Maritime Transport, Volume 21: The Greek Paradigm (Research in Transportation Economics)

MARITIME TRANSPORT: THE GREEK PARADIGM RESEARCH IN TRANSPORTATION ECONOMICS Series Editor: Martin Dresner Volumes 1–6...

Author: Athanasios A. Pallis

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MARITIME TRANSPORT: THE GREEK PARADIGM

RESEARCH IN TRANSPORTATION ECONOMICS Series Editor: Martin Dresner Volumes 1–6:

Research in Transportation Economics – Edited by B. Starr McMullen

Volume 7:

Railroad Bankruptcies and Mergers from Chicago West 1975–2001: Financial Analysis and Regulatory Critique – Michael Conant

Volume 8:

Economic Impacts of Intelligent Transportation Systems: Innovations and Case Studies – Evangelos Bekiaris and Yuko Nakanishi

Volume 9:

Road Pricing: Theory and Evidence – Georgina Santos

Volume 10:

Transportation Labor Issues and Regulatory Reform – James Peoples and Wayne K. Talley

Volume 11:

Interurban Road Charging for Trucks in Europe – Jose´ Manuel Viegas

Volume 12:

Shipping Economics – Kevin Cullinane

Volume 13:

Global Competition in Transportation Markets: Analysis and Policy Making – Katsuhiko Kuroda and Adib Kanafani

Volume 14:

Measuring the Marginal Social Cost of Transport – Christopher Nash and Bryan Matthews

Volume 15:

Procurement and Financing of Motorways in Europe – Giorgio Ragazzi and Werner Rothengatter

Volume 16:

Port Economics – Kevin Cullinane and Wayne K. Talley

Volume 17:

Devolution, Port Governance and Port Performance – Mary R. Books and Kevin Cullinane

Volume 18:

Bus Transport: Economics, Policy and Planning – David A. Hensher

Volume 19:

Investment and the Use of Tax and Toll Revenues in the Transport Sector – Andre de Palma, Charles Robin Lindsey, and Stef Proost

Volume 20:

Railroad Economics – Scott M. Dennis and Wayne K. Talley

RESEARCH IN TRANSPORTATION ECONOMICS VOLUME 21

MARITIME TRANSPORT: THE GREEK PARADIGM EDITED BY

ATHANASIOS A. PALLIS Department of Shipping, Trade and Transport University of the Aegean, Greece

Amsterdam – Boston – Heidelberg – London – New York – Oxford Paris – San Diego – San Francisco – Singapore – Sydney – Tokyo JAI Press is an imprint of Elsevier

JAI Press is an imprint of Elsevier Linacre House, Jordan Hill, Oxford OX2 8DP, UK Radarweg 29, PO Box 211, 1000 AE Amsterdam, The Netherlands 525 B Street, Suite 1900, San Diego, CA 92101-4495, USA First edition 2007 Copyright r 2007 Elsevier Ltd. All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher Permissions may be sought directly from Elsevier’s Science & Technology Rights Department in Oxford, UK: phone (+44) (0) 1865 843830; fax (+44) (0) 1865 853333; email: [email protected]. Alternatively you can submit your request online by visiting the Elsevier web site at http://www.elsevier.com/locate/permissions, and selecting Obtaining permission to use Elsevier material Notice No responsibility is assumed by the publisher for any injury and/or damage to persons or property as a matter of products liability, negligence or otherwise, or from any use or operation of any methods, products, instructions or ideas contained in the material herein. Because of rapid advances in the medical sciences, in particular, independent veriﬁcation of diagnoses and drug dosages should be made British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-0-7623-1449-2 ISSN: 0739-8859 (Series)

For information on all JAI Press publications visit our website at books.elsevier.com Printed and bound in the United Kingdom 07 08 09 10 11 10 9 8 7 6 5 4 3 2 1

CONTENTS LIST OF CONTRIBUTORS

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ACKNOWLEDGEMENTS

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CHAPTER 1 THE GREEK PARADIGM OF MARITIME TRANSPORT: A VIEW FROM WITHIN Athanasios A. Pallis

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CHAPTER 2 A FLEET FOR THE 21ST CENTURY: MODERN GREEK SHIPPING Helen A. Thanopoulou

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CHAPTER 3 ON TOP OF WORLD SHIPPING: GREEK SHIPPING COMPANIES’ ORGANIZATION AND MANAGEMENT Ioannis Theotokas

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CHAPTER 4 THE COMPETITIVE ADVANTAGE IN THE GREEK SHIPPING INDUSTRY Ioannis N. Lagoudis and Ioannis Theotokas

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CHAPTER 5 EMPLOYMENT PRACTICES AND GREEK SHIPPING COMPETITIVENESS Ioannis Tsamourgelis

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CHAPTER 6 FINANCING GREEK SHIPPING: MODERN INSTRUMENTS, METHODS AND MARKETS Theodore C. Syriopoulos

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CONTENTS

CHAPTER 7 GREEK MARITIME POLICY AND THE DISCREET ROLE OF SHIPOWNERS’ ASSOCIATIONS Alkis John Corres

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CHAPTER 8 THE ETERNAL CONUNDRUM OF GREEK COASTAL SHIPPING Maria B. Lekakou

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CHAPTER 9 DEMAND MODELS FOR GREEK PASSENGER SHIPPING Amalia Polydoropoulou and Nikolaos Litinas

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CHAPTER 10 COASTAL SHIPPING AND INTERMODALITY IN GREECE: THE WEAK LINK Seraphim Kapros and Costas Panou

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CHAPTER 11 WHITHER PORT STRATEGY? THEORY AND PRACTICE IN CONFLICT Athanasios A. Pallis

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CHAPTER 12 DIGITAL SHIPPING: THE GREEK EXPERIENCE Nikitas Nikitakos and Maria A. Lambrou

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CHAPTER 13 GREEK MARITIME TOURISM: EVOLUTION, STRUCTURES AND PROSPECTS Mihail N. Diakomihalis

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SUBJECT INDEX

457

LIST OF CONTRIBUTORS Alkis John Corres

Department of Shipping, Trade and Transport, University of the Aegean, Chios, Greece

Mihail N. Diakomihalis

Department of Shipping, Trade and Transport, University of the Aegean, Chios, Greece

Seraphim Kapros

Department of Shipping, Trade and Transport, University of the Aegean, Chios, Greece

Ioannis N. Lagoudis

Department of Shipping, Trade and Transport, University of the Aegean, Chios, Greece

Maria A. Lambrou

Department of Shipping, Trade and Transport, University of the Aegean, Chios, Greece

Maria B. Lekakou

Department of Shipping, Trade and Transport, University of the Aegean, Chios, Greece

Nikolaos Litinas

Department of Shipping, Trade and Transport, University of the Aegean, Chios, Greece

Nikitas Nikitakos

Department of Shipping, Trade and Transport, University of the Aegean, Chios, Greece

Athanasios A. Pallis

Department of Shipping, Trade and Transport, University of the Aegean, Chios, Greece

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LIST OF CONTRIBUTORS

Costas Panou

Department of Shipping, Trade and Transport, University of the Aegean, Chios, Greece

Amalia Polydoropoulou

Department of Shipping, Trade and Transport, University of the Aegean, Chios, Greece

Theodore C. Syriopoulos

Department of Shipping, Trade and Transport, University of the Aegean, Chios, Greece

Helen A. Thanopoulou

Department of Shipping, Trade and Transport, University of the Aegean, Chios, Greece

Ioannis Theotokas

Department of Shipping, Trade and Transport, University of the Aegean, Chios, Greece

Ioannis Tsamourgelis

Department of Shipping, Trade and Transport, University of the Aegean, Chios, Greece

ACKNOWLEDGEMENTS An extensive collection such as this one could never be completed without the consistent efforts of all its contributors. They devoted time and their best efforts, and I would like to thank them for successfully completing the trip on which we collectively embarked. All of us owe much of this book to Nikolaos Litinas, founding member and Chairman of the Department of Shipping, Trade and Transport, throughout the period 1998–2006. He pioneered the idea of establishing a centre of excellence in the Aegean Sea that would study the various facets of Greek and global maritime transport and did a great job in providing a most positive environment for all of us who have been involved in this long-term project. The very essence of his actions launched this volume and made its completion possible. On behalf of the contributors, I would also like to thank the several people whose advice, assistance, and time, to enrich our understanding of the phenomena under examination have been sought and gratefully received. Of course, our gratitude extends to all those who, by involved in the Greek maritime transport, made this a unique paradigm worthy of detailed examination. I am most indebted to Helen Thanopoulou, who has virtually acted as a co-editor. Her contribution in reviewing several chapters and providing advices for structuring the project and clarifying vital issues has been truly invaluable. Ioannis Theotokas and Maria Lekakou were also widely involved in reviewing and assisting the project. Their work is really appreciated. I would also like to thank Mary R. Brooks and the Centre for International Business Studies, Dalhousie University, Halifax for hosting a sabbatical visit that allowed me time and resources to undertake the work required to complete this book. A special gratitude goes to Evi Othitou for the painstaking proofreading of the manuscript and her detailed suggestions for ironing out linguistic inconsistencies. I would also like to thank the helpful work of Elsevier’s editorial team, in particular Zoe¨ Youd La Roche and Philip Tite.

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ACKNOWLEDGEMENTS

Of course, the deepest gratitude of all is owed to the members of my family and my friends for waiting yet another seemingly endless project to complete. Their love and support has invaluably helped in bringing this volume to fruition. Athanasios A. Pallis Editor

CHAPTER 1 THE GREEK PARADIGM OF MARITIME TRANSPORT: A VIEW FROM WITHIN Athanasios A. Pallis The study of the economics, management and policies of maritime transportation has evolved through a long history of researching into a progressively expanding number of markets, sectors and industries involved in the completion of seagoing transportation. Starting from core shipping economics with a special focus on the various aspects of the liner and tramp international shipping markets, it further expanded to include the study of the unique features of domestic/coastal/regional shipping. Meanwhile, the discipline of port economics became part of the research agenda as well. The distinction between the shipping economics and port economics is inevitably blurred with each one of these disciplines impinging on the territory of the other (Cullinane, 2005). As the whole process of transporting passengers and cargoes via the sea became increasingly integrated with hinterland transport modes, research has progressively adopted a ‘horizontal’ maritime transport approach that considers the entire transportation process, within which the seagoing leg is only a part. Today, both in academia and in the business world there are many believers of the view that, while shipping remains the core of the system, studying any maritime industry alone, whether this is ‘shipping’ or ‘ports’, stands as a useful but incomplete exercise as long as it is not viewed from such a wider transport perspective.

Maritime Transport: The Greek Paradigm Research in Transportation Economics, Volume 21, 1–21 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 0739-8859/doi:10.1016/S0739-8859(07)21001-7

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Along this journey, there have been examples and among them seminal works dedicated to the study of regional or national maritime transport systems prompted by hegemonic positions or crucial links with the rest of the national economies concerned; by virtue of both, the Greek case provides a unique paradigm and is among those worthy of closer examination. The Greek-owned ﬂeet has dominated the waves for more than a century, providing a most successful paradigm of entrepreneurship. Greek shipping companies either established in Greece or located in other maritime centres (i.e. London) have led the industry by example. Fleet renewal practices, a legendary ﬂexibility and the successful feeling of market trends are all constant references of an industrial analysis of the maritime sector. The organisational structures, management practices and strategies adopted in various conditions, and not least the national policy environment, stand also as key issues leading to success and admiration by both academia and the market. In the domestic arena, however, the Greek maritime transport system points in a very different direction as well as scale. This is a traditional shipping nation which – most paradoxically – has placed little importance on ports and relevant maritime infrastructure development. The location of Greek ports at the crossroads of three continents, and their potential to become among the most important nodes in the route connecting the Far East with Europe through the Suez Canal, have either not been appropriately appreciated or have been ignored. Despite the country’s geography, or even because of it, Greece has faced persistent difﬁculties in developing an efﬁcient and effective coastal shipping system. In the era of sustainable development, short-sea shipping competitiveness and the integration of maritime transportation in intermodal supply chains seem to elude still this prominent maritime nation. The state has evidently focused on ‘ﬂag-state’ policies supporting the large Greek-ﬂagged and Greek-owned ocean-going ﬂeet, rather than on the deployment of other concrete, longterm policy initiatives necessary for the success of other aspects of maritime transport. Key underlying reasons for this were the small size of the country’s international trade in the global marketplace and the – non-commensurate – substantial contribution of Greek-owned tramp shipping to the country’s balance of payments. At the same time, a number of opportunities have arisen worldwide which have signiﬁcantly altered the maritime scene both locally and globally. World seaborne trade expansion and the structural reorganisation of the production–transportation–distribution chain have emphasised the

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importance of the rapid development and adjustment of the Greek port sector, and the need to enhance the interconnection of shipping by the sea and hinterland transport modes further. Financial initiatives towards shipping modernisation have taken various paths in recent years, with the capital markets offering viable alternatives for capital mobilisation. The application of new technologies both at sea and ashore might lead to postconventional operations that enhance competitiveness, both in international operations and local services provision. Meanwhile maritime tourism has emerged as a very dynamic market. Surprisingly, a systematic review of Greek maritime transport is currently unavailable in the international literature. Several scholars have been fascinated by Greek shipping, and studied its structures and evolution, turning it into one of the rather most discussed shipping industries in the world. This group of scholars includes mostly Greek authors, with the works of the late Basil Metaxas on tramp shipping (Metaxas, 1971) and on ﬂags of convenience (Metaxas, 1985) – which established a methodology for analysing Greek shipping based on market forces and competition in the international arena – being the pioneering ones.1 Since then, a number of distinguished scholars have embarked on the examination and theorisation of the economics, management and policies related to Greek – especially ocean-going – shipping producing a substantial body of literature.2 Yet, while several internationally published journal papers and book chapters discuss aspects of the Greek maritime transport, there has not been a more comprehensive analysis of the whole Greek paradigm per se. This void to be ﬁlled exists mainly at the international level as there have been relevant studies addressing such issues in texts published in Greek.3 The sole exemption is the seminal Harlaftis’ (1993, 1996) examinations of the history of Greek-owned shipping, and in particular of the making and evolution of the most successful tramp shipping ﬂeet internationally since the establishment of the modern Greek state in the ﬁrst half of the 19th century. The book aims at a thorough analysis of the ways that the Greek maritime paradigm developed and continues to evolve and adjust. It has been set to examine a variety of the economic, management and policy parameters of the paradigm’s remarkable successes but also to explore in detail its failures and/or missing links. At the same time, it assesses the various (i.e. ﬁnancial, technological, organisational) opportunities available to be both grasped and ‘grabbed’ in an era during which opportunities may transit and be missed all too fast. Combining a wide range of aspects, the book’s systemic approach allows drawing more integrated conclusions for

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the sources of successes of, the problems involved with and the pressures exercised on, maritime transport systems.

1.1. THE MANY FACETS OF THE GREEK PARADIGM As all the relevant analyses explicitly or implicitly indicate, shipping stands as the backbone of the maritime transport system (cf. Brooks, Button, & Nijkamp, 2004). Indisputably, the Greek-owned ﬂeet stands in the backbone of the Greek paradigm as well, transforming the latter to a much worthy examined case study. What is remarkable in the Greek ship-owned and Greek-operating industry is the fact that it has long been at the top of the world ﬂeet, including the last 30-year period that witnessed the decline of the great maritime powers of the past. As Cafruny (1987) has pointed out, Greece has been part of both the old pre-oil crises maritime order and part of the postoil crises new international maritime order (NIMO). Harlaftis’ (1996) insight into the successful course of the Greek maritime industry until the end of the 20th century, suggests that the excellence of the Greek tramp ﬂeet has its foundation in networks and organisational structures which were already in place in the 19th century. By generating positive externalities such as transaction cost saving, buildup of reputation capital, and quality assurance, these networks helped in the pre-World War II period to access to world markets and to being involved in the carriage of cargoes in the major trading routes worldwide. The Greek shipping continued its expansion to the international freight markets during the post-war period. Operating from London and New York during the 1950s and 1960s, Greek shipowners successfully exploited opportunities offered in the international freight markets of bulk shipping. This has in most cases been a quest of what has been coined as ‘quality shipping’ (Haralambides, 1998) and match qualitative demands by the users (i.e. the manufacturers, traders, freight forwarders or ﬁnal consumers). In other cases, various market actors (shipowners, charterers, surveyors, etc.), frequently called ‘the mavericks’, have remained ready to lower these standards if this meant increase of the proﬁt margin. Overall, a large number of family ﬁrms who had identical entrepreneurial philosophy continued to form networks based on common culture and trust. The competitiveness of their businesses were based on the loyal and highly productive Greek seafarers, who were also the main source for the renewal of the shipping profession. A great number of ship ofﬁcers became shipowners during this

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period. Many of them created business that marked the development of Greek shipping in the years after the 1970s. Meanwhile, as Grammenos and Choi (1999) point out, the global competitiveness of the Greek shipping industry was boosted by a second factor, Greek ‘ﬂag-state’ policies. Greek government has endeavoured not only to attract overseas Greek shipping companies into Greece, but also to retain existing shipping companies by providing favourable tax treatments. Because of the footloose characteristics of tramp shipping in which Greece is the world leader, the shipping companies successfully obtained concessions from the government. The deep, prolonged and severe shipping crisis of the 1980s forced almost all European maritime nations, including Greece to experience a remarkable ﬂagging-out. This led to proposals for the introduction of a maritime policy based on a second-shipping registry, in order to cope with ﬂagging out the same way like European countries were trying to (Goulielmos, 1998). The economics of this proposal were right and remain undisputable; thus the policy proposal was making sense. Yet, Greek shipping survived and ﬂourished without this cure of ‘sensible policy-making’ followed by other maritime nations. It did so in its original way as Harlaftis (1993) had extensively analysed and Thanopoulou (1998, p. 372) had characteristically epitomised: Greek shipping ‘‘developed ﬁrst under ﬂags of convenience and then ﬂagged-in instead of out’’. The facts suggest that, facilitated by world trade revival, the Greek shipping industry managed to make structural adjustments, facing competitive pressures from new maritime countries and changes brought on by globalisation. It has also managed to respond to a context marked if extensive worldwide regulatory changes of international shipping as developed since the 1980s (cf. Yannopoulos, 1989), and to a progressive policy Europeanisation (Bredima-Savopoulou, 1990; Pallis, 2002). With these changes, and increased capital mobilisation demanding shipping companies to increase their capital base, make new investments, disclose more information about their operations, and professionalise their management structure (Grammenos & Choi, 1999), Greek shipping endorsed different means of ﬁnancing, and ﬂeet and maritime companies management. All these inevitably changed the competitive structure of the industry. In the ﬁrst months of 2007, the Greek-owned ﬂeet broke a record hold since 1988 in both numbers and tonnage, continuing to be at the top of the table of ownership of the world ﬂeet. Using the data for vessels of over 1.000 grt that are collected by Lloyd’s Register, the Greek Shipping Co-operation Committee in London reported in February 2007 that Greek-owned 3.699

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vessels, with their tonnage amounting to 218.2 million deadweight (dwt) or 129.7 million gross tonnes (gt). Within one year, there was a rise of 302 vessels (8.9%), or 28.1 million dwt (14.8%), or 16.1 million gt (14.2%) reaching a historical record.4 The Greek-controlled ﬂeet stands at approximately 8.5% in terms of vessels, 16.5% in terms of world ﬂeet dwt and/or 14.0% of gross tonnage. Greek orders are again at high level and in February 2007 amounted to 612 vessels, or 9.2% of the total world ﬂeet new building, raising the prospect of the year 2007 overtaking 2006 as the historic record-year. New shipyards all around the world jockey for ship speciﬁcation and specialisation in bulk-carriers, containerships and other vessels, with the slots going to well-informed Greek owners who undertake huge projects towards renewal. The leading categories of orders are vessels transporting chemicals and oil products (220), those transporting dry cargoes (164), tankers (120), LNGs (39) and containers (27).5 The age of the Greek-owned ﬂeet has decreased and today its median age is 11.1 years (based on the number of vessels) which is lower than the respective average age of the world ﬂeet. This has not been a rise of tonnage under Greek ownership only. The Greek ﬂag remains the preference of Greek owners and continues to rise as well. In February 2007, the number of Greek-owned vessels operating under the Greek ﬂag was 969 (an increase of 6% within a year) with a tonnage of 12 million dwt (+20%) or 6.3 million gt (+17%). Greeks also use other ﬂags, as this usage has turned to a structural characteristic of the world ﬂeet. Panama (583 vessels, 28.5 million dwt), Malta (502 vessels, 27.8 million dwt), Liberia and Cyprus are the most used ones. The prospect – if not the certainty for some – of a decline of the Greekowned and Greek-ﬂagged ﬂeet, which was looming at the end of the 20th century has been reversed. How this has happened is a multi-faceted question worth to be examined. Has it simply been the result of successful management practices? Or were there (many) more factors contributing to competitive advantage gains? If this was all about successful corporate management, aren’t there any ﬂaws in the adopted management practices? How did it happen that Greek shipping succeeded to be among those industries extensively funded via public offerings and listings in New York and other Stock Exchanges? While raising shipping ﬁnance has always been an extremely important aspect for the success of contemporary water transportation companies, the list of companies of Greek interests that are involved in maritime transport and have gone public in the last ﬁve years is extensive.6 Are these the only markets that shipping companies employ to fund their investment projects or do they employ other methods as well?

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What has been the contribution of new ﬁnancial tools in this revival, and at what extent has Greek shipping taken advantage of their potential? Beyond these, there is a major question regarding the contemporary employment practices. The declining number of Greek seafarers – as the profession has become globally less attractive to new generations – challenges the long-term pattern of an industry traditionally looking at the local market for human resources for manning vessels and running ofﬁces ashore. This pool of maritime knowledge has seen its membership declining. At the same time, cost considerations result in demands for reforms in respect of vessels manning rules and the minimisation of nationality-based restrictions of the employee-based personnel. What are the practices currently followed and to what extent are improvements on the management of human resources the way forward? Meanwhile Greeks have been more active than before in the international policy fora. Of course, since the establishment of the International Maritime Organisation (IMO) Greece has been, due to ﬂeet size, a member of the Council and among the most active members of this primary international rule-making organisation. They have progressively endorsed the idea of being more active at the European front as well.7 Yet, 2007 is the year that Greeks assumed the leadership of the top industry associations (BIMCO, INTERTANKO, INTERCARGO, International Chamber of Shipping, and International Shipping Federation), while a Greek holds the top job at the IMO.8 This single nationality ‘sweep’ has never happened before and is a peculiarity that will perhaps never occur again. At one level, it is pure coincidence. Greece has been the world’s largest shipowning nation for decades, now and it can be argued that an even stronger showing in industry fora was in fact overdue. At the same time, it is indicative of a growing desire from within the Greek community to assume the mantle of leadership, combined with a more wholesome readiness internationally to acknowledge the ﬁtness to lead of Greek shipping personalities than has sometimes been the case in the past. As a recent Lloyd’s List editorial suggested, although there is no doubt this level of hegemony may provoke resentment in one or two quarters, if the Greeks’ joint occupation of the top seats lasts long enough the Greeks have a great opportunity, but also heavy responsibility, to guide the industry through a critical period.9 Therefore, this is the case of a major player in the more complex than ever international maritime policy scene. The latter is combined with a rare situation nowadays in the domestic policy-making arena: the presence of an active national ministry devoted to shipping (the Ministry of Mercantile Marine), the minimal and infrequent involvement of the Ministry of

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Transport, and an inﬂuential maritime transport community which is likely to be active in all national and international policy development. The question to be answered is rather obvious: To what extent is this policymaking regime workable? At the same time, coastal shipping makes the headlines, both locally and internationally every summer. The geographical morphology of many islands makes the Greek case among the most difﬁcult situations due to peculiarities of the demand. This type of transport needs to serve small populations, and coastal shipping companies have to develop a complex schedule that fulﬁls a vital social role, when costs are remarkably high. A growing concern about cabotage liberalisation has granted Greece a longterm exemption from the implementation of a relevant EU directive adopted in 1992. Greece had 12 years to implement this rule, with the set day being 2004; yet all the pre-liberalisation preparations, whether these were reforms of policies governing the provision of coastal services or ﬁrm-level developments (mergers, Athens Stock Exchange listing, etc.), failed to reach expectations and improve the coastal shipping situation. All actors are discontent: unsatisﬁed customers (passengers) who fail to reach their destination, private companies that fail to deliver and at the same complain for lack of state responsiveness to their demands, and a state that fails to create a workable (de)regulatory framework to protect public interests. The difﬁculties seem to be eternal, with the European Commission indicating several times its willingness to go to the European Court of Justice against Greece for failing to introduce a national framework laying down competition in coastal shipping in a proper manner. The ‘coastal question’ of the Greek paradigm has been one that remains to be further discussed. This examination needs to concern both the supply side and the demand side of the market. Difﬁculties have also been evident in the short-sea shipping front, as a result of the absence of a successful strategy that would take into due consideration the need to integrate sea transport with hinterland transport modes. Development in short-sea shipping has been slow, and complaints have been expressed by both service suppliers and current and potential users. All these at a time when Greece, as a member of the EU, is supposedly implementing a policy of promoting short-sea shipping since 1995, and has been among those member states that have beneﬁted from ﬁnancial initiatives aiming at enhancing the interoperability and the interconnection of the environmentally friendly sea transport within wider supply chains. An intermodal approach aiming at exploiting the comparative advantages of more than one mode in the appropriate transport leg, thus optimising

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the overall chain and facilitate the arrival of ocean going cargoes, has still to develop. Which factors contribute to this slow process and why this sector has been underdeveloped when it has been regarded as a vital element of achieving sustainable mobility is certainly a question to be answered. It is also worth examining what has gone wrong in the case of Greek ports development. This is simply a case of failing to combine a positive geographical location with governance, management and organisational forms of port activities, in order to increase the use of the national port system by non-captive users. When other countries in the region (i.e. Italy, Spain) or elsewhere in the world discuss the potential of gateways developments, newly devolved port entities in Greece are still searching for which strategies to endorse. True, Greece embarked on a much-needed major port devolution programme in 1999. Still, almost a decade later, a number of indecisions, severe complaints by the users – with several of them standing sceptical regarding the future of their visits – and successive lengthy industrial actions are taking place too frequently. The presence of intermodalism via the functional integration of Greek ports with inland transport modes has been postponed in several cases. In the absence of a stable framework, securing the essential public or private funds stands as an insurmountable difﬁculty. Piraeus, a major hub port in Eastern Mediterranean, Thessaloniki and the other ports of national interests have not managed to enhance their competitiveness. Whether they will manage to do so in the future is something that might be answered only after addressing what went right or wrong in the early post-reform days, and what might be done to correct the observed failures. There is another dimension of the maritime transport sector that is frequently neglected: maritime tourism. Greece remains a major tourism destination, and the country’s ports host several maritime tourism vessels, whether these are cruisers, yachts, or other leisure boats. In the post-9/11 period, maritime tourism, in particular the cruise sector faced severe difﬁculties. Flagging-out followed complaints for the comparatively expensive operating costs, and lengthy discussions regarding crew composition. Along with the bankruptcy of a cruising operator under the Greek ﬂag, and the major worldwide cruise sector consolidation, these events brought the Greek ﬂag to a state of extinction in late 2003. Since then however fortunes have changed and a trend to offer cruise services of advanced quality by Greek-ﬂagged vessels is part of the agenda. The growing number of passengers that cruised Greece exceeded 925.000 in 2005, representing an increase of 22% compared to 2004, while a further increase was observed

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in 2006, and cruise passenger numbers in 2007 are set to be at a new record. Meanwhile, a ﬁfth cruiser ship has decided to operate ﬂying the Greek ﬂag. A number of other sub-markets of maritime tourism have also continued to expand their services, with product differentiation and ‘variety’ being key issues towards prosperity. The frequently ignored ‘tourism’ component of the Greek maritime transport paradigm provides another interesting case of revival that is worth to be examined in detail.

1.2. THE STRUCTURE OF THE BOOK In a nutshell, this volume examines the various facets of the Greek maritime transport paradigm, aiming to identify those parameters that have resulted in the various unique successes, the capacities of some maritime sectors to remain competitive far beyond the national borders, and those parameters that explain the observed failures and difﬁculties observed in the case of several other markets of maritime transport that, paradoxically at ﬁrst sight, are more connected with the national economic space. In Chapter 2, Helen Thanopoulou provides an analysis of international Greek shipping in the 21st century and of recent developments at the level of its specialisation and age. Through astute investment moves and quick responses to market challenges a ﬂeet – whose development prospects looked rather grim around the millennium after many years of almost uninterrupted expansion – sailed with new dynamism into the new century and the new era of shipping. While the age of the Greek-owned ﬂeet, and its heavy specialisation in ship types faced with a sea of regulatory changes as the 20th century was coming to a close, seemed to challenge the continuation of decades at the top of the world ﬂeet, Thanopoulou analytically describes how Greek-owned shipping has sailed again through its demanding environment in recent times as in a repetition of a pattern. The analysis draws from the foundations of Greek shipping competitiveness which allowed for its survival and success in the all too often changing markets of the last decades which are reviewed early in the chapter. Focusing on the good timing of recent changes in the age and specialisation of the Greek-owned ﬂeet and on the new trends they set for the development of the ﬂeet, Thanopoulou concludes that the market ‘feel’ of the Greek shipping community led to the Greek-owned ﬂeet not only transiting successfully into the 21st century at the leading position in world shipping hierarchy, but also building solidly on its existing strengths while venturing into new areas.

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This chapter provides also some notes of caution. In her concluding remarks, the author stresses that the recent changes of the Greek-owned ﬂeet can only prove successful in the long-run if they are not contradicting the fundamentals of shipping competitiveness in traditional bulk markets. While the structural characteristics of this most international Greek industry may eventually themselves be challenged in the course, Thanopoulou remains optimistic despite her caution on the transient character of maritime glory. This optimism is based on the concentration of talent and accumulation of human resource skills in this internationally hegemonic – sole example for the whole country – national industry, a concluding remark which points to the extensive discussion of this aspect in the next chapter. In Chapter 3, Ioannis Theotokas analyses the organisation, management and strategies of Greek shipping companies. All these have been successful characteristics of Greek shipping over time. Theotokas discusses relevant empirical evidence, collected in different points of time and employing a resource-based view of the ﬁrm. The author concludes that resources and capabilities created the basis for the development of core competencies, which in turn led to the formation of a sustainable competitive advantage: Greek shipowners succeeded in exploiting opportunities in the freight markets either by using the resources and capabilities of their companies or by investing in developing new ones. Greek shipping companies are family controlled and managed ﬁrms. In most cases, the founder remains responsible for both the strategic and the operational management of the companies. The author explains that their organisational culture gives them ﬂexibility and ability to react instantly to opportunities. Last but not least, the recruitment of competent employees contributed to the development of a superior know-how for the technical management of the ships. People employed in the industry possessed a wide and industry-speciﬁc tacit knowledge that allowed the cost-effective operation of ships. Many of them used their knowledge base to put their entrepreneurial talent into practice, by creating small-sized, family-run ﬁrms. Ship ofﬁcers and shipping company employees went on to create their own start-up companies, many of which became key players in the Greek shipping industry. Thus, human resources, knowledge base and entrepreneurship emerge as the main factors that contributed to the creation and development of the main body of Greek shipping companies. At the same time, networking continues to be a key issue of Greek shipping companies’ strategies. The question that one might pose is to what extent this is going to be sustained in the future, given that the business environment of shipping is continually changing. Theotokas believes that it depends on the companies’

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ability to remain ﬂexible and adaptive, to renew and expand their knowledge base and to practise the entrepreneurial talent of their people. In Chapter 4, Ioannis Lagoudis and Ioannis Theotokas apply a supply chain management approach aiming to further the existing knowledge of the competitive advantage of the Greek shipping industry. In particular, Lagoudis and Theotokas examine the importance and effect that three additional factors, namely quality, level of service and time, have on shipping management companies. Analysing data obtained from a ﬁeld survey of Greek shipping management companies operating in the bulk, dry, liquid and specialised shipping markets, Lagoudis and Theotokas conclude that these three factors play a vital role to shipping companies in terms of value creation. Nevertheless, deviations exist depending on company size and age, type of operating vessel(s), chartering strategies and dominant philosophy regarding the application of supply-chain strategies. The authors demonstrate those large companies, as well as those that adopt diversiﬁed strategies, in terms of the number of sectors they operate in, are more supply chain aware than Greek medium-size companies, which operate mainly in the dry bulk market and rely more on the spot market for the chartering of ships. Another characteristic ﬁnding is that large Greek companies give particular attention to cost-related factors, while medium-size companies and those operating in one sector appreciate more those factors related to quality. In reference to quality, personnel seem to be the most important attribute for the competitive operation of Greek shipping companies, followed next by reputation. In Chapter 5, Ioannis Tsamourgelis focuses on the employment patterns in Greek shipping, analysing the declining number of Greek seamen and the determinants of negative employment trends in the Greek seafaring labour market. The author focuses on the role of wage inertia in reducing employment, along with structural mismatch problems. Greek seafarers on the average enjoy lower wages relative to other OECD countries and higher wages relative to their foreign colleagues who are employed on ships under the Greek-ﬂagged or Greek-owned ships. The detected productivity differential, explains extensively the wage differential, especially in terms of higher efﬁciency and loyalty. The high wages of Greek seafarers are associated with the monopsony power of Greek shipowners over Greek seafarers and disincentives of getting employment on ships not contracted with the Greek Seamen’s Pension Fund. This chapter provides evidence of hysterisis effects on seafarers’ unemployment, and explains it as the outcome of wage inertia as well as structural problems in the seafarers’ labour market

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that lead to a mismatch between the vacancies and the specialties and skills of the unemployed. Tsamourgelis develops a coherent employment function that takes into account the restrictions presented in the sector, and describes the direct and indirect relationships between the engaged parties in the system. The formatted employment decision model seems to ﬁt the presented evidence and data behaviour, according to which shipowners employ Greek seafarers for the critical position of the vessels’ operation, since they exemplify effort. For the non-critical positions, shipowners prefer the cheap seafarers’ labour so as to meet some cost minimisation criteria, thus they prefer employing foreigners for ratings. The policy implications of this economic analysis include the need for the gradual abolishment of all disincentives rising from the social security system, in order to allow Greek seafarers to seek employment on ships under foreign ﬂags, several positive employment policies in the sector (i.e. better education and training, especially at the ratings level, facilitation of mobility between specialties, etc.), and the creation of a strong employment multiplier by taking advantage of the maritime cluster expansion in Greece. Chapter 6 by Theodore Syriopoulos discusses the modern ﬁnancing instruments and markets that shipping companies can employ in funding their investment plans, emphasising those practices that have been applied by Greek shipping companies. Syriopoulos presents a concise and integrated framework of two distinctive approaches of the modern, highly sophisticated, innovative and complex shipping capital ﬁnancing, which are selfsustained (internal) ﬁnancing, based on robust corporate proﬁtability, and external ﬁnancing, with the company turning to the international capital markets to raise the required funds. This analysis concludes that the list of major ﬁnancing tools for Greek shipping include new forms of bank lending, leasing and syndication, IPOs in international equity markets, private equity funding, high-yield bond issues and securitisation, whereas freight forward agreements (FFAs) provide an efﬁcient risk management mechanism. Shipping companies apply more outward-looking business strategies and take advantage of international capital mobility. They gradually follow a more tailor-made use of equity markets and further growth is anticipated in this area, although the recent shipping IPO wave may not be repeated soon. At the same time, shipping ﬁnance appears to have reached a stage where innovative ﬁnancing methods are combined with traditional approaches. These include asset-backed lending and securitisation, leasing, syndicated bank loans, structured ﬁnance and high-yield bonds. Private equity

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companies and specialised hedge funds pay increasing attention to ﬁnancing shipping investments. The growth in freight derivative instruments has served to spread risks associated with shipping and has made shipping a more attractive sector to investors, private equity and hedge funds. Syriopoulos also emphasises that this environment presents business opportunities for shipping companies with robust liquidity, supporting ﬂeet expansion and sustainable long-term growth. However, it may also impose risk constraints on shipping companies with over-leveraged balance sheets. This discussion leads back to the consolidation issue: if lower charter rates are seen, companies with weak liquidity and smaller family-owned ﬁrms may become merger and acquisition targets or may seek to form strategic alliances. Shipping companies in need of funds may also be attractive targets of private equity funds that are constantly in search of undervalued investment opportunities. In Chapter 7, Alkis Corres examines Greek maritime policy developments and the role of shipowners’ associations within this policy-making process. Corres compares policy demands and policy outcomes and provides a costbeneﬁt approach to the policies followed in the various sectors, aiming to conclude on the role of the shipowners’ unions in policy formulation in Greece for the period of 1976–2006. This analysis highlights the presence of a simple institutional structure with complex policy actors’ interrelations. On the one hand, the Greek Ministry of Mercantile Marine is assigned with the role of developing policies. However, there is no single style of Greek maritime policy. The wide spectrum of policies ranges from the interventionist approach in the domestic ferries’ sector, to the much freer regimes adopted for the ocean seas carriers, and to the inertia in short-sea shipping developments. On the other hand, unlike in other countries (i.e. Italy), the shipowners’ associations in Greece are fragmented, with ﬁve different associations taking care of the interests of particular categories of owners. Corres concludes that shipowners’ associations appear to play a signiﬁcant, yet discreet, role in shipping policy-making in Greece. The resilience and the ﬂexibility of that system of governance have been proven time and again in practice. He also points out that Greek shipowners’ associations have generally been quite placid in their demands on the government, a recent exception being the Association of Greek Coastal Shipping Companies. Legal challenges, strike threats and lockouts have not been seen for years. With the exception of disputes related to the adoption of cabotage liberalisation, Greek shipping has been enjoying a long-term period of industrial peace. However, the author notes that the perceived activity of

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the shipowners’ associations in Greece cannot alone explain their members’ degree of success abroad. Although their multifaceted networking clearly offers advantages to their members, neither their own initiatives nor the important support offered by the Ministry of Mercantile Marine, are sufﬁcient to explain alone the perceived successes of Greek shipping. In Chapter 8, Maria Lekakou examines the reasons that have led to endless difﬁculties in developing an efﬁcient and effective Greek coastal shipping system. Lekakou analyses how the interplay of oligopolistic market features and ineffective state policies has resulted in an unstable coastal market that undermines the quality of the supplied shipping services. Lekakou discusses the role of an intervening state in shaping a regulated oligopoly. Emphasising the essential characteristics that a passenger transportation network has to fulﬁl, and providing evidence of the limited extent that these criteria have been applied for developing Greek coastal shipping, the author identiﬁes the absence of a systemic approach that would take into account all the constituent parts of coastal transport and act as the driving force towards the modernisation of coastal shipping services. While the assurance of public interest and the reinforcement of competition stand as the priorities of the EU-level coastal market liberalisation, current major implementation problems in Greece continue. The terms of public service obligation assignments the entering into a contract of public service provision and other institutional issues (i.e. the short duration of contracts) are received with criticism by the users and the shipowners. Based on an adjusted Herﬁndahl–Hirschman Index, the author also identiﬁes a high concentration of the supply side of the market. This analysis concludes that a change of perception is essential in order to achieve a sustainable balance of public and private interests. Rather than focusing on the ‘ship’, Lekakou suggests the endorsement of a systemic and network approach (network – port – company – supporting services – monitoring of trafﬁc and economic data – evaluation – assurance of service provision), in parallel with the deﬁnition of the ‘essential public service’ elements and the enactment of initiative for the assurance of the public interest. This analysis stresses that the geographical peculiarity of Greece does not allow the possibility for copy and paste ready solutions endorsed in other regions, but requires special solutions and potentially variable frameworks relying on the speciﬁcations of the system. These solutions may involve fundamental organisational changes as the very model suggested by the relevant EU Regulation 3577/92 starts to show its weaknesses. The coastal question is also the theme of Chapter 9 by Amalia Polydoropoulou and Nikolaos Litinas. This chapter models the demand

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for Greek passenger shipping. Polydoropoulou and Litinas provide a methodological demand-modelling framework based on understanding the choice behaviour of individuals addressing the competition and/or complementarity of ships and airplanes. The methodology was applied to a case study on the competition between passenger shipping and aviation in the Northern Aegean region, based on the analysis of discrete choice data collected on an annual base for 2001–2005. The models developed by Polydoropoulou and Litinas include a multinomial logit model with dependent variable, the choice among different types of maritime services and airlines. The results show that travel times and travel costs of the alternative modes play signiﬁcant roles in the choice of the alternatives. Furthermore, socioeconomic characteristics such as age, education level, purpose of trip and experience represented by the prior frequency of travel with the speciﬁc mode, are also found to be signiﬁcant. In addition, response bias indicators are applied to capture the propensity of respondents to justify their prior choices and their travelrelated constraint to be accompanied by their car in their trip. The models developed are used to calculate the value of time for the alternative modes. They can also be used for prediction of the market shares for the different alternative modes. The methodology and modelling results presented in this chapter offer a paradigm for applying innovative techniques of decisionmaking theory that can be used by policy makers and service providers to offer services better tailored to the passengers needs. In Chapter 10, Seraphim Kapros and Costas Panou seek answers to the reasons that short-sea shipping in Greece remains in a marginal position. The emphasis of this chapter is on the weak links between coastal shipping and intermodality. The authors suggest that the reason for this missing is the fact that Greek success in maritime transport is built on a port-to-port organisation, while intermodality needs a door-to-door approach of the chain management which is currently absent. This analysis has taken place in light of EU transport policies aiming to advance intermodalism and the advancement of short-sea and coastal shipping via their integration in multimodal chains. Kapros and Panou examine developments in the wider Mediterranean region and emphasise the presence of two failures of integrating short-sea shipping in intermodal transport chains within a ‘quasi-favourable’ environment. First, the state has been reluctant to take the necessary measures to support alternative modes such as coastal shipping. Second, the majority of the main market players (i.e. coastal shipping operators and road haulers) have not endorsed the idea of collaborating to provide the line-hauls in large intermodal

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chains, which resulted in the low visibility of coastal shipping in terms of intermodality. As a result coastal shipping is perceived by many shippers and freight forwarders as a less competitive transport service, and has failed to increase its freight modal share by capitalising on the market gap which resulted from the shrinking rail sector. The authors suggest that to reverse this situation, the coastal shipping industry must invest in building strategic market alliances with forwarders, shippers and other transport players. Moreover, they stress that ports need to play a key role in the development of intermodal coastal shipping, and that the availability of adequate and reliable information is essential for the effective operation of intermodal chains. These two issues are the themes of the next two chapters. Concentrating on one of the most neglected sectors of the Greek maritime transport paradigm, my own contribution in this book (Chapter 11) examines the search for a long-term port strategy in Greece. The adopted design of port reform that has been underway since 1999 follows international trends, aiming to support autonomous and commercially driven port entities. However, the twofold assessment of the actual developments in port governance and performance analysis emphasises a conﬂict between the scope of the governance choices and the adopted practices. The examination of the input of this port reform, which is the port governance ﬁt in place, identiﬁed inconsistencies between the economic context, the port strategy and the Greek ports structure. This inconsistency has a direct impact on the ﬁnancial performance of the Greek ports. While Greek ports exhibit positive bottom lines in their ﬁnancial accounts, they still have not attained a solid course of robust growth and competitive development. Certain ﬁnancial rigidities are still present and raised considerable doubts as to the efﬁciency of their organisational structures. Even though ﬁnancial performance is only a part of the overall performance of a port system, these ﬁndings underline an imminent need for further reforms. With national port reforms starting less than 10 years ago, the governance of Greek ports is still in a state of ﬂux. There is, however, a clear indication of paths that could enhance a better performance, reversing many decades of an inefﬁcient and ineffective interventionist public sector management and inward-looking policies. These include amendments and re-consideration of political practices that might further modify the structures of the sector, thus enabling the Greek ports to adjust their strategies. Among others, this study highlights that future essential changes should include the lowering of entry-barriers, the introduction of intra-port competition, labour

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reforms, limitation of the existing political interference and the establishment of really autonomous port authorities. In Chapter 12, Nikitas Nikitakos and Maria Lambrou examine the extent to which the various sectors of Greek shipping have endorsed digital shipping applications. While e-business is developing rapidly, the pace and pattern of development of these technologies and related business practices are quite variable. The global economy is converging towards common, homogenised and integrated organisational models, whereas e-business methods are seen as a set of practices congruent with the ‘modern’ way of organising economic activities. In the shipping industry, there are various implementations and modes of use of maritime electronic services, which target the facilitation of maritime business operations and tasks such as chartering, procurement, manning, planned maintenance, technical and operational monitoring of the vessels, voyage planning and navigation, as well as safety, security and emergency operations. The analysis of Nikitakos and Lambrou is particularly interesting because it provides a distinctive examination of the cases of Greek-owned, oceangoing shipping companies and of the Greek-owned short-sea shipping sector. The authors review current practices and emergent patterns regarding digital shipping, and cite empirical evidence regarding perceptions of key barriers and incentives in the Greek-owned shipping sector, as interlinked with overall ﬁrm characteristics and strategies. Whereas they observe a low level of use and very moderate technology evolution trends, in the Greek-owned ﬁnancially robust shipping sector, they seek a more thorough understanding of the digital mode of operation in the international shipping industry context. Indicating the way forward, this study considers the emergent digital shipping operation frameworks and the important determinants of an organisational, decisional context as essential means in order to set digital shipping strategies, design market policies and design and implement business models and technical options toward a future frictionless and networked shipping environment. In Chapter 13, Mihail Diakomihalis examines the evolution, structures and prospects of Greek maritime tourism. The chapter emphasises the advantages from a distinctive analysis of each of the three main activities of maritime tourism, cruising, yachting and coastal leisure shipping, respectively, while it also assesses the impact of the sector on the main macroeconomic data of the Greek economy. Examining cruise tourism, this analysis provides evidence of a stable demand increase, with this type of maritime tourism becoming signiﬁcant for a number of Greek ports. The fact that the ﬂeet of Greek cruisers has

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shrunk considerably over the last few years and that the cruise supply is offered mainly by ships of foreign interests under foreign ﬂags, is considered to be the main disadvantage of the Greek cruise market. The author also discusses the structural developments in the largest professional yachting ﬂeet worldwide: This is the supplied yachting services in Greece employing over 9,200 people. This examination emphasises that development of port infrastructures is a major problem: comparatively to the other European Mediterranean countries, Greece falls short, both in the number of mooring posts, and the quality of services provided. This chapter also concludes that a third emerging sub-market, that of coastal leisure shipping that provides daily sea excursions to more than four million tourists annually, contributes substantially to the local economies of the regions that have developed this alternative form of tourism. Finally, Diakomihalis also provides estimates of the overall impact of maritime tourism on the Greek economy, stressing that the contribution to the Greek balance of payments has increased in recent years.

1.3. CONCLUDING REMARKS The ambitious aim of this extensive, in terms of issues discussed, volume has been to ﬁll some of the gaps in the international literature of maritime transport studies as regards the unique paradigm of Greek maritime transport by combining the various aspects of it under one heading. Yet, the diversity of the components of any maritime transport system and the multidisciplinary approaches that might be endorsed in order to comprehensively analyse such a system has ruled out outright the potential for a complete analysis. This volume is certainly not exhaustive. Nonetheless, apart from putting the Greek maritime record(s) straight, the examination of a number of facets of the Greek paradigm included in the chapters that follow facilitates future comparative research of speciﬁc maritime transport systems. Within the vast and complex economic environment of the globalisation era, whose changes affect the organisation and development of all transport systems, similar projects and the consequent accumulation of several studies on related issues aim to enable a wider synthesis. Whether this volume achieves its ambitions is something for the reader to decide. It has to be noted, however, that all contributors are currently afﬁliated with the Department of Shipping, Trade and Transport at the University of the Aegean on the Greek island of Chios, most of them being active in – or founding members of – the recently established Hellenic

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Association of Maritime Economists (2006). This writing clustering is neither the outcome of any type of ‘corporatism’, be this of the most benevolent academic character, nor of any type of ‘nationalism’ whatsoever. Rather than these, this is an attempt to provide a ‘view from within’, from the very edges of the most extrovert ancient archipelago, the Aegean Sea. It is commonly said that ‘Greeks have the sea in their blood’; hence it is really worthy to discuss the economics of the Greek maritime transport paradigm having an input by those that are part of the tradition. In other times, the contributors to this volume might have chosen to join the local tradition and become entrepreneurs, seamen, or providers of any other maritime transport services. They chose otherwise, devoting their professional lives studying the various facets of maritime transport while living and breathing the atmosphere of the Chios island – one among the so-called maritime islands due to the origin of one of the largest local pool of shipowners and seamen, and Greece’s trademark for all too long.

NOTES 1. Basil Metaxas was one of the prominent post-war maritime economists who laid the foundations of maritime economics in the second half of the 20th century. 2. Any reference is omitted as it may lead to omitting distinct studies and be thus unfair to their authors. It has to be stated, however, that these studies, and not least the cooperation with several of those who conducted them, have provided many of the contributors of this volume with the drive to embark on the study of the maritime world. It is only in the context of this introduction that they remain anonymous; in any other respect, their contribution is gratefully acknowledged. 3. With few exceptions, studies that have been published in Greek are used mainly as undergraduate teaching material. Again, any reference here is omitted, as it creates the potential to forget speciﬁc studies and to be unfair to their authors. 4. Naftemporiki, New Historical Record for Greek-Owned Fleet, 28 February 2007. 5. Naftemporiki, Over 2.4 Billion Dollars in Newbuildings, 6 March 2007. 6. The list of companies of Greek interests that are involved in ocean shipping and have gone public in recent times is extensive and includes: the NYSE listed Danaos, Diana Shipping, DryShips, Eagle Bulk Ship, Excel Maritime, Genco Ship & Trade, Genmar, Navios Maritime, Quintana Maritime, Stealthgas, TEN, and TOP Tankers Inc.; and the London Stock Exchange (LSE) listed Global Oceanic and Goldenport. 7. The European Community Shipowners Association (ECSA) chairmanship by John Lyras in the 1990s is indicative. 8. In 2007, Nick Fistes conﬁrmed as the new chairman of the Independent Tanker Owners’ Association (INTERTANKO) and Philip Embiricos conﬁrmed as the second Greek president of BIMCO (following the late George P. Livanos in 1989–1991), while Nicky Pappadakis is Chairman of INTERCARGO, and Spyros

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Polemis is the ﬁrst Greek Chairman of the International Chamber of Shipping (ICS) and International Shipping Federation (ISF). Efthimios Mitropoulos is the Secretary General of IMO for an initial four-year period commencing in January 2004. 9. Lloyd’s List, A Chance for Leadership, 2 April 2007.

REFERENCES Bredima-Savopoulou, A. (1990). The common shipping policy of the EC. Amsterdam: Elsevier. Brooks, M. R., Button, K., & Nijkamp, P. (2004). Maritime transport: Classics in transport analysis. Cheltenham: Edward Elgar. Cafruny, A. W. (1987). Ruling the waves: The political economy of international shipping. Berkeley: University of California Press. Cullinane, K. (Ed.) (2005). Shipping economics. In: Research in Transportation Economics (Vol. 12). London: Elsevier. Goulielmos, A. M. (1998). Flagging out and the need for a new Greek maritime policy. Transport Policy, 5(2), 115–125. Grammenos, C. T., & Choi, C. J. (1999). The Greek shipping industry: Regulatory change and evolving organizational forms. International Studies of Management and Organization, 29(1), 34–52. Haralambides, H. E. (Ed.) (1998). Introduction: A synthesis. In: Quality shipping: Market mechanisms for safer shipping and cleaner oceans (p. XXVII, XXXVIII). Rotterdam: Erasmus Publishing. Harlaftis, G. (1993). Greek Shipowners & Greece 1945–1975. London: The Athlone Press. Harlaftis, G. (1996). A history of Greek-owned shipping: The making of an international tramp fleet, 1830 to the present. London: Routledge. Metaxas, B. N. (1971). The economics of tramp shipping. London: The Athlone Press. Metaxas, B. N. (1985). Flags of convenience: A study of internationalization. London: Gower. Pallis, A. A. (2002). The common EU maritime transport policy: Policy Europeanisation in the 1990s. Aldershot: Ashgate. Thanopoulou, H. A. (1998). What price the ﬂag? The terms of competitiveness in shipping. Marine Policy, 22, 359–374. Yannopoulos, G. N. (Ed.) (1989). Shipping policies for an open world economy. Guildford: Biddles.

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CHAPTER 2 A FLEET FOR THE 21ST CENTURY: MODERN GREEK SHIPPING Helen A. Thanopoulou ABSTRACT Just before the millennium, prospects for Greek-owned shipping looked grim for the first time after many years of almost uninterrupted – and always impressive – expansion. The age of Greek-owned ships coupled with its heavy specialisation in ship types that found themselves in a sea of regulatory changes seemed as a combination of challenges that Greek shipping would not be able to handle this time. Yet, the legendary flexibility and market ‘‘feel’’ of the Greek-shipping community led to the Greek-owned fleet not only transiting successfully into the 21st century at the leading position in world shipping hierarchy, but also building solidly on its existing strengths while venturing into new areas. This chapter reviews this course focusing on changes in the specialisation and age of the Greek-owned fleet.

2.1. INTRODUCTION There is practically no other ‘‘ﬁrst’’ Greece can claim in the modern world economy apart from its place in world shipping. To the lay public shipping is to Greece what the watch industry has been to Switzerland with both Maritime Transport: The Greek Paradigm Research in Transportation Economics, Volume 21, 23–61 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 0739-8859/doi:10.1016/S0739-8859(07)21002-9

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industries having made extremely good ambassadors for their respective countries. That a small country, often amidst wars or disasters wins the commercial battle of the oceans is not really exceptional;1 there are more than one examples of similar successes in the period going back to the Early Modern Times.2 What is eventually exceptional is the extent to which the merchant ﬂeet of Greeks has developed in the last couple of centuries, then, on more than one occasions, was all but destroyed – literally – or was threatened with commercial destruction, only to re-emerge soon after with a vengeance, in a succession of circles3 which were bringing it closer, each time, to the top of the helix of its growth. There was limited active aid from the state in this spectacular yet adventurous course of Greek-owned shipping, at least not in any conventional meaning of what the term state aid has come to signify, whether earlier in the second half of the 20th century when state intervention was more signiﬁcant in the western world, or more recently when state intervention became an anathema to many.4 In either case the debate could not have regarded modern Greek shipping5 which reached its current status of world supremacy with no palpable state support, only a tacit one.6 Although it can be argued that without this ‘‘support of the state’’ after World War II ‘‘Greek-owned shipping would never have increased as much as it did’’ (Harlaftis, 1993, p. 181), the assistance of the state to Greek shipping must be evaluated in context. Even the most important intervention in the sector in the last 60 years, the state guarantee for the purchase of 100 Liberties7 from the United States by Greek owners just after World War II, could be seen more as the result of relentless efforts of owners to persuade the Greek government8 than of a clear vision of the state about the sector. What the Greek state did for shipping was to support it essentially in absentia, adopting a reactive – rather than proactive – shipping policy focused on attracting tonnage to the national register (Harlaftis, 1993). It has been argued that the succession of measures it took can hardly be described as anything resembling ‘‘systematic plans’’ (Harlaftis, 1993, p. 169); these should be viewed – especially in the absence of any direct support – as being in essence ‘‘passive’’ (Thanopoulou, 1994, p. 294) adjustments of the relevant framework to suit the needs of a sector which was growing in the ﬁrst years after World War II mainly outside the national boundaries (Harlaftis, 1993). In the last decades of the 20th century, some of the sporadic active government initiatives aimed at Greek shipping might even have tested9 – more than they ever strengthened – its resilience (Thanopoulou, 1984). That Greek-owned shipping continued

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to grow, even amidst the deep maritime crisis which followed the ﬁrst oil shock, was essentially the result of the successful specialisation and of the patterns of investment that had been followed by Greek owners (Thanopoulou, 1996) whose strategies embodied the shipping competitiveness blueprint that prevailed in modern bulk shipping in the second half of the 20th century (Thanopoulou, 1998). The success of Greek owners in continuing to occupy the leading position in world shipping in the 21st century as well, should be attributed to the changes of course they undertook in the rapidly changing shipping environment around the millennium. It was not the ﬁrst time they had to adapt under pressure in this succession of destruction and rebirth, which characterised modern Greek-owned shipping.10 This last course adjustment may prove, however, to be the most critical one as the old pattern of Greek shipping competitiveness was dwindling around the turn of the century faced with a new blueprint for commercial success in the shipping markets (Grammenos & Choi, 1999); one that, this time, Greek shipping had not invented and which had been imposed on world shipping from outside strict market forces. While timing of investment moves has all too often been pointed at as the most signiﬁcant competitive trait of Greek shipowners (Thanopoulou, 2002; Harlaftis & Theotokas, 2004b), in early 21st century it was timing once more – but this time of the unforeseen positive turn of the freight markets – which allowed Greek-owned shipping to set for its new course successfully. Transient as competitiveness in shipping might be, the Greek-owned ﬂeet secured in this favourable market conjecture a much needed – though undeﬁned in duration – new lease of maritime hegemony. This chapter continues in Section 2.2 with a review of the main features of the Greek-owned ﬂeet until the oil shock of the early 1970s drawing parallels – as well as eventual contrasts – with its main European competitors, especially Norwegian shipping, focusing mainly on specialisation trends. Section 2.3 discusses how Greek-owned shipping sailed through the demanding – and often crushing – market environment of the 1970s and the 1980s, emphasising the importance of specialisation and age characteristics in the competitiveness proﬁle of the ﬂeet at the time but also the limitations of the competitive blueprint on which the latter developed. Section 2.4 analyses the changes in the age and specialisation of the Greek ﬂeet in the new era of shipping that has been ushered in by the passing of the Oil Pollution Act of 1990 and in the recent freight market context within which the renewal of the ﬂeet was made possible. The concluding section evaluates the potential of the new directions of Greek-owned shipping for shaping a ﬂeet ﬁt for the 21st century.

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2.2. SPECIALISING IN HEADING FOR THE TOP: TRENDS IN GREEK-OWNED SHIPPING UNTIL THE 1970S The watershed for the gathering of the circumstances that have been at the origin of today’s Greek shipping supremacy can be set in the difﬁcult times of the early 19th century when the war of Greek Independence was leading thousands to ﬂee to safety,11 leading many to the world’s shipping capital, London (Harlaftis, 1996). The increased dichotomy between the national boundaries and the activities of Greek merchants and shipowners throughout Europe allowed Greek shipping to establish a modus operandi allowing it to bypass the constraints that would otherwise have been imposed by the small and ﬂedgling Greek modern state of the 19th century.12 There was no looking back: Over the next two centuries, Greekowned shipping was to grow riding the waves of volatile international markets, not just surviving freight ﬂuctuations and devastating losses in two world wars, but proﬁting and prospering. The existence of a network based on kinship and/or common origin ties has been shown as the main mechanism (Harlaftis, 1996) through which a capital-poor but relations-strong entrepreneurial community survived and succeeded in a demanding international context through its ability to adapt to the new requirements of its environment (Harlaftis, 1993). Networks had been extremely efﬁcient in substituting for the lack of access to ﬁnance (Harlaftis, 1996) of what would have been called today ‘‘shipping start-ups’’ especially at times of expensive technological leaps such as the transition from sail to steam.13 It is difﬁcult, however, to credit them14 with most of the – continued to the present day – success of a ﬂeet which in competitive and changing markets has had to combine cost minimisation with adaptation to market requirements, without enjoying neither direct ﬁnancial support nor any sizeable trade volumes which have been present in the case of other maritime countries whether traditional or newer ones.15 In this context, avoiding the fortune commonly associated with the ‘‘ﬁckle’’ and often ‘‘outrageous’’ shipping markets and heading for the top, as was the case with the Greek-owned ﬂeet after World War II (WWII), warrants for the presence of either luck or skill. In the case of post-war Greek-owned shipping there was an element of both. The specialisation patterns of the Greek and the Greek-owned ﬂeet (Thanopoulou, 1994) along with the results of astute investment moves within the shipping cycle (Thanopoulou, 1996), building on the experience and results of successful

27

A Fleet for the 21st Century: Modern Greek Shipping

purchases in the inter-war period,16 laid the foundation for the spectacular ascent of the – almost extinct at the end of WWII hostilities – Greek ﬂeet in the world shipping hierarchy. Both these main factors of competitiveness in bulk shipping (Thanopoulou, 1998) were at the origin of the conﬁrmation by the early 1970s of the Greek-owned tonnage at the top position in the world (Fig. 2.1). Greek shipping in the post-war era gained market shares being a relatively early mover, but not necessarily a pioneer, in markets where there was little differentiation and where it could prove proﬁtable through managing its costs astutely. Although similarities can be sought with developments in other rising ﬂeets in the ﬁrst post-war period ranging from the Japanese to the Liberian, any comparisons should exclude registries of either ‘‘shipping buyer’’ (Georgandopoulos, 1980, p. 40) countries like Japan or those with open registries like Liberia or Panama and should be restricted within the group of countries which were known to have a ‘‘net surplus of their

World Greek-owned Greek flag 350000000 300000000 250000000 200000000 150000000 100000000 50000000 0 1938

1953

1963

1973

Fig. 2.1. Greek and Greek-Owned Tonnage (a) in the World Fleet 1938–1973. Notes: (a) For 1938 tonnage under the Greek ﬂag only. Source: For the Greek ﬂag and the world tonnage: Lloyd’s Register of Shipping Statistical Tables, 1984; for the Greek-owned ﬂeet: Naftika Chronika, various issues.

28

HELEN A. THANOPOULOU

shipping transactions’’ (ibid.). Within this narrower group, the development of Greek shipping until the early 1970s had clearly more afﬁnities with this of the Norwegian ﬂeet rather than with the other of the main crosstraders of the post-war period, i.e. the British ﬂeet which had a long history in taking advantage of local resources and colonial trade volumes.17 The similarities between the maritime expansion of Norway and Greece in earlier periods go beyond the presence of extensive coastlines,18 the acquisition of shipping skills by ﬁshing communities, or the role coastal shipping has performed – and continues to perform – for the cohesion of both national spaces. Both ﬂeets originated from countries with a small population and high migration19 looking into cross-trades for the employment of their tonnage in the era of steam.20 Most importantly, as specialisation of tonnage increased in the post-war period, both shipping communities showed a ﬂair for the new types of vessels. Capturing the potential of tankers had already proved extremely beneﬁcial earlier, in the inter-war period, for Norwegian owners (Tenold, 2005) in stark contrast with the attitude of British owners at the time (Sturmey, 1962); the tanker tonnage in the total ﬂeet at the end of the inter-war period was a multiple in the case of Norway compared to their share in either the British or the world ﬂeet.21 The positive results of Norwegian tanker owners in the ‘‘difﬁcult’’ inter-war period (Tenold, 2006, p. 2) for shipping, provide conﬁrmation from an earlier time that, as has been argued for the post-war period (Thanopoulou, 1998), specialisation plays a central role in modern shipping competitiveness and can deﬁne ﬂeet and company survival even at times of structural shipping crises. In the 1960s and the early 1970s22, it was the turn of bulk carriers to emerge as the rising star of world shipping. The total tonnage of ore and bulk carriers was increasing at over 30% annually and had increased by more than 70% between the beginning of 1961 and this of 1963,23 at the time the category took-off in the world ﬂeet; it was still increasing at spectacular rates even after more than a decade24 (Fig. 2.2) after the date this type of tonnage was ﬁrst established as a distinct new category in the world ﬂeet. Along with Norwegian, British and Japanese owners25, Greek owners turned fast towards bulk carriers which could offer innovation gains for the time traditional cargo ships were setting price ranges. For the rest of the period, while freight rates would tend to be set progressively according to the fundamentals of the newer market, bulk carriers were still better geared for the carriage of the main dry trades in raw materials and could – at least – have secured higher employment rates26 (Fig. 2.3).

29

A Fleet for the 21st Century: Modern Greek Shipping

all world fleet tankers bulk carriers 30 25 20 15 10 5 0 1964-5 1965-6 1966-7 1967-8 1968-9 1969-70 1970-1 1971-2 1972-3

Fig. 2.2. Rates of Increase of World, Tanker and Bulk Tonnage, 1964–1973. Note: Bulk carriers include combination carriers; ships of over 6000 grt. Source: Figures in Thanopoulou, (1994, p. 103); on the basis of calculations from U.N. Statistical Yearbook, various years.

R&D cost First-movers

High

Early-movers

Low

Late-movers

Very Low

Fig. 2.3.

Fleet employment prospects

Risk

Not guaranteed

High

High

High

High

Normal

Low

The Importance of Being a Well-Timed Mover in Shipping.

By the early 1960s, both Greeks and Norwegian were included among the owners with a high specialisation in this new major type of tonnage (Thanopoulou, 1994) with Norway leading by far.27 Already in 1962, 5% of the total ore and bulk carrier ﬂeet was under the Greek ﬂag while Greek shipowners controlled even more bulk-carrier tonnage in other registries.28 Data for 1973, a watershed year for the world economy and world shipping due to the ﬁrst oil shock late in that year, show that this category constituted 21.2% of the total Greek-owned tonnage ranking Greece third in specialisation in this type;29 the share of bulk carriers in the ﬂeet under Greek ﬂag which accounted for more than half of the total30 Greek-owned

30

HELEN A. THANOPOULOU

Table 2.1.

Ore & Bulk Carriers in the Total Tonnage under National Flag 1964 and 1973.

UK Norway Greek ﬂeet

1964 (%)

1973 (%)

7.1 18.2 12.8

15.1 23.6 24.0

Note: Figures for 1964 include combination carriers. Source: Data in Thanopoulou, (1994, p. 114); originally calculated on the basis of United Nations, Statistical Yearbook, and Lloyd’s Register of Shipping, Statistical Tables 1964.

Table 2.2. Type Ore/Bulk/Oil Freedom Mini-bulk carrier Fortune Santa Fe

Greek Pioneers in Vessel Types 1945–1973. Date

c. 1960 c. 1967 c. 1968 c. 1970 c. 1970

Owner J. Theodorakopoulos and C. Lemos I. C. Carras G. P. Livanos M. Xylas N. Papalios

Place of Build Japan Japan Japan Japan Spain

Source: Mitropoulos (1980, pp. 117, 129, 133, 341, 234). Approximate dates have been deduced from various references in Mitropoulos (1980).

tonnage at the time, was even higher and surpassed this of Norway (Table 2.1). The fast turn of Norwegian owners to bulk carriers is consistent with both their record in the earlier inter-war times – by the end of which they had become ‘‘technological leaders’’ (Tenold, 2006, p. 2) – and with their strategy in the post-war period. High costs have been considered as pushing Norwegian companies towards innovation (Jenssen & Randoy, 2002; Jenssen, 2003) while the turn of Norwegian owners towards new types of ships has been associated with the preservation of the Norwegian ﬂeet’s competitiveness in the ﬁrst 30 years after the war (Thanopoulou, 1994). The case of Greek owners is different as their relation to innovation is less straightforward and not widely researched. Considered usually more as followers than ﬁrst-movers31 in shipping, Greek owners have not been known for their pioneering strategies in terms of new ship design. However, Greek industry leaders have been recorded in this period (Mitropoulos, 1980) as responsible for the ﬁrst orders of the Freedom, Fortune and Santa Fe types of dry cargo ships, as well as for those for the ﬁrst mini bulkcarriers and the ﬁrst O.B.Os32 (Table 2.2). Greek owners had also been

A Fleet for the 21st Century: Modern Greek Shipping

31

behind the introduction of larger vessel sizes in the world ﬂeet eventually even setting records in this respect as was the case in the 1950s (Mitropoulos, 1980; Harlaftis & Theotokas, 2004b, p. 73). They were quick to pick the importance of vessels better adapted to the increasing parcel sizes of the world bulk trade (Harlaftis, 1993), specialising at the same time in tonnage categories with competitive potential (Thanopoulou, 1994). Specialisation in the growing trades was only one of the competitiveness bases covered by Greek-owned shipping at the time. Faced with cost leadership (Porter, 1985) as the only strategy option in the still – nowadays – competitive traditional shipping segments (Alizadeh & Nomikos, 2002; Glen & Martin, 2002),33 Greek shipowners had extended the periods of exploitation of their tonnage enjoying ﬁxed-cost free periods (Thanopoulou, 1998) which in volatile markets determine, through cash-ﬂow, long-term resilience (Stopford, 1988). Having turned the ‘‘art of survival’’ (Stopford, 1997, p. 152) into the art of success, the development of Greek-owned shipping exempliﬁed a blueprint for shipping competitiveness in the absence of any signiﬁcant degree of differentiation in the traditional bulk markets for many decades after World War II. The age structure of the Greek ﬂeet under national ﬂag and of the Greek-owned ﬂeet are far from being comparable with any of the other cross-traders of the time and certainly not with this of the Norwegian ﬂeet which was systematically younger than the Greek tonnage – and by far – in the period up to the early 1970s. This was also the case with practically all other main traditional registries at the time (Thanopoulou, 1994, p. 155). Around the start of the post-war period, more than a quarter of the Greek ﬂeet was also a – whole – quarter of a century old or older, a clear deviation from the age structure of the other main cross traders at the time (Fig. 2.4). Twenty years later, in 1973, 10% of tankers under the Greek ﬂag were still more than 20 years old, while for the vessels other than tankers the respective ﬁgure was over 15% (Thanopoulou, 1994, p. 154). There was no other major national OECD registry with a lower share of newly built vessels in the total tonnage34 and there were few differences in the age structure of the Greek-owned ﬂeet under national ﬂag and under foreign ﬂags around that date. As this age structure refers to a ﬂeet growing impressively at the time, it is obvious that the increase of the tonnage was based on second-hand purchases and/or the extended exploitation of tonnage under Greek ownership (Thanopoulou, 1994, p. 158). This is well illustrated by the overwhelming share of Greeks in the surviving ﬂeet of Liberties 21 years after the end of World War II (Harlaftis, 1993, p. 51). However, in terms of competitiveness the balance was far from being

32

HELEN A. THANOPOULOU

<5 5 to 15 15-20 20-25 >25 80 70

% of total

60 50 40 30 20 10 0 Norway

United Kingdom

Greece

Fig. 2.4. Age Structure of the Greek, Norwegian and British Fleets 1953. Source: Data from OECE (1954); in Thanopoulou (1994, p. 153).

negative as the expansion of Greek shipping companies on the basis of second-hand vessels allowed them to compete with their rivals from a lower total cost base at all times of the economic life of the acquired vessel. As far as new-buildings were concerned, new Greek orders of ships were in this period placed in the environment of a global shipbuilding industry (Thanopoulou, 1994, p. 143), as illustrated also by Table 2.2 (last column). The footloose character of Greek new orders highlights the way in which initially negative circumstances often turned in favour of Greek-owned shipping (Thanopoulou & Theotokas, 2006) in the context of a rapidly internationalised industry; this was a process with a long tradition behind it. At the critical time when the transition to steam, had been taking place at a quick pace in other European countries including Norway,35 the shipbuilding of ships remained a marginal, small scale activity in late 19th century Greece (Kardassis, 1993), leading at the time Greek owners to turn to the international markets and to second-hand tonnage for their expansion in steamships (Kardassis, 1993, p. 182). This ushered them in a period of greater freedom in their quest for low-cost,36 a feature which accompanied the subsequent development of Greek-owned shipping; this freedom allowed

A Fleet for the 21st Century: Modern Greek Shipping

33

Greek owners to minimise costs and to adapt quickly in terms of specialisation (Thanopoulou & Theotokas, 2006). American and British shipbuilders, along with other European and later Japanese, then Korean and in the current period Chinese yards were to be included among the main beneﬁciaries of this freedom to build and buy with no geographical restrictions. Greek owners also enjoyed complete freedom to register their vessels under any ﬂag permitting so, a freedom which they used fully in the ﬁrst years after the war (Harlaftis, 1993), unlike their Norwegian counterparts who were substantially restricted by the prevailing Norwegian legislation37 of this period (Tenold, 2000). Norwegians had also been deprived of ﬂexibility in placing their orders during the ﬁrst years after World War II and they were not completely free in this respect until the 1960s38 (Brautaset & Tenold, 2006). The completely internationalised pattern of new orders and second-hand acquisitions of Greek-owned shipping seems at a ﬁrst level to have beneﬁted foreign owners as well, such as the Norwegian who found themselves – along with many British, American or Canadian, especially in earlier periods39 – all too often at the other end of Greek vessel purchases. However, not long after the transaction, the sellers (who traditionally would replace sold tonnage with new-buildings) could ﬁnd themselves in direct – and unfavourable – competition against the new owners of their tonnage that were enjoying similar levels of freight rates facing a lower total cost. This was a pattern appearing repeatedly in the ﬁrst decades after the end of World War II, with Norwegian – especially – companies being very often at the other end of a Greek Sale and Purchase; this was the case during the Greek expansion in the buoyant markets which followed the second closure of the Suez canal of 1967 until the ﬁrst oil shock of 1973 (Bruasdal et al., 1993). However, as the next section discusses, the state of the markets was to change radically after that date, compelling Greek shipping companies to pass through the dire straits of a severe structural crisis. Remarkably – and thanks to the continued validity of the basic terms of bulk shipping competitiveness throughout this period – Greek-owned shipping emerged at the other end at exactly the same position in the world maritime hierarchy: the leading one.

2.3. STEADY AT THE HELM: LEADING WORLD SHIPPING IN TRANSITION At the start of the 1970s, only the statistical breakdown of the tonnage that had progressively being growing the ranks of open registries could yield a

34

HELEN A. THANOPOULOU

picture of the true maritime hegemony in the world. Although national statistics on tonnage ownership of other main maritime countries were either non-existent or practically impossible to reconcile until the 1970s, Greek-owned shipping seemed to have had conquered the ﬁrst place just before 1970 (Hellenic Chamber of Shipping, 1996, p. 13).40 A detailed analysis of the known ownership of open registries world-wide conﬁrms also (Thanopoulou, 1994, p. 97) Greek owners at the leading position in the world ﬂeet41 in 1973. The date was ominous; nothing was to remain the same in the world of shipping which would soon be transformed under the effects of the ﬁrst oil shock in the same year and of the second one in 1979. The persistent recession in the shipping markets – a combination of demand trends shifting quickly and of over-ordering – turned many, once thriving, traditional ﬂeets and even more traditional registries into the shadows of their past existence. While the main shipping markets were ailing, with false dawns being succeeded by the true colours of deep depressions, the international division of labour was undergoing a radical shake-up both inside (Thanopoulou, 1984; Sletmo, 1989) and outside the maritime sector. The group of countries, originating mainly from Asia, reluctantly called newly industrialising countries at the time, had begun its inroads into many sectors of the economy through where they were to erode quickly proﬁt margins and the competitive advantages of traditional incumbent countries in manufacturing and shipping alike (Thanopoulou, 1984). As the route between the Paciﬁc and the West through the Indian Ocean regained the place it once had,42 the world maritime order started to shift along similar geographical lines; a new system, with bulk shipping being dominated by Greek-owned tonnage at the top and with liner shipping gravitating towards the Paciﬁc (Thanopoulou, Ryoo, & Lee, 1999, p. 354)43, started emerging in the context of markets which were succumbing to the unforgiving imbalances of supply and demand, one after the other, allowing lower-cost competitors to gain the upper-hand in terms of market survivability (Thanopoulou, 1995). Although plagued by the highest laid-up rate among main ﬂeets at the worst period of the crisis, in 1983, the Greek registry found itself one place up in the world hierarchy near the end of the crisis, in 1986, and with larger tonnage than at its start. Neither Japan nor any of the other four European registries in the league of the ﬁrst 10 ﬂeets in 1973 could claim the same despite their younger age at the start of the crisis.44 Over the same period Greek-owned shipping had been conﬁrmed as the undisputed leader of world shipping in the last quarter of the 20th century having suffered only minor setbacks in terms of either total tonnage or market shares. A concise

35

A Fleet for the 21st Century: Modern Greek Shipping

review of the reasons for this ‘‘paradoxical’’ increased resilience is necessary if more recent developments and challenges are to be placed in context. The preservation – amidst all this turmoil – of the leading position in the world ﬂeet by Greek-owned shipping, plagued at the time by old age – both in terms of tonnage under the national ﬂag (Fig. 2.5) and of tonnage under foreign ﬂags – and by high lay-up rates,45 could be considered a conundrum only by the ones mistaking the almost perfectly competitive traditional bulk markets for something they are not and were deﬁnitely not at the time: markets with more alternatives for companies than least-cost strategy. Specialisation, the technical level of the ﬂeet, along with ﬁxed and variable cost factors have been shown as the four critical components of bulk shipping competitiveness in such markets (Thanopoulou, 1994, 1998). As Greek owners had turned more aggressively towards bulk carriers than towards tankers46 in the period up to the oil crisis they found themselves

Greek-owned under all flags Greek flag only 100 90 80 70 60 50 40 30 20 10 0 1972

1976

1980

1984

1988

1992

1996

2000

Fig. 2.5. Greek-Owned Tonnage under all Flags (a) and under the Greek Flag (b) 1972–2000. Notes: In gross tonnage (millions) (a) until 1988 ships over 100 grt. From 1988 and onwards ships over 1000 gt; (b) data measured at different times of the year throughout the period depending on source. Source: Tonnage data in Naftika Chronika, various issues until 1988; then Lloyd’s Register – Fairplay data in Naftiliaki, June 2006. For the Greek ﬂag: Lloyd’s Register, Statistical Tables; Lloyd’s Register of Shipping, World Fleet Statistics, various dates; Ministry of Mercantile Marine (2002).

36

HELEN A. THANOPOULOU

with a ﬂeet which was suffering relatively less from the direct effects of the tanker crisis that followed. With the surplus of tankers and the laid-up tonnage having acquired monumental proportions,47 a modestly different tonnage distribution between the main markets could make the difference between the possibilities to cross-subsidize the ﬁxed cost of vessels with loan obligations or the bank foreclosing on the asset. It was precisely the ﬁxed cost side – or rather the absence of much of it – which came massively to the rescue of most Greek owners of either tankers or of any other type of tonnage (Thanopoulou, 1998) under any type of ﬂag. Almost as the repetition of a pattern, Greek shipping had taken advantage of what is usually considered a weakness: the elevated age of its tonnage which, compared to this of its other main competitors (Fig. 2.6),48 implied lower ﬁxed-cost obligations in the case of recent purchases or no capital obligations for the owners of old, ﬁxed-cost free, vessels (Thanopoulou, 1994). The speciﬁc features of Greek shipping development at the time created a blueprint for shipping competitiveness in bulk shipping where Greek-owned shipping traditionally specialised. This blueprint, however, was based on the charterers’ perception of the product, i.e. bulk shipping transport services, as homogeneous. <5 5 to 15 15-20 20-25 >25 80 70 % of total

60 50 40 30 20 10 0 Norway

Fig. 2.6.

United Kingdom

Greece

Age Structure of the Norwegian, British and Greek Fleets in 1981. Source: Data in OCDE (1982).

37

A Fleet for the 21st Century: Modern Greek Shipping

The latter, however, could only hold in the case of bulk shipping (Thanopoulou, 1998) as the terms of competition and the market structure are drastically different in liner shipping. Nevertheless, the preservation of this perception could not but be helped by the progressive aging of the stagnating – and for a while even decreasing – world tonnage whose age structure deteriorated amidst crisis conditions. However, the increase of the age of the world ﬂeet, which continued for a period even after the end of the maritime crisis of the 1970s and the 1980s (Fig. 2.7), cannot mask differences that persisted between the main ﬂeets in terms of age structure of their tonnage. The latter continued to play to the advantage of Greekowned shipping in the context of undifferentiated markets allowing Greek owners to maintain sufﬁcient liquidity necessary to support the other pillar on which Greek-owned shipping had been built in the era of steam: anticyclical investment strategy (Thanopoulou, 1996, 2002; Harlaftis & Theotokas, 2004b) and which culminated often and proﬁtably in the taking of capital gains through successful asset play. It was amidst the worst period of the crisis of the 1970s and the 1980s that some of the most spectacular examples of investing against the tide were to be observed by the ‘‘usual investors’’49: Greek owners. The latter found an unexpected ally in their risky expeditions into the second-hand markets after

age of world fleet age of world tanker fleet 14 12

years

10 8 6 4 2 0 1978

1980

1982

1984

1986

1988

Fig. 2.7. Age of the World Fleet and of the World Tanker Fleet 1978–1989. Note: On a gross tonnage basis. Source: Age data in OCDE (1985, p. 75) and in OCDE (1990, p. 89).

38

HELEN A. THANOPOULOU

the market crashed in the second part of the 1970s: it was not until the end of the 1970s that the Norwegian government relaxed the previously ﬂag restricting policies (Tenold, 2000, p. 24) which until then allowed no other option to loss-making owners than the sale of their assets in a rather unwilling market where prices were anything but rewarding. Faced with a lay-up rate of about a quarter of the tonnage in the national registry in 1976 – which did not really improve much going into the 1980s50 – Norwegian shipping51 became – once more – a main supplier of tonnage to Greek-owned shipping (Thanopoulou, 1996). It is characteristic that in 1977 out of the 31 recorded transactions under 6 ﬂags52 involving Greek purchases of second-hand tankers, 7 involved Norwegian owners who constituted thus the largest single group of transaction counterparts. As one by one relatively young vessel with a high ﬁxed cost were proving in the prevailing market conditions not the asset they were purported to be at the time of ordering but a liability it was hard to off-load,53 there was no shortage of tonnage for Greek-owners to select from. The unique combination of successful moves in the markets for ships together with comparatively low running-costs and astute specialisation constituted the distinct pattern of Greek shipping competitiveness; the origins of this pattern should not be sought neither in ‘‘fate’’ nor in ‘‘genetics’’ although the succession of generations played a critical role in this context through the transmission of ﬁnancial know-how (as the helm of family ﬁrms was passed on) and has been counted among the strengths of the typical Greek shipping family ﬁrm (Thanopoulou & Theotokas, 2006). The origins lay in this blessing in disguise Greek shipping entrepreneurs had enjoyed at critical times in the 19th and in the early 20th century: lack of capital (Harlaftis, 1996) which set a tradition of looking for tonnage mainly when its acquisition price was within reach. Existing research shows, however, that while there is evidence for the wide following by many Greek shipowners of an anticyclical investment strategy in the 1980s, this was deﬁnitely not a strategy adhered to by all. As was the case with some of the shipowners of other rising forces in 20th century shipping, observed strategies of investment and asset play moves in the markets of ships at a national level can be masking very different individual attitudes and commercial fates (Thanopoulou, 1996). The same remark could be made with regard to specialisation. Analyses, however, are based on aggregate ﬁgures and averages and these show clearly that, as the 20th century was drawing to a close, general traits and trends in world shipping, were starting to change signiﬁcantly and not always to a direction favourable for the competitive position of the Greek-owned ﬂeet.

A Fleet for the 21st Century: Modern Greek Shipping

39

2.4. AGE AND SPECIALISATION TRENDS IN 21ST CENTURY GREEK-OWNED SHIPPING The maritime historian of the future will probably pick the beginning of the 1990s as the starting point for a distinct period in the modern era of the industry: the advent of quality shipping heralded by the passing in the United States of the Oil Pollution Act of 1990 (OPA 90) which was followed by similar measures at an international level introducing new design standards already by 1993.54 The accident of the Exxon Valdez in 1989 had catapulted shipping in a new era which would deﬁnitely have arrived55 but most probably not in such a dramatic way and hastened pace. The swift adoption of amendments 13G and 13F of MARPOL in 1992, which set new speciﬁcations for tanker construction and the compulsory – albeit progressive – withdrawal of existing tankers, indicated that the world community ‘‘meant business’’ when it came to transforming an industry used to rather slower paces of drastic technical change through regulation; this, however, was only the beginning of a most dramatic intervention in all the basic aspects of both the hardware and the ‘‘software’’ of a globalised industry.56 Management procedures, both on-board as well as ashore, were soon to be upgraded through a massive wave of compulsory certiﬁcation, inaugurated by the International Safety Management code whose anticipated entry into force in July 1998 had the world shipping holding its breath especially in relation to Greek compliance rates. What was at stake was more than the survival of a national ﬂeet: if expressed fears that Greekowned shipping could be found lagging behind in the certiﬁcation process57 were to come true, world trade itself could had been caught in the process since the share of the Greek-owned tonnage in the world ﬂeet had risen beyond 15%58 of the cargo carrying capacity. However, as the summer of 1998 unfolded, there were no delays and no disruption in bulk shipping transactions. Under their own ﬂag or under one of the many they had been sailing under in the post-war period, Greek-owned vessels continued to ply the unrewarding markets of the late 1990s as Greek-owners went on to increase their tonnage (Fig. 2.8) with an eye to the new expiry dates their tanker vessels had acquired. In an industry where it takes years to build a vessel, changes that affect the length of the economic life of ships or their technical speciﬁcations impact on the very basis of investment and disinvestment decisions (Thanopoulou, 2002); investment appraisal is directly dependent on the time-horizon. When the project itself may be coming with an age-tag already on it, as is the case with second-hand ships, any changes in regulations may

40

HELEN A. THANOPOULOU

Greek-owned all flags Greek flag only 120 100

million gt

80 60 40 20 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Fig. 2.8. Greek-Owned Tonnage under all Flags and under the Greek Flag, 1996–2006. Notes: Greek-owned tonnage includes tonnage on order. Greek-owned tonnage as in March (in February for 1998). Sources: For the Greek-owned tonnage: Lloyd’s Register – Fairplay data in Naftiliaki, June 2006. For the Greek ﬂag: Lloyd’s Register of Shipping, World Fleet Statistics, various dates; Ministry of Mercantile Marine (2002); Hellenic Chamber of Shipping website; Naftiliaki, June 2006.

be setting automatically a different ‘‘sell-by’’ date for the asset. In the case of tanker shipping, the impact of such dramatic vessel accidents as this of the Erika (Glen & Martin, 2002) and of the Prestige resulted in that date being changed practically overnight.59 Operational limitations in accessing cargoes or ports – and hence the revenue side of the proﬁtability equation – were also directly dictated by regulatory changes as the case was with the adoption of the regulation 13H of MARPOL in 2003 which came into effect in 2005.60 In changing and by deﬁnition ‘‘interesting’’ times, the speed and extent of adaptation emerges as the most critical factor for maintaining competitiveness especially in competitive industries such as shipping. Although not alone among other merchant marines, Greek-owned shipping seemed even more vulnerable. The relatively high age of the ﬂeet (Fig. 2.9) and the anticipated massive replacement of tankers of old technology due to changes in international regulations were raising the issue of the capital required which should be sought by Greek companies in a different and much more stringent environment (Grammenos & Choi,

41

A Fleet for the 21st Century: Modern Greek Shipping

National flag Foreign Flag 25

years

20 15 10 5 0 Greece

Fig. 2.9.

Japan

Norway

China

Korea, Rep. of

UK

Age of Fleets Controlled by Major Maritime Countries in 1999. Source: Age ﬁgures in ISL (1999, p. 4).

1999). The entire Greek competitiveness blueprint was being put in perspective as the weak to non-existent market signals for quality tonnage of the 1990s (Tamvakis, 1995; Tamvakis & Thanopoulou, 2000) were becoming stronger – at least in the tanker market (Glen & Martin, 2002, p. 268) – while ﬂeet replacement was becoming imperative in view of the rapid and – after a certain point – unpredictably accelerating changes in international regulations. It was precisely tankers, however, which were to bring the ﬁrst signs that the tide in the markets was turning, altering the picture and Greek shipping prospects. At the dawn of the 21st century, the tanker markets rose to levels which carried with them even hybrid markets such as this of liqueﬁed natural gas (LNG) carriers, inducing for the ﬁrst time speculative orders in a specialized market that knew otherwise until then.61 The lull that followed for a while in the freight markets was mainly in the dry bulk sector which was still confronting the repercussions of this never abating ‘‘endemic tendency to over-invest’’62 – that Basil Metaxas had labelled so astutely decades ago – and which had plagued the sector in the second part of the 1990s (Fig. 2.10). Following a short interval, one by one all main freight markets resumed in 2003 their course towards record heights (cf. Fig. 2.11) providing – in the best of ancient Greek drama traditions – an unexpected but always welcome

42

HELEN A. THANOPOULOU 350 300

Worldscale

250 200 150 100 50 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Fig. 2.10.

Minimum and Maximum VLCC Tanker Rates AG-Asia 1995–2005. Source: Rate data in Mitsui OSK Lines Ltd (2006).

VLCC Capesize 100 90 thousand $/day

80 70 60 50 40 30 20 10 0 2002 2003 2004 2005 2006

Fig. 2.11. Tanker and Bulk Carrier Rates 2002–2006 (a). Note: (a) Year averages. For 2006, year to April. Source: On the basis of data in Danish Shipowners’ Association (2006).

deus ex machina coming to the rescue of a ﬂeet in urgent need of an extensive ‘‘makeover’’. Dissipating all fears, the forever surprising shipping markets carried with them ﬁnancial institutions as well. Banks returned63 massively to shipping in the early years of this century ﬁnancing eagerly Greek – among

43

A Fleet for the 21st Century: Modern Greek Shipping

other – shipowners. The elements were there for another Greek shipping renaissance and this time even external ﬁnance seemed redundant due to the unprecedented inﬂux of revenues associated with the state of the main markets. The SandP market proved again most valuable for the necessary renewal of Greek-owned shipping as in the mid-1970s when Greek-owned tonnage expanded rapidly amidst the turning of the markets.64 This time, the ﬂexibility65 – this, oxymoronically, most sound pillar supporting Greekowned shipping through periods of transition – enjoyed by Greek shipping companies due to their familial organisation (Theotokas, 1997) and to their relative independence from outside investors’ expectations, and extending also to investment behaviour started manifesting itself in a favourable conjecture: this of the buoyant markets around 2000, which were followed soon – after a short disappointing interval – by record-breaking markets (cf. Fig. 2.11). Owing to market price volatility, Greek owners had plenty of scope to take advantage of their experience in timing sales and purchases as illustrated by their investment moves in second-hand tankers in the period up to the millennium. While they had been taking advantage massively of the soft tanker prices and markets of the time around the Asian crisis in the late 1990s, their involvement on the purchasing side subsided when both ship and freight tanker markets started rising66 at the turn of the century (cf. Figs. 2.10 and 2.12).67

80

% Greek purchases in total

60 40

average earnings

20

tanker prices

0 1997

1998

1999

2000

Fig. 2.12. VLCC Freight Rates, VLCC Prices and Share of Greeks in Tanker SandP. Notes: Tanker price refers to end year prices of ﬁve-year-old VLCCs in million. Rates refer to average earnings per day for the respective year for VLCC vessels in the Gulf-Europe route in thousand US dollars. Percentage of Greek share in total was calculated on the basis of all transaction data on tankers over 10,000 dwt. Source: Data in Clarkson Research Studies. Shipping Intelligence Weekly, various issues.

44

HELEN A. THANOPOULOU

As the market started gaining momentum to reach the record levels of late 2004, Greek shipping was – once more – quietly amassing cash reserves but looking at booming worldwide sales with apparent restraint.68 In the ﬁrst 5 months of 2004, as sales of tonnage globally were up by 80% on the same period of 2002, the share of Greek purchases in the total SandP activity was down to a meagre 12%.69 The share of Greek SandP participation was lower in the higher markets of 2005 (Fig. 2.11) from this of 2003 when markets were starting their ascent. Once more, Greek moves in the SandP market constituted a case apart following – again – a pattern opposite to this of Norwegian owners (Fig. 2.13). Apart from pure aggressive asset-play, second-hand acquisitions also fulﬁlled a wider role in the greater scheme of the transformation of the Greek-owned ﬂeet. Although new-buildings are the one method of company growth traditionally associated with ﬂeet renewal, the ‘‘Greek maritime paradigm’’ continued to prove the potential of the astute use of the secondhand markets in this respect as well as shown by the average age of secondhand additions compared to this of ship sales. For the early months of 2006, the former has been calculated to be 9 years while the latter to be 1570 (Seatrade May/June 2006, p. 41). Through either new-buildings or secondhand vessels the liquidity created by buoyant markets and eager ﬁnancial institutions allowed the reduction of the age of the ﬂeet in terms of vessel numbers by exactly ﬁve years within a period of just six. There were even instances where the reduction of the average age of a company ﬂeet was reduced to a third of its initial level, through a combination of astute SandP with new orders71 (Lloyd’s List, 2005) within about the same time span. This was a remarkable but not isolated case; although the total number of Greek shipping companies decreased by more than 10% between 2001 and 2006, 30

Greeks % total purchases

25 %

20 15

Norwegians % of total purchases

10 5 0 2001

2003

2005

Fig. 2.13. Greek and Norwegian Share in Total Second-Hand Vessel Purchases 2001, 2003 and 2005. Source: From transaction ﬁgures in Clarkson Research. Shipping Intelligence Weekly, various dates.

45

A Fleet for the 21st Century: Modern Greek Shipping

the number of companies with a young ﬂeet doubled.72 While the Greekowned ﬂeet remains older than the world ﬂeet, the improvement is clear by any measure, be this one of vessels, of gross tonnage or of total dwt (cf. Fig. 2.14). More importantly, the relative position of the ﬂeet has improved. Age differentials between the Greek-owned and the world tonnage were reduced in 2006 at the level of a few months in terms of vessel numbers and of 1.7 years in terms of gt (Greek Shipping Co-operation Committee, 2006, p. 6). The renewed ﬂeet is also a different one in terms of specialisation anymore. Following the trends in the world economy, Greek owners have ventured into areas which were practically outside their focus only some years ago. While Greek-owned shipping had been abstaining from the specialised markets until recently, despite the increasing signiﬁcance of the latter in today’s shipping, the share of technologically more modern and complex types such as LPGs and LNGs has now increased markedly (see Table 2.3) having lagged for long behind the respective share of main competitors. Even after the mid-1990s the share of this category in the Greek-owned ﬂeet still remained below one-ﬁfth of the world average (Thanopoulou & Theotokas, 1997). It is now about a third of the respective ﬁgure for the world ﬂeet (see Table 2.4), while the growing interest of

Vessels Gross tonnage DWT 25

Years

20 15 10 5 0 2000

2001

2 002

2003

2004

2005

2 006

Fig. 2.14. Age of the Greek-Owned Fleet 2000–2006. Source: On the basis of age ﬁgures in: Greek Shipping Co-operation Committee. (2006), based on Lloyd’s Register – Fairplay data.

46

HELEN A. THANOPOULOU

Table 2.3.

Oil Tankers Chem&Product Gas carriers Combined carriers Ore & Bulk Container (pure) Cargo Passenger Other

Specialisation of Greek-Owned Shipping 1991–2006. 1991

1996

2006

29.8 7.2 0.4 8.6 40.1 0.8 10.3 2.0 0.8

30.6 8.3 0.6 3.8 42.8 2.0 9.3 2.2 0.4

33.2 7.9 2.2 1.1 42.3 5.5 5.9 1.5 0.4

Notes: Including ships on order; on the basis of gross tonnage. Sources: For 1991 and 1996, data in: Thanopoulou and Theotokas (1997, p. 33) based on Dr. N. Mikelis/LRS data in Argo, October 1991 and in Naftiliaki, Summer 1996; for 2006: on the basis of data in Naftiliaki, Summer 2006.

Table 2.4.

World and Greek-Owned Fleet Structure by Type 2006 (a).

All Tankers (d) Gas carriers Combined carriers Ore & Bulk Container Cargo Passenger Other

World

Greek (b)

Greek (c)

37.9 2.5 0.8 35.2 11.6 10.0 0.6 1.1

43.5 0.8 1.3 47.5 3.5 2.8 0.2 0.3

44.7 1.4 1.1 45.9 3.8 2.6 0.2 0.3

Notes: On the basis of dwt. (a) World ﬂeet as at beginning of the year. Greek-owned ﬂeet as in March; (b) Vessels in service only; (c) Including ships on order; (d) Including chemical. Sources: For the world ﬂeet: UNCTAD (2006, p. 21); for the Greek-owned ﬂeet: calculated on the basis of GSCC/LRS-Fairplay data in Naftiliaki, Summer 2006.

Greek owners73 should further increase the Greek commitment to this type of tonnage. As becomes evident from Table 2.4, which projects the composition of the ﬂeet on the basis of the existing order book, the addition of current orders could result in differences narrowing further. Most importantly the Greek involvement in the sector is not, as in the past, restricted to LPGs but has extended to LNGs (Glass, 2006). The gas carrier sector was not the only one outside the traditional bulk shipping markets to attract the interest of Greek-owners. Over the last

A Fleet for the 21st Century: Modern Greek Shipping

47

10 years, the share of pure container vessels in the total ﬂeet has more than doubled and will soon triple if the current trend continues. In the process of their turn to more complex types such as gas carriers or containers, Greek owners have been leaving behind types of vessels unsupported by market trends such as combination carriers which have decreased to an insigniﬁcant percentage in the total closer to world averages. Greek shipping is also leaving behind it – and fast – one of its workhorses of the past, traditional cargo ships, of which the share in the Greek-owned tonnage will soon halve from the start of the 1990s on the basis of current ordering trends. Their share is a far-cry from the early 1970s when they accounted for well over a ﬁfth of the Greek-owned tonnage (Thanopoulou, 1994, p. 152). Overall, the evolution of the structure of the Greek-owned ﬂeet shows how, within the last decade and a half, the ﬂeet became less ‘‘monolithic’’ and increased its diversiﬁcation towards newer categories of tonnage although in a belated – compared to other main ﬂeets – restructuring of its composition. However, this delay could also be viewed more as the result of the strong competitiveness of the Greekowned ﬂeet in the traditional shipping segments than as a sign of competitive weakness. The introduction of more sophisticated types of vessels in the early 1970s by the main ﬂeets at the time had been most often in inverse relation with the dynamism of the registries involved (ibid.). It remains to be seen whether the recent turn of Greek owners to more technologically complex categories of tonnage has taken place in an ‘‘aggressive’’ rather than a defensive way – to conﬁrm whether this turn should be considered as a sign of competitive strength than one of weakness. Although the share of the Greek-owned ﬂeet in the total world tonnage has been declining recently (cf. Table 2.5), the question of whether such signs should be considered as ones of weakness cannot be answered on the basis of data covering just two or three years. The UNCTAD data show a decrease of the total tonnage between the start of 2004 and this of 2005. It would not be the ﬁrst time; according to the data series published by the Greek Shipping Co-operation Committee, a reduction had taken place between spring 1988 and 1989, between 1996 and 1997, as well as between March 2001 and 2002.74 As no decrease is recorded by this second source between 2004 and 2005, the reduction shown by the UNCTAD data, which refer to January 1, between these dates could be considered eventually as a pointer to fast moves in the SandP markets in the recent record-breaking markets. If there is anything that could be considered as alarming in the direction of the data, this is the return of the Greek share to its levels around the millennium. Relative declines in shipping have been observed to be the precursors of an era of decline proper.

48

HELEN A. THANOPOULOU

Table 2.5.

The Share of Greek-Owned Fleet in the World Tonnage 1991–2006.

Year

Percentage of World Tonnage

1991 1996 2000 2001 2002 2003 2004 2005 2006

14.84 17.41 18.21 19.09 19.20 19.52 20.26 18.48 18.02

Notes: End year data for 1991 and 1996; January 1 data since 2000; On a dwt basis. Sources: Benham, (1994, p. 26); UNCTAD, Review of Maritime Transport. Various issues.

Yet, this share refers anymore to a ﬂeet with signiﬁcantly different structural characteristics.

2.5. CONCLUSION: A FLEET FOR THE FUTURE? As the century was coming to a close, the omens were against Greek shipping surviving into the next century in the same hegemonic position in the world ﬂeet. Financial rules were tightening for a worldwide industry which had taken advantage of abundant bank ﬁnance in the post-war period to increase its capacity (Stopford, 1988), shedding serious doubts on the ability of Greek shipowners to draw on new ﬁnancial resources henceforth unless they would proceed to a drastic transformation of their management and disclosure patterns in order to address the capital markets to a larger extent (Grammenos & Choi, 1999). Technical speciﬁcations and management practices had to adjust to regulations that were interfering with the very core elements of shipping competitiveness – one being the freedom to decide the time for the ﬁnal withdrawal of the production units from the market – at least for a large part of the tonnage under Greek ownership, i.e. tanker ships. Greek-owned shipping seemed indeed cornered. Networking, this powerful informal mechanism which had supported Greek-owned shipping in earlier times, persisting today in the form of a network embedded within the maritime cluster of the management centre of Piraeus, could only have a limited effect amidst the wave of mandatory requirements which were changing the face of shipping and the style of shipping

A Fleet for the 21st Century: Modern Greek Shipping

49

management at an accelerating pace. At the same time, astute investment strategies needed redeﬁning in a world of fast changing technical parameters that were imposed as the new standards for ship design. A combination of good timing and unexpected market developments came to the rescue of the prospects of a national industry which found itself more than once in the course of its modern phase on the brink of what seemed inevitable decline only to spring again with renewed dynamism. The renewal of the ﬂeet, allowed easily in the market circumstances which prevailed early in the 21st century extended the overall prospects of Greekowned shipping which had turned more than once negative characteristics to its favour. The process was swift. As discussed by Theotokas in Chapter 3 of this volume, after two centuries of incessant and often forced adaptations, ﬂexibility has become a deeply embedded characteristic. The future course of Greek-owned shipping continues to depend on maintaining a ﬂeet adapted to the needs – and the not so easily perceivable or predictable trends – of the world seaborne trades and on maintaining investment patterns which – being born out of necessity – prove to have preserved their validity in a world of soaring capital requirements amidst new and increasing constraints. Recent data show that Greek-owned shipping is in a process of quick restructuring itself in this direction. However, the changes in specialisation of the Greek-owned ﬂeet can only prove successful in the long-run if they are not contradicting the fundamentals of shipping competitiveness in traditional bulk markets. For as long as market concentration in the latter will remain at low levels and product differentiation will continue to be associated to vessel characteristics only,75 shipping ﬁrms in both the tanker or the dry bulk industry will invariably continue to survive or perish on the basis of the general factors of shipping competitiveness. Successful ﬁrms and ﬂeets will have to continue to base their success on the appropriate mixture of specialisation, low-cost, astute cash-ﬂow management – mainly through appropriate timing and terms of ﬁnance of their investment – with all of the above being supplemented by speculation on the values of ships acquired with a view to take advantage of asset price volatility. Transformation cannot but come at a price. The analysis of the latest trends shows that, while Greek-owned shipping is still growing, the number of ﬁrms between 2000 and 2005 is decreasing76 with a parallel reduction of the share of the smaller among them in favour of this of large entities (Thanopoulou & Theotokas, 2006). In this context, whether consolidation is the future for the Greek-owned ﬂeet77 is obviously open to debate; the real issue is whether this consolidation will take place as a manifestation of the two main driving forces that took Greek-owned shipping to its current

50

HELEN A. THANOPOULOU

leading place, namely its adaptability and its ﬂexibility, or whether it will be a ‘‘forced’’ one under the pressure of a changing environment which challenges the main pillars of Greek competitiveness hitherto.78 On the pessimistic side, it cannot be ignored that, as all types of glory, gloria maritima is also a historically transient state and Greek-shipping competitiveness should be viewed in this perspective (Thanopoulou, 2007). On the optimistic side, it has to be reminded that the question of whether ‘‘saturation point has been reached’’ (Naftika Chronika, 1975, p. 67),79 prompted at the time mainly due to constraints emanating from the supply of national seafarers, dates from more than 30 years ago; it has also been answered by Greek shipping itself through the massive resort of Greek owners to the – truly global nowadays – supply of shipping labour. For the ones airing on the side of optimism, the strongest Greek shipping card might be related precisely to the human resource.80 From a different vantage point, the set of the driving forces behind what has been dubbed all too often ‘‘the Greek shipping miracle’’ can be traced back to the talented human factor looking beyond locus-locked economic activities all too constrained by national boundaries. In what seems as a pattern of turning negative circumstances on their head, Greek shipping has been favoured by the ‘‘silver lining’’ of the lack of other alternatives, for the more talented or restless, out of the trap of a small economy rife with structural problems and devoid of any signiﬁcant natural resources. Shipping allowed the talent and skill of its professionals to fully unfold and needed them both. It takes skills to navigate the world’s oceans as well as to ride – from shipping ofﬁces ashore – the peaks and troughs of markets so violently ﬁckle81 as to occasionally make the concept of market equilibrium seem entirely academic. Shipping ﬂeets do not turn younger by themselves, nor do they ﬂock spontaneously to join new specialisations. Behind all the spectacular adjustments of Greek shipping in the last few years, more than tradition or network, lay the market-feel and the initiatives of executives and entrepreneurs who know that for them the sea is indeed the ﬁnal frontier; the world’s mariners, who ride the waves on their ships, sail them through.

NOTES 1. Norwegian shipping can be considered as another example in the last 100 years, although this country’s place as a beneﬁcial owner of tonnage has steadily been after Greece and Japan, Norway intermittently trading places with the USA immediately behind the aforementioned two until recently (on the basis mainly of UNCTAD,

A Fleet for the 21st Century: Modern Greek Shipping

51

OECD, ISL and Lloyd’s Register of Shipping – Fairplay and LMIS data for the last three decades). The Norwegian registry also ranked 3rd or 4th in the world in the period from the end of World War II until the ﬁrst oil shock in 1973 on the basis of Lloyd’s Register of Shipping data (cf. Chapter A.2 in Thanopoulou, 1994). In any case, throughout the post-war period, and even before World War II, Norway had retained a place in the modern world ﬂeet hardly analogous to the size of its economy or trade whether before or after the North Sea oil era. 2. Leontaritis (1996, p. 1) mentions in this context the examples of ‘‘the impressive development of the ﬂeet of Raguza and of the Netherlands in the 16th and the 17th century respectively’’. At the beginning of the 17th century, the Dutch ﬂeet was reigning in the world’s seas possessing a ﬂeet which was a multiple of England’s total tonnage at the time as mentioned by Kyriazis (2006, p. 90). In the context of the Dutch Golden Age, however, small can only refer to the territorial size of the metropolis due to the signiﬁcant presence of Dutch colonies and of a globally spanning network of trading posts, in the process of, as suggested by Hobsbawm (1954, p. 52) capital being diverted into ‘‘colonial exploitation, overseas trade and ﬁnance’’. 3. See Thanopoulou (2007). 4. A very thorough analysis of the relationship between state and shipping in the case of Greece has been provided by G. Harlaftis (1993). Professor Harlaftis’ analysis ‘‘clearly refutes the notion that shipping received next to no help from Greek governments’’ (ibid., p. 181). However, it is mentioned ‘‘that the majority of the shipping companies could have survived independently of the government’’ (ibid., p. 181). 5. The term Greek shipping in this chapter is used mainly in relation to policy matters. However, as already since the 1990s (Harlaftis, 1996, p. 274) the overwhelming majority of owning and management companies exercise their main functions from Piraeus, the boundaries between the two categories i.e. Greek-owned shipping and Greek shipping under the national ﬂag are progressively becoming less distinct. The (rather low) tonnage tax imposed on nationally registered vessels as well as the quota for foreign seamen remain the two differentiating factors. 6. Greek shipping was probably granted less direct assistance than this – of the rudimentary kind – enjoyed by the shipping industries of countries traditionally defending the freedom of the seas in the modern era; it had deﬁnitely to sustain itself without any periods – whether short-lived or longer – of any signiﬁcant investment grants or direct subsidies which existed in the case of other countries. See for instance, Gardner, Pettit, and Thanopoulou (1996), for grants and allowances in the case of Britain. Any such treatment was granted, however, in the context of a completely different – and less favourable overall compared to Greece – ﬁscal regime for shipping. For changes in the nature of shipping policies of various countries depending on their stage of maritime development see Cafruny (1987). 7. The role of the block purchase of the 100 Liberties by Greeks in 1946 in shaping Greek-owned shipping in the post-war era could be considered as analogous to the one played by the purchase of most of the 37 Anglo-Saxon Oil co – exactly 20 years earlier – by Norwegian owners, in shaping a basic trait of the modern Norwegian ﬂeet. For an account of how about two-thirds of these tanker vessels were bought by Norwegians and how they helped at the time deﬁning the specialisation of Norwegian shipping in tankers, see Chapter 4 of Sturmey (1962).

52

HELEN A. THANOPOULOU

8. As mentioned in Thanopoulou (2007). The reading of the succession of telegrams and communications between the Greek government, the Greek Shipowners New York Committee, the Greek Shipping Co-operation Committee (in London) and the Union of Greek Shipowners in Athens, as included in the original in Chapter 3 of Tzamtzis (1984), shows the intense effort on behalf of the various associations of Greek owners to convince the Greek government to provide its guarantee dropping restrictive terms it was setting at the time to prospective buyers and to add itself belatedly (as characteristically mentioned by S. Tsakopoulos, a member of the Greek Parliament in a telegram to the Greek authorities in Athens on the 20th of August 1946) to a series of other countries whose owners had beneﬁted from the Merchant Ship Sales Act of 1946, backed apparently much more rapidly by their governments (Tzamtzis, 1984, p. 91). 9. The First World War had brought about the ﬁrst major intervention of the Greek government in ocean-going shipping which led to the bankruptcy of a number of companies tempted by Law 1043/17 to over-invest to recoup taxes on war-proﬁts (Harlaftis, 1996, pp. 185–186). Many decades later, amidst the last major long crisis of the 20th century in world shipping which lasted well into the 1980s, the Greek government decided in 1983 to intervene in crew replacements in order to deal with the increased unemployment of Greek seafarers. Among other provisions which included reductions in manning scales, Law 1376/83 introduced the compulsory replacement of crew members after a period of employment if there were unemployed seamen in the respective category of posts (article 7, para 2 and 4 of the Law). This was a controversial measure; although it was intended to increase social justice, it created a negative climate and was followed by the acceleration of the ﬂight from the Greek ﬂag causing probably more job losses, than it ever created. For a discussion of the effects of Law 1376/83, see Thanopoulou (1984). 10. Cf. Thanopoulou (2007). 11. When the island of Chios was annihilated by the Ottoman forces in 1822, the massive exodus of the surviving Greek population led to its dispersion in the Aegean archipelago, the mainland, as well as abroad playing a most important role in the development of the Chios network (Harlaftis, 1996, p. 40). Chapters 2 and 3 in Harlaftis (1996) include an innovative approach of the role of the Chiot and Ionian networks respectively in the development of Greek-owned shipping in the 19th century. 12. This process has been thoroughly analysed in Harlaftis (1996). 13. For the transition from sail to steam in the case of Greek shipping see Kardassis (1993). 14. Stephanidis and Mourdoukoutas (2006, p. 10), credit ‘‘effective networking’’ as ‘‘the secret of success’’ of contemporary Greek shipping. 15. As the case was with Great Britain in the past or with Korea and China more recently. 16. For vessel purchases by Greeks and the evolution of prices in the inter-war period, see Chlomoudis (1996). Successful SandP in vessels is self-feeding as it creates liquidity which allows the repetition of risky investment moves in recessed markets (cf. Thanopoulou, 1996, 2002). 17. Cf. Sturmey (1962) for a classic discussion of the factors that had led to the hegemonic position of British shipping before World War I.

A Fleet for the 21st Century: Modern Greek Shipping

53

18. The Greek coastline is 14,854 km long, cf. Lagoudis et al. (2006). The full Norwegian coastline – fjords and gulfs included – stretches to 21,465 km as mentioned in Kroneberg (2000, p. 1). 19. The population of Norway in 1890 was just two million (as mentioned in http://www.norway.org/facts /people/population/population.htm). The population of Greece in 1889 was 2,187,208 (cf. Tsoukalas, 1975, p. 98). The rate of Greek total emigration to the United States in the population has been calculated at well over 10% between 1880 and 1920 (13.2%) (cf. Tsoukalas, 1975, p. 149), while rates in a similar range (10–15%) are mentioned for the peak of the total Norwegian migration (cf. http://www.norway.org.uk/facts/people/migration/migration.htm), of which a very large proportion was to the United States. Between 1870 and 1910, it is estimated that the Norwegian labour force was reduced by 24% due to migration (cf. Williamson, 1998, p. 35). 20. Norway’s ﬂeet had a tradition in earlier periods in the timber trades destined to West European countries (cf. Johansen, 1992, p. 487); North Sea oil, which boosted trade volumes, did not come on line until the 1970s. Greek-owned shipping in the 18th century, Ottoman Empire had proﬁted extensively by the grain trades transported either inbound from Russia or destined – many cargoes apparently transhipped also in Greece – to Western Europe, or from areas of Ottoman Greece to western ports (cf. Harlaftis & Laiou, 2006). 21. The shares of tankers in the world, British and Norwegian tonnage were 16.0%, 15.1% and 42.7%, respectively, in 1938. Calculated on the basis of grt data in United Nations, Statistical Yearbook 1958, pp. 309–310. 22. This part of Section 2.3 draws loosely from Thanopoulou (1994, pp. 111–131, 133–161). 23. Calculated on the basis of Fearnley and Eger’s dwt ﬁgures in OECD (1963, p. 22), the exact rates were 33% between January 1, 1961 and January 1, 1962 and 29.7% between 1962 and 1963, the overall increase over the two-year period being 72.5%. The total dwt of the category was 8.7 million tons in 1961. 24. Mitropoulos (1980, p. 136) mentions that the design preceded the term which appeared in the mid-1950s. There were already over 6.5 million dwt of bulk carriers in the world ﬂeet in 1960 (ibid., p. 138). Their precursor, however, dated from about a century earlier (cf. Stopford, 1997, p. 20). 25. Along with the Greek one, these three nationalities corresponded to the topranking ﬂeets under national ﬂag (in 1973) which had recorded the largest increase between 1963 and 1973, excluding open registries and the USSR (cf. Thanopoulou, 1994, p. 90). 26. Although more data are needed to support this argument, it is unlikely that the opposite would be true as the momentum of new orders of bulk carriers at the time suggests ex post. 27. In 1962, Norway owned about 17%, the highest share, behind this of the Liberian ﬂag, of the ore and bulk ﬂeet deadweight tonnage (cf. Fearnley and Egers Chartering Co, 1962, p. 11). 28. In 1962 Liberia hosted 21.2% of the total ore and bulk carrier dwt (cf. Fearnley and Egers Chartering Co, 1962, p. 11). 29. Cf. Thanopoulou (1994, p. 151). 30. Cf. Thanopoulou (1994, p. 138).

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31. For a review of ﬁrst-mover advantages, as well as of the related literature at the time, see Lieberman and Montgomery (1987). 32. Ore/Bulk/Oil combined carriers. 33. For the dry bulk market, cf. Alizadeh and Nomikos (2002). For the tanker market, cf. Glen and Martin (2002). 34. Including in this category vessels of an age below ﬁve. Excludes the US as age data included the reserve ﬂeet (cf. Thanopoulou, 1994, p. 154; on the basis of ﬁgures in OECD, 1974). 35. Cf. Kardassis (1993, p. 174). 36. Competing on the basis of low-cost in 18th century Scandinavia is discussed by Johansen (1992) analysing the cases of Norway and Denmark in connection to lower manning costs. 37. Owing to the ‘‘Valutaloven’’ which aimed at currency control (cf. Tenold, 2000). 38. Owing to government regulation (see Brautaset & Tenold, 2006; draft version quoted with permission by the authors). 39. For the turn to older British vessels see Chapter 3 of Kardassis (1993) and for purchases of British vessels in the interwar period see examples in Harlaftis and Theotokas (2004b, p. 93). For purchases from the US after World War II see Tzamtzis (1984) and Harlaftis (1996). 40. In 1969, Greek owners controlled 27 million grt which awarded them the leading position in the world ﬂeet (Hellenic Chamber of Shipping, 1996, p. 13). Overall, ownership statistics are sporadic about the other important ﬂeets. 41. The data analysed refer to grt. The Greek-owned tonnage was annually recorded by the year-review issues of Naftika Chronika which in the issue of 15/1/74, p. 89 mentioned that ‘‘we are preserving our top position in the world in dwt terms’’ (original text in Greek). 42. For the importance of this route at the time of the spice trades around the 16th century (cf. Parry, 1967). 43. Cf. Thanopoulou, Ryoo and Lee (1999) for a review of developments in liner shipping. 44. See Thanopoulou (1994, p. 154) for age comparisons (excluding however, the US – which rose by one place as well between these dates – from age comparisons as the reserve ﬂeet was also included). 45. Comparable data for lay-up available at registry level only. 46. The share of tankers in the Greek registry was only 36% in 1976, the respective ﬁgures for the Norwegian, British and world ﬂeet being at the time 53%, 49% and 46% (Thanopoulou, 1998, p. 362). The share of tankers in the total Greek-owned ﬂeet was 46% (Naftika Chronika, 1978, p. 114), reducing to 43% over the next 12 months, ibid. 47. The total tonnage unemployed reached over 60 million dwt in the early 1980s (Clarkson Research, 1996) which has to be compared with the total world tonnage of tankers which was about that size in the 1950s. 48. The overall position of the Greek-owned ﬂeet was not dissimilar, lagging behind other main ﬂeets (Naftika Chronika, 978, p. 93) as the marginally better age structure of the Greek-owned tonnage under foreign ﬂags at around this time (Thanopoulou, 1994, p. 262) was hardly altering the picture at national registry level. 49. Lack of capital in earlier periods of Greek shipping had instinctively alerted to opportunities as prices were reaching rock bottom following over-supply in the

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markets. As the cycles were succeeding one another and the once perceived opportunities turned into proﬁts, astute investment moves – or what has been called anticyclical investment strategy (Thanopoulou, 1996) – were established as a sort of tradition within the Greek shipowning community (Harlaftis & Theotokas, 2004b). 50. From 24.3% in 1976 the rate fell to 22.1% in 1983 (Thanopoulou, 1994, p. 193) in the process, however, of a considerable reduction of the Norwegian registry from 27.9 million tons gross in 1976 (Lloyd’s Register Statistical Tables, 1977) to 19.2 in 1983 (Lloyd’s Register Statistical Tables, 1984). 51. Owing to the preponderance of Norwegian shipping in Scandinavian tonnage, data referring to Scandinavian trends as used in Thanopoulou (1996) can be considered to represent to a very large degree transactions involving Norwegian counterparts. 52. On the basis of transaction data covering the whole of 1977 published in Naftika Chronika, issue of January 15, 1978. 53. For the case of Norwegian owners, see Tenold (2000), Thanopoulou (1996) and Thanopoulou (2002, p. 635). There were even vessels sold by Norwegian owners and registered by their new owners in the Greek registry between 1980–1986, i.e. at the time of the big exodus from the Greek ﬂag; these, according to Tenold (2000, p. 34), amounted to 8% of the total Norwegian tonnage sold abroad in that period. 54. For a description of the amendments to Annex I of the convention that imposed these, see http://www.imo.org/Conventions/contents.asp?doc_id= 678andtopic_id=258#revisedoneandtwo. 55. Several smaller double hull tankers had been built already by the 1960s and even some larger tankers were being built with these speciﬁcations before 1989, see Section 3 of Clarkson Research Studies (1996, p. 24). 56. For the succession of increasingly more stringent measures and their respective dates see http://www.imo.org/Conventions/contents.asp?doc_id=678andtopic_id= 258#25, accessed November 2006. 57. In the summer of 1997, there were predictions that more than 20% of the Greek shipping companies would not make the deadline as the process of Greek certiﬁcation was very slow (Nkavoyannis, 1997). 58. The Greek ﬂeet represented 15.76% of the world deadweight tonnage in March 1997 and 15.82% of the world deadweight tonnage in March 1998 (Seatrade Review, 1998, p. 91). 59. As the tanker Erika, fatally broken, was battered by the waves in December 1999 off the coast of France, the will in the international community was forming that the long anticipated – and by then already planned – withdrawal of tanker tonnage should also be precipitated. The accident resulted in the revision of the regulation 13G by the IMO in 2001 (Glen & Martin, 2002) already by April (cf. http://www.imo.org/HOME.html, accessed December 2006). 60. Regulation 13H of MARPOL introduced the ban of the carriage of heavy grade oil by single-hull tankers of 5000 dwt and over after its the 5th of April 2005, date of its entry into force. See for more details, http://www.imo.org/Conventions/ contents.asp?doc_id=678andtopic_id=258#revisedoneandtwo. The origins of this ban lay in the reaction to the accident of Prestige in 2002. 61. For the LNG market in the early 1990s, see Drewry Shipping Consultants (1992). For a review of recent developments in the LNG market with vessels even ‘‘ordered on spec’’ (Middleton, 2006, p. 7) see ibid.

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62. Cf. Metaxas (1971). 63. The wave of mergers and acquisitions, already dubbed in 2000 as ‘‘consolidation frenzy’’ (Lloyd’s Shipping Economist, 2000, p. 30) is not allowing anymore an accurate following of entries and exits of lending institutions from this volatile industry (Lloyd’s Shipping Economist, 2006, p. 11). However, this cyclical trend has traditionally been evident at the level of the global industry (Thanopoulou, 1994, p. 190). At the level of Greek-owned shipping the shipping portfolio rose by 20% within 2003 as markets were rising; ﬁgure based on our calculations on the basis of Petroﬁn data published in the summer of 2004 (Lloyd’s List, 2004, p. 52). 64. Cf. Naftika Chronika, issue of 15/01/75, p. 67. 65. For an extensive discussion of the role of ﬂexibility and for examples of ﬂexibility in the development of Greek shipping see the works by Harlaftis and Theotokas (e.g. Theotokas, 1997; Harlaftis, 1996; Harlaftis & Theotokas, 2002; Harlaftis & Theotokas, 2004a; Harlaftis & Theotokas, 2004b). For the traits of Greek business in earlier times and the role of ﬂexibility in deﬁning a distinct style of business development (see Minoglou-Pepelasi, 2006, pp. 486–487). 66. The year 2000 saw the trebling of many typical rates for tankers. For the MEG/ West and the MEG/Japan routes rates in WS points ranged from 43 to 135 and from 48 to 182.5, respectively (data in: Fearnleys Weekly, issue of November 29, 2000). 67. The share of Greek purchases in total is negatively correlated with both freight and ship prices, with the coefﬁcient of correlation calculated to be 0.60 and 0.57, respectively; the short series of data are covering, however, a limited period. 68. In the ﬁrst three months of 2004, the ratio of bulkers sold to bulkers bought by Greek owners was about 2 to 1, the respective ﬁgures being 58 and 28 (Glass, 2004b) while according to the reported ﬁgures of overall transactions for the ﬁrst four and a half months of the year (Glass, 2004a), the calculated ratio seems to remain the same. 69. From 31% in the respective period of 2002. Calculated on the basis of data in Clarkson Research, Shipping Intelligence Weekly. Issues included June 4, 2004 and May 31, 2002. 70. Interestingly only a modest proportion of sales were destined to Greeks as suggested by data in Seatrade May/June 2006, p. 41. 71. The case of Dynacom – third largest Greek shipping company in 2006 (Naftiliaki, Summer 2006, p. 7) – reducing the average age of its tonnage by 17 years from 2000 to 2005 (cf. Lloyd’s List, 2005, p. 11). 72. Companies with a tonnage age between 0 and 9 had risen to 69 in 2006 from 35 in 2001 (Scordilis, 2006). 73. Cf. Glass (2006). 74. According to tonnage data as in Naftiliaki, Summer 2006, p. 18. 75. See on this Thanopoulou and Gardner (2000). The voluntary – to date – Tanker Management Safety Assessment (TMSA) has been the latest twist. Tanker tonnage withdrawal regulations and the ISM focused on design parameters and on procedures/documentation respectively with minimum interference into company strategy; the TMSA includes among the key performance indicators (KPIs) important management parameters as shore-staff retention. It remains to be seen whether the TMSA certiﬁcation process will create a barrier to entry by itself

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through favouring large tanker companies and creating economies of scale or whether crude oil shipping will remain a segment where economies of scale do not apply (Wijnost & Wergeland, 1996, pp. 300–301), and what the repercussions will be for product carriers. For an initial review of the TMSA in relation to Greek shipping companies see Alevizou (2006). 76. The previous decrease, in the 1980s, was registered amidst the worst period of the crisis of the 1970s and the 1980s (Thanopoulou & Theotokas, 2006). 77. The theme of a debate in the context of the Greek Shipping Summit (2006) organised by TradeWinds and Seatrade for November 2006 was ‘‘consolidation is a necessary and desirable goal for the successful future of Greek shipping’’. Source: www.greekshippingsummit.com, accessed June 2006 and October 2006. 78. See Grammenos and Choi (1999). 79. See Naftika Chronika issue of 15/1/75, p. 67. 80. See the analysis by Theotokas in Chapter 3 of this volume. 81. For a concise review of the nature of cyclical ﬂuctuations in shipping, which affect most intensely the bulk shipping markets (where Greek shipping specialises) (see Stopford, 2002).

REFERENCES Alevizou, P. (2006). Commercial returns and quality in tankers: The case of the TMSA (in Greek). Unpublished dissertation. University of the Aegean, Chios. Alizadeh, A., & Nomikos, N. (2002). The dry bulk shipping market. In: C. Grammenos (Ed.), The handbook of maritime economics and business (pp. 227–250). London: Lloyd’s of London Press. Argo. October 1991. Benham, A. (1994). Future of the shipping dialogue in UNCTAD. Maritime Policy and Management, 21, 15–27. Brautaset, C., & Tenold, S. (2006). Waiving the rules that rule the waves: Globalisation and Norwegian shipping policy, 1950–2000. Paper presented at the 10th Annual Conference of the European Business History Association. Bruasdal, O., Isachsen, F., Martinissen, E., Osmundsvaag, A., Stokseth, B., Svendsen, A. E., Tvedt, J., & Ostensjo, P. (1993). Greek shipping. Bergen: SNF/NHH/UiO. Cafruny, A. (1987). Ruling the waves: The political economy of international shipping. Berkeley: University of California Press. Chlomoudis, C. (1996). Cooperation and co-ownership in Greek cargo shipping: The interwar period (in Greek). Athens: National Bank of Greece Cultural Foundation. Clarkson Research Studies. (1996). Shipping review and outlook. Autumn 1996. London: Clarkson. Clarkson Research Studies. (various issues) Shipping Intelligence Weekly. Danish Shipowners’ Association. (2006). Danish shipping: Figures, May 2006. DSA. http://www.danishshipping.com/ Drewry Shipping Consultants. (1992). Trading in LNG and natural gas. London: Drewry. Fearnley and Egers Chartering Co. (1962). World bulk carriers. Oslo: Fearnley and Egers. Fearnleys Weekly. (various issues). Gardner, B. M., Pettit, S. J., & Thanopoulou, H. A. (1996). Shifting challenges for British maritime policy. Marine Policy, 20, 517–524.

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Georgandopoulos, E. (1980). Maritime economics and policy ((in Greek). 2nd ed.). Piraeus: Karaberopoulos-Stamoulis. Glass, D. (2004a). A new willingness to sell. Naftiliaki, 1055, 10. Glass, D. (2004b). Greeks cash. Naftiliaki, 1055, 14. Glass, D. (2006). LNGCs and LPGs begin to take centre stage. In: LNG Journal/Tanker operator. LNG Shipping Review 2006. London: Maritime Content Ltd, pp. 23–25. Glen, D., & Martin, B. (2002). The tanker market: Current structure and economic analysis. In: C. Grammenos (Ed.), The handbook of maritime economics and business (pp. 227–250). London: Lloyd’s of London Press. Grammenos, C. T., & Choi, J. C. (1999). The Greek shipping industry: Regulatory change and evolving organizational forms. International Studies of Management and Organization, 29, 34–52. Greek Shipping Co-operation Committee. (2006). Greek controlled shipping: Statistics March 2006. An information paper. London: GSCC. Greek Shipping Summit. (2006). www.greekshippingsummit.com, accessed October. Harlaftis, G. (1993). Greek shipowners and Greece 1945–1975. London: The Athlone Press. Harlaftis, G. (1996). A history of Greek-owned shipping. London: Routledge. Harlaftis, G., & Laiou, S. (2006). Ottoman State, ﬁnance and maritime trade: The emergence of an Ottoman–Greek ﬂeet, 1780–1820. XIV International Economic History Congress. Helsinki, August 21–25. Harlaftis, G., & Theotokas, J. (2002). Maritime business during the 20th century: Continuity and change. In: C. Grammenos (Ed.), The handbook of economics and business (pp. 9–34). London: Lloyd’s of London Press. Harlaftis, G., & Theotokas, J. (2004a). European family ﬁrms in international business: British and Greek tramp shipping ﬁrms. Business History, 46, 219–255. Harlaftis, G., & Theotokas, J. (2004b). Eupompe. Greek shipping companies 1945–2000: Organization, management, strategies (in Greek). Athens: ELIA. Hellenic Chamber of Shipping. (1996). 60 years Hellenic Chamber of Shipping. Piraeus: Hellenic Chamber of Shipping. Hellenic Chamber of Shipping. (2006). www.nee.gr, accessed November. Hobsbawm, E. J. (1954). The crisis of the 17th century: II. Past and Present, 6, 44–65. Insitute of Shipping and Logistics (ISL). (1999). Ownership patterns of the world merchant fleet. SSMR April 1999. Bremen: ISL. International Maritime Organisation. (2006). www.imo.org, accessed November. Jenssen, J. I. (2003). Innovation, capabilities and competitive advantage in Norwegian shipping. Maritime Policy and Management, 30, 93–106. Jenssen, J. I., & Randoy, T. (2002). Factors that promote innovation in shipping companies. Maritime Policy and Management, 29, 119–133. Johansen, H. C. (1992). Scandinavian shipping in the late eighteenth century in a European perspective. The Economic History Review, 45, 479–493. Kardassis, V. (1993). From sail to steam. Greek merchant shipping 1858–1914. Athens: Cultural and Technological Foundation of the Hellenic Industrial Development Bank. Kroneberg, A. (2000). Innovation in shipping by using scenarios. Unpublished Ph.D. thesis. Norwegian University of Science and Technology, Trondheim. Available at www. diva-portal.org, accessed January 2007. Kyriazis, N. (2006). Seapower and socioeconomic change. Theory and Society, 33, 71–108.

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Lagoudis. I. N., Lekakou M. B., Pallis, A. A., & Thanopoulou, H. A. (2006). Coastal shipping services in the Aegean Sea: Can passengers get satisfaction? 2nd International Conference on EU – East and South Asia Trade, Investment, Logistics and E-Business (in CD-Rom format). Chios, October 9–11. Leontaritis, G. (1996). Greek merchant shipping (1453–1850) (3rd edition). Athens: Mnimon. Lieberman, M. B., & Montgomery, D. V. (1987). First mover advantages. Research Paper No. 969. Stanford Business School, Mimeo. Lloyd’s List. (2004). Greece: A Posidonia supplement. London: Lloyd’s List/Informa. Lloyd’s List. (2005). Greek shipping awards 2005: The winners (Supplement writer N. Lowry). London: Lloyd’s List/Informa. Lloyd’s Register of Shipping. (LRS). Statistical tables. Annual. Various dates. London: LRS. Lloyd’s Register of Shipping. (various dates). World Fleet Statistics. Annual. London: LRS. Lloyd’s Shipping Economist. (2000). A maritime nation without any sea. Lloyd’s Shipping Economist, 22(February), 28–31. Lloyd’s Shipping Economist. (2006). Growing rich. Lloyd’s Shipping Economist, 28(June), 11–12. Metaxas, B. N. (1971). The economics of tramp shipping. London: The Athlone Press. Middleton, I. (2006). New frontiers. Seatrade, May/June 7–11. Ministry of Mercantile Marine. (2002). Greek shipping. Piraeus: MMM. Minoglou-Pepelasi, I. (2006). Entrepreneurship. In: C. Kostis & S. Petmezas (Eds), The Development of the Greek Economy in the 19th Century (1830–1914) (in Greek) (pp. 463, 496). Athens: Alpha Bank. Mitropoulos, E. (1980). Categories and modern types of merchant ships ((in Greek). 2nd ed.). Pireaus: Stavridakis. Mitsui OSK Lines Ltd. (2006). Market information, May 2006, available at www.mol.co.jp/ir-e/ zaimu/pdf/data0605-2e.pdf, accessed December. Naftika Chronika. (various issues). Naftiliaki. (various issues). Nkavoyannis, V. (1997). Looking after our assets. Naftiliaki, 1034, 19. Norway. (2006). The Official Site in the US. www.norway.org/facts/people/population/ population.htm, accessed November. OCDE. (1982). Les transports maritimes 1981. Paris: OCDE. OCDE. (1985). Les transports maritimes 1984. Paris: OCDE. OCDE. (1990). Les transports maritimes 1989. Paris: OCDE. OECD. (1963). Maritime transport 1962. Paris: OECD. OECD. (1974). Review of maritime transport 1973. Paris: OECD. OECE. (1954). Les transports maritimes. Paris: OECE. Parry, J. H. (1967). Transport and trade routes. In: E. E. Rich & C. H. Wilson (Eds), The Cambridge economic history of Europe. Vol IV. The economy of expanding Europe in the 16th and 17th centuries. Cambridge: Cambridge University Press. Porter, M. (1985). Competitive advantage. New York: The Free Press, Macmillan. Scordilis, G. (2006). Posidonia 2006: The international rendez-vous of shipping in Athens. To Vima, June 4. Seatrade. (2006). Various issues. Sletmo, G. (1989). Shipping’s fourth wave: Ship management and Vernon’s trade cycles. Maritime Policy and Management, 16, 293–303.

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Stephanidis, A., & Mourdoukoutas, P. (2006). Entrepreneurial networks in highly globalized industries: The case of the Greek shipping industry. Available at www.univie.ac.at, accessed November. Stopford, M. (1988). Maritime ecomonics. London: Routledge. Stopford, M. (1997). Maritime ecomonics (2nd ed.). London: Routledge. Stopford, M. (2002). Shipping market cycles. In: C. Grammenos (Ed.), The handbook of economics and business (pp. 203–224). London: Lloyd’s of London Press. Sturmey, S. (1962). British shipping and world competition. London: The Athlone Press. Tamvakis, M. N. (1995). An investigation into the existence of a two-tier spot freight market. Maritime Policy and Management, 22, 81–90. Tamvakis, M. N., & Thanopoulou, H. A. (2000). Does quality pay? The case of the dry bulk market. Transportation Research Part E: Logistics and Transportation Review, 36, 297–307. Tenold, S. (2000). Changes in the distribution of the world ﬂeet 1970–1987. Report 68/00. NHH, Bergen. Tenold, S. (2005). Crisis? What crisis? The expansion of Norwegian shipping in the interwar period. Discussion paper 20/05. NHH, Bergen. Tenold, S. (2006). Norway’s interwar tanker expansion: A reappraisal. Discussion Paper 36/06. NHH, Bergen. Thanopoulou, H. (1984). La Marine marchande grecque dans la marine marchande mondiale: Les enjeux recents. Unpublished D.E.A. thesis. Universite Paris 1, Pantheon-Sorbonne, Paris. Thanopoulou, H. (1994). Greek and international shipping. Athens: Papazissis, [in Greek]. Thanopoulou, H. A. (1995). Changes in the international division of labour in shipping and maritime crises. Maritime Policy and Management, 22, 51–62. Thanopoulou, H. A. (1996). Anticyclical investment strategies in shipping: The Greek case. In: D. Hensher, J. King, & T. Oum (Eds), Proceedings of 7th world conference on transport research, 4. Oxford, Elsevier (pp. 209–220). Thanopoulou, H. A. (1998). What price the ﬂag? The terms of competitiveness in shipping. Marine Policy, 22, 359–374. Thanopoulou, H. (2002). Investing in ships: An essay on constraints, risk and attitudes. In: C. Grammenos (Ed.), The handbook of economics and business (pp. 623–641). London: Lloyd’s of London Press. Thanopoulou, H. (2007). ‘‘Sic transit y’’? Dwelling on the competitiveness of Greek shipping. In: M. Angelidis (Ed.), Social theory and political responsibility (in Greek). Athens: Typothyto-Giorgos Dardanos. (Forthcoming). Thanopoulou, H., & Gardner, B. (2000). Beyond age: Deﬁning quality tonnage in bulk shipping. Paper presented at SIG-2, International Workshop, Genoa, June 8–10. Thanopoulou, H. A., & Theotokas, J. (1997). Pools in a Greek bulk shipping perspective: Asset play vs. synergy benefits. Occasional Paper no. 46. Cardiff University, Cardiff [mimeo]. Thanopoulou, H. A., & Theotokas, J. (2006). Small ﬁrms in a global industry: The case of Greek shipping (1974–2004). IMOP-EAEPE Joint Colloquium: The variety of Economic Institutions under the many forms of capitalism. Athens, May 12–13. Thanopoulou, H. A., Ryoo, D. K., & Lee, T. W. (1999). Korean liner shipping in the era of global alliances. Maritime Policy and Management, 26, 209–229. Theotokas, I. (1997). Organizational and managerial patterns of Greek-owned shipping companies, 1969–1990 (in Greek). Unpublished doctoral thesis. University of Piraeus, Piraeus.

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Tsoukalas, C. (1975). Dependence and reproduction: The social role of the educational mechanisms in Greece (1830–1922). Athens: Themelio. Tzamtzis, A. I. (1984). The Liberties and the Greeks (in Greek). Athens: Vivliopoleio tis Estias. UNCTAD. Review of maritime transport. Annual, various issues. United Nations. Statistical Yearbook. Various dates. Wijnost, N., & Wergeland, T. (1996). Shipping. Delft: Delft University Press. Williamson, J. G. (1998). Late 19th century globalization backlash. Paper delivered to the ASSA Meetings. New York City, January 3–5.

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CHAPTER 3 ON TOP OF WORLD SHIPPING: GREEK SHIPPING COMPANIES’ ORGANIZATION AND MANAGEMENT Ioannis Theotokas ABSTRACT The international shipping industry, and especially the bulk sector, has experienced the effects of numerous changes during the last three decades. It is not an exaggeration to state that one of the very few things that remained stable all these years is the leading position of Greek-owned fleet. Greeks own almost 17% of the world tonnage and rank at the top of the world maritime hierarchy. This chapter aims at examining the factors that have contributed to this success focusing on the internal environment of the companies by analyzing their resources and capabilities as well as their structural characteristics which created the conditions for their internal integration and the creation of a sustainable competitive advantage.

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3.1. INTRODUCTION During the last 30 years, the division of labour and the business environment of the world shipping industry have changed. Long lasting crises in the freight markets along with changes in the competitive and institutional environment of the shipping industry challenged the prospects of ﬂeets and enterprises; while new maritime nations emerged as dominant players in world shipping, the share of traditional nations in the world tonnage decreased (Thanopoulou, 1995). The competition in all markets has since become more intense and factors that used to be of limited importance became critical for the success of the shipping companies. Safety and quality of services as well as the care for the protection of the environment have turned into minimum standards of operation in the shipping industry. The ISM Code, ISO 9000:2000, ISO 14001, ISPC, TMSA, along with several other codes, regulations and standards have led the shipping industry into the era of standardization. Shipping companies that wished to remain competitive were forced to adapt to these changes. A leading Greek shipowner I. Angelicoussis1 described the changes in the shipping business environment and their effects on the structure and management of companies as follows (Angelicoussis, 2002, p. 36): In order to be competitive, bigger ofﬁces, more complex administration and degrees of transparency, as never before seen, are needed. In fact, many new requirements were not in existence even a decade ago. My father passed away 13 years ago, and I often wonder what would be his reaction if he could see my ofﬁce today. He would probably be shocked at the sheer number of people per vessel now needed, as well as considering it an imprudent waste; I would also imagine the he couldn’t even recognize some of their positions!

In this turbulent environment, Greek shipping remained at the top of the world ﬂeet over the last 30 years, increasing its share almost without interruption. In 1975, Greeks controlled 14.1% of the world tonnage, while in 2006 their respective share was 16.5%. Greek shipping companies’ dominance in world shipping – and more particularly in bulk shipping – seems to be a paradox. Companies, coming from a nation with a very limited share in world seaborne trade, without signiﬁcant home demand for shipping services or supporting industries, with capital requirements exceeding by far the possibilities of the domestic capital markets, succeeded to gain an impressive competitive advantage in an international industry.2 More importantly, they continued to do so while the context in which they operate was in a state of constant change. The literature on Greek shipping contains various studies

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Greek-Owned Shipping Companies’ Resources and Structural Characteristics.

that examine and interpret its success from a historical, macro and micro perspective (Harlaftis, 1993, 1996; Thanopoulou, 1994; Theotokas, 1997; Theotokas-Harlaftis, 2004). This chapter adopts a more focused approach examining the resources and the structural characteristics of the companies and contending that their success is related to their ability to be ﬂexible and adaptive, while at the same time maintaining their structural characteristics unchanged. Adopting a resource-based view; the analysis identiﬁes ﬁrst the available resources of the Greek-owned shipping companies, which constituted the basis for the creation and development of the latter. The analysis focuses next on the structural characteristic of the companies, which being identical for the vast majority of the companies turn them into a coherent group that bases its operations on similar patterns. These shared characteristics led to the internal integration of the group, as shown in Fig. 3.1.

3.2. ENTREPRENEURSHIP AND THE RESOURCE BASE OF THE GREEK-OWNED SHIPPING The absence of conditions that could explain the success of Greekowned shipping in the international freight markets, such as favourable demand conditions or strong related and supporting industries brings

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into the fore the role of factor conditions, and especially of the human resources and of knowledge resources. In this section, the resource base of the Greek-owned companies will be analyzed from the perspective of the resource-based view (Barney, 2001) of the ﬁrm. Moreover, including entrepreneurship among the strategic assets of the ﬁrm and the ability to coordinate resources along with the entrepreneurial knowledge as resources as well (Alvarez & Busenitz, 2001), the analysis focuses on the role of maritime entrepreneurship.

3.2.1. Maritime Entrepreneurship Entrepreneurship is one of the factors that can deﬁne the development of shipping companies and nations (Svendsen, 1981; Metaxas, 1988; Evangelista & Morvillo, 1998). Metaxas (1988) emphasizes the role of entrepreneurship for the development of Greek-owned shipping. Back in 1981 Svendsen (1981, p. 139) was wondering: if there is a tradition in some shipping countries of a continual emergence of shipping entrepreneurs and if so, what is the reason for this?

A quarter of century later, the impressive development of Greek-owned shipping during the last decades triggers the same question demanding an elaborate answer ad hoc. The vast majority of the Greek shipowners, especially those that entered shipowning after a successful career as ship ofﬁcers, created their business assuming risk. In most of the cases, they were imitators/followers, i.e. they implemented strategies of their predecessors that had proved successful. The ﬁrms they initially created fall to what Carland, Hoy, Boulton, and Carland (1984) deﬁne as small business ventures. As a rule, in the start-up phase, Greek shipowners created, owned and operated a single ship business for furthering their personal goals; the ﬁrm was deﬁnitely not dominant in its ﬁeld and certainly not innovative. It has to be noted that the skills required for running a company are not the same to those required being an entrepreneur; managerial skills are needed for the former and skills for innovation for the latter (Corman-Lussier, 1996). Entrepreneurs seek change viewing it as an opportunity (Drucker, 1985). It is contended (Keasy & Watson, 1993, p. 100) that: apart from the initial setting up of the ﬁrm, relatively few small ﬁrm owners appear to be entrepreneurial and innovative to any great degree

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It is also contended that small business owners exhibit characteristics that compare more with those of managers than those of entrepreneurs (Stewart, Watson, Carland, & Carland, 1999). Would adopting such a perspective imply that Greek shipowners, especially those that create and manage small ﬁrms should not be considered as entrepreneurs? If adapting the viewpoints of Cantillon and Schumpeter, we consider the entrepreneur as the person who assumes risks and innovates, then a small business owner does not automatically translate into an entrepreneur. This is because small business owners are less risk oriented and do not always set innovation as their strategic target (Stewart et al., 1999). From such a perspective, Greek shipowners can be characterized as entrepreneurs only if they are found to have promoted innovative practices. Indeed, there are shipowners that innovated either by introducing or adopting new ship types, like G. P. Livanos who introduced the mini bulk carrier during 1960s, A. Onasis who built the ﬁrst supertanker (Beth, Hader, & Kappel, 1984) and Lykiardopoulos who built the ﬁrst double-hull VLCC in 1990 (100A1, 1992). There are also those who exploited their resources and capabilities to expand to new markets, like V. Constantacopoulos who became the biggest independent shipowner of containerships chartered to liner companies (Fafaliou & Theotokas, 2006). However, drawing a deﬁnitive conclusion with regard to the innovativeness of Greek shipowners would demand sets of empirical data which are presently lacking.3 In general, Greek shipowners have assumed risks without necessarily innovating, at least up to the moment that the ﬁrms they had created transited from their ﬁrst stage of existence, this of their establishment, to the third one (success) or even to such a late stage of their development as the fourth (take-off).4 This is because the exploitation of innovations requires resources that are beyond those available to small ﬁrms (Keasy & Watson, 1993). It is not a coincidence that the cases mentioned in the text above refer to shipowners whose companies have ﬁnally passed to the stage of success or to that of take-off. In this analysis, adopting the view that relates entrepreneurship to the capacity for taking judgmental decisions (Casson, 1990), we consider the entrepreneur as the person who takes such decisions.5 Under this approach, the entrepreneur – who makes his own start-up by creating and organizing a ﬁrm and assumes risks for furthering personal goals – and the small business owner can very well coincide in the same person. Thus, Greek shipowners that made their own start-up by creating their small business are considered entrepreneurs as well. This applies mainly to those that entered shipowning without having any entrepreneurial activity before, i.e. the large group of people who had been previously employed in the shipping industry as

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employees. In view of their large number, it could be argued that entrepreneurship in Greek-owned shipping is a strategic asset that came out of the human resources employed in the industry. Those ship ofﬁcers or shipping company employees who built on their ability to coordinate resources, on their entrepreneurial knowledge and on their judgmental decisions to create their own business venture were the driving force behind the impressive development of the Greek-owned ﬂeet. Existing research has found that out of a sample of 79 ﬁrst generation shipowners 39% of them had served as ship ofﬁcers while 28% of them had been employed in shipping companies before creating their own start-up. The rest included merchants (6%), industrialists (8%) supplemented by the group of ‘‘all others’’ (19%) including civil engineers, lawyers, doctors etc. that entered shipowning after the 1960s (Theotokas & Harlaftis, 2004). The case of Greek shipowners offers a paradigm of maritime entrepreneurship that is unique in shipping industry, at least in the last four decades during which a great number of new Greek shipowners entered the global shipping markets, succeeding in the majority of cases in creating a sustainable competitive advantage.6 Their success is even more remarkable taking into account that they came from a country without any other similar record of any of its other sectors in the international economy.

3.2.2. Human Capital and Knowledge Resources The resource-based view of the ﬁrm focuses on ﬁrm resources and capabilities that can be sources of competitive advantage. Sustained competitive advantage derives from resources that are valuable, rare, inimitable and which the ﬁrm can effectively exploit (Barney, 2001). Resources can be classiﬁed into three basic types, namely the physical capital resources (plants, equipment, ﬁnance), the organizational capital resources (organizational structure, controlling, human resources’ systems) and the human capital resources (skills, judgment and intelligence of employees) (Barney, 1991). Human resources or human capital can be valuable, rare and inimitable, thus they constitute the basis for the creation of sustainable competitive advantage and can eventually be the most important resource of ﬁrms (Barney & Wright, 1998). Human capital refers to the physical, knowledge, social and reputational resources that individuals contribute to the ﬁrm (DeNisi, Hitt, & Jackson, 2003). The importance of knowledge as an intangible resource was pushed forward by the knowledge-based view of the ﬁrm which emphasizes the creation of competitive advantage from resources based on knowledge,

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i.e. on the intellectual abilities of the employees, the knowledge they possess and their capacity to learn. The knowledge view relates the type of knowledge to its transferability. Explicit knowledge is capable of articulation while tacit knowledge is manifested only in its application and is not amenable to transfer (Grant, 1997, p. 451). Tacit knowledge provides the basis for inimitable competitive advantage (Lubit, 2001). Based on that, the analysis of human resources of Greek-owned shipping, both shipowners and employees, will be focused on the knowledge resources they possess. The majority of Greek shipowners have a very deep knowledge of ships and ship operations considered generally as experts in the technical management of ships; this tacit knowledge was obtained during their careers as ship ofﬁcers or shipping companies’ employees. This was especially the case of the vast majority of ﬁrst generation shipowners that entered shipping after 1960s. For all these people, shipowning was the only entrepreneurial choice that would allow them to build on their experience. Their tacit knowledge of operating and managing ships constituted the basis for the development of distinct capabilities in their companies, which in turn allowed the proﬁtable operation of ships. This was a critical success factor for companies that managed over-aged ships of high operational cost, a main reason usually for their sale by their previous owners. This speciﬁc knowledge–asset differentiates them from the other newcomers in the industry, like the merchants, the industrialists, civil engineers and all others that entered shipowning by investing their capital in buying ships. With regard to the last group, this of ‘‘all others’’, it has been found that those that invested were many more than those who succeeded. For those that did not succeed, the absence of shipping expertise became evident soon after the ﬁrst downfall of freight rates they had to face. They failed to overcome the consequences of the crises in the charter markets and either went bankrupt or withdrew from the shipping industry. On the contrary, those who possessed tacit knowledge through serving previously as employees were able to organize and manage their ﬂeets more efﬁciently. Because of their distinct capability in the technical management of ships they were able to control operation costs, which proved to make the difference in periods of recession. Being able to overcome the crisis they were able to apply strategies like the asset play,7 which provided them with capital to expand their businesses (Theotokas, 1997). This critical tacit knowledge has been transferred to their successors in the business traditionally off-springs or close relatives (Harlaftis, 1996; Theotokas, 1998). Although the methods that the older generations of shipowners used for the professional education of their descendants

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(Harlaftis, 1996) apply today to a lesser extent (Theotokas & Harlaftis, 2004), they are still an important tool for preserving the Greek competitive advantage in shipping. Descendants of the shipowners – in parallel with or after their studies in economics, management, or marine engineering, etc. – continue to be employed in the family company and often even go to sea onboard family ships in order to obtain ﬁrst-hand knowledge of ship operations and learn the codes to communicate with the seafaring personnel.8 This practice serves as the means for renewing the knowledge basis of the ﬁrm as the prospective leaders of the ﬁrm are able to combine their academic knowledge with the tacit one they acquire through their services as trainees. Thus, they are able to succeed their parents in the family company or to assume risks themselves creating their own shipping venture. The human resources of the companies, either at the ofﬁce or onboard the ships were and continue to be an additional source of the competitive advantage of the typical Greek-owned shipping company. This is achieved through the speciﬁc skills, knowledge, experience and commitment of the ﬁrm’s human resource. To start from the seafaring personnel, if one wishes to understand its contribution to the competitiveness of the companies, one should take into account the composition and the average age of the ﬂeet that Greek companies managed during the post-war period.9 While longestablished companies manage ﬂeets that in most of the cases are of a low age, the majority of start-ups managed old tonnage (Theotokas & Harlaftis, 2004). For companies which operated ﬂeets of increased average age a crucial factor for their ability to return proﬁts was the employment of qualiﬁed seafarers onboard their ships. Greek seafarers with their skills, their knowledge, their willingness to take initiative for solving unexpected problems on the ships they served, contributed to their efﬁcient operation. Their existence was one of the factors that sustained maritime entrepreneurship on the basis of market entry through investing in the acquisition of a low-priced but over-aged ship. Shipowner S. Palios (2000, p. 44) acknowledges this as follows: To speak for myself, for example, if I was asked when I made my start up thirty years ago whether I would be willing to go into the adventure of a newbuilding I would certainly say no. This is because in those years we had a competent human resource which allowed everyone who could buy a second-hand ship to operate it efﬁciently and to resell it realising capital gains. We should forget following such a pattern today10

Even nowadays, when the average age of the Greek-owned ﬂeet has decreased substantially, the contribution of Greek seafarers to the efﬁcient operation of ships remains valuable (Theotokas, Lekakou, Pallis, Siriopoulos, & Tsamourgelis, 2006). This explains the fact that the majority of

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Greek-owned shipping companies continue to employ Greek ofﬁcers even on those of their ships registered under ﬂags of convenience, even though Greek crews are more expensive compared to their colleagues from low-cost countries (Theotokas & Progoulaki, 2004). Turning to the ofﬁce staff ashore, it should be taken into account that even today, a great percentage of shipping company employees ashore are exofﬁcers which have transited to land posts after a successful career at sea. Whether coming from the ships of the employing company or not, ex-seafarers constituted, at least until the 1990s, the main group of ofﬁce employees in the Greek-owned shipping companies. This is related to the fact that the majority of the shipowners themselves were ex-ofﬁcers preserving the seafaring culture and idiosyncrasy, which made them to trust employees who shared the same culture and values. The large participation of this group of employees in the shipping company staff enriched and constantly renewed the knowledge basis of shipping ﬁrms, strengthening their distinct capability in the technical management of ships (Theotokas, 1997). During the current decade shipping companies have started to replace ex-ofﬁcers with university educated employees. This acquired more signiﬁcant proportions in companies that are managed by shipowners of the younger generation. They are trying to expand the knowledge basis of their companies by hiring university educated employees, although still ﬁlling ship management related posts with ex-ofﬁcers. However, it should be noted that in smalland medium-sized companies the replacement process is still very slow. Even though the percentage of ex-ofﬁcers employed in shipping ofﬁces ashore has reduced in recent years, they are still a core group among staff related to the main tasks of technical and operational management of ships, allowing the continuation of a pattern of knowledge transfer related to the technical management of ships to ofﬁces ashore. The continuing decrease of the minimum number of Greek seafarers employed on Greek ships, however, will inevitably lead to the decrease of the Greek seafarers threatening this type of transfer and could be considered as a future threat for the preservation of Greek excellence in the area of the technical management of ships.11

3.3. ORGANIZATIONAL PATTERNS AND MANAGEMENT STYLE The Greek merchant ﬂeet is managed by a large number of family-run and controlled ﬁrms. The archetype of Greek-owned shipping company is a small- or medium-sized ﬁrm, which has been established by a shipping

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entrepreneur who is the strategic leader of the ﬁrm (Harlaftis, 1996; Theotokas, 1998). In addition, he/she operates a family business with family members working in crucial posts of the managerial hierarchy. This archetype proved to be a successful and lasting one in the context of international bulk shipping surviving even today amidst increasing trends towards consolidation. In this section the analysis focuses on the structural characteristics of Greek shipping companies which are considered as the crucial factors which allowed their internal integration. Although ﬁrmspeciﬁc factors are the most signiﬁcant for interpreting the development of Greek-owned shipping, there are also country-speciﬁc factors that are important; however, the discussion of these factors remains outside the scope of the present analysis.12

3.3.1. Structure and Size of Greek Shipping Companies Greek-owned shipping companies are deﬁned as the companies that manage ships controlled by Greek shipowners. Traditionally, the ships are owned by shipowning companies established in some country that provides corporate and tax freedom. Each ship belongs to a separate shipowning company, which assigns the management of the ship to a management company also established in turn in a country providing institutional and tax freedom. The shipowning company acts as the principal and the management company as the agent. In most of the cases however, both companies are related to the same person(s) or family. The management company establishes an agent in Piraeus, London or/ and in another maritime centre, which undertakes the operation of ships. Using as criteria for the categorization of the shipping companies the nature and the degree of their integration we can divide them into four groups, namely the subsidiaries of large industrial corporations, the companies integrated with shipbuilding, shipbrokering, forwarding and travel agencies, the pure transporting companies exclusively concerned with shipping and the companies diversiﬁed into non-maritime sectors (Svendsen, 1978). The majority of Greek-owned shipping companies fall into the third category being purely transport companies dedicated to shipping. Even in cases when shipowners invest in non-shipping activities, the shipping company as a rule absorbs the vast percentage of their time preserving their character as shipping entrepreneurs who only seek supplementary proﬁts from other industries. A number of shipowners of established large shipping companies have implemented strategies of vertical integration or differentiation in non-shipping activities.

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A basic trait of the Greek-owned ﬂeet is that it consists of a large number of companies. The dynamism of Greek-owned shipping itself stems from the maritime entrepreneurship and the ability of Greeks to renew and expand the number of shipping companies. Greek-owned ships are controlled by companies of every size, from small single ship companies to large-sized companies with diversiﬁed ﬂeets. There are companies belonging to shipowning families with a long lasting tradition. Being established companies, they based their development mainly on newbuildings and continue to do so although not as aggressively as in the past.13 However, if one wishes to look for the group that marked the development of the Greekowned shipping during the last decades, companies of small size created by shipowners that entered business after the 1960s stand out (Theotokas & Harlaftis, 2004). This is so not only because they constitute the vast majority of Greek-owned companies (Table 3.1), but also because they have been the breeding-ground for the most dynamic and fast growing companies of today. Even in the current context of intense competition, regulatory changes and more stringent conditions in the capital markets favouring consolidation (Grammenos & Choi, 1999), the vast majority of Greekowned shipping companies continue to be of small size. Despite the decrease of their share by 8.1% during the last 35 years, companies that operate ﬂeets of up to four ships constituted 64.5% of the total number of Greek-owned shipping companies in the middle of the present decade. Table 3.1.

The Size of Greek-Owned Shipping Companies (1969–2005).

Year Small (1–4 Ships) Medium (5–15 Ships) Large (16+Ships)

1969 1975 1981 1985 1990 2000 2005

Number

%

Number

%

Number

%

268 488 522 346 361 565 445

72.6 76.1 73.5 67 65.9 67.6 64.5

78 107 124 113 131 225 183

21.1 16.7 17.5 21.9 23.9 27 26.5

23 46 64 57 56 45 62

6.3 7.2 9 11.1 10.2 5.4 9

Total Greek-Owned Number Fleet (.000 grt) 369 641 710 516 548 835 690

26.932 48.928 54.317 46.908 49.233 90.277 109.377

Source: Shipping company data for years 1969, 1975, 1981, 1985 and 1990 in Theotokas (1997). For 2000, Petropoulos (2000) and for 2005, Naftemporiki (2005). Greek-owned ﬂeet for years 1969, 1975, 1981, 1985 and 1990, Naftika Chronika, various issues and for 2000 and 2005, Lloyds Register-Fairplay in Naftiliaki (2006). Note: For 1975 and 1990 categorization is based on the registered tonnage of the companies while for the years 2000 and 2005 on the number of ships managed.

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3.3.2. A Family Business Family ﬁrms are not a homogenous category of ﬁrms. The literature related to family business studies offers various deﬁnitions of family ﬁrms based on different criteria.14 For the scope of the present analysis family businesses are deﬁned (Zahra, Hayton, & Salvato, 2004, p. 369) as those ﬁrms that report some identiﬁable share of ownership by at least one family member and having multiple generations in leadership positions within that ﬁrm.

According to this deﬁnition, family members are engaged in ownership, control and everyday running of the ﬁrm. The majority of the Greek-owned shipping companies are family owned and controlled. The company is usually founded by a family member as a single-ship company and follows all the way up to succeed in becoming an established operator, regardless of the size of its ﬂeet. The ﬁrst ship is always a second-hand ship whose acquisition ties family deposits supplemented largely by a bank loan.15 Success does not necessarily result in signiﬁcant ﬂeet expansion and size growth. There are established companies that have successfully surpassed long-lasting crises in the freight markets while remaining of small size, this being a planned strategic choice of their leaders also related to their founders’ wish to always retain the control of the company within the family (Theotokas, 1997). The family character of companies is shared by both small- and mediumsized companies that base their management on their founder, and by large and diversiﬁed companies. In both cases, ownership and management coincide with members of the owning family occupying positions of the managerial hierarchy and the owner and strategic leader of the company controls almost every aspect of company operations. Greek-owned shipping companies are prime examples of dynamic and proﬁtable family ﬁrms. They ﬁt the examples that Colli (2003) describes which include companies that successfully mix traditional characteristics of proprietary capitalism with contemporary features like internationalization and technology utilization. The prevalence of family business of mostly small and medium size with the founder to remaining at the very core of the business classiﬁes Greekowned shipping within personal capitalism according to Chandler’s (1990) framework.16 Certainly, the analysis of the industry’s competitive environment (Porter, 1980) reveals that there is a gradual change of conditions. The bargaining power of buyers and the rivalry among existing ﬁrms tends to increase, not only in the specialized markets, like, e.g. chemical tankers, but also in the dry bulk freight market, where consolidation in both the demand

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and the supply side is growing. In this environment, a factor such as the size of the companies which was not crucial for the companies’ ability to compete until now is becoming important, especially with regard to the cost/ quality performance relation. These trends seem to affect Greek-owned shipping, as it is evident from the decrease of the number of small shipping companies (see Table 3.1) during the last years, but also from the increase of the ﬂeet size of Greek-owned shipping companies.17 This is not to say that family ﬁrms of small and medium size will be compelled to grow or otherwise die. Even today in a business environment which seems to be unfriendly for Greek-owned family ﬁrms, especially those of small size, these can still build on their structural characteristics to remain competitive.18 The current trends in the shipping environment mentioned above do not seem to have provoked substantial changes in the governance structure of Greek-owned shipping companies and may not necessarily induce such changes in the short to medium-term. The adoption of various types of corporate structures might change aspects related to the need for transparency; however, it will not necessarily lead to the separation of ownership from company control or to the transformation of the companies to managerial enterprises.19 This is owed to numerous endogenous factors analyzed previously as well as to several structural factors of the bulk shipping industry, the most prevalent being the easiness of drawing ﬁnance from specialized shipping banks and the reduced needs of companies for personnel in managerial positions (Syriopoulos & Theotokas, 2005). The existence of the shipping ﬁnance sector dominated by specialized shipping banks that make deals based on trust and reputation of their clients means that even small ﬁrm owners are able to draw ﬁnance for their companies’ expansion. Thus, shipowners are not motivated to change the family character of their companies adopting a managerial structure to gain access to other source of ﬁnance, as for example the stock exchange. This is not to say that familines20 deprive them of the ﬂexibility to take advantage of the opportunities offered in capital markets for the development of their companies. Indeed, during the last 5 years 15 Greek-owned shipping companies became publicly listed in the New York and London Stock Exchanges drawing capital for their expansion. However, even these companies remain family controlled. In all but one of these companies, ownership stakes are concentrated and the major holders are directly represented in both the board that monitors managers and in the management itself.21 The only exception was Stelmar Shipping where owners exercised indirect control on management by electing representatives to the monitoring board. One should note that

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Stelmar became a takeover target and after consecutive bids it was ﬁnally taken over by OSG (Syriopoulos & Theotokas, 2005). With regard to the needs of the companies for managerial personnel, it should be noted that a company operating a ﬂeet of 10 ships can be effectively managed by 25–35 employees. In structures of this size, members of the founder’s family can staff all the crucial managerial positions, retaining the control in the hands of the family.22 In this case however, issues related with the qualiﬁcation of the engaged family members should always be appropriately addressed. Family ﬁrms have performance advantages over non-family ﬁrms.23 These advantages should be examined with reference to company strategy, resources and skills, as well as to the market and the competitive context that each ﬁrm participates in (Habbershon & Williams, 1999). In this context, the advantages that the family structure offered to the Greekowned shipping companies should be examined by taking into account the structure and the characteristics of the bulk shipping markets. The highly competitive and volatile bulk shipping markets make ﬂexibility and the ability for instant decision-making critical success factors. In family ﬁrms’ decision-making is centralized allowing efﬁcient and effective decisions. Various studies conﬁrm that this is the main advantage of the familycontrolled Greek-owned shipping ﬁrms, either at strategic level through asset-play and the chartering strategies or at operational level (Theotokas, 1998; Theotokas-Harlaftis, 2004). The family structure of the companies is not without disadvantages (Kets de Vries, 1993) stemming from a paternalistic ruling style, eventual succession dramas, the lack of a clear-cut organization, etc. Indeed, phenomena such as these have appeared in many Greek-owned shipping companies. However, when assessing their impact in the light of the bulk shipping markets structure and characteristics, one could realize that they might have hindered the development of many companies but they affected positively the development of the ﬂeet. This for example seems to be the case for succession dramas, related to the phenomenon of fragmentation an underlying factor in the increase of the company numbers and the renewal of the Greek shipowning class (Theotokas, 1998; Thanopoulou & Theotokas, 2006).

3.3.3. Entrepreneurial Philosophy and Business Culture The vast majority of Greek shipowners are shipping entrepreneurs who seek to excel in their professional arena and who do not perceive shipping simply as a source of income (Theotokas, 1998). Even shipowners that invest in

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non-shipping activities remain active in the management of their shipping company. Among the Greek shipowning families there are examples of some with a huge diversiﬁed portfolio of investments, which continue to remain in the shipowning business managing ﬂeets of a small number of ships just because this is the family business and tradition. The will of some Greek shipowners to retain control of strategic and operational decisions has led them to withdraw from shipping and to invest in the non-shipping activities of their descendants to avoid having to entrust professional managers for the running of their companies (Theotokas, 1997). It should be noted that the transition from the old to the younger generation has led to a gradual change of this entrepreneurial philosophy but towards a variety of directions. There are shipowners of second, third or fourth generation of the family who adopt a more ‘‘modern’’ philosophy that makes them more ﬂexible with regard to the control of their companies and their management style.24 This, however, does not necessarily mean that they will move towards the separation of ownership and control in their business or that they will use professional managers25 even when they retire.26 The entrepreneurial philosophy and the familiness of the company continue to lead to the succession of the founder by the younger generation of the family. At the same time, there are a number of shipowners of the younger generation that consider shipping as only one part of a diversiﬁed portfolio and who approach their involvement from the investors’ point of view. While they might still create their own company and develop their own ﬂeet they might also simply invest in other shipping companies being ready in both cases to liquidate their assets at any time they consider the return to be of the desired level. Given that the key to business success is the long-run decisions of the entrepreneurs regarding the structure and culture of the ﬁrms (Casson, 1997), the entrepreneurial philosophy determining both structure and culture of the ﬁrms has been undoubtedly an important factor for the development of Greek-owned shipping companies. The entrepreneurial philosophy, which stems from the professional origin of shipowners – as ex-seafarers or shipping company employees – shapes a distinct business culture whose core values are hard work, trust, persistence and loyalty. These values formed the basis of their companies’ culture (Theotokas, 1997) and inﬂuenced their management style. With regard to the former, the dominant culture of the Greek shipping companies was the power culture included in the Harrison (1972) and Handy (1993) typology. In the power culture, the structure of the organization is depicted as a web. It depends on a central power source, with rays of power and inﬂuence spreading from the centre and with the founder/strategic leader of the ﬁrm usually holding the position in the very centre of the web. Firms

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based on this culture have the ability to move quickly and to react well to threat or danger. Power culture appears to ﬁt properly the ever-changing business environment of the bulk shipping industry. Entrepreneurial philosophy and its core values lead to a centralized management style27 that is characterized by the ﬂexibility, the timely decision-making and the fast adaptation to the opportunities or challenges. For example the decision to purchase/build or sell a shipbuilding contract, a ship or even an entire ﬂeet might be taken instantly. This ﬂexibility and timing ability is one of the factors that allowed Greeks to adapt to the changing environment of the last decade and to develop further their ﬂeets, updating their operation with certiﬁed systems for managing the quality and the environment. The entrepreneurial philosophy of Greek shipowners is one of the factors that explain the application of traditional models of conducting shipping business. It leads them to retain the absolute control of the business at strategic and operational level and to refuse outsourcing what they consider as their core competency and source of their competitive advantage, i.e. the technical management of ships.28 This is the main reason for the low penetration of third-party ship management sector in Greek-owned shipping. Even in cases that Greeks contracted an independent shipmanagement company, the main task they assigned was related to the crew management29 (Papadimitriou et al., 2005). Indeed, while only a small percentage of Greekowned shipping companies had used ship management companies, crewing was one service all of them had outsourced (Mitroussi, 2004).

3.3.4. Company Fragmentation The existence of a large number of companies has already been mentioned as one of the main characteristics of the Greek-owned ﬂeet. This can be attributed to the continuous entry of non-traditional shipowners, mainly ship ofﬁcers and shipping company employees in the industry. Apart from this however, company fragmentation is an additional factor that explains this phenomenon (Theotokas, 1998). Both the entrepreneurial philosophy of Greek shipowners and the organizational culture of the family-owned and controlled companies induce fragmentation. The origins of company fragmentation lie in the origins of Greek shipowners themselves. Two classes of shipowners are distinguished in Greek-owned shipping, depending on the length of their participation in the market. The traditional owners, whose families were at least second generation shipowners after the Second World War, and the non-traditional owners, who prior to becoming

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shipowners were involved in another profession (Harlaftis, 1993). While there are a signiﬁcant number of traditional shipowners, there is no corresponding number of traditional shipping companies, i.e. companies surviving longer than the lifespan of their founders. With the exception of a small percentage of companies that keep the same name and the same organizational structure for more than one generation, the rest of the ﬁrms, which belong to traditional shipowners have been hived off existing concerns (Theotokas, 1998). Fragmentation is a phenomenon that takes place and among the non-traditional shipowners as well. Companies controlled by one family, have split a few years after their foundation, usually during the transition from ﬁrst to the second generation of the family.30 In addition, one can see that very often the descendants of nontraditional shipowners that are still active in managing their company leave the family business to make their own start-up.31 The same trend is also apparent in companies controlled by more than one family. Co-ownership that was the dominant way of entry in the industry throughout the history of Greek-owned shipping in modern times (Harlaftis, 1996; Chlomoudis, 1996), continued to do so during the second half of the 20th century. Out of a sample of 144 shipowning families active in shipping for more than 30 years during the period 1945–2000, 72 (50%) had been involved in cooperation and fragmentation; they either participated in a coownership and pulled out several years after its establishment or cooperated at some time with other shipowning families, or, ﬁnally, members of the family left the family business to create their own company (Theotokas & Harlaftis, 2004), conﬁrming the results of earlier research based on a sample of 50 companies (Theotokas, 1997). The reasons for the company fragmentation observed in the case of Greek-owned shipping range from disagreement for the company’s future, to the unethical behaviour of one partner breaching trust, passing from the typical clash of views within the family, power struggles and the effort for domination of one side over the other, the existence of conﬂicting goals etc. In any case however, the basis for the fragmentation is provided by the entrepreneurial philosophy of Greek shipowners and the desire to retain the control of their business.32 The member of the family or the partner that leaves the company creates his/her own start-up to establishing a business that will be managed by himself/herself. In most cases he/she has the advantages of having the necessary capital and possessing the expertise for managing ships, factors that both motivate to go into the business venture and promise its success. An additional motive for the venture is the fact that in bulk shipping, until recently, company size was not a critical success

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factor. Thus, even if the available capital resources allowed the creation of a single ship company, this was not a deterring factor for the venture. The fragmentation of shipping companies had positive as well as negative effects on the Greek-owned ﬂeet. On the positive side are the increase in the total number of enterprises, company renewal and the increase of the numbers of the shipowning class and the corollary expansion of the Greekowned ﬂeet (Theotokas, 1998). Fragmentation allowed better exploitation of entrepreneurial talents which would otherwise have been spent in handling operational matters of the family ﬁrms they left. Many family members or partners that created their own start-ups were able to practice their hidden entrepreneurial talents creating companies that are included among the largest of the Greek-owned ﬂeet. It is interesting to note that fragmentation does not always mean that those who depart harbour feelings of hostility for the other. On the contrary, it is a very common phenomenon to see cooperation between the fragmented parts. On the negative effects of fragmentation one would include the undermining of the prospects of the family company or of cooperation because of the hiving off of family members or partners as well as the inability of many newly created ﬁrms to survive (Thanopoulou & Theotokas, 2006). 3.3.5. Networking: Its Role in 21st-Century Greek Shipping In the literature one can ﬁnd different explanations of performance differences among ﬁrms and of the sources of their competitive advantage. The industry structure view realizes the importance of industry-speciﬁc factors (Porter, 1980) while the resource-based view focuses on the ﬁrms’ resources and capabilities (Barney, 2001). Both views are useful for explaining the ability of Greek-owned shipping companies to create such an advantage; however, there are certain aspects of company operations that require further understanding and interpretation. This is the case of the loose or tight inter-ﬁrm relationships that characterize the Greek-owned shipping ﬁrms and the fact that they form networks. This is one of the most important factors that created the conditions for the internal integration of companies, which is an essential ingredient of the sustainable competitive advantage of Greek-owned ﬁrms. There are different deﬁnitions of networks. Casson (1997, p. 813) deﬁnes networks as the set of high-trust relationships which either directly or indirectly link together every one in a social group. A linkage is deﬁned in terms of information ﬂow between two people.

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Boyce and Ville (2005, p. 296) realize the personal networks as informal systems of information that decrease uncertainty and thus transaction costs. Network membership potentially provides the company with access to information, resources, markets and technologies and advantages from economies of scale, scope and learning (Gulati, Nohria, & Zaheer, 2000). An aspect related to the base of tacit knowledge (Kay, 1996) is also considered as important. In their comparative study of Greek and British tramp shipping ﬁrms, Harlaftis and Theotokas (2004) propose a model of tramp shipping companies’ governance structures evolution and explain the reasons behind the extensive use of networks in bulk shipping. They contend that in the period after the 1940s the companies of the bulk-shipping sector adopted three alternative strategies to handle the increased complexity of the international shipping environment to decrease the transaction costs and to increase competitiveness. The ﬁrst was to preserve their tramp structure and the cooperative relationships with companies of similar status and culture. The second was the internal development of the companies and the internalization of as many transactions as possible. The third strategy was to concentrate on activities in which the companies were competitive and to outsource the others. Greek-owned shipping companies followed the ﬁrst and the second alternative, with the ﬁrst being the most commonly applied. The companies that preserved the tramp structure had as a unifying element the common business culture and the formation of networks in order to reduce risk in transactions. Networking is a cooperative form met outside Greek-owned shipping as well (Harlaftis & Theotokas, 2004; Valdaliso, 2000). What makes the Greek case different however, are the combination of the duration and the depth of the networking mechanism and the fact that it concerns companies of all sizes related with vertical and horizontal linkages. The roots of the phenomenon are traced in the early years of the formation of Greek-owned shipping (Harlaftis, 1996). With a few exceptions, while the organization of the networks was not based on formal structures but was rather informal, it has been preserved adapting successfully to changing conditions. Several factors contributed to the formation and preservation of networks the most prevailing being the entrepreneurial philosophy of the shipowners, the family character and the culture of the companies.33 Common culture promotes trust and reciprocity and reduces the cost of transactions. In a high-trust culture, complex interdependencies between ﬁrms can be sustained by ‘‘arm’s length’’ contracts while within each ﬁrm the owner can rely on the loyalty and integrity of its employees (Casson, 1993, p. 42).

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The cohesion and effectiveness of the network depend on the trust of the network members. There are historical reasons that make trust a common value of people involved in Greek shipping. These are mainly: 1. The tradition of the maritime islands of Greece and the development of relationships based on kinship and common origin (Harlaftis, 1996). 2. The industry environment and ethics; the bulk shipping industry where the Greeks were active has the trust as a core value reﬂected in the traditional motto of the Baltic Stock exchange ‘‘my word is my bond’’ (Harlaftis & Theotokas, 2004). The creation of networks was facilitated by such an environment of high-trust relationships. Greek shipping companies may participate in more than one loose or tight network which might be local, national or international, with horizontal or vertical linkages. Examples of such a manifold membership are shipping companies belonging to shipowners originating from the island of Chios who are located in London and who can be members of any or all of the following informal networks: the Chiots network of London, the London Greeks network, the Chiots network of Greek-owned shipping, etc., while companies that are their suppliers, controlled by Chiots, may also participate in the same networks. Apart from common entrepreneurial philosophy, business cultures and trust there are two additional factors that promoted networking in Greekowned shipping and which are related to the national culture of Greece and the professional background of the majority of shipowners. Characteristics related to the national culture of Greeks, as they are deﬁned by Hofstede (1980), like the high tendency for uncertainty avoidance and collectivism, are factors that promote informal cooperation for the minimization of risks.34 Thus, the cultural context supports the creation and preservation of networks, as conﬁrmed by a study in a different context. Drakopoulou-Dodd and Patra (2002) studied national differences in entrepreneurial networking and compared Greek scores with that of other western nationals. They found that Greek entrepreneurs spent comparatively large amounts of time developing and maintaining personal networks of both strong and weak ties. Turning to the professional background of the majority of ﬁrst generation shipowners and the attitude it shaped towards cooperation, one can realize that they continue to create networks as they did as seafarers. As ship ofﬁcers, they created their personal networks that included colleagues and partners to make their job easier. When they became shipowners, they turned their personal/professional networks to entrepreneurial/organizational ones, creating new or participating in established networks whose cohesion was based on

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trust and common culture of their members. Networking has been further promoted by the pattern of transferring loyal and productive ofﬁcers of the ships to the ofﬁce ashore and thus transferring their personal/professional networks to the company itself turning them into an organizational resource. The advantages that networking offered to Greek-owned shipping companies can be grouped as follows: 1. External economies. Small- and medium-sized companies do not have the ability to create and exploit internal economies to reduce their cost but the existence of external economies in a given area allows companies in that area to reduce it. Greek-owned shipping companies were able to overcome the disadvantage of the absence of internal economies by exploiting external economies stemming from networking.35 2. Reduction of transaction costs. Competitiveness of shipping companies depends strongly on their ability to reduce the cost and the risk of transactions with charterers, suppliers, classiﬁcation societies, insurers, ports etc. The proper strategy to attain this goal for companies that either do not have the resources to pursue their internal development or do not want to lose the control of their ships’ operation by outsourcing functions to independent shipmanagement companies is to co-operate with other companies with similar characteristics, and to enlarge their value chain by forming networks. Networking minimizes the risk and reduces the cost inherent in every transaction performed with instant negotiations in the market through ‘‘arm’ length’’ contracts. The factor that allows this type of contract is trust (Casson, 1993). 3. Information sharing and cost reduction. Shipping is an informationintensive operation. Information regarding freight rates, freight demand, market forecasting, supply of human resources, port conditions, port state control requirements, etc., is vital for the minimization of transaction risks. Obtaining the requested information at the proper time and at an optimum cost can vastly increase the competitiveness of a shipping company. However, the cost of acquiring information continues to be high. Shipping companies that are able to obtain superior information are able to reduce their operating costs – by reducing risk in transactions – and at the same time to increase the reliability of their services. Networking of various companies increases the sources of information; drawing on the best services and knowledge one can get, rather than relying on in-house applications, is considered a point on which every shipping company must focus when deciding its strategy (Lorange, 2001). Networking facilitates cooperation and removes

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barriers to communication. Both play critical roles for succeeding in the highly competitive markets of the bulk-shipping industry. 4. Enhancement of the knowledge basis of the industry. Kay (1996, p. 77) argues that: national competitive advantages lie in supportive networks of ﬁrms and activities and are based on those things which such networks typically facilitate.

One of them is the construction of a base of tacit knowledge. For Greeks networking is the means for the diffusion and reproduction of the tacit knowledge, as well as for its retaining within the industry.36 5. Organization of coordinated responses to changes in the external environment. The essence of networking, which is based on a speciﬁc business culture, is that it allows members to react in the same way and that it produces a mentality of emulating the most successful companies with further effects on organizational and managerial methods. The business culture creates a rather uniﬁed ‘‘front’’ of all institutions in the case of tramp shipping, allowing the handling of a crisis at the right moment through a common reaction. This explains why Greek shipowners react in a similar way in front of one threat or one opportunity. The massive purchases or sales of ships during speciﬁc phases of the shipping cycle are evidence to that. 6. Strengthening of the national competitive advantage in shipping. Networking is the means for the diffusion of competitive advantage of shipping companies at national level and its end transformation to national competitive advantage. This advantage is based on speed and ﬂexibility of response and on a basis of tacit knowledge as well, all facilitated by the existence of networks (Kay, 1996). The development of Piraeus as an international maritime centre was provoked by the maritime networks through the establishment of many shipping companies and companies related to maritime infrastructure, while the existence of the Piraeus shipping milieu (Svendsen, 1990) contributed to the competitiveness of Greek-owned shipping companies (Theotokas, 1997).

3.4. CONCLUSIONS The shipping markets during the last four decades offered a plenty of opportunities and threats to shipping companies. Greek shipowners are not the only group that succeeded in exploiting the ﬁrst and confronting the latter, but they achieved both more successfully than their competitors. This

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chapter focused on the internal environment of Greek-owned shipping companies seeking for the factors that contributed to their competitiveness. Starting from the resource base of the companies, the chapter analyzed the role of the human resource as the main source of the companies’ competitive advantage. People employed in the industry possessed a wide and industryspeciﬁc tacit knowledge that allowed the cost effective operation of ships. At the same time, many of them used their knowledge base to put their entrepreneurial talent into practice, by creating small-sized family-run ﬁrms. Ship ofﬁcers and shipping company employees went on to create their own start-up companies, many of which became key players in the Greek shipping industry. Thus, human resources, knowledge base and entrepreneurship emerge as the main factors that contributed to the creation and development of the main body of Greek shipping companies. The analysis of the organization and management of Greek shipping ﬁrms showed that there are certain characteristics that are common to the vast majority of them. The companies form a coherent group that bases its operation on similar patterns. The majority of the companies are of small and medium size, family owned and controlled, created by shipowners with a distinct entrepreneurial philosophy and business culture. The large number of companies is partially owed to the fact that shipowners or their descendants seek to retain/gain control of the business and in case this is not possible within the family business, they leave to make their own start-up. Although they are competitors, Greek-owned shipping companies retain loose or tight relationships and form networks based on common culture and trust. Networking provides the companies with advantages stemming form the external economies they create, the reduction of transaction costs, the information sharing and the enhancement of the knowledge basis of the companies. The competitive advantage of the Greek-owned shipping companies proved to be sustainable for the last four decades. The question that one might pose is to what extent this is going to be sustained in the future, given that the business environment of shipping is continually changing. To answer this question one should take into account that although characteristics related to the structure of the companies remained unchanged, this did not prevent them from exploiting opportunities or facing threats. The factors that created the conditions for the internal integration of the companies did not prevent companies from being ﬂexible and adaptive. Certainly, past success does not always guarantee future success as well. It is the context that creates both opportunities and threats while the strengths and the weaknesses of the players deﬁne their ability to survive and expand.

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In this sense, the future of Greek-owned companies will depend on their ﬂexibility and adaptability, as well as on their ability to renew and expand the knowledge base of the industry and to practise the entrepreneurial talent of their people pointing to the continuing key role of the human resource in shaping the future of Greek-owned shipping.

NOTES 1. I. Angelicoussis is one of the leading Greek shipowners whose companies operate ﬂeets of tankers, bulk carriers and LNGs consisting of 62 ships of more than 11.3 million dwt (Naftiliaki, 2006). 2. Porter’s theory of national competitive advantage identiﬁes four determinants which shape the environment of competition for the companies and promote or impede the creation of competitive advantage. These are the factor conditions, the demand conditions, the related and supporting industries and the ﬁrm strategy, structure and rivalry (Porter, 1990, p. 71). 3. The lack of empirical data on such a crucial theme for the biggest ﬂeet in the world is an evidence of the open research agenda for the Greek-owned shipping. 4. The ﬁve stages of development of small business are existence, survival, success, take-off and resource maturity (Churchill & Lewis, 1983). 5. The founder of a ﬁrm who is the owner and controls the business takes the judgmental decisions and exercises the entrepreneurship (Boyce & Ville, 2005). 6. This is not to say that all small business ventures ended up successfully. In the volatile environment of bulk shipping markets small ﬁrms are those that are most affected by markets in depression. Indeed, as it can be seen in Table 3.1, small-sized companies is the group mostly affected during the crises of the 1980s. In 1981 there were 522 small-sized companies but in 1985 their number was reduced to 346 decreasing by 33.7% (Theotokas, 1997). 7. The strategy of asset play is examined by Thanopoulou in Chapter 2 of this volume. 8. Shipowner Dimitri Samonas described characteristically what happened when his two sons expressed their desire to join the company when they were still teenagers: ‘‘At ﬁrst I said ‘No, go to school, ﬁnd out what makes you happy and do it’. After three years of school the eldest boy said ‘I’m not happy, I’d like to join your company’. I said, ‘OK, meet the ship in Rotterdam, sigh on for a year and sail as an AB. If you get a good report from the captain, you can join my company’. The same happened with the youngest boy y Now, one handles chartering and the other handles operation and they get to the ofﬁce before I do’’ (Evangelista, 1998, p. 5). In the same vein, second generation shipowner Nick Tsakos describes his seafaring experience: ‘‘I have 32 months of sea service. Even when I was studying in the USA, during summers I used to embark on one of our ships from the USA to return to Europe’’ (Tsakos, 2002a; translated from Greek by the author). 9. See Thanopoulou (2007) in this volume. 10. Translated from Greek by the author.

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11. According to a recent circular of the Ministry of Mercantile Marine (18 January 2007), the minimum number of Greek seafarers on board Greek ships that was from 10 to 12, depending on the ship size, reduced to only four for ships of 3.000–30.000 grt, to ﬁve for ships between 30.001 and 80.000 grt and to six for ships of more than 80.001 grt (www.marinews.gr). This represents decreases that range form 50% to 60% of the stipulated crew number of Greek nationality for the relevant size and type of vessel. 12. For an analysis of the country-speciﬁc factors, see Harlaftis (1993, 1996), Thanopoulou (1994) and Theotokas (1997). 13. Apart form Onasis and Niarchos who were at the forefront of publicity in earlier decades, amongst the leading families of this category are those of Carras, Chandris, Embiricos, Fafalios, Goulandris, Kouloukountis, Laimos, Livanos, Lykiardopoulo, Lyras, Nomikos, Pateras, Xylas (Harlaftis, 1996; Theotokas-Harlaftis, 2004). 14. For an overview of the different deﬁnitions and the relevant criteria, see Sharma (2004). 15. Even start-ups created by cash-rich entrepreneurs, have entered the market through – relatively new-second-hand ships as, e.g. in the case of Stelios Hajioannou who was given the needed capital for the establishment of Stelmar company in 1992 by his father Lucas, the ‘‘king’’ of the tankers during the 1980s (Hadjioannou, 1998). 16. Chandler identiﬁes three types of capitalism on the basis of the relationship between those who make the decisions about the ﬁrm’s operation and those who own the means of production and distribution. The traditional, personal capitalism is characterized by the fact that the owners and the decision makers are the same. The family/ﬁnancial capitalism is characterized by the consolidation of enterprises and the birth of multiunit businesses. This second type is further divided according to which is the dominant ﬁrm group. In case family ﬁrms dominate, the economy is called ‘‘family capitalism’’; when ﬁnancially dominated ﬁrms are most common, it is called ‘‘ﬁnancial capitalism’’. However, as no family or ﬁnancial institution was large enough to staff the managerial hierarchies required to administer modern multiunit enterprises, they brought in salaried managers who ultimately took over the decisionmaking. The economy where managerial enterprises dominate is called ‘‘managerial capitalism’’ which constitutes the third type (Chandler, 1990). 17. An indication of the trend is the increase of the number of companies operating ﬂeets of more than one million deadweight from 31 in 2000 to 50 in 2006 (Naftiliaki, 2000, 2006). 18. For an analysis of the prospects of the Greek-owned family shipping ﬁrms, see Thanopoulou and Theotokas (2006). 19. The third generation shipowner Andreas A. Martinos gives a very thorough view on the subject: ‘‘The traditional shipowner brings something unique to the business. I know personally from some clients that charterers like traditional family shipowners – good, professional, transparent companies that follow corporate practices, but still family companies where they know the person whose ‘yes’ is actually a ‘yes’. A stocklisted company has no head, but a family company can move quickly, with decision and authority’’ (Martinos, 2006, p. 3). 20. Familiness is deﬁned as the ‘‘unique bundle of resources a particular ﬁrm has because of the systems interaction between the family, its individual members, and the business’’ (Habbershon & Williams, 1999, p. 11).

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21. Nick Tsakos, CEO of the listed Tsakos Energy Navigation described this approach as follows: ‘‘But the huge costs for maintaining the position as a leader in shipping cannot effectively be handled solely by traditional family company methods; so we tried to ﬁnd the perfect chemistry between a family-run company and a public outlet ... the toughest challenge facing Greek shipowners will not be consolidation itself, but holding on to the traditional values that made Greek shipping strong, as they take on the corporate characteristics necessary to survive in the world of the future ... You must care for people as well as for the business. This is what marks the difference between a faceless corporation and a family company. Ours is a family company, based on family trust with the employees (Tsakos, 2002b, pp. 10–11). 22. Family members should of course be qualiﬁed to perform their duties and not chosen because of nepotism. Discrimination at the expense of better qualiﬁed nonfamily employees will affect the long-run proﬁtability of the company (James, 1999). 23. For an overview of the literature on the advantages of family ﬁrms, see Habbershon and Williams (1999). 24. This entrepreneurial philosophy is a source of advantage, but it might also be a source of disadvantage, especially for small-sized companies. As shipowner John Lyras comments: ‘‘It will be more difﬁcult for all the one-, two-, and three-ship companies to survive independently. Maybe we will see new cooperative structures appear in which the strengths of several smaller players unite in some kind of combine. You can see two companies combining where one shipowner takes on technical operation and another takes on commercial operation. My generation is more inclined to do this. The old attitude was ‘if shipping is my life, the idea of being a silent partner, even in one activity, is a very difﬁcult pill to swallow’ y’’, (Evangelista, 1998, p. 4). 25. As it has already been mentioned this does not apply for companies that are parts of a diversiﬁed group. 26. According to Bjorndalen and Reve (Jennsen, 2003, p. 101) this trend exists in Norway where professional leaders gradually replace retiring shipowners as CEOs. 27. This is conﬁrmed by the approach they take with regard to the strategic planning of their companies (Koufopoulos et al., 2005). 28. It is interesting to note that a similar attitude towards outsourcing of activities and services is noticed in the Italian shipping companies, whose entrepreneurial culture is orientated to operations (Evangelista & Morvillo, 1998). 29. During the last two years there are cases of companies that have outsourced the technical management of ships to third-party ship management companies. They are specialized in ships like chemicals and LNGs and this decision is related to the fact that the companies did not have experience in the management of such ships or enough specialized experience to provide them with the required reputation in the respective markets. 30. In this category one can classify the cases of families such as the Martinos, Prokopiou, Angelicousis, Lentoudis, Giavridis. 31. See for example the cases of Hadjioannou, Frangos and Alafouzos families. 32. The logic behind such a decision is given very thoroughly by A. Martinos, the non-traditional shipowner who left the family business in 1990 to create his own company. ‘‘we are a big family with many children and we have seen from other cases

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that many brothers and cousins cannot co-exist in the long run. Besides, in such an organization there are not roles available for all family members. Besides, I wanted to be personally involved in all the functions of the company. In Thenamaris, I was responsible only for the chartering function. But I like to be involved in the technical management, the crew and the operation’’ (Martinos, 1998, p. 22). 33. It should be noted that the family character of the companies may lead to the opposite direction. For example in the case of Italian shipping where family companies dominate, it has been found that the companies showed a ‘‘reluctance to achieve co-operative type relations’’ (Evangelista & Morvillo, 1998, p. 88). 34. Hofstede’s research on cultures, analysing a sample of employees of the subsidiaries of a large multinational corporation in 40 countries around the world, determined the main dimensions by which national cultures are identiﬁed. These dimensions include power distance, uncertainty avoidance, individualism–collectivism, and masculinity–femininity. Power distance indicates the extent to which a society accepts the fact that power in organizations is distributed unequally. Uncertainty avoidance indicates the extent to which a society feels threatened by uncertain and ambiguous situations and tries to avoid them. Individualism implies the existence of a loose social framework in which people are supposed to take care of themselves, while collectivism is characterised by a tight social framework, in which people are grouped. Masculinity expresses the extent to which the dominant values in society are assertive, money-prone, uncaring, while femininity stands for the opposite values (Hofstede, 1980). 35. The state can help in the creation of productive resources available to any ﬁrm that operates in the national environment and wishing to use them; if all ﬁrms have access to these resources, the unit cost reduction that comes out of them is a clear case of external economies (Lazonick, 2001, pp. 116–117). Thus, there is an additional and equally important source of external economies, that of the maritime policy of the Greek State (see Harlaftis, 1996; Harlaftis and Theotokas, 2004). 36. This dimension of networking is acknowledged in a comparative study of the career paths in the maritime industries in Europe, where it is mentioned that ‘‘although Greece certainly exports its maritime expertise, it is often by setting up a community overseas’’ (Southampton, 2005, p. 24).

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Petropoulos, T. (2000). Greek shipping: The latest trends. Lloyd’s Shipping Economist, 22(6), 11–14. Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York: The Free Press. Porter, M. E. (1990). The competitive advantage of nations. London: Macmillan Press. Sharma, P. (2004). An overview of the ﬁeld of family business studies: Current status and directions for the future. Family Business Review, 17(1), 1–36. Southampton Solent University. (2005). The mapping career paths in the maritime industries. Research Project, http://www.ecsa.be/publications/054.pdf, accessed on 31 July 2006. Stewart, W. H., Watson, W. E., Carland, J. C., & Carland, J. W. (1999). A proclivity for entrepreneurship: A comparison of entrepreneurs, small business owners and corporate managers. Journal of Business Venturing, 14(2), 189–214. Svendsen, A. S. (1978). The concentration of capital in shipping and the optimum size of shipping companies (reprinted from Geojournal, Wiesbaden no. 2.2.1978). Bergen: Institute for Shipping Research. Svendsen, A. S. (1981). The role of the entrepreneur in the shipping industry Editorial. Maritime Policy and Management, 8(3), 137–140. Svendsen, A. S. (1990). Shipping as human achievements and culture in economic and ecological context – On competitiveness in the long run. In: S. P. Stradenes, A. S. Svendsen & T. Wegerland (Eds), Shipping strategies and bulk shipping in the 1990s – Proceedings from the international shipping seminar, Bergen, 6–8 August 1989. Bergen: Institute for Shipping Research. Syriopoulos, T., & Theotokas, I. (2005). Corporate governance and takeovers in shipping industry, 12th annual conference of the Multinational Finance Society, July, Athens. Thanopoulou, H. (1994). Greek and international shipping (in Greek). Athens: Papazissis. Thanopoulou, H. (1995). Changes in the international division of labour in shipping and maritime crises. Maritime Policy and Management, 22(1), 51–62. Thanopoulou, H. A., & Theotokas, I. (2006). Small ﬁrms in a global industry: The case of Greek shipping (1974–2004). IMOP-EAEPE joint colloquium: The variety of economic institutions under the many forms of capitalism, 12–13 May, Athens. Theotokas, I. (1997). Organizational and managerial patterns of Greek-owned shipping companies, 1969–1990 (in Greek). Unpublished Doctoral Thesis, Piraeus, University of Piraeus. Theotokas, I. (1998). Organizational and managerial patterns of Greek-owned shipping companies and the internationalization process from the post-war period to 1990. In: D. J. Starkey & G. Harlaftis (Eds), Global markets: The Internationalization of the sea transport industries since 1850 – Research in maritime history (Vol. 14, pp. 303–318). St. John’s, Newfoundland: International Maritime Economic History Association. Theotokas, I., & Harlaftis, G. (2004). Eupompe: Greek hipping companies 1945–2000: Organization, management, strategies (in Greek). Athens: Elia. Theotokas, I., & Progoulaki, M. (2004). Managing multicultural teams: The case of Greekowned shipping. Proceedings of conference of International Association of Maritime Economists (IAME), June, Izmir, pp. 278–287. Tsakos, N. P. (2002a). Shipping is irreplaceable – Interview (in Greek). ARGO, April, p. 25. Tsakos, N. (2002b). Interview. Surveyor, Summer.

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Theotokas, I., Lekakou, M. B., Pallis, A. A., Siriopoulos, T., & Tsamourgelis, I. (2006). Greek shipping industry, employment and competitiveness: A study for the Panhellenic Seamen Federation (PNO) (in Greek). Chios: University of the Aegean. Valdaliso, J. (2000). The rise of specialist ﬁrms in Spanish shipping and their strategies to growth, 1860 to 1930. Business History Review, 74, 267–300. Zahra, S. A., Hayton, J. C., & Salvato, C. (2004). Entrepreneurship in family vs. non-family ﬁrms: A resource based analysis of the effect of organizational culture. Entrepreneurship Theory and Practice, 28(4), 363–381.

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CHAPTER 4 THE COMPETITIVE ADVANTAGE IN THE GREEK SHIPPING INDUSTRY Ioannis N. Lagoudis and Ioannis Theotokas ABSTRACT In this chapter, authors intend to further existing literature by examining the importance of four factors on the competitive strategies of Greek shipping companies, namely cost, quality standards, service level and time. The analysis is based on the Johansson, McHugh, Pendlebury, and Wheeler (1993) model, where the combination of quality, service, cost and time are considered to determine the value a company creates regardless of the industry it operates in. A survey was conducted on a sample of Greek shipping companies in order to examine and evaluate the importance of Johansson et al.’s key metrics to the shipping industry. The results of this survey corroborate the results of similar surveys in international literature revealing the importance of cost for the success of shipping companies. They also validate findings in supply chain management literature where quality and time are considered as ‘‘qualifiers’’ and cost and service as ‘‘winner’’ criteria. Nevertheless, differences exist when filtering takes place in terms of company size, operating sector strategies (i.e. operating in a single or more than one sector) and dominant philosophy related to the application of supply chain strategies.

Maritime Transport: The Greek Paradigm Research in Transportation Economics, Volume 21, 95–120 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 0739-8859/doi:10.1016/S0739-8859(07)21004-2

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4.1. INTRODUCTION Greek shipping remains at the top of the world maritime league for about the last thirty years. The industry owes its competitive advantage to the possession of special or specialised know-how at the operations management level with cost factors contributing most to its success. Greek shipping companies are active in the highly competitive markets of the bulk shipping industry, while a small percent is active in the liner market, mainly by serving local and peripheral markets. There are also a few companies that operate liner vessels, without providing a liner service but by chartering these ships to liner companies. Thus, the vast majority of the companies obtain their advantage from their ability to operate their ships competitively in the bulk shipping markets. Although Greek shipping companies are an interesting paradigm of business success at the international level, various aspects of their operations related to this success are not known. The literature review reveals a growing body of knowledge on aspects related to the management and the strategies of Greek shipping companies, including research on aspects of their strategic planning (Koufopoulos, Lagoudis, & Pastra, 2005), of their family character (Harlaftis, 1996; Theotokas, 1998), of the entrepreneurial philosophy of Greek shipowners (Theotokas, 1998), of their investment strategies (Thanopoulou, 1995), of the signiﬁcance of the large number of small shipping companies (Theotokas & Katarelos, 2001; Thanopoulou & Theotokas, 2006), of the attitude of Greek shipping companies to outsourcing (Mitroussi, 2004; Papadimitriou, Progoulaki, & Theotokas, 2005), of the crew management of these companies (Theotokas & Progoulaki, 2004) and on the aspects of their social responsibility (Fafaliou, Lekakou, & Theotokas, 2005). Also, there are studies that aim at proposing a framework for the analysis of the success of Greek shipping companies (Harlaftis, 1996; Theotokas, 1998; Harlaftis & Theotokas, 2004). When turning to the competitive strengths of the Greek shipping company, the emphasis of existing research is on the aspects related to business and investment strategies. More particularly, at the business level, the competitiveness of companies stems from their structural characteristics and the management style of the shipowners that allow the focus on cost control and the cost effective technical management of ships. In addition, via their investment strategies, which are based on timing, they succeed in accumulating proﬁts from the sales and purchases of vessels. These are used for expansion through new purchases or for ﬁnancing losses during periods of extended crises in the freight markets.

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However, there is a shortage of studies on matters related to the efﬁciency that companies attain at the operational level. Existing studies examine shipping company operations in the traditional way not from the supply chain management point of view; the latter, approach the issue of company competitiveness focusing on factors which contribute to value creation but has not been associated traditionally with Greek shipping. A most plausible explanation is that the Greek Shipping is active in bulk transport for which there are fewer supply chain management studies in general compared to the liner shipping sector, which in general is more integrated in longer value chains both in practice and in literature. Studies in this ﬁeld of research have been applied mainly in the industrial sectors related to manufacturing such as automotive, housing, computer and others (Holweg, Disney, Holmstro¨m, & Sma˚ros, 2005). The supply chain management methodology has derived from the need companies have of providing goods and services of minimum cost and maximum quality in order to achieve maximum value both for themselves and for the end customer. The holistic philosophy that supply chain management offers encompasses the shipping industry since the transportation service process is a critical link – in effect a chain in its own right – in the production and distribution of ﬁnished goods and commodities impacting on various characteristics of the ﬁnal product. A typical example of the role of shipping transport from the supply chain point of view is the case of value created via the cooperation of ship operators and port terminals. A good coordination of processes between the two players (ports and shipping companies) can provide mutual beneﬁts via the minimisation of vessel turnaround and utilisation of port equipment and infrastructure (Laine & Vepsalainen, 1994). This chapter aims at shedding light to the operation strategies of Greek shipping companies. The theoretical framework of the Johansson, McHugh, Pendlebury, and Wheeler’s (1993) model, who have deﬁned value as the result of four main factors (quality, service, cost and time), is used to analyse the factors that contribute to the value creation at the operations level. With the assistance of a ﬁeld survey among Greek shipping companies results are analysed and presented based on the size (large and medium) and the type of strategy the sampled companies adopt in terms of the number of sectors – one or more – they operate in. The main body of the chapter begins with a review of the existing literature in supply chain management and value creation. The discussion of the theoretical framework of the analysis follows next along with the presentation and analysis of the survey results. Finally, a critical discussion of the ﬁndings is made with some concluding remarks and suggestions for future research.

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4.2. A SUPPLY CHAIN MANAGEMENT APPROACH According to Stevens (1989) a supply chain is a system whose constituent parts include material suppliers, production facilities, distribution services and customers linked together via the feed-forward ﬂow of materials and the feedback ﬂow of information.

Christopher (1992) deﬁnes a supply chain as follows, The network of organisations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hand of the ultimate consumer.

Recognising the existence of information from the customer and materials to the customer, which are the two main ﬂows, together with additional ﬂows of cash and other resources such as people and equipment, is central to the creation of an effective supply chain. Effective supply chain design ensures that the linking mechanisms are at least as good as the value-added stages in the chain. Transport is the essential and critical link among the various players in the chain in terms of material ﬂow. In the 1950s and 1960s, most companies of the manufacturing sector focused on producing massively in order to minimise their production cost and take advantage of economies of scale (Tan, 2001). The same philosophy was dominant in the transport sector and especially in the ocean shipping industry where bigger vessels were built in order to reduce average transport costs. In the 1970s, companies began to focus on the improvement of their internal operations and functions with the use of MRP I – materials requirements planning (Orlicky, 1975) and its extension MRP II – manufacturing resource planning (Wight, 1983). MRP II takes a more holistic approach since it intends to create an integrated system with all parts linked back to a production plan (Waters, 1996). Since the 1980s, companies began to focus more on the market by offering differentiated products of better quality adapted to the end customer needs. This strategy became even more popular in the 1990s. Such strategies were the result of the intense competition among companies which drove them in ﬁnding alternative ways in order to attract new customers and keep the existing ones as well. In this context, companies turned to strategies that either promised better supply chains or better linkage of producer and customer value chains, a trend reﬂected also in literature.

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Two related key characteristics that appear in the literature are those of synchronisation and integration of supply chains (Towill, 1997; Geary, Childerhouse, & Towill, 2002). Stevens (1990) supports the idea that in order to achieve integration in the supply chain four main stages are essential. The first stage is the baseline as he deﬁnes it, where a company is not integrated at all, the second is the functional integration which focuses on the inward ﬂow of goods, the third is the internal integration where the company begins to focus on the customer as well and the fourth and ﬁnal stage is that of external integration where the company includes its suppliers and customers in all its processes and becomes more customer driven. As seen, most of the so far mentioned studies have been mainly applied in – or were aimed at – the manufacturing and less in the service sector. Having in mind the supply chain management theoretical framework a number of strategies that companies could adopt in order to improve their performance have been created such as the lean (Womack, Jones, & Roos, 1990) and agile paradigms (Goldman, Nagel, & Preiss, 1995), the decoupling point postponement (Pagh & Cooper, 1998), time compression (Mason-Jones & Towill, 1998) and information enrichment (Mason-Jones & Towill, 1997). With regard to shipping, a number of studies adopting a supply chain management philosophy and methodology in the analysis of the industry have been developed by Lagoudis, Lalwani, and Naim (2004, 2006) and Lagoudis, Lalwani, Naim, and King (2002). These studies aim at identifying the factors that deﬁne the supply chain strategies adopted by shipping companies depending on the sector they operate. The overall objective is not only to point at the attributes that add value to these companies, but also to deﬁne the supply chain these are part of. Studies in the same vein of research have been developed by Panayides (2003) who studied the effects that different strategies adopted by shipping companies have on their performance and Panayides and Cullinane (2002) who identiﬁed the factors owners pay attention to for the selection of a third-party shipping management company.

4.2.1. The Concept of Value In supply chain management and logistics, value has been studied based on the idea that it is not created only through – over and above simple production – the improvement of a product but also when the process or processes required for the production and delivery of the ﬁnal product are

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optimised (Towill, 1996). So, actually value is created not only during the production stages of a product but after the delivery of the product as well. Anderson and Narus (1995) focused on the value that companies and customers gain from a number of services the former provide. Their study suggested that After compiling a complete inventory of supplementary services, a company should assess the value of each service and the cost of providing it

Johansson et al. (1993) deﬁned value as the result of four parameters: service, quality, cost and cycle time. According to Johansson et al. any company regardless of the sector or industry it operates in, either manufacturing or service, should focus on improving the product’s quality and service at the same time as reducing the cycle time and cost to the customer. The four Johansson et al. (1993) metrics are the result of the evolving rules and norms of competition, which have moved from focusing on product characteristics towards time-to-market strategies. This perception is not far from this kind of studies where ﬂexibility and responsiveness are considered to be the key factors of success for any company in the modern and volatile business environment (Naylor, Naim, & Berry, 1999; Anderson & Narus, 1995). These four key metrics are applied in this study in order to identify the key factors that add value to the Greek shipping industry and their supply chains. The study does not only focus on the factors that are internal to Greek shipping companies themselves but also on factors and processes external to these companies as well. So the overall aim is to take a more holistic approach identifying the importance not only of the factors that depend on the companies of this industry but also on those factors and processes that depend on external parameters.

4.3. METHODOLOGY 4.3.1. The Model As already mentioned, the aim of this chapter is to identify the factors that add value to shipping management companies. These factors are grouped under four main categories – quality, service, time and cost – and the survey results are further analysed according to company size, sector of company activity and supply chain management philosophy. The model used is shown in Fig. 4.1. It should be pointed out that size is determined by the number of ships a shipping management company operates, the categorisation of sector of

The Competitive Advantage in the Greek Shipping Industry

Quality

101

Appropriate and quality equipment Availability of creative top management Reputation and reliability Financial stability Skills and knowledge of personnel

Size

Good relationships with customers and suppliers

Service

Ability to carry odd size consignments Professionalism in customer support Flexibility to customer demand and market changese Responsiveness to unforeseen problems Willingness to negotiate with customers and suppliers Provision of good services by ports

Sector Strategy

Time

Value

Frequency of voyages Transit time On-time pick-up and delivery Time for introduction of vessels and services On-time information and delivery by supplier Quick vessel turnaround

Supply Chain

Cost

Administration Cost of quality assurance of service Spares and supplies inventory Insurance Company restructuring Operating costs

Fig. 4.1.

The Model. Source: Based on Lagoudis et al. (2006).

activity is based on the number of sectors companies operate in and, ﬁnally, the supply chain management philosophy status is deﬁned according to whether the companies are aware and adopt such strategies. In each of the four metrics, as these have been deﬁned by Johansson et al. (1993), six factors have been used to measure value. The selection of the 24 factors used in this study is the result of an extensive literature review based on Lagoudis et al. (2006). A detailed presentation of each of the four factors along with the crystallised attributes follows. Quality has been dealt in existing literature from a variety of points of view as well as disciplines. Studies have focused on the quality of products (Houser & Claussing, 1998) or the quality of the service provided (Teas, 1994). In this study, quality is related to shipping by focusing on those quality factors that actually add value to shipping companies. The factors used are (i) appropriate and quality equipment (Abshire & Premeaux, 1991), (ii) availability of creative top management (Menon, McGinnis, & Ackerman, 1998), (iii) reputation and reliability (Brooks, 1990; Murphy, Daley, & Hall, 1997), (iv) ﬁnancial stability (Menon et al., 1998), (v) skills and knowledge of operating personnel (Liberatore & Miller, 1995)

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and (vi) development and maintenance of good relationships with customers and suppliers (Martin et al., 1988). Service level is an issue that has attracted special attention as customer satisfaction guarantees the survival and success of companies in the modern business environment (Levy, 1997). This research focuses on the service factors that add value to shipping management companies emphasising on the (i) ability to carry large and/or odd-sized consignments (Stopford, 1997; Liberatore & Miller, 1995), (ii) professionalism in customer support (Abshire & Premeaux, 1991), (iii) ﬂexibility to meet customer demand and market changes (Abshire & Premeaux, 1991; Martin et al., 1988), (iv) responsiveness to unforeseen problems (Menon et al., 1998), (v) willingness to negotiate cost and service changes with customers and suppliers (Liberatore & Miller, 1995; Murphy et al., 1997) and (vi) provision of reliable and efﬁcient services by the ports (Brooks, 1990). Time has always been a central issue of research in management and much of the literature in different ﬁelds has focused on it. Especially in the supply chain management and logistics ﬁeld much attention has been given on reducing production lead times and delivery times (Mason & Towill, 1999). In the transport industry time has always been a central issue; shipping management companies and ports invest continuously in better and more reliable equipment in their effort to minimise transport times (Laine & Vepsalainen, 1994). The time-related factors used for the purpose of this study are (i) frequency of voyages (Bagchi, Raghunathan, & Bardi, 1987; Brooks, 1990), (ii) transit time (Martin et al., 1988), (iii) on-time pick-up and delivery (Menon et al., 1998), (iv) time required for introduction of additional ﬂeet and services (Stopford, 1997), (v) on-time information and delivery by the supplier (Martin et al., 1988) and (vi) quick vessel turnaround (Laine & Vepsalainen, 1994). Cost minimisation is the main goal for all companies regardless of the industry of operation. When it comes down to proﬁt maximisation or the improvement of effectiveness, cost is always considered to be the factor that plays the most important role. A number of studies have dealt with cost issues but from the shippers’ point of view and they have been related to carrier selection issues (Brooks, 1990; Liberatore & Miller, 1995). In this study, the cost factors that are considered to add value to the shipping companies are (i) administration (Hussain & Gunasekaran, 2001), (ii) cost of quality assurance of service (Williams, van der Wiele, & Dale, 1999), (iii) spares and supplies inventory (Liberatore & Miller, 1995), (iv) insurance (Stopford, 1997), (v) company restructuring (Gibson, Sink, & Mundy, 1993) and (vi) operating costs (Bagchi et al., 1987; Gibson et al., 1993).

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4.3.2. Sample Response Rate The total number of companies which constitute the sample was 150 of which 83 answered. Nevertheless from these 83 responses 9 were not completed appropriately reducing the number of acceptable responses to 74. Table 4.1 presents the response rates in detail using the method advised by the Council of American Survey Research Organisations (Wiseman & Billington, 1984). To achieve the response rate illustrated in Table 4.1 a set of processes was followed, presented in Table 4.2. A four-step approach has been followed in many studies conducted in various areas of research. An extensive amount Table 4.1.

Response Rates.

Total number of sampling units Total number of respondents Total number of eligible respondents Total number of non-eligible respondents Percentage of eligible ﬁrms [74/83] Total number of non-respondents [12083] Expected number of eligible ﬁrms in non-respondents [37 (74/83)] Response rate [(74 100)/(74+33)] a

120 83 74 9a 89.15% 37 33 69.15%

Three were returned totally incomplete and six were returned only with a few sections ﬁlled in.

Table 4.2. Step 1: Pre-Notiﬁcation Letter

Step 2: Cover Letter with Questionnaire

Step 3: Reminder Letter

Step 4: Phone-Call Reminder

Data Generation Processes.

It included all the relevant information concerning the purpose of the study informing the respondents of the reason for being selected. Conﬁdentiality issues also addressed at this stage. The letter was addressed to the contact person indicated by the databases used and signed by the researcher on headed paper. The cover letter was addressed to the same person as the prenotiﬁcation one reminding the respondent about the purpose of the study and emphasising the conﬁdentiality of the research and assuring that a copy of the results will be sent at the end of the study. Letter written on headed paper. Apart from the cover letter and the questionnaire a pre-paid return envelope was included as well. This was used as a reminder and was sent to the respondents one week after the questionnaire. Addressed to the same contact person and written on headed paper This ﬁnal step took place a month after the reminder letter had been sent. Telephone calls were made only to those companies that had not responded until that point in time.

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of literature has focused on the effectiveness of each of these steps and the reasons that they should be adopted in a research methodology (Cavusgil & Elvey-Kirk, 1998).

4.4. RESEARCH FINDINGS 4.4.1. Sample Analysis The sample used in this study consisted of Greek shipping companies, which had the following characteristics:

Had ofﬁces in Greece. Operated a ﬂeet of at least ﬁve vessels. Were not passenger operators. Operate either locally, regionally or globally.

The decision for selecting Greek shipping companies was based on the fact that Greece has a long tradition in the shipping industry and controls about one-ﬁfth of the worlds’ dwt capacity (ISL, 2005). The reason for following a stratiﬁed selection of the sample instead of a random one was the fact that the aim of this study is to focus on medium-sized and large companies. Thus only companies that own or operate a ﬂeet of at least ﬁve vessels have been included. Passenger operators – such as ferry and cruise companies – have been excluded as they refer to different markets with signiﬁcantly different characteristics compared to those involved in the transportation of commodities or ﬁnished goods. This chapter aims at studying Greek shipping companies operating locally, regionally or globally and dealing with the physical movement of materials. Companies in the sample could be categorised as middle and large size ones. Using the analysis of Petropoulos (2003), middle size deﬁnes those shipping companies that operate ﬂeets of 5–14 vessels and large companies those managing more than 15 vessels. As presented in Fig. 4.2 the sample was composed of medium-sized companies by 85 percent and 15 percent by large ones. Among the middlesize companies almost three quarters had a single sector strategy which means that they operated in one of the three sectors under study; dry bulk, liquid bulk or specialised as deﬁned by Stopford (1997). The case for the large shipping management companies is much different since companies were split in half on the basis of the strategies followed (active in either one or in more than one sector).

The Competitive Advantage in the Greek Shipping Industry

Fig. 4.2.

Fig. 4.3.

105

Sample Characteristics.

Supply Chain Awareness Status.

Finally, in terms of supply chain awareness, as seen in Fig. 4.3, six out of ten companies were actively pursuing such strategies being conscious that they are part of a supply chain. The level of awareness is still at a considerably low level when compared to other industries such as the automotive and manufacturing in general (Naylor et al., 1999). Companies that operate in the specialised sector are the most aware (0% nonawareness) and those operating in the dry bulk the least, as almost one in two companies do not adopt such strategies. This can be explained by the fact that both specialised and liquid bulk carriers charter their ships on a time-charter basis and have developed strong relationships with their charterers. Thus, companies realise that their services are a part of a supply chain, this of their clients. More importantly, to achieve employment they accept to be vetted by the charterers at both company and ship

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level. Thus, they are inclined to invest in aligning their systems to those of other parts of the supply chain of their charterers they are themselves a part of. The limited awareness of the dry bulk shipping companies can be explained by the fact that they operate in charter markets that are competitive and rely more on the spot market for the chartering of their ships. Seen from a transaction cost (Williamson, 1985) point of view, companies operating in specialised and liquid bulk create permanent or long-term relationships with their charterers, which on one hand reduces the cost and the risk of the frequent transactions involved, and on the other hand makes them more dependent on the supply chain of their charterers as it increases their resources speciﬁcity. On the contrary, dry bulk shipping companies that are more inclined to charter their ships on a spot basis are based more on the market for their transactions, which means that they neither tie themselves to speciﬁc transaction counterparts nor do they adjust their resources to ﬁt the needs of speciﬁc charterers. Besides, the complexity of operations in the three distinct sectors differs. Both specialised and liquid cargo vessels appear to have more complex logistic operations compared to the dry cargo ships due to different requirements of cargoes, different regulations, ports, etc. This complexity makes specialised and liquid cargo carriers more dependent on their suppliers’ accuracy of service. This factor further explains the different levels of adoption of a supply chain perspective prevailing in each sector.

4.4.2. Company Size and Value To be able to identify the value of each factor, respondents were initially asked to rank the factors in terms of importance and then deﬁne how well they considered their company to perform on each of these attributes. As it can be seen in Table 4.3 quality holds a dominant place among middle and large-size companies as it is the highest ranked criterion. So, there is a strong indication that quality-related factors are those that receive most of the attention of these enterprises as it is thought that they contribute the most to the creation of value. This is validated by the level of performance they are perceived to achieve the respective score being the highest among all four key factors. Cost criteria exceed marginally service ones in terms of importance. Due to the marginal differences observed it could be assumed that the contribution of service and cost to the overall value is of equal importance.

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Table 4.3.

Ranka Total Medium Large Performanceb Total Medium Large a

Value Contribution of Key Metrics Based on Size. Quality

Service

Cycle Time

Cost

1 (1.92) 1 (1.88) 2 (1.97)

3 (2.20) 2 (2.23) 3 (2.06)

4 (3.38) 4 (3.19) 4 (3.69)

2 (2.15) 3 (2.30) 1 (1.91)

5.89 5.82 5.88

5.78 5.80 5.69

5.10 5.18 5.06

5.58 5.66 5.56

The scale is from 1 to 4 with 1 being the most important factor. The scale is from 1 to 7 with 7 being the most important factor.

b

Nonetheless, for the large Greek shipping companies the cost attribute seems to be the most important one with quality coming second. This ﬁnding could be attributed to the maturity that big companies have achieved at the quality level which enables them to focus more on cost-efﬁcient operations. An indication of the achieved maturity is the existence of certiﬁed quality and environmental management systems according to the Standards ISO 9001:2000 and ISO 14001. It has been found that the vast majority of certiﬁed Greek-owned shipping companies are of large size. Moreover, many have developed and implemented their own quality management systems with ISO standard certiﬁcation simply conﬁrming the implementation of their system (Theotokas & Kaza, 2006). This means that for these companies the objective would be to deliver quality at the minimum cost possible, since quality performance would be considered more or less standard in this context. Conversely, companies of medium size that have not had their quality management system certiﬁed yet are at a stage where they intend to implement quality systems to their operations to be able to compete in the modern environment; the stage they are at explains the high level of importance they attribute to the quality metric. Finally, an interesting result is the fact that time factors do not seem to be appreciated by the shipping companies in the sample since they have been ranked low. A reason that could considerably explain this ﬁnding is the fact that a certain level of maturity in the attributes encapsulated in this criterion has been reached by these companies. Having a more in-depth look at the quality factors it can be seen that there is a consensus among the Greek sampled companies: quality of

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Table 4.4.

Value Contribution of Quality Factors Based on Size.

Equipment Management Reputation

Ranka Total Medium Large Performanceb Total Medium Large a

5 (3.96) 5 (3.83) 5–6 (4.19) 5.10 5.20 5.00

4 (3.33) 4 (3.18) 4 (3.38) 5.47 5.52 5.25

2 (2.81) 2 (2.76) 3 (3.13) 6.08 6.20 5.56

Financial

Personnel

Customer– Supplier Relationships

3 (3.06) 3 (3.00) 2 (3.03)

1 (2.65) 1 (2.47) 1 (2.94)

6 (4.13) 6 (4.06) 5–6 (4.19)

5.94 5.95 5.94

5.58 5.75 5.25

5.67 5.68 5.31

The scale is from 1 to 6 with 1 being the most important factor. The scale is from 1 to 7 with 7 being the most important factor.

b

personnel is considered to be the most important factor (Table 4.4). Reputation comes second in terms of importance for the medium-size companies whereas ﬁnancial issues seem to be more signiﬁcant for the large ones. A rather important ﬁnding is that management issues are not considered to add much value since management procedures and structures are characteristics that any shipping management company should have in order to operate competitively. The values that the Greek shipping industry, and especially bulk shipping has used to build upon should be taken into account. Trust is the ﬁrst and most important among them. The worldwide shipping business has developed its own culture, based on trust and reputation of its members (Harlaftis & Theotokas, 2004). Thus, after the well-trained and motivated personnel, reputation is considered as the next most important factor that could create conditions of trust to the companies. While personnel is the factor that activates equipment and management systems to create value, reputation is the factor that attracts customers and reduces cost as it enables networking and reduces transaction costs (Harlaftis & Theotokas, 2004). To a certain extent reputation is a factor that stands by itself in terms of signiﬁcance. However, at the same time reputation is the result of the remaining factors included in Table 4.4. The ranking of management in only the fourth place can be explained by the reduced complexity of company organisation that allows the implementation of more traditional methods to achieve coordination. This coordination is achieved and assured by the quality of the company

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personnel. The common ﬁnding in the literature that quality management systems bring to the fore the key role of management is not applicable in the case of the Greek shipping industry as the above results indicate. In terms of the service attributes presented in Table 4.5, customer support is believed to add more value to large companies while responsiveness to unforeseen problems ranks high for the medium ones in size. Nevertheless, due to the marginal differences in the scores of customer support and responsiveness to problems in the case of the medium-size companies it can be stated that the former factor emerges as the overall more important one for the Greek shipping companies. The ability to carry odd consignments along with the level of port services and the ability to negotiate freight rates are low-ranked attributes with more modest performance scores which indicate a rather low appreciation to value contribution. It is essential at this point to stress the supply chain management focus that large-size companies prove to have compared to the middle-size ones since they seem to be more customer oriented ranking the customer support attribute at the highest place. The supply chain management philosophy that large companies follow can also be seen in Table 4.6, where, among service attributes, the on-time delivery factor is ranked ﬁrst. The high level of performance these management companies obtain from their operation is an additional indication of the value contribution this factor is considered to have. Medium-sized companies seem to care more for the time spent in port since they are exposed more to the pressures of spot freight rate markets as illustrated in Fig. 4.4. Table 4.5.

Value Contribution of Service Factors Based on Size.

Consignments Customer Flexibility Responsiveness Support to Problems Ranka Total Medium Large Performanceb Total Medium Large a

5 (4.49) 5 (4.24) 6 (4.97) 4.54 4.59 4.25

1 (2.26) 2 (2.42) 1 (2.16) 5.88 5.82 5.63

3 (2.55) 3 (2.58) 3 (2.50) 5.51 5.43 5.63

2 (2.51) 1 (2.35) 2 (2.41) 5.96 6.05 5.81

The scale is from 1 to 6 with 1 being the most important factor. The scale is from 1 to 7 with 7 being the most important factor.

b

Negotiations

Port Services

4 (3.99) 4 (4.05) 4 (4.03)

6 (4.56) 6 (4.34) 5 (4.88)

5.28 5.25 5.25

4.76 4.91 4.50

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IOANNIS N. LAGOUDIS AND IOANNIS THEOTOKAS

Table 4.6.

Ranka Total Medium Large Performanceb Total Medium Large a

Value Contribution of Time-Related Factors Based on Size.

Frequency

Transit Time

On-Time Delivery

4 (3.31) 3 (3.22) 4 (3.31)

3 (3.14) 4 (3.31) 2 (2.75)

2 (2.72) 2 (2.77) 1 (2.69)

5.18 5.30 5.44

5.19 5.25 5.06

5.51 5.59 5.56

Fleet Supplier Introduction Information

6 (4.69) 6 (4.53) 6 (4.47) 4.71 4.86 4.88

5 (3.63) 5 (3.73) 5 (3.78) 5.29 5.30 5.25

Turnaround

1 (2.60) 1 (2.31) 3 (3.06) 5.33 5.36 5.25

The scale is from 1 to 6 with 1 being the most important factor. The scale is from 1 to 7 with 7 being the most important factor.

b

Fig. 4.4.

Charter Strategies.

Finally, among cost-related factors, operation processes and costs seem to add most of the value to Greek shipping companies as shown in Table 4.7. Large-size companies differ since they consider that insurance costs seem to pay-off more than any other cost element. This result can be explained by the fact that their ability to obtain and maintain a high level of quality of the services they provide, along with the increased bargaining power their ﬂeet size provides them with, enables them to lower their

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The Competitive Advantage in the Greek Shipping Industry

Table 4.7.

Value Contribution of Cost Factors Based on Size.

Admin Ranka Total Medium Large Performanceb Total Medium Large a

5 (3.58) 5 (3.74) 3 (3.19) 5.21 5.11 5.44

Service Quality Inventory Insurance Restructuring Operations

4 (3.20) 3 (3.11) 5 (3.31) 5.36 5.48 5.25

3 (3.15) 2 (3.06) 4 (3.28) 5.19 5.14 5.44

2 (3.07) 4 (3.18) 1 (2.72) 5.68 5.70 5.56

6 (4.92) 6 (4.61) 6 (5.41) 4.40 4.45 4.44

1 (2.43) 1 (2.23) 2 (3.09) 5.60 5.57 5.56

The scale is from 1 to 6 with 1 being the most important factor. The scale is from 1 to 7 with 7 being the most important factor.

b

insurance costs considerably. Medium-sized companies seem to achieve a high level of performance from insurance costs but for different reasons; these are related to the ‘‘hedging’’ role insurance plays in their case as otherwise the cost of unforeseen problems would be beyond their ﬁnancial capabilities.

4.4.3. Sector Strategies and Value Creation In this section, Greek shipping management companies are studied based on the strategy they adopt in terms of the number of sectors they operate in. Two groups of companies have been deﬁned according to the specialisation of their ﬂeets; those that operate in only one sector (single) and those that operate in more than one (diversiﬁed). As seen in Table 4.8, diversiﬁed companies obtain more value from the attributes encapsulated in the cost metric, whereas companies operating in a single market obtain their competitive advantage from quality factors. These results align with the rest of the analysis so far since single sector companies are usually medium or small in size and those that operate in more than one sector usually operate large ﬂeets of more than 15 vessels. Again time factors are considered to have the least contribution to value creation by the sampled companies. Among quality-related factors, diversiﬁed companies consider that they obtain value not only from their personnel, which ﬁts well with the results discussed in the previous section, but also from management as illustrated in

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IOANNIS N. LAGOUDIS AND IOANNIS THEOTOKAS

Table 4.8.

Value Contribution of Key Metrics Based on Sector Strategy.

Diversiﬁed: Ranka Single: Ranka Diversiﬁed: Performanceb Single: Performanceb a

Quality

Service

Cycle Time

Cost

3 (2.30) 1 (1.72) 5.78 5.96

2 (2.17) 3 (2.24) 5.61 5.85

4 (3.50) 4 (3.30) 5.00 5.13

1 (2.02) 2 (2.22) 5.48 5.63

The scale is from 1 to 6 with 1 being the most important factor. The scale is from 1 to 7 with 7 being the most important factor.

b

Table 4.9.

Diversiﬁed: Ranka Single: Ranka Diversiﬁed: Performanceb Single: Performanceb a

Value Contribution of Quality Factors Based on Sector Strategy. Equipment

Management

Reputation

5 (3.98)

1–2 (2.76)

3 (3.04)

4 (3.37)

1–2 (2.76)

6 (4.43)

6 (3.95) 5.13

4 (3.65) 5.65

2 (2.69) 6.00

3 (2.86) 5.83

1 (2.61) 5.65

5 (3.94) 5.35

5.08

5.38

6.13

Financial Personnel

6.02

5.54

Customer– Supplier Relationships

5.81

The scale is from 1 to 6 with 1 being the most important factor. The scale is from 1 to 7 with 7 being the most important factor.

b

Table 4.9. The complexity of the processes, which are required to operate a diversiﬁed ﬂeet, makes the quality of top management a basic requirement for their competitiveness. These companies, as already mentioned, would normally be supply chain aware as well. Also, apart form their equipment, both their human resources and their management systems are vetted by prospective customers. Thus, competencies at the management level deﬁne the ability of the companies to operate not only at a competitive cost level but also to establish relationships with customers and suppliers. Greek companies operating in only one sector rely – apart from personnel – more on the reputation attribute and less on management. This reliance on reputation is explained by the fact that the majority of these companies have neither the amount of resources nor the advanced management systems

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The Competitive Advantage in the Greek Shipping Industry

Table 4.10.

Value Contribution of Service Factors Based on Sector Strategy.

Consignments Customer Support Diversiﬁed: Ranka Single: Ranka Diversiﬁed: Performanceb Single: Performanceb a

Flexibility

Responsiveness Negotiations Port to Problems Services

6 (4.63)

1 (2.02)

3 (2.91)

2 (2.37)

4 (3.87)

5 (4.54)

5 (4.43) 4.39

2 (2.41) 5.87

1 (2.39) 5.52

3 (2.57) 6.04

4 (4.01) 5.09

6 (4.55) 4.61

4.63

5.88

5.52

5.94

5.40

4.81

The scale is from 1 to 6 with 1 being the most important factor. The scale is from 1 to 7 with 7 being the most important factor.

b

required to reduce the cost of the large number of transactions that their participation in the spot market creates. Thus, they pursue the alternative of network formation and participation to reduce transaction risks and costs. Networks are based on trust and reputation. The results of Table 4.10 show the tendency of large-size companies towards supply chain management strategies; customer support processes and functions are ranked ﬁrst. Smaller in size Greek shipping companies believe that the factor creating more value for them is ﬂexibility. These companies do not perceive themselves as part of a wider supply chain and do not rely as much as the larger in size and diversiﬁed companies on permanent relationships with charterers. Thus, they are more interested in preserving their ﬂexibility as they consider it crucial for the instant adaptation to the changing needs of the bulk freight markets. Of special interest is the fact that both single and diversiﬁed companies seem to perform rather well in terms of customer support since they believe that their customers are satisﬁed with the level of service they provide. In terms of time-related factors there is an alignment of the importance ranking from either single or diversiﬁed Greek shipping companies, as seen in Table 4.11. Turnaround time is the factor that is believed to add most value among time-related attributes with on-time pick-up and delivery following next. The analysis of the previous section showed that large in size Greek companies are engaged in time charter contracts and adopt supply chain management strategies accordingly, thus on-time delivery is evidently more important to them. The importance of turnaround time revealed here shows also an emphasis on efﬁcient vessel utilisation.

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Table 4.11.

Frequency

Transit Time

On-Time Delivery

4 (3.46)

3 (3.09)

2 (2.85)

6 (4.48)

5 (3.72)

1 (2.67)

4 (3.29) 5.04

3 (3.17) 5.00

2 (2.64) 5.39

6 (4.77) 4.52

5 (3.55) 4.96

1 (2.58) 5.04

Diversiﬁed: Ranka Single: Ranka Diversiﬁed: Performanceb Single: Performanceb a

Value Contribution of Time Factors Based on Sector Strategy.

5.23

5.29

5.58

Fleet Supplier Turnaround Introduction Information

4.79

5.46

5.46

The scale is from 1 to 6 with 1 being the most important factor. The scale is from 1 to 7 with 7 being the most important factor.

b

Table 4.12.

Diversiﬁed: Ranka Single: Ranka Diversiﬁed: Performanceb Single: Performanceb a

Value Contribution of Cost Factors Based on Sector Strategy. Admin

Service Quality

Inventory

5 (3.54)

3 (3.20)

2 (2.80)

4 (3.43)

6 (5.48)

1 (2.46)

5 (3.57) 5.04

3 (3.15) 5.00

4 (3.33) 5.26

2 (2.90) 5.17

6 (4.67) 4.17

1 (2.45) 5.30

5.27

5.54

5.19

Insurance Restructuring

5.94

4.50

Operations

5.75

The scale is from 1 to 6 with 1 being the most important factor. The scale is from 1 to 7 with 7 being the most important factor.

b

Finally, operations appear to be the most important factor within the cost category as illustrated in Table 4.12. A signiﬁcant difference compared to the analysis of cost in section 4.4.2 is that inventory costs are considered of importance to diversiﬁed companies, a result which is well aligned to those found in the supply chain management and economic literature. High maintenance costs deriving from operating a diversiﬁed ﬂeet is an issue that impedes the achievement of economies of scale. Once more administration costs and restructuring appear to be less signiﬁcant since the management structure of diversiﬁed companies enables them to function efﬁciently.

The Competitive Advantage in the Greek Shipping Industry

115

4.5. CONCLUSIONS In this chapter, the example value creation by Greek shipping companies in shipping operations has been studied using a supply chain management and logistics theoretical framework. The model adopted for the purposes of this study is Johansson et al.’s (1993) four key metrics – quality, service, time and cost – in order to deﬁne and evaluate the processes that add value to Greek shipping management companies. The use of such a methodology was intended to ﬁll the existing void in literature, since most of the studies in the shipping industry have followed an economic (either macro or micro) or purely managerial approach. The authors explore the factors from which shipping management companies obtain their competitive advantage ﬁrstly through the identiﬁcation of the operations – activities, which are considered to add value and secondly through a ﬁeld research. For the purposes of this study, the sample used was based on Greek shipping management companies operating in bulk shipping markets: dry, liquid and specialised. The analysis of the ﬁndings showed that there is a differentiation in terms of the factors that add value to Greek shipping companies when these are categorized by size, sector strategy and supply chain awareness. Thus companies obtain a competitive advantage from different attributes depending on the management philosophy adopted by their owners. This philosophy is present at the strategic business level where decisions on ﬂeet size are taken and at the functional level where sector differentiation and supply chain management strategies are adopted. The results have shown that large companies and those that adopt diversiﬁed strategies in terms of the number of sectors they operate in, seem to be more supply chain aware and adopt related strategies. This supply chain management philosophy is also observed in Greek shipping management companies that operate ﬂeets that belong to the liquid bulk and specialised sectors. This can be explained by the fact that the nature of the business environment for both specialised and liquid bulk carriers has lead them to charter their ships on a time-charter basis (Stopford, 1997). Thus in order to compete, they have developed strong relationships with their customers (charterers) by investing in developing their systems to the level that could be compatible to those of the other parts of the supply chain. On the contrary Greek medium-sized companies – operating mainly in the dry bulk sector – do not seem to follow supply chain strategies mainly due

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to the nature of the chartering strategies they follow. This is due to the fact that they operate in charter markets that are competitive and rely more on the spot market for the chartering of ships (Stopford, 1997). Another characteristic ﬁnding is that Greek large companies – as diversiﬁed ones – give special attention to cost-related factors, a result compatible with the suggestions of analyses of competitiveness at ﬂeet level as this of Thanopoulou (1998) which evaluate the competitive potential of ﬂeets on the basis of a strategy of cost minimisation suited to the competitive nature of bulk markets. Medium-sized companies and those operating in one sector seem to appreciate more the factors related to quality with reputation standing out while Greek large shipping companies focus more on the quality of their personnel a result which is compatible with those obtained by studies conducted on the transport industry by Martin et al. (1988, 1997). As far as service-related factors are concerned, it is clear that for the large size and diversiﬁed companies customer support is the one that adds value. The supply chain awareness these companies have has made them more customer oriented in contrary to the medium size and single sector companies, which seem to obtain value from processes that are related to efﬁciently overcoming unforeseen problems. The former is in accordance to the works of Abshire and Premeaux (1991) and Martin et al. (1988) who show that the transport industry shifts towards the need of more stable relationships between customers and suppliers aiming at the improvement of the service level. The works of Menon et al. (1998) and Panayides and Cullinane (2002) provide additional evidence since efﬁcient and responsive solutions to problems provided by carriers strengthens the relationship between the two parties involved in the carriage of goods by sea. In reference to quality, personnel seems to be the most important attribute for the competitive operation of Greek shipping companies, which is along similar lines with the results of Liberatore and Miller (1995) followed next by reputation. That reputation is or is perceived to be a critical attribute by shipping companies is corroborated by a number of studies (Brooks, 1990; Murphy et al., 1997; Panayides & Cullinane, 2002). Finally, time-related factors are the least appreciated ones by sampled Greek companies in general since they are exposed to a number of external uncontrollable factors. Among the time-related factors, those related to the efﬁciency of operations are the dominant ones with turnaround and ontime delivery ranking very high. The studies of Menon et al. (1998) and Laine and Vepsalainen (1994) in the shipping industry have shown the

The Competitive Advantage in the Greek Shipping Industry

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signiﬁcance of these two attributes in day-to-day operations and in the creation of long-term partnerships between shippers and transport service providers. Given that the vast majority of Greek-owned shipping companies are active in the freight markets of the bulk shipping sector of shipping, the results of this analysis should be considered as representative of companies participating in this sector of the shipping industry. Despite the fact that there may be differences related to cultural backgrounds, the results could be generalised to form the basis for further study of the various aspects of shipping operations regardless of ﬂeet or company origin adopting a supply chain management point of view and looking on this basis to track the elements which render to Greek companies as competitive as their leading position in the world ﬂeet suggests.

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CHAPTER 5 EMPLOYMENT PRACTICES AND GREEK SHIPPING COMPETITIVENESS Ioannis Tsamourgelis ABSTRACT During the last decade the number of Greek seamen has continuously been declining under the influence of the seafarers’ employment on ocean-going shipping. Exploring the determinants of negative employment trends in the seafaring labour market, we focus on the role of wage inertia in reducing employment, along with structural mismatch problems. The high wages of Greek seafarers are associated with the monopsony power of Greek shipowners over Greek seafarers and disincentives of getting employment on ships not contracted with the Greek Seamen’s Pension Fund (NAT). Greek shipowners employ Greek seafarers for the crucial positions of a vessel’s crew regardless of the high wages they allocate to the latter, in return for efficiency and loyalty. For the non-critical positions they prefer cheap labour force, which therefore leads to the substitution of Greeks by foreigners and the increased participation of ratings in the formed Greek seafarers’ unemployment levels.

Maritime Transport: The Greek Paradigm Research in Transportation Economics, Volume 21, 121–170 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 0739-8859/doi:10.1016/S0739-8859(07)21005-4

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5.1. THE GREEK SEAFARING LABOUR MARKET: IS THERE A COMPETITIVE EDGE? Evidence from ocean going ﬂeet developments during the period 1996–2004 suggests that employment levels of Greek seafarers have declined substantially. More precisely, the number of Greek seafarers working on Greek-ﬂag ships and Greek-owned ships linked to the Seamen’s Pension Fund (NAT) in 2004 dipped under 18,000, which is 4.5% less than 2002, and 27.5% down in comparison with a decade ago. The seafarers’ employment on ocean-going shipping plays a signiﬁcant role in the formation of this outcome. The main explanation provided by the relevant literature concerns the constantly growing numbers of foreign seamen employed on Greek-controlled ships, due to their relatively lower cost of employment (e.g. Donn, 1989; King, 2000; Sambracos &Tsiaparikou, 2001; and a study provided by U.S. Maritime Administration (MARAD) (2002)) In the light of this event, there are serious doubts about the competitiveness of the Greek register, as long as it is linked to the employment of ‘‘expensive’’ Greek seafarers. For the purpose of this study, we surveyed the Greek seafarers’ labour force and its relative labour market conditions. According to the ﬁndings, the recent evolution in the shipping industry has led to lower employment levels per ship due to technological changes, in parallel with extensive substitution of Greek seafarers by foreigners, especially at the ratings level. The wage costs of Greek seafarers have played a role in this development, since they are higher in relation to their foreign colleagues employed in the Greek-controlled ﬂeet and despite the fact that they are at a low level in relation to the seafarers’ wages from other advanced shipping OECD countries. However, the seafarers’ labour market regime in Greece, and especially the regime that is related to the social security system, creates national monopsony of shipowners over Greek seafarers, since they face serious disincentives to seek and get employment on ships under non-Greek ﬂag, not contracted with NAT. Therefore, the Greek seafarers face a high probability of sustaining unemployment once they do not ﬁnd a job on ships contracted with NAT, which rationalizes a risk premium added to wage cost when employed, in order to compensate for the periods out of employment. Moreover, there is strong evidence of the productivity differential between Greek seafarers and their foreign colleagues, especially in terms of efﬁciency at work and loyalty, which makes Greek seafarers and especially ofﬁcers, rather employable even at the expense of a higher wage cost. In respect of unemployment in the sector, there is evidence on hysteresis which is related to wage inertia as well

Employment Practices and Greek Shipping Competitiveness

123

as to structural problems that give rise to mismatch between vacancies and unemployed seafarers in the specialties they serve. The rest of the Chapter is organized as follows. Section 5.2 reviews the available statistical data on the Greek seafarers’ labour market and focuses on its international position as well as its position in relation to the total Greek labour force. This analysis provides the ground for proceeding to a ﬁrst presentation of the role of foreign seamen that get employment in Greek-controlled ﬂeet. Section 5.3 examines Greek ocean-going shipping in the international setting, its international competitiveness and the inﬂuence it exercises on the seafarers’ employment. Section 5.4 takes a closer look at the role of technological changes associated to the vessel’s productions procedure and their effect on crew levels. Section 5.5 focuses thoroughly on the substitution of Greek seafarers by foreigners. Within the setting described in the previous sections, Section 5.6 concentrates on the Greek seafarers’ employment on ships registered with NAT and thus, associated to the Greek seafarers’ labour and social security regime. In this part, we examine the role of the law on organic composition of the crews and the role of NAT, which imposes monopsony power of shipowners over Greek seafarers. Section 5.7 examines wages and productivity differentials of Greek seafarers in relation to their colleagues that get employment in Greekcontrolled ships while we get a closer look on determinants of these differentials. Here we establish the role of national monopsony in increasing the seafarers’ wages, as well as the role of higher productivity of the Greek seafarers (in terms of efﬁciency and loyalty) in the determination of these higher wages. Section 5.8 provides an analysis on the Greek seafarers’ unemployment, focusing on the hysteresis phenomenon which occurs due to wage inertia and structural mismatch problems. Section 5.9 reviews employment policies in the Greek seafarers’ labour market, where both passive and active policies present small effectiveness in combating unemployment in the sector. In the light of the aforementioned discussion, an employment decision model of the Greek shipowners is presented, according to which, the Greek seafarers are employed for the critical crew position on the ship at the expense of a higher wage cost due to their higher effort and productivity. Thereafter, shipowners prefer cheap seafarers’ labour provided by foreigners for the non-critical crew position. In the same section a mathematical presentation of the discussed model is presented. The ﬁnal section of the chapter presents the conclusions of this study and its policy implications.

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5.2. GENERAL TRENDS According to the data from the Censuses of the Seafarers’ Labour Force conducted by the National Statistical Service of Greece (NSSG) 1996–2004, the Greek seafarer labour force in 2004 was 19.8 thousand, i.e. 24.2% lower than the relevant number of seafarers in 1996.1,2 As illustrated in Table 5.1 where the seafarers’ employment and labour force data are presented, it is evident that throughout the period of 1996–2002 the Greek seafarer labour force was declining. The only exemption was a small recovery of about 1.5% that took place in 2004 compared to 2002. Employment levels during this period also declined. In 2004, the total employed labour force was 17.9 thousand which was 25.4% lower than the employment levels in 1996 (Tables 5.2 and 5.3). A thorough investigation of the Greek seafarers’ labour force data reveals the important role of ocean-going shipping in the formation of this pattern (see Tables 5.4 and 5.5 and Fig. 5.1). More speciﬁcally, during the period 1996–2004, the number of employed seafarers in Greek ocean-going shipping decreased almost by 37%. Thus, in 2004, employment on ocean-going shipping in relation to the total seafarers’ employment was 40%. The same ratio in 1996 was 48%, while during the period 1996–2004, this ratio reached a minimum of 35%. Following the developments in the employment of ocean-going shipping, the participation of the seafarer employment in short-sea shipping, which contributes to the formation of the total seafarers’ employment levels, remains signiﬁcant despite the relative decline in the total number of seafarers employed in the speciﬁc sub-sector. In addition, employment levels stemming from short-sea shipping also diminished by 28% during the period 1996–2004. As a result of the above developments, there was an Table 5.1.

Total Greek Seafarers’ Labour Force 1996–2004.

Year

Total Seafarers Labour Force

Seafarers’ Labour Force Growth Rate (%)

1996 1998 2000 2002 2004

26,217 22,556 19,685 19,575 19,865

13.96 12.73 0.56 +1.48

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004; Unemployment data from GENE (i.e. State Service for Seafarers Reemployment, August 1996–December 2004); Department of Seamen labour.

125

Employment Practices and Greek Shipping Competitiveness

Table 5.2.

Labour and Seafarers Labour Force in Greece 1996–2004 (in 0.000).

Year

Labour Force (Thousand)

Employment (Thousand)

Seafarers’ Labour Force

Employed Seafarers

Seafarers’ Labour Force (as % of Labour Force)

Employed Seafarers (as % of Employment)

1996 1998 2000 2002 2004

4318.3 4512.8 4617.0 4652.2 4823.2

3871.9 4023.7 4097.9 4190.2 4330.5

26,217 22,556 19,685 19,575 19,865

23,992 20,505 18,450 18,747 17,897

0.61 0.50 0.43 0.42 0.41

0.62 0.51 0.45 0.45 0.41

Sources: NSSG ‘‘Labour Force Statistics’’, 2005, p. 5; NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004.

Table 5.3.

Total Unemployed and Unemployed Seafarers in Greece 1996–2004 (in 0.000).

Year

Total Unemployed

Unemployed Seafarers

Unemployed Seafarers in Total Unemployed (%)

1996 1998 2000 2002 2004

446.4 489.2 519.3 462.1 492.7

2.225 2.051 1.235 0.828 1.968

0.50 0.42 0.24 0.18 0.40

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004. GENE, August 1996–December 2004, Department of Seamen labour.

equivalent importance of liner shipping and ocean-going shipping in the ﬁnal Greek seafarer employment levels. From the ﬁrst detection of the data, the increasing role of foreign seafarers is evident in the formation of crews of ships under Greek ﬂag and ships owned by Greeks under foreign ﬂag registered with NAT. In 1996 non-Greeks occupied almost 35% of the employment positions on the above mentioned ships, while in 2004 this ratio reached 42% (see Table 5.4). Moreover, despite the reduction of the total employment of Greek and foreign seafarers by 15% during 1996–2004, the decrease of employment levels of foreign seamen was just 2.3%, almost 10 times lower than the percentage reduction of Greek seafarers. As expected, non-Greek seafarers

126

IOANNIS TSAMOURGELIS

Table 5.4. Year

1996 1998 2000 2002 2004

Greek and Non-Greek Seafarers Employed in Liner, Ocean Going and Short-Sea Fleet Contracted with NATa. Short-Seaa

Ocean Going

Liner

Greeks

Non-Greeks

Greeks

Non-Greeks

Greeks

Non-Greeks

11,272 7317 6445 6532 7114

11,008 9775 8595 11,807 10,941

4674 4871 4306 4492 3344

1651 3117 2283 2210 2028

7662 7879 7672 7539 7388

62 138 57 146 54

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004. a Ships over 100 grt during Censuses and under Greek ﬂag and Greek owned under foreign ﬂag.

Table 5.5. Percentage (%) of Employed Seafarers in Liner, Ocean Going and Short-Sea Fleet Registered with NATa. Year

Liner (%)

Ocean Going (%)

Short-Sea (%)

1996 1998 2000 2002 2004

32 39 42 41 41

48 36 35 35 40

20 24 23 24 19

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004 (processed). Ships under Greek ﬂag and Greek-owned ships under non-Greek ﬂag.

a

are mostly present in ocean-going shipping with the short-sea ﬂeet following, while the liner ﬂeet employs foreigners marginally. Table 5.6 presents the composition of foreign seafarers employed on ships of more than 100 gross tonnes (grt) under the Greek ﬂag or Greek owned under foreign ﬂag registered with NAT. As it is evident, the vast majority of foreign seafarers have origins from less developed and developing countries. At this point, it is worth mentioning however, that the three sub-sectors of shipping namely ocean-going, liner and short-sea shipping, operate under different terms and conditions which in their turn affect the terms and conditions of the relevant seafarers’ labour markets. It could be argued that especially for the ofﬁcers, the three seafarers markets tend to be independent from each other. This phenomenon underlies the importance of a study on the Greek seafarers’ substitution and mobility between the three sub-sectors.

Employment Practices and Greek Shipping Competitiveness

127

Fig. 1. Distribution of Greek Seafarers in Liner, Ocean Going and Short-Sea Fleet under Greek Flag and Greek Owned under Foreign Flag Registered with NAT (1996–2004).

However, the rest of the chapter focuses on the investigation of seafarers in ocean-going shipping, trying to identify the forces that give rise to the formation of employment levels in the sub-sector, under the general hypothesis that such an employment model adequately describes the determinant forces of the evolution of employment in the whole sector. 5.2.1. The Seafarer Labour Force and Labour Force in Greece The Greek seafarer labour force as a percentage of the total Greek labour force, declined from 0.62% in 1996 to 0.41% in 2004 (see Table 5.2). This decline was also present even in 2002, when the Greek seafarer-employed labour force increased relative to 2000. The increase of the seafarer labour force in 2004 – relative to 2002 – is attributed to the increase of unemployed seafarers which emerged from the relative increase of the seafarers’ employment in 2002. In this same year, the participation of unemployed Greek seafarers in the total number of unemployed workers in Greece reached 0.40% which is very close to the upper levels of the same ratio back? buck in 1996–1998. These divergences of employment – unemployment levels of the seafarers’ labour force relative to the total Greek labour force, emerge due to forces operating within the sector which will be examined later in this investigation. However, as is evident from data in Table 5.7, a very important diverging role is played by the increased participation of women in the Greek labour force

128

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Table 5.6. Seamen Employed, on 20th September 2004, in Greek Fleet Registered with NATa. Distribution by Nationality of Seamen and Category of Ships. Cargo Ships

Tankers

Category of Ships and Number of Seamen Passenger– Tourist Ships

Other

Total

Nationality of Seamen

9392

7413

13,525

590

30,920

Total

8630

6868

8508

590

24,596

4802 0 2.778 16 57 4 19 0 66 8 15 1 65 0 240 559

3690 0 2465 96 16 24 0 0 117 6 20 1 14 0 67 352

7590 0 134 0 36 0 0 0 0 0 5 15 27 0 189 512

590 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

16,672 0 5377 112 109 28 19 0 183 14 40 17 106 0 496 1423

On ships under Greek flag Greek Egyptian Philippinese Pakistanian Indian Shri Lanka Chile Portuguse Hondura Syrian Cyprian Ghana Indonesian Virmania Ukraine Other

762

545

5017

0

6324

351 1 218 1 0 0 5 0 1 14 4 0 0 167

196 0 286 0 0 0 0 0 15 0 0 0 0 48

678 9 651 0 671 9 33 28 395 5 6 0 388 2144

0 0 0 0 0 0 0 0 0 0 0 0 0 0

1225 10 1155 1 671 9 38 28 411 19 10 0 388 2359

On ships under foreign flag Greek Egyptian Philippinese Pakistanian Indian Shri Lanka Chile Portuguse Hondura Syrian Cyprian Ghana Indonesian Other

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 2004. Merchant ships of 100 grt, and over, under Greek ﬂag or Greek owned under foreign ﬂag.

a

129

Employment Practices and Greek Shipping Competitiveness

Table 5.7.

Employed Women and Employed Women in Greek Fleet Registered with NATa (1996–2004).

Year

Total Employed Women (Thousands)

Total Employed Women in Shipping (Thousands)

Employed Women in Shipping Relative to Total Employed Women (%)

1996 1998 2000 2002 2004

1680.9 1757.5 1832.4 1849.3 1961.3

0.227 0.249 0.276 0.275 0.222

0.016 0.017 0.018 0.018 0.013

Sources: NSSG ‘‘Labour Force Statistics’’, 2005, p. 5; NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004. a Ships under Greek ﬂag and Greek owned under non-Greek ﬂag.

which did not take place in the Greek seafarers’ labour force earlier (see also Thanopoulou, 1994). 5.2.2. Greek Shipping and the Seafarers’ Market in the International Setting The developments in the Greek seafaring labour market are clearly affected by the developments in the Greek maritime industry and especially in the ocean-going shipping. Within the period 1996–2004, 1998 was the year in which the Greek ﬂeet reached its lowest level in terms of size, despite its recovery in the size of the international ﬂeet (see Table 5.8). This was due to the collapse of the dry bulk carriers sectors of the Greek shipping industry which comprised more than one-third of the size of the Greek ﬂeet in the mid1990s (see also Thanopoulou, 1998). The recovery of the Greek ﬂeet after 1998 was followed by the period 2002–2004 when international freight rates reached subsequent maximum levels up until 2004, the last year of our period of interest. Between the years 2000 and 2004, the international ﬂeet increased up to 4% and reached 89,600 vessels. One of the characteristics of this new increase was the concentration of the international ﬂeet in big vessels – mainly tankers and bulk carriers – which gave rise to economies of scale. Owing to this increase in the international ﬂeet, the international seafarers’ employment levels recovered, reaching 1,062,000 employees (BIMCO/ISF, 2005). Between 2000 and 2004, the Greek-owned shipping industry followed the international trends in terms of size, despite the fact

130

IOANNIS TSAMOURGELIS

Table 5.8. Year

1994 1996 1998 2000 2002 2004

Size of International and Greek-Owned Merchant Fleet in Number of Ships and Gross Registered Tons.

International Fleet

Greek Fleet

Number of Ships

GRT (Thousand)

Number of Ships

GRT (Thousand)

Percentage of Number of Greek Ships (%)

Percentage of GRT of Greek Ships (%)

80,676 84,264 85,258 87,546 89,010 89,960

475,859 507,873 531,893 553,054 585,583 633,321

2149 2013 1903 1967 2051 2094

30,536 27,932 25,906 27,328 30,586 34,332

2.66 2.39 2.23 2.25 2.30 2.32

6.42 5.50 4.87 4.94 5.22 5.42

Sources: Lloyd’s Register of Shipping-Statistical Tables. NSSG Merchant shipping statistics 2005 (processed).

that in terms of numbers of ships the recovery did not fully catch up to the international trends due to the gradual concentration of the Greek ﬂeet in big size vessels. Thus, in 2004 there were 2094 ships under the Greek ﬂag, while the ships under Greek ownership and foreign ﬂag (independently from contracted pension fund) were 3379 (Greek Shipping Cooperation Committee, 2005). In the same year the Greek seafarers in this ﬂeet were 17,897, up to 57.88% of the total seafarers employed in vessels registered with NAT (see Table 5.9). This evidence reconﬁrms the signiﬁcant correlation between the Greek shipping industry and the international ﬂeet and the sustainability of the importance of Greek shipping in the international setting of the sector. The Greek-controlled mercantile ﬂeet remains the world leader (followed by Japan, Germany and China) annually carrying 16.1% of the world’s total volume of cargo. However, Greece’s premier market position in terms of ships over 1000 grt has declined by 2.2% during the years 2004–2006 as a result of two long overdue developments: the modernization of the Greek ﬂeet and consolidation in the sector (National Bank of Greece, 2006). Overall, however, it could be argued that Greek shipping remains a global leader despite intense international competition. At the same time, Greek seafarers remain signiﬁcant in the formation of the international seafarers, employment levels despite the fact that, countries that shift from the developing to the developed phase of their economic status (such as Greece during 1996–2004) are characterized by lower seafarers’ supply levels. According to data presented in BIMCO, in 2005

131

Employment Practices and Greek Shipping Competitiveness

Table 5.9.

Employed Seafarers in Greek Fleet Registered with NATa.

Year

Total

Greeks

Foreign

Greeks in Total (%)

Foreign in Total (%)

1996 1998 2000 2002 2004

36,766 33,669 29,385 32,926 30,920

23,992 20,505 18,450 18,747 17,897

12,774 13,164 10,935 14,179 13,023

65.26 60.90 62.79 56.94 57.88

34.74 39.10 37.21 43.06 42.12

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004. a Ships under Greek ﬂag and Greek-owned ships under non-Greek ﬂag.

Table 5.10.

Top 10 Seamen Labour Supplying Countries.

Country

Ofﬁcers

Ratings

Total 1995

Total 2000

Total 2005

Philippines Indonesia Turkey China India Russia Japan Greece Ukraine Italy Total

97,842 46,497 22,091 42,704 46,497 21,680 12,968 17,000

158,934 64,704 241,309 79,504 32,352 34,000 6856 15,000 11,390

230,000 83,500 62,447 82,107 54,700 55,680 31,103 32,500 37,000 23,500 692,357

256,776 111,201 263,400 122,208 78,849 65,680 19,824 32,500

9560

244,782 83,500 80,000 76,482 53,000 47,688 42,537 40,000 38,000 32,300 738,109

20,950

Source: BIMCO/ISF, Manpower Update, 2005, 2000 and Couper, Walsh, Stanberry, and Boerne (1999).

seafarers in Greece were almost 3% of the total seafarers internationally, sustaining there its position among the top 10 labour supplying countries (Table 5.10). The main factors that affect the seafarers’ employment in the Greek maritime industry during our period of interest are the technological changes in the sector that took place, as well as the strong substitution of Greek seafarers by foreign seafarers. Substitution has been more than evident over these years. In addition, as presented in Table 5.11, foreign seafarers adjust more rapidly with respect to their Greek colleagues both in the negative and positive cycles of the aggregate seafarers’ employment changes (since their deviation is higher especially after 1998). In general, it

132

IOANNIS TSAMOURGELIS

Table 5.11. Percentage (%) Change of Greeks and Non-Greeks Seafarers Employed in Greek Fleet Registered with NATa. Year

1996 1998 2000 2002 2004

Employment Growth (%) Greeks

Foreigners

14.53 10.02 1.6 4.53

3.05 16.93 29.67 8.15

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004. a Ships over 100 grt, under Greek ﬂag and Greek-owned ships under non-Greek ﬂag.

may be argued that foreign seafarers appear to be ﬂexible means of production (at least more ﬂexible than the Greek seafarers) since their employment levels adjust rapidly to the changes in the international demand in the maritime sector. Nevertheless, as it will be shown later on in this study, the ﬁnal substitution levels of the Greek seafarers by foreigners depends on the structural rigidities of the seafaring labour market in Greece and on the differences in their productivity – effort per cost of their employment. Overall, substitution as well as technological changes and other developments in the Greek maritime industry, led to a total reduction of the percentages of the Greek seafarers employed on ships under the Greek ﬂag and Greek owned ships under foreign ﬂag contracted with NAT, from 65% in 1996 to 58% in 2004. Moreover, the employed Greek seafarers in the same ﬂeet are reduced throughout the examined period with the exception of 2002 when a positive change of 1.6% appeared due to the positive inﬂuence from the recovery of the international maritime industry and the increase in the Greek ﬂag that took place between 2000 and before the end of 2002. Following these developments, the reduction of 24.2% is straightforward in the total Greek seafarers’ labour force between the years 1996 and 2002. While as we have discussed above, the exception of 2004, when we have an increase in the seafarers’ labour force, is attributed mainly to the increase of the unemployed Greek seafarers rather than to the levels of the employed seafarers which declined by 4.5% the same year. However, Table 5.12 provides a more thorough investigation by calculating the correlation coefﬁcients between Greek and foreign seafarers on the one hand, and the number of ships under Greek ﬂag, the grt of Greek

133

Employment Practices and Greek Shipping Competitiveness

Table 5.12. Correlation Coefﬁcient between Greek and Foreign Seafarers Relative to Number of Ships under Greek Flag (GRT and GRT per Ship) 1996–2004 (8 Observations). Number of Ships

GRT

GRT/Ships

0.75094 0.43887

0.85 0.172624

0.77152 0.259049

Greeks Foreign Source: NSSG calculated.

ships under Greek ﬂag, as well as the ratio of grt per ship. From the results, the negative relationship between the employment levels and the number of ships, independently from the nationality of the employed crew, is evident. Also, a negative association of grt and grt per ship with employment of Greek seafarers, and a positive one with foreign seafarers are evident. Thus, the data seem to support that the combined effect of demand evolution in the maritime industry and the technological changes in the industry led to a reduction of employment levels of Greek seafarers, and an increase in the employment of foreign seafarers. In the light of this general conclusion, this analysis will turn to a more detailed examination of the impact of technological changes on the employment levels and its structures in Greek shipping. The following sections provide details on the factors that describe the technological status of the Greek maritime industry, trying to identify their effects on the Greek seafarers’ manning levels, as well as on the foreign seafarers manning levels.

5.3. TECHNOLOGICAL CHANGES AND EMPLOYMENT 5.3.1. Technological Changes, Gross Registered Tones (grt) and Employment of Seafarers Throughout our period of interest, there has been a strong tendency for smaller number of seafarers employed per vessel.3 As Table 5.13 illustrated, the number of seafarers per vessel under the Greek ﬂag and Greek-owned vessels under foreign ﬂag, decreased from 17.08 in 1996 to 14.76 in 2004. Examining seafarers employed per 1.000 grt, the respective ration declines from 1.2 in 1996 to 0.9 in 2004. These ﬁndings are consistent with the increase of the mean size of vessels in the international maritime industry, a trend that

134

Table 5.13.

IOANNIS TSAMOURGELIS

Employed Seafarers per Ship of Greek Fleeta and per 1000 Gross Registered Tons.

Year

Employed Seafarers per Ship of Greek Merchant Fleet

Employed Seafarers per 1000 Gross Registered Tons in Greek Merchant Fleet

1996 2004

17.08 14.76

1.2 0.9

Source: NSSG calculated. Ships under Greek ﬂag and Greek-owned ships under non-Greek ﬂag registered with NAT over 100 grt.

a

is apparent in the case of the Greek shipping industry. They are also consistent with the technological changes that took place in the operations and on board maintenance requirements of a vessel and decreased the number of employees on board (cf. Pallis, 2002). However, as reported in the study pf BIMCO (2005), further developments in technology are not expected to affect the seafarers’ employment levels per vessel in the near future. 5.3.2. Gross Registered Tons and Employment In recent years the mean size of vessels under the Greek ﬂag, and Greekowned vessels under foreign ﬂag contracted with NAT has increased. This is evident in Table 5.14, which presents a comparison of the number of ships and the employment per grt category, for the years 1996 and 2004. There we depict the large increase in the numbers of vessels over 40,000 grt, and the signiﬁcant decrease in the percentages of the Greek seafarers employed in vessels over 15,000 grt that takes place between the years 1996 and 2004. Thus, it can be concluded that the employment of the Greek seafarers is reduced as we increase the size of the vessels, something that takes place in parallel with the tendency to upgrade the mean size of the vessels in the Greek maritime industry during the years 1996–2004. 5.3.3. The Age of the Vessels and Employment The Greek ﬂeet has undergone a modernization period taking advantage of the massive cash ﬂows for the sector and its strong leverage potentials. This has led to a signiﬁcant convergence of the average age of the Greek ﬂeet to

Number of Ships and Percentage Change of Greek and Foreigners Seafarers Employed in Greek Fleeta Distributed with Respect to GRT Categories.

Gross Registered Tons

1996 Number of Ships

100–500 500–1000 1000–3000 3000–5000 5000–15,000 15,000–40,000 40,000–80,000 More than 80,000 Total

131 63 49 14 153 437 109 17 973

Crew (Total) 905 537 541 230 3465 10,300 2681 1521 20,180

2004

Nationality Participation (%) Greeks

Non-Greeks

96.9 98.7 93.2 90.9 56.4 57.6 62.5 60.5 62.4

3.1 1.3 6.8 9.1 43.6 42.4 37.5 39.5 37.6

Number of Ships 74 62 72 9 35 299 132 104 787

Crew (Total) 468 532 764 150 752 6940 3254 2621 15,481

Nationality Participation (%) Greeks

Non-Greeks

100.0 95.7 98.2 77.3 59.7 47.7 49.8 47.7 54.7

0.0 4.3 1.8 22.7 40.3 52.3 50.2 52.3 45.3

Employment Practices and Greek Shipping Competitiveness

Table 5.14.

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004. a Ships under Greek ﬂag and Greek-owned ships under foreign ﬂag registered with NAT.

135

136

IOANNIS TSAMOURGELIS

the average age of the world ﬂeet (see also the Lloyd’s Register of Shipping – Fairplay databases). Looking at the age structure of the Greek maritime industry and the related seafarers’ employment levels as presented in Table 5.15, it is evident that vessels more than 30 years old and vessels less than 5 years old – the latter especially for 2004 – have the highest seafarers’ employment levels, as well as the highest numbers of Greek seafarers among them. However, these ﬁndings are inﬂuenced by the signiﬁcant number of short-sea shipping of which the vessels’ age is at the end of the relative distribution, and at the same time they present the highest rates of employment of the Greek seafarers. On the contrary, the new buildings employ foreign seafarers at high rates.

5.3.4. Types of Vessels and Employment According to the data presented in Table 5.16, the Greek seafarers are mostly employed in bulk curriers rather than tankers. In the ﬁrst category, the Greek seafarers are employed by more than 50% of the total average number of vessels’ crew, while in the second category they are employed in less than 50% of the total average numbers of crew. This is evident even during the relative recovery of the Greek seafarers’ employment levels that took place between 2002 and 2004, when the increase in the employed Greek and foreign seafarers in tankers was 2.8% and 30%, respectively, while in the same period and in the case of the bulk carriers the relative percentage numbers were 17.5% and 19.7%.

5.3.5. Seamen’s Specialties and Employment Technological changes affect seamen’s specialties and their relative importance on the ship’s production procedure. Table 5.17 presents the changes in the distribution of Greek and foreign seamen’s specialties employed on ships under the Greek ﬂag and Greek-owned ships under foreign ﬂag contracted with NAT that took place between 1996 and 2004. In the same Table, we also present the percentage of the seamen that were employed in each specialty with respect to the total number of the employed seamen of the same national category. For reasons of comparison, we remind that during the examined period the total seafarers’ employment decreased by 16%, which constitutes the threshold for any deduction on the advanced or deteriorated importance of any specialty.

Distribution of Greek and Foreigner Seafarers Employed in Greek Fleeta per Age Categories.

Age of Ships

Up to 5 years old 5–10c 10–15c 15–20c 20–25c 25–30c More than 30 years old Total

1998

2000

2002

2004

Greeks

Foreigners

Greeks

Foreigners

Greeks

Foreigners

Greeks

Foreigners

2411 1074 2285 2606 5204 3400 3087 20,067

3257 1069 1595 2024 2902 1021 1162 13,030

3291 1026 1463 2486 2948 4069 3070 18,353

4057 501 956 1785 1652 1176 808 10,935

3963 1820 1335 2513 1040 3111 3781 17,563

6478 1039 771 2062 1282 1851 680 14,163

4241 2089 1349 1415 1832 2237 4683 17,846

2433 2142 1399 997 1423 504 4125 13,023

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004. Ships under Greek ﬂag and Greek-owned ships under foreign ﬂag contracted with NAT over 100 grt.

Employment Practices and Greek Shipping Competitiveness

Table 5.15.

a

137

138

Table 5.16.

IOANNIS TSAMOURGELIS

Distribution of Greek and Foreigner Seafarers Employed in Greek Fleeta per Category of Ships.

Year

1998 2000 2002 2004

Tankers

Bulk Carriers

Greeks

Foreigners

Greeks

Foreigners

4183 3770 3856 3878

2962 2713 2871 3527

5641 4375 4476 5144

4263 3542 3722 4239

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004. a Ships under Greek ﬂag and Greek-owned ships under foreign ﬂag contracted with NAT over 100 grt.

From the comparison, it is evident that the technological changes have reduced the number of personnel with no specialties, due to the stricter rules of employment in the vessel’s production procedure. Specialties that seem to have lost importance (i.e. the decrease of the employed seafarers in these specialties is more than 16% over the examined period) are those of carpenters, stokers, greasers, pumpmen, motormen, apprentice engineers, cadets, and laid up ship keepers. On the contrary, specialties of advanced importance in the formation of the seafarers’ employment levels (i.e. the decrease of the employed seafarers in these specialties is less than 16% over the examined period) are those related to providing medical services and cooking and restaurant services (mainly due to the increased importance of liner shipping). Especially for the Greek seafarers, there is a strong decrease in almost all the specialties with more important the one in masters (mainly in the last period) and in shipboys – the latter due to the decrease in the seafarers’ supply. The same holds for electricians and cabin boys where the decrease in Greeks is 79%, while for the total (Greeks and non-Greeks) is only 11%. From the weight of participation of each specialty in the Greek seafarers labour force in 2004, we underline the signiﬁcant role of masters, chief ofﬁcers and second ofﬁcers, chief engineers, chief/second engineers, second engineers, boatswains, sailors, stewards, cooks, assistants, cadet deck ofﬁcers, cadet engineers with percentages varying from 13.35% (sailors) and 2.5% (cadet engineers). Specialties like radio ofﬁcers, stokers, motormen and greasers present low percentages among the Greek seafarers and a strong decrease in numbers from 1996 to 2004, due to strong technological effects. It is worth emphasizing, that cadet deck ofﬁcers present a small

Percentage Change in Greek and Foreign Seafarers Employed in Greek Fleeta per Specialty, 1996–2004.

Specialty

Participation of Specialty in Employed Greek Seafarers 1996 (%)

Participation of Specialty in Employed Greek Seafarers 2004 (%)

Greeks

Foreign

Total

Greeks

Foreign

Greeks

Foreign

25 18 13 19 17 16 5 19 24 93 95 7 16 37 18 2 21 27 14 39 70 46 79 100 39 37

2 267

16 18 13 18 7 16 7 18 18 77 95 33 17 3 21 12 20 22 1 37 91 41 44 95 30 10

6.39 0.48 4.98 5.99 6.15 0.31 4.68 6.49 0.29 3.03 1.26 0.29 0.82 4.50 0.41 0.74 13.65 1.84 0.08 0.04 1.81 2.18 0.06 0.77 0.66

0.02 0.00 0.13 1.86 0.11 0.00 0.16 1.25 0.31 0.58 0.05 0.34 0.04 1.39 0.13 0.00 23.77 6.23 0.26 0.01 0.17 8.42 0.36 0.48 6.33

7.02 0.73 5.39 6.66 6.89 0.44 5.11 6.59 0.03 0.20 1.81 0.32 0.70 4.94 0.56 0.79 13.35 2.11 0.06 0.09 3.53 0.63 0.00 0.63 0.56

0.08 0.00 0.22 2.74 0.11 0.01 0.22 1.70 0.15 0.04 0.66 0.27 0.55 0.87 0.01 0.02 19.38 6.50 0.16 0.03 0.10 6.03 0.02 0.45 5.88

65 51 0 38 39 49 93 1333 19 1320 37 94 17 6 36 300 41 27 93 5 5

139

Total Masters Staff ofﬁcers i Chief ofﬁcers Second ofﬁcers Chief engineers Chief/second engineers Second engineers Third engineers Engineers not declaring specialty Radio ofﬁcers (Au–Bu) Pay masters (Au–Bu) Chief caterers Assistant caterers Boatswains Boatswain’ s mates Captains (Au–Bu–Cu) Sailors Ship’ s boys Carpenters Chief stokers Motor-drivers Greasers Stokers Pumpmen Wipers

Percentage Change 2004–1996 (%)

Employment Practices and Greek Shipping Competitiveness

Table 5.17.

140

Table 5.17. (Continued ) Specialty

Participation of Specialty in Employed Greek Seafarers 1996 (%)

Participation of Specialty in Employed Greek Seafarers 2004 (%)

Greeks

Foreign

Total

Greeks

Foreign

Greeks

Foreign

88 45 40 34 26 10 26 79 28 30 34 36 58 15 80 50 50 6 35 10 86 16

76 24 78 14 25 133 8 1 327 15 2 442 4 29 10 15 54 71 79

85 32 10 29 17 3 19 11 8 22 4 76 17 1 3 7 40 2 28 6 82 50

0.27 0.84 2.37 0.32 0.28 0.81 7.82 0.82 0.40 4.98 0.30 0.81 0.10 4.55 0.28 0.01 0.01 3.20 2.89 0.39 0.03 0.58

0.13 0.36 1.54 0.22 2.90 0.07 4.09 10.00 0.09 1.99 2.89 0.47 0.58 4.23 3.04 0.10 0.10 0.30 0.37 0.00 0.03 13.82

0.04 0.62 1.91 0.28 0.28 0.98 7.72 0.23 0.39 4.65 0.27 0.70 0.06 5.16 0.07 0.01 0.01 4.05 2.50 0.47 0.01 0.65

0.03 0.44 2.69 0.18 3.54 0.16 4.35 9.71 0.36 2.24 2.89 2.50 0.55 5.34 3.27 0.12 0.15 0.50 0.65 0.02 0.01 6.38

75 53

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004. a Ships under Greek ﬂag and Greek-owned ships under foreign ﬂag contracted with NAT.

IOANNIS TSAMOURGELIS

Motormen Apprentice engineers Electricians Assistant Electricians Other lower engine room personnel Chief stewards Cabin-boys Mess boy Chief Cooks Cooks (Au–Bu–Cu) Assistant cooks Kettlecleaners Confectioners Assistants Other general services Doctors Nurses Cadet deck ofﬁcers Cadet engineers Cadet pay masters Laid up ships keepers Personnel with no speciality

Percentage Change 2004–1996 (%)

Employment Practices and Greek Shipping Competitiveness

141

decrease in their magnitudes (only 6%). Especially sailors and ship boys, despite their strong participation in the ﬁnal levels of the Greek seafarers’ labour force, experience a strong substitution which is evident from their decrease of about 27% during 1996–2004.

5.3.6. The Age Structure of the Greek Seafarers’ Labour Force Table 5.18 presents the aging structure of the Greek employed seafarers for the period 1996–2004 on merchant ships more than 100 grt under the Greek ﬂag or Greek owned under a foreign ﬂag. According to the data, there is a strong decline in the number of young seafarers, especially in the specialties of cadets and ship boys which reveals the seafarers’ supply constraints in recent years. This is expected to be the case for countries that enter into the developed stage of their economic life and may lose their marine edge as other job opportunities may attract young people (BIMCO/ISF, 2005). However, the associated presence of foreign seafarers in the Greek ﬂeet (both under the Greek ﬂag and Greek owned under non-Greek ﬂag) in the ages up to 40, is remarkable. More speciﬁcally, the Greek seafarers seem to concentrate mainly in the age category between 41 and 50, followed by the age categories of 31–40 and 21–30. Foreign seafarers employed in the Greek ﬂeet, concentrate mainly around the age categories of 20–30, followed by the age categories of 30–40 and 40–50, with the exception of 2004 when for the ﬁrst time, non-Greek seafarers concentrate heavily around the age category of 30–40. The high concentration of foreign seafarers in young age categories is related to their extended employment for rating positions. However, the strong presence of non-Greek seafarers in the age category of 30–40 in 2004 as well reveals their extended presence in the whole age spectrum of the employed seafarers’ labour force in the Greek ﬂeet and the long lasting prospects of such employment. In general – as presented in Table 5.19 – the Greek seafarers’ employment levels from 1996 to 2004 decline, especially in the young age categories while this declination diminishes as we move up in the age categories. This emphasizes the labour supply problems in the sector. In addition, the small decline in the employment levels of the age categories over 60, especially in 2004, underlines the aging of the Greek seafarers’ labour force. However, the Greek problem of the aging seafarers’ labour force is smaller than the one faced in other OECD countries (see Table 5.20). More speciﬁcally, seafarers over 60 years old in Greece are 5% of the total labour force while in the OECD countries this percentage reaches 10%. Nevertheless, the fact

142

Table 5.18.

Distribution of Greek and Foreigner Seafarers per Age Category, Employed in Greek Fleeta.

Years Old

1998

2000

2002

2004

Greeks

Non-Greeks

Greeks

Non-Greeks

Greeks

Non-Greeks

Greeks

Non-Greeks

Greeks

Non-Greeks

797 4683 6676 7956 3524 344 12

50 5091 4850 2202 444 29 108

670 4036 6057 6870 2703 169 0

181 5869 4555 2167 369 23 0

428 3734 5061 6430 2640 157 0

131 4635 3926 1870 360 13 0

435 3883 4805 6286 3132 205 1

142 6131 5215 2159 462 70 0

659 3746 4005 5972 3284 231 0

72 4780 5196 2440 510 25 0

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004. a Ships under Greek ﬂag and Greek-owned ships under foreign ﬂag contracted with NAT over 100 grt.

IOANNIS TSAMOURGELIS

o 20 21–30 31–40 41–50 51–60 61o Unknown age

1996

143

Employment Practices and Greek Shipping Competitiveness

Table 5.19. Years Old

o20 21–30 31–40 41–50 51–60 61o

Percentage Change of Greek and Foreigner Seafarers per Age Category, Employed in Greek Fleeta.

Percentage Change 1996–2004 (%)

Percentage Change 2002–2004 (%)

Greeks

Non-Greeks

Greeks

Non-Greeks

17.31 20.01 40.01 24.94 6.81 32.85

44.00 6.11 713 10.81 14.86 13.79

51.49 3.53 16.65 5.00 4.85 12.68

49.30 22.04 0.36 13.02 10.39 64.29

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004. a Ships under Greek ﬂag and Greek-owned ships under foreign ﬂag contracted with NAT over 100 grt.

Table 5.20.

Ofﬁcers (%) Ratings (%)

Age Structure of Seafarers Labour Force in OECD Countries, 2005.

o20

20–25

26–30

31–40

41–50

51–55

55–59

W60

0 2.3

6.7 11.6

15.0 16.3

25.0 20.9

28.3 23.3

13.3 14.0

6.7 7.0

5.0 4.7

Source: BIMCO/ISF Manpower Update, 2005.

that the Greek seafarers are eligible for pension at the age of 55, which is lower than the one that holds in other OECD countries, in any case rationalizes the low concentration of the Greek seafarers over 60 in Greece in relation to these countries. 5.3.7. The Substitution Effect As discussed earlier, the substitution of the Greek seafarers has been evident since the early 1980s and affects Greek-owned ships ﬂying the Greek ﬂag and a non-Greek ﬂag registered with NAT. The foreign seafarers appear more ﬂexible in adjusting to the labour demand deviations coming from the deviations in international demand for sea transports. Thus, we show that the substitution is strong on tankers, on ships of young age (given the inﬂuence of the short-sea shipping ﬂeet and the above

144

IOANNIS TSAMOURGELIS

expectations of the participation of the Greek seafarers on ships less than ﬁve years of age in 2004) and on ships of large size. In addition, we have seen that there is especially high substitution in seafarers of young age, and that the substitution declines in the older age categories of the seafarers. Lastly, substitution is strong among trainings and ratings and is also present in ofﬁcers during the recent years of our sample. More speciﬁcally, as presented in Table 5.21, in 2002–2004 employment of non-Greek seafarers in the specialty of ofﬁcers increased by 4%, which is a quite signiﬁcant percentage given that the same period the total foreign seafarers’ employment declined by 8.2%. This opposite direction of the two variables is unique, since for the rest of our sample period the above mentioned variables move along the same directions. Another evidence of the changing characteristics of the substitution effect that took place in 2002–2004 is presented by the fact that, during that period the employment of the Greek seafarers in ofﬁcers increased by 1%, while the total employment of the Greek seafarers decreased by 4.5%. These two ﬁndings suggest that, after 2002 the substitution of Greek seafarers by foreigners also covers ofﬁcers while the attractiveness of the seafarers’ occupation is gradually focused on ofﬁcers. However, the dynamics of these suggestions need further examination and especially of the years with normal demand conditions in international transport. The higher ﬂexibility of foreign seafarers in relation to the Greeks also appears in Table 5.21. Apparently, the non-Greek seafarers’ percentage changes are higher than the Greek seafarers’ for most of the examined years

Table 5.21. Percentage Change of Greeks, Non-Greeks Ofﬁcers, Ratings and Trainees Employed in Greek Fleeta. Year

1996 1998 2000 2002 2004

Ofﬁcers

Ratings

Trainees

Greeks

Non-Greeks

Greeks

Non-Greeks

Greeks

Non-Greeks

8 16 10 0 1

13 3 35 33 4

8 10 10 2 11

2 1 15 33 5

7 33 11 8 22

8 13 21 10 45

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004. a Ships under Greek ﬂag and Greek-owned ships under foreign ﬂag contracted with NAT over 100 grt.

Employment Practices and Greek Shipping Competitiveness

145

and categories (trainings, ratings and ofﬁcers). Only in 1998 for the trainings and in 2002–2004 for the ratings, the Greek seafarers’ percentage changes are lower in relation to the non-Greek, while the latter seem to be related to the substantial decrease in the numbers of the employed Greek seafarers in the age categories of 31–40 years old and in 41–50 years old during the period.

5.4. OTHER DETERMINANTS OF THE SEAFARERS’ EMPLOYMENT As already seen, the bulk of the Greek ﬂeet is under the Greek ﬂag. More than 90% of GRT has been under the Greek ﬂag for all the years of our sample with the exception of 1997 when the percentage fell to 89.8%. Thus, the category of Greek ships under non-Greek ﬂag registered with NAT has always been a minority of the ﬂeet. From the above, the relationship between the Greek ﬂag and the employment of the Greek seafarers is straightforward. Therefore, in the rest of this chapter we will examine some characteristics of the Greek ﬂag ﬂeet, and in general, the characteristics of the Greek seafarers’ labour market and especially the main determinants that is, the seafarers’ pension fund and the organic composition law. 5.4.1. The Seafarers’ Employment and the Non-Greek Flag Fleet According to the statistics provided by the NSSG, more than 92% of the employed seafarers in Greece get a job on ships under the Greek ﬂag throughout our sample period, while in 1996 this percentage reached its maximum 95% (see Table 5.22) at the time when 97% of the Greek-owned ships contracted with NAT ships. However, after 1996 Greek-owned ships ﬂying a foreign ﬂag which were contracted with NAT appear to employ increasing percentages of the total Greek seafarers. More speciﬁcally, in 2002, 2.3% of the Greek-owned ships that were under a foreign ﬂag employ 5.4% of the employed Greek seafarers, while in 2004 these percentages rise to 6% and 7.3%, respectively. At the same time, however, Greek-owned ships under a foreign ﬂag and contracted with NAT present a higher propensity to employ foreign seafarers (see Table 5.23 and Fig. 5.2). Such evidence underlies the weakening position of the Greek seafarers in one of the main sources of employment that the Greek-owned ships under a foreign ﬂag contracted with NAT constitutes.

146

Table 5.22.

Greek Seafarers Employed in Greek Fleeta during Censuses 1996–2004.

Number of Ships

Total Greek Seafarers Employed

Percentage of Ships under Greek Flag (%)

Percentage of GreekOwned Ships under Foreign Flag Contracted with NAT (%)

Total Number of Greek Seafarers Employed in GreekOwned Ships under Foreign Flag Contracted with NAT

Percentage of Greek Seafarers Employed in Greek-Owned Ships under Foreign Flag Contracted with NAT (%)

1996 1998 2000 2002 2004

1472 1258 1168 1188 1211

22,556 18,856 17,202 17,786 16,672

94 92 94 97 94

92 96 66 40 70

1436 1649 1248 961 1225

6.4 8.7 7.3 5.4 7.3

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004. a Ships under Greek ﬂag and Greek-owned ships under foreign ﬂag contracted with NAT over 100 grt.

IOANNIS TSAMOURGELIS

Year

147

Employment Practices and Greek Shipping Competitiveness

Table 5.23. Year

Distribution of Greek and Foreign Seafarers in Greek Fleeta, 1996–2004. Greek-Owned under Greek Flag (%)

1996 1998 2000 2002 2004

Greek Owned under Foreign Flag Contracted with NAT

Greeks

Foreigners

Greeks

Foreigners

73 71 71 71 68

27 29 29 29 32

24 23 25 12 19

76 77 75 88 81

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004. a Ships under Greek ﬂag and Greek-owned ships under foreign ﬂag contracted with NAT over 100 grt.

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

GREEK SHIPS GREEKS (%) GREEK SHIPS FOREIGNERS (%) GREEK-OWNED SHIPS GREEKS (%) GREEK-OWNED SHIPS FOREIGNERS (%)

1996

1998

2000 YEARS

2002

2004

Fig. 2. Participation of Greek and Foreign Seafarers in Greek Fleet (1996–2004). Note: Ships under Greek ﬂag and Greek owned ships under foreign ﬂag contracted with NAT over 100 grt. Source: General secretariat of national shipping statistical service of Greece 1996–2004.

5.4.2. The Legislative Environment of the Greek Maritime Labour Market As it is known, the globalization of the maritime labour market has led to the creation of a two-level seafarers’ market. At the ﬁrst level, we have seafarers that get employment in the national ﬂeet and at the second level we

148

IOANNIS TSAMOURGELIS

have seafarers that get employment on ships under non-national ﬂag. Moreover, as suggested by Wu and Winchester (2005), the increased mobility appears both between national or non-national ﬂag employment of a seafarer and between the ﬁrst and second level. However, the Greek seafarers’ labour market differs signiﬁcantly from the above-described international maritime labour market. The maritime labour market in Greece is strongly affected by the social security system and the law on the organic composition of the crew. Especially, the social security system intervenes decisively and transforms the competitive and international maritime labour market in Greece into one characterized by the monopsony power of the shipowners over the Greek seafarers. This contrasts the extended mobility of the globalized seafarers’ labour market. In what follows, we will examine thoroughly these two factors that determine the maritime labour market in Greece.

5.4.3. The Social Security System The social security policy applied in the case of the Greek seafarers leads to extensive distortion and creates monopsony conditions in the relevant labour market. More speciﬁcally, when a Greek seafarer remains unemployed and is not hired to serve on ships under the Greek ﬂag or non-Greek ﬂag but Greek owned and contracted with NAT, he has no incentive to seek employment elsewhere and more speciﬁcally on ships other than the above mentioned. This disincentive is constructed by the fact that, if employed on a ship not registered with NAT, the Greek seafarer will be able to purchase his insurance rights from the third social security institution back to his main social security coverage institution NAT (from which eventually he will get his pension), by paying both his contributions and the contributions of his employer. Clearly, the total amount weeps out prospected income from his employment on a ship not registered with NAT and thus, outside the ﬂeet under the Greek ﬂag or non-Greek ﬂag but Greek owned registered with NAT. In other words, the Greek maritime industry is multinational only in terms of its ships and ownership schemes, but not in terms of its seafarers’ labour force which is doomed to remain and operate within national borders as determined by ships under the Greek or nonGreek ﬂag but associated with NAT. Therefore, the Greek shipowners end up with monopsony power over the Greek seafarers.4,5 Actually, it could be argued that it is up to the Greek shipowners to decide on the levels of the Greek seafarers’ employment in trainees, ratings and ofﬁcers. On the other

Employment Practices and Greek Shipping Competitiveness

149

hand, the Greek seafarers face their employment or unemployment prospects while – as it will be shown later – their bargaining power concerns only wages and conditions of employment.6 5.4.4. The Organic Composition Law The other vital parameter that affects the seafarers’ employment levels in Greece, concerns the law on the ‘‘organic’’ composition of the crews on Greek ﬂag ships. This law determines the number of Greek seafarers that have to be employed per level of crew (trainees, ratings and ofﬁcers). However, as is shown in Table 5.24 the law is not fully applied. More speciﬁcally, the actual number of the employed Greek seafarers is less than the theoretical number that emerges from the application of the law throughout our examined period. This ‘‘diversiﬁcation’’ reaches its peak in 2004, when 38.32% of the vacancies to be ﬁlled by Greek seafarers deﬁned under the ‘‘organic’’ composition law, were occupied by non-Greek seafarers. Clearly, such ‘‘diversiﬁcation’’ rates, question the applicability and the effectiveness of this law and ﬁnally, its restrictions on the decisive role of the shipowners in setting the Greek seafarers’ employment levels and applying their monopsony power.

5.5. WAGES AND PRODUCTIVITY 5.5.1. The Wages Generally, the wages in the shipping industry follow international or national collective agreements. However, ﬁnal wages are agreed on, according to the terms of the personal contracts signed by the seafarers and the ship in which companies they are employed, especially in the case of ofﬁcers. Positive diversiﬁcations of ﬁnal wage agreements from the basic collective agreements depend on the specialties, the nationality of a seafarer and his overall bargaining power. More precisely, a Greek seafarer employed on a ship under the Greek ﬂag determines his wage following the Collective Agreement that is signed by the seafarers’ national union and the national association of shipowners. However, as expected, the ﬁnal wages are agreed on a personal level agreement as we described previously. In the case of a non-Greek seafarer, the basic minimum wage follows the ITF Standard Agreement or the ITF Uniform ‘‘TCC’’ Collective Agreement (ITF, 2006).7 Again, positive

150

Table 5.24. Distribution of Greek and Foreign Seafarers Employed in Greek Fleeta, Tankers and Bulk Carriers with Respect to the Number of Employment Levels as Determined by Organic Composition Law. Greeks

NonGreeks

Total

Total of Organic Composition

Organic Composition Employment Position not Covered by Greeks

Organic Composition Employment Position not Covered by Greeks (%)

1996 1998 2000 2002 2004

12,593 9192 7776 8158 8475

7587 6309 5788 6261 7006

20,180 15,501 13,564 14,419 15,481

17,762 10,790 9958 10,585 13,740

5169 1598 2182 2427 5265

29.10 14.81 21.91 22.93 38.32

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004. a Ships under Greek ﬂag and Greek-owned ships under foreign ﬂag contracted with NAT over 100 grt.

IOANNIS TSAMOURGELIS

Year

151

Employment Practices and Greek Shipping Competitiveness

Table 5.25. Real Wage Increases in Greek Shipping Industry Following Collective Bargaining Agreements and Unemployment Rate in the Sector. Year

Price Inﬂation (%)

Wage Inﬂation (%)

Real Wage Increases (%)

Seafarers Unemployment Rate (%)a

1996 1998 2000 2002 2004

8.2 4.8 3.2 3.6 2.9

9.0 5.5 4.0 5.0 4.5

1.1 1.1 1.3 1.4 1.6

8.49 9.09 6.27 4.23 9.91

Source: NSSG, National Statistics 1993–2005, {Price index per yearc; Panellenic Seamen Federation (PNO), {Seafarers National Wage Agreements Growth 1993–2005c. a Unemployment rate is conducted from data of National Ofﬁce for Seafarers Reemployment (GENE).

deviations may occur depending on the outcome of the bargaining for the formation of the personal agreement of employment of each non-Greek seafarer with the ship owner he will be working for.8 As far as minimum wages set by the National collective agreement are concerned, it is clear from Table 5.25 that they result in real wage increases, since the agreed nominal wages are always higher than inﬂation. However, as it is expected – and found in Theotokas, Lekakou, Pallis, Syriopoulos, and Tsamourgelis (2006) – the Greek seafarers’ wages are well above the minimum levels agreed on at the Collective bargaining process, since the majority of the shipowners apply speciﬁc bonus scheme incentive plans, in return for the loyalty of their seamen and the prolonged employment contracts. These incentives are mainly applied to Greeks (92.3% of the seafarers) and to a lesser extent to non-Greeks (58.3% of the seafarers). Thus, according to the ﬁndings of the ﬁeld research presented in Theotokas et al. (2006), only 35.7% of the ofﬁcers and 66.7% of the ratings, have wages following solely the collective agreement. When we examine foreign seafarers, the respective percentages are 62.5% and 45.4%. It is worth emphasizing that, incentives mainly concern the Greek ofﬁcers rather than the Greek ratings, while when it comes to non-Greek seafarers, incentives mainly concern ratings rather than ofﬁcers. In any case, the fact that such incentive schemes are also applied to non-Greek seafarers indicates the shipowners’ objective to cultivate some kind of loyalty out of their nonnational employees. Turning to the wage cost of the Greek seafarers and using comparative data on wages of different nationality seafarers (ofﬁcers and ratings)

152

IOANNIS TSAMOURGELIS

(see Table 5.26), it is concluded that the Greek seafarers’ wages are at the lower level with respect to developed countries of the OECD and higher with respect to the wages of seafarers coming from developing or underdeveloped countries. Some indicative differences of the wages and labour costs of Greeks and non-Greeks seafarers are presented in Tables 5.26 and 5.27, namely for masters, chief ofﬁcers, chief engineers, second engineers, sailors, cooks and boat swains. From the comparison the substantial wage difference and even more the ﬁnal labour cost difference is evident, which indicates the high indirect cost associated to the employment of Greeks in relation to nonGreek seafarers. These differences are much higher when it comes to the ratings’ specialties. Turning to Table 5.6 where the changes in the seafarers’ employment levels per specialties for 1996–2004 are presented, we observe

Table 5.26.

Wage Levels of Seafarers of Different Specialties.

Master Grade A Grade Ba

o$4800 $4800

Grade C

$4801–$5100

Grade D

$5101–$6120

Grade E

$6121–$7140

Grade F

$7141–$8160

Grade G

$8161–$9180

Grade H

W$9180

Countries

Sailor o$1300 $1300

India, Philippines, Russia, Ukraine S. Korea, Croatia Greece, Poland, Spain Italy, Netherlands Germany, UK

Denmark, France, Japan, Norway

$1301–$1625

Countries

Croatia, India, Philippines, Poland, Russia, Ukraine S. Korea

$1626–$1950 $1951–$2275 $2276–$2600

Greece, Italy

$2601–$2925

Germany, Netherlands, Spain Denmark, France, Norway, Sweden, UK

$2925

Source: Adjusted from PAL, as in OECD, Availability and Training of Seafarers, OECD, January 2003, p. 51. a Wage levels concern in monthly ITF costs and includes basic salary, leave, overtime.

153

Employment Practices and Greek Shipping Competitiveness

Table 5.27.

Boat swains Sailor Cook

Wage Cost for Ships over 45,000 grt.

(a) ITF-TCC Agreement (h)

(b) Wage Cost of Greek Seafarersa(h)

(b)/(a)

1422.16 1291.66 1422.16

3600.00 2850.00 3700.00

2.53 2.20 2.60

US$/EU=1.20. Source: Field Research in Theotokas et al. (2006). a Average wages as computed by ﬁeld research by DSTT of the University of the Aegean.

that the employment levels of Greek seafarers in the above mentioned specialties have declined more substantially than the total seafarers; employment levels in these categories. Moreover, the strong substitution is evident since in almost all of the above specialties, the number of employed non-Greek seafarers has increased (or declined by less than their Greek colleagues). This fact indicates a causal relation between the higher wages of the Greek seafarers and the substitution of Greek by foreign seafarers or in any case, the reduction of their employment levels. However, the query remains on the reasons that lead both the Greek seafarers and shipowners to the agreement of such higher wages. Evidently, the answer to such a question rests on the examination of the qualitative characteristics and the performance of the Greek seafarers when employed. In the rest of the chapter, we will examine some explanatory factors of these higher wages. These factors are distinguished in two categories. The ﬁrst has to do with productivity returns associated with the employment of the Greek seafarers in relation to non-Greek. The second category is concerned with the institutional factors related to the seafarers’ labour market in Greece, which operate as wage pressure mechanisms. 5.5.2. The Productivity Factors that Increase Wages The productivity of the Greek seafarers is not easy to be isolated and accounted for empirically, unless a thorough study is conducted on the issue. However, within the scope of the present study, it is possible to approximate productivity indirectly by examining the qualitative characteristics of the Greek seafarers’ labour force as they are reported either by statistical labour force surveys or by surveys of employment conditions of Greek maritime companies. More speciﬁcally, in the rest of this chapter we will look at these

154

IOANNIS TSAMOURGELIS

qualitative characteristics by examining both ofﬁcial data from the National Statistical Service of Greece and some of the ﬁndings presented in the Theotokas et al. (2006) study. 5.5.2.1. Education and Training An important factor affecting productivity is obviously education and training. On the average, an educated seafarer is expected to perform better and have a positive effect on the productive procedure that takes place on a vessel in terms of conducting the necessary operations, of adjusting to extra circumstances that may occur during a trip and of cooperating with the rest of the crew. More speciﬁcally, the Greek seafarers’ labour force presents a high education level especially when it comes to ofﬁcers. As it is shown in Table 5.28, the ofﬁcers’ education level has increased rapidly over the past years since 99.8% of them were found to have an upper class education degree in 2004. The same holds for trainees (or junior ofﬁcers). This indicates that ofﬁcers do not reach a higher position on vessels building up their careers through experience and years in service, as was the case in the past. However, the picture is not the same when it comes to the ratings. In this case, despite the increase in the percentages that have higher education levels, a serious percentage of about 80% has just a basic education degree. As it will be discussed later on in this study, this may be one of the reasons that affect the employability of the Greek seafarers at the rating level, since it diminishes their productivity in relation to non-Greeks. Thus, it may be one of the reasons that lead to the high unemployment levels in this category of Greek seafarers since it allows their substitution by nonGreek ratings. 5.5.2.2. Efficiency and Loyalty Efﬁciency and loyalty are signiﬁcant determinants of the Greek seafarers’ labour force productivity. The ﬁeld research contacted in Theotokas et al. (2006), presents important evidence on these issues. More speciﬁcally, from the investigation on the criteria according to which, Greek shipowners prefer to employ Greek seafarers, the study concluded with parameters such as: better coordination of ratings (67% of the ship companies), better returns from skills-experience-education (67% of the ship companies), longterm relationship with the speciﬁc seafarers (60% of the ship companies), increased productivity of the crew (60%), lowering the cost of the ship maintenance (53%).

Distribution of Greek Seafarers per General Specialties and Education Level.

Greek Seafarers General Specialties

1996

1998

2000

2002

2004

Elementary Basic Elementary Basic Elementary Basic Elementary Basic Elementary Basic Total High rank Lower rank Trainees and medical personnel Personnel with no maritime specialty

61.3 85.8 37.3 91.9 81.9

38.7 14.2 62.7 8.1 18.1

62.6 89.1 90.2 97.7 75.6

37.4 10.9 59.8 2.3 24.4

65.4 94.0 43.0 93.6 59.1

34.6 6.0 57.0 6.4 40.9

70.4 99.6 98.0 47.9 59.2

29.6 0.4 2.0 52.1 40.8

73.6 99.8 20.9 99.6 88.7

26.4 0.2 79.1 0.4 11.3

Employment Practices and Greek Shipping Competitiveness

Table 5.28.

Source: NSSG ‘‘Census of Seafarers Labour Force’’, 1996–2004.

155

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Such ﬁndings reveal a set of elements that explain the preference of Greek seafarers and therefore, constitute a rationalization for their higher wage levels in relation to non-Greek seafarers. However, as it is clear the above answers allow for some overlapping that distorts the clarity of the Greek seafarers’ employment by maritime companies. Thus, we will try to group the above reasoning into two categories, namely efﬁciency and loyalty. Efficiency. Efﬁciency concerns all the characteristics of the employed seafarers that facilitate or even augment the maximum proceeds of the vessel’s production function with the minimum possible cost. These characteristics are discipline, the ability to coordinate operations on a vessel during a trip, the better possible exploitation of knowledge and experience of the crew due to cooperation among the whole spectrum of the nationalities of the crew, the reduction of the maintenance cost, etc. From all of the above characteristics, shipowners have reported that what distinguishes the Greek maritime labour, is responsibility at work and participation in the maintenance and the reduction of the adjustment cost of investment on a vessel, which is true especially for the Greek ofﬁcers. Shipowners (cf. the ﬁeld research in Theotokas et al., 2006), recognize as of secondary importance, characteristics such as: leader proﬁle, the ability to operate under crises, honesty, reliable ofﬁcial documents, experience in specialties, discipline, common language with the central ofﬁces, good knowledge of English, the positive inﬂuence of the qualitative proﬁle of the company, team spirit and adaptability. Apparently, all of the above constitute a strong indication of efﬁciency at work on the part of the Greek seafarers, which does not appear in the case of foreign seafarers employed on Greek-owned ships, which are appreciated for characteristics such as availability, low wages, etc. Loyalty. Loyalty concerns long-term employment relationships between the maritime companies and the seafarers and forms a uniﬁcation of objectives of both the employer and the employees. The returns of the employees for such loyalty are usually their participation in bonus schemes connected to the economic performance of the vessel of the company, security of future employment status or even employability of relatives. On the other hand, the economic returns of the employer, concern lower hiring costs and higher effort levels exempliﬁed by employees and thus, higher or secured returns from the exploitation of the vessel. In Theotokas et al. (2006), loyalty is found to be an important issue for the Greek shipowners. According to the ﬁndings, the Greek seafarers present a higher average time employed in the same company. At the same

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time, the average time that the Greek seafarers remain on board is longer, especially for the rating. However, there is an inverse relationship between the average time spent on board and the time employed by the same shipowner. This relationship indicates better employment conditions for the Greek seafarers, the longer they stay in a speciﬁc maritime company. On the contrary, non-nationals present much less loyalty in terms of years spent in the same company.

5.5.3. The Institutional Factors that Increase Wages 5.5.3.1. Social Security System, National Monopsony and the Premium for Non-Employment Under the framework of employment and the social security system that was described above, it is clear that the shipowners exercise monopsony power over the Greek seafarers. As a result, an unemployed Greek seafarer is restricted to seek employment only on ships contracted with NAT. This diminishes the probability of reemployment that the Greek seafarers face, since they are excluded from applying for a job in the rest non-Greek international ﬂeet. The higher the cost of repurchasing insurance rights if employed on a ship not registered with NAT, the less the incentive to seek employment outside the Greek seafarers’ labour market and the lower the probability of being reemployed. Thus, the lower probability of reemployment that emerges from the monopsony peculiarities of the Greek maritime insurance regime, leads to the imposition of an unemployment risk premium on the seafarers’ ﬁnal wages. During employment, such a premium compensates for the time spent unemployed. This risk of the unemployed premium explains some of the differences in the Greek seafarers’ wages in relation to the wages of foreign seafarers in the same category. 5.5.3.2. The Premium for Non-Substitutionability Between Specialties Occupational mobility in the seafaring labour market is rather restricted (see Leggate & McConville, 2002). In traditional labour markets, however, mobility is one of the main inﬂuences that normalize excess demand or labour supply and sustain wages and a market clearing level. The absence of such mobility in the maritime sector, allows for rigidities that lead to the accretion of unemployed seafarers with speciﬁc skills since the international maritime laws, the bargaining environment and the technological characteristics of the production procedure on a vessel allow for a wage setting procedure that is based not only on the individual seafarer, but also on the

158

IOANNIS TSAMOURGELIS

speciﬁc occupation that he serves. Such absence of mobility and the higher probability of unemployment that it leads to, allows for another premium that is required to compensate for the days of a seafarer’s unemployment. 5.5.3.3. The Employment Agencies The extended role of special bureaus that offer agency services to seafarers facilitating them in ﬁnding employment, is another factor that forces up wages in the sector while it does not allow for their ﬂexible adjustments. The intermediating role of such agencies is gradually extended and generates classical insiders–outsiders’ problem in the seafaring labour market since it allows for discrimination between the seafarers that are associated with the agencies and the non-associated ones. In particular, the associated seamen have a higher probability of being reemployed which again, adds to the average seafarer’s cost. The higher the efﬁciency of these agencies in ﬁnding a job to the seeking unemployed seafarers, the higher the probability the latter face of being reemployed, and the higher the wages they get in order to cover the costs of the agency’s operation.

5.6. UNEMPLOYMENT HYSTERESIS IN THE GREEK SEAFARERS’ MARKET Hysteresis effects on unemployment are those that lead to the persistence of the phenomenon despite the removal of the impulses that originally give rise to the change in unemployment levels. This persistence ends up in higher long-term unemployment rates.9 There are three reasons that may lead to the hysteresis phenomena. First, the insiders–outsiders’ effects according to which, an initial distortion that leads to higher wages and unemployment cannot readjust to lower wages and higher employment, due to the inﬂuence of the employed insiders on sustaining their high wages. Thus, unemployed outsiders remain unemployed, since they cannot exert any inﬂuence on the wage-employment levels agreed on by employers and inside employees (Lindebeck & Snower, 1988). Evidence on such an argument is not provided by existing studies. However, some indirect indication is presented later on, in the part of the chapter where the positive long-term Phillips in the sector especially for the years 2002–2004 is discussed. Second, the increase in wages due to the effort exempliﬁed by employees, which therefore increases the total labour cost paid by employers and reduces the levels of employment. Evidence of such an effect in the Greek

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seafarers’ labour market is wide and comes from the association of the Greek seafarers’ loyalty to their employment and the efﬁciency characteristics presented above. Third, the gradual devaluation of the skills and the knowledge of the unemployed, which deters their reemployment and leads to an increasing mismatch between the unemployed and vacancies. Such phenomena give rise to structural unemployment, which goes in parallel with the persistence of unemployment. In this case, we observe a positive Beveridge curve due to the positive association between unemployment rates and vacancy rates. Unfortunately, in the seafarers’ labour market we do not have data on vacancies since they are immediately ﬁlled either by Greek seafarers or foreigners. However, there are some empirical indications (Theotokas et al., 2006), on probable structural unemployment. More speciﬁcally, in the question whether the Greek maritime companies face difﬁculties in ﬁlling a vacancy with Greek seafarers in their ﬂeet under the Greek ﬂag, 62% responded positively with respect to ofﬁcers and 47% responded positively with respect to ratings. The answer for their ﬂeet under non-Greek ﬂag, was 37% and 27% respectively and this appears at the time when unemployment both in ofﬁcers and especially in ratings is substantial. However, the same indication of structural incompetencies of the seafarer labour market appears in the survey of leading opinion presented in BIMCO/ISF MANPOWER (2005) where 92% of the answers agreed that there is still an ofﬁcer manpower shortage, while 96% agreed that there is a serious shortage of certain ranks of ofﬁcers in certain types of trade/vessels. Another source of indirect proof of the structural incompetencies of the seafaring labour market, is provided by the shortage in quality seafarers’ supply both at national and international level. This comes from the 100% agreement presented in the BIMCO/ISF survey, that there should be radical improvement of public awareness of shipping and seafaring as a career, and from the 92% agreement on the need for shipping company funding for training and recruitment. Despite problems in depicting the structural characteristics of the seafarers’ unemployment in Greece due to lack of data, there could be some identiﬁcation of such structural problems from the construction and the shape of the long-term Phillips curve.10 In Fig. 5.3, we graph the Phillips’ curve associated with the seafarers’ labour market in Greece. Especially for the period 2000–2004, the evidence that is provided indicates that the accumulation of unemployed seafarers was parallel to real wages increase, which constitutes an indirect proof for structural unemployment or the insiders–outsiders’ effect that discourages the employment of the unemployed due to higher wages imposed by insiders – i.e. employed seafarers. However,

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IOANNIS TSAMOURGELIS

REAL WAGES GROWTH

0.018 0.016

2004

0.014 2002

0.012

2000 1998

0.01

1996

0.008 0.006 0.004 0.002 0 0

2

4

6

8

10

12

UNEMPLOYMENT RATE

Fig. 3.

Phillips Curve.

for the whole period under examination there is indication that unemployment is moving around some natural rate, which is determined by the real wage levels and the seafarers’ supply conditions. Given the above evidence, we may conclude that the unemployment in the Greek seafaring labour market is associated both to the structural incompetencies of the market and real wage pressure. However, the extent of the inﬂuence of such factors is not possible to be isolated by the present study. In any case, it appears that real wage increases that prevailed during 2000–2004 pushed the unemployment rate upwards. Some uphold of such wage pressures which occurred more evidently in the period 1996–1998, do not lead to a reduction in the unemployment rates due to structural incompetencies that do not allow the reemployment of the unemployed. International demand for seaborne transportation affects the seafarers’ employment given that, in periods of high demand levels, employment increases while unemployment reduces (case of 1998–2002) with a parallel increase in real wages. However, restriction of international demand conditions diminishes the seafarers’ employment without any immediate effect on wages which remain unadjusted to past high levels. This results in lower Greek seafarers’ employment and enhanced substitution of the Greek seafarers by non-nationals (case of 2004). Lastly, the conditions of the seafarers’ labour supply play an important role since seafarers of speciﬁc qualiﬁcations and skills with limited supply (e.g. ofﬁcers), face high wages with increased employment and reemployment prospects. At the same time, seafarers with qualiﬁcations and skills of increased supply (e.g. ratings) face low wages and a high probability of unemployment, especially in periods of restricted demand conditions.

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However, it is important to note that from the above discussion and analysis it is not possible to identify whether it is the increased wage levels in the seafarers’ labour market (either due to the low reemployment premium as a result of the Greek seafarers’ ‘‘monopsony’’ or the insiders–outsiders’ effect or the efﬁciency wage effect etc.) that generate unemployment or whether it is the structural incompetencies of the seafaring labour market that generate mismatch of the unemployed seafarers and vacancies due to lack of appropriate skills etc., or whether it is both. In addition, it is not possible to isolate and quantify the role of the above determinants of the seafarers’ unemployment without a more coherent investigation and appropriate econometric modelling.

5.7. THE EMPLOYMENT POLICIES IN THE GREEK SEAFARING LABOUR MARKET Employment policies are usually discriminated in passive and active.11 Passive policies concern unemployment beneﬁts and in general, public expenditure policies conducted in order to provide some social protection and a minimum income level to the unemployed. Criticism on such policies has to do with some probable reluctance of the unemployed to actively seek reemployment if the unemployment beneﬁt provides satisfactory standards of living. Active policies on the other hand, concern measures that advance the employability of the unemployed by improving their skills, facilitating their job search, etc. Especially in the case of the Greek seafarers’ labour market, employment policies concern mainly passive measures. If someone is unemployed for more than two months, he/she is eligible for a subsidy of 300,00 euros if married, and 270,00 euros if single. This subsidy lasts 12 months after the elapse of which, he can request the same subsidy. In order to be eligible to participate in this scheme, a seafarer must have 3 years of service registered ofﬁcially in his navy booklet and 14 subsequent months on board during the last 3 years. Given the low level of subsidy with respect to the minimum possible wages of a seafarer when employed, we can easily conclude that the applied policy cannot act as a disincentive for an unemployed in seeking employment. In addition, the rapid growth of subsidized unemployed seafarers in absolute numbers and as a percentage of the total unemployed seafarers (both for the ones registered in August, as well as for the ones registered in December) indicates long-term unemployment (see Table 5.29). This conclusion is also indicated by the fact, that the percentage of the subsidized unemployed seafarers tends to be the same in August and in December, especially the last

162

Table 5.29.

IOANNIS TSAMOURGELIS

Unemployed and Compensated Unemployed. Censuses of December and August. December

Unemployed Compensated Percentage Compensated (%)

1999

2000

2001

2002

2003

2004

2005

3522 960 27

1678 499 30

1080 225 21

1715 465 27

2356 657 28

2921 998 34

2978 1026 34

August

Unemployed Compensated Percentage Compensated (%)

1999

2000

2001

2002

2003

2004

2005

2296 875 38

1013 465 46

276 177 64

384 236 61

1124 487 43

1491 663 44

1900 812 43

Source: ‘‘House of Sailor’’.

year of the examined period, since seasonality and cyclicality of unemployment exempliﬁed in the past periods 1999–2003, is absorbed by long-term unemployment in 2004. In general, employment and social protection policies do not seem to inﬂuence employability and the ﬁnal employment levels of the Greek seafarers.

5.8. AN EMPLOYMENT FUNCTION FOR THE GREEK SEAFARERS’ LABOUR MARKET Given the above-described framework of the operations of the seafarers’ labour market in Greece, we will try to present a coherent employment function that takes into account the restrictions presented in the sector, and describes the direct and indirect relationships between the engaged parties in the system variables. For modelling purposes, it can be assumed that a typical Greek maritime company tries to maximize the proﬁts from the operation of each and everyone of its ships. Such an objective is equivalent to the objective of minimizing the cost of such operation, which is affected by the wage and employment levels of the Greek seafarers that it employs, the wages and the employment levels of the non-national seafarers that it employs, and therefore from the proportion of Greeks and non-nationals that the shipowner ﬁnally chooses.

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5.8.1. Phase I In the ﬁrst phase, the Greek shipowner decides on the cost of his/her employees, Greeks and non-nationals. Given the National Wage Agreements, the shipowner agrees on a personal base with his Greek seafarers and their bonus schemes. The same is performed with his non-nationals seafarers. The difference here is that, the personal agreements with the Greek seafarers will be somewhat higher up to much higher than the National agreements, while the personal agreements with the non-national seafarers will be at or up to something higher than the National agreements’ levels. The reasons for this difference lie in the premium of the low reemployment probability due to the monopsony power of the Greek shipowners, the premium of non-substitutionability and the higher productivity (education, economic efﬁciency and loyalty) expected the by Greek seafarers. Clearly, if the shipowner decides to use employment agency companies the total seafarers’ cost will be further increased.

5.8.2. Phase II In the second phase, the Greek shipowner is called to decide on the proportion of the Greek and non-national seafarers that he/she will employ. Owing to the expected higher productivity of the Greek seafarers, the shipowner employs Greeks to ﬁll the critical positions of the ship. Therefore, he ﬁrstly employs Greek ofﬁcers as the quality of his/her seafarers is a priority. As he then turns to ﬁlling the ratings positions, the shipowner is reluctant to sacriﬁce some of the expected higher productivity for lower cost. Thus, he gradually substitutes Greek seafarers by non-Greeks, as the restriction of income expenditure on wages is of priority. The ﬁnal substitution rate depends upon the productivity and wage differences between Greek and non-Greek seafarers. The smaller the difference in productivity and the bigger the difference in wages, the higher the substitution rate. Based on such an employment decision mechanism, the ﬁnal Greek seafarers’ employment levels and especially the employment levels of ratings are affected positively by: any decrease in their wages and any reduction of their wage differential with respect to the wages of the non-Greek seafarers of the same specialties and

164

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any increase in their productivity and in general, any increase in their productivity differential with respect to the productivity of the non-Greek seafarers of the same specialties. From the exogenous variables that take part in the above described Greek seafarers’ employment model, any increase in the number of ships and in freight rates are expected to increase the ﬁnal employment levels, while any change in technology towards capital intensive directions is expected to decrease employment.12

5.8.3. The Role of the Seafarers’ Labour Supply The restrictions in substitutionability between the different specialties of the seafarers, along with the incompetencies of the labour market and the monopsony they are facing, accelerate the problems of employability that Greek seafarers face in case of excess supply. More speciﬁcally, specialties with restricted supply and probable excess in demand (such as the ofﬁcers) will end up with even higher wages. This will further restrict the income restrictions of the shipowner when deciding on the ﬁnal levels of employment and the proportion of Greek, non-Greek seafarers he will employ thus, exerting further pressure on the Greek seafarers’ employment. The ﬁnal result will be one where specialties with an excess supply (such as the ratings) receive a strong wage pressure and a higher risk of non-reemployment, once unemployed.

5.8.4. A Mathematical Presentation of the Described Model Let L is number of employed seafarers on the ship, w1 wages and L1 number of seafarers that exemplify effort while wages are a function of this effort i.e. w1 ¼ w1ðeÞ

(1)

and w2 and L2 wages and number of seafarers that do not exemplify effort. Let L2 ¼ 1ðL1Þ

(2)

since L2 is a residual employment decision which depends on the level of effort that employment L1 induces onto the ship and the relative cost w1 and w2

Employment Practices and Greek Shipping Competitiveness

165

where L ¼ L1 þ L2

(3)

1() is negative in L1 (luo0) and linear (luu ¼ 0). Clearly lu reveals the rate of substitution. l(L1) might be convex or concave depending on the speed of substitution between L1 and L2. For simplicity we assume that the speed of such substitution is always 0. That is, the substitution is realized at the moment the decision is taken without any rigidities and time elapsing. The production function that describes the productive procedure on the ship is f ðLÞ

(4)

which due to (3) becomes f ðL1 þ 1ðL1ÞÞ and which is positive and concave in L ¼ L1 þ 1ðL1Þ

(5)

The objective of the shipowner is to max ½f ðL1 þ 1ðL1ÞÞ w1L1 w2L2

(6)

subject to w1 ¼ w1(e), L2 ¼ l(L1) and w2 ¼ w2. According to our theoretical discussion, the ship owner at the ﬁrst stage sets L1 as a function of w1 following the optimal rule Z ¼ ð1 þ 10 ÞfL1 w1 10 w2 ¼ 0

(7)

From the optimal employment rule as described in (7) and using the implicit function theorem, we can get the following relations: dL1=dw1 ¼ ð@Z=@w1Þ=ð@Z=@L1Þo0

(8)

dL1=dw2 ¼ ð@Z=@w2Þ=ð@Z=@L1Þ40

(9)

@Z=@w1 ¼ 1o0

(10)

since

166

IOANNIS TSAMOURGELIS

@Z=@L1 ¼ ð1 þ 10 ÞF 00 o0

(11)

@Z=@w2 ¼ 10 40

(12)

Therefore, according to the above described model and under the strict assumptions that we have imposed (such as the linearity of L2 ¼ l(L1)), we get the classical negative relation between L1 and W1, and a positive relation between L1 and w2 due to the fact that more expensive employment of the second category leads to less substitution of L1 for L2 and therefore increases the employment levels of L1. However, from (7) taking qZ/qlu we obtain @Z=@10 ¼ fL1 w2

(13)

which reveals that an increase in the substitution relation lu affects the optimal employment rule of L1 positively if fL1Ww2, and negatively if fL1ow2. Under the assumption that w2 will tend to be equal to marginal productivity of L2, then we infer that as long as the marginal productivity of the ﬁrst category of employment is higher that the wages – and thus of the expected marginal productivity – of the second category of employment (fL1 W w2 E fL2), then an increase in the rate of substitution (i.e. positive change of the slope of the substitution line) will end up in lower levels of L2 employment since hiring L1 is more productive than hiring L2. However if fL1ow2 E fL2, then an increase in the rate of substitution between L1 and L2 will result in lower L1 employment levels, since L1 marginal productivity is lower than w2 and thus L2 expected marginal productivity.

5.9. CONCLUSIONS AND POLICY IMPLICATIONS The seafarers’ employment in Greece presents a decrease in the seafarers’ labour force, along with a relative increase in the number of the unemployed. These trends are strongly affected by the employment evolution in ocean-going shipping. In general, we conclude that the following characteristics of the seafarers’ labour market in Greece are: The strong substitution of the Greek seafarers by foreigners, especially in ratings.

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The accumulation of Greek seafarers at the ages of 40–50 and the signiﬁcant reduction of the numbers of newcomers. The relative increase of the numbers of the aged seafarers’ labour force which, however, is comparably lower than the one presented in other OECD countries. The signiﬁcant upgrade of the education level of the Greek seafarers’ labour force and especially of the ofﬁcers and junior ofﬁcers, and the relative upgrade of the education levels of the ratings. The relative concentration of Greek seafarers on older ships, which in any case is affected by the substantial numbers of Greek seafarers employed in the short-sea ﬂeet. The relative small presence of Greek seafarers on Greek-owned ships contracted with NAT, ships of young age and ships of large grt, that constitute the bulk of the new buildings in the ocean going shipping. The signiﬁcant diversiﬁcation of the effects of new ship technology in the different specialties. The small, if not minimal, effect of the law on the organic composition of crews of ships under the Greek ﬂag on the Greek seafarers’ employment levels. The existence of national monopsony in the Greek seafarers’ labour market, which is related to the monopsony power of the Greek shipowners over the Greek seafarers, stemming from the social security system’s disincentives over the Greek seafarers to work on ships under non-Greek ﬂag. Greek seafarers on the average enjoy lower wages relative to other advanced OECD countries and higher wages relative to their foreign colleagues that get employment on ships under the Greek ﬂag or Greekowned ships under a foreign ﬂag. The detected productivity differential of the Greek seafarers in relation to foreigners, explains a great deal the wage differential, especially in terms of higher efﬁciency and loyalty. However, some of the wage difference is explained by the existence of the national monopsony in the seafarers’ labour market which allows for a risk premium imposed on wages when employed, so as to compensate for the periods when seafarers are left unemployed by shipowners. An analogous wage increase effect is exercised by the low mobility between the seafarers’ specialties and the existence of employment agencies in the sector. In any case, there has been strong evidence of the hysteresis effects on the seafarers’ unemployment, which may be explained by some wage inertia especially in

168

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2002–2004, as well as by structural problems in the seafarers’ labour market that lead to a mismatch between the vacancies and the specialties and skills of the unemployed. Lastly, the presented analysis led to the formation of an employment decision model, which seems to ﬁt the presented evidence and data behaviour, according to which shipowners employ Greek seafarers for the critical position of the vessels operation, since they exemplify effort. For the non-critical positions, shipowners prefer the cheap seafarers’ labour so as to meet some cost minimization criteria, and therefore, they prefer employing foreigners for ratings. Clearly, the lower the wage differential and the higher the productivity and effort differential between the Greek and foreign seafarers, the easier it will be for a Greek seafarer to get employment in the specialty he serves. Policy implications supported by the research, concern the abolishment of all disincentives rising from the social security system which will allow Greek seafarers to seek employment on ships under foreign ﬂags. Such a structural measure, of course, has to be gradual in order to deal with probable actuarial problems of the Greek seafarers’ pension fund (NAT). In addition, it is clear that any measures that may lead to wage restrains of the Greek seafarers especially at the rating level or/and to the increase of their productivity differential in relation to their foreign colleagues of the same specialties, will have a positive impulse on the Greek seafarers’ employment levels. However, there is room for active employment policies in the sector, concerning better education and training especially at the ratings level, facilitation of mobility between specialties, the restraining of the role of employment agencies and in general, the upgrading of the matching services that will enable unemployed seafarers to successfully seek and get employment. The creation of a strong employment multiplier by taking advantage of the maritime cluster which is restrained in Greece, is of critical importance for battling unemployment in the sector. Although Greek shipping makes a signiﬁcant contribution to the Greek economy, it is small with respect to its market share in such a large sector. Speciﬁcally, receipts to the economy per grt amounted to US$ 150 in 2005 – just 1/3 of a corresponding average for the 9 largest EU maritime countries, the US and Japan (see National Bank of Greece, 2006). Overall, the successful implementation of measures that boost demand and good working conditions for seafarers are expected to ﬁnally support the supply of seamen in the Greek seafarers’ labour market.

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NOTES 1. Seamen labour force consists of seamen employable in ships under Greek ﬂag and Greek owned under non-Greek ﬂag registered with NAT. 2. For a discussion of general trends in Greek seafarers labour market see also Corres (1978). 3. For a more general discussion on the effects of technology in maritime industry see also King (2000). 4. The phenomenon of exclusive employment of seafarers on national ships does not appear in other OECD countries. For example, using data from ILO we see that 51% of German seafarers get employment in non-national ships while for the case of British seafarers the analogous percentage is 62%. 5. A model of discriminating monopsony in the seafaring labour market is described in Leggate and McConville (2002). There the assumption of discriminating monopsony rises due to the immobility and specialization of labour in the sector and not due to the existence of a single buyer. Additionally the adopted traditional approach is based on the assumption for similar work at the same level of efﬁciency of seafarers coming from the distinct markets were the employer is setting the wage following the different supply elasticities in these markets. However, as it will be shown later it is more realistic to assume that there exists efﬁciency differences between seafarers coming form the two distinct markets which rationalize the differences of the associated wages. Given these wage-efﬁciency differences the ship owner is called to decide on the ship’s ﬁnal employment levels and the crew composition. 6. Such a strategy where employers set employment levels while bargaining concerns solely wage levels is described as ‘right to manage model’ (Manning, 1987). 7. This agreement is accepted as the basis for wage setting process in international shipping industry. See also Lillie (2004). 8. However, we should not exclude the possibility of some non-Greek seafarers to work for wages smaller than the ones agreed by ITF Standard Agreement or ITF Uniform ‘‘TCC’’ Collective Agreement. 9. For an extensive discussion of Hysteresisis in unemployment see: Blanchard, & Summers, 1987; Cross, 1988. 10. Long term and short term Phillips curve connects real wages inﬂation with unemployment rate for the relevant time periods. Short term Phillips curve is expected to be negative. Long term Phillips curve shape reveals some characteristics of employment-unemployment of the relevant labour market. 11. For a discussion on active –passive labour market policies see: Calmfors, 1994; Nickell & Ours, 2000; Martin, 2000. 12. Along the lines of the above described rational the following section presents a modelling of the employment decision of a ship owner that takes into account the phenomenon of substitution between national and non-national seafarers that dominates the shipping industry.

REFERENCES BIMCO/ISF. (2005). Manpower update: The worldwide demand for and supply of seafarers. Warwick Institute of Employment.

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Blanchard, O., & Summers, L. (1987). Hysteresis in unemployment. European Economic Review, 31, 288–295. Calmfors, L. (1994). Active labour market policy and unemployment: A framework for the analysis of crucial design features. OECD Economic Studies 22. Paris: OECD. Corres, A. J. (1978). The Greek seafarers labour force. Athens: Institute of Economic and Industrial Research. Couper, A. D., Walsh, C. J., Stanberry, B. A., & Boerne, G. L. (1999). Voyages of abuse seafarers, human rights and international shipping. London: Pluto Press. Cross, R. (1988). Unemployment, Hysteresis and the Natural Rate Hypothesis. New York: Blackwell. Donn, C. (1989). Concession bargaining in the ocean going maritime industry. Industrial and Labour Relations Review, 42(2), 189–200. Greek Shipping Cooperation Committee. (2005). http://www.nee.gr/htm/greekowned.htm, assessed January 2007. ITF. (2006). Standard CBA. Available at: http://www.itfglobal.org/ﬂags-convenience/ﬂagsconvenien-924.cfm 17/7/2006, assessed January 2007. King, J. (2000). Technology and the seafarer. Journal of Maritime Research. http:// www.jmr.nmm.ac.uk/server/show/conJmrArticle.24 Leggate, H., & McConville, J. (2002). The economics of the seafaring labour market. In: C. Th. Grammenos (Ed.), The handbook of maritime economics and business (pp. 443–468). London: Informa/LLP. Lillie, N. (2004). Global collective bargaining on ﬂag of convenience shipping. British Journal of Industrial Relations, 42(1), 47–67. Lindebeck, A., & Snower, D. J. (1988). The insider-outsider theory of employment and unemployment. Cambridge, MA: MIT Press. Manning, A. (1987). An integration of trade union models in a sequential bargaining framework. Economic Journal, 97(385), 121–139. Martin, J. P. (2000). What works among active labour market policies: Evidence from OECD countries’ experience. OECD Economic Studies No. 30. Paris: OECD. National Bank of Greece. (2006). Greek shipping to remain a global leader in a more competitive environment. Athens: National Bank of Greece. Nickell, S., & Ours, J. (2000). Why has unemployment in the Netherlands and the United Kingdom fallen so much. Canadian Public Policy, 26, 201–220. Pallis, A. A. (2002). The common EU maritime transport policy: Policy Europeanisation in the 1990s. Aldershot: Asgate. Sambracos, E., & Tsiaparikou, J. (2001). Sea-going labour and Greek owned ﬂeet: A major aspect of ﬂeet competitiveness. Maritime Policy and Management, 28(1), 55–69. Thanopoulou, H. A. (1994). Greek and international shipping (in Greek). Athens: Papazisis. Thanopoulou, H. A. (1998). What price the ﬂag? The terms of competitiveness in shipping. Marine Policy, 22(3), 349–367. Theotokas, I., Lekakou, M. B., Pallis, A. A., Syriopoulos, T., & Tsamourgelis, I. (2006). Greek shipping industry, Employment and Competitiveness (in Greek). A study for the Panhellenic Seamen Federation (PNO), Chios: University of the Aegean. U.S. Maritime Administration (MARAD). (2002). Foreign flag crewing practices. Washington, DC: MARAD. Wu, B., & Winchester, N. (2005). Crew study of seafarers: A methodological approach to the global labour markets for seafarers. Marine Policy, 29(3), 323–330.

CHAPTER 6 FINANCING GREEK SHIPPING: MODERN INSTRUMENTS, METHODS AND MARKETS Theodore C. Syriopoulos ABSTRACT The chapter discusses ship finance and analyzes modern instruments, methods and markets that shipping companies employ to fund their investment projects. In a highly dynamic and volatile business environment, ship finance becomes highly sophisticated, innovative and complex. Emphasis is placed particularly on financial innovations employed by Greek shipping companies that rank on top of international shipping. These financing instruments include new forms of bank lending, leasing and syndication, international equity initial public offerings (IPOs), private equity funding, high-yield bond issues, securitization and forward freight agreements (FFAs).

6.1. INTRODUCTION: THE ROLE OF CAPITAL MARKETS This chapter focuses on the ﬁnancing side of shipping business. Despite its importance, shipping ﬁnance has been rather neglected in applied ﬁnancial Maritime Transport: The Greek Paradigm Research in Transportation Economics, Volume 21, 171–219 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 0739-8859/doi:10.1016/S0739-8859(07)21006-6

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research. This is partly due to an introvert, non-disclosure, approach shipping companies prefer to follow in ﬁnancing their investment plans. On the other hand, the modern ﬁnancing instruments and tools that market players employ to fund-raising in shipping become highly sophisticated, innovative and complex. In line with the major topic of the Greek paradigm in shipping, attention is paid to the ﬁnancing instruments, and methods employed predominantly in Greek shipping. This is a natural outcome, since Greek shipping remains on top of international shipping business, leaving behind Japan, Germany and China (14.5%, 7.9% and 7.2% of world ﬂeet, respectively). According to 2006 ﬁgures, Greek shipping controls a total of 3027 vessels, which represents an aggregate capacity of 163.4 million dwt and corresponds to a world ﬂeet share of 18% (UNCTAD, 2006). Nevertheless, the analysis of modern ﬁnancing, methods, markets and tools presented in this chapter have obviously wider applications to international shipping business. Prior to the discussion on the ﬁnancing of the Greek shipping, it is useful to highlight the central role capital markets play in modern shipping ﬁnance, an issue that we now turn to. Investment decisions in the shipping industry bear a signiﬁcant element of business uncertainty, since varying and persistent volatility is apparent between different shipping market segments. This is due to a number of critical factors, including mainly the derived nature of demand for shipping services that is sensitive to economic growth, the cyclicality in freight rates and vessel prices, and the idiosyncratic sectoral characteristics of the shipping industry. Intensive capital resources tied-up in the underlying real assets (vessels) can induce tremendous ﬁnancial risk that, at times, may lead to adverse outcomes. As a consequence, the issue of optimal capital structure and the ﬁnancing tools shipping companies employ are in the core of shipping business. As shipping companies adjust to a dynamic and rapidly changing environment, so do the ﬁnancial methods and instruments available to raise funding and materialize vital investment budgets. The core business strategy of shipping companies is gradually shifting from simple proﬁt maximization to an increase in ﬁrm market value. To attain this, shipping ﬁrms should consistently focus on promoting investment plans that bear growth potential and have positive returns that outperform more than required costs undertaken. Intensiﬁed competition in the shipping markets has led shipping companies to constantly pursue operational ﬂexibility, managerial efﬁciency and robust ﬁnancial liquidity. A shipping company can attain business

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growth following either an internal or external growth path. Subject to freight market conditions, shipping companies can expand their ﬂeet by building new vessels or purchasing second-hand vessels. On the other hand, mergers, acquisitions and strategic alliances (pools) can be an alternative path to internal growth. Nevertheless, these growth strategies, in addition to the need for replacement of older vessels, require substantial capital support and careful ﬁnancial planning. Two broad approaches can be distinguished in shipping capital ﬁnancing: (i) self-sustained (internal) ﬁnancing and (ii) external ﬁnancing. The ﬁrst ﬁnancing approach is based on robust corporate proﬁtability and implies that retained earnings are sufﬁcient to ﬁnance investment decisions. Instead of withdrawing and distributing proﬁts as cash dividends, the management prefers to reinvest these funds and ﬁnance new projects. In the second ﬁnancing approach, the company turns to the international capital markets to raise the required investment funds. Debt ﬁnancing may come from ﬁnancial intermediaries’ lending or debt markets by issuing corporate bonds or commercial paper. Equity markets, alternatively, can enhance own funding. Fund raising then can be realized through a combination of traditional bank lending, private placements, public issues of equity and bonds, commercial paper and, more recently, securitization. Capital markets play a key role in the promotion of shipping business growth and value creation by performing the following fundamental functions. As primary markets, capital markets act as intermediaries to provide the funds required to ﬁnancing new investment projects and sustain business growth. Fresh funds are channelled to ﬁrms in need through the issuance of securities. Furthermore, as secondary markets, capital markets provide an efﬁcient mechanism for trading outstanding securities. They contribute, thus, to potential value creation that is reﬂected on corporate security prices. This chapter presents a concise and integrated framework in shipping ﬁnance. It analyses modern ﬁnancing instruments, tools and capital markets that have come into play in recent years. Section 6.2 summarizes key issue in bank lending to shipping, syndicated loans and leasing. Section 6.3 discusses in detail the role and function of equity markets and the recent shipping initial public offering (IPO) wave. Section 6.4 covers the bond markets and the revitalized interest in shipping high-yield bond issuing. Section 6.5 explains the function of securitization that is gradually employed in ﬁnancing a real asset-backed industry such as shipping. Section 6.6 deals with risk management and forward freight agreements (FFAs), as ﬁnancial instruments to hedging risks in shipping. Finally, Section 6.7 concludes.

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6.2. BANK LENDING TO SHIPPING 6.2.1. Critical Issues Shipowners, bankers and shipbuilders are in search of modern ﬁnancial instruments to fund ship acquisitions. The basic elements in any ship loan arrangement are relatively simple and straightforward. These can be summarized into three fundamental types of borrowing (Stokes, 1997): The standard ship mortgage loan with or without assignment of charter party. The ﬁxed interest credit for newbuildings advanced on behalf of the shipbuilder by a bank with the backing of a state guarantee. Financing up to 100% through a lease or bareboat/hire-purchase arrangement. A number of core issues are important for shipping loans. External ﬁnance (debt) should come up to a level and term-horizon (length of repayment period) that prospective investment cash ﬂows can sufﬁciently meet ﬁnancing expenses. This point is interrelated to newbuilding price trends, second-hand vessel price prospects and freight rates trends. The cost of funding, as reﬂected in ship lending interest rates, is a key issue of major concern. Despite declining interest rates in recent years, shipping is a highly volatile and cyclical industry and risk premiums on shipping loans have remained relatively tight. Currency risk is another important issue, associated particularly with potential credit facilities originating from shipyards. To this end, modern hedging instruments, including currency derivatives and currency swaps of varying durations, can contribute to foreign exchange risk control. Despite a recent shift towards alternative ﬁnancing instruments, such as equity funding and high-yield bonds, bank lending continues to dominate ship ﬁnance. Low interest rates and exceptionally strong freight markets over the previous three years have led to extensive vessel newbuildings and have kept bank lending steadily robust. Despite a recent slowdown in freight rates, vessel values remain high, at multiple levels compared to previous years. The unprecedented liquidity experienced particularly by Greek shipowners is channelled partially into newbuildings or young tonnage. Banks remain positive in lending clients with robust liquidity, conveniently arranging front-loaded repayment schedules by case.

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6.2.2. Greek Shipping Lending Since Greek shipping ranks on top of world shipping business in terms of tonnage and volume, it is of interest to have a closer look at Greek shipping ﬁnance. The trends prevailing in this market segment reﬂect indeed the structural shifts and prospects for the overall shipping market. Recent empirical evidence indicates that the Greek shipping loan portfolio has increased sharply by both Greek and foreign banks. Moreover, this trend seems to prevail, despite robust cash reserves available to many shipping companies. Major reasons for that include loan reﬁnancing at more favourable terms and extensive investments in new tonnage. As shipping markets exhibit some slowdown, rational shipowners proceed to prepayment or reﬁnance of their loans. Taking advantage of exceptional liquidity enjoyed over the last three years, shipping companies are now improving their loan-to-value ratios. As a result, in 2005, the overall ship lending portfolio exhibited further signiﬁcant increases up to USD 36.11 billion (+11.6% relative to 2004). This outcome is even more contrasting compared to 2001 ﬁgures, reﬂecting a growth rate of 119%, with the total loan portfolio then at USD 16.53 billion. International banks active in Greece have gained the largest growth share in ship lending, with a portfolio of USD 19.54 billion in 2005 and an average annual growth of 29% (Fig. 6.1). This shift has been associated with two major foreign banks starting operations in Greece, namely Deutsche Schiffsbank and Natexis (Petroﬁn Bank Research, 2006).

25,000 2001

2002

2003

2004

2005

USD bln.

20,000 15,000 10,000 5,000 0 Greek Banks

Fig. 6.1.

International Banks present in Greece

International Banks not present in Greece

Bank Loan Portfolio to Greek Shipping. Source: Petroﬁn Bank Research (2006).

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European banks dominate the group of the ten major lenders to Greek shipping. Nevertheless, two Greek banks are also included in the top ten list (Table 6.1). These ten banks account for over two-thirds of total lending with a portfolio of USD 24.24 billion. Royal Bank of Scotland remains by far the major lender for years, whereas HSH Nordbank ranks second, following a substantial business increase. However, after a period of stability, the total number of banks engaged in Greek shipping ﬁnance has declined down to 40 in 2005 from 50 in 2004. Reasons for this drop include consolidation among banks and also exit from the sector of those banks with unwinding portfolios. Major declines were experienced by French, Belgian and North American banks. Despite marginal growth rates in total loan portfolio of lead managing banks during 2003–2004, a signiﬁcant increase is seen in 2005 by 40% (43%) relative to 2004 (2003), respectively (Table 6.2). This resulted to total loan portfolio controlled by lead managing banks coming up at USD 7.24 billion (Petroﬁn Bank Research, 2006). These are loans contributed by banks other than the lead managers. In cases where there is more than one lead manager, the syndicate/club amounts involved were split accordingly. Citigroup remains by far the major leader in this category and has seen an increase in its total controlled lending by 50% compared with 2004. Although Greek banks are not strongly active in the lead manager role as yet, major players, such as Alpha Bank, EFG Eurobank, National Bank of Greece and First Business Bank, are intensifying their participation. As Greek shipowners are anticipated to increase demand for investment funding (ﬂeet renewal or Table 6.1.

Leading Banks Holding Greek Shipping Loan Portfolios.

Bank Royal Bank of Scotland HSH Nordbank Deutsche Schiffsbank Credit Swiss Calyon Alpha Bank HSBC National Bank of Greece DVB DnB NOR

Portfolio (USD billion)

Country

8.099 3.468 3.400 1.850 1.500 1.480 1.171 1.140 1.070 1.067

UK Germany Germany Switzerland France Greece UK Greece Netherlands Norway

Note: Figures as of end 2005. Totals include loans drawn plus loans committed but not yet drawn. Source: Petroﬁn Bank Research (2006).

Financing Greek Shipping: Modern Instruments, Methods and Markets

Table 6.2.

177

Lead Managers of Greek Ship Finance Syndicates & Club Deals.

Lead Manager

Managed Portfolio (USD million)

Citibank Aegean Baltic Credit Swiss Deutsche Schiffsbank Fortis ABN Amro Bank of Scotland DVB Nedship HSH Nordbank Commerzbank

2165 1153 800 600 400 320 305 285 218 171

Note: Based on loans committed by third-party banks (excluding own loan outstandings). Source: Petroﬁn Bank Research (2006).

public listing), more banks will be interested in forming coalitions to meet this rising trend. Greek banks active in shipping lending have increased steadily their market participation. Eight leading Greek banks are included in the top 30 overall lenders to Greek shipping, as they have managed to almost double their positions between 2001 and 2005 (Petroﬁn Bank Research, 2006). Greek banks have managed to gain a signiﬁcant market share in shipping lending, although they have entered the market relatively recently (mid-to-late 1990s). The extensive ﬂeet renewal plans and newbuilding orderings in past years have been ﬁnanced by Greek banks through traditional mortgage-based lending and IPO underwritings. Competitive advantages against international (bank) peers include high-quality services, ﬂexibility, commitment and cross-selling (Table 6.3). 6.2.3. Syndicated Loans The upward trends in ship values and the volatile behaviour of the shipping markets have led individual banks to pursue the sharing of lending obligations in shipping loans with other peers, forming, thus, syndicated shipping loan schemes. This may derive from (internal/external) regulatory requirements, limited bank capital adequacy, lending constraints in certain markets and industries or, fundamentally, from a risk diversiﬁcation approach. In a syndicated loan, a group of banks will each commit themselves to make part of the loan. Each bank’s obligation to lend is

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Table 6.3.

Leading Greek Banks to Shipping Lending.

Bank Alpha Bank National Bank of Greece Emporiki Bank of Greece Piraeus Bank EFG Eurobank Laiki Bank First Business Bank Egnatia Bank Aegean Baltic Omega Bank

Portfolio (USD million) 1480 1140 938 897 602 476 457 266 107 60

Source: Petroﬁn Bank Research (2006).

entirely separate from the obligations of the others. One bank (the agent or leader) will administer the facility on behalf of the syndicate, dealing with the ﬁxing of interest rates, receiving repayments and accounting to the other syndicate members (Harwood, 1991, p. 16). Commonly, the leading role is granted to the bank making available the largest share of the total loan. On a world scale, the syndicated shipping loan market experiences robust growth trends in recent years. The total value of syndicated shipping loans totalled USD 41.78 billion in 2005 (Matthews, 2006a). Two Norwegian shipping banks, Nordea and DnB NOR, have seen high levels of activity, attaining ﬁrst and second places respectively in the ranking of syndicated loans as both mandated arranger and bookrunner (Table 6.4). These two banks account for a market share of 42.7% for bookrunning of syndicated shipping loans and 42.4% for mandated arranger. European banks dominate the leading positions in these funding market segments over recent years. A number of leading banks (11) acted as lead arrangers in deals valued at a total of over USD 1 billion in 2005, while the top eight banks were bookrunners for deals aggregating over USD 1 billion (Matthews, 2006a). These ﬁgures indicate a concentration of syndicated shipping loans among few leading banks. Overall, banks are seen to prefer sharing shipping loan risks instead of bearing them alone, since funding required in shipping is rising exponentially. This was partly related to the IPO wave seen recently that also involved in purchase of whole ﬂeets. To sum up, taking into account the relevant bank lending ﬁgures in 2006 and the prevailing freight market conditions, market forecasts indicate that lending activity may experience some short-term slowdown. Although this

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Table 6.4. Rank

Top Bookrunners and Mandated Lead Arrangers for Syndicated Shipping Loans. Bank

Deal Value (USD million)

Number

Share (%)

Bookrunners 1 Nordea Bank AB 2 DnB NOR Bank ASA 3 Citigroup 4 Calyon 5 BNP Paribas 6 RBS 7 ING 8 Deutsche Bank 9 HSBC 10 Fortis

9700 8129 3889 3208 2584 2072 1622 1177 851 697

41 35 17 5 12 3 11 3 5 3

23.2 19.5 9.3 7.7 6.2 5.0 3.9 2.8 2.0 1.7

Mandated 1 2 3 4 5 6 7 8 9 10

8987 8751 3721 2968 2690 2465 1812 1311 1256 1196

53 49 7 19 14 5 12 12 6 10

21.5 20.9 8.9 7.1 6.4 5.9 4.3 3.1 3.0 2.9

41,784

165

100

lead arrangers Nordea Bank AB DnB NOR Bank ASA Calyon Citigroup BNP Paribas RBS HSBC ING HSH Nordbank Fortis Total

Note: Figures as of 2005. Source: Adapted from Matthews (2006a).

trend may be intensiﬁed in case ship prices fall further, it may, nevertheless, be followed by some recovery, if shipowners proceed to take advantage of lower second-hand prices. Despite some stabilization in shipping bank lending, it still remains a highly competitive market. Upward interest rates support margin increases but aggressive players insist on keeping them low. On the other hand, Greek shipowners are seen to operate larger and younger vessels with more efﬁcient organization and robust ﬁnancial liquidity. In this environment, banks appear to take a more cautious stance overall, paying attention to ﬁnancial ratios such as ‘vessel value relative to earnings’. Combined with declining trends in shipbuilding activity, these developments are anticipated to result to a slowdown in bank lending which is also becoming more selective.

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6.2.4. Leasing in Shipping Leasing is an alternative method in shipping ﬁnance that bears some similarities to bank lending. Historically, leasing has been popular and developed in shipping ﬁnance since 1960s and 1970s, initially in the US and then ﬁrst to the UK and subsequently to the rest of Europe. A ﬁnance lease represents 100% ﬁnance and does not require additional security in the form of mortgages on other ships in a company’s ﬂeet. If a shipowner had to raise 100% ﬁnancing in a ship mortgage loan, he should have to attain a highest possible vessel employment to meet required cash ﬂows to debt servicing and, in addition, would be burdened by substantial cross-collateralization on other debt-free ships. Leasing has become more appealing as a ﬁnancing approach since ship prices have risen. In a lease scheme, the ﬁnancing institution (legal owner of the vessel) provides full ﬁnancing for the user (shipowner) over an extended period in return for much narrower security than it would insist on as an ordinary security lender (Stokes, 1997). Although similar in nature to borrowing, a lease does not entail a charge on any of the shipping company’s assets or credit lines, but it does impose a continuing charge on income. Another attractive aspect of leasing is the period obtainable. In a ﬁnancial lease, the lessor is seeking to amortize fully his capital outlay on the asset and to provide for his borrowing costs and proﬁt margins. In cases of capitalintensive underlying assets, the period of the primary lease will usually be in excess of 10 years, since the lessor accepts that the period must reﬂect the lessee’s ability to earn money on the asset concerned. The most convenient period-horizon is usually mutually reached and is based on lessor’s view about revenue-earnings potential of the underlying asset and the professional record of the lessee (Stokes, 1997). Another attractive issue about leases is that they are predictable and permit a shipowner to plan his cash ﬂows, as the earnings level required to cover costs is straightforward. The usual arrangement is a ﬁxed term lease which cannot be affected by changes in tax or money cost, although variable rate leases can also be arranged. A fair arrangement would be based on a back-to-back deal, whereby the lessor can structure the period and terms of the lease precisely to match the revenues earned by the lessee on a long-term contract (Stokes, 1997). Nevertheless, in practice, deals based on such ideal terms are rare, as the relevant contracts are not usually of long-term maturity. Furthermore, ﬁnancial innovations are sometimes produced by combination and improvement of existing instruments. To this end, the use of leasing to ﬁnance newbuildings incorporates the use of the ﬁxed interest credit

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obtainable by the lessor from the shipyards and can be considered as a combination of a lease and a newbuilding shipyard credit. Leasing is a highly attractive ﬁnancing method for high-cost liner vessels. It can conveniently ﬁnance the increasing activity seen at the more commercially sophisticated end of the bulk shipping market (Stokes, 1997). Shipping companies continue to pay attention to leasing (bareboat charters), as they consider it as an alternative method of ﬁnancing ﬂeet expansion with limited new equity. Hence, the lessor, providing 100% ﬁnancing for vessel acquisition, in effect becomes an equity substitute (McGroarty, 2006a). Compared with other transportation sectors, lease ﬁnance is seen to have a modest penetration in shipping. Shipping companies gradually exhibit a stronger preference to leasing, as shipowners realize that controlling the vessels and having ﬂexibility in ﬂeet deployment is more important than actually owning the vessels. This trend is anticipated to strengthen further, as innovative ﬁnancial structures can provide competitive ﬁnancing, improved balance sheets and, in some cases, participation along with the lessors in future increased value of the ﬂeet (McGroarty, 2006a).

6.3. EQUITY MARKETS AND SHIPPING IPOS 6.3.1. Shipping Companies Going Public As the business environment changes dynamically in the shipping industry, shipping companies turn to new ﬁnancial instruments and markets to ﬁnance their investment plans. A gradual shift is apparent in shipping ﬁnance more recently, induced by economic recessions and shipping crises. This shift has been reinforced by the interactive impact of a number of factors, including: erosion of the capital reserves in many shipping companies, substantial contraction of banking ﬁnance, increasing attention on ‘capital adequacy’ as a critical issue for all parties concerned (shipping companies, banks, investors), substantial capital requirements to replace the ageing wet and dry ﬂeets worldwide, internationalization and integration of world capital markets, structural and cultural reorganization of shipping companies, induced by capital markets requirements and investors’ expectations, promotion of corporate governance, social responsibility and business ethics concepts.

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Despite their central role in investment funding, stock markets had traditionally only limited participation in shipping ﬁnance. Close family ownership ties, reluctance of shipowners to dilute company control, nondisclosure of sensitive company information and unattractiveness of shipping stocks to institutional and private investors, due to volatile cash ﬂows, have been major reasons for that (Grammenos, 2002). Only recently shipping companies have discovered the virtues of public listing on international stock exchanges. The recent shipping IPO wave has tackled investors’ appetite, as the latter rediscover the attractiveness of exchange traded shipping companies. This trend has been supported by unprecedented high-freight rates and strong shipping company balance sheets in an environment of bullish stock markets. Steady growth rates in the US economy and high-growth rates in the Chinese economy over the last three years led the shipping sector to a peak in late 2004, generating strong earnings cash ﬂows for shipping companies. Shipping IPOs are distinct from those of ordinary industrial or service companies. The market value of a shipping company is often closely associated to the underlying value of the physical assets (vessels). In this respect, shipping IPOs bear similarities with the respective IPOs of closedend funds and property companies. Furthermore, due to extensive information ﬂows in international vessel sales and purchase markets, shipping IPOs tend to exhibit lower information asymmetry. Due to the cyclical nature of shipping business, shipping companies tend to prefer equity markets when shipping market prospects appear to be promising.

6.3.2. Key Factors to Shipping IPOs A fundamental problem for shipping companies interested in raising equity in the stock market is the pricing of the new issues. Since the majority of shipping IPOs refer to bulk shipping offerings, the issuer will set an IPO price at or near market-adjusted net asset value (NAV) per share. This is reasonable in cases where company earnings and cash ﬂows fully support NAV (Stokes, 1997). In practice, however, ship prices in the second-hand market do not necessarily reﬂect operating cash ﬂow and earnings generated by the ships. More frequently, ship prices represent a very high multiple of operating cash ﬂow, whereas in certain bulk shipping segments operating earnings have been negative for a number of years. Equity ﬁnancing in the stock market can be an attractive source of capital for shipping companies taking into account the low implied cost of capital

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relative to other sources of funding. This is related to the fact that shipping companies traditionally pay low or no dividend to investors and investors accept this practice, since, due to the capital-intensive nature of shipping business, retained earnings are channelled to ﬂeet replacement and expansion. On the other hand, investors’ target of expected return on equity is set at high levels. Assuming that a shipping company can borrow at a spread over Libor (+1% to 2%), this can result to borrowing costs on senior debt of, say, 7%. Subordinate debt might cost 10–12% per annum, on a 10-year maturity. Investors, however, will typically seek a return on equity of 15–20% per annum, given the volatile freight markets and their risk exposure (Stokes, 1997). This implies that most shipping companies, rated below investment grade, must attain return on equity well above average stock market returns in order to prevent their share price declining. The key role of equity markets on shipping business has been surprisingly neglected in past empirical research. An exception is Grammenos and Marcoulis (1996), who studied shipping IPOs in a cross-country framework. A sample of 31 IPO cases was examined in seven different countries (US, Norway, Sweden, Greece, Luxembourg, Hong Kong and Singapore), over 1983–1995. Shipping companies with prime business on vessel operations were mainly considered and critical factors associated with shipping IPOs were investigated. As these companies grow bigger over time, they reorganize their structures and meet their capital needs in the stock markets more frequently. The following important factors were considered on IPO stock market performance: gross proceeds of the IPO issue, size of the company, proportion of equity offered, gearing level, age of the company and age of the ﬂeet. Gearing was indicated to be the single most statistically signiﬁcant factor in explaining IPO stock market performance. Furthermore, the average initial day return of the sample shipping IPOs was found to be consistent with past empirical evidence; underpricing of small magnitude was concluded (5.32% on average). IPO costs were estimated at 8% of the amount raised with a high-ﬁxed cost component in average direct costs; the highest direct costs were in the US stock markets and the lowest in Norway. The purpose of the issue, the number of offers, the average proceeds, the average company size and the cross-country listings for these IPOs are summarized in Tables 6.5 and 6.6. Vessel acquisitions receive by far the highest part of the IPO funds raised and asset play strategies follow at a distance. Shipping companies with high-pre-IPO gearing levels are seen to experience more underpricing of their share issues than the companies with low-pre-IPO gearing levels. In the context of reorganization, shipping companies may have to lower their gearing level to minimize potential stock

184

THEODORE C. SYRIOPOULOS

Table 6.5. Issue Purpose

Shipping IPOs: Investment Purpose – Funds Raised. Number of Offers

Average Gross Proceeds (USD million)

Average Company Size (USD million)

19 (63%) 7 (24%) 3 (13%) 1 (3%)

59 61 62 48

153 72 203 152

Vessel acquisition Asset play Debt repayment Trading activities

Note: Period: 1983–1995. Source: Grammenos and Marcoulis (1996).

Table 6.6.

Shipping IPOs: Cross-Country Analysis.

Stock market

Vessel Acquisition

Asset Play

Debt Repayment

Trading Activities

USA Norway Sweden Greece Luxembourg Singapore Hong Kong

2 8 4 3 – 3 –

6 – – – 1 – –

2 1 – – – – –

– 1 – – – – –

Source: Grammenos and Marcoulis (1996).

market underpricing. Furthermore, shipping companies that offer more equity to the public exhibit higher underpricing than those offering less equity. This is related to information signalling to market participants, implying a kind of ‘private’ valuation by shipowners for the amount of equity retained. Risk averse shipowners would improve expected utility by holding a diversiﬁed portfolio and not only a large stake in their own ﬁrm. Since this is not the case in companies offering limited equity, it may signal that these shipowners are based on an implicit ‘fair’ ﬁrm value. In this case, shipowners of high-value companies would prefer to forego diversiﬁcation beneﬁts but avoid selling undervalued stocks. As investors realize shipowners’ positioning, they would be keen to invest on shipping stocks of companies where owners are retaining larger holdings. 6.3.3. Shipping Business and Equity Markets Studies on shipping stocks remain limited in number and scope. More recently, few empirical works have investigated the relationship of shipping

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business and stock markets from different perspectives. These include the behaviour of shipping stocks in the international equity markets, the identiﬁcation of key risk-return characteristics, the comparative analysis of the shipping sector to complementary or substitute transportation sectors and the dynamic management of investors’ portfolios consisting of shipping stocks, inter alia. A comparative sectoral analysis focused on stock market risk perception of US-listed water transportation and other sectors (Kavussanos & Marcoulis, 1997). The study considered various transport and energy sectors, including air transportation, rail transportation, trucks and other related industries such as electricity, gas, petroleum reﬁning and real estate over the period July 1984–June 1995. Cross-sectional differences in the returns of the companies in each industry were related to the stock market and to the following microeconomic factors: market value of equity; book to market value of equity ratio; earnings to price ratio; asset to market value of equity and asset to book value of equity. The empirical ﬁndings indicated that water transportation is the only transportation industry which exhibits lower systematic risk than the market and that the asset-to-book ratio, along with the market, has explanatory power over its cross-sectional returns. These micro-factors were signiﬁcant in explaining stock returns but were seen to vary between industries. A recent study investigated the impact of the macroeconomic environment on shipping stock returns (Grammenos & Arkoulis, 2002). Based on a sample of 36 shipping companies, listed in 10 stock exchanges worldwide over 1989:12 to 1998:3, the study examined the relationship of global macroeconomic sources of risk with shipping stock returns internationally. The model employed the return on the world equity market portfolio and innovations in the following pre-speciﬁed set of global macro variables: (a) industrial production, (b) inﬂation, (c) oil prices, (d) ﬂuctuations in exchange rates against the US dollar and (e) laid-up tonnage. Empirical evidence indicated several signiﬁcant relationships between returns of international shipping stocks and global risk factors. Oil prices and laid-up tonnage were found to be negatively related to shipping stocks, whereas the exchange rate variable to display a positive relationship. The macroeconomic factors were concluded to exhibit consistent interrelationship patterns in the way they are linked to the shipping industry worldwide. An international comparison across shipping-related industries was undertaken in a study attempting to identify diverging risk characteristics (Kavussanos, Juell-Skielse, & Forrest, 2003). Comparing the behaviour of shipping-related company stock returns, the objective was to reveal whether

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systematic risk differs from the average in the market and across sub-sectors of the maritime industry. Based on a postal questionnaire survey, 108 publicly listed shipping and shipping-related companies, across international stock exchanges, were classiﬁed by sector according to their core business activity. The capital asset pricing model (CAPM) was employed to model stock returns and measure sector systematic risk, over 1996–1999. Stock returns were found to be mostly negative, whereas the systematic risk of the drilling and offshore sectors was signiﬁcantly higher than those of all other sectors. Similar levels of systematic risk were seen for the bulk, tanker, container and ferry sectors but the systematic risk of the cruise sector was found to lie in between these two groups. For all of the sample companies, systematic risk was lower than the market average. The dynamic asset allocation and active management of shipping stock portfolios has been the core objective of a recent study (Syriopoulos & Roumpis, 2008). Alternative dynamic volatility models investigate the risk and return characteristics of a carefully selected sample of shipping stocks, in order to gain some insight on potential asset allocation opportunities. As private and institutional investors are in search of alternative style investments, the assessment of stock volatility is a critical issue for efﬁcient asset allocation, dynamic portfolio management and ﬁrm valuation. According to the empirical ﬁndings, shipping stock returns exhibit a highly volatile proﬁle, in accordance with corresponding (tanker and dry bulk) earnings. Sectoral and company fundamentals may affect shipping stock volatility that was found to be sensitive to asymmetric shocks. The results indicated superior portfolio returns for shipping stock portfolios relative to market benchmarks, albeit associated with higher risk levels. 6.3.4. Shipping in International Equity Markets In the 1980s, the universe of publicly listed shipping stocks was small and London was the principal stock market for shipping stocks. Apart from London, shipping stocks were also listed in the New York stock market. In the 1990s, Oslo took the lead in Europe as the favourable stock exchange for shipping IPOs. Market changes had resulted to London losing the leading role, whereas in the US a series of de-mergers and spin-offs of shipping businesses led to the expansion of shipping sector. A number of Asian stock markets have also attracted shipping IPOs, including Hong Kong, Singapore, Bangkok and Taiwan. Historically, shipping stocks have not been a highly attractive instrument for investors (e.g. Erdogan, 2005). This adverse attitude may be partly

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justiﬁed on the negative episode in the high-yield bond market in the late 1990s. More recently, the US stock markets, NYSE and NASDAQ, have regained their leading role as they attract most shipping IPOs. Oslo follows at a distance now, leaving London stock exchange behind. New York hosts the largest number and value, with 25 shipping companies of total value at USD 55 billion, whereas 21 shipping companies are listed in Oslo and have an aggregate value of USD 15.4 billion (the number of wider maritime companies is larger). Strong advantages of the US capital markets include fund-raising depth, improved position in the investment community, improved share liquidity, reliable pricing, high corporate reputation and exposure to an international investor base. Except from Oslo, European stock markets have experienced declining trends in shipping market value from more than 1% in the early 1990s to 0.6% of the total recently. Taking into account the leading role of US markets and the upward coming Asian markets, European stock markets may see further declines in shipping market value. According to market participants (Matthews, 2006c), reasons explaining the limited presence of the shipping sector in the European markets include the highly fragmented industry structure, the ownership structure (as founding families remain major shareholders), the large number of relatively small private companies, the decision of some public shipping companies to go private and the low limited number of IPOs in Europe relative to the US. Based on Clarkson’s Public Shipping Database, there were 169 shipping companies listed worldwide at the end of May 2006, with a market value of USD 207 billion, although pure shipping companies are only about half that number (Matthews, 2006c). A critical issue relates to the motives driving shipping companies to get listed in international stock markets. In the past, the strict requirements of transparency and disclosure that listed companies should meet was a deterrent factor for many shipping companies to the stock market, especially at volatile market times. However, this attitude is gradually abandoned. Stock markets would appear to be a reasonable choice for companies with relatively stable income ﬂows and growth potential. With interest rates remaining at relatively low levels, banking ﬁnance may appear to be a cheaper funding alternative. Nevertheless, a number of shipping companies have decided to go public and raise funds quickly (despite signiﬁcant public listing costs), in order to take advantage of the robust freight markets and investors’ positive sentiment towards shipping stocks. Still, a number of recently listed shipping companies have experienced substantial market value losses, since freight markers have moved on a downward path recently.

188

THEODORE C. SYRIOPOULOS

This has not been an encouraging development for cautious investors and it may prove to be more difﬁcult for shipping companies to raise funds from the stock markets in the future. Good quality shipping IPOs can be successful although it is not always easy to sell them to investors, as was the case with Genco, for instance. Although investors’ sentiment may not be as positive as it was earlier, fair IPO pricing, backed by robust earning cash ﬂow streams and supported by reasonable freight markets, can conclude to successful shipping IPOs. A critical advantage of shipping company listings is related to the fact that shipping is a real asset backed business and certain risk levels can be still acceptable by investors with some conﬁdence. In the recent, intensive IPO period (mid-2004 to end-2005), the total value of shipping IPOs and secondary listings was in excess of USD 4 billion (Matthews, 2006c). Although most attention is paid to the leading role of the US markets, some transactions are seen in Asia, whereas Oslo continued enjoying high levels of shipping stock activity. Other stock markets, such as London, have seen shipping business reducing, primarily due to companies going private or to mergers and acquisitions (such as the P&O acquisition by DP Ports World). Overall, despite recent stock market activity, shipping – even transportation sector as a whole – still lags behind in the expansion seen in global equity market values. According to market participants (Matthews, 2006c), the market capitalization of global transportation companies increased substantially during the last 30 years and reached a high of USD 700 billion recently. Nevertheless, global transportation as a relative share of total market capitalization, after rising to above 4% at the end of 1980s, has declined below 2% by early 2006. As a comparison, the oil and gas sector and the ﬁnancial sector account for nearly 20% and 15% of global stock market capitalization, respectively. Against an estimated 8–9% of GDP in OECD countries, the low market share in capitalization indicates that transportation remains persistently neglected in international stock markets. The shipping sector has also seen a low capitalization share, as it accounts overall for just 0.3–0.4% of global stock market value; liner shipping covers the largest share (Matthews, 2006c). Despite recent IPO activity, this ﬁgure reﬂects a low stock market representation for shipping, considering that the shipping sector is estimated at 2% of GDP. More speciﬁcally, the aggregate global market capitalization of public shipping companies is estimated at about USD 130 billion (following a peak of USD 180 billion in the 4th quarter 2005 and excluding cruise line ﬁgures). In the ﬁrst half of 2006 alone, international shipping IPOs amounted to a value of more than USD 100

Financing Greek Shipping: Modern Instruments, Methods and Markets

Table 6.7. Company A.P. Moller MISC MOL NYK Bollore Teekay Cosco ‘K’ Line Frontline Hyundai MM OSG OOIL Evergreen Kirby Bergesen Gas Hanjin China Shipping Torm NOL W. Wilhelmsen

189

Leading Shipping Stocks by Market Capitalization. Country of Listing

Market Cap (USD million)

Denmark Malaysia Japan Japan France US China Japan Norway South Korea US Hong Kong Taiwan US Norway South Korea China Denmark Singapore Norway

32.67 7.67 7.04 7.03 5.39 3.05 3.03 2.99 2.84 2.53 2.34 2.22 1.89 1.85 1.77 1.67 1.61 1.60 1.60 1.58

Note: Figures as of end-June 2006. Cruise lines are not included in the ranking. Source: Matthews (2006c).

billion (Matthews, 2006c). Apart from A.P. Moller, the Danish shipping giant, which accounts for about 20% (USD 32 billion) of the total market value of shipping stocks globally, no other public shipping company has a market value in excess of USD 10 billion and only 30 shipping company stocks had a market capitalization of more than USD 1 billion as of end of June 2006 (Table 6.7). 6.3.5. Recent Stock Market Performance A risky issue in shipping IPOs has been whether shipping companies would attract investors’ funding. However, as it turned out the case to be, shipping IPOs have been considered as ‘fashionable’, although more recent IPOs have experienced increasing investor fatigue for shipping stocks. As a result, a number of shipping IPOs failed to proceed or withdrew, as, for instance, the initial IPO effort of Aegean Maritime Petroleum or the follow-on share offering of Diana Shipping.

190

THEODORE C. SYRIOPOULOS

Table 6.8.

Stock Price of Selected Shipping Companies Since IPO.

Company

IPO Date

Market

IPO Price ($)

First Day Close ($)

Price ($) 31/12/06

Return (%)

Top Tankers Navios DryShips Diana Teekay LNG Aries Maritime Eagle Bulk TBS International ACL StealthGas Quintana Genco Seaspan Horizon Excel Double Hull Omega Navigation Danaos

23 Jul ’04 6 Jan ’05 3 Feb ’05 18 Mar ’05 5 May ’05 3 Jun ’05 23 Jun ’05 24 Jun ’05 7 Oct ’05 6 Oct ’05 15 Jul ’05 22 Jul ’05 9 Aug ’05 27 Sept ’05 15 Sep ’05 13 Oct ’05 7 Apr ’06

NASDAQ NASDAQ NASDAQ NYSE NYSE NASDAQ NASDAQ NASDAQ NASDAQ NASDAQ NASDAQ NASDAQ NYSE NYSE NYSE NYSE NASDAQ

11.00 5.00 18.00 17.00 22.00 12.50 14.00 10.00 21.00 14.50 11.50 21.00 21.00 10.00 21.00 12.00 17.00

6.01 5.25 20.20 17.30 24.30 12.97 13.50 10.05 28.30 13.70 11.26 20.87 19.42 10.75 15.95 12.05 16.00

4.65 5.37 17.81 15.81 33.31 9.17 17.34 8.74 65.51 11.68 11.1 27.94 22.71 26.96 14.61 16.19 15.66

57.7 7.4 1.1 7.0 51.4 26.6 23.9 12.6 212.0 19.4 3.5 33.0 8.1 169.6 30.4 34.9 7.9

6 Oct ’06

NYSE

21.00

20.85

23.51

12.0

Note: Return refers to stock prices at 31/12/06 vs. IPO prices. Source: NYSE; NASDAQ.

Following the unprecedented levels of freight income during 2003–2005, when demand for wet and dry bulk shipping surpassed available supply in the spot markets, shipping companies turned their ﬁnancing interest into world capital markets. This robust environment was supported by highgrowth rates of the Chinese economy, and to a lesser extent of the Indian economy, oil market volatility induced by Middle East political tensions, US import growth of manufactured goods and sharp increases in newbuilding prices, due to heavy orderbooks (in dry bulk, tankers as well as LNGs). In this environment, while globally there were just four maritime IPOs, totalling USD 393 million in 2001, the number jumped to 27 IPOs, worth USD 6.07 billion in 2005 (USD 3.05 billion in US listings). Particularly during mid-2004 to end-2005, international equity markets experienced an unparalleled shipping IPO wave (Table 6.8). The IPO activity virtually started in 2004 with Top Tankers, reached a peak in 2005 with 12 shipping IPOs (a ‘record year’) and started slowing down in 2006. A number of shipping companies went public in this IPO wave, including Dryships, followed by International Shipping Enterprises (subsequent acquirer of

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191

Navios), Diana Shipping, TSB International, Eagle Bulk Shipping, Horizon Lines, Aries Maritime, Teekay LNG, Quintana Maritime, Double Hull Tankers, StealthGas and Genco Shipping and Trading. Most of these companies have been listed on NASDAQ. Following 16 years of trading in the American Stock Exchange, Excel Maritime has moved to the New York Stock Exchange, targeting share liquidity and visibility boosting. Two major shipping IPOs were concluded in 2006, Omega Navigation, earlier and Danaos Shipping, subsequently. The Omega Navigation offering was a highly sophisticated IPO (in legal and investment banking terms), was registered with the securities and exchange commission (SEC) both for the US and Singapore and was dually listed in Singapore and Nasdaq with free ﬂow of shares between the two markets. The company was structured as a master-limited partnership and, different from previous IPOs, this one offered two classes of shares with different dividend payouts. However, growing uncertainty over shipping rates on the spot market recently has resulted to declining IPO ﬁgures in 2006 (14 IPOs, worth USD 2.8 billion of which USD 1.4 billion in US listings). It is worth noting that, in 2000, publicly listed tanker ﬁrms had a market capitalization of just USD 2.5 billion, whereas this ﬁgure is currently in excess of USD 21 billion The stock market value of ﬁrms operating bulk carriers has increased to about USD 6 billion (McGroarty, 2006a). Shipping companies listed on NASDAQ have raised about USD 1.7 billion in IPOs and USD 328 million in secondary offerings during 2005. Market participants consider 2005 to be the ‘year of the shipping IPOs’, as shipping companies raised funds in excess of USD 2 billion in the US, predominantly in the bulk sector. Recent IPO performance was initially supported by robust stock price returns of the listed shipping companies. Key factors for stock performance include attractive valuation, efﬁcient management, modern corporate governance, robust organic growth prospects and successful acquisition plans. Focusing on shipping valuation, the following critical factors should be evaluated: cash ﬂows, NAV, revenue and operational earnings, total enterprise value and book value. However, it is questionable whether shipping stocks are going to remain attractive in declining freight markets. Post-IPO shipping stock performance indicates that, despite initially highstock price appreciations (ﬁrst trading day close price), signiﬁcant downward price adjustments have taken place in some cases, as a reaction to freight market volatility (Table 6.8). The declining trends seen particularly in dry bulk stock returns have been related to moderate commodity demand in the Chinese market and a steady schedule of vessel deliveries resulting to increased total shipping capacity. Top Tankers, followed by Excel, Aries and

192

THEODORE C. SYRIOPOULOS

Table 6.9.

Funds Raised in Selective Recent Shipping IPOs in NASDAQ.

Issue Name

Country

Top Tankers DryShips Aries Maritime Eagle Bulk TBS International Quintana Genco StealthGas Omega Navigation Total

Date of IPO

Funds Raised (USD million)

Greece Greece Greece US Bermuda Greece US US Greece

23 Jul ’04 3 Feb ’05 3 Jun ’05 23 Jun ’05 24 Jun ’05 15 Jul ’05 22 Jul ’05 7 Oct ’05 7 Apr ’06

146.6 234.0 153.0 201.6 81.6 192.1 247.0 173.3 147.8

–

–

1693

Source: NASDAQ.

StelthGas, appear to be major losers, as stock prices declined from 58% to 19% (IPO prices vs. 31/12/06 prices). On the other hand, American Commercial Lines (ACL) and Horizon Lines have attained spectacular returns (212% and 170%, respectively), followed by Teekay LNG, Double Hull, Genco and Eagle Bulk (returns ranging from 24% to 51%). As investors typically pick up shipping stocks at the high end of a shipping cycle, returns may not always end up as attractive as they may have been expected. A number of shipping IPOs have been headed to NASDAQ, in order to take advantage of the beneﬁts available in this stock market (Tables 6.8, 6.9 and 6.10). Since this is virtually an electronic platform, it is quicker than other market types and has lower transaction costs. Following the recent IPO wave, there are currently 16 marine transportation companies listed in the NASDAQ (as of end-October 2006). In a recent perception study, conducted by NASDAQ on shipping stocks as investment opportunities, the empirical ﬁndings indicated that shipping companies need to show a good growth story, good management, good strategy and fundamentals, whereas the proﬁle of shipping companies appears to have increased among investors (Matthews, 2005). Based on the above, and in spite of the recent shipping IPO wave, this trend may neither continue nor result to any signiﬁcant increase in aggregate stock market activity worldwide, especially in Europe. Investors remain cautious with shipping stocks as some issuers appear to have on overvalued ship portfolio and unmatched with respective charter cover. Furthermore, shipping stock market performance remains directly subject to freight market

Financing Greek Shipping: Modern Instruments, Methods and Markets

Table 6.10.

Secondary Shipping Public Offerings in NASDAQ.

Issue Name Martin Midstream Partners Top Tankers Eagle Bulk Martin Midstream Partners Total

193

Country

Date of IPO

Funds Raised (USD million)

US Greece US US

28 Jan ’04 4 Nov ’04 27 Oct ’05 10 Jan ’06

32.1 128.8 79.8 87.4

–

–

328.0

Source: NASDAQ.

volatility. Shipping stock prices are currently at a discount of even 30–50% of earlier high levels and already reﬂect the declining trends in shipping markets, as spot freight rates are already down from the 2005 peak levels. Following a three-year period of exceptional growth in freight markets that led shipowners to order new capacity, shipping business is anticipated to enter a slowdown phase and the prospects for shipping companies are gradually dimming. As a result, demand and supply imbalances are expected in the shipping markets. These developments are, in turn, going to have an impact on the stock market behaviour of the listed shipping companies. An environment of sharply downward heading shipping markets will offer the opportunity to evaluate long-term investors’ attitude towards recent shipping IPOs.

6.3.6. Private Equity Funding The positive investor sentiment seen in shipping IPOs has been driven by a combination of upward capital markets, attractive shipping freight markets, robust operating earnings and rich cash liquidity. Although an increasing number of shipping companies prefer equity markets as a ﬂexible mean to ﬁnance shipping projects, alternative ﬁnancing instruments, such as private equity, are also of interest. Private equity funding can be considered to have a complementary, yet independent, ﬁnancing function to equity markets. Following the recent slowdown in shipping IPOs, private equity ﬁrms are seen to exhibit growing interest in shipping companies, as they are searching for new industries to enter and are backed by strong capital liquidity. In contrast to other industries, the penetration of private equity funds in shipping remains at modest levels in the US, although it is anticipated to increase further. Since shipping business is an international activity, private equity ﬁrms seek to have a regionally dispersed presence worldwide. Private

194

THEODORE C. SYRIOPOULOS

equity ﬁrms offer advisory and arranger services in diversiﬁed and innovative shipping ﬁnance structures, including US ﬁnance, UK tax leases and KG ﬁnance. A core objective for private equity ﬁrms remains their support to shipping companies enhancing corporate value. In spite of the high-risk element seen in investment returns to shipping, private equity funds have already ﬁnancially supported a number of shipping companies, including Quintana, Eagle Bulk, US Shipping and Horizon, among others. Still, a growing number of private equity funds are active in raising capital to shipping ﬁnance. AMA Capital Partners, for instance, has raised a USD 100 million fund to ﬁnance marine and rail transportation projects. An earlier (2000) fund of USD 45 million, formed jointly with fund partners NIB Capital and GATX, was used to acquire ships attaining a net IRR for shareholders of over 20% (Matthews, 2005). A number of US private equity ﬁrms, such as Carlyle, Wexford Capital, Castle Harlan, Stockwell Fund, Blackstone Group, Lehman Brothers and Sterling Investment Partners, have been involved in shipping ﬁnance. Navigation Finance Corporation (NFC), for instance, a joint venture between DVB Bank and Northern Navigation, has entered into a USD 181 million sale and lease-back deal with Singapore based offshore vessel operator Ezra Holdings. NFC has closed ﬁve funds over six years, totalling about USD 300 million. A sixth fund targets, currently, fund raising of about USD 150 million, whereas each fund is diversiﬁed funded by institutional investors (McGroarty, 2006a). In another deal, Castle Harlan gradually liquidated a stake in Horizon Lines to 18.5% from 37%, selling 5.3 million of Horizon Lines outstanding shares. On the other hand, Fidelity Management has increased its stake in Horizon Lines from 8% to 11.3%, worth about USD 61.5 million. Furthermore, US Shipping Partners has formed a joint venture (US Product Carriers), which has commitments totalling USD 105.5 million in private equity from the Blackstone Group and Leman Brothers (McGroarty, 2006a). Having said that, private equity funds in the US market, armed with high liquidity, turn their attention mainly to larger leveraged buy-out (LBO) deals. Supported by high-vessel values, past returns on related deals have been exceptional at 30%. Part of the increasing attention paid to private equity ﬁnance relates to the fact that investors are better informed and more diligent on fund investing relative to IPO investors. As investors’ interest in listed shipping stocks is expected to slowdown and shipping companies become more experienced in the use of capital markets, private equity funds can take advantage of new ﬁnancing opportunities.

Financing Greek Shipping: Modern Instruments, Methods and Markets

195

6.3.7. Corporate Governance The recent shipping IPO wave in international capital markets brings about fundamental shifts in the managerial model of the companies involved. As traditionally family-owned shipping companies expand their shareholder base and turn into publicly listed entities, a gradual separation of ownership and management takes place. These shifts are partly induced by the institutional framework of the host capital markets, particularly the US (Sarbanes-Oxley, SOX Act, 2002). Publicly listed companies must conform to a set of strict obligations, including detailed disclosure procedures, information dissemination, transparency towards market participants and best practices in corporate governance (e.g. Randoy, Down, & Jenssen, 2003). According to the OECD framework, corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure speciﬁes the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. Based on that, a broad perspective of corporate governance covers company relationships with its stakeholders. In a narrower perspective, corporate governance focuses on management–shareholder relationships, agency conﬂicts and associated shareholder value implications. Corporate governance can be disaggregated in the following main pillars: ownership structure and inﬂuence of major stakeholders, shareholder’ rights, transparency – disclosure and audit and board effectiveness. A key issue in establishing a sound corporate governance system is the independence of the Board of Directors which is further related to responsibility and accountability. In addition to management monitoring, the Board performs a number of speciﬁc functions including selection, evaluation and development of senior management; reviewing and monitoring of fundamental corporate strategies; ensuring maintenance of company integrity with the stakeholders. Empirical evidence indicates that sound corporate governance mechanisms can have a positive impact on corporate value and shareholder wealth (Syriopoulos & Theotokas, 2007). Corporate governance structures affect corporate value through two distinct channels: (i) the expected cash ﬂows accruing to investors and (ii) the cost of capital, i.e. the expected rate of return. An efﬁcient corporate governance structure is expected to exhibit positive correlation with improved operating performance, higher stock price and higher ﬁrm

196

THEODORE C. SYRIOPOULOS

valuation. Firms with weak corporate governance mechanisms appear to be less effective in attaining robust ﬁnancial results and ensuring value maximization. Poor ﬁnancial performance, in turn, increases considerably the risk of hostile takeover bids (Panayides & Gong, 2002; Syriopoulos & Theotokas, 2007). Moreover, in the absence of corporate governance controls, the interests of managers versus those of shareholders are more likely to diverge (agency conﬂict problem).

6.4. SHIPPING BONDS AND HIGH-YIELD RISKS 6.4.1. Shipping High-Yield Bond Market The issue of bonds as an alternative instrument to funding shipping investments has certain merits but is also associated with risks. Traditionally, ﬁnancing shipping projects with bond issuing has not been a prime choice for shipowners, as low interest rates have supported banking ﬁnance and IPOs have attracted considerable funding in the international capital markets. This section overviews the high-yield bond market for shipping companies, as this capital market segment experiences some revitalized activity. The high-yield bond market has attracted the interest of shipping companies recently. The ﬁrst high-yield bond in shipping was issued in 1992 by Sea Containers, targeting an amount of USD 125 million in subordinated debentures. During 1992–2005, more than 60 shipping issues have taken place in the US high-yield bond market (Table 6.11). Total funds in this speculative grade bond segment have come up to USD 10.1 billion with an average coupon of 9.73% and an average term to maturity of 9.5 years (Nomikos & Papapostolou, 2006). The years 1993 (9 issues), 1997 (9 issues), 1998 (17 issues), 2003 (10 issues) and 2004 (5 issues) have shown intensive activity in shipping bonds. This translates to a total of 50 shipping high-yield bonds and corresponds to 82% of the overall issues during 1992–2005. During 2003–2005 alone, 16 new shipping bond issues have come into play. This is a robust indication of the revitalized interest that shipping companies show in the bond market as a ﬁnancing source to their capital-intensive investments. Reasons justifying these exceptional years include the relatively modest interest rate levels (1993), replacement of ageing ﬂeets backed with high gearing (1998) and a strongly positive performance in shipping and bond markets (2003–2005). Cyclicality, volatility and high leverage may jeopardize shipping companies’ expected cash ﬂows, especially at recession periods. These conditions can further result to deterioration of corporate credit quality and increase the

Financing Greek Shipping: Modern Instruments, Methods and Markets

Table 6.11. Year

Number of Issues

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

1 9 1 1 3 9 17 1 0 1 2 10 5 1

Total

61

Total Float (USD million)

197

Shipping High-Yield Bonds. Average Float (USD million)

Average Coupon (%)

Average Term S&P (years) Average Rating

125 1235 175 175 490 1190 2738 115 – 250 400 2196.6 843 200

125 137.2 175 175 163.3 132.2 161.1 115 – 250 200 219.6 168.6 200

12.50 9.13 11.25 10.50 9.61 10.39 10.11 10.75 – 8.80 10.00 9.18 8.35 9.50

12.00 10.77 10.00 10.00 9.61 8.44 9.41 7.00 – 10.00 10.00 8.50 12.00 10.00

BB BB BB+ BB BB B+ B+ BB – BB BB BB BB B

10,132.6

166.1

9.72

9.53

BB

Source: Adapted from Nomikos and Papapostolou (2006).

probability of default. Financial crises and economic shocks exert a critical adverse impact on the shipping markets, as did, particularly, the Asian ﬁnancial crisis and the Russian economic upheaval, during 1997–1998. Deterioration in international terms of trade affects mostly the shipping companies exposed in high gearing and operating mainly in the spot market, leading to problematic servicing of high debt. In the past, depressed market conditions have hit shipping markets and led to dramatic declines in freight rates and vessel prices in most market segments. As a consequence, several shipping companies proceeded to default on their high-yield bond issues. Based on Nomikos and Papapostolou (2006), in 1999, 10 shipping companies defaulted on their high-yield debt. The shipping public debt default rate by issuer in 1999 was around 38% against a corresponding ﬁgure of 1.28% for the overall public debt default rate. Though shipping industry issuers represented less than 0.5% of the overall public debt by issuer outstanding as of January 2000, total shipping industry defaults reached nearly 9% of all defaults by issuer for 1999. Past empirical research on shipping debt and high-yield bonds remains surprisingly thin. A recent exception is Grammenos and Arkoulis (2003), who examine signiﬁcant determinants affecting primary pricing of new shipping

198

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high-yield bond offerings in the US, during 1993–1998. Based on the empirical approach of Fridson and Garman (1998), the study investigates the impact of key factors on shipping high-yield bond spreads, such as rating, callability, term (years to maturity), ﬂoat (issue amount), default rate, security, gearing, ﬂeet age, laid-up tonnage and 144a status. Primary pricing refers to the determination of spread of the new high-yield bond offerings. The spread is deﬁned as the difference between the yield to maturity on a coupon-paying corporate bond and the yield to maturity on a coupon-paying government bond of the same maturity. 6.4.2. Credit Rating One of the bond market distinctions refers to the primary and secondary bond markets. The primary bond market is the market where a new bond issue is initially offered to investors for the ﬁrst time. The secondary market, on the other hand, refers to the market where a bond issue, following its initial offering (in the primary market), is already traded and its price is driven by demand and supply forces. However, as liquidity in shipping bond issues has proven to be historically low in the secondary market and trading in large sums has been difﬁcult, shipping companies rely predominantly on the primary market. Rating is considered to be the most important factor in the pricing of high-yield bonds and signiﬁcant correlation has been detected between rating and high-yield bond spreads (Fridson & Garman, 1998). Bonds are rated either as of investment or non-investment grade (termed ‘high-yield’ or ‘junk’ bonds). This distinction is based on the credit ratings these bonds receive from US rating agencies, such as Moody’s, Standard and Poor’s (S&P’s), Fitch and Duff & Phelps. Bonds rated in the range of Aaa/AAA (Moody’s/S&P’s) to Baa/BBB (Moody’s/S&P’s) are considered as ‘investment grade’. Any bonds rated B (Moody’s/S&P’s) or below are included in the ‘high-yield’ class (Table 6.12). Adjustments can be made within a rating category by adding a+or (Moody’s) or 1, 2 and 3 (S&P’s) to indicate a higher or lower issue in its class. Major factors that credit rating agencies take into account when they evaluate a shipping issue include sovereign/macroeconomic issues, industry outlook, management quality, operating position, ﬁnancial position, company structure and issue structure (Nomikos & Papapostolou, 2006). Market participants pay particular attention to rating as a key factor affecting spreads and bond value. Since rating indicates competitive credit risk of any two investments within the group of rated instruments, rating

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Table 6.12. Moody’s S&P’s Aaa Aa A

AAA AA A

Baa

BBB

Ba B

BB B

Caa Ca CC C NR

CCC CC C D NR

Characteristics Highest grade High grade Upper medium

Bond Rating Standards. Comment

Maximum safety Slightly lower standards Favourable but possible future problems Medium grade Moderate security and protection Moderate protection Contain speculative elements Potentially undesirable Low assurance of future payments Danger of default Dangerous elements present Likely in or to default Highly speculative Lowest class Extremely poor prospects Bottom most grade Unlikely to attain any standing Not ranked No evaluation available

Class Investment Grade

Speculative ‘High-Yield’ or ‘Junk’ Bonds

Source: Adapted from Fabozzi (2005).

also can support forecasts of probability of default. It is considered as an indicator of investors’ protection in case a bond issuer faces adverse longterm economic conditions. In the speciﬁc context of shipping business, rating of shipping bonds takes into account a number of issues, including the impact of cyclicality and volatility on shipping markets, the uncertainty about the future direction of freight rates, the shipping business allocation into spot or chartered markets, the ability of the issuing shipping companies to attain sustainable future cash ﬂows and the issuer’s vulnerability to economic cycles and the implications for interest and principal payment. In this framework, Grammenos and Arkoulis (2003) conclude that rating is a prime factor that potentially affects shipping bond pricing and plays a key role in setting bond spreads. Lower rated issues are associated with higher default probabilities. Hence, one would anticipate a positive relationship between rating and the spreads on new shipping high-yield bond issues. Callability of a shipping bond implies that the issue has a call option embedded and the issuer retains the right to retire (call back) the bond at speciﬁed prices before maturity. This option is of value in case of lower interest rate expectations, since the issuer may have the opportunity to reﬁnance debt with a lower interest rate instrument, thus improving company debt terms. However, investors are exposed to reinvestment risk; hence, they would target higher returns for that. Primary pricing may be affected by the maturity term of a bond and a negative relationship between maturity and spread is anticipated. The ﬂoat (issue amount) of a shipping

200

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bond indicates the liquidity of the issue. Larger bond issues are expected to have lower risk premiums than smaller bond issues traded in thinner markets. Hence, an inverse relationship is anticipated between ﬂoat and spread (smaller issues – larger spreads). The default rate is a measure of credit risk in the high-yield bond markets and reﬂects relative likelihood that there may be a difference between what investors were promised and what the actually receive by the bond issuer. That is, a default implies any missed or delayed disbursement of interest or principal. It includes, furthermore, ‘forced exchange’, in case a bond issuer has offered a new instrument containing a diminished ﬁnancial obligation, such as preferred or common stock or debt with a lower coupon or par amount (Fabozzi, 2005). Since higher default rates are associated with higher risk premium and investors demand a higher spread for compensation, a positive relationship between default rate and spreads would be plausible. The spread is also affected by subordination (in terms of debt claims priority) and is related to whether debt is secured (collateralized by assets) or unsecured; unsecured bond issues are expected to carry wider spreads. Gearing has critical ﬁnancial implications for shipping companies and is affected by high swings in freight rates and vessel prices. In periods of market growth, cash ﬂow capacity may sufﬁce to cover investment needs; however, in recession periods, external ﬁnancing may be necessary. Shipping bonds issued by highly geared companies are associated with wider spreads. The ﬂeet age can also be an important factor, since it affects the vessel value. New vessels are usually more expensive and companies with younger ﬂeet are seen to perform better in the capital markets. Nevertheless, in strongly upward markets and tight demand conditions, vessels can earn similar freight rates regardless of their age factor. High-yield bonds issued by companies with an older ﬂeet (higher running costs) are associated with wider spread (higher risk). Finally, since larger laid-up tonnage reﬂects weakening demand interest and deteriorating industry conditions, the larger this factor the wider the associated high-yield bond spreads. Of the previous factors analyzed, rating predominantly but also gearing and laid-up tonnage appear to be statistically signiﬁcant in explaining shipping high-yield bond spreads (Grammenos & Arkoulis, 2003).

6.4.3. Probability of Default A recent empirical study assesses risks in a sample of 50 shipping high-yield bonds that were issued in the period 1992–2004 (Nomikos & Papapostolou,

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Table 6.13. All Issues

Shipping High-Yield Bond Ratings. Defaulted Issues

Non-Defaulted Issues

Number

Number

% of group

Number

% of group

BB+ BB BB

4 5 25

0 1 2

0 20 8

4 4 23

100 80 92

Total

34

3

8.8

31

91.2

6 8 1

3 5 1

50 62.5 100

3 3 0

50 37.5 0

15

9

53.3

6

46.7

1

1

100

0

0

50

13

24

37

76

B+ B B Total CCC+ All Issues

Source: Adapted from Nomikos and Papapostolou (2006).

2006). Of these bonds, 13 issues have been defaulted as of the end of 2004 and the remaining 37 issues were still trading in the market or had expired. Their corresponding credit ratings and the categorization in defaulted and non-defaulted issues are summarized above (Table 6.13). Most of the new shipping high-yield bonds were assigned a credit rating falling into the BB level (68% of the sample); few issues were rated at the B level (30%) and one issue at the C level (2%). Of this sample, 8.82% of the BB-rated bonds defaulted compared to 53.30% of the B-rated bonds. This outcome implies that investors who prefer higher-rated shipping bonds in a shipping bond portfolio stand on average a lower probability of default. This, however, is not necessarily the case on an individual bond basis. The study investigates and statistically tests the explanatory power of critical factors in best predicting the probability of default of shipping highyield bonds at the time of issuance. A number of ﬁnancial, industry and issue-speciﬁc variables are considered, including: issue amount raised to total assets (issue factors), current assets to current liabilities (current ratio), cash to freight revenue (liquidity indicators) and pre-issue gearing as a debt indicator (ﬁnancial factors) and laid-up tonnage to total ﬂeet (industry factors). Shipping companies with low liquidity (current ratio), high-gearing levels and operating in the spot market are anticipated to have difﬁculties in meeting short-term obligations to their bondholders. The lower the liquidity

202

THEODORE C. SYRIOPOULOS

indicators of a shipping company the higher the probability of default for its high-yield bonds, particularly in adverse shipping market conditions. The gearing level is a most important factor for the probability of default. Pre-issue gearing is calculated as the ratio of long-term debt over long-term debt plus shareholder equity. A higher exposure to debt indicates higher vulnerability of the shipping company during recession phases and higher risk for bondholders due to higher probability of default. These negative conditions have jeopardized the viability of several shipping companies in previous years, whereas a number of high-yield bond issues have defaulted, as in 1998–1999. A substantially large amount raised in the high-yield bond issue over the company’s total assets indicates a higher risk exposure for bondholders; hence, a higher probability of default. High laid-up tonnage over total ﬂeet indicates weak demand and depressed market conditions, which in turn increases the probability of default for shipping bonds. As Leggate (2000) anticipates, inter alia, the shipping industry will face considerable capital requirements over the next decade as a result of increasing trade ﬂows and ageing ﬂeets. This growth in demand will be in contrast to a potential contraction in the number of banks willing to support the industry and a general tightening of credit facilities. As a result, shipping companies must consider accessing the capital markets for equity and debt. The difﬁculties experienced particularly in the bond markets have lead to an early dismissal of this relatively new form of ﬁnance. Bond ﬁnance remains largely dependent on the perception of the shipping industry by the investment community.

6.5. SECURITIZATION IN SHIPPING 6.5.1. Concept and Structure Securitization is a sophisticated and dynamic instrument for shipping ﬁnance that has considerable potential for further development. In principle, securitization refers to the use of a stream of income and/or a portfolio of assets to back the issue of securities, which is usually debt but also equity in some cases. The appealing but complicated part of this instrument lies in the packaging of the cash ﬂow streams and asset portfolios and in the structuring of the various tranches of securities which are to be issued in a deal. More speciﬁcally, asset securitization involves the pooling and re-packaging of assets (or loans) and receivables (each of which individually may be of sub-investment grade quality), in such a way that the whole

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relatively homogeneous asset package can support multi-tranche issues of liquid securities, including a substantial top slice of investment grade paper (Stokes, 1997). Hence, securitization can be constructed in three broad stages: creation of a homogeneous pool of assets, provision of third-party protection against credit, liquidity, basis and reinvestment risk, structuring of a security whose interest and principal payments are supported by cash ﬂows arising from the underlying asset pool. This type of ﬁnancing was earlier provided by a single lending institution that would write the loan, structure the terms, absorb the credit and interest rate risk, provide the capital and service the collections. More recently, different parties are involved in securitization ﬁnance and they bear different functional roles. Overall, the process of securitization has lower costs, increases the availability of funds to borrowers, decreases risk to lenders and creates new investment opportunities to investors (Brigham & Ehrhardt, 2004). The asset backed securities (ABS) market is rapidly becoming a dynamic part of the global capital markets (Figs. 6.2 and 6.3). The US ABS issuances reached record levels in 2005 (+26% relative to 2004), at USD 1.1 trillion (from USD 873 billion, in 2004). According to Thomson Financial, in

350 300 250 200 150 100 50 0 1999

Fig. 6.2.

2000

2001

2002

2003

2004

2005

2006

European ABS Market (May 2006). Source: Adapted from JP Morgan Research (2006).

204

THEODORE C. SYRIOPOULOS

OTHER 7%

CONSUMER 2%

CARDS 2%

WHOLE BUS 1%

CDO 17%

RMBS 54%

CMBS 17%

Fig. 6.3.

RMBS

CMBS

CDO

CONSUMER

CARDS

WHOLE BUS

OTHER

European ABS Market by Asset Class (May 2006). Source: Adapted from JP Morgan Research (2006).

Europe, the UK is the ABS leader with 50% of issuances of a total current ﬁgure at USD 72.3 billion (JP Morgan Research, 2006). A securitization structure involves the following key parties: Originator(s) (usually a bank): sets interest rates on the loan portfolio (‘Reference Portfolio’, RP); creates a pool of assets and sells to a ‘Special Purpose Vehicle’ (SPV); continues to deal post-sale with the borrower; conducts arrears and default procedures on behalf of the SPV. Special Purpose Vehicle (SPV): a single purpose corporation (legal entity) established to acquire the underlying assets from originator(s); to fund purchase through the issue of notes secured on the SPV’s assets Trustee: safeguards investors’ interests by holding all securities and by monitoring the performance of the parties involved to the various agreements. Securitization can apply in two main variants, namely: (1) cash securitization, distincted into the traditional type (Fig. 6.4) and the recycled credit type and (2) synthetic securitization. Cash securitization applies in cases when there is a transfer of the RP to the SPV against cash. The SPV ﬁnances the purchase of the RP by issuing rated bonds. Synthetic securitization applies in cases when a premium payment to the SPV takes

Financing Greek Shipping: Modern Instruments, Methods and Markets

205

Originator (bank / shipping company etc.) Reference Portfolio

Reference Portfolio Manager

cash

Swap Counterparties

Special Purpose Vehicle (SPV) swap payments - receipts

Custodian

securities

cash

Investors

Fig. 6.4.

Liquidity Facility

Traditional Cash Securitization.

place for the latter undertaking the credit risk of the RP. The SPV issues bonds linked with the credit risk of the RP or proceeds to credit risk swaps (credit-linked notes, credit default swaps) with specialized counterparties. As mentioned earlier, in securitizations the issuing company (bank) constructs a ‘reference portfolio’ which is then rated. However, according to the framework set in Basel II Accord, banks can get economic capital relief when loans are placed into a qualifying securitization structure, meaning that banks may exclude risk exposure from calculations of economic capital, if a portfolio has been securitized. In the case of shipping, portfolio risk remains a rating constraint, due to high volatility in ship values and charter rates. This implies a shift towards rated transactions, as capital charges in unrated transactions are anticipated to rise, although the underlying asset classes and portfolio risk proﬁle remain key factors. Securitization in shipping is attractive to investors who are interested in direct investment in vessels and can beneﬁt in case vessel values appreciate. Related dividend yields are estimated to potentially range from 9% to 15% (McGroarty, 2006b). A number of implications are triggered for the company that proceeds to securitization, including: efﬁcient risk management as credit risk is transferred to investors, improvement in capital adequacy ratios, solvency ratios and borrowing capacity,

206

THEODORE C. SYRIOPOULOS

enhancement of the company’s liquidity, ﬁnancing of alternative high-return investments, efﬁcient and low-cost ﬁnancing mechanism. A core issue for securitization is that the whole procedure sets up a funding mechanism where the asset can fund itself. On the other hand, securitization involves certain transaction costs, limits ﬂexibility in securitized assets and bears certain level of risk, in case the securitization vehicle cannot reinvest in new ﬂeet as existing vessels age. Apart from market risk, investors assume vessel operating risks and credit risk of lessees. The securitization funding costs are dependent on the following factors: spread payable on the bonds, underwriting and management fees, legal framework, rating agency costs and other third-party fees and on-going fees and expenses. 6.5.2. Securitization Cases in Shipping Securitization was initiated in the US mortgage (asset-backed) market and only recently was it introduced in shipping ﬁnancing. Securitization in shipping can, indicatively, apply to a shipping company that employs a diverse portfolio of modern vessels ﬁxed on a medium-to-long-term bareboat charter to operators with a ﬁrst-class technical record but probably to a less than top credit rating (Stokes, 1997). The rating of the various tranches of debt supported by such a portfolio would then depend on the level and quality of the combined income stream, the diversiﬁcation of risk through the variety of ship types and lessees and the assessment of potential minimum residual value upon expiry of the bareboat charters. This type of ﬁnance has been successfully applied to the aircraft lease sector in the aircraft lease portfolio securitization (ALPS) deals. A ﬁrst substantial securitization transaction in shipping is historically considered to be the USD 235 million mortgage note issued by First International Petroleum Transport Corporation (FIPTC), in 1994 (Stokes, 1997). A similarly structured note was issued to reﬁnance four Suezmax tankers for Chevron, in 1995. However, whereas the FIPTC case was a ﬁnancing instrument for newbuildings, the Chevron case was structured as a sale and lease-back of existing vessels. A signiﬁcant corporate development in 2006 has been the ﬁrst international publicly rated shipping securitization led by BNP Paribas with a ﬂeet of vessels for CMA/CGM, third largest containership operator worldwide. More speciﬁcally, in the Container Vessel 2006-1 corporate asset backed securitization, CMA/CGM raised 100% of the USD 800 million

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207

contract value of 12 newbuilding containerships against their bareboat charter (McGroarty, 2006b). This transaction involved a single-rated credit (CMA/CGM), single-vessel type (containerships) and single-market segment (containers). The transaction was split into three stratiﬁed risk positions: (i) USD 250 million in senior notes issued in the ABS capital markets, with a spread of about 30 bps, rated as AAA; (ii) USD 280 million mezzanine tranche provided by a bank syndicate, with a spread of about 70 bps, rated Ba2/BBB- and (iii) subordinated notes purchased by CMA CGM using the proceeds of a corporate bond at a total ﬁxed rate of 7.25%. This structure led to an average spread of the whole package less than 100 bps whereas costs were high at about 2.3%. This case is anticipated to turn shipping companies’ attention to exploring securitization as an alternative approach to ﬁnancing. A limited number of companies, such as OSG Shipholding Group, have already employed successfully securitization transactions to their advantage. OSG has packaged and sold oil company receivables from the Alaska trade in 1999, well in advance of European banks. OSG, more speciﬁcally, securitized a group of ship charters, implying securitization of future cash ﬂows under the ship charters and attained cheap ﬁnancing, since the charter party was AA rated. RCL followed in 2001 by setting Cruise Ship Finance as a SPV to securitize instalment payments of USD 590 million for the delivery of cruise ships under construction for Royal Caribbean. Quoting McGroarty (2006b), a recent term debt securitization refers to sea containers and involves, ﬁrst, the reﬁnancing of USD 106.9 million principal amount of its senior notes that were issued in the ‘special purpose company’ (SPC) 2001 securitization and second, the issuance of new 2006 senior notes by the SPC with an initial principal amount of USD 53.7 million, at a Libor plus 5.25% rate; the cash proceeds are to be used for working capital purposes. In the synthetic securitization front, recent cases include HSH’s Ocean Star 2004 plc., Ocean Star 2005 plc. and NIBC’s Latitude Synthetic I BV. These three schemes were based on the securitization of a pool of shipping loans with multiple unrated credits and vessels types in various sectors (oil product tankers, dry vessels, containers). However, the objective of the transaction was to transfer risk of ownership to the capital markets rather than raise cash, since the motivation for the issuers (HSH Nordbank and NIB Capital Bank) was to reduce the amount of regulatory risk capital they had allocated against these loans. As shipping portfolios are growing, market liquidity remains rich and banks pay increasing attention to efﬁcient risk management, shipping

208

THEODORE C. SYRIOPOULOS

securitizations may continue to present an interesting source of ﬁnancing. Nevertheless, since shipping appears to have been treated with rather modest popularity in international capital markets, the instrument of securitization may attract the attention of the more specialized investors in the business. Since shipping is an asset-based business, securitization has potential for further growth into diversiﬁed directions, including trade receivables, charter receivables, lease receivables, loan receivables inventory to assets with predictable future and liquid-market value (McGroarty, 2006b). Furthermore, a securitization market for ship leases can develop further, subsequent to the Paciﬁc Shipping Trust case. Taking advantage of securitization, shipping companies can proceed to reduce borrowing costs through the employment of a securitization vehicle. Moreover shipowners can transfer risk of credit loss and future vessel valuation (residual risk) to external investors. Overall, securitization markets are anticipated to experience further growing trends in the US (e.g. Seaspan) and particularly in Asia (e.g. Paciﬁc Shipping Trust), as an alternative funding source for larger shipping companies and, at the same time, provide an exit strategy for private equity investors (McGroarty, 2006a).

6.6. RISK MANAGEMENT AND FFAS 6.6.1. Volatility and Risk in Shipping Markets Shipping markets consistently exhibit highly cyclical and volatile behaviour that has been an issue of great concern for shipowners, charterers and investors. To elaborate, the dry bulk index on the Baltic Exchange (the benchmark for commodities such as coal, iron ore, grains and steel) fell 70% from December 2004 to August 2005, before subsequently bounce back nearly 80%. To this end, alternative risk management approaches have been proposed, in order to mitigate business risk in the shipping markets (e.g. Nomikos & Alizadeh, 2002). A limited body of past research investigates certain aspects of shipping market volatility, including more recently, Jia and Adland (2002), Tvedt (2003), Kavussanos et al. (2003), Chen and Wang (2004), Syriopoulos and Roumpis (2006) and Syriopoulos, Merikas, and Roumpis (2006). Past studies have followed a market or even a route-disaggregated approach to investigate volatility behaviour in dry bulk, tanker and container market segments. The empirical ﬁndings have indicated that shipowners can diversify business risks by holding portfolios of ships of different size,

Financing Greek Shipping: Modern Instruments, Methods and Markets

209

switching between contracts of different duration and hedging with forward freight contracts; vessels of small and medium size were found to show relatively lower volatility compared with larger-size vessels. Furthermore, the impact of trading volume (activity) on vessel price changes has been examined, since trading volume can contribute useful information in a market where real assets are traded. Syriopoulos and Roumpis (2006) expand on Alizadeh and Nomikos (2003) and investigate the relationship between trading volume, prices and return volatility in different second-hand dry bulk and tanker market segments. The objective was to gain fruitful insight on the sale and purchase market dynamics and the sensitivity of vessel price movements following the arrival of new information signals in the shipping markets. Contemporaneous relationships were identiﬁed between returns and volume particularly in the markets of handy size and panamax bulks as well as of handy size and aframax tankers. Price changes were found to have an impact on trading volume indicating that expectations to higher capital gains induce increases in trading activity. Volume appears to have a negative impact on the volatility of price changes mainly in the dry bulk market; this may be due to thin trading, limited transaction transparency and absence of vessel price quotes. The empirical ﬁndings can contribute to a better understanding of shipping markets’ microstructure and price volatility dynamics by market participants. This, in turn, can be useful for investors who construct their portfolios of real assets with a view to attain superior capital gains, controlling for the underlying investment risk. Mulligan and Lombardo (2004) examine the fractal properties in a sample of shipping equity prices and test for behavioural stability and efﬁcient market pricing. Evidence of a change in market behaviour between 1989–1994 and 1995–2002 was detected. Furthermore, tests statistics indicated evidence against efﬁcient valuation of the shipping business, supporting the multifractal model of asset returns and disconﬁrming the weak form of the Efﬁcient Market Hypothesis. Market participants were found to habitually overreact to new information and never learn not to. These issues imply that ﬁnancial derivatives, based on the sampled equities, cannot be efﬁciently priced. The estimation of risk has implications for the required rate of return on capital and investment appraisal. Gong (2003) argues that, despite the fact that shipping is regarded as highly risky business, it displays a systematic risk level that is close to the market average; similar conclusions hold also for the airline business. There is also evidence to suggest that the beta coefﬁcient of risk (produced by CAPM) on individual shipping (and airline) stocks appear to be unstable over time.

210

THEODORE C. SYRIOPOULOS

Since the various shipping market segments exhibit differing behaviour (associated with critical factors such as freight rate ﬂuctuations, vessel size class and operational ﬂexibility), their risk–return proﬁle is also divergent (e.g. Kavussanos, 1997, 2003). Moreover, different asset classes in the same shipping market segment (handymax, panamax, capesize in dry cargo; aframax, suezmax, VLCCs in tanker) show different volatility patterns and the same holds in relation to the contract type (spot vs. time-charters; Kavussanos, 2002). These issues are of importance to market participants, as their implications can affect asset values and returns, trading strategies and investment decisions. To illustrate these arguments, one can compare the relative volatility seen in different types of newbuilding and second-hand vessels as well as scrap prices and earnings for the dry bulk and tanker sectors (Table 6.14). The substantial risks for market participants implied by the volatile nature of shipping business can be broadly classiﬁed into (Kavussanos & Visvikis, 2006): (1) business risk, related to ﬂuctuations in earnings and affected mainly by freight rates, voyage costs, operating costs and exchange rates; (2) liquidity risk, referring to the ability of a shipping company to sell its assets on short notice at market prices; (3) default risk, representing the ability of a company to service its debt (interest and principal payments); (4) financial risk, depending on the ﬁnancial structure of the company (leverage) and interest rate shifts; (5) credit risk, induced by transactions with a counterparty (such as time-charter, forward agreement, loan); (6) market risk, related to key factor Table 6.14.

Risk Proﬁle in Dry Bulk and Tanker Vessels. Mean

Relative Volatility

Mean

Relative Volatility

Mean

Relative Volatility

Dry Bulk Vessels Earnings Newbuilding prices Second-hand prices Scrap prices

Capesize 19,684 75 35.74 20 30.29 35 3.60 40

Panamax 11,388 65 26,42 16 20.57 28 2.30 37

Handy 10,789 23.00 17.95 1.33

Tanker Vessels Earnings Newbuilding prices Second-hand prices Scrap prices

VLCC 33,770 82.67 62.15 6.32

Suezmax 24,750 67 54.15 15 41.53 20 4.53 35

Aframax 21,456 58 42.55 12 33.52 18 3.21 35

68 18 21 38

Note: Figures as of January 1990–March 2005. Source: Adapted from Kavussanos & Visvikis (2006).

54 14 22 25

Financing Greek Shipping: Modern Instruments, Methods and Markets

211

shifts in the market where the company operates and, also to stock market risk in case the company is listed in a stock exchange; (7) political risk, as shipping business is sensitive to political decisions, events and crises and (8) technical and physical risk, related to vessel deﬁciencies (damage or loss) and affecting company earnings and reputation. The volatility in shipping and the associated high risk has led market participants turn their attention to ﬁnancial instruments to hedge against underlying risks. Similar to ﬁnancial markets, market participants in shipping can use derivative products, particularly FFAs, to mitigate risks. In a different perspective to FFAs, real option analysis (ROA) has, more recently, been argued to offer support in risk diversiﬁcation, especially when the operator is required to make strategic planning decisions in boom or bust environments (e.g. Bendall & Stent, 2003). Based on ROA, management can respond ﬂexibly to new information that affects strategic investment decisions and avoid limitations that standard capital budgeting techniques, such as net present value (NPV), suffer from.

6.6.2. The Development of the FFA Market Since freight rates critically affect corporate earnings, shipping companies are in need of efﬁcient hedging instruments against operational and other risks. Broadly, freight derivative contracts can be used for business decisions that include: risk management through hedging; investment and speculation; spread play; portfolio switching; portfolio management of existing time-charters; early access to newbuildings; a more ﬂexible alternative to time-chartering; collateral against a bank loan; price discovery; and focus on speciﬁc market segments (Kavussanos & Visvikis, 2006). The fact that the FFAs can contribute to risk control has resulted to these derivative products exhibiting robust growth rates over recent years. A number of shipowners, such as Cosco and Oldendorff, are very active in FFA trading at high volumes. Other shipping companies, such as IMC, Klaveness, Western Bulk and Navios, have established their own in-house FFA departments (Matthews, 2006b). Following their customers trends, a number of banks, including Royal Bank of Scotland, DVB and ABN Amro, have also entered the FFA market more recently. The empirical ﬁndings in a recent survey (Jagani & Thabel, 2005) indicated that the main reasons shipping companies use freight derivatives are for hedging of physical cargoes (42%), hedging and speculation (42%), ﬁnancial tool and speculation (8%) and speculation only (8%).

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Based on Clarkson’s estimates, traded volumes in the freight derivatives market have grown sharply and have more than quadrupled since 2001, albeit following a bumpy path. Despite the fact that, in the second half of 2005, the FFA market experienced a relative slowdown compared with the sharply upward growth trends seen in 2003 and 2004 (Fig. 6.5), the structural changes seen in freight markets still indicate robust long-term growth potential. The derivatives market slowdown seen in 2005 was partly due to the sharp change in shipping markets’ sentiment and was apparent in both the lots traded and the total value for tankers as well as dry bulk. The value of the dry bulk and tanker derivative markets fell from about USD 25 billion and USD 8.4 billion (2004) to around USD 20 billion and USD 6.4 billion (2005), respectively (Matthews, 2006b). Compared to the size of the underlying physical markets and other derivative markets, these ﬁgures remain at low levels. In spite of the FFA advantages in hedging freight risk, a number of ﬁnancial institutions, shipping companies and trading companies still express some concern over their limited liquidity. Liquidity refers to the easy entry in and exit out of a signiﬁcant position and is an essential characteristic for any capital market to be attractive. Liquidity is, furthermore, related to: (i) time required for a trade to be executed and (ii) price distortion, reﬂecting the extent a trade affects underlying prices (Harris, 2002). Certain questions arise, however, as to the most appropriate liquidity measure, its time frequency basis and the quantity to be measured. A critical issue remains information dissemination to market participants and a ﬂexible mechanism enabling the publication of independently produced liquidity ﬁgures. Imarex remains the only broker that publicly 1,400,000

No of transits

1,200,000 1,000,000

Wet Market Dry Market

800,000 600,000 400,000 200,000 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Year

Fig. 6.5.

Number of Lots Traded in FFA Market. Source: Adapted from Macqueen (2006).

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Table 6.15. Imarex Trade Statistics Transactions Lots (1 lot=1000 MT or 1 day) Nominal Trade Value Average Lots/Trades Average Nominal Value/Trade

Imarex FFA Trade Figures. Tankers 337 11,826 USD 114.5 million 33 USD 384,715

Dry Bulk 41 6021 USD 88.6 million 144 USD 2,215,844

Total 378 17,847 USD 233.1 million – –

Note: Figures as of July 2005. Source: Adapted from Aury and Steen (2005).

5% 25%

70%

Europe (80%)

Fig. 6.6.

Asia (10%)

USA (10%)

Geographic Shift in FFA Activity 2006 (vs. 2004). Source: Adapted from Macqueen (2006).

releases trade statistics (Table 6.15). Further constraints are associated to the variety of different contracts traded, as, for instance, the FFABA contacts, ISDA contracts, NYMEX contracts, Imarex/NOS contracts and LCH-ClearNet contracts. The largest part of the FFA activity takes place predominantly in the European markets (Figs. 6.6 and 6.7). However, the Asian FFA market share is increasing fast, as it has more than doubled during the last two years (to 25% in mid-2006 against 10% in 2004; Macqueen, 2006). The global paper market in dry bulk futures is estimated at about USD 20 billion and Asia covers a quarter of this activity, although liquidity remains a constraint. Major Asian players include Sinochart and Cosco Bulk (China), STX Panocean and Hanjin (South Korea), D’Amico and Wilmar (Singapore).

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10% 20%

70%

Panamax

Fig. 6.7.

Capesize

Supermax

FFA Activity by Market Segment, 2006. Source: Macqueen (2006).

The FFA market growth rates are anticipated to increase, provided certain issues are further developed, including (Aury & Steen, 2005): (i) a sizeable option market, as the FFA market is predominantly a swap market with few options traded; (ii) higher activity from Asian players, as a signiﬁcant share of the physical market is controlled in the Far East; (iii) mark to market valuation for tanker FFAs (as current reference to the Worldscale system is not ﬂexible); (iv) credit facilities enhancement would have a positive impact on FFAs growth and (v) a broader perception by shipping companies supported by practitioners’ ‘education’. Quoting Aury and Steen (2005) of Clarkson Capital Ltd, the adoption of a set of measures could boost liquidity in the FFA market. These measures can include: (1) Smaller lots (more applicable to the dry bulk FFA market). Smaller size contracts can represent lower risk for speculators, credit risk diversiﬁcation across more counterparties, and ﬂexibility in portfolio management. (2) Introduction of maximum pay out clauses, thus, the two counterparties can know in advance the maximum amount to gain or lose. A maximum pay-out FFA swap is a synthetic derivative product, consisting of a normal plain vanilla FFA swap; a zero cost collar, which is made of a put option granted by the ﬂoating price payer of the swap to the ﬁxed price payer and a call option granted by the ﬁxed price payer of the swap to the ﬂoating payer. A maximum payout FFA can also be modelled using two options (two calls or two puts at different strikes), creating bear or bull spreads. (3) Spreads contracts, which are similar to smaller lots; a speciﬁc contract of a spread would result to a credit risk decrease for both counterparties. (4) Options on options could lead to initially smaller premiums being paid, which in turn can boost trading volume.

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(5) Development of index deals in the physical market. (6) Spreads FFA/ SPFA, as the SPFA market will support spread deals between asset values and charter values with positive implications for liquidity. Another issue that could generate more FFA activity is growth in multi-user screen-based trading systems. The most signiﬁcant trading system appears to be CIF, planned jointly by brokers Clarksons, Ifchor and Freight Investor Services (FIS), which is expected to allow better credit management, offer transparency and create liquidity and ﬂexibility in the FFA markets. Once, the FFA markets reach a stage of maturity and conﬁdence, options markets are then anticipate to growing further. The FFA market can operate smoothly on condition it is supported by a ﬂexible clearing mechanism. This is an important issue in forward transactions as an efﬁcient clearing mechanism can contribute to a bigger Table 6.16.

FFA Markets and Contracts. NOS-IMAREX LCH.CLEARNET NYMEX

Tanker routes TC1 Ras Tanura/Yokohama TC2 Europe/USAC TC4 Singapore/Japan TC5 Ras Tanura/Yokohama TC6 Algeria/Med TD3 Arabian Gulf/Japan TD4 West Africa/US Golf TD5 West Africa/US Atlantic TD7 North Sea/Europe TD8 Kuwait/Singapore TD9 Carib/US Gulf TD10D Carib/USAC TD12 ARA/US Gulf Dry bulk routes C3 Capesize coal Brazil/China C4 Capesize coal Richards Bay/Rotterdam C5 Capesize coal Australia/China C7 Capesize coal Bolivar/Rotterdam P2A Panamax TC Atlantic to Paciﬁc P3A Panamax TC trans Paciﬁc TC Basket Handymax TC Basket Panamax TC Basket Capesize Source: Imarex (quoted from Parker, 2005).

x x x x x x x x x x x

x

x

x

x x

x x x x

x

x x x x x x x

x x x x

x x x x x x x x x

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market, faster execution and lower risk settlement. An important development in 2005 was the introduction of new clearing houses. The biggest and longest established clearing house, NOS-Imarex, was available since 2001, when NOS (Norway) started offering its services linked to the Imarex Exchange. Imarex covers around 40–45% of the tanker FFA market but only around 10% of dry forward transactions. Furthermore, in 2005, two new clearing facilities became available (Table 6.16). The New York Mercantile Exchange (NYMEX) started offering clearing for some tanker FFA transactions and LCH. Clearnet (London) established a clearing arm for shipping derivatives, mainly dry FFAs (Matthews, 2006b). SGX AsiaClear is another clearing house, operating under the Singapore Global Stock Exchange (SGX) and targeting the underlying oil and commodity activities, with promising growth potential.

6.7. CONCLUSIONS This Chapter has focused on the analysis of modern, innovative and efﬁcient ﬁnancing, instruments, tools and markets that shipping companies can employ in funding their investment plans. Emphasis was placed particularly on Greek shipping, as this industry segment ranks by far on top of world shipping business. Greek shipowners, furthermore, are well reputed for their aggressive entrepreneurial spirit and innovation skills, including the ﬁeld of ﬁnance. As was discussed, Greek shipping companies can employ a combination of traditional and modern ﬁnancing instruments and even proceed to innovative hybridic ﬁnancing combinations. Major ﬁnancing tools for Greek shipping companies include, new forms of bank lending, leasing and syndication, IPOs in international equity markets, private equity funding, high-yield bond issues, and securitization, whereas FFAs provide an efﬁcient risk management mechanism. The discussion of recent trends in shipping and capital markets has provided a solid background as to where we are heading. Shipping markets have experienced extraordinary growth rates over the last years. This has resulted to unprecedented corporate proﬁts and robust liquidity reserves for shipping companies. On the other hand, most market participants have followed an intensive ﬂeet expansion strategy, albeit at high-vessel values. This business growth has been funded predominantly by external sources of ﬁnancing, resulting to many shipping companies ending highly leveraged. Since newbuilding deliveries are going to follow an upward pace and a large number of new vessels to enter the market over the next three years, it is

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anticipated that charter rates are going to show some consolidating trends. Combined with potential recessionary trends in the US or Chinese economies and declining demand growth, this situation may, in turn, result to reduced vessel values. This environment can present business opportunities for shipping companies with robust liquidity, supporting ﬂeet expansion and sustainable long-term growth. However, this situation may also impose severe risk constraints on shipping companies with overleveraged balance sheets. If lower charter rates are seen in the near future, companies with weak liquidity and smaller family-owned ﬁrms may become merger and acquisition targets or may seek to form strategic alliances. Shipping companies in need of funds may also be attractive targets to private equity funds that are constantly in search of undervalued investment opportunities. For companies interested in expanding their ﬂeets, international capital markets and ﬁnancing instruments present interesting opportunities to fund raising. Shipping companies realize that they should apply more outwardlooking business strategies and take advantage of international capital mobility. They gradually follow a more tailor-made use of equity markets and further growth is anticipated in this area, although the recent shipping IPO wave may not be repeated soon. At the same time, shipping ﬁnance appears to have reached a stage where innovative ﬁnancing methods are combined with traditional approaches. These include asset-backed lending and securitization, leasing, syndicated bank loans, structured ﬁnance and high-yield bonds. Private equity companies and specialized hedge funds pay increasing attention to ﬁnancing shipping investments. The growth in freight derivative instruments has served to spread risks associated with shipping and has made shipping a more attractive sector to investors, private equity and hedge funds. Recent experience has indicated that equity investors can be attracted to shipping stocks provided there is a good value story, sound fundamentals and an efﬁcient management to rely on. Banks, on the other hand, follow careful steps in ship lending, as increased competition has kept loan margins tight but they are keen to increase the range of ﬁnancial products available to shipping companies. The contribution of shipping remains small in international capital markets but the recent intensive activity has resulted to new levels for the industry as a whole. As more shipping companies go public, new managerial issues are ranged high in priority. The implementation of efﬁcient corporate governance systems and the critical role of the Board of Directors are on top of the list. All in all, new and innovative frontiers in shipping ﬁnance will certainly not allow market participants to get bored over the coming years.

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REFERENCES Alizadeh, A., & Nomikos, N. (2003). The price-volume relationship in the sale and purchase market for dry bulk vessels. Maritime Policy & Management, 30, 321–337. Aury, P., & Steen, P. (2005). Getting liquid. Lloyd’s Shipping Economist (September), 33–35. Bendall, H., & Stent, A. (2003). Investment strategies in market uncertainty. Maritime Policy & Management, 30, 293–303. Brigham, E., & Ehrhardt, M. (2004). Financial management: Theory and practice. Florida: Southwestern Publications. Chen, Y. S., & Wang, S. T. (2004). The empirical evidence of the leverage effect on volatility in international bulk shipping market. Maritime Policy & Management, 31, 109–124. Erdogan, O. (2005). IPO choice for maritime companies: Turkish evidence. Eurasian Review of Economics and Finance, 1, 7–18. Fabozzi, F. (Ed.) (2005). The handbook of fixed income securities (7th ed.). McGraw-Hill: New York. Fridson, M., & Garman, C. (1998). Determinants of spreads on new high yield bonds. Financial Analysts Journal, 52, 28–39. Gong, S. (2003). How risky are shipping and airline common stocks? Working Paper, Shipping and Transport Logistics Department, Hong Kong Polytechnic University. Grammenos, C. (Ed.) (2002). The handbook of maritime economics and business. London: LLP Publications. Grammenos, C., & Arkoulis, A. (2002). Macroeconomic factors and international shipping stock returns. International Journal of Maritime Economics, 4, 81–99. Grammenos, C., & Arkoulis, A. (2003). Determinants of spreads on new high yield bonds of shipping companies. Transportation Research Part E, 39, 459–471. Grammenos, C., & Marcoulis, S. (1996). A cross-section analysis of stock returns: The case of shipping ﬁrms. Maritime Policy & Management, 23, 67–80. Harris, L. (2002). Trading and exchanges: Market microstructure for practitioners. Oxford: Oxford University Press. Harwood, S. (1991). Shipping finance. London: Euromoney Books. Jagani, A., & Thabel, G. (2005). Perceptions of FFAs. Lloyd’s Shipping Economist (November), 19–22. Jia, J., & Adland, R. (2002). An empirical analysis of the time-varying correlation of returns in international shipping. In: Proceedings of the Annual Conference of the International Association of Maritime Economists, November, Panama. JP Morgan Research. (2006). Leveraged loans: Alternative asset? Special Report of JP Morgan Bank, www.jpmorgan.com/index.jsp Kavussanos, M. (1997). The dynamics of time-varying volatilities in different size second-hand prices of the dry-cargo sector. Applied Economics, 29, 433–443. Kavussanos, M. (2002). Business risk measurement and management in the cargo carrying sector of the shipping industry. In: C. Grammenos (Ed.), The handbook of maritime economics and business (pp. 661–692). London: LLP Publications. Kavussanos, M. (2003). Time varying risks among segments of the tanker freight markets. Maritime Economics & Logistics, 5, 227–250. Kavussanos, M., Juell-Skielse, A., & Forrest, M. (2003). International comparison of market risks across shipping-related industries. Maritime Policy & Management, 30, 107–122.

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Kavussanos, M., & Marcoulis, S. (1997). The stock market perception of industry risk and microeconomic factors: The case of the US water transportation industry versus other transport industries. Transportation Review, 33, 147–158. Kavussanos, M., & Visvikis, H. (2006). Derivatives and risk management in shipping. London: Witherbys Publishing. Leggate, H. (2000). A European perspective on bond ﬁnance for the maritime industry. Maritime Policy & Management, 27, 353–362. Macqueen, J. (2006). Risky business. Lloyd’s Shipping Economist (August), 9–13. Matthews, S. (2005). Finance options. Lloyd’s Shipping Economist (October), 9–13. Matthews, S. (2006a). Top ranking. Lloyd’s Shipping Economist (March), 37–38. Matthews, S. (2006b). Taking stock. Lloyd’s Shipping Economist (March), 28–30. Matthews, S. (2006c). Disappearing shipowners. Lloyds Shipping Economist (August), 27–30. McGroarty, R. D. (2006a). Waves of demand. Lloyd’s Shipping Economist (October), 7–10. McGroarty, R. D. (2006b). Pool of opportunities. Lloyds Shipping Economist (November), 24–26. Mulligan, R., & Lombardo, G. (2004). Maritime businesses: Volatile stock prices and market valuation inefﬁciencies. The Quarterly Review of Economics and Finance, 44, 321–336. Nomikos, N., & Alizadeh, A. (2002). Risk management in the shipping industry: Theory and practice. In: C. Grammenos (Ed.), The handbook of maritime economics and business (pp. 693–730). London: LLP Publications. Nomikos, N., & Papapostolou, N. (2006). High yield risks. Lloyd’s Shipping Economist (July), 30–32. Panayides, P., & Gong, X. (2002). The stock market reaction to mergers and acquisition announcements in liner shipping. International Journal of Maritime Economics, 4, 55–80. Parker, B. (2005). Nymex moves on FFAs. Lloyd’s Shipping Economist (September), 30–32. Petroﬁn Bank Research. (2006). Greek shipping portfolios, held by international and Greek banks (various issues). www.petroﬁn.gr/research2006 Randoy, T., Down, J., & Jenssen, J. (2003). Corporate governance and Board effectiveness in maritime ﬁrms. Maritime Economics & Logistics, 5, 40–54. Sarbanes-Oxley Act (2002). Public company accounting reform and investor protection Act of 2002. Pub. L. No. 107–204, 116 Sat. 745 Stokes, P. (1997). Ship finance: Credit expansion and the boom–bust cycle. London: LLP Publications. Syriopoulos, T., Merikas, A., & Roumpis, E. (2006). Market interactions and volatility spillover effects between shipping, oil and stock markets. In: Proceedings of the Annual Conference of the International Association of Maritime Economists, July, Melbourne. Syriopoulos, T., & Roumpis, E. (2006). Price and volume dynamics in second-hand dry bulk and tanker shipping markets. Maritime Policy & Management, 33, 497–518. Syriopoulos, T., & Roumpis, E. (2008). Dynamic asset allocation and management of shipping stock portfolios. Maritime Policy & Management, 35, forthcoming. Syriopoulos, T., & Theotokas, I.(2007). Value creation through corporate destruction? Corporate governance in shipping takeovers. Maritime Policy & Management, 34, forthcoming. Tvedt, J. (2003). A new perspective on price dynamics of the dry bulk market. Maritime Policy & Management, 30, 221–230. UNCTAD. (2006). Review of maritime transport. Secretariat Report of the United Nations Conference on Trade and Development. Geneva.

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CHAPTER 7 GREEK MARITIME POLICY AND THE DISCREET ROLE OF SHIPOWNERS’ ASSOCIATIONS Alkis John Corres ABSTRACT The success of Greek shipowners in merchant shipping has created a cloud of mystery about the reasons behind this phenomenon. The most frequently suggested reason is the natural flair of the Greek officers and seamen, which has developed over the centuries of living next to the sea. Though the drive and talent of the Greek seamen is not disputed, there are obviously other factors at play when it comes to explaining this success. The question asked in this chapter is, what the shipowners’ associations’ roles in Greece have been and how influential these stakeholders’ interest groups have been in shipping policy formation. This chapter attempts to examine several aspects of the above question, aiming to shed light on the success of Greek owners in merchant shipping. Though the title of this chapter focuses on the role of the shipowners’ associations, discussion is not solely limited to their roles. With this opportunity, the analysis provides an insight of what has been going on in the various sectors of Greek-owned shipping, thus adding to the analyses undertaken in other relevant chapters of this book.

Maritime Transport: The Greek Paradigm Research in Transportation Economics, Volume 21, 221–255 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 0739-8859/doi:10.1016/S0739-8859(07)21007-8

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7.1. INTRODUCTION The unique success of Greek shipowners in merchant shipping has created a cloud of mystery about the reasons behind this phenomenon. The most frequently suggested reason is the natural ﬂair of the Greek ofﬁcers and seamen, which has developed over the centuries of living next to the sea. The drive and talent of the Greek seamen is not disputed, as Greece produces a particular kind of a seaman who is largely self-motivated and self-directed.1 Yet, the proximity to the sea is not exclusively a Greek prerogative. There are obviously other factors at play when it comes to explaining this success. The question asked in this chapter is, what the shipowners’ associations’ roles in Greece have been and how inﬂuential these stakeholders’ interest groups have been in relevant shipping policy formation. This chapter attempts to examine the major aspects of the above question, aiming to shed light on the success of the Greek owners in merchant shipping. Though the title of this chapter focuses on the role of the shipowners’ associations, discussion is not solely limited to their roles. With this opportunity, the analysis provides an insight of what has been going on in the various sectors of Greek-owned shipping, and the relevant public policies thus, adding to the analyses undertaken in other relevant chapters of this book. Given the signiﬁcance of Greek shipping in European and global shipping, the relevance to the European Union (EU) shipping policy is evident. This approach of an exciting area of applied maritime policy is, at the same time, an invitation for further work in this ﬁeld.

7.2. THE INSTITUTIONAL SHIPPING SCENE: A SIMPLE STRUCTURE WITH COMPLEX POLICY ACTORS’ INTERRELATIONS 7.2.1. The Ministry of Mercantile Marine National shipping policies have traditionally been very different as policymakers have always tried to address the particular needs of the national industries in question. The same applies for the different policies which target the different sectors of an industry which is less uniform than its blanket deﬁnition of plain ‘shipping’. In Greece, there are four distinctive main areas where policy has traditionally been formulated, within the general conﬁnes of international

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legislation at ﬁrst and European Community legislation later. These are: (a) (b) (c) (d)

The The The The

ocean-going sector; short-sea sector; cruise sector; domestic ferries sector.

In this context, the role of the Ministry of Mercantile Marine (MMM) is, as one would expect, predominant across the board. The MMM not only represents Greece at the international fora, i.e. the International Maritime Organisation (IMO), the EU and all their constitutional bodies and Committees, but it also engages itself locally in a myriad of tasks. It is particularly important and should be stressed that, according to the current European and international regulations, rarely one can ﬁnd another government agency having such a wide range of responsibilities as that of the Greek MMM. The functions institutionally performed, range from the preparation of legislation for the development of diving tourism and the hands-on management of the domestic ferries sector, to the attraction of young Greeks to its network of marine academies. This ministry, which has constantly been under the threat of falling victim to another ministry’s (i.e. transport) expanding nature and eventually becoming assimilated by it, is also tasked with coastguard duties, ﬂag obligations, trafﬁc control in Greek ports, as well as the management of the ports in a country with numerous islands. The MMM is in essence a hybrid between a military organisation and a civic department of the State. It has a military-like hierarchical structure and its ofﬁcers wear uniforms, while there is also civilian staff who are, however, restricted to playing ‘second ﬁddle’ to the ofﬁcers. At the top of the hierarchical pyramid (see Fig. 7.1) is the Minister who is also customarily a member of the Greek parliament. The Minister is assisted in his duties by two under-secretaries, one for the ports and another one for the remaining sectors under the Department’s responsibility. A change of the party in government implies an automatic change of the ‘political leadership’ of the MMM. This means that, on the average, one can expect to see the minister and his entourage leave every three to four years, if not sooner. The continuous change of the entire political leadership means that the political parties in Greece in reality have only a temporary involvement in policy formation and – in practice – none concerning long-term policy. The body that maintains continuity, merges short-term with medium and longterm aspirations, runs all the tasks involved and helps the political leaders play their own part, is the corps of the ofﬁcers who are called the Greek Coastguard.2 However, the corps is strictly controlled by the party in power

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Fig. 7.1.

ALKIS JOHN CORRES

Organizational Chart of the Ministry of Mercantile Marine. Source: Ministry of Mercantile Marine (2007).

as it is the Minister who controls the succession of ofﬁcers and instigates changes in the hierarchy, an exercise that takes place in the aftermath of every change of government. This long introduction in the idiosyncrasies of the MMM in Greece is essential in understanding both Greek shipping policy formulation and the public and private policy interactions that are discussed in this chapter. Besides personal friendship and its corollary networking, one can point out various systemic factors when attempting to interpret policy formulation related to shipping. In the context of the present organisation of the principal actor in shipping policy formulation, these factors may eventually include political afﬁliations, lobbying of organised interests in the quasimilitary Coastguard corps, ambition and so on. Yet, this unpredictable and diverse group of people involved in running the MMM – responsible for the most successful Greek industry, and vertically organised in a hybrid way allowing all kinds of disruptive political intervention – has somehow been able to ‘deliver the goods’ for decades keeping the Greek merchant ﬂeet manned with adequate numbers of competent ofﬁcers and the Greek ﬂag in

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the White List of the Paris Memorandum of Understanding (MoU) on Port State Control. The inﬂuence of ofﬁcers of the Marine Corps does not stop with their resignation or retirement, the latter often being forced by political intervention. Many of them are taken on by shipping companies and a number of select ofﬁcers – usually those with long service in policy-related divisions – are chosen to run the shipowners’ unions. Shipowning or shipowners’ unions are professional associations whose members are persons, companies or vessels with elected boards of directors headed by a chairperson. They have been exclusively managed by retired Marine Corps ofﬁcers for decades with just one exception. As elsewhere in the armies and navies, rank seniority is never lost, even after retirement. This is a signiﬁcant detail that has certainly not been missed by the shipowner unions’ chiefs. By taking on one corps ofﬁcer who has retired, one thing is certain. He will always be enjoying the respect of his previous subordinates as juniors at important posts in the MMM. This way, the chances of the shipping unions’ views, or requests, being attended to, are maximised. Before dealing with the particularities of the different sectors of Greek shipping, it is essential to deﬁne what the fundamental objectives of this policy are. The following list includes a number of the most important ones:

Running of the Greek Registry and the ﬂag; Preparation of laws and decrees for the Greek Parliament; Representation in international policy formulation; Maintenance of the Registry of Law 959/79 companies; Liaising with the private sector through the semi-public Greek Chamber of Shipping; Attraction of school leavers to the nautical profession; Running of the marine academies; Maintenance of a register for the marine service of ofﬁcers and crew; Maritime courts for servicemen and seamen; Supervision of the Seamen’s Pension Fund (NAT) and related institutions; Police Surveillance of ships, ports, sea space and borders; Supervision of the management of the Greek ports.

Recognising the importance of maritime transport for the prosperity of its economy, the national government has prompted policies impinging on several aspects of shipping. The governmental involvement and the consequent politicisation of the sector are primarily the aftermath of the dominance of the ‘shipping nationalism’ philosophy (Farthing, 1993): as in most of the traditional maritime nations, the government looks at shipping

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from a national perspective, as an international industry the maintenance of which can beneﬁt the country by securing transport and trade and providing signiﬁcant foreign exchange returns.

7.2.2. Shipping Unions There are ﬁve shipowners’ unions in Greece, and these are: The Union of Greek Shipowners (UGS) and its ‘tough cousin’ the Greek Shipowners’ Cooperation Committee (GSCC) which resides in London. The membership of the GSCC consists of Greek-owned companies, which operate out of London. Historically, the role of the Committee, as called for short, has been running in parallel to that of the UGS with two annual coordination meetings taking place in Athens and London. The Hellenic Short-Sea Shipowners’ Association (HSSSA) – until recently named Mediterranean Cargo Vessels Shipowners’ Union, which was created in the 1930s when trade ﬂows between the Mediterranean and the Black Sea were buoyant. The Association of Greek Coastal Shipping Companies (AGCSC), which is in effect the Union of the Greek Ferry Companies which recently played a very important role in the proper application of the EU Regulation 3577/92 in Greece. The Association of Passenger Shipping Companies (APSC) with limited membership, after the collapse of the cruise section of the Greek ﬂag. The Panhellenic Union of Shipowners of Coastal Cargo Vessels (PUSCCV) which houses the very small ships – under 500 grt – which have survived to date largely as a result of an exclusive employment agreement between the Greek government and its members. This agreement has, however, been found to contrast EU legislation; as cargo reservation is today deﬁnitely out of the question this puts a question mark over the future of this union. In a nutshell, the most important functions of the governmental policy, as seen from the general point of view of the shipowners’ unions are: (a) (b) (c) (d)

The attraction of new seamen; Training and certiﬁcation; Representation in policy meetings abroad; The running of the ﬂag and ports.

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These four main areas are the object of the bulk of correspondence, contacts, meetings, etc., between the unions on one side and the MMM on the other. The analysis will focus brieﬂy on each one of them. 7.2.2.1. The Attraction of Seamen The attraction of young Greeks to the nautical profession has clearly been a story of failure in post-war Greece. The reasons are many and have adequately been covered elsewhere (cf. Tsamourgelis in this book; Theotokas, Lekakou, Pallis, Syriopoulos, & Tsamourgelis, 2006; and for an early account Corres, 1978). As this has also been the experience in all other European nations, there is reason to believe that the Ministry’s own responsibility for this poor outcome – contrary to popular beliefs – has been less than signiﬁcant. Irrespectively of who might be responsible, the number of Greek seamen has decreased sixfold since 1970, from about 100,000 to a mere 16,000 today. The immediate question regards the underlying reasons for such a drastic drop. Putting aside matters such as opportunities of employment ashore, education and the closing of the gap between salaries onboard and ashore, the growth in availability and ease in procurement of cheap lower crews from low-cost countries have increased the cost/beneﬁt ratio of Greek ratings. As a result, the demand for their services has severely declined in the ocean-going sector but also in the short-sea cargo sector. The other two sectors, domestic ferries and cruise ships, have been trapped in the Greek ﬂag’s draconian manning rules by virtue of their inevitable trading in Greek waters; Ocean-going and those traditionally deﬁned as Mediterranean3 cargo-shipowners, have always had the golden option of a change in registration, even though that would imply loss of the domestic business for the latter.4 All that however became history since January 2004 when Greece ofﬁcially implemented the so-called ‘cabotage regulation’ (EU Regulation 3577/92) which established – among other things – the complete lack of discrimination in trading rights among EU ﬂags in the EU region.5 7.2.2.2. Training and Certification Then, training and certiﬁcation – though obviously very important – have been less of a disputed area. This is mainly because these have been issues traditionally discussed in the context of the relevant international fora (i.e. the IMO and the International Labour Organisation (ILO)) and have been addressed via international rules. The latter initially had the form of customary codes or guidelines, and more recently have taken the form of regulations,6 like the IMO Standards of Training Certiﬁcate and Watchkeeping (STCW) Code.

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7.2.2.3. Representation in Policy Meetings Abroad The representation of Greek shipping at IMO – and generally the international fora abroad – at state level has been an undisputed responsibility of the MMM. The speciﬁc views expressed by the MMM in those meetings, however, have often been the object of ﬁerce discussions in Piraeus as the different interests of the shipowners’ unions clashed. The clash between the ocean-going Union of Greek Cargo Shipowners (Union of Greek Shipowners – USG) and the cruise vessels’ union in the 1980s on the question of cabotage is an illustrative example. This case, which ended with a win of doubtful value for the cruise ships’ union, not only remains a classic of its kind, but the scars it has left can still be seen in the relations between their respective members. The outcome has also shown in practice that governments in Greece are de facto more vulnerable to the demands of the domestic traders when matters come to the crunch. In this dispute, one should take into account that the most active opponents of the regulation was the Greek federation of seafarers unions (PNO). The power that ocean shipowners gain by ‘capital mobility’ and a potential ﬂagging-out are signiﬁcant (Aspinwall, 1995a, 1995b) but not the most important parameter in deﬁning the relative powers of the various interest groups representing shipowners in the domestic arena (see also Pallis, 2002). The underlying reason for this is not related to political afﬁliations or personal friendship. Rather than that, it is because strikes in the deep-sea sector are impossible to organise and police, while they can be hugely effective in the domestic trades of a country with many islands. The latter hurts political parties through the complaints of mayors, prefects and their own Members of the Greek parliament who represent island constituencies. The Greek Chamber of Shipping which has been assigned the role of the Minister’s advisor has often come to the assistance of the MMM. All ﬁve unions of shipowners, plus smaller players such as the tugboats and salvage vessels, and professional leisure vessels associations, participate in the 32-member strong board of directors of the Chamber of Shipping. The chairmen of this important institution have always had to possess exceptional negotiating skills in order to formulate positions acceptable by all. Sometimes, the minutes of meetings needed weeks of circulation to ensure agreement by all parties. In retrospect, the Chamber of Shipping has been quite successful in its role, taking into account that it has frequently navigated in rough waters. The outcomes of national-level debates could have been a lot more divisive had the Chamber not been there. Another contested area has been the access of the Greek unions to the European Community Shipowners Association (ECSA). This association, which is based on EU membership, its formation dates way back to 1962

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and continues a long shipowners’ tradition of collective interests’ representation but individualistic secrecy regarding commercial practices (Ronit, 1995), is a powerful Euro-federation of national associations. The cruise and the domestic ferry unions have been pressing for access and formal participation for decades but have met the ﬁrm denial of the deep-sea union which has been the sole ECSA member for Greece. While Conﬁtarma of Italy represents all Italian shipping and is rightfully the formal member of ECSA, the UGS strictly represents the interests of the deep-sea sector. The latter is very strong and valuable for the country, yet does not include the owners of passenger or small cargo vessels among its members. The UGS has been successful in dealing with this problem by making small concessions to the short-sea and the passenger sector. It has agreed on the establishment of an ECSA panel which deals with passenger ships and on the chairing of its Short-Sea Committee by a member of the board of the ShortSea Union. Membership and decision-making in the all important Shipping Policy Committees and – of course – the ECSA Board have always remained under the absolute UGS command. Thus, the voice of Greece on the common positions of the shipping sector as expressed by ECSA have always had a distinct deep-sea ﬂavour and at times, the position of Greece has played a critical part, as for example in the case of the liberalisation of ‘Euro-cabotage’. When in the early 1990s France put forward a proposal for a common EU policy that would reserve the right of trading among EU members to vessels ﬂying EU ﬂags, UK, Germany and Greece strongly supported the opposite, i.e. free and fair competition, meaning that the trades between member states should be left open for all. Facing the opposition of these countries, and not least of the European Commission, France lost the case – which nevertheless was against the principles of the EU Treaty. This has in many ways been a landmark decision, as ﬂag reservation would have eventually meant better capacity control and – possibly – better terms of employment for the EU short-sea ﬂeet. The decision essentially meant that the EU short-sea ﬂeet was left to the mercy of low-cost competitors from the ex-Communist states, Turkey, Jordan, etc., which have been eroding the EU traders’ market shares, most notably in the Mediterranean and the Black Sea. 7.2.2.4. The Running of the Flag and Ports As regards the running of the shipping registry per se, the unions representing shipowners and their members have been enjoying varying levels of state ‘ﬂexibility’. The passenger and domestic trading sectors have been shouldering for decades the Greek state’s efforts to maximise

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employment for Greek seamen with detrimental effects on their competitiveness and ultimately – as it has transpired – on their viability. On the one hand, the composition of crews of Greek-ﬂag vessels in the deep-sea sector has been ﬂexible and the theme of negotiations between the MMM and the individual operator. On the other hand, passenger vessels providing coastal services and featuring 100% Greek crews were pressed by the trade unions to take on staff over and above the ﬂag-determined minima. Towards this end, trade unions have been, explicitly or implicitly, seconded by the Ministry. Domestic cargo ship operators also had to live with complement sizes dictated by law and 100% Greek crew compositions but many short-sea operators, those traditionally trading both domestically and in the Mediterranean, chose to abandon the Greek ﬂag due to its prohibitive manning cost, and with it domestic trading. As a result, there has been a sharp decline in the number of domestic cargo operators.7 The shipowners’ unions can be seen acting in two roles. Firstly, they act as interest groups advocating the joint commercial interests of their members and as such, they confer the opinion of their own members. Secondly, they act as secretariats that are responsible for the dissemination of information coming from, or through, the MMM. This has been particularly evident in everyday ﬂag management matters. However, the MMM has occasionally taken the initiative to develop initiatives without input from the shipowners’ unions. Such developments have been observed in matters of perceived public interest, or at times of deadlocked negotiations between employer and employees’ unions. Ports and the national port policy are a minor theme in the correspondence volume between the MMM and the unions representing shipowners. In reality, the interest of the deep-sea shipowners’ union, i.e. the UGS, in Greek port matters is only ‘skin deep’; Greek ports account for only a small fraction of the calls their vessels make every year. The other unions, foremost those unions whose membership includes shipowning companies that are involved in coastal shipping, are considerably more concerned. Their own vessels are much more frequent callers and users of the facilities, including those for dry-docking and repairs and container terminals.

7.3. THE DILEMMA BETWEEN INTERVENTIONIST AND LIBERAL SHIPPING POLICIES IN EUROPE For many years after the establishment of the European Economic Community (EEC) in 1957, the concept of a collective European shipping

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policy was virtually an extension of the national shipping policies of its member countries. The various initiatives that were developed in the aftermath of a European Court of Justice decision in 1974 that conﬁrmed the EU jurisdiction in maritime transport, focused on international shipping, including particularities related to liner shipping. Furthermore, they focused on a collective EU attempt to improve the competitive position of EU-ﬂagged shipping and on terminating the deep and prolonged ﬂagging-out crisis faced by member states ﬂags in the 1980s (cf. BredimaSavopoulou, 1990; Power, 1992). Until the adoption of the EU Regulation 3577/92 on the liberalisation of cabotage services, there had been no speciﬁc concern about what is commonly referred to as ‘internal (intra-EU) maritime market’ and more recently as ‘Common Maritime Space’ (European Commission, 2006). Despite early concerns about the problems associated with road transport and the celebrated short-sea shipping initiative of the EU at a later stage (see European Commission, 1995), it took long before policy-makers started treating intra-Community shipping as a distinctive policy area; thus, requiring different provisions from those on conventional deep-sea shipping on one hand, and domestic shipping on the other, which to date have both continued to be the primary concerns to policy-making. The importance of integrating the internal maritime transport market has increased but its regulatory framework has remained subject to national policies and/or bilateral agreements. This slow pace in realising the enormous importance of intra-Community shipping has probably been among the major causes of the lack of a European-level organisation expressing the views of the shipping operators who are serving it. As mentioned, ECSA expresses primarily the views of deep-sea shipping, having had at times considerable difﬁculty in balancing liner and tramp shipping interests. The establishment of its Short-Sea Committee, whose views were not directly heard in its Shipping Policy Committee or the ECSA Board, in the mid-1990s came more out of a necessity to keep the expression of such views within its own remit – possibly also to avoid further complications in its internal conﬂicts of interest regarding intra-Community considerations – than the wish to really take care of the interests of intra-Community traders. At a theoretical level, the choice between intervention and free competition has been in the cards of the EU since the 1960s with policy-makers weighing the pros and cons of alternative roles of the state in industrial policy.8 In the case of shipping the term ‘freedom of the seas’ refers to policies following the shipping liberalism doctrine.9 The main principle is that merchant ﬂeets

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should provide services without any intervention by public bodies, governments or their agencies. Whilst the application of this framework has not been observed in the 20th century (see Sturmey, 1962; Davies, 1992), controversies within the shipping industry have led to suggestions that the laissez–faire model of economic relations cannot be fully implemented in seagoing transport (Crzanowski, 1985).10 Others conclude that the distinction between liberalism and interventionism in the maritime sector has a broader meaning than the dichotomy between free trade and protectionism that is commonly used. Tzoannos (1989, 1990), an advocate of shipping liberalism, uses the intervention in the aspects of competition as the prominent supporting example of this argument. The scholar holds that the exercise of ‘anti-trust’ public intervention is inevitable and the lack of actions against certain formats of market practices (i.e. liner conferences that have been subject to governmental, international or self-regulatory controls since the 19th century) can be taken as a form of protectionism. According to Goss (1977), the ﬁeld of maritime safety represents another paradigm that works against the classical free trade/protectionism dichotomy. Historical evidence supports that with negligible or inadequate regulations, the forces of free competition do not work to an optimal solution in respect of those who sail on ships, a fact that has advanced the regulatory presence of public authorities. The most frequent version of the dilemma is whether a state wants a freer or a more interventionist type of policy. In practice, consistency in political choice is never warranted as governments succeed one another and so do political manifests. That being as it may, the dilemma – which is primarily a political one – has important direct implications on policy developments. One of these is the choice between concentration and competition. Competition is convenient as it ﬁts well with the core principles of the Treaty of Rome and has a range of already prescribed theoretical solutions to policy problems. What happens, however, at times of transition, when large multinational corporations enter previously protected markets where incumbents – often together – are a fraction of the new entrant? That was very often the case during the ﬁrst years of the EEC, throughout its development into the EU of the 12 member states, and its recent enlargement to 25. During all these years the dilemma has always been present to every member state and to the European Community as an entity. The diachronically present extensive list of interventions in the various European countries includes: operating subsidies, indirect subsidies, ﬂeet preferences (i.e. cargo reservations and sharing, exchange control preferences, tax and harbour concessions, cargo reservations), cabotage restrictions and more recently, second/offshore registries.11

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The ever-present dilemma conﬁrms that no satisfactory answers have been given so far, though one thing is certain. One cannot have a viable perfect competition-like model with boundaries open to large multinational corporations ready to devour the otherwise ‘perfect’ competitors.12 The same also applies in cases where signiﬁcant cost differentials exist among those competing; the lower cost competitors will replace the higher cost ones given time. The question is what the available options are. Sylos-Labini (1956), more than a quarter of a century ago, suggested the Italian post-war solution which showed remarkable success up to the early 1990s.13 There are other alternatives, still within the framework of a capitalist system in its wider sense, before one ﬁnds oneself in the remit of a socialist system. There should be no mistake, nevertheless, that there are no real dividing lines in this area. France, for example, a country subscribing to the western type of capitalism and one of the two most powerful founding members of the EU in 1957, has frequently been accused of dirigiste inclinations in its industrial policies. It should be pointed out that it had not been alone at the time of the EU-12. Italy, Spain, Portugal and partly Greece had also been in favour of the state playing an important role in the planning and the formation of industry strategies. The UK, the Netherlands and Ireland had in general terms been favouring less state planning with the remaining EU members falling somewhere in between. Yet, even the UK has had its times of direct intervention. It was during the Thatcher government in the 1970s that the UK coastal shipping was labelled as ‘sunset industry’. Cabotage protection was subsequently removed, leaving the coastal trades of the UK to all kinds of competition from abroad – largely for the beneﬁt of local oil companies; this in turn resulted in a domino of domestic shipping company failures with direct effects on the seamen’s employment and shipbuilding. On reﬂection, the question that arises is whether the Thatcherian approach was entirely different from the French traditional approach and if changing the rules of the game through deregulation constitutes governmental intervention? Consolidation has been a frequent suggestion for maintaining and improving – once strictly national and progressively European – competitiveness. The argument that Europe needs powerful companies to compete with foreign multinationals on the EU ground has often shown its limitations in reality, as size has proved not to be a major obstacle in the departure of the increasingly elusive competitive advantage; many attempts at national level to create large corporations have sadly ended in economic

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failure.14 Failure was also the fate of the Italian model, which featured consolidation as a measure to keep failed companies alive during the War. The correctness of any such recipe however can only be judged within its historical context. The move to consolidate smaller failed companies into large ones in a ruined post-war Italian economy with the aim to keep people employed may have been highly successful at the time. It is therefore incorrect in a gobalised economy to try and assess such moves made 60 years ago, though this approach had been taken to face today’s challenges. On the other hand, the mere fact that these companies managed to survive for many years by using well- trained civil servants in place of entrepreneurs, demonstrates that entrepreneurship may be present in situations where traditional private company ownership is absent. There is no ﬁnal answer regarding the policy dilemma, to intervene or not to intervene, one realises that in practice. The success or failure of an industrial policy is always judged ex-post and its relative merit depends on a cluster of conditions that prevailed before, during and – in particular – after the application of such policy. In reality, the absence of European-sized corporations in substantial numbers 50 years after the establishment of the European Common Market in 1957, constitutes evidence that there has been no consistent long-term strive to promote concentration. Under the wider perception of intra-EU shipping taken by the European Commission (2006) in its Green Paper on Maritime Policy, single market concepts are directly brought into a shipping policy perspective. The dilemma is perhaps less of a concentration or competition type, and more towards the way of establishing level playing ﬁelds for all those taking part in this game. Nonetheless, decisions that will be made in this front following the consultation period, which ends at the end of June 2007, will directly inﬂuence the shape of relevant future EU policy initiatives and determine whether the pendulum will swing towards a free for all solution, or a EU carriers’ priority regime.

7.4. THE ROLE OF THE SHIPOWNERS’ UNIONS IN POLICY FORMULATION IN GREECE IN THE PERIOD 1976–2006 Greek-owned merchant shipping is by any measure big and its presence in certain markets more than impressive. At the end of 2006,15 the Greeks owned 3.699 merchant ships amounting to not less than 218 million dwt.

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This formidable merchant ﬂeet that represents 16.1% of the world deadweight capacity, spreads over 43 ﬂags including the Greek ﬂag which presently accounts for about one-third of the overall capacity measured in deadweight tons. The classic explanation given for its success is the abundance and undisputed ability of the Greek seamen who – in many cases – have become owners. While there can be no doubt about the human factor, there must also be other factors at play. Despite the need for substantial capital investment, the entry into this industry has historically been easy and Greek shipping has ﬂourished capitalising on the dynamism of new blood. Partnerships and participations of all kinds have been a feature of every venture on the Greek islands and these have often been reﬂected in the names of their companies (cf. Harlaftis & Theotokas, 2004). The Greek policy captured the essence of the industry’s requirements set by policy-makers. Shipping, has the ability to move its assets away from countries with unfavourable legislation. Given the powers resulted from the fact that shipping is the ‘apotheosis of capital mobility’ (Aspinwall, 1995a, 1996), shipping companies must at least be certain that the national regulatory framework is stable rather than a potential playground for aspiring political leaders. This was, remarkably for the country’s record in terms of policy, put right by Greece as early as 1953: Law 2687/53, which incidentally was not exclusive to shipping, provided the necessary security that capital sums invested in Greece would be readily re-exportable. Greece was at the time a post-war country, still suffering from the effects of the Second World War. Despite inefﬁciencies in terms of the Greek industrial policy at the time, the shipping companies and shipowners’ tax liability was set right too. Thus, the two fundamental items of ship taxation were dealt within no uncertain terms. Firstly, the taxmen were kept out of the shipping ofﬁces through the introduction of tonnage tax in lieu of tax on proﬁts. Despite tonnage tax being levied regardless of proﬁt or loss, to date there has not been a single voice of protest in Piraeus for this decision. Secondly, no capital gains tax was levied on ship resales, leaving the entire product of such sales to be reinvested according to the owners’ discretion at a time they would choose freely. Additionally, there have been no tax levies on accumulated capital in any form. The only area where Greek shipping legislation has erred is the drawing of a dividing line between shipping entrepreneurs who own ships, and their colleagues who hire them. The former just pay tonnage tax, the latter are penalised by being taxed on proﬁts like in any other domestic commercial activity. The logic behind this different treatment of businessmen who operate

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in the same environment, to date escapes an explanation, but it may have severely damaged Piraeus’s chances of becoming a shipping metropolis. Another fact that might have damaged these prospects is the still continuing denial of successive Greek governments to introduce bareboat arrangements in the Greek registry. For example, the Greek registry could endorse the view that bareboat arrangements are not a measure which would negatively affect the seafarers’ employment, but a necessary tool for the construction of ﬁnancial instruments such as sale and leaseback which will enhance employment. Today, there are no provisions for the establishment of KG-type funds, which have been the backbone of new construction in Germany and elsewhere. The Greek taxation system encourages entrepreneurship only in the form of shipowning; other forms of involvement in commercial shipping are treated in the same way as commercial companies. Following these attractive provisions for shipowners there has been a continuous ﬂow of Greek owners from abroad into the city of Piraeus, which started with the New York Greeks in the 1960s and it is still going on, albeit at a slower pace, with companies relocating from London. For decades, the centre of the city of Piraeus was the centre of shipping activity as well. This lasted until the mid-1980s when shipping companies started to break out of the port area and into the wider reaches of Athens and beyond; a trend that seems to be sustainable. The question of the role of the state in Greek shipping is less clear-cut. In terms of contemporary industrial policy there have been two philosophies regarding the role of the state. The one, often related to the French policy decision-makers, calls for a proactive role of the state which leads the way by designing, motivating, ﬁnancing and – occasionally in the past – subsidising industrial activity. The other, closer to the British tradition, takes a more relaxed view and sees government discreetly monitoring progress and involving itself from time to time, only in broad ways, through the ﬁne-tuning of the legal framework. The Greek case stands closer to the latter tradition. Whatever the similarities between the Greek and the French legal systems, the Greek government’s historical involvement in international merchant shipping has a clear British taste. Unlike policies in other industry sectors, where its attitude has clearly been dirigiste, the Greek shipping policy has been limited to a small number of areas, such as:

Manning rules for the Greek ﬂag; Marine academies and ofﬁcers’ training; Legislation in connection with social security matters; Adoption of international treaties and other shipping legislation;

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Fiscal matters; Management of the domestic ferryboat sector and very little else. Compared to other shipping nations, the above might be termed as ‘the bare essentials’, transforming the country into the European champion in the ﬁeld of non-involvement in shipping issues. Paradoxically, this is entirely inconsistent with the post-war attitude of the Greek government towards other sectors and industries. The reasons for this dichotomy are manifold. Firstly, the potential for exercising policy is limited due to the nature of international shipping that allows it the luxury of moving its assets in and out of jurisdictions. Secondly, shipping entrepreneurs have always been able to communicate effectively with politicians, reminding them when necessary of the particularities of this type of economic activity. Thirdly, ﬂag-states are not alone, thus they cannot legislate at will. The vast majority of rules and regulations produced after the Second World War were the result of international legislation, subsequently adopted by states which ratiﬁed them (Armstrong, 1982). A fourth reason has been a certain amount of apprehension on the part of political leaders in attempting to break away from arrangements of their predecessors which demonstrably had been very successful. After all, the success of the Greek shipping in the world markets has been providing continuous and persuasive evidence. In a nutshell, in the case of Greek shipping, unlike other sectors, there was a lack of justiﬁcation for further state involvement. This facilitated the steady growth of Greek shipping, which progressively became, a world leader, but also a major contributor to the national budget challenging successfully the dominant position of tourism.16 Table 7.1 plots the type of governmental policy applied in the different sectors of shipping against the progress achieved. Table 7.1.

Greek Government Policies Followed in Shipping since the 1970s.

Policy Area

Manning

Taxation

Market Regulation

Subsidisation

Outcome

Deep sea Short-sea Domestic ferries Cruises Domestic cargo

Less strict Strict Strict Strict Strict

Soft Soft Soft Soft Soft

None None State imposed Cabotage protectiona Exclusive marketa

None None Yes None None

High growth Decline Static Collapse Decline

a

Until very recently.

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A ﬁrst observation is that taxation cannot be blamed for the differentiated fortunes of the individual sectors of the Greek shipping. Taxation has been favourable over a long period and it is generally considered as one of the reasons which have boosted conﬁdence and have generated funds for proper operation and investment. The role of subsidisation is inconclusive, as it seems to correlate with all possible outcomes. No subsidisation is associated with decline twice and once with the collapse of a sector. On the other hand, no subsidisation has been associated with high growth in any case. In the case of domestic ferries, where building, conversion and even operating subsidies were present in the past, subsidisation has been associated with stagnation, but not with collapse or decline. Conversely, if one takes into account the number of ships affected, the lack of subsidisation appears to have resulted in a healthy deep-sea sector, although, of course, this was not the only factor at play. In connection with market regulation the picture is considerably clearer. While non-intervention meant – at worst – decline, the proactive regulation of the market is associated with negative outcomes which range from stagnation to collapse. The message which emerges here for the government’s role is to ‘stay away from regulation’: a role consistent with the policy of the EU in relation to cabotage in recent years. Another observation is that everywhere strict manning rules appear to be associated with negative shipping sector outcomes. In four out of four cases, strict manning rules appear to have played a major part in determining the negative fortunes of a sector. Conversely, the ﬂexible manning rules applied to the deep-sea sector – admittedly in one case only – are associated with a positive outcome; this relates, however, to the largest sector of the Greek shipping and to the most successful one worldwide. Recent lessons from the market conﬁrm the importance of manning rules in shaping the future for all the sectors in the Greek shipping. In short, two years passed after 2003 and in the Greek cruise sector there was not one single ship in registry due to the manning rules mandating oversised – and all Greek-crews including all ‘hotel staff’. It has been a rare, and extreme in its consequences, example of negative implications stemming from speciﬁc policy measures. The Mediterranean trading short-sea merchant vessels under the Greek ﬂag have also been obliged to run full size, all Greek crews, without the ﬂexibility afforded to their deep-sea brethren for decades. For this reason, all these vessels have turned to the Maltese ﬂag, which has no nationality obligations in its manning legislation. Manning rules have been proven to be of critical importance in the intra-EU ﬂag competition as expected

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(see Corres, 1997). Domestic ferry rates have been kept at artiﬁcially high levels for many years as a result of a mandatory obligation to employ all Greek crews for 10 continuous months per year, irrespectively of their length of service within the year, with even more pronounced negative implications for the high-speed ﬂeet which operates for only 7.5 months per year.17 It is evident from the developments in the domestic cargo ﬂeet that the – by law determined – all Greek crews are rather unsupportable in a market free anymore from any type of cargo reservation. Yet, it is common knowledge that the strict manning rules established at times of a fully protected Greek economy are not going to go away easily. A major reason is the several well-organised seafarers’ unions, which act in unison when the need calls. Their power relies on the huge political cost on any Greek political party in government by eventual stoppages and strikes, which isolate the Greek islands from the mainland. A well-timed strike in the domestic ferries’ sector will have the opposition party demanding the replacement of the secretary of State for shipping, if not the replacement of the entire government. Ripple effects from the above type of industrial action can have serious political impact on the political scene and all Greek parties are well aware of that. The last question in the context of this section is whether the shipowners’ unions have been active in pursuing changes in the national maritime policy, and in what way. Judging from the frequency of published positions in newspapers, interviews and announcements at conferences and other forms of congregations, one can divide the Greek shipowners’ unions into three categories: active, less active and non-active. In the ﬁrst category one ﬁnds the two bigger players, the deep-sea union and the one of the domestic ferries. The short-sea and the cruise/ international ferries’ unions are less active while the domestic cargo ferries’ union is non-active. The degree of their activity is determined by a complex combination of factors which include the size and quality of their secretariat services, the number of union members and exposure to developments abroad. It can be argued that there is a common denominator in all three factors, that being the size of the union’s budget. Regardless of the organisational format, the lack of ﬁnancial resources, which prevents from acting, is directly linked to the organisational (or lack of) capacity to express clearly deﬁned interests and to ‘day-to-day’ monitor the regulatory process. While the presence of such resources allows the gradual establishment of norms of behaviour based on sophisticated advocacy alliances. Still, the personality and the public proﬁle of the chairman of the union might also make a difference. The style of leadership appears to change with

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the change of presidents, but not the policy positions which occasionally contain requests running their third decade in the lists. The ways that requests to the government are submitted also vary with time and the style of the chairman. Avoiding mentioning names, there have been chairmen in all unions who have spent their term in the quietest possible way, hoping that the circumstances would not throw them and their boards into a highproﬁle situation. There have been others who have taken their disputes with the government from the quiet rooms of the MMM to the front pages of newspapers18 while employing expensive lawyers to promote their case in Brussels. The choice of management style of affairs by a chairman cannot be predicted, but the lengths, to which demands can be taken, can; a fact that is also associated with the determination of their members. What has been the display of determination among the members of the shipowners’ unions in recent years in Greece? The answer is illustrated in Table 7.2. According to the above criteria on the members’ determination, the overall picture shows low determination with the exception of the domestic ferries’ union, the AGCSC. This should not lead to the conclusion that the members of the speciﬁc association are particularly aggressive in comparison to their colleagues from other sectors of Greek shipping. It is rather the unique negotiation tool they enjoy that gives them that kind of conﬁdence. This tool is the effect of any industrial action that they might undertake. Due to the geographical morphology of the country any such action isolates, by default, the numerous islands of Greece. On the other hand, the short-sea union, the HSSSA, through its tanker members possesses the same kind of tool. Yet the record of industrial actions or complaints in this case is blank; stoppages go back to 1987 and well beyond. Due to reasons that remain unidentiﬁed, and are worth being explored, its membership has observed its Table 7.2. Policy Area Deep sea Short-sea Domestic ferries Cruises Domestic cargo

Display of Determination by Union Membership, 2000–2006.

Legal Steps

Strike Threats

Strikes/Lockouts

Flag Change

Outcome

No No Yes No Yes

No No Yes No No

No No Yes No No

Yes Yes No Yes No

Low Low High Low Low

Sources: Assessment based on content analysis of newspapers, magazines, secretariat interviews and governmental records.

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numbers declining due to low-proﬁt margins. This has taken place without the slightest form of protest by the Union. Even the change of ﬂag was not a real option for those trading domestically, due to the existing cabotage restrictions until January 2004. The picture of the industrial and governmental relations which appears in Table 7.2, suggests that in general terms, the Greek shipping has been enjoying a longer term period of peace which has made a signiﬁcant contribution to the overall progress achieved. However, this presentation somewhat underestimates the role of the deep-sea union, as its multilateral activities in international fora – including of course its membership in the ECSA – are not illustrated. On the other hand, it could be argued that this is more a secretariat-related type of activity rather than a membership-related one. If the chairman is well versed in international shipping affairs, his own determination to make things move can make the difference. If, on the other hand, the chairman is less of a hands-on manager in international affairs, the emphasis passes on to the secretariat members who, under such circumstances, can exercise signiﬁcant inﬂuence through the use of the discretion allowed by their instructions, if any. The answer to the question whether the shipowners’ unions have been playing an effective part in the shipping policy formation is rather more complex. There has been a whole spectrum of approaches to the shipping policy. The involvement of the unions in the ﬁnal determination of these policies is without any doubt signiﬁcant, although their degree of inﬂuence is not certain. Have unions been in the position to dictate shipping legislation to the Greek State? With the exception of some older legal arrangements of ﬁscal character, the answer today is negative. Their inﬂuence nowadays is rather marginal, especially as they have only minimal access to the EU Commission, via the ECSA, and the acquis communautaire has been a limiting factor to what they can advocate. In fact, the potential for determining policy outcomes at EU level is not any higher than its equivalent at IMO. In some cases it is considerably lower. The inﬂuence of all the national shipowners’ unions at EU level is progressively reduced. This is partially because the EU of the 27 member states seeks ways to introduce and apply functional policies and partially because the EU institutions have a preference discussing relevant issues with Euro-groups (cf. Greenwood, 2003), rather than national associations. On the other hand, at the domestic level the ability of the local government to resist to pressures from all industries, shipping being no exception to the rule, has been greatly enhanced by the multitude of obligations stemming from being a country member of the EU. For example, there can be no

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discussion on operating subsidies anymore, nor any discussion for shipbuilding subsidies beyond those allowed by the relevant EU Directive. The commitment to the EU empowers national governments to become more autonomous from the pressures of powerful interests (shipowners). Evidence suggests (Pallis, 2002) that in the ﬁeld of the EU maritime policy, what Grande (1996, p. 328) has termed the ‘paradox of weakness’, that ‘public actors purposefully use the ‘‘internal’’ ties and commitments produced by joint-decision making to strengthen their bargaining position vis-a-vis ‘‘external’’ private actors and interest groups’, is more than a speculative possibility. This situation is compounded by the low level of membership determination displayed at national level, the governability difﬁculties of the EU-level interest groups representing maritime interests (Pallis, 2007), and the lack of any pan-European form of industrial action in shipping of the type displayed during discussions on the port services’ liberalisation directive (cf. Turnbull, 2005).

7.5. A GREEK STATE COST–BENEFIT APPROACH TO THE POLICIES FOLLOWED IN THE MARITIME SECTOR 7.5.1. The Deep-Sea Sector In monetary terms the beneﬁts for the Greek economy in connection with the deep-sea sector are substantial. According to the relevant data of the National Statistical Service of Greece (NSSG), within the ﬁrst 10 months of 2006, the contribution of shipping to the Greek Balance of Payments (BoP) reached 11,911 billion Euros (compared to 11,522 billion Euros of the respective 2005 period). Moreover, the earnings from the activities of the over 1200 shipping companies reached 2.2 billions. What a country can generally expect from the existence of a merchant ﬂeet, has been sufﬁciently documented.19 Essentially, the main categories of beneﬁt are the following20: Inflow of foreign currency – converted into national currency and spent locally – from companies and seamen. Greece is a country with a big trade balance deﬁcit which is partly covered by invisibles i.e. mainly by foreign currency earnings from shipping and tourism. During the years 2004 and 2005 shipping was the largest importer of foreign currency, covering 31% of that deﬁcit.

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Local spending of ships on repairs, spare parts, fuels and lubricants, port and agency expenses, construction, purchasing, marine equipment, legal expenses, ﬁnancial services, commissions on freight ﬁxtures, travel expenses of seaborne staff, insurance and P&I premiums, etc. Empirical studies in the EU have indicated that shipping has a high knock-on effect on employment in other ﬁelds to the tune of 1:5 (cf. Douglas-Westwood, 2005). On these grounds, the employment of every seaman on a Greek ship implies the maintenance of ﬁve other jobs ashore. Employment onboard (seamen and ofﬁcers) and ashore (cluster employment). Wages and salaries represent almost 40% of the converted currency from shipping in Greece. Direct and indirect taxation receipts from ships, companies and individual persons. Tax earnings were calculated to be 2.3 billion euros for 2004, amounting to 5% of net budget proceeds.

On the other hand, the cost of supplying deep-sea shipping with competent ofﬁcers is relatively low per graduate, though much higher if the social policy costs at the various stages of a career at sea are taken into account. At the same time, the overall beneﬁt in terms of funds coming directly to Greece as a result of currency conversions from shipping is substantial, even when taking into account that the contribution of over 12 billion Euros of shipping to the BoP, quoted in the national databases, refers to income from all types of international shipping, including short-sea cargo operators and international passenger and RoPax operators. Shipping is therefore remarkably attractive in comparison to other Greek industries which are in need of infrastructure and/or other investment spending on the part of the state, on top of the cost of education and training. However, as Tsamourgelis discusses in Chapter 5 of this book, the trends in the Greek shipping labour market are not encouraging and in the future they may even affect the contribution of shipping to the economy. Young Greeks – as elsewhere in Europe – are increasingly rejecting the ship ofﬁcers’ professions, while there is constant pressure on governments from the UGS to further deregulate the existing – ﬂexible – manning rules in order to allow higher percentages of non-Greeks onboard Greek ﬂag vessels.21 Increasing international competition from emerging shipping powers from the Far East (BIMCO & ISF, 2005) obliges shipowners to make sure they keep their all important manning costs under control. This is not possible in the context of the existing, ‘strict’ in terms of nationality requirements, relevant collective agreements. The way towards lower manning costs is through having fewer

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Greeks onboard, hence the pressure for further relaxation of crew nationality rules. Young Greeks, on the other hand, are justiﬁably concerned about their employment prospects. On one hand, they see quite intensive marketing on behalf of the state of the advantages of becoming a ship ofﬁcer, while everyone knows of the rapidly diminishing numbers of the Greek manpower and the continuing pressure for fewer Greeks onboard Greek ﬂag ships. On the other hand, alternative employment opportunities ashore warrant a better family and social life, even at the expense of a lower income than the one realisable onboard. The recently proposed EU legislation on the ship ofﬁcers’ liability in connection with accidental pollution (European Commission, 2005)22 is certain to make things worse. The imminent threat of criminal proceedings in case of an accident, coupled with a longer-term prospect of becoming redundant in the context of measures designed to increase the competitiveness of the Greek ﬂag are hardly a winning combination.

7.5.2. The Short-Sea Sector This shipping sector consists of approximately 70 companies of which 56 are members of the HSSSA. The latter has as members 120 ships23 out of an estimated total of 300 and it is particularly important regarding local spending of ships and employment. This association also runs the Greek Short-Sea Shipping Focal Point, which is one of the 22 members of the ofﬁcially recognised European Short-Sea Network. In a study recently undertaken by Theotokas et al. (2006), there is praise for the high percentage of Greek ofﬁcers and crew found serving onboard the short-sea ﬂeet. In reality this situation explains the declining numbers of this type of vessel under Greek registry. Small ships have been struggling under the rigid all Greek manning rules and ﬂeeing the Greek ﬂag as a result, largely towards Malta which does not have the disadvantage of the Cyprus ﬂag of being unwelcome to Turkish ports.24 This could prove crucial for the cohesion of the economy of the country. The beneﬁts of the existence of a Greek-owned short-sea ﬂeet are quite different from those listed under the deep-sea ﬂeet. These ships make sure that the Greek islands remain connected with the Greek mainland and properly supplied with essentials like water, fuels, provisions, building materials and so on. They are also vital for defence planning with small tankers and freighters included in the special lists of the emergency

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preparedness division of the Greek ministry for decades. In absence of Greek-ﬂag vessels of this type, this defence-related logistics would be in question as there would be no authority to order foreign, or even other EU-ﬂag vessels to assume such duties.25 Pricing this kind of service – which is evidently not available in the open market – is difﬁcult, yet the beneﬁt to the state should not be overlooked. The cost of supplying ofﬁcers and crew to the short-sea ﬂeet is the same as to the deep-sea vessels. According to the aforementioned study by Theotokas et al. (2006), the Greek ofﬁcers and crew onboard short-sea ships stood at 41% of those serving onboard deep-sea vessels in 1996. The corresponding number in 2004 was 47%, with the two sectors employing 3344 and 7114 Greek seamen, respectively.

7.5.3. The Domestic Ferries’ Sector In contrast with the other two sectors, the domestic ferries enjoyed a totally protected trading environment until 2004. Domestic passenger transportation had been reserved for Greek-ﬂag vessels and only since then, EU-ﬂagged ships have been allowed to trade in Greek domestic waters. This powerful Union, which has recently changed its name into Association of Greek Coastal Shipping Companies, lists among its members 250 ships of classical or high-speed design from a certain size upwards. While there are no foreign exchange beneﬁts of ships in that category, the local spending by coastal vessels and employment levels have consistently ranked the respective union as very important among the Unions. The reason for this has been the mandatory use of Greek-ﬂag vessels in coastal services – mandatory until when cabotage restrictions were ofﬁcially abolished – and the strictly local pattern of their trading, which has meant they were a totally captive market for Greek repairers. The Greek seamen are mandatorily employed onboard Greek-ﬂag ferries for a 10-month period regardless of the length of service of the vessel. The EU Commission, however, has raised objections to this rule and Greece will be obliged to change it in the foreseeable future. It is important to note, however, that until now domestic ferries have consistently been employing Greek ofﬁcers and seamen, the service of non-Greeks being limited by law. This regime explains the fact that non-Greek seamen have consistently represented under 2% of those onboard, while the corresponding percentages for short and deep-sea vessels have been considerably higher (Theotokas et al., 2006). Taking into account the expected reform in

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manning rules of vessels engaged in deep-sea trade, this sector will eventually turn to the leading employer of Greek ofﬁcers and crews in terms of overall numbers. Unlike international shipping in all its forms, the domestic ferries have historically been one hundred percent Greek in the sense that ownership and operation have been performed by Greek nationals, under Greek ﬂag and within Greek national waters. As Lekakou analytically explains in Chapter 8 of this book, due to the implementation of the EU Regulation 3577/92 and the ofﬁcial abolition of cabotage restrictions since 2004, the scene is likely to experience structural changes. The sector is already undergoing rapid deregulation and it is a matter of time before we see EU seamen serving onboard Greek domestic ferries. Receipts by the Greek state, for taxation related to domestic ferries constitute an important part of their attractiveness as a contributor to the Greek budget. Unlike other ship types, passenger vessels sell their passengers goods and hotel-like services, which are subject to value added tax (VAT). However, in contrast to the other shipping sectors, the cost of the domestic ferries is considerable to the Greek government taking into consideration the way in which subsidies for the smaller islands and – in the 1970/1980 – investment grants for building and conversions operate. In exchange for these, this sector offers the biggest advantage to any government, i.e. keeping Greece in one piece, plus creating no less than 7400 (2004) jobs onboard. The AGCSC, though strongly protesting about the slow pace of the implementation of EU Regulation 3577/92, has not experienced ofﬁcer shortages similar to those of the other two international trading Unions. On the contrary, the supply of ofﬁcers and crew for the locally trading passenger ships has been abundant. Most evidently, this has taken place at the expense of other shipping employment categories. As this has been the case for at least 20 years, and given that the remuneration levels in all sectors are roughly at comparable levels, it can be suggested that sea service abroad is less attractive than service within local waters.26 Sectoral developments are closely related to the general trend of population change on the Greek islands. In fact, some of these were able to maintain or even increase their populations, while others have been experiencing declining numbers. Being as it may, the volume of goods transported has risen considerably during the last 25 years as a consequence of increased local construction, changes in consumption patterns and rises in the number of local and foreign tourism. This is supported by rises in number of passenger tickets, allowing us to conclude that the business

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trend has generally been upward with signiﬁcant turnover rises in some cases. The only restraining factor has been the cost of the passenger ticket which has been burdened by historical cost additions, representing services not offered today27 despite state control until recently.28 Rising passenger and merchandise volumes, despite the pronounced seasonality, have led to signiﬁcant structural changes in recent years including the formation of brand new, high-quality new operators. A lengthy political indecisiveness, in connection with the mandatory age limits for passenger ships, compounded by the high cost of repairs, has created an artiﬁcial shortage of vessels, which is becoming increasingly felt. Yet, services to the islands have continued and the trading results of the stock exchange listed coastal passenger shipping companies for the recent economic years (i.e. 2005 and 2006) have been particularly good. In August 2006, the provision limiting the commercial life of domestic ferries was ﬁnally reversed on condition that these ships satisfy the requirements of the Stockholm convention.29 Changes that usually follow deregulation are well documented. One can safely expect intensiﬁcation of competition – especially during the low season – and a rise in industrial concentration through mergers and acquisitions. Whether intensiﬁed competition will result in lower ticket prices overall in what is inherently an oligopolistic market structure, is a question to be answered in the future. Nevertheless, there is an additional visible challenge, in the longer but foreseeable future: that is, the entry of Turkey in the EU and the subsequent serving of the 12 big and small islands close to the Turkish coast by Turkish ports. If that happens, the trading patterns will change radically: distances will shrink, and structural restructuring of costal services will eventually take place.

7.5.4. The Passenger and the Cruise Sector This sector groups together the interests of two passenger-carrying shipping trades, which however differ considerably. Cruises belong to the maritime tourism business, whereas ferries deliver transport services. Admittedly there is an overlapping area, which nevertheless is not signiﬁcant enough to result in confusion. Cruises are a sector typically sensitive to changes in disposable income. Following the ﬁrst negative signs in consumer spending, ﬁlling rates of cruises drop immediately, to rise again only after incomes have returned to levels that can afford some extra expense. In the period in between one

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might observe the famous demand shortages, which in the past have resulted in the departure of glorious names from this trade. Unlike ferries trading either nationally or internationally, cruises are a lot more speculative as they tend to also be particularly vulnerable to political instability, unlawful acts and climatic conditions. The regular short-sea links between Greece and Italy date back to the early 1960s but they really started becoming big business after the events in ex-Yugoslavia in the early 1990s when, following bombing, the road connections to Northern Europe were disrupted. Truck trafﬁc, which is a round the year business, came in as an additional bonus to the seasonal tourist business. As a result, the market boomed for about 12 years before starting to show signs of weakness again as roads and bridges were restored and truckers reverted to their preferred itinerary. None of these two types of seagoing services was affected by the implementation of the Regulation 3577/92 in Greece. The exogenously deﬁned lengthy periods of demand shortage for cruises, as well as the high overall cost of the Greek seamen and ofﬁcers have rendered continuation under the Greek ﬂag problematic for many operators. Gentle, rather than drastic, reductions in business in the Adriatic Sea have been followed by intensiﬁed competition among the players, who have been trying to maintain their own market shares; a fact which has had a depressive effect on the operating margins in the ferries’ trades during the last 2–3 years. Notably, attempts to approach the HSSSA with an eye to merge the activities of the two Unions have not come to fruition largely due to differing opinions regarding the chairmanship of the board of directors.30 All passenger ships are employers of ofﬁcers and crew in addition to the regular manning requirements, as they employ staff, which offers hotel-type services to their passengers. Employment numbers are therefore very important to the country which has such ships. Additional concrete advantages of the sector are the foreign exchange earnings, the value added tax from sales onboard, the work for local repair yards and, of course, the big turnover associated with stores and other provisions onboard. Last, and certainly not least, this sector results in substantial regional spending associated with the cruise ships. In an archipelago country such as Greece, cruise ships calling at the various islands constitute an important component of the local income. Thus, the policy pattern of excluding foreign-ﬂag ships from domestic cruises for the beneﬁt of a handful of local operators may in the future prove to have been a hugely damaging exercise to the detriment of island populations.

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7.6. CONCLUSIONS Unlike in other countries (i.e. Italy), the shipowners’ associations in Greece are fragmented, each one of them taking care of the interests of a particular category of owners. These roles have been traditionally set, and for this reason there is no single association focusing on intra-EU shipping matters. The Union of Mediterranean Cargo Shipowners appears to be closer to this role. This union which has recently been renamed HSSSA also runs the Greek Short-Sea Shipping Focal Point. This matter increases the importance of bodies which seek to ﬁnd points of agreement among the associations, such as the Hellenic Chamber of Shipping which is ofﬁcially the advisor to the MMM on shipping affairs. The role played by the MMM and the people who are currently serving it, or have served it in the recent past, is even more important. Their inﬂuence exceeds the ofﬁcial period of their service in the Marine Corps and extends into years after as directors, or advisors of the associations. The importance of this continuity should be remembered as many differences of opinion between associations are swiftly and amicably resolved through these persons allowing policy developments to proceed unimpeded. There is no single style of Greek policy in shipping. There are shades which range from the ‘hands–on’ approach in the domestic ferries’ sector, to the much freer regimes adopted for the ocean–seas carriers. Manning rules for ships appear to have generally been on the strict side resulting, for long years, in complaints by the shipowners’ unions. Pressure from the associations on this matter had minimal effect in the past, though there are strong indications that this governmental approach is under revision. For long, the main reason for the generally tough stance of the Ministry on manning rules has been the paramount wish of the Greek state to ensure satisfactory employment for the Greek seamen, although the numbers of the latter have nevertheless withered, while the size of the Greek-owned commercial ﬂeet has increased. Taxation, on the other hand, has been generally soft, with few and far apart cases of subsidisation in the case of passenger ferries. Governmental intervention has been totally absent in the ﬁelds of deepsea and short-sea merchant ships. Greece, on the other hand, has fought bitter battles in the EU to prolong the country’s exclusion from Regulation 3577/92 for reasons which still need to be explained as prima faciae market regulation that creates remarkable entry barriers and results in oligopolies or monopolies, tends to be associated with negative outcomes. The Greek ship owners’ associations have generally been quite placid in their demands with the government, a recent exception being the AGCSC.

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Only the mildest form of protest, that is the threat of ﬂagging-out by Unions members, has been used by all the other unions. Nonetheless, ﬂagging-out is not without limitations. Loyal owners who stay with the home ﬂag are rewarded the beneﬁts of political stability, a strong shipowners’ association and active diplomatic administrations of the Greek ﬂag around the world. In conditions of relative prosperity in the industry, the traditional Greekregister shipping is able to effectively promote a higher market and social image in the interests of its own success. Furthermore, certain beneﬁts are extracted by the avoidance of potential Port State Control delays and resulting costs. Legal challenges, strike threats and lockouts have not been seen for years. Even ECSA membership does not appear to be a problem anymore as the MMM activities are in line with those in contact with the relevant policy departments in Brussels. One can conﬁdently conclude that – with the exception of disputes related to the adoption and implementation of the EU Regulation 3577/92 – Greek shipping has been enjoying a long-term period of industrial peace. Greece, as any other country, derives signiﬁcant gains from maintaining a vibrant shipping sector. Vibrant, as it may be, the Greek shipping is not without problems. The cost of providing shipping services appears to worry all the shipowners’ associations, while at the same time they are complaining about the small numbers of students joining the maritime academies. It should perhaps be pointed out that young people would act irrationally in deciding to go into a sector where the principals are pressing the government for fewer Greeks onboard for reasons of cost. Do shipowners’ associations have positions on the above schemes? With one exception (the HSSSA proposal for a bareboat-out arrangement in 2003) there have been no public positions on any of the above. Associations seem to concentrate only on the obvious, the complement size and the attraction of young persons to the shipping profession, and very little else. However, in cases of silence, it is difﬁcult to distinguish between lack of interest and a will for the opposite. Undeclared intentions nevertheless, such as not furthering the adoption of measures that would clearly be of huge beneﬁt to their members for reasons of not disturbing ‘cosy’ market structures, are very difﬁcult to prove; thus left out of this discussion. The shipowners’ associations appear to play a signiﬁcant, yet discreet, role in shipping policy-making in Greece. The resilience and the ﬂexibility of that system of governance have been proven time and again in practice. When considering this area however, one should also be aware of the

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existence of yet other players in this endless game which can only increase in complexity, as the EU starts to ﬂex its muscles in a globalised world. In a ﬁnal note, the perceived activity of the shipowners’ associations in Greece cannot alone explain their members’ degree of success abroad. Though their multifaceted networking clearly offers advantages to their members, neither their own initiatives, nor the important support offered by the MMM and the Marine Corps are sufﬁcient to explain the perceived successes. One should perhaps look further into parameters such as entrepreneurship in the sense of willingness to take reasonable risks, the ability to understand and ride the cyclical markets, the Greek company management model, and not least, the traditional ease of entry into this profession by masters and engineers.

NOTES 1. This may also be among the main reasons why the International Safety Management (ISM) Code has been resisted by both ofﬁcers and ratings. This Code, which is implemented through working according to a prescribed safety management system, robs the seaman of his drive to do things according to his own judgment, and perhaps also of his right to expect an expression of appreciation for his expert handling of a situation. Life onboard can be boring when everything is done by the checklist and no more than the checklist is expected. 2. Hellenic Coast Guard (HCG) staff is classiﬁed into three categories according to their rank as follows: Ofﬁcers, Petty ofﬁcers, Port guards. 3. The contemporary name for the trade where these smaller vessels sail is shortsea trade. 4. The loss of the Greek market has never been absolute since there have always been arrangements in way of dispensations in cases that Greek ﬂag vessels were not available for a speciﬁc voyage or – short-term – contract. 5. EU Regulation 3577/92 has meant little to Greece since the admission of Cyprus and Malta in the EU as full members. The reason for this has been that these two ﬂags do not insist on their own manning rules, as they do not have a signiﬁcant manpower whose employment opportunities would have to protect. This is an important difference which however does not apply when ships are trading from mainland to island and between islands. 6. For an analysis of the transformation of unwritten international shipping codes to detailed regulations, see Corres and Pallis (2006). 7. The depletion of the market had reached such heights in 2004 that an oil major offering long-term time charters in exchange for double-hull coasters willing to trade within Greek domestic waters had to seek owners outside Greece. Such has been the ﬁnancial condition of local short-sea owners after decades of good services. 8. At the same period, Servan Schreiber (1967) was putting the ﬁngers of policy researchers on the different approaches to the dilemma.

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9. The term ‘freedom of the seas’ is associated with the Dutch legal theoretician Hugh Grotius who has defended it in his work Mare Liberum (1608; see Bull, Kingsbury, & Robert, 1990). 10. See also Bo¨hme (1984, p. 15), who describes the operational framework that the ocean shipping enjoyed in the early post–World War II years as ‘the most liberal framework that could be conceived’. 11. For a historical overview of policy practices in the major EU maritime states (see Sturmey, 1962; Bredima-Savopoulou, 1990; Tzoannos, 1990; Pallis, 2002; Selkou & Roe, 2004). 12. Ex-Eastern Block countries which have recently joined the EU are in many ways much better prepared to face competition from other states through historical industrial structures which have favoured concentration of industrial capacity to the point of monopoly. Latvian Shipping has been a case in point. 13. The solution which has emerged out of historical necessity dictated the creation of a system based on a large number of highly competent managers acting on behalf of the Italian State with a considerable degree of discretion. 14. The examples are endless. For the purpose of this discussion it sufﬁces to mention the cases of BMC in the UK, the consolidation of the shipbuilding industry and the eventual disappearance of all commercial shipbuilding in that country. There was a similar chain of events in France and Spain – still going on today – and also in Italy where only a couple of minor private yards still exist. 15. Source: Lloyd’s Register-Fairplay Databases, as in February 2007. 16. In 2005, revenues from shipping surpassed for the ﬁrst time those from tourism. 17. The other major contributing factor in the high cost of tickets has been the inclusion of historical charges for boatmen and heaving line handlers and other service charges which have lost their reciprocity. 18. Notably the domestic ferries union, ofﬁcially called Association of Greek Coastal Shipping Companies, during its ﬁght to persuade the Greek government to apply the EU Regulation 3577/92 – as it should – to domestic lines. 19. Cf. Farthing (1993) and Davies (1992). 20. A comprehensive analysis of the relevant costs and beneﬁts for the Greek economy in connection with the deep sea sector has been the theme of a number of studies; the most recent of these studies is the one commissioned by the Hellenic Chamber of Shipping, entitled ‘Shipping, Labour force, and the Cost of Manning of Greek Ships’ in 2006. 21. See Naftemporiki, Competitiveness on the Table, 5 November 2005. 22. For a discussion on the so-called Errika III package, see Theodoropoulos, Lekakou, & Pallis (2006). 23. Company members to the short-sea union are not under obligation to enrol all of the vessels under their management to the Union; therefore cost may be the reason for only some of the company ships becoming members. This is a clear weakness in its constitution which will have to be attended sooner or later. 24. This provision which dates back to 1974 clashes with the terms of accession of Turkey into the EU and it has recently assumed large publicity following high-proﬁle declarations by the Turkish politicians on intentions not to honour it.

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25. Those duties include conﬁscation of vessels, repossession of vessels, conﬁdential assignments, etc. 26. As this issue has not been discussed yet in depth, it is worth wondering what would happen if remuneration levels for service abroad were made higher than domestic levels to counter factors such as hesitation, fear for the unknown, separation from the family and longer periods without recreation. 27. Cf. footnote 18. 28. The economy class ticket representing approximately 70% of the ship’s passenger capacity has only recently (2006) been left free to be set by the forces of competition complying to the demand by the EU Commission and followed by big protests from the islanders’ consumer associations. 29. Presidential Decree 124/2006 seeks to amend the provisions of Law 2932/2001 which have provided for a gradual phase out of ships reaching the age of 30 years. The most probable outcome of this measure will be a widening of the gap between high-quality operators and budget operators. 30. Personal ambition and the opportunity to mix with the political leadership of the Ministry appear to be the reasons for this outcome, rather than the evidently different business areas where their members operate.

ACKNOWLEDGMENTS The author is indebted to Dr. Athanasios A. Pallis for his painstaking review of the chapter and the numerous suggestions he has made to clarify issues and improve understanding.

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Corres, A. J. (1978). The Greek seafarers labour force. Athens: Institute of Economic and Industrial Research. Corres, A. J. (1997). First public identification of some serious side-effects emerging from the implementation of the ISM Code and requesting improvements and clarifications for the benefit of users and enforcers. Paris, France: International Union of Marine Insurers Conference. Corres, A. J., & Pallis, A. A. (2006). Ethical vs. customary codes in shipping. International Shipping Conference ‘Shipping in the era of Social Responsibility (CD-Rom format), Cephalonia, Greece. Crzanowski, I. H. (1985). Introduction to shipping economics. London: Fairplay Publications. Davies, M. (1992). Belief in the sea: State encouragement of British merchant shipping and shipbuilding. London: Lloyd’s of London Press. Douglas-Westwood. (2005). World marine markets: A report to WTSH. Report, No. 328-05. Douglas-Westwood Limited, Canterbury. European Commission. (1995). The development of short sea shipping in Europe: Prospects and challenges. COM(95) 317 ﬁnal, 5 July. European Commission. (2005). Third package of legislative measures on maritime safety in the European Union. COM(2005) 585 ﬁnal, 23 November. European Commission. (2006). Towards a future maritime policy for the union: A European vision for the oceans and seas. COM(2006) 275m ﬁnal, 7 June. Farthing, B. (1993). International shipping: An introduction to the policies, politics and institutions of the maritime world (2nd ed.). London: Lloyd’s of London Press. Goss, R. O. (1977). Advances in maritime economics. London: Cambridge University Press. Grande, E. (1996). The state and interest groups in a framework of multi-level decision-making: The case of the European Union. Journal of European Public Policy, 3(3), 318–338. Greenwood, J. (2003). Interest representation in the European Union. Basingstoke: Palgrave. Harlaftis, G., & Theotokas, J. (2004). Eupompe. Greek shipping companies 1945–2000: Organization, management, strategies (in Greek). Athens: ELIA. Hellenic Chamber of Shipping. (2006). Shipping, labour force, and the cost of manning of Greek ships. Study conducted by the University of Piraeus, HCS, Piraeus. Ministry of Mercantile Marine. www.yen.gr. Assessed on February 2007. Pallis, A. A. (2002). The common EU maritime transport policy: Policy Europeanisation in the 1990s. Aldershot: Ashgate. Pallis, A. A. (2007). Maritime interests in the EU policy-making: Structures, practices and governability of collective action. WMU Journal of Maritime Affairs, 6(1), 3–20. Power, V. (1992). The EC shipping law. London: Lloyd’s of London Press. Ronit, K. (1995). European action of organised shipping: Global and national constraints. In: J. Greenwood (Ed.), European casebook on business alliances (pp. 184–194). London: Prentice Hall. Selkou, E., & Roe, M. (2004). Globalization, policy and shipping. Cheltenham: Edward Elgar. Servan Schreiber, J. J. (1967). Le Defi Americain. Paris: Denoel. Sturmey, S. G. (1962). British shipping and world competition. London: The Athlone Press. Sylos-Labini Paolo. (1956). Oligopolio e progresso tecnico. (In English, 1969, 2nd ed.). Cambridge, MA: Harvard University Press. Theodoropoulos, S., Lekakou, M. B., & Pallis, A. A. (2006). European policies for shipping (in Greek). Athens: Tipothito.

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Theotokas, I., Lekakou, M. B., Pallis, A. A., Syriopoulos, T., & Tsamourgelis, I. (2006). Greek shipping industry, employment and competitiveness (in Greek). A study for the Panhellenic Seamen Federation (PNO). Chios: University of the Aegean. Turnbull, P. (2005). The war on Europe’s waterfront – Repertoires of power in the port transport industry. British Journal of Industrial Relations, 43(4), 305–326. Tzoannos, I. G. (1989). The EEC common maritime policy and the liberalisation of world shipping markets. In: G. N. Yannopoulos (Ed.), Shipping policies for an open world economy (pp. 40–59). Guildford: Biddles. Tzoannos, I. G. (1990). European integration and commercial shipping (in Greek). Athens: Institute of Economic and Industrial Research.

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CHAPTER 8 THE ETERNAL CONUNDRUM OF GREEK COASTAL SHIPPING Maria B. Lekakou ABSTRACT This chapter analyses the reasons that have led to eternal difficulties in developing an efficient and effective Greek coastal shipping system. Being crucial for the national cohesion, the effectiveness of coastal shipping services has been an issue of major importance that has captured the interest of both the Greek state and its citizens. The analysis focuses on the interplay of oligopolistic market features and ineffective state policies that has resulted in an unstable coastal market and has undermined the quality of the supplied shipping services. In particular, it discusses the role of an intervening state in shaping the market (i.e. by controlling entry, fares, safety rules and intervening in routes, manning and duration of employment). It also examines the main economic features of the coastal shipping market, which are those of a regulated oligopoly (i.e. a large number of individual users who express a flexible, heavy seasonal, steadily increasing demand; asymmetric information, mainly due to managerial, training and research deficit; the absence of auditing, high institutional and economic barriers to entry; limited mobility of coastal companies and indivisibilities). Then the chapter focuses on the essential characteristics that a passenger transportation network with a strong public interest has to fulfil (i.e. system accessibility, affordability, safety/security, quality requirements, etc.) and the limited extent to which these criteria have Maritime Transport: The Greek Paradigm Research in Transportation Economics, Volume 21, 257–296 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 0739-8859/doi:10.1016/S0739-8859(07)21008-X

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been applied as pre-conditions for developing a modern and efficient Greek coastal shipping. The emphasis is on the absence of a systemic approach that would take into account all the constituent parts of the coastal transport (network, market monitoring, auditing, ships, ports, infrastructure, stakeholders, etc.) and would act as the driving force towards the modernization of the coastal shipping services.

8.1. INTRODUCTION The development of coastal transport services has been an issue of major importance for a long time and has captured the interest of both the Greek state and its citizens. Greek coastal transport has played a crucial role in national cohesion in various respects. From a geographical perspective, coastal transport connects mainland with islands. From an economic and social perspective, sea ferry services inﬂuence the population levels of the islands, provide opportunities for economic development and enhance the islanders’ quality of life. This chapter analyses the reasons that have led to eternal, major difﬁculties in developing an efﬁcient and effective Greek coastal shipping system. The analysis focuses on the interplay of oligopolistic market features and ineffective state policies that has resulted in an unstable coastal market and has undermined the quality of the supplied shipping services. In particular, it discusses the role of an intervening state in shaping the market (i.e. by controlling entry, fares and safety rules and intervening in routes, manning, duration of employment) in the absence of the user of the services. The chapter provides a qualitative assessment of the liberalization of the coastal market. Greek island cabotage was opened up to European competition in 2002. Greece speed up its decision to liberalize its coastal services, as according to the European Regulation 3577/92, its exemption was prolonged until 2004. The assessment is principally based on the level of competition and the users’ satisfaction. The main conclusion drawn from this analysis, is the existence of highly concentrated markets and the users’ dissatisfaction from the way that liberalization is implemented. The chapter discusses these research ﬁndings, vis-a`-vis market structure, competition and (de)regulatory developments, aiming to conclude on the potential of a framework that would satisfy all the actors of a service with general economic interest. This crucial procedure has already begun but

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serious institutional and structural transformations need to be done since a serious managerial and knowledge deﬁcit still exists, causing signiﬁcant asymmetry of information among the main players of this ‘‘fragile’’ system.

8.2. HISTORICAL BACKGROUND For Greece, coastal shipping has always been an essential means of transportation. In fact, it would not be an exaggeration to say that in the past, maritime transport was responsible for binding the islands and the mainland together as one nation. In the Greek case, coastal shipping has become a complex network of mainland-to-island, island-to-island and mainland-to-mainland connections. Greece is characterized by an extensive coastline (14,854 km) and an insular complex, which includes 3,500 minor and major islands, representing 19% of the Greek territory and 14% of the Greek population. These particularities have determined the historical course of coastal shipping, fully diversifying it at the same time from the evolution of the Greek oceangoing shipping. In short, coastal shipping has been of major importance to the development of Greece, and the issues surrounding it have been closely followed both by governments and the citizenry. Passenger shipping has undergone many changes since the establishment of the modern Greek state in the early 19th century (Lekakou & Fafaliou, 2003). From the liberation and formation of the Modern Greek state (1821) and on, the market for coastal shipping services has taken various forms. The market was characterized by a state monopoly from the Liberation up until 1892, and again right after the Second World War up until 1947. There was also a period of ‘‘perfect competition’’ (1892–1932), which ended up in destructive competition, according to the classic Schumpeterian analysis, resembling the problems caused by unregulated railroad transportation in the turn-of-the-century America. As a result of the uncertainties caused by this completely liberated coastal shipping market, the state clamped down in 1932, regulating primarily the ships’ age and the routes allowed, in order to reduce ‘‘destructive competition’’. The end result of state monopoly, perfect competition and regulation was the formation of a compulsory joint venture, in 1938 the ‘‘Coastal Lines Joint Administration’’, in which all coasters were incorporated. It should also be mentioned that alternatives were put on the table during this transitional period. Two proposals for a private monopoly were promoted, the ﬁrst in 1934 on the part of an Anglo-Hellenic Group, and the second in

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1946 on the part of the famous Greek shipowner Aristotle Onassis. Both proposals were ﬁnally rejected on the grounds that they were assessed uneconomic and that they did not adequately serve and protect islanders’welfare. Since 1947, coastal shipping has been an industry that is highly regulated by the state. That being said, state intervention has not always had the same qualitative features. The government passed the Public Maritime Law Code in 1973, and in 1976 enacted Presidential Decree N. 684. These regulatory instruments were of particular importance to the previous regime. Explicit reference was made to entry and exit barriers and price ﬁxing. State intervention was justiﬁed on the grounds of preventing destructive competition, although such Schumpeterian terminology was not actually used by the legislators. The state controlled many aspects of coastal services provision through licensing, price-setting and the deﬁnition of the various elements of the quality of service.1 State intervention had traditionally been prompted by the ‘public service’ character of coastal shipping but had also drawn criticism – and even local protests – due to ineffective service provision. This was blamed in turn on ineffective policy and the preservation of a stateregulated oligopoly; this was characterized by a small number of maritime companies with close operational links who served a large number of users devoid of any bargaining power and with the aims of producers being in conﬂict with those of the users. While proﬁt maximization and market position stand as the goals of private coastal shipping companies, islanders have historically regarded coastal shipping as an essential service for maintaining all aspects of social and economic activity. The lack of users’ satisfaction was manifested in a very practical way, which was the mobilization of island populations to create their own, locally based and ﬁnanced, shipping ﬁrms. Namely, the customer corporation is one whose primary objective is to produce services of the quality demanded by its customers at the lowest possible prices. But since it will operate in a competitive capital market, it will be obliged to consider the interests of investors in doing so (Kay, 1996). In the morning of December 8th, 1966, the ship Iraklion sank sailing from Chania to Piraeus and 250 people were lost (Archontakis & Vavouras, 1997). The accident was attributed to manufacturing defects and improper lashing of a vehicle onboard. The heavy climate of sorrow and indignation caused by the tragedy, was the background on which the idea for a collective perspective on the coastal transport issue was developed. All these tragic local developments ﬁnally resulted in 1967 in the creation of ANEK Lines

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(Maritime Company of Crete S.A.), while in September 1970 the ship Kydon, the ﬁrst ship ever owned by a consumer-based company, was put into service (Archontakis & Vavouras, 1997). The Chanean model was followed by many other islands and towns: Iraklion, Mytilini and Naxos in 1972, Thassos in 1974, and then a long list of island and coastal towns was formed including Samos, Chios, the Dodecanese, Symi, Zante, Rethymnon, Lassithi, a list which constantly expanded (Archontakis & Vavouras, 1997). These customer corporations have aimed at bridging the gap between the level of services private companies were eager to provide and the needs of local societies (Lekakou, 1994). Although omnipresent at all levels, state regulation was not considered in general, as an effective mechanism in matching provision with user needs. In this context, the emergence of local initiatives was the only possible outcome (Lagoudis, Lekakou, Pallis, & Thanopoulou, 2006). It is worth mentioning that regulatory intervention of the state in the ﬁeld of transport overall is not a Greek phenomenon but rather an international practice. As regards Greece, the role of the leading carrier is by right attributed to the coastal shipping transport. This is mainly due to both the geological nature of the country (many islands, and moreover the most signiﬁcant urban centres located nearby the coast) and the existing capacity in the sector (maritime tradition of Greeks), as well as the physical morphology of the country (naturally sheltered seaports). It should be underlined though, that despite the more crucial role of the coastal transport as compared to those of the land and air transport in Greece, in the course of time the latter two have experienced a more stable market structure and a more comprehensive institutional regime than coastal shipping. To sum up, a key element in the nature of the Greek coastal transport, which at times inﬂuenced the type of state provision, is that coastal services act as ‘‘arteries’’ through which the whole country is expanded and completed, thus constituting a consistency feature for the cohesion of the national space. However, although the nature coastal services as a ‘‘public good’’ has caused the long-standing state’s intervention, at the same time it has raised social awareness and mobilization due to ineffective policy provision.

8.3. THE INSTITUTIONAL FRAMEWORK As previously mentioned, state intervention in transportation markets is not a phenomenon unique to Greece, but has been almost standard practice in

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all transportation markets. In the USA, the regulation of transportation began in the 19th century. In fact most of the economic theories of regulation had as their starting point the experience of transportation markets (Kahn, 1991) with regulation ﬁrst being applied to rail transport. Perhaps it is worth spending a moment on this phenomenon. Why is it that transportation apparently requires some government regulation if we are to prevent monopolistic outcomes? Firstly, transportation is an important market which affects the economy as a whole. Secondly, these markets are characterized by high-ﬁxed costs and extremely low marginal costs (Johnston, 1960). For a ship, an airplane or a train, an extra passenger costs practically nothing. Yet in a perfectly competitive world, marginal cost pricing at close to zero would lead to a ﬁrm operating at a loss. This is exactly what happened in the market of railroads in the US at the turn of the century, and the train companies themselves demanded for regulation as a way to prevent extreme price-cutting. In the last 25 years (1976–2001) the relationship between the Greek state and the private shipping sector can be characterized as rather unhealthy. Because licenses were assigned by a procedure that was not very transparent, shipping companies vied for power and access to the Ministry of Mercantile Marine (MMM), and depending on the particular constellation of political and private power, the minister himself (so far only male) had the upper hand, while other times the state appeared to be supporting speciﬁc private interests. It is in line with the tradition of the literature on regulation, where the regulated companies managed to capture the regulators–though not all of the time. Further distortions occurred because most prices for transportation were controlled by the state. Not only prices but also shipping routes and time slots were the prerogative of the state. In short, the state controlled both prices and quantities, which is not a positive situation for generating a healthy market. To make the whole thing work, the MMM had to spend much time and energy on ‘‘planning out’’ the complex network of island transportation, trying to satisfy both the needs of the islanders, the tourists, as well as being concerned about the shipping companies themselves and their rivalries. However, without having sufﬁcient data and an established monitoring scheme, everything was based on the gained experience and eternal negotiations. Yet the market was changing and it was not clear if the state could incorporate the changes properly. Over the last decade mainly before the abolishment of cabotage, students of the domestic shipping sector have witnessed a lot of rather strange bargaining situations. Shipping ﬁrms and shipowners look to the Ministry

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for solutions to their problems rather than worry about competition. Energy and resources were spent on searches for bureaucratic ways to block competitors from receiving licenses for speciﬁc routes. Rather than compete against each other, owners jockeyed for inﬂuence with the minister or with decisive civil servants within the Ministry itself. Yet, long before the new deregulated framework took effect soon after the millennium, it was apparent that the locally based shipping companies were facing diverge fates. On the one hand, due to different sizes and patterns of demand, the Crete-based companies of this type went public. Via their listing in the Athens Stock Exchange, they were successfully transformed from stakeholders’ to shareholders’ ﬁrms. On the other hand, those ﬁrms serving various other Aegean routes found themselves at best in ﬁnancial straits, and at worst with their ﬂeet seized due to the size of their liabilities (Lagoudis et al., 2006). Changes of the national institutional framework have been the result of the implementation of a European Union Regulation 3577/92, aiming at the abolition of any cabotage restrictions in all EU member states. Greece was the last EU member state to implement this rule that was adopted despite the preferences of successive Greek national administrations (see Pallis, 2002) and eventually changed competition terms. Coastal passenger shipping services in Greece became open to EU-ﬂagged ships which are allowed to compete without licensing in all major routes – though ‘‘public service’’ contracts are provided for ‘‘lines of low commercial interest’’ – and with only minimal state intervention as regards annual engagement and price setting for economy fares. Traditionally, the exclusive right of the national shipowners to provide coastal services has dominated legislation on coastal shipping. Following a ‘liberalization wave’, the EU agreed in the early 1990s to the removal of restrictions in the provision of cabotage services (EU Regulation 3577/92). The new European regime put priorities on the provision of regular, affordable maritime transport all year round to all inhabited islands and the prevention of destructive competition and predatory pricing. Interestingly, the abolishment of cabotage in the EU creates the need to adjust via ﬂeet renewal and modernization, even though it has increased pressures for the Greek ﬂag (Lekakou & Pallis, 2005). These adjustment pressures are directed towards both product innovation, which is the improvement of the provided services, and a process innovation, implicating entrepreneurship and reorganization of the ways coastal services are provided. Under the new regime, it is sufﬁcient for a shipping ﬁrm to formally express an interest for speciﬁc shipping routes, with the provision that the

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said party will serve that route all year round (10 months minimum). In the Greek case, this provision ensures the supply of transport service even during the off-season period. This might be considered as an economic barrier, since off-season provision of services often does not cover costs for the shipping ﬁrms. Yet, this guarantees continuation of the service and enhances social cohesion. Because of the new regulatory regime, however, the state is no longer able to prevent newcomers from entering the market. The state wishes to promote a sustainable market2 and ensure competitive practices. This in effect, is part of the implementation of the aforementioned EU regulation promoting maritime competition at national level. Firms are now asked to bid openly for licenses on an annual basis. Thus, entry barriers are seriously reduced. Firms have to act competitively to ensure continuation of their license. The ﬁrst part of Law 2932/2001 predicts that from November 1, 2002, the provision of maritime transport services is free to shipowners of the EU member states or of the European Economic Space (EES) or of the European Free Trade Association (EFTA) except Switzerland. The new institutional framework aims at the development and assurance of a healthy competition and the public interest protection. Public service obligations continue to be imposed and a declaration of intent is predicted on an annual basis. Regarding the fares, they are deﬁned and declared by the coastal companies. However, the state can have a justiﬁed intervention in speciﬁc cases in economy fares where public interest is ‘‘threatened’’ through the imposition of fares which make the transport of certain population groups unaffordable. If healthy competition is distorted and conditions of ‘‘agreements’’ and ‘‘concerted actions’’ for the determination of high fares or abuse of dominant position are created among shipowners, the role of the National Regulatory Authority of Maritime Transport (RATHE according to the Greek initials), which was established under this new law, is determinant in examining cases of violation. It is noteworthy that this law according to the fourth report of the Commission (2002) was considered innovative at a European level, especially at the point where it assigns the sector’s monitoring function to an independent Agency. However, the RATHE, was abolished in 2004 when the MMM chose the restoration of the coastal service monitoring to the central administration and the direct control to political power. Finally, a procedure is allowed for meeting the transport needs of islands, for which there is no commercial interest, through the imposition of public

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service obligations in the context of the proportionality principle and of the unbiased treatment along with the possibility to join exclusive service contracts lasting 12 years, according to a very recent change, from the previous 5 years limit. However, the main changes in Greek coastal shipping today refer in essence, only to the regulatory framework. While there have been some changes on the supply side, demand traits remain more or less unaltered. When the institutional barriers to entry were removed, the protests of Greek coastal shipping users about the level of services provided speciﬁcally in the Aegean routes – excluding those to Crete – made the headlines. On the supply side, services are still provided by the same – more or less maritime – companies, pointing eventually to limited ﬁrm rivalry in the market. However, in essence only the 1-year provision stabilizes the market and although this could be expected to create certain monopolistic practices along viable routes, in practice the market is so unstable and violent that no single dominant monopoly has arisen. However, the larger shipping ﬁrms do seem to operate along the lines of a classic oligopoly due to the capital outlay required. The characteristics of the market structure need yet to be conﬁrmed but taking into account that since the initial move towards liberalization, there have been practically almost no entrants in the market. On the contrary, mergers and acquisitions of shipping ﬁrms have been observed as they adjust both to the new regulatory environment and to rising costs (Lekakou, Papandreou, & Stergiopoulos, 2004). In any case, the progress of market deregulation proved ineffective in taming the idiosyncrasies of passenger services provided in the context of ﬂagrant trafﬁc seasonality prevailing in one of the most historic seas. This was a surprise for those analysts expecting deregulation to solve all market problems. While protests were making headlines in the summer of 2005, complaints started afresh and even took more severe forms in the next year as the local societies affected threatened massive protests. In mid-2006, when the peak season was beginning in earnest, the ‘‘coastal shipping issue’’ returned to haunt the Greek media and politicians. The summer of the islanders’ discontent ended in September 2006 with the decision of prefecture authorities’ to complain to the European Court of Justice for the presence of cartels restricting changes on the supply side and, thus, any improvements of quality of service (Lagoudis et al., 2006). The truth of the matter is that for Greece, the move towards a liberalized environment coincided with a downturn in the market – less tourism, a major maritime accident, (Express Samina off the coast of

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Paros, September 2001), the decline of the Athens Stock Exchange, the increase in oil prices and the general ‘‘malaise’’ since the dot com crash. Perhaps liberalization came just in time to absorb the shocks. However, neither the market nor the government were completely prepared for the economic shocks, partly due to low quality of management in the shipping sector which was used to functioning under the umbrella of an overlyprotective state, and partly due to the state’s inability to adapt to the demands of the new environment. An environment which the state itself brought about. In order to preserve competition, according to the new regime the government sometimes will have to ‘‘threaten’’ those ﬁrms which act as predators against competitors. In this event, the government has a series of ‘‘weapons’’ it can use to dampen anti-competitive practices–such as taking the ﬁrm to the Regulator. Along with the new law on Liberalization, the government also set up a National Regulatory Authority of Maritime Transport (RATHE, according to the Greek initials). It is in accordance with the recent European experience, where a major factor of growth in the creation of National Regulatory Agencies was the process of liberalization of state monopolies, which was engaged by the Commission in the late 1990s in the area of network industries (Damien & Petit, 2004). Between 2002 and 2003 RATHE processed over 300 petitions, having to do mainly with pricing, anti-competitive practices and quality of services. A large number of the market’s experts and players believe that the law needs to move farther to lift the remaining state-enforced entry barriers. In fact, because the liberalization has so far been half-hearted, since it is being put into practice by an administration that still thinks along the old modes of thought, many of the problems remain. In practice, newcomers to the market are already facing difﬁculties in compiling and supporting viable business plans. Nevertheless, apart from this development imposed on Greece by the EU, there was also an inherent need for serious structural changes (Vlachos & Lekakou, 2001). These required appropriate policy decisions on the part of the government and the responsible ministry. It was recognized that Greek shipping services need to take a wider perspective. A study by the National Bank of Greece (1998) suggested that what was needed was a focus on the quality of services (such as passenger/user satisfaction). This requires adopting a systems approach, an approach which takes into account all the constituent parts of the domestic maritime transport system of Greece (network, ships, port, infrastructure, institutional framework, shipyards, communication services, technological innovation, etc.).

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8.4. GREEK COASTAL SHIPPING Nowadays, Greek coastal shipping has become a complex network of mainland-to-island, island-to-island and mainland-to-mainland connections. The current system serves about 100 islands and includes 200 ports, which are located both on the mainland and the islands. Fig. 8.1 illustrates the current Greek coastal passenger shipping system which consists of passenger (pax) and freight–passenger (ro–pax) vessels, mainland and island ports, and coastal (multilink) and ferry (single/short-link) lines. The demand for these coastal services has also followed an almost constant increase throughout the last two decades (Xideas, 2001). Shipping passenger trafﬁc in Greece exceeded 27.8 millions in 2000 – being a considerable part of the total national, international intra-EU and international extra-EU transport of passengers in the EU that has grown

Fig. 8.1. Greek Coastal Passenger Shipping System. Source: Chlomoudis et al. (2007).

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constantly since 1997 and passed 328 million persons through EU ports in 2001 (Eurostat, 2003). In 2001, 19 million passengers, 1.7 million cars, 8,000 buses and 600,000 trucks were transported by the main coastal lines. In the same year, 18.5 million passengers, 3.5 million cars, 66,000 buses and 700,000 trucks were carried in strait-crossings. At the eve of the 21st century, the coastal ﬂeet that served the domestic maritime transports consisted of 430 vessels, with a total capacity of 112,000 passengers, 21,000 vehicles and 3,600 trucks, operated by 170 coastal shipping companies. Half of the users of the main lines embarked and disembarked in the port of Piraeus. The demand for coastal services is characterized by an intense seasonality, showing peaks during the summer period, particularly in August. The Greek coastal passenger shipping system consists of passenger (pax) and freight–passenger (ro–pax) vessels, mainland and island ports, and coastal (multilink) and ferry (single/short-link) lines. Today, the system employs ships of all types, such as mono-hull conventional open-deck and closed-deck vessels for passenger and passenger–vehicle transport, passenger and passenger–vehicle catamarans, passenger vehicle high-speed mono-hulls (HSVs) and passenger carrying hydrofoils. It is developed through main and secondary coastal lines distributed in nine basic island regions, as well as through straits crossings, which in total provide 1,500 connections between almost 40 and 100 mainland and island ports. With the exemption of a limited number of mainland connections, coastal passenger shipping in Greece covers the demand for passenger and ro–ro transport from and to the islands through the provision of connections between the mainland and the islands, as well as inter-island connections (Fig. 8.1, also Tzannatos, 2005). Passenger movement in the 13 busiest coastal and 17 busiest ferry lines exceeds 90% of the respective overall movements, whereas the ratio of ferry to coastal passengers is about 3:2. Demand is highly seasonal peaking in July and August (ratio of summer to winter is 2:1) and there is a signiﬁcant spatial non-uniformity in the qualitative and quantitative characteristics of demand, depending upon the destination (e.g. urban port centres of Crete versus rural island communities). Seventy per cent of the national passenger transport demand is served through the Aegean network, which is further split to the Cyclades by 45%, to Crete by 25%, to the Dodecanese by 15% and to the north Aegean by 15%. The Aegean network is virtually of mono-hub structure based upon the Port of Piraeus, from which 10 major coastal lines radiate and 35% of the overall coastal passenger movement is performed (including the Argosaronic Gulf lines).

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The Aegean network employs 70% of the coastal passenger ships operating in Greece, being of all types and ages, from new buildings to 35 years old where the upper limit of a ship’s operational license lied was in force till August 2006. Out of the 90 larger ro–pax closed-deck vessels (over 650 grt), about 70% are employed in the Aegean and distributed to the Cyclades by 40%, to Crete by 22%, to the Dodecanese by 13% and to the north Aegean by 17%, in an apparent correspondence to passenger demand. The establishment of ro–pax vessels as a dominant type is concurrent with the general trend of intermodal transport promotion, whereas the high share of open-deck ferries reﬂects the need to satisfy a high ferry-transport demand through many local and frequent short connections within the national network (Rio–Antirio, Piraeus–Aegina, etc. – cf. Tzannatos, 2005). In the pre-liberalization period, the Greek inland maritime transport system was characterized by a number of ‘inefﬁciencies’ on both the demand and supply sides, which can be summarized as follows (Giannopoulos & Aifandopoulou-Klimis, 2004): High-seasonal variation in trafﬁc volumes, with more than 80% of the year’s demand concentrated in the summer period. Uneven geographical concentration of passenger ﬂows with more than 50% originating in the Athens/Attica region. Fleet of ships is ageing with approximately 70% of the vessels being more than 25 years old in 2000. Low-capacity utilization rates: for long-distance lines, the annual average capacity utilization level is 50–60%; for medium to short distances (where high-speed ships are being mainly used), the average capacity utilization is only 30–35% and for the so-called thin lines to the small islands even lower. Low reliability and disruption of services mainly due to weather conditions, and frequent mechanical failures of ships which in the summer months work ‘round-the-clock’ schedules without adequate ‘dead’ times for maintenance. Suboptimal (from the ship operators’ point of view) operation due to manning regulations and to the network characteristics – i.e. itinerairies was ‘deﬁned’ by the Ministry to include a number of smaller ‘noncommercial’ islands, etc. Inadequate port infrastructure, which suffers from low-capacity, lowquality installations and operational characteristics on both the sea and land sides.

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A positive development in close relation with the liberalization was the renewal of the ﬂeet at the end of the 1990s. Today ‘high-speed’ ships serve almost 40% of the island connections in the Aegean, and their entry has decreased trip duration to less than 3 h for over 50% of the routes, thus also making possible the increase in frequency of the coastal services. The quality of infrastructure in the ports is generally of low quality in terms of both their sea and land areas. The majority of the problems relate to the following areas: Lack of passenger terminals (for ‘check in’ and ‘waiting’). Insufﬁcient protection against adverse weather conditions. Limited connectivity to road networks and serious trafﬁc congestion problems. Relatively low use of information technologies, although as of 2000, all reservations and ticketing are made through electronic reservation networks. Lack of the necessary special mooring facilities for high-speed catamarans and ferries. There is a need for more ‘rationalization’ of the Greek coastal shipping network in a way that will ﬁt in with the following points: Deﬁning some islands or mainland ports as ‘hubs’ for the coastal system. Securing connections for ‘‘hubs’’ with the ‘‘spokes’’ (regional) through efﬁcient and reliable feeder routes. Providing uniform and consistent levels of service all year round. Offering reasonable prices for both passengers, vehicles and freight. Providing a minimum of socially acceptable service to non-commercial destinations (public service obligations). In terms of these requirements, it is argued that a number of ‘mixed’ results should be expected from the new liberalized regime. First, in terms of the distribution of the demand and demand management, a higher concentration of services offered is to be expected along the main O-D pairs of the most popular islands. As a result of the increased levels of service there, such action should attract more ‘generated’ demand. Along the same O-D pairs, tariffs will tend to be reduced (due to increased competition, according to the theory but depending on the market power of the ﬁrms), a fact that will further attract more demand. In contrast (see Giannopoulos & Aifantopoulou-Klimis, 2004), the remaining

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destinations should not experience any remarkable differences, on the demand side, compared with the past.

8.5. THE STRUCTURAL CHARACTERISTICS OF THE GREEK COASTAL MARKET The analysis of the coastal shipping structural characteristics allows the prediction of the Greek market prospects. The coastal shipping market presents characteristics which lead to oligopoly markets and conditions found in other regular transport service markets (airlines) and in the liner shipping as well: A small number of suppliers. There are high concentration levels with small number of usually interdependent enterprises in the main lines (1–4 in each route). A number of companies specialize in particular routes, often reﬂecting their historical roots on particular islands. A smaller number of ﬁrms, the ‘‘5 big ones’’, dominates the ferry industry (Figs. 8.2, 8.3, 8.4). But, in spite of a growing market in terms of demand, the number of players is decreasing (Table 8.1). A large number of users. There is a large number of independent users (50 million passengers, transport enterprises, tourist ofﬁces) with a changeable, intensely seasonal coastal demand that increases over time (Table 8.2). In addition, transport ﬂows are not balanced in the majority of coastal routes. Flows from Piraeus to the islands exceed those in the reverse direction.

Fig. 8.2.

Market Shares of the Top Five Firms (Passengers–2005). Source: XRTC (2006).

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Fig. 8.3.

Market Shares of the Top Five Firms (Private Cars–2005). Source: XRTC (2006).

Fig. 8.4.

Market Shares of the Top Five Firms (Trucks–2005). Source: XRTC (2006).

Low level of knowledge and information. There is a knowledge deﬁcit, especially from the consumers’ side and asymmetry of information on behalf of involved actors (producers, users, port authorities, local authorities, central administration) with conﬂicting aims. Cross-purposes among key actors. Companies aim at proﬁt maximization and at maintaining their share in the market. Users seek transport for different reasons (professional, leisure, health, social, administrative, etc.) Finally, the state theoretically aims at the protection of the consumer, the promotion of the coastal industry and the improvement of the overall transport system. Asymmetric information has further been held to clarify why industries during the regulatory process, may be able to reverse

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Table 8.1.

Greek Coastal Market Development in Main Lines (1922–2005).

Year

No. of Ships

No. of Firms

1922 1930 1939 1941 1950 1960 1966 1976 1995 2005

122a 86 40 3 30 35 41 41 55 70

n/a 32 20 3 17 18 16 18 17 16

Source: Processed results based upon data obtained from Ministry of Mercantile Marine. a Serving ALL the lines.

Table 8.2.

Passengers Carried by Coastal Shipping (1996–2002, in thousands).

a

Transported passengers Passengers/milesb

1996

1997

1998

1999

2000

2001

2002

41,638 105,568

43,535 110,357

46,092 110,481

48,396 110,481

50,816 116,005

54,646 130,269

56,285 134,177

Source: National Statistics Service data process. a Transported passengers=all passengers who embarked or disembarked at ports of a scheduled line. b Passengers/miles=the number which results from multiplying the number of passengers embarking at every port by the – in a straight line-distance in nautical miles of the destination port.

regulatory policies to their advantage and capture a regulatory agency (Ha¨gg-Go¨ran, 1997). Differentiated service. A service differentiated in terms of space and quality with every pair of geographical points deﬁning a different transport service and a special local market. Institutional and economical barriers to entry. High institutional and economical entry barriers are investment cost, annual operation obligations, long preparation period, extended networking, and fees. Low mobility. Limited mobility mainly due to pre-existing institutional framework (license) and service differentiation per sub-market and the

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related prerequisites (ship type, port infrastructure, advertisement-agency expenses, etc.). Indivisibility of supply. Ships with a given and ‘‘rigid’’ capacity, indivisibility, compared to the seasonal and volatile demand, which leads to high rates of excess capacity during off-peak period. High-fixed cost, low incremental and almost constant and low marginal cost (ﬁxed to variable 3:1, and recently 3:2, due to dramatic increases in fuel prices or 4:1 for newcomers with newbuildings). There are differences among carriers and their cost structures. Differences in the size, types and age of the vessels they own and differences in terms of the administrative and managerial capabilities are among the many factors that will contribute to differences in costs across different ﬁrms as in liner shipping (OECD, 2002), i.e. bunkers cost seriously differs between conventional ships and HSV (38% and 52% of the operation cost, respectively) (Union of Coastal Shipowners (UCS), 2005). Serious differences in cost patterns exist between the established companies and the newcomers due to capital expenses, networking cost, high-administration cost and the long period of preparation (for a detailed information on newcomers cost structure, Annex I) Distance-based fares. Pricing of services are mostly based on distance, and is strongly related with the old state – tariff, using the same method of the past: fare based on the distance and mainly on the operational cost of service provision and not on the demand or competition per city-pair. The ﬁrst state pricing formula instituted in 1926 was cost-based, with an almost uniform rate per mile. Cost-based tariff is that which passes the costs of the service to users without discriminating between passengers and thus penalizing the long-distance islands. First class passenger fares were ﬁrst partly deregulated in 1980s. By the 1990s, however, the ﬁrst class fares were both cost- and demand-based. Such practice implied the crosssubsidization of third class passengers. It was also a plausible assumption that fares were ﬁxed higher than those of the competitive equilibrium but slightly lower than the monopoly level. This pricing policy did not obviously consider any explicit welfare calculations (Goulielmos & Lekakou, 1992). It yields a high-producer surplus and also renders higher cost to the consumer. The consequent lack of incentives to reduce costs results in economic inefﬁciencies. Given that competition, even after the beginning of the liberalization process had not taken place in terms of prices, other features gain signiﬁcance, such as the time of departure or arrival for the same destinations, duration of a trip and sometimes quality of service level.

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8.5.1. The Coastal Market Concentration Liberalization does not intervene in the ‘‘nature’’ of the speciﬁc market in order to change it into a perfect competition market or to smoothen seasonality. This is also the case for liner shipping in the EU and elsewhere, where there has been widespread, but not total, theoretical and practical agreement that the abolishment of the block exemption for liner conferences will not have signiﬁcant overall impacts on capacity, or market structure. This viewpoint has been shared by both shippers and carriers. There is somewhat more disagreement regarding average tariffs, and especially regarding rate volatility. Greater impacts are expected on smaller trades, especially while market adjustments are being made. There is the potential for liner shipping of capacity withdrawals that would not be instantly ﬁlled (ICF, 2005). The main purpose of introducing competition practices in Greek coastal services is to cease state protectionism which the pre-existing system included, aiming at the protection of the user’s interests. state intervention has been replaced by regulation and this constitutes a clear structural change. This practice has a precedent in the liberalization of other industriesnetworks (energy-telecommunications) as well as in market monitoring of public interest services. The role of the user in relation to the previous regime has been upgraded through this regulation as well. The market has all the makings for instability, and in fact recent developments have led to such an example. Under the old legal system, the government was unable to prevent one of the existing major players to effectively control (through interlocking directorships) the whole of private shipping for the islands in the Aegean Seas. By controlling speciﬁc ships, the major player controlled the routes since exclusive licenses were attached to ships. It is odd to contemplate that a highly regulated market could end up in the hands of a single company, but research on regulated markets in America points out to just such a possibility (Scherer, 1980). This is what happened in Greece as well. The end result of the near-monopoly has not yet been adequately studied, but there is a sense that the results are rather mixed. Monopoly leads to better service for some islands but also to serious monopoly practices for others. In the Argosaronic complex of islands the quality of service improved but in the Cyclades islands a number of islands received reduced quality of service. Yet some claim that this reduced quality was part of a strategy on the part of the monopolist to force the government to provide the company with new licenses – in order to improve service.

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Following a serious exogenous shock (the serious maritime casualty of the ‘‘Express Samina’’ in September 2000 with a loss of 80 lives) the system could not absorb the consequences. There was public outcry against both the monopolist and the state itself. This led to a conﬂict between the monopolist and the regulator (the Ministry), so the previous institutional framework collapsed and the monopoly reached the brink of bankruptcy. This resulted in new laws and in new companies that emerged from the incumbents and worked as a motivating force to speed up the process of liberalization and of a new institutional framework. At this point, the coastal shipping of Greece and in the Aegean in particular faced a great transition. This presents an exciting opportunity for researchers and economists. However, the data on the tariff rates and trafﬁc provided by the stakeholders are unfortunately insufﬁcient in order to fully address this issue. To analyse the competition of the coastal shipping industry, detailed historical information is needed on the cost structure of the coastal companies, sales volumes in addition to other market data which is somewhat more easily available (e.g. supply, demand). Market shares and the overall level of concentration in a market normally give useful ﬁrst information about the competitive situation in a market (Verouden, 2004). Industry or market concentration (also often referred to as seller concentration) measures the relative position of large enterprises in the provision of speciﬁc goods or services such as automobiles or mortgage loans. The rationale underlying the measurement of industry or market concentration is the industrial organization economic theory which suggests that, other things being equal, high levels of market concentration are more conducive to ﬁrms engaging in monopolistic practices which leads to misallocation of resources and poor economic performance. Market concentration in this context is used as one possible indicator of market power (Khemani & Shapiro, 1993). The appropriate deﬁnition of a relevant ‘‘market’’ is crucial, and it is a pre-requisite to the estimation of market shares. Studies on the industry concentration are limited in coastal shipping except Philippines (Austria, 2002), but examples can be borrowed from liner shipping or other industries such as aviation. Market deﬁnition is the key to any competition assessment, so based on the European experience gained from the airline industry, the Origin & Destination (O&D) approach (EC, 2003) and the CFI’s 2003 Greek Ferries judgment (European Court of Justice, 1999), each route is considered as a different market. The maritime economic literature supports this choice

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(Goulielmos & Gatzoli, 2004). But considering passenger markets, routes, modes of transport and time of travel may be examined. Other factors which may need to be considered include the time or season. On the other side, according to a comprehensive cruise market analysis conducted by the US Federal Trade Commission in 2002, a single cruise itinerary does not constitute a market; rather, competitive conditions should be assessed in the context of a market that includes all vacation options or, minimally, all other cruise options. One of the reasons for FTC’s broad market deﬁnition is its ﬁnding that cruise passengers are highly sensitive to price changes (GAO, 2004). However, cruise industry does not share the same demand character with coastal scheduled services. Market concentration is a function of the number of ﬁrms in a market and their respective market shares. Various concentration ratios are used by governments and regulatory authorities and the most commonly used method for calculating industry concentration is the Herﬁndahl–Hirschman Index (HHI). This index consists of the sum of squared market shares of all ﬁrms in the industry and ranges between 0 (perfect competition) and 1 (monopoly). A smaller value indicates a more even distribution of shares and thus less concentration. Although HHI is a very accurate and easy heuristic quantifying market concentration, its implementation on the Greek coastal shipping market is rather problematic because of the lack of public ﬁnancial data. Apart from a small number of big companies listed in Athens Stock Exchange, coastal shipping companies are not obliged to publish ﬁnancial data due to the special tax system (tonnage tax) covering the maritime sector, overall there is also an absence of any monitoring authority. Another way to estimate the companies’ market share is by calculating ‘‘transport power’’. As Tzannatos (2005) points, ‘the parameter ‘‘transport power’’ (TP) is introduced, as a performance index for the ships of coastal passenger shipping as a measure of the ﬂeet’s capability to produce transport work (TW ) in unit time (T ), according to the relationship: TP ¼

TW passengers miles miles ¼ ¼ passengers ¼ TC V T hour hour

where, TC is the ship’s transport capacity (number of passengers) and V the ship’s speed (in knots)’. Transport power can be considered an alternative market share indicator, especially after deregulation and the consequent absence of any barriers. While institutional barriers to entry have been removed, shipping companies’ ability for mobility has been increased. They now have the freedom to place

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their units (ships) into selected markets (lines) aiming at proﬁt maximization. If the strategic decision of placing a speciﬁc ship in a route proves to be wrong after a period of time (10 months), under the new regime, shipowners have the freedom to withdraw it and place it in a new market (route). According to these, ships transport power is a quite representative index of market shares. As aforementioned, replacing market shares with ships transport power is an alternative solution under the restrictions that research community faces in Greece. Implementing such a methodology cannot be accurate and under any circumstances has to be very precise and to take into account every special characteristics of the market. In order to raise the reliability of the proposed heuristic, services frequency, one of the structural characteristics of liner shipping, should not be ignored. As any intervention during the calculation of the HHI is precarious and may lead to false results, frequency has to be incorporated into previous stages. However, its incorporation during the calculation of the ships ‘‘transport power’’ is made and the entailed ‘‘relevant market shares’’ are estimated. In every coastal shipping line, an x number of shipping companies may provide services on a weekly basis with an N number of ships. Every ship has its own speciﬁc capacity and speed characteristics, variables which determine its unique ‘‘transport power’’. As presented before, multiplying the number of passengers that a ship is able to carry by its speed measured in knots, results in ships ‘‘transport power’’. Shipping companies provide services on a weekly basis. A ships’ transport power for a speciﬁc route, though, has to be calculated on a same period basis, which especially for coastal shipping has to be a week. ‘‘Week Ships Transport Power’’ (WSTP) is measured according to the relationship: WSTP ¼ STP A where STP is a ship’s transport power and A the ships’ port calls on a week basis for the speciﬁc island port. For every route, there is a ‘‘route’s week transport power’’ (RWTP), given by the sum of the ‘‘week ships’ transport power’’ for every ship that provides services on it, given by the equation: RWTP ¼

n X

TPi

i¼1

where i is a ship and n the number of ships providing services in the speciﬁc route.

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279

‘‘Relevant ship’s market shares’’ for every ship, is the quota of the ‘‘week ships’ transport power’’, calculated as: RSMS ¼

ðWSTP 100Þ=RWTP 100

Lastly, in order to estimate suitable variables applicable to the HHI, every ‘‘company’s relevant market share’’ (CRMS ) has to be calculated. CRMS is given by the equation: CRMS ¼

y X

RMS i

i¼1

where i is a company’s ship and y the number of different ships that the company has assigned to the speciﬁc route. The heuristic of this calculation of the HHI, surpasses any problems faced in the Greek case. As such it is applicable in any coastal shipping route. For the purposes of this research, a small but representative sample of routes is selected. The selection was based on the author’s empirical knowledge according to the transport trafﬁc of each line; the common origin is Piraeus, given that Piraeus is the hub of the coastal ‘‘centripetal’’ network. The collection of data referred to the frequency of services and ships providing services on the speciﬁc routes, has been done via the MMM. Demand for coastal services in Greece is characterized by an intense seasonality, showing peaks during the summer period followed by the addition of a number of ships which mainly serve the so-called touristic islands as well as a more intense productivity. Competition scheme changes dramatically between the two periods, creating the need for observation and comparison. Two different weeks were selected, one referring to the summer period (17/7/2006–23/7/2006) and the other to the winter period (15/1/2007–21/1/ 2007), in order to implement the proposed heuristic. The ﬁndings clearly show that market concentration and competition change dramatically between the two periods (Lekakou & Vitsounis, 2007). In Table 8.3, the HHI for summer and winter season is presented. According to the US Department of Justice, markets in which the HHI is between 0.1000 and 0.1800 points are considered to be moderately concentrated, and those in which the HHI is in excess of 0.1800 points are considered to be concentrated. By these deﬁnitions, the examined coastal markets are generally highly concentrated and at the same level as the

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Table 8.3.

Comparison of HHI during Summer and Winter Periods.

Route

Piraeus Piraeus Piraeus Piraeus Piraeus Piraeus Piraeus Piraeus

HHI

– – – – – – – –

Chios Paros Syros Iraklion Rhodes Thira Samos Chania

Winter period

Summer period

0.532 0.687 0.571 0.593 0.483 0.758 0.509 1

0.516 0.436 0.377 0.565 0.420 0.297 0.534 0.533

North American Cruise Market (HHI over 0.400) (GAO, 2004). Most routes also have fewer than four carriers. A high level of concentration is possible to conclude to anti-competitive behaviour and changes in market structure that could have a signiﬁcant impact on fares. Exercising market power is also possible in highly concentrated markets, as the airlines paradigm shows. As the coastal industry becomes more and more concentrated, the pool of potential entrants shrinks. The ability of the large dominant ﬁrms to avoid one another in the market and engage in conscious parallelism or strategic gaming increases, as in the airline industry (Cooper, 2001). The ﬁndings are also consistent with the trend towards increased concentration in liner shipping that becomes more obvious as mergers had taken off (Thanopoulou, Ryoo, & Lee, 1999). The cause that is underlying this process in liners is the increased proportion of ﬁxed costs among total average costs, which is also typical for coastal shipping. Management re-engineering will continue to demand investments in human capital, marketing, information technologies and telecommunications as well as in capital-intensive port facilities and faster ships. All these will imply higher ﬁxed costs versus ever-lower marginal costs (Hoffmann, 1998). Economies of scope and scale also seem to limit the degree of pure competition in most liner markets (Brooks & Button, 2006). If this is the process that the coastal industry will follow, given its public service character, the state needs to begin monitoring the market not controlling it. Citizens’ rights are protected not through price setting and quantity regulation but through effective regulation. A Regulatory Authority has to ensure competitive access to all lines, outlaw predatory practices and

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Table 8.4.

Country-Level Indicators of Regulation and Market Structure in Coastal Market.

Regulation and Government Control Domestic regulation Existence of a domestic coastal shipping liberalization programme International regulation

Market Structure Number of registered coastal passenger shipping companies 34

Number of major coastal companies (carrying more than 400,000 passengers per year) 7

European Regulation 3577/92 on freedom to provide services to maritime transport within member states Market share of the largest carrier in the domestic market 19.4% Market share of the 5 larger carriers in the domestic market 58.8% Carrier concentration on domestic market (Herﬁndahl index) (from 0.420 to 1) Government control Public service obligations on coastal lines (all year service, approved itineraries, frequency, manning, price discounts) Public service contracts on thin lines Adapted from: Go¨nenc- and Nicoletti (2000).

provide consumers with direct protection from poor quality service and high prices (Cooper, 2001). To sum up, Table 8.4 demonstrates all the critical indicators of regulation and market structure of coastal services in Greece that were previously examined.

8.6. TESTING THE WATERS FOR PASSENGER SATISFACTION In view of the market characteristics discussed in the previous section, the focus shifts to the level of satisfaction users get from the actual service

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provision. The ultimate measure of the success of a deregulation policy is its effect on prices, or other welfare impacts, such as those from higher time, cost of travel and greater frequency. The hypothesis that can be deducted is that the level of service provided is supposed to be tailored to this category of demand and to its characteristics leaving the largest number of individual users with a ‘‘satisfaction deﬁcit’’. The non-price competition was the result of the stated preferences of the users of the system in the pre-liberalization period. What they value most in their choice of carrier was the time of the departure as well as the trip duration (Giannopoulos & Aifantopoulou-Klimis, 2004). A survey among users in North-eastern Aegean, held during the summer of 2005 (Masvoulas, 2005; for more details see Polydoropoulou and Litinas contribution in this book) equally revealed a low level of the users’ satisfaction from the provided coastal service. Respondents were asked to express their satisfaction in a number of criteria with the assistance of a 7-point Likert scale, with 1 being unsatisfactory and 7 very satisﬁed. According to the ﬁndings presented in none of the top three ranked factors (frequency, safety, ticket price) obtain a high level of satisfaction by the users (5.6, 5, and 4.9, respectively). Notably, one of the main conclusions of yet another survey regarding the users’ perception towards the level of ticket prices which was conducted among the island municipalities of the Aegean and the Ionian Sea (Chlomoudis et al., 2007) put forward an interesting ﬁnding. Despite the fact that fares paid for coastal services are considered rather high when compared to the quality of the services provided, the users were not opposed to potential further cost increases insofar as this increase would be accompanied by an analogous increase of the quality of the service supplied. Frequency came up again among the top factors in this survey as well as it came second only to cost. This survey was conducted by a questionnaire that was sent to the Local Authorities of the island regions. The questionnaire was focused on matters mostly concerning the price of the fares and the quality of the service. There are several matters that this questionnaire dealt with, such as the reliability of itineraries, the total duration of the journey, the quality of the ship itself, the quality of certain characteristics of the coastal shipping in Greece, etc. On the matter of pricing, which is one of the most important for the passengers, the participants stated that they are currently facing fares from 10 to 30 euros in most cases. Surely, they prefer a price decrease but they are not very optimistic about this, on the contrary, they expect increases on the prices of fares (see Fig. 8.5). Regarding the reliability of itineraries, the

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48 31

Fig. 8.5.

Expected and Desired Level of Fares According to the Islands Local Authorities.

participants replied that they are experiencing a delay up to half an hour and they do not anticipate that this will change. They certainly want more accuracy on the timetables, but they are not very troubled with a short delay up to 30 min. The duration of the journey is certainly a matter that concerns all the habitants of the islands. The participants do not evaluate this particular aspect very positively. Their trip usually lasts from 6 to 10 h and sometimes more than 10 h. As it is expected, they want a signiﬁcant decrease but they do not expect any drastic change. All in all, the stance of the participants towards the current regime even after liberalization, cannot be characterized as a positive or an optimistic one. It seems that they are particularly concerned about the level of prices and the duration of the journey. They are not pleased with the present situation and they expect stalemate or even deterioration.

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Evaluating the ﬂeet and the services, the participants appeared unsatisﬁed. The main reason for that is the age of the ships. The costal ﬂeet in Greece is rather old with an average age over 20 years. The participants also believe that the maintenance is inadequate. These two in combination, affect the comfort of the passengers and especially their safety feeling. On the other hand, the participants stated that the rescue means are at a satisfying level and the training of the crew at a very good level. Overall of course these two positively evaluated characteristics cannot annul the whole negative image. Regarding the system of the island transport, the ﬁndings of the survey are revealing a rather puzzling image. Of course there are problems concerning the weather conditions and the prohibition of sail, as well as the port infrastructures and the connection with the ports (with cars and public transportation). Finally, the participants express their discontent with the passengers’ terminal in ports. However, there are several positive points that the participants outlined, such as the system of ticket reservation, the number of ships calls and the sources of information that are available either in ports or on ships or at the travel agencies. The lack of competition in the industry costs consumers dearly. Instead, they endure higher prices and poor quality associated with the abuse of market power. The dominant incumbents, according to the theory, can raise price, without risking entry and rely on excessive market segmentation to restrict price competition. The strategy involves ﬁnding mechanisms to sort customers into categories with different price sensitivities and then offering higher prices in the less-price sensitive category. Since they do not face effective competition, they do not feel compelled to improve quality (Cooper, 2001).

8.7. ASSESSMENT OF THE LIBERALIZATION PROCESS The point which can seriously hinder the successful transition to the new regime, is the lack of knowledge and experience in the regulation of conﬂicting interests. The regulation of the relationship between public and private interest is hindered by the conﬁrmed low-knowledge level of the market’s peculiarities and the ‘‘short-sighted’’ approach of the ‘‘coastal issue’’ as a ship management problem and not as an operation of an integrated and coherent insular transport system. The lack is spotted especially in issues of determination of the necessary universal service of islands (needs, quality and fares) and on the related market protagonist inertia (inactivity) – mainly

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of the state which remains tied to old practices and ‘‘past use’’ solutions, thus undertaking the smallest responsibility. This is in contrast to the older model around which regulation was based, which was essentially supply-driven and relied on protectionism and heavystate intervention in the whole spectrum of its operation. In a political system characterized by a unitary state, weak integrated political leadership and thus ‘low-reform’ capacity it is unlikely that reform will occur if the formal and factual veto points are opposed (Romanos, 2005). The new economic reality, the increased pressure from the EU, the forces of competition, the Greece’s leading role in the region has made clear that the only way to compete is to move from the supply-driven model to one which is demand-driven. A demand-driven model requires taking into account all the actors concerned. The most recent development is towards a shipping market characterized by ‘‘sustainable mobility’’. This is deﬁned as to ‘‘meet the present needs without compromising the ability of the future generations to their own needs’’ (deﬁnition of sustainability: World Commission on Environment and Development, 1987; see also Wormley, 1997). Transport systems and especially passenger transportation networks must fulﬁl certain criteria such as system accessibility which is of crucial importance. In addition, affordability, safety/security and quality requirements such as frequency, cleanliness and comfort are preconditions for making transport more attractive. Finally, well-qualiﬁed and motivated staff are necessary for meeting the quality criteria (EC, 1995). The maritime transportation model ought to be in accordance with these directions and planned as a fully ‘‘users’-oriented approach’’. The principles applied to solving issues like coastal shipping can be boiled down to three: Democratic consultation. International expertise. Independent research. The realization of these principles could be related to information and knowledge gained by this analysis also and could conclude with the development and establishment of a new Coastal Shipping Policy. This policy, according to our view, should be the outcome of a ‘‘concerted action’’ undertaken by various players. This crucial procedure had begun with serious institutional and structural transformations but a serious knowledge deﬁcit still exists. Over the last years, a large project has taken place. Local authorities, maritime companies, shipowners, banks, shipyards, state

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players (ministries and other authorities) and roughly 30,000 users have been consulted or interviewed in order to restructure the coastal market. This was the starting point of citizens’ participation in generating a new market but this process discontinued. The second principle, international consultation has led to the increased Greek participation in the transportation and regional development fora of the EU. This has led to a shift from the policy priorities and requirements towards a transportation and regional development policy, where enhanced sustainable mobility and regional and national cohesion represent the renewed political objectives. The reorganization of the coastal sector demands a serious amount of knowledge and experience. However, all the previous studies pinpointed serious lack of information and missing data (Ministry of the Aegean, 1995; Psaraftis, 2006). Physical morphology, market conditions (e.g. degree of competition) and policy regulations (e.g. fare structures or access conditions) in a transport system all feed into the ultimate outcome (Zwier, Nijkamp, Hiemstra, & van Montfront, 1995). Organized reactions appeared in the form of appeals either to RATHE, or to the European bodies, came either from individual shipowners or from the Union of Coastal Shipowners (UCS) and regarded issues related to the imposition of state-determined fares, the binding and rigid character of the Network, the denial to accept the declaration of intent to enter to a route on the part of the Minister of Mercantile Marine and the procedure of providing the right to exclusive service. The appeal on the part of the UCS concerned the required guarantee (bond) and the ﬁne (penalty) regarding the entry to ‘‘free’’ line, the predicted manning composition, the accommodation regulations, the imposition of unjustiﬁed price ceiling in economic class, and the imposition of compulsory age limit withdrawal for coasters. The Commission, with letters of warning (2004 and 2005) and later with a justiﬁed stand (December 2005), touches on all the crucial issues regarding the conditions of ship line scheduling, determination of highest allowed fares, ship manning, accommodation and ﬁnally the crew’s knowledge of the Greek language and gives a two-month notice to the Greek side to comply. The arguments on the part of the Greek side in the context of the letters of warning were based on the positions that the shipowners, who express a commercial interest in providing coastal services, are obliged by the state to provide public services under speciﬁc quality and cost speciﬁcations, which they declare. The undertaking of such a task is to be indispensably related to guarantees (letters of guarantee, bond) as well as to the settlement of a

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representative in the country. The letters of guarantee and the establishment may constitute an entry barrier for new enterprises but they are required by the nature of the service. The same criteria apply to the General Coastal Transport Network which should clearly be indicative but should also cover all the islands without exception aiming at the cohesion of insular region and the territorial continuity of the country. On issues regarding manning, compulsory composition surely affects the cost and the quality of the provided services (e.g. issues of accommodation) making crew cost ﬁxed in a high-seasonal activity. However, the sector constitutes a ‘‘shelter’’ of employment for European seafarers and of course safety reasons and issues of search and rescue impose the necessity of communication with travelling public (knowledge of the Greek language). On issues regarding accommodation regulation, this was the result of consultation as well. It contains public service elements (ensuring the existence of seats for economically sensitive groups). Finally, the serious issue of imposition of a ceiling on economy fare is related to the state obligation to provide affordable transport to certain vulnerable social groups (given that transport should be economically affordable to all citizens). However, data and evidence about affordable price should be produced. At this point, the Commission doubts the result because data had not been brought in, in the past. On the contrary, there was abuse of the right to impose ceiling prices on the part of the state without compensation (there are relative resolutions by RATHE). Apart from these issues, the main confrontation point between the state and shipowners is the age limit for the compulsory exit of coasters (Psaraftis, 2006). Beyond these juxtapositions there were no important changes at service levels, nor price falls as in other industries. From the stakeholders view, a stakeholder is deﬁned as ‘any group or individual who can affect or is affected by Greece’s coastal shipping policy’ (Cavana, 2004), the islanders, experienced a fall on the provided service level in many cases and a signiﬁcant rise in fares (see Table 8.5). In parallel, there was a signiﬁcant increase in state Aids, as available state resources were tripled (see Table 8.6). It is noted that the cost of thin lines was in the period 2004–2005 approximately 44 million Euros of which an amount of approximately 25 million came from the 3% special tax paid by passengers through the ticket. Consequently, only 20 million Euros are given from the state budget. This is an essentially very small amount, given the number of small Greek islands. Signiﬁcant developments are also observed in the existing corporate schemes (bankruptcies, negative ﬁnancial results, re-negotiations of

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Table 8.5.

Coastal Fares’ Increases (2001–2005).

Year

Rate of Increase (%)

Average Annual Change in Bunkers Price

2001 2002 2003 2004 2005

7.0 9.9 2.4 3.5 6.8

– 12.66 0.096 1.266 35.25

Source: Ministry of Mercantile Marine.

Table 8.6. Period

State Aids for Thin Lines (2002–2005). Number of Thin Lines

Annual Budget h

67 72 75

36,606,552 36,759,727 43,783,173

2002–2003 2003–2004 2004–2005 Source: Ministry of Mercantile Marine.

Table 8.7.

Maritime Employment in Coastal Shipping (2002–2005).

Year

1996 1998 2000 2002 2004

Employment in Coastal Shipping Greeks-EU citizens

Non-EU

7,662 7,879 7,672 7,539 7,388

62 138 57 146 54

Source: National Stastical Service of Greece.

bank loans, ‘‘compulsory sales’’ of very young ships, cease of any procedure of ﬂeet renewal). Ports observe these developments without participating. On the other hand, the seafarers’ trade union, the Panhellenic Seamen’s Federation (PNO) continued to oppose the deregulation of the coastal market. The main reason cited was that half of its membership was employed in the coastal industry (Table 8.7; for a detailed analysis see chapter by Tsamourgelis in this book). It was anticipated that increased competition would oblige shipowners to minimize crew costs. Even further, the trade unionists were concerned that MMM would lose its discretion in

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designating manning composition. With the inﬂux of foreign competitors and ﬂags of convenience, crews from developing countries would be employed, dislocating the Greek crews with their larger wages, pension and health care expenses (Romanos, 2005). In the scenery of the ﬁrst liberalization period there are no winners. There are of course ‘‘successful stories’’ and speculators who took advantage of the system’s weaknesses mainly on issues regarding public interest lines. In these conditions, what is required is a change in the operation conditions of the insular transport system so that it responds to the fundamental principle of the European competition policy, that is, the improvement of the end-user’s position. What is needed is a central action which will comprise the institutionalization of special insular policies and procedures of consolidating the meanings of competition and of public interest, having as recipients – participants in all the system parts. The requirement for this is organized consultation, independent research and the utilization of international experience in order to assimilate the rules of the competitive markets because in the previous period there were signiﬁcant gaps and errors in the practices which developed. Independent evaluation could be based on principles, institutions and methods: A coastal shipping observatory, consisting of experts at national and European level. Guaranteed independence from government, and which should be accountable to the National Parliament. An annual report, a website and ad hoc reports. Open to all stakeholders and citizens – including public authorities, operators, consumers/users/citizens, trade union organisations, professional groupings, civil society, research. Centres, who should be encouraged to provide inputs to and take feedback from the meetings and consultations. Technical assistance to groups representing vulnerable users of coastal services. The evaluation should include at least four objectives (European Federation of Public Service Unions, 2005): Assess the expected impact of liberalization at National level objectives – e.g. efﬁciency, productivity, price levels, etc. – against evidence of the actual developments under liberalization.

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Assess the impact of the liberalization directives, internal market rules, state aid rules and other EU level frameworks on the ability of the state to organize Coastal Services according to policies and structures determined locally and reﬂecting national and local conditions and histories. Coastal companies should advance to re-structure, transposing the centre of gravity from the ship to its operation, to the ‘‘product’’ promotion, to the passenger and to the increase of the work cycle. Special gravity should be placed on small island-based corporate schemes which are involved in coastal shipping, constitute employment shelters but are unready to act in the new environment. These transformations need support in order to meet the challenges. Local authority on islands can, utilizing international experience (e.g. Scotland, the Canary Islands) depict the speciﬁcations of the transport service which is indispensable for the development of their islands, given the European policy on the rights of users to general interest services like coastal transports for insular regions. Transparency and information are composing elements of a healthy competition. The explicit improvement and the universal dissemination of knowledge level are requirements for coordinated action. In the speciﬁc phase, the permanent constant monitoring of demand data is required, as well as the establishment and operation of a monitoring system on quality and fares which will provide the data necessary for policy investigation. The central problem with the design of regulatory mechanisms is the fact that the regulated ﬁrm has private information about available technologies and corresponding cost functions, the operating characteristics of its network, the effort it expends to reduce costs, the quality of its services and the responsiveness of its customers to various quality and price signals. Even if this asymmetry of information can be substantially reduced in principle, the potential efﬁciency gains to be had from such a reduction have to be measured against the monitoring and control costs of the regulator (OECD, 2004).

8.8. CONCLUSIONS It is generally accepted that islands and insular regions in general, face a series of problems which undermine their equal entry to the international ﬁnancial world. It is a reality recognized in the Amsterdam Treaty (Article

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158) where it is proposed that the state ought to develop national transport policies which take into consideration the particular character of its regions and any interventions should take into account the structural difficulties of accessibility from/to the islands. Services of general economic interest comprise activities of commercial character while they fulﬁl a public utility mission. As a result member states grant them special public service rights (article 86 in the EU convention). This is in force especially regarding services in the sectors of transport, energy and telecommunication networks. All of these predictions in the maritime cabotage sector however, have not been explicitly implemented and the liberalization process, even though the Regulation explicitly referred to the essential elements of the public service, did not deﬁne their content and did not predict monitoring and assurance mechanisms. The liberalization process of other sectors was very mature, for example in telecommunications or postal services. For these services, the bodies of the Union developed the meaning of universal service which deﬁnes a total of public utility demands to which the whole Community should be subject. The obligations resulting from this meaning, aim at ensuring everywhere the access of all to speciﬁc essential services of quality and at an accessible price. The lack of a clear deﬁnition of the content of ‘‘universal service’’ for maritime cabotage and especially for insular transports, prolonged the vagueness around the limits of public service. Criticism and proposals on behalf of insular regions focus exactly on this point, that is, the process and terms of public service obligation assignment or the entering into a contract of public service provision. The basic points of this criticism are found in the rule of choosing the lowest bidder in order to cover insular lines for which there is no commercial interest. This practice many times causes problems related to the quality of provided services and the risk for the maintenance of employment levels of insular seafarers. The division of the network and the call per line also create problems in the inter-communication and contribute to further ‘‘incontinuity’’ and division of insular space. The short duration of contracts is a term which was received with criticism by the users and the shipowners as well since it creates instability conditions and does not create conditions for the declaration of entrepreneurial interest with the intention to upgrade services (Eurisles, 2003). The basic conclusion arising from the evaluation of the policy realization for maritime cabotage liberalization is that a deeper study on issues of insular transports is required, with a clear depiction and deﬁnition of essential public service elements. It is about a change of perception in the

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maritime transport management (OECD, 2001). All the policies until now have have focused on the ship. This must be replaced by the systemic and network approach (network – port – company – supporting services – monitoring of trafﬁc and economic data – evaluation – assurance of service provision) in parallel with the enactment of clear criteria of Public Interest assurance. For the realization of such a service model of insular transports a short-term, mid-term planning is required, so that the smooth transition can be ensured in parallel with the institutionalization of monitoring mechanisms at national and at European level. The peculiarity and complication of the insular space do not allow the possibility for other markets to ‘‘copy’’ a ready solution. They require a special solution which will necessarily rely on the speciﬁcations mentioned, in parallel with the necessary democratic consultation so that the islanders’ opinions and moods, along with restrictions can be depicted and the new perception can be consolidated. Special gravity should be placed as well on the very large number of small corporate schemes which are involved in this sector, are island-based and constitute shelters of employment but which are unready to act in the new environment and need to be supported in order to meet the challenges. In the EU, markets are liberalized gradually, with rules, control, having as priority the assurance of public interest and the reinforcement of competition, aiming at the improvement of provided services and mainly at the upgrading of the position and the role of the services’ user. The liberalization of maritime transports in a multi-insular country like Greece eventually leads to the creation of two and three island ‘‘categories’’. The large or more commercial ones are in the ﬁrst category from the aspect of service but even these only during the peak season. Beyond small islands which have always had unfair treatment, a very large volume is formed by middle, large and faraway islands – like the Dodecanese or the islands of the Eastern Aegean – which most months of the year simply watch ships passing by.

NOTES 1. For further discussion on regulated markets and industries, cf. Scherer (1980) and Stigler (1971). 2. Sustainable here is used in the sense of sustainable market equilibria and not in the sense of more recent usage concerning ‘‘sustainable development’’.

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REFERENCES Archontakis, K., & Vavouras, I. (1997). Modern multistakeholders coastal company; its performance in coastal shipping (in Greek). Athens: Papazisis. Austria, M. S. (2002). Philippine domestic shipping industry: state of competition and market structure. PASCN Discussion Paper No. 2002–04, Makatti City. Brooks, M. R., & Button, K. J. (2006). Market structure and shipping security. Maritime Economics & Logistics, 8, 100–120. Cavana, R. Y. (2004). A qualitative analysis of reintroducing cabotage onto New Zealand. Maritime Policy and Management, 31(3), 179–198. Chlomoudis, C. I., Lekakou, M. B., Panou, C., Papadimitriou, E., Syriopoulos, T., & Tzannatos, E. S. (2007). Transport: Lifelines for the islands (in Greek). Athens: Papazissis Editions. Cooper, M. N. (2001). Mergers between major airlines: The anti-competitive and anti-consumer effects of the creation of a private cartel. Washington, DC: Consumer Federation of America. Damien, G., & Petit, N. (2004). The development of agencies at EU and national levels: Conceptual analysis and proposals for reform. Jean Monnet working paper, New York. Available at www.papers.ssrn.com Eurisles. (2003). Island Transport and the EU. Situation in 2003, Study realised under the initiative of CPMR Islands Commission. www.eurisles.org. Assessed on December 2006. European Commission. (1995). Green book: The citizens’ network. COM(95) 60 ﬁnal, Brussels, 29 November. European Commission. (2003). Industry dialogue on air transport competition policy. Exploratory questionnaire on selected airline alliances & merger competition assessment issues. Brussels: European Commission. European Court of Justice. (1999). Case IV/D-2/34.466, Greek Ferries. Ofﬁcial Journal L 109/24 of 27 April 1999. European Federation of Public Service Unions. (2005). Evaluating the impact of liberalisation on public services. London: University of Greenwich. Eurostat. (2003). Maritime transport of goods and passengers (1997–2001). Statistics in Focus THEME 7, 4/2003. Brussels: Eurostat. General Accounting Ofﬁce. (2004). Maritime law exemption: Exemption provides limited competitive advantage, but barriers to further entry under U.S. flag remain. Washington, DC: U.S. General Accounting Ofﬁce. Giannopoulos, G. A., & Aifandopoulou-Klimis, G. (2004). Inland maritime transport in Greece after the lifting of cabotage and full liberalization. Transport Reviews, 24(4), 465–483. Go¨nenc- , R., & Nicoletti, G. (2000). Regulation, market structure and performance in air passenger transportation. OECD Economics Department Working Papers, No. 254, OECD: Paris. Goulielmos, A. M., & Gatzoli, A. (2004). An analysis of the pricing system in the Greek–Italian coastal routes. Maritime Policy and Management, 31(4), 269–285. Goulielmos, A. M., & Lekakou, M. (1992). The economic structure of Greek passenger coastal shipping. European research roundtable conference on short sea shipping (pp. 301–315). London: Lloyds of London Press. Ha¨gg-Go¨ran, P. T. (1997). Theories on the economics of regulation: A survey of the literature from a European perspective. European Journal of Law and Economics, 4, 337–370.

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Hoffmann, J. (1998). Concentration in liner shipping: Its causes and impacts for ports and shipping services in developing regions. LC/G.2027, ECLAC. ICF Consulting. (2005). Economic assistance study on liner shipping, Revised Final Review. Report Prepared for: Directorate General for Energy and Transport, European Commission. Johnston, J. (1960). Statistical cost analysis. New York: McGraw-Hill. Kahn, A. E. (1991). Economics of regulation. Reprinted. MA: MIT Press. Kay, J. (1996). The business of economics. Oxford: Oxford University Press. Khemani, R. S., & Shapiro, D. M. (1993). Glossary of industrial organisation economics and competition law. Paris: OECD. Lagoudis, I. N., Lekakou, M. B., Pallis, A. A., & Thanopoulou, H. A. (2006). Coastal shipping services in the Aegean Sea: Can passengers get satisfaction? Proceedings of the 2nd international conference on EU—EAST and South Asia trade, investment, logistics and E-business (Cd-Rom format), Chios, Greece. Lekakou, M. (1994). Economic aspects of the coastal shipping issue: Pricing policy (in Greek). Unpublished PhD Thesis, Registered at the University of Piraeus, Greece. Lekakou, M., & Fafaliou, I. (2003). The historical course of the Greek coastal transport services in the twentieth century and associated policy responses. Archives of Economic History, XV(1), 127–153. Lekakou, M., Papandreou, N., & Stergiopoulos, G. (2004). Setting the rules for the development of a national Maritime Transport System. Proceedings of the international logistics congress, Izmir, Turkey (pp. 1061–1073). Lekakou, M. B., & Pallis, A. A. (2005). Cruising the Mediterranean Sea: Market structures and EU policy initiatives. Aegean Working Papers, 2(1), 45–61. Lekakou, M. B., & Vitsounis, T. (2007). Measuring market concentration in Greek coastal lines. Mimeo, Chios: University of the Aegean. Masvoulas, G. (2005). Demand and supply time series passenger analysis in the North Aegean. Unpublished MSc thesis. University of the Aegean, Greece. Ministry of the Aegean. (1995). Study of the existing situation of maritime transport in the Aegean islands (in Greek, unpublished), Mytilini: MoA. National Bank of Greece. (1998). ARIADNI: Project for the development of maritime transport (in Greek). Athens: NBG. OECD. (2001). Regulatory reform in electricity, domestic ferries and trucking. OECD reviews of regulatory reform–regulatory reform in Greece. Paris: OECD. OECD. (2002). Competition policy in liner shipping–final report. Division of Transport. Paris: OECD. OECD. (2004). Conclusions of round table 129: the limits of (de-)regulation of transport infrastructure services. Paris: OECD. Pallis, A. A. (2002). The common EU maritime transport policy: Policy Europeanisation in the 1990s. Aldershot: Ashgate. Psaraftis, H. N. (2006). Coastal shipping and cabotage (in Greek). Athens: Evgenideion Foundation. Romanos, M. J. (2005). Shipping, the state and the market: The evolving role of the European Union in international & Greek shipping politics. Case study on coastal shipping in the 1990s. 2nd Hellenic Observatory PhD symposium on modern Greece. LSE, London, June. Scherer, F. M. (1980). Industrial market structure and economic performance (2nd ed.). Chicago: Rand McNally.

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Stigler, G. S. (1971). The theory of economic regulation. Bell Journal of Economics, The RAND Corporation, 2(1), 3–21. Thanopoulou, H. A., Ryoo, D. K., & Lee, T. W. (1999). Korean liner shipping in the era of global alliances. Maritime Policy and Management, 26(3), 209–229. Tzannatos, E. S. (2005). Technical reliability of the Greek coastal passenger ﬂeet. Marine Policy, 29(1), 85–92. Union of Coastal Shipowners. (2005). Study on the determination of the percentage of operation cost elements, in the total cost of Greek coastal ships. Piraeus: UCS. Verouden, V. (2004). The role of market shares and market concentration indices in the European Commission’s Guidelines on the assessment of horizontal mergers under the EC Merger Regulation. FTC and U.S. DOJ Merger enforcement workshop. Washington, DC, February. Vlachos, G., & Lekakou, M. (2001). The reform of the institutional framework of the coastal shipping, according the new European Regulation 3577/92. Case study: Concepts concerning the Greek coastal shipping policy. In: G. M. Korres & G. Bitros (Eds), Economic integration: Limits and prospects (pp. 217–229). London: Palgrave. World Commission on Environment and Development. (1987). Our common future (The Bruntland report). Oxford: Oxford University Press. Wormley, D. (1997). Critical issues in transportation. TR news. Washington, DC: Transport Research Board. Xideas, E. (2001). Passenger shipping transportation vs air transportation in the Aegean Archipelago. Proceedings of the 9th World Conference on Transport Research (CD Rom), Seoul. XRTC. (2006). Greek coastal shipping 2005 (in Greek). Piraeus: XRTC. Zwier, R., Nijkamp, P., Hiemstra, A., & van Montfront, (1995). Connectivity and isolation in transport networks: A policy scenario experiment for the Greek island economy. In: H. Coccosis & P. Nijkamp (Eds), Overcoming isolation (pp. 204–235). New York: Springer.

ANNEX I Coastal Service Features Ferries Miles Speed (in Knots) Working days per year Port calls in the islands

4 480 23 1,274 9,250

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Total Cost–Components

Ratio in %

(Ferries–Network–Management–Transport) 1 (I) (II) (III) 2 (c) 3 4 5 6 7 8 (d) 9 10 11 12 (e/1) (e/2) 13 14 15 (e) (f ) (g) (h) (i)

Bunkers and Lubricants (a) Fuel–HFO/380 Marine diesel Lub-oils Manning Cost/(5 crews for 4 ferries) (b) Ferries Operational Cost Ferries–Port disbursement Ferries–Marine insurance cost, P & I Club included Other commercial risks–insurance cost Ship maintenance–class survey–repairs–spares Ships–deck–engine–cabin stores Flag and class registration fees, etc. expenses Total Ferries Operational Cost (a+b+c) Network’s ‘‘transport services’’ Network’s ‘‘infrastructure–shore supporting facilities’’ Network’s ‘‘company’s management’’–administration Network’s ‘‘company’s management’’–trade operation– infrastructure services Land-based services operation cost Fees/Taxes/Commission & Unforeseen Travel agents commission (on-sales booking) Public contribution cost (on-sales 21%) Provision funds for overheads and unforeseen Administrative Cost+ Fees/Taxes–provision funds included (e/1+e/2) Grand Total Ferry Services Network Operational Cost (d+e) Financial Cost (Capital return+Interest) Grand Total Network’s Trade Cost (Ferries+Land Services+Financial Cost) Reserve Fund (after Capital+Interest Paid)

Note: Bold signiﬁes total costs per cost-category. Source: Conﬁdential commercial data.

14.56

6.31 1.72

22.59

3.56 34.70 5.00 21.00 8.70 38.26 60.85 19.05 79.90 20.10

CHAPTER 9 DEMAND MODELS FOR GREEK PASSENGER SHIPPING Amalia Polydoropoulou and Nikolaos Litinas ABSTRACT Passenger shipping in Greece is an important sector of the economy and holds a significant share of the transport market for the movements of residents, business, and tourist travellers. This is more so in the Aegean archipelagos where shipping constitutes the main alternative for passenger travel from/to most of the islands, complemented in the case of the bigger islands by air travel. Over the last few years, the Greek passenger shipping industry has undergone several changes including the introduction of fast high-technology ships and a growth in the volume of passenger transport. These conditions have created an environment that is more competitive, demanding, and dynamic, making the application of advanced analysis techniques for forecasting the demand for travel of critical strategic importance. This chapter developed a methodological demand modelling framework based on understanding the choice behaviour of individuals addressing the competition and/or complementarity of ships and aeroplanes. The methodology was applied to a case study on the competition between passenger shipping and aviation in the Northern Aegean region, based on the analysis of individual choice data collected on an annual base for 2001–2005. The models developed included a Multinomial Logit Model with dependent variable, the choice among different types of shipping lines and airlines. The estimation results Maritime Transport: The Greek Paradigm Research in Transportation Economics, Volume 21, 297–322 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 0739-8859/doi:10.1016/S0739-8859(07)21009-1

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showed that travel times and travel costs of the alternative modes play significant role in the choice of the alternatives. Furthermore, socioeconomic characteristics such as age, education level, purpose of trip, and experience represented by the prior frequency of travel with the specific mode were also found significant. In addition, response bias indicators were applied to capture the propensity of respondents to justify their prior choices and their travel-related constraint to be accompanied by their car in their trip. The models developed were used to calculate value of times for the alternative modes. These models can be also used for prediction of the market shares for the different alternative modes. The methodology and modelling results presented in this chapter offer a unique paradigm for applying innovative techniques of Decision-Making Theory that can be used by policy-makers and service providers to offer services better tailored to the passengers needs.

9.1. INTRODUCTION Passenger shipping in Greece holds a signiﬁcant share of the passenger (residents, business, and tourist travellers) transport market and constitutes an important sector of the Greek economy. This is more so for the Greek archipelagos where shipping, provides in many cases the only passenger connection from/to the islands. Over the last few years, the Greek passenger shipping industry has been exposed to the deregulation of the market and the introduction of fast hightechnology ships especially designed for the short-sea environment. These changes, coupled with a signiﬁcant growth in the volume of passenger transport, have created an environment that is more competitive, demanding, and dynamic, making the application of advanced analysis techniques for forecasting the demand for travel of critical strategic importance. This forecast is performed by developing demand models that, in addition to considering the characteristics of the shipping services offered, take into account competing modes such as air transport servicing the island, as well as stakeholders such as business-related actors in the transportation sector, and transport policy decision-makers. More speciﬁcally, demand models provide a tool for: The creation of valid travellers’ behavioural forecasts as a function of alternative policies (such as pricing, improvements of level of service, etc.);

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The understanding of travellers’ behaviour in order to maximize their utility; The policy decision-makers in the public authorities for the effective planning and organization of passenger shipping and aviation, as well as the wider growth of islander regions; The short-sea shipping companies that serve speciﬁc coastal lines and wish to expand their activities in new lines; The aviation companies that serve different islander destinations; The research community, since Greece provides a unique case for studying the competition and/or complementarity of ships and aeroplanes in a national travel context. This chapter presents a transport demand analysis methodology for passenger shipping and aviation in the Aegean region that is based on users’ decisions and on the competitiveness of these modes to transport their passengers. Section 9.2 presents a review of current state-of-the-art. Section 9.3 develops a behavioural framework for modelling mode choice between ships and aeroplanes. Section 9.4 presents a case study for the Northern Aegean region. Finally, Section 9.5 concludes the chapter.

9.2. STATE-OF-THE-ART ON DISCRETE CHOICE MODELS FOR MODE CHOICE BEHAVIOUR When conducting demand analysis, the established tool of modelling individuals’ behaviour for transport mode choice is the development of discrete choice models, which are based on the theory of random utility. These models aim at the quantiﬁcation of factors inﬂuencing transport mode choice (as travel time or travel cost) and the capability of forecasting individual’s behaviour under different scenarios. Up-to-now applications in the transport ﬁeld mainly concerned discrete choice models for transport modes in urban regions, usually involving the choice between private (i.e., car) and public (i.e., metro, tram, bus, and taxi) means of transport (Louviere, Hender, & Swait, 2000; Train, 2003). These studies focus mainly on the estimation of the parameters’ weight of the variables composing the utility function, the calculation of the value of times and the forecast of market shares for the alternative transport modes (Polydoropoulou & Ben-Akiva, 2000). In few studies conducted in the USA, the choice between ship and car has been investigated. These studies have been conducted mainly in the Washington state in order to forecast the

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demand of the alternative modes (ship and car) between the islands and the hinterland and the improvement of Washington State Ferries services (Savage, 1997; Dehghani, Krishnan, & Gihring, 1997; Dehghani, Adury, Bradley, & Gihring, 2002; Baker & Deardorf, 1998; East & Armstrong, 1999; Iravani, 2001; Outwater, Modugula, Castleberry, & Bhatia, 2003, 2004). Similar mode choice models between ship and urban transport modes (car, bus, van, and taxi) have also been developed for the Golden Gate Bridge region in California from Soumoy and Sweeny (2000), as well as for the region Bangkok in Thailand from Nam, Park, and Pueboobpaphan (2004). Mode choice models developed for intercity travel, usually predict the choice between car, bus, railway, and aeroplane (Expedite, 2000), with the exception of Italy that also includes ship as an alternative mode (Cascetta, Biggiero, Nuzzolo, & Russo, 1995) for some of the islander destinations. On the contrary, the Greek area is of particular interest because of the existence of competition between ships and aeroplanes serving many origins and destinations. It should be noted that Polydoropoulou, Kapros, and Pollatou (2004) have developed a national travel demand model for Greece which includes the following modes: car, bus, rail, plane, conventional ship, and new technology ship, as well as some combinations of these modes in order to account for intermodal use. This chapter speciﬁcally focuses on the transportation from/to the islander destinations, where the alternative transport modes are different types of ships and planes. This is a unique paradigm worldwide due to the physical, geological, economical, technological, and transportation infrastructure of the Aegean region.

9.3. BEHAVIOURAL FRAMEWORK FOR PASSENGER SHIPPING DEMAND This section presents a behavioural framework for passenger shipping demand. The model presented has its roots in the theory of rational behaviour, in which ‘‘the rational man of economics is a maximizer, who will settle for nothing less than the best’’ (Simon, 1959). While this model of consumer behaviour dominates demand analysis, there is a long history of questioning its behavioural validity and seeking alternatives. Behavioural Decision Theory (BDT) had its origins in the von Neumann and Morgenstern (1947) treatise on choice under uncertainty and game theory. The behavioural model developed in this chapter is based on BDT and is an

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extension of the framework presented by Ben-Akiva et al. (1999), and Morikawa, Ben-Akiva, and McFadden (2002).

9.3.1. Choice Theory According to the discrete choice theory, the ﬁnal mode choice between two or more alternative modes – such as ship and aeroplane – for a speciﬁc trip is a process, which is determined by the following elements. 1. The decision-maker: The decision-maker is the passenger from/to an islander region. In some transport mode demand analysis cases, a household accounts as the decision- maker. Individuals have different socioeconomic characteristics, experiences, memory, perceptions, attitudes, motives, and restrictions, which inﬂuence their preferences and their choices. 2. The alternative choices: A choice is made from a set of alternatives. Alternatives should be feasible for the decision-maker but also known during the decision process. In our case, the alternative transport modes are ships and aeroplanes. With respect to ships choice set, there are two basic types of ships among which the choice can be made: the conventional technology ships and the new technology ships. With respect to the aviation choice set, two companies serve speciﬁc islander destinations, the Olympic Airlines with propeller planes and the Aegean Airlines with jets. The choice can be made within the same transport mode (fast ship–slow ship or Olympic–Aegean) as well as among different modes (ship–plane). 3. The characteristics of the alternatives: The attractiveness of an alternative is determined by a vector of characteristics. The transport mode characteristics playing a major role in the choice are among others, travel time, travel cost, comfort, safety, reliability, etc. 4. The decision rule: The mechanism that the decision-maker is using in order to process the available information that leads to a unique preference/ choice: the ship or the plane. The random utility theory is used in the development of discrete choice models. The attractiveness of one alternative is expressed by the utility which is a function of the alternative’s characteristics. According to the discrete choice theory, the passenger selects the alternative choice – the transport mode – with the highest utility. Choice behaviour can be characterized by a decision process, which is informed by individuals’ perceptions and beliefs based on available information, and inﬂuenced by affect, attitudes, motives, and preferences.

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Individual’s motivational and affective states have been demonstrated to have profound effects on the decision process (Payne, Bettman, & Johnson, 1993). Perceptions are the cognition of sensation. Affect refers to the emotional state of the decision-maker and its impact on cognition of the decision task. Attitudes are deﬁned as stable psychological tendencies to evaluate particular entities (outcomes or activities) with favour or disfavour. Motives are drives directed towards perceived goals. Preferences are comparative judgments between entities. Under certain technical conditions, including completeness and transitivity, preferences can be represented by a numerical scale, or utility. The cognitive process for decision-making is the mental mechanism that deﬁnes the cognitive task and the role of perceptions, affect, attitudes, motives, and preferences in performing this task to produce a choice. Note that the process varies across: Decision problems (e.g., simple vs. complex, quantitative vs. qualitative, risky vs. risk-free, reversible vs. irreversible outcomes); Contexts (e.g., degree of time pressure); Social situations (e.g., degree of accountability, group vs. individual decision); Individuals (degree of cognitive capacity, degree and type of prior knowledge, affective state, degree of motivation). The next section analyses the behavioural framework underlying the decision-making of individuals when making their mode choice for travelling from/to an islander origin/destination. 9.3.2. Behavioural Framework Fig. 9.1 presents the users’ behavioural framework developed for analysing the demand of passenger shipping and aviation in a competitive environment such as the one of the Aegean region. In this framework, ﬁve general psychological factors, represented by the ellipses in Fig. 9.1, affect the decision-making process. The ﬁgure follows the convention of depicting a path diagram where the ellipses represent unobservable (i.e., latent) constructs, while rectangles represent observable variables. The arrows from the ellipses to the rectangles, labelled as indicators, represent the measurements needed to quantify and characterize the latent constructs. The relevance of the latent psychological factors in the decision-making process is considered below.

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Individual’s characteristics and experience

Memory indicarors

Motives indicators

Alternative transport mode characteristics

Trip characteristics

Memory

Information with regards Alternative Modes

Perceptions

Motives

Attitudes

Constrains -Personal statusAvailability of alternatives

Utility of Alternative Transport Modes

Revealed Preferences of transport mode choice

Fig. 9.1.

Behavioural Framework.

Perception indicators

Attitudes indicators

Stated Preferences of transport mode choice

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According to Fig. 9.1, the ﬁnal transport mode choice is inﬂuenced by the factors below: (1) Exogenous factors (observed variables) Individual’s characteristics and experience Alternative transport mode characteristics Trip characteristics Information with regard to alternative transport modes Constrains (personal constrains and alternatives availability) (2) Endogenous factors (latent variables) Experience Memory Perceptions Attitudes Utility Following, the factors inﬂuencing the travel mode choice behaviour are analysed using examples, which come from individuals’ choices between ship and plane from/to islander destinations. The alternative travel modes are different types of ships and airlines. As mentioned above, an individual may select among conventional technology ships and new technology ships and/or a plane of Olympic Airlines or Aegean Airlines. 9.3.2.1. Exogenous Factors Exogenous factors are all these that can be observed and be quantiﬁed by the researchers. 9.3.2.1.1. Individuals’ Characteristics and Experience. The individual’s socio-economic characteristics that inﬂuence the choice between ship and plane are age, gender, income, profession, etc. Users’ experience inﬂuences behaviour since it constitutes the major database that is registered in their memory. The more experiences individuals have, the more their choices are inﬂuenced by several details. Experience is measured by the frequency of use of the alternative transport modes in the past, usually in a speciﬁc time interval that is determined by the researcher such as the previous three months or the previous time of travel. 9.3.2.1.2. Characteristics of the Alternative Transport Modes. The characteristics of transport modes inﬂuencing the ﬁnal choice between different types of plane and ship are: the travel time in the ship/plane, the travel time outside of ship/plane (access time to the harbour/airport, average

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waiting time at the terminal before the departure, delays), the number of intermediate stops (for the ships), the ticket cost, the existence of ticket discounts, the frequency of itineraries, the schedule of departures and arrival times, etc. 9.3.2.1.3. Trip Characteristics. Trip characteristics that play an important role in the choice among the alternative modes are: the trip purpose including work, recreation, education, army, other personal reasons (such as visit to a doctor or lawyer), the number of individuals who travel together, the usual transport mode that is used for this travel, etc. Trip purpose plays a signiﬁcant role in the transport mode choice. As an example, if the trip purpose is business then it is very likely the traveller to select the plane for its speed. The same choice can however be made by an individual who travels for recreation, since a long trip with the conventional ship can be tedious particularly if the holidays have small duration. 9.3.2.1.4. Information. Individual’s information for the alternative choices comes from the publicity that the airlines and the shipping lines make in the media as television, radio, newspapers, etc. These advertisements usually refer to ticket cost and/or travel time to a destination. Also, it involves information that users receive by sources such as friends, family, or coworkers. This information has a great impact, especially in the case of passengers who have never travelled to the particular destination. It is based on the opinions acquaintances have for certain alternative modes and their corresponding characteristics. Lack of information inﬂuences users’ ﬁnal choices, since lack of awareness of alternative modes or their characteristics leads to reduced choice sets. 9.3.2.1.5. Constraints. All travellers do not have the same total number of alternatives from which they can select their preferred travel mode. For each trip there is a genesis process for the total number of available alternatives and the universal choice set is usually limited to a feasible choice set. Two types of restrictions exist that can inﬂuence the choices availability and user’s behaviour. These are: 1. Individual restrictions, such as limited time for conducting the trip (consequently the choice will be the fastest travel mode – the plane) or limited ﬁnancial availability (in consequence the choice will be the cheapest travel mode – the ship), the need of transport with a vehicle (therefore the travel mode will be the ship), etc.

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2. Restrictions that concern the availability of alternative choices, e.g., bad weather conditions that can cause trip prohibition for the passenger ships while only air itineraries are performed. Also the port’s accessibility can play an important role at the transport mode choice, e.g., if the location of the residence is far from the harbour or the airport, then the time and/ or the cost of access can be a deterrent factor in the travel mode choice. 9.3.2.2. Endogenous Factors Endogenous factors or physiological variables or latent variables cannot directly be measured from the researchers. Therefore, indicators that demonstrate these variables need to be identiﬁed and collected. 9.3.2.2.1. Memory. The comprehension of individuals’ memory is essential for the studying of the perceptions and choice behaviour. The memory system is organized in a way that it ﬁlters the useful information and keeps it organized in the memory so when it is needed to be easily recalled (Siomkos, 1994). In the case where there is no available memory, then the data will be processed with slower rhythms resulting to a late decision made by the user. Memory plays an important role in the travel mode choice. For example, a bad experience from the use of a travel mode (e.g., delay or accident), which has been stored in the memory, can prompt individuals for the next time to select a competitive travel mode for the same trip. In this case, memory acts in a deterrent way for the speciﬁc mode choice. On the contrary, if individuals have related a trip to pleasant memories, it is very likely, to use the same travel mode the next time they realize a similar trip. 9.3.2.2.2. Perceptions. Individuals’ perceptions are shaped over time through a complex process. Perceptions reﬂect individuals’ beliefs and satisfaction regarding travel mode characteristics. Perceptions are inﬂuenced by individuals’ characteristics and experiences, the alternative travel modes, and the available information. Individuals accept stimuli from the external environment, while simultaneously use the experience from prior trips via their memory. The information individuals receive (friends’ opinions, printed and electronic information) for the alternative travel modes, helps them shape a perception, even when they have no personal experience using the mode. The relation among perceptions and beliefs with memory is supplied mainly by individuals’ experiences. For example, an advertisement of a new technology ship introduced to serve a certain coastal line for the ﬁrst time shapes a ‘‘fast travel’’ perception

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on travellers and stimulates them to choose the speciﬁc mode. A perception is changed to ‘‘beliefs’’ when individuals acquire experiences from using a mode. Another example of individuals’ perceptions for a travel mode is the a priori characterization of a travel mode as not secure. Such perception acts negatively on the choice of the mode. The factors contributing to the development of perceptions and beliefs can be measured by indicators through speciﬁc survey questions. Example for the identiﬁcation of individuals’ perceptions regarding the ‘‘quality of service’’, the interviewees can be asked for their level of agreement with statements regarding various mode characteristics in a Likert-type scale from 1 to 7, where the 1 denotes ‘‘I Totally Disagree’’ and 7 denotes ‘‘I Totally Agree’’. Examples of indicators can be statements such as: 1. 2. 3. 4.

Embarkation waiting time at the port is short; Ships usually departure on time; The frequency of ships from/to the mainland is satisfactory; The cost of travelling with ships is low.

Individuals’ responses to the above statements form the perceptual indicators regarding the quality of service. Note that in order to estimate a latent variable model, it is necessary that at least four indicators per latent variable are available (Ben-Akiva et al., 2002). 9.3.2.2.3. Environmental Influence. The environment in which individuals live, such as their family and social class, inﬂuence their choices. The inﬂuence from the environment decreases if the individuals have strong personality, stable opinions, and higher level of education. Also, the circumstances under which individuals operate with respect to their motives (such as reduction of travel cost or time) and emotions inﬂuence the decision-making process. 9.3.2.2.4. Attitudes. The investigation of the relationship between attitudes and choice behaviour process is of particular importance for the comprehension of the way individuals make decisions (Kinnear & Taylor, 1996). The individual’s attitudes are created over time and are inﬂuenced by the socio-economic characteristics of individuals and of trips. In our framework, attitudes reﬂect the importance that individuals place on the travel mode characteristics. Individuals seek to achieve certain objectives which can be ranked. Highhierarchy objectives are considered as tastes. An important component of the decision-making process is the evaluation of alternative choices as a

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consequence of individuals’ tastes. In the case of travel mode choice, if individuals have positive attitudes towards fast travel modes for arriving in a short time to their destinations, they will select the plane and via this preference they will achieve their objective. Another example is individuals’ attitudes towards risk. The attitude towards risk may inﬂuence the choice between two companies with different levels of reliability. Attitudinal indicators can be measured in a Likert-type scale from 1 to 7, where 1 denotes ‘‘Not Important at All’’ and 7 denotes ‘‘Extremely Important’’. Examples of criteria affecting the choice of a travel mode include cost, speed, comfort, safety, frequency of itineraries, reliability in the departure/arrival time, etc. The indicators of attitudes are the individuals’ ratings of importance of the above criteria. 9.3.2.2.5. Choice/Utility. The exogenous and endogenous factors analysed above inﬂuence individuals’ preferences of travel modes. The preference for a travel mode is also a latent variable. Usually it is referred as ‘‘utility’’. The utility is measured by revealed preferences and stated preferences indicators. Revealed preferences represent the individuals’ actual behaviour. Stated preferences represent the individuals’ decision-making in hypothetical situations. It must be noted that preferences are converted into choices provided that individuals’ restrictions and restrictions of the availability of travel modes are taken into consideration. According to the discrete choice theory individuals select the alternative with the highest utility.

9.3.3. Mode Choice Models Understanding of the decision-making process depicted in Fig. 9.1 provides the basis of developing models that represent closely the choice behaviour of the individuals. In our case, the framework represents the behaviour of passengers realizing trips from/to islander regions, where there are two main competitive travel modes, the plane and the ship. The model needs to include relationships that quantify the attitudes, perceptions, and other psychological constructs, explain how they are formed, and thereby, inﬂuence choices. The methodology presented is an integration of latent variable models, which aim to quantify unobservable constructs, with discrete choice models, resulting in a rigorous theoretically grounded methodology for explicitly including psychological factors in choice models (Ben-Akiva et al., 1999; Bollen, 1989; Polydoropoulou & Ben-Akiva, 1999; Walker & Ben-Akiva, 2002). It incorporates indicators provided by

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responses to survey questions related to attitudes, perceptions, motivation, memory, and decision protocol to aid in estimating the model. A simultaneous estimator can be used, which results in latent variables that provide the best ﬁt with the information provided by both the choice and the indicators of the latent variables.

9.4. CASE STUDY FOR THE NORTHERN AEGEAN REGION This section presents a case study on the competition/complementarity between passenger shipping and aviation in the Northern Aegean region, and speciﬁcally for travel from/to the island of Chios. The study is based on the results of research conducted by the department of Shipping Trade and Transport of the University of Aegean on an annual base for 2001– 2005. The objective of this research was to analyse the demand, as well as the satisfaction of travellers for shipping and aviation travel over the above time period. The analysis includes the estimation of discrete travel mode choice models and the identiﬁcation of the variables that inﬂuence this choice, extending the research performed by Tsironis and Polydoropoulou (2000), Kantzos (2002) and Masvoulas (2005). Speciﬁcally, the following questions were investigated: (1) Which individuals’ socio-economic characteristics inﬂuence the mode choice behaviour? (2) What mode characteristics affect the choice between new technology and conventional technology ships and aeroplanes? Before presenting the actual case study, some background characteristics of travel based on the analysis of aggregate data are presented, in order to provide the reader with more understanding of the existing situation. 9.4.1. Current Conditions Chios Island is located in the North-East Aegean region and the distance between the ports of Chios and Piraeus is 153 naval miles. Travel time from/ to the central harbour of the country vary from 8 to 11 h using conventional ship (e.g., Theoﬁlos, Mitilini, Taxiarchis of NEL Line company), and 5 to 6.5 h by high-speed ship (e.g., Mykonos of Stritzis company). The air trip

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duration is about 40 min from/to the international Athens airport Eleftherios Venizelos by the Olympic Airlines and 30 min by the Aegean Airlines. 9.4.1.1. Passenger Traffic of Chios’ Port Diagram 9.1 presents the total (embarking and disembarking) passenger trafﬁc of Chios’ port for the period of January 2000 to May 2005. From this diagram the following observations can be drawn: a. Passenger trafﬁc presents strong seasonality trends with almost fourfold increases between summer (peak during August) and winter months, with small variability on the trafﬁc over the 2000–2005 period, especially during the summer months. b. During the years of 2001 and 2002 there were increases of 12.5% and 7% in relationship to the previous year (2000 and 2001, respectively). c. When compared to the previous year, the passenger’s trafﬁc decreased 4% in 2002, remained almost constant during 2003, and decreased by 1.3% during 2004. d. There is a small increase of 2% during the ﬁrst ﬁve months of 2005 regarding the corresponding period of 2004. 9.4.1.2. Monthly Air Passenger Traffic from/to Chios’ Airport Up until the end of October 2003, Chios airport was served monopolistically by Olympic Airways. In November 2003, Aegean Airlines, a private Greek 80000 70000 passengers

60000 50000 40000

2000 2001 2002 2003 2004 2005

30000 20000 10000 0 February April June August October December January March May July September November months

Diagram 9.1.

Monthly Passenger Trafﬁc Chios’ Port.

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airline, started to serve Chios’ island as well. The air-connection from/to Athens is daily, with frequent itineraries from the two companies. Olympic Airlines uses twin-engined propeller planes (ATR72 – 202-capacity: 68 passengers), while Aegean Airlines uses twin-engined new jets, type AVRO RJ 100, with 100 seats. Olympic Airways’ offers on economy class while Aegean provides economy and business classes. Diagram 9.2 presents the total passenger trafﬁc of Chios’ airport. From this diagram the following observations can be drawn: 1. Seasonality is observed (not as marked as in ship travel) in air travel with up to threefold increases between the summer and winter months. There is stability during the period of November–February while there is a progressive increase until June, which has smaller passenger trafﬁc than August. Afterwards, for the remainder months until November there is a decrease of passenger trafﬁc. 2. Trafﬁc has decreased with the years with the exception of 2004. More speciﬁcally, there were decreases of 13.8%, 4.4%, and 4.3% for the years 2001, 2002, and 2003, respectively, while year 2004 experienced a 29.6% increase that could attributed to the 2004 Olympics. 3. For the ﬁrst six months of 2005 there is a marginal reduction of 0.9% in combination the equivalent six months of 2004. 4. According to the diagram, passenger’s trafﬁc yearly ﬂuctuations for each month are bigger comparatively with the corresponding ones of the short sea shipping indicating that air demand is apparently more elastic. From the above results it could be concluded that it is of signiﬁcant importance to conduct demand analyses shipping vs. air travel in the Northern Aegean. The ﬁndings also indicate that the passenger trafﬁc

passengers

30000 25000

2000 2001 2002

2003 2004 2005

20000 15000 10000 5000 0 February April January March

June May

July

August October December September November

months

Diagram 9.2.

Transport Trafﬁc at Chios’ Airport (Total).

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seasonality phenomenon is observed in both modes mainly attributed to increases in tourism during the summer period. Furthermore it should be noted that, for the case of islander regions such as the Northern Aegean two factors have an effect on the generation of trips: (1) activity centres in the islands such as the School of Business of the University of the Aegean generating shipping and air trips to/from the island though most of the year; and (2) important developments in ICTs which give the chance to more individuals of working or living in islands. 9.4.2. Data Collection Methodology The data collection methodology involved personal interviews addressed to Chios’ residents travelling from/to Athens. These interviews took place at the port and the airport of Chios, as well as in households residing in the island. The choice of the interviewees was random. The questionnaires included two parts. A revealed preferences part that indicated the actual individuals’ preferences and choices, and a stated preference part in which information about the trade-offs between the alternative modes characteristics were provided in hypothetical scenarios. For the modelling effort presented in this chapter, a total of 756 complete questionnaires collected in different time periods were pulled together. These questionnaires provided a total of 3,106 stated preferences data that were used for the estimations of discrete choice models. 9.4.2.1. Questionnaire Development The questionnaire developed was supported by the passengers’ behavioural framework presented in the previous section. Except of some small differences among the questionnaires used in each year, the basic questionnaire collected the following information: 1. Revealed preferences data, which included information about an actual trip, e.g., the ﬁnal destination, the travel mode used, the travel time, travel cost, etc.; 2. Passengers’ attitudes and perceptions related to satisfaction with regards to the travel mode attributes but also to the port’s and airport’s quality of infrastructure; 3. Stated preferences data, representing passengers’ responses to various hypothetical scenarios in which travel time, travel cost, and frequency of itineraries varied; 4. Socio-economic characteristics, such as age, income, gender, education, etc.

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9.4.2.2. Results from the Descriptive Analysis The results of the data descriptive analysis are summarized as follows: The main trip purpose of travel to/form Chios is work with 31% of the total while the remaining three categories of trips (recreational, education/ military, and ‘‘other purposes’’) each take 23%. Sixty-seven per cent of the travellers conducting a trip for work are male, while 55% of the travellers conducting a trip for vacation purposes are women. Passengers are more satisﬁed with the aeroplane as a travel mode than the ship in factors such as speed, comfort, cleanness, and number of itineraries, while ship outdoes the aeroplane on trip cost and easier tickets acquisition. Passenger’s satisfaction from their trip on conventional ship decreased in 2005 when compared to 2001, except than in the number of itineraries whereas passengers indicated that are more satisﬁed. When comparing ﬁgures between 2001 and 2005, passengers’ satisfaction from Olympic Airlines remains almost constant. There is, however, an increase in the satisfaction related to the higher number of itineraries and easier tickets ﬁnding. Comparing the two air companies the following results were found: passengers are more satisﬁed by Aegean Airlines on basic trip characteristics such as travel time and cost. Olympic Airlines, however (at the time the surveys were conducted), provided better satisfaction derived from the number of itineraries. During the 2003 survey, passengers were asked to rate certain criteria on which they base their selection for travel mode. From their replies it was observed that the most important criterion for the choice of travel is speed, followed by cost, safety, comfort, punctuality in arrival and departure time, number of itineraries, and cleanness. In the question for the desirable departure time of one additional itinerary from the port of Chios and from Piraeus’ port most preferences are at 9–12 morning and after that 6–9 in the evening. In the question corresponding to the desirable departure time of one additional itinerary from Chios’ airport and from the Athens International Airport most preferences are, again at 9–12 morning and after that 12–15 in the afternoon. The next section presents the estimation of a travel mode choice model which can be used for calculating values of times and for conducting future forecasts.

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9.4.3. Mode Choice Model Development and Estimation This section presents a discrete choice model representing the users’ choice between plane and ship for the realization of trips between Chios and Athens. This model is estimated using the total number of stated preference observations collected in the sample. The model estimation results per trip purpose are presented in detail in Masvoulas (2005). Biogeme 1.3 (Bierlaire, 2003) was used for model estimations. Table 9.1 presents the mode choices individuals made at the stated preferences scenarios. Note that the small number of the selected stated preferences of the Aegean Airlines is due to the fact that only one year (2005) the stated preferences experiments included the particular alternative choice, and was at the introduction of the Aegean serving the island of Chios. 9.4.3.1. Mode Choice Model The dependent variable of the Multinomial Logit Model consists of four alternative choices: (1) the conventional ship, (2) the new technology ship, (3) Olympic Airlines, and (4) Aegean Airlines as it is shown in the following Diagram 9.3. Table 9.2 presents a speciﬁcation table for the understanding the parameters to estimated and the way the utility of each alternative choice is speciﬁed. In this model the conventional ship is the base case for comparison. Therefore, three constants are deﬁned, one for the new technology ship (b01), one for Olympic Airlines (b02), and one for Aegean Airlines (b03). The parameter (b1) for travel time is generic among the two ships, the same as the parameter (b2) for the travel times of planes. Also, the travel cost parameter (b3) for the ships as well and the parameter (b4) of travel cost for the planes are also generic. The socio-economic characteristics are speciﬁed as dummy variables. The ﬁrst dummy variable with (b5) parameter takes the value of 1 if the traveller’s Table 9.1.

Mode Choice Based on Stated Preferences Scenarios.

Travel Mode Conventional ship New technology ship Olympic Airways Aegean Airlines Total number of observations

Number of Observations (Percentages) 422 (14%) 1,340 (42%) 1,260 (41%) 84 (3%) 3,106

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Conventional Ship

New Technology Ship

Olympic Airways

Aegean Airlines

Diagram 9.3. Multinomial Choice Model.

income is less than h500 and 0 otherwise; the second dummy variable with parameter (b6) takes the value of 1 if the users’ age is more than 66 years and 0 otherwise; the third dummy variable with parameter (b7) takes the value of 1 if the passengers are soldiers and 0 otherwise; and the fourth dummy variable with parameter (b8) takes the value of 1 if the passenger has an elementary education and 0 otherwise. The variable, with parameter (b9) is continuous refers to the number of trips users conducted the past three months, and represents the passengers’ prior experience. The dummy variable with parameter (b10) takes the value of 1 if the data corresponds to observations collected in 2001 and 0 otherwise, and represents some justiﬁcation bias of the individuals. Finally, the dummy variable with parameter (b11) taking the value of 1 if the passenger was the driver of a vehicle onboard in the last actual trip and 0 otherwise, and represents a constraint that individuals may have when conducting their trip. The estimation of the mode choice model is presented in Table 9.3. Based on the results of Table 9.3, the constant of new technology ship compared to the conventional ship which is the base case is 0.209 while the constant of Olympic Airlines and Aegean Airlines is 2.24 and 1.95, respectively. This means that if all the other variables remain the same, individuals prefer Olympic Airways, then Aegean Airlines, then the new technology ship and least the conventional ship. The parameter of travel time by ship is negative and statistically signiﬁcant, as it was expected, which means that if there is an increase in the duration of 1 minute then the passenger utility of this mode will be decreased by 0.00434. The parameter of travel time by plane is negative and statistically signiﬁcant and it is higher in an absolute value than the parameter of ships. The utility of planes decreases at 0.0205 if the travel time increases at 1 minute. This is as expected since users select the particular travel mode for fast trips hence a time increase at one unit will involve a higher reduction of the utility compared to the ship.

Table 9.2. b01 b02 b03

Speciﬁcation Table of Travel Mode Choice.

b1

b2

b3

b4

b5

b6

b7

b8

b9

b10

0

0

0

0

0

1 if year is 2001, 0 if otherwise

0

0

1 if year is 2001, 0 otherwise

0

0

0

Travel time of conventional ship

0

Travel cost of conventional ship

0

1 New technology ship

0

0

Travel time of new technology ship

0

Travel cost of new technology ship

0

Olympic Airlines

0

1

0

0

Travel time of Olympic Airlines

0

Travel cost 1 income is less than of h500, 0 Olympic otherwise Airlines

1 if age is more than 66 years, 0 otherwise 1 if age is more than 66 years, 0 otherwise

Aegean Airlines

0

0

1

0

Travel time of Aegean

0

Travel cost 1 income is less than of h500, 0 Aegean otherwise

1 if age is more than 66 years, 0 otherwise

Convetional ship

1 income is less than h500, 0 otherwise

1 if soldier, 0 otherwise

1 if soldier, 1 if traveller 0 otherwise has elementary education and 0 otherwise. 1 if soldier, 1 if traveller 0 otherwise has elementary education and 0 otherwise.

Travel Frequency the past three months

0

Travel Frequency the past three months

0

b11 1 if driver of a vehicle onboard in last trip, 0 otherwise 1 if driver of a vehicle onboard in last trip, 0 otherwise 0

0

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Table 9.3.

Estimation of Mode Choice Model.

Variables

Multinomial Logit Model (MNL)

Constant of new technology ship (b01) Constant of Olympic Airways (b02) Constant of Aegean Airlines (b03) Travel time of ship (min) (b1) Travel time of plane (min) (b2) Travel cost of ship (Euros) (b3) Travel cost of plane (Euros) (b4) 1 if income less than h500, 0 otherwise (b5) 1 if age more than 66 years, 0 otherwise (b6) 1 if soldier, 0 otherwise (b7) 1 if elementary education, 0 otherwise (b8) Trip frequency the past three months (b9) 1 if the year is 2001, 0 otherwise (b10) 1 if driver of a vehicle onboard in last trip, 0 otherwise (b11)

Coefﬁcient

t-Stat

0.209 2.24 1.95 0.00434 0.0205 0.0516 0.0648 0.905 1.87 1.46 0.654 0.0248 0.881 0.559

1.43 4.52 3.82 7.49 3.24 18.4 18.7 4.81 2.5 4.81 7.8 4.05 5.95 3.92

Summary statistics Number of observations Initial log-likelihood Final log-likelihood Rho-square Adjusted Rho-square

3,102 2765.64 2308.41 0.17 0.16

Source: Masvoulas (2005).

The parameter of travel cost of ships is also negative and statistically signiﬁcant as expected. An increase of ship’s travel cost of h1 will result in a utility reduction of 0.0516. The travel cost parameter of plane, is also negative and statistically signiﬁcant and in absolute value higher than the one of the ships. The utility of planes decreases by 0.0648 if the travel cost increases by h1. The parameters of the socio-economic characteristics are as follows: The parameter of individuals with monthly income less than h500 is negative and statistically signiﬁcant. If the passenger belongs to this income category then the utility of the fast travel modes is decreased by 0.905 which mean that individuals have a positive predisposition for the conventional ship, a fact that sounds reasonable due to the high cost of the alternative modes. The parameter of passengers with age more than 66 years old is negative for the fast travel modes (1.87) since users of this age category usually

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do not work and have smaller value of time than younger users, thus resulting to a positive predisposition towards the conventional ship. Soldiers have a positive parameter (1.46) for the fast travel modes and statistically signiﬁcant. This can be explained as follows: soldiers who usually serve their military far from home have the right – via embarkation lists that are given to them – to be transported for free with any travel mode from/to their residence. On the contrary, negative (0.654) and statistically signiﬁcant is the parameter of the individuals with elementary education level for the fast travel modes. Because of their low value of time, they are positive predisposed to the conventional ship contrary to the passengers of graduate education who prefer the fast travel modes. The parameter of passengers’ travel frequency for previous three months is positive in the utility of the plane. This factor represents the effect of experience in the choice decision-making. When the prior trip frequency by plane increases then the travellers prefer to be transported by the fastest and more comfortable mode. The last two variables try to capture some response biases in the sample due to the existence of some individual speciﬁc constraints and justiﬁcation bias. If an individual has travelled by ship in his/her last trip and in this trip he/ she was a driver of a vehicle on board, then this individual is more likely to be positively predisposed towards ships in the stated preference experiments. This explains the positive parameter of this variable speciﬁed in the ship alternatives and represents the effect of the constraint imposed by individuals to be accompanied by their car in the trip. The dummy variable that takes the value of 1 if the data collection year is 2001 and 0 otherwise is used because in 2001 the interviewers collected the data onboard the ships of the line Piraeus–Chios–Piraeus, in contrast with the other years where data were collected in households/terminals. A justiﬁcation bias can be encountered in this case, since the respondents have made a choice (the ship), they were inﬂuenced by it, and therefore were positively predisposed to the ship alternatives in the stated preferences experiments. From the above-estimated parameters one can calculate the values of time for the ship and air alternative modes. Thus, the value of time of the ship is h5.05 per hour and the value of time of the aeroplane is h18.98 per hour. It should be noted that the calculated values of time are comparable with

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the results of other research in Greece and abroad (see for example Polydoropoulou et al., 2004; Cascetta et al., 1995). The choice model was estimated as a Multinomial Logit. Other alternative model structures were also estimated and tested to ensure that the alternative choices of ship or plane are independent (not a justifying a Nested Logit), and that there are no biases introduced by repeated observations (not a justifying a Mixed Logit Model). Finally, the model presented in this chapter included only exogenous variables as independent variables. Further modelling efforts involve the development of latent variable models that include the effect of attitudes and perceptions on the mode choice behaviour.

9.5. CONCLUSIONS The motivation of this research lies on the developments that have been observed during the past few years in Greece, including the use of new technology ships that serve several lines of the Aegean region; the extension of services provided by Olympic Airways and Aegean Airlines to a large number of islander destinations; the increase of accessibility and improvements of port infrastructure, that in combination with the use of fast alternative modes provide attractive alternative choices for passenger trips; and the effect of the new Information and Communication Technologies that provide new choices regarding teleworking and relocation in islander regions served by the coastal/air transportation system. These developments coupled with a signiﬁcant growth in the volume of passenger transport have created an environment that is more competitive, demanding, and dynamic, making the application of advanced analysis techniques for forecasting the demand for travel of critical strategic importance. When conducting demand analysis, the established tool of modelling individuals’ behaviour for travel mode choice is the development of discrete choice models, which are based on the theory of random utility. These models aim at the quantiﬁcation of factors inﬂuencing travel mode choice (as travel time or travel cost) and the capability of forecasting individual’s behaviour under different scenarios. This behavioural framework developed in this work is based and extends the BDT. The chapter presented a case study on the competition between passenger shipping and aviation in the Northern Aegean region, based on the results of research conducted by the department of Shipping Trade and Transport of the University of Aegean on an annual base for 2001–2005. The data

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collection methodology for the case study involved personal interviews addressed to Chios’ residents travelling from/to Athens. These interviews took place at the port and the airport of Chios, as well as in households residing in the island. The questionnaires included two parts. A revealed preferences part that indicated the actual individuals’ preferences and choices, and a stated preference part in which information about the trade-offs between the alternative modes characteristics were provided in hypothetical situations. A descriptive data analysis on the questionnaire answers was summarized. A Multinomial Logit Model was estimated. The estimation results showed that travel times and travel costs of the alternatives play signiﬁcant role in the choice of the alternative. Furthermore, socio-economic characteristics such as age, education level, purpose of trip, and travel experience represented by prior frequency of travel with the speciﬁc mode were found signiﬁcant. Furthermore, response bias indicators were able to capture the propensity of respondents to justify their prior choices and their travel-related constraint to be accompanied by their car in their trip. Based on the estimated model parameters, values of times of ships and planes were calculated. Other alternative models were also estimated and tested such a Nested Logit and Mixed Logit Models but were not found appropriate structures. The methodology and modelling results presented in this chapter offer a unique paradigm for applying innovative techniques of Decision-Making Theory that can be used by policy-makers and service providers to offer services better tailored to the passengers needs. Further research currently conducted involves the estimation of advanced econometric models which include the effect of passengers’ attitudes and perceptions on their choices. Finally, a large data collection effort that involves multiple islander origins/destinations of travel is proposed. This will solve several estimation issues encountered in this study especially related to the lack of variability of travel times by planes, but also present an overall picture of passengers’ behaviour in the Aegean region.

REFERENCES Baker, T. B., & Deardorf, R. G. (1998). Development and application of a revenue and ridership forecasting model for ferry service. Transportation Research Record 1608. Ben-Akiva, M., McFadden, D., Ga¨rling, T., Gopinath, D., Bolduc, D., Borsch-Supan, A., Delquie´, Ph., Larichev, O., Morikawa, T., Polydoropoulou, A., & Rao, V. (1999). Extended framework for modeling choice behavior. Marketing Letters, 10(3), 187–203.

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Ben-Akiva, M., Walker, J., Bernardino, A., Gopinath, D., Morikawa, T., & Polydoropoulou, A. (2002). Integration of choice and latent variable models. In: H. Mahmassani (Ed.), Perpetual motion: Travel behaviour research opportunities and application challenges (pp. 431–470). London: Elsevier. Bierlaire, M. (2003). BIOGEME: A free package for the estimation of discrete choice models. 3rd Swiss transportation research conference, Ascona, Switzerland. Bollen, K. A. (1989). Structural equations with latent variables. Wiley Series in Probability and Mathematical Statistics. New York: John Wiley & Sons. Cascetta, E., Biggiero, L., Nuzzolo, A., & Russo, F. (1995). Passenger and freight demand models for the Italian transportation system. Proceedings of 7th World conference on transport research (WCTR), Sydney, Australia. Dehghani, Y., Krishnan, S., & Gihring, C. (1997). Comprehensive planning model for ferry ridership forecasting analysis in Puget Sound region. Transportation Research Record 1608. Dehghani, Y., Adury, M. K., Bradley, M., & Gihring, C. K. (2002). Washington state ferries’ travel demand model development and forecasting analysis programs – a 10-year perspective. Transportation Research Record 1793. East, R. S., & Armstrong, E. V. (1999). Intermodal ferry terminal master plans for Washington state ferries – planning for the future. Transportation Research Record 1677. EXPEDITE. (2000). Review of European and national passenger and freight market forecasting systems. Report prepared for the European Commission Directorate – General for Energy & Transport, October. Iravani, H. (2001). A conjoint approach to forecast the Grays Harbor ferry demand. 80th Annual conference of transportation research board, Washington, DC, USA. Kantzos, K. (2002). Analysis of competition between air transport and coastal shipping. Unpublished MSc Thesis, University of the Aegean, Greece. Kinnear, T., & Taylor, J. R. (1996). Marketing research: An applied approach. London: McGraw-Hill. Louviere, J., Hender, D., & Swait, J. (2000). Stated choice methods: Analysis and applications. New York: Cambridge University Press. Masvoulas, G. (2005). Demand and supply time series passenger analysis in the North Aegean. Unpublished MSc Thesis, University of the Aegean, Greece. Morikawa, T., Ben-Akiva, M., & McFadden, D. (2002). Discrete choice models incorporating revealed preferences and psychometric data. Econometric Models in Marketing, 16, 29–55. Nam, D., Park, D., & Pueboobpaphan, R. (2004). Policy sensitivity analysis of water transportation system in Bangkok: Econometric model approach. TRB 2004 Annual Meeting (CD-ROM), Washington, DC, USA. Outwater, M., Castleberry, S., Shiftan, Y., Ben-Akiva, M., Zhou, Y. S., & Kuppam, A. (2003). Use of structural equation modelling for an attitudinal market segmentation approach to mode choice and ridership forecasting. TRB 2003 Annual Meeting (CD-ROM), Washington, DC, USA. Outwater, M., Modugula, V., Castleberry, S., & Bhatia, P. (2004). A market segmentation approach to mode choice and ferry ridership forecasting. TRB 2004 Annual Meeting (CD-ROM), Washington, DC, USA. Payne, J. W., Bettman, J. R., & Johnson, E. J. (1993). The adaptive decision maker. New York: Cambridge University Press.

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Polydoropoulou, A., & Ben-Akiva, M. (1999). The effect of advanced traveler information systems (ATIS) on travellers behaviour. In: R. Emmerink & P. Nijkamp (Eds), Behavioural and network impacts of driver information systems (pp. 317–352). Heidelberg: Springer-Verlag. Polydoropoulou, A., & Ben-Akiva, M. (2000). Combined RP/SP nested logit access/mode choice model for multiple mass transit technologies. Transportation Research Record 1771. Polydoropoulou, A., Kapros, M., & Pollatou, E. (2004). A national passenger mode choice model for the Greek transport observatory. Proceedings of the 10th world conference of transport research society, Istanbul, Turkey. Savage, J.P. (1997). Ferry route level of service. Transportation Research Record 1608. Simon, H. (1959). Theories of decision making in economics and behavioural science. American Economic Review, 49, 253–283. Siomkos, G. (1994). Consumer behaviour and marketing strategies (in Greek). Piraeus: Stamoulis. Soumoy, P., & Sweeny, T. (2000). Effects of enhanced ferry service on Golden Gate Corridor Transportation, from Dromedary to Camel: How MV Del Norte inverted the Ferry Ridership Curve. Transportation Research Record 1704. Train, K. (2003). Discrete choice methods with simulation. New York: Cambridge University Press. Tsironis, C., & Polydoropoulou, A. (2000). Use of multimedia technologies for measuring the demand of new transport services: An information accelerator for short sea shipping (in Greek). 13th National conference of hellenic operations research society, University of Piraeus, Greece. von Neumann, J., & Morgenstern, O. (1947). Theory of games and economic behavior. Princeton: Princeton University Press. Walker, J., & Ben-Akiva, M. (2002). Generalized random utility model. Mathematical Social Sciences, 43, 303–343.

CHAPTER 10 COASTAL SHIPPING AND INTERMODALITY IN GREECE: THE WEAK LINK Seraphim Kapros and Costas Panou

ABSTRACT The Greek shipping industry, strongly internationalized, holds the first position in the world market. Domestically, a quite complicated coastal shipping network has been developed with ferry lines among continental ports fitting the definition of short-sea shipping (SSS), which is still low in market share. In this framework, the following sections analyse the needs, the opportunities and the constraints for the development of an intermodal maritime transport network in Greece. They also focus on the reasons that hindered the potential for Greek coastal shipping in intermodal transport and kept ferry services between ports of the mainland and insular Greece away from being integral parts of wellorganized intermodal chains.

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10.1. INTRODUCTION This chapter aims at examining a speciﬁc aspect of Greek maritime transport: the level of integration of domestic coastal transport in door-todoor intermodal transport chains. The analysis that follows leads to a quite paradox conclusion: the Greek shipping industry being by far the leader of the world maritime transport market is insufﬁciently involved in the domestic transport system. The problem is examined through an intermodality approach. The concept of intermodality relates to the development of competing organizational forms of transport chains using at least two different transport modes along a transport chain and based on unitized cargo, in order to create alternative solutions to unimodal door-to-door road transport chains (European Commission, 1997). Consequently, the adopted approach in its strict sense excludes the domestic maritime services connecting the islands to the continental ports, the latter being a ‘‘captive’’ maritime market segment in the absence of competition with the road transport modes. The existing literature presents signiﬁcant research works concerning the coastal connections in Greece, but it is exclusively focused on the network connecting the continental part of the country to the islands. On one hand, the Greek islands being a well-known tourist destination, their connections present a signiﬁcant and strongly seasonal demand. On the other hand, the network continent-islands presents a strong ‘‘public’’ transport character, related to the principles of territorial and social cohesion of the country. Due to the importance of various topics derived from this ‘‘double nature’’ (‘‘market’’ activity and ‘‘public service’’) and taking also into account the recent developments in the institutional framework (liberalization of ‘‘cabotage’’, changes in the legal status of ports, etc.), the existence of a rather sizeable literature on this ‘‘sub-segment’’ of coastal shipping in Greece is not surprising. This chapter attempts to reveal this ‘‘hidden’’ face of the coastal shipping: this of a maritime transport network connecting essentially continental ports, since such networks might provide intermodal solutions and alternative routes to door-to-door road transport chains. In order for one understand the current situation, the analysis considers various aspects of the Greek coastal shipping industry. The analytical process also considers the European policy initiatives for the development of short-sea shipping (SSS) in Europe, the current situation in southern Europe and Greece, as well as the competitive position of road transport.

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Considering the above, the chapter attempts a ‘‘discussion’’ about the perspectives of the coastal shipping in promoting door-to-door intermodal transport chains.

10.2. INTERMODALITY: CONCEPT AND EUROPEAN POLICY INITIATIVES The concept of intermodality has been promoted by the European transport policy and various national authorities essentially during the last 15 years. In a ﬁrst period, the main emphasis of the relevant initiatives has been put on the development of rail–road transport corridors, in order to alleviate the road infrastructure network and reduce external transport costs, without however neglecting the importance of SSS (European Commission, 1995). This is clearly reﬂected among others in the 4th and 5th Research Framework Programs of the European Commission, the activities of which practically covered most of the 1990s and beginning of the 2000s. Progressively, the promotion of SSS as another intermodal (sea–road or sea–rail–road) alternative to door-to-door road transport is also being placed at the heart of the problem (European Commission, 2003, 2004). This necessitated further clariﬁcation of the perspectives of maritime services between the continental ports as a transport link integrated in doorto-door intermodal chains. And similarly, this implied a new approach of how to create new routes using maritime legs, in order to achieve modal shifts from road to intermodal. In this framework, the EU envisages transport systems that can contribute in increasing the quality of life and be friendly to the environment. Thus, it supports alternative modes of transport and more speciﬁcally short-sea and coastal shipping because these modes have proved to be energy efﬁcient and environmental less damaging compared to road transport. Coastal shipping provides a strategic alternative to road and rail transport for inter-port cargoes. It is more fuel efﬁcient than road transport and helps to reduce congestion on (and damage to) the road infrastructure. Furthermore, hazardous cargoes pose less risk to human life when being transported by sea than on land. Another important EU initiative in this area deals with the assurance of fair and efﬁcient pricing for all modes. The European Commission opts to the internalization of external costs in order to result in the gradual increase of road transport costs, thus, render coastal shipping and the other alternative modes more competitive.

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10.3. EUROPEAN AND MEDITERRANEAN SHORT-SEA SHIPPING: A SYNOPSIS OF THE CURRENT SITUATION It is indisputable in Europe that SSS is an environmentally friendly, low cost and safe means of transport compared with the land-based alternatives particularly the congested road transport. However, within Europe, the SSS activity does not seem to achieve an appropriate level of recognition or market share in the overall transport network. As an industry it has considerably grown during the last 15 years as available data indicates, with an estimated increase of 31% between 1995 and 2005 in tonne kilometres. This growth was somewhat lower than that of road transport in the same period at 36% in tonne kilometers. Various research projects and other initiatives have identiﬁed a number of issues that contribute to an apparent preference amongst cargo shippers and consignees for land-based modes of transport where such alternatives are available. These include a poor image for SSS as a mode in the door-to-door transport chain, low standardization and multiple documentation procedures, constraints arising from port infrastructure and management, lack of information about and control over cargo in transit, and slow and infrequent services. However SSS contributes speciﬁcally to the economy of Europe. This is particularly true for the island states; Ireland for example with a population of just 3.6 million has an annual tonnage total of approximately 30 million tonnes carried by short-sea ships out of the national sea-borne total of 44 million tonnes (1999). For the UK the SSS level is less per capita but annually exceeds 300 million tonnes. The Mediterranean Sea is also the route for very large volumes. Turkey and the Port of Trieste exchange about 150,000 HGVs annually, equating to over 2 million tonnes of sea-borne cargo. Patras, Greece, has an annual ﬂow of more than 275,000 HGVs to and from Italian ports. The issue then is not why is SSS in Europe so small an industry or what the problems it faces are; clearly it is a very substantial activity, although the size throughout Europe needs to be quantiﬁed, and recent research on barriers to stronger growth has been carried out. The issue is where and how a bigger share of the total cargo moving within Europe can be transported by SSS services. The particular case of the sea–river transport mode is seldom used but has a high potential. There are shallow draft sea-going vessels in service, which are able to navigate in rivers and canals. For instance, from the North Sea ships go up the Rhine all the way to Duisburg. In southern France, ships

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from Barcelona sail the river Rhine up to Lyon. As this offers a lot of advantages for shippers and improves the market position of waterborne modes, initiatives like this need to be stimulated. The Mediterranean region, more speciﬁcally, presents great complexity and heterogeneity. There are enormous differences in scale, development and trading relationships and for most of the region development and cohesion are important issues. The Mediterranean SSS market can be roughly distinguished into two quite distinct sub-segments: (a) the feeder operators and (b) the regional operators. The feeder operators inter-connect seaports on behalf of deep-sea shipping lines which need to re-position their containers. The feeder business has grown during the last decades and has taken over the task to serve the Mediterranean ports. In general, they are not involved in hinterland activities. The regional operators also labelled door-to-door operators, serve genuinely regional transport demand, e.g. between Northern Europe and the Mediterranean. They are in direct competition with overland transport modes such as road and rail and often organize the complete transport chain, including the land transport legs. It should be noted, that these intra-European short-sea voyages may be direct calls or may be routed via transshipment hubs, resulting in rather complex trip schedules (INRETS et allii, 1999). As deep-sea lines move steadily to larger