unless Used In Which Case Time Actually Used To
Count
VPD Vessel Pays Dues
WATERLINE A line painted on a hull which shows the point to
which a ship sinks when it is properly trimmed
WAY Movement of a ship through water such as headway,
sternway or leeway
WCCON Whether Customs Cleared Or Not

WIBON Whether In Berth Or Not
WIFPON Whether In Free Pratique Or Not
WINDWARD Toward the direction from which the wind is coming
WIPON Whether In Port Or Not
WLTOHC Water Line-To-Hatch Coaming
WOG Without Guarantee
WP Weather Permitting. That time during which weather
prevents working shall not count as laytime
WPD Weather Permitting Day
WWD Weather Working Day
WRIC Wire Rods In Collis
WWR When, Where Ready
WWWW Wibon, Wccon, Wifpon, Wipon
YAR York Antwerp Rules
YAW To swing or steer off course, as when running with a
quartering sea
Z UTC = GMT
224
Appendix D
Lebenslauf
Name Setyo Nugroho

Nationalität indonesisch
Familienstand verheiratet, 2 Kinder
Adresse Peter-Vischer-Strasse 42
12157 Berlin
Geburtsdatum/-ort 20.10.1965 in Tuban, Indonesien
E-mail [email protected]
A USBILDUNG
1984-1985 Studium Schiffs- und Meerestechnik an der Technis-
chen Universität Sepuluh Nopember in Surabaya.
1985-1986 Sprachkurs Niederländisch in Jakarta und Utrecht.
Stipendium von der N UFFIC /Niederlande.
1986-1993 Studium Seeverkehr an der Technischen Universität
Delft, Niederlande, Abschluß: ir. / MSc. Stipendium
von der N UFFIC/Niederlande und von der B APPE -
NAS /Indonesien
1999 Sprachkurs Deutsch in Surabaya und in Dresden.
1999-2005 Promotion am Fachgebiet Seeverkehr an der Tech-
nischen Universität Berlin. Stipendium vom DAAD
(1999-2001).
B ERUFSERFAHRUNG
1993 Mitarbeiter, Wijsmuller Engineering, IJmuiden,
Niederlande. Projekt: “Kohletransport in Ostkali-
mantan mit Bargen”.
225
226
1994-1997 Mitarbeiter, Meratus Shipping, Surabaya. Auf-

gaben: (a) Planung und Operation von Container-
und Stückgutschiffen (b) Chartering (c) Agentur (d)
Logistikprojekt: “Distribution von Melamin”. DKM-
Kaltim Melamine, Bontang, Ostkalimantan.
1994-1999 Wissenschaftlicher Mitarbeiter mit Lehraufgaben,
Fachgebiet Seeverkehr, an der Technischen Univer-
sität Sepuluh Nopember (ITS), Surabaya. Lehre: (a)
Computerprogrammierung (b) Seeverkehr.
Mitarbeit an den folgenden Projekten:
1995 “Planung des Kohltransports Kalimantan-Java mit
Barge”, Beratung, PT PANSAAB, Jakarta.
1996-1997 “Effizienz und Produktivität der Häfen in Kalimantan
und Sumatra”, Forschung in Zusammenarbeit mit In-
donesian Port Corporation II (Pelindo II) Jakarta.
1997-1998 “Entwurf eines Palmölhafens in Südkalimantan”, In-
donesian Port Corporation III (Pelindo III) Surabaya,
Beratung.
1998 "Passagiertransport Malaysia-Surabaya", Beratung,
Primaju-Bekalan Sdn.Bhd., Kuala Lumpur.
1998 "Entwurf des Chemikalien-Terminal im Tanjung
Perak", Beratung, Aneka Kimia Raya, Surabaya.
2001-2004 Wissenschaftlicher Mitarbeiter, Fachgebiet Seev-
erkehr an der Technischen Universität Berlin,
“Computerunterstützte Stauplanung für Container-
schiffe”, vom BMBF gefördertes Forschungprojekt in
Zusammenarbeit mit der TU Hamburg-Harburg und
Müller+Blanck Softwarefirma.
D IVERSES
EDV Matlab, Pascal, Postgresql, Qt, C++, Python.
Sprachen Javanisch (Muttersprache), Indonesisch, Englisch,
Deutsch, Niederländisch.
Interessen (a) Seeverkehr: Planung, Management und Inno-
vation (b) Anwendungen der künstlichen Intelligenz,
vor allem aus den Bereichen Fuzzy Logik und Fall-
basiertem Schließen.
Freizeit Spielen mit Kindern, Debian Linux, Jogging und Tis-
chtennis.
PATENT
227 Appendix D. Lebenslauf
Patentanmeldung "Verfahren zur Erstellung eines Stauplanes für Contain-

erschiffe" am 25. Juni 2004 beim Deutschen Patent- und Markenamt,
Berlin.
W ISSENSCHAFTLICHE A RBEITEN
1 Setyo Nugroho. Addressing Management of Uncertainties in Ship
Chartering - A Fuzzy Logic Approach. X Spanish Conference on Fuzzy
Logic and Technologies, 20-22.September 2000, Sevilla.
2 Setyo Nugroho, Jens Heyer and Peter Horstkorte. Conceptual Design
of Box-Type Barges. Technische Universität Berlin, 2002. Unveröffen-
lichter C OMSTAU -Projektbericht.
3 Setyo Nugroho. Voyage Scenario. Technische Universität Berlin, 2002.
Unveröffenlichter C OMSTAU -Projektbericht.
4 Csaba Piller and Setyo Nugroho. Stauung von Gefahrgut. Technische
Universität Berlin, 2002. Unveröffenlichter C OMSTAU -Projektbericht.
5 Horst Linde and Setyo Nugroho. Assessing A Stowage Plan.
Technische Universität Berlin, 2003. Unveröffenlichter C OMSTAU -
Projektbericht.
6 Setyo Nugroho. Case-Based Stowage Planning: A Proposal.
Technische Universität Berlin, 2003. Unveröffenlichter C OMSTAU -
Projektbericht.
7 Setyo Nugroho. Preliminary Experiments with A Case-Based Stowage
Planning System. Technical report, Technische Universität of Berlin,
2003. Unveröffenlichter C OMSTAU -Projektbericht.
8 Setyo Nugroho. Case Representation of a Round Voyage in a Case-
Based Stowage Planning System. Presentation at the Technische
Universität Hamburg-Harburg. June 11, 2003. Unveröffenlichter
C OMSTAU -Projektbericht.
9 Setyo Nugroho. Case-Based Stowage Planning for Container Ships:
An Outline. Technical report, Technische Universität Berlin, 23 February
2004. Unveröffenlichter C OMSTAU -Projektbericht.
10 Setyo Nugroho. Case-Based Stowage Planning for Container Ships.
International Logistics Conference, 2-3.Dezember 2004, Izmir, Turkey.
11 Setyo Nugroho. Case-Based Stowage Planning System. PORTS 2005
Conference, 20-22.April 2005, Barcelona, Spain. Maritime Engineering
and Ports III, Volume 80 of WIT Transactions on the Built Environment.
ISSN 1743-3509. WIT Press.

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What is the thesis about?

What is the thesis about?

What are fuzzy set theory and case-based reasoning used for in the thesis?

What are fuzzy set theory and case-based reasoning used for in the thesis?

Concept of Compatibility

Technische Universität Berlin

ir. Setyo Nugroho

an der Fakultät V Verkehrs- und Machinensysteme

Technische Universität Berlin

zur Erlangung des Grades Doktor-Ingenieur

Vorsitzende: Prof. Dr.-Ing. Gerhard Hüttig

Tag der wissenschaftliche Aussprache: 13. Juni 2005

Kompatibilität in der Schiffahrt:

Die Theorie der unscharfen Mengen und das Fall-basierte Schließen

Riesbeck and Schank 1

This dissertation can perhaps be viewed as a journey. It is a journey to few

2 Nature of Dry Bulk Shipping 13

3 Existing Resources and Tools 69

II Concept building and implementation 105

4 Towards the Concept of Compatibility 107

4.5.4 Properties . . . . . . . . . . . . . . . . . . . . . . . . . 150

5 Proposed Implementations 157

A MV Lucy Oldendorff 201

C Shipping terms and abbreviations 211

1.1 Suitable and not suitable ships . . . . . . . . . . . . . . . . . 3

2.1 MV L UISE O LDENDORFF . . . . . . . . . . . . . . . . . . . . . 17

2.30 Deadweight versus actual results . . . . . . . . . . . . . . . . 47

3.1 Inquiry from broker . . . . . . . . . . . . . . . . . . . . . . . . 70

4.1 Relationships during chartering negotiations . . . . . . . . . . 112

4.26 Clavier - process . . . . . . . . . . . . . . . . . . . . . . . . . 146

5.1 Current procedure’s input: Amount of cargo . . . . . . . . . . 159

1.1 Vessels available for employment . . . . . . . . . . . . . . . . 4

2.1 Seaborne trade . . . . . . . . . . . . . . . . . . . . . . . . . . 14

3.1 MV Lucy Oldendorff: a chartering negotiation summary . . . 80

4.1 Crisp relation table ’fit to’ . . . . . . . . . . . . . . . . . . . . 130

4.5 Attributes versus error . . . . . . . . . . . . . . . . . . . . . . 141

5.2 Calculation sessions . . . . . . . . . . . . . . . . . . . . . . . 158

Figure 1.1: Suitable and not suitable ships

MV KALKAYAN MV HANDY ISLANDER

Table 1.1: Vessels available for employment

We see an opportunity to obtain cargo from Rotterdam to Mum-

less suitable not suitable

Few brokers and shipping consultants publish recent charter fixtures

MV IRA MV ARISTOTELES MV ERMIONI

Table 1.2: Past fixtures

1.1.2 State of the art of shipping research

In examining the decision-making processes associated with

Shipping practitioners are exposed to situations, in which no tools are

1.2 Hypothesis and problem formulation

Concept of compatibility is related to or contains information or

It makes difference whether someone is an experienced shipping practi-

Applying the concept of compatibility opens a new perspective

Figure 1.3: Research focus

1.2.2 Problem formulation

1.3 Scope and structure

1.3.1 Scope of work

A five-month field research was conducted in 2000 at Egon Oldendorff

1.3.2 Report structure

This thesis consists of six chapters, structured as follows:

Chapter 5 presents the concept of compatibility and its implementa-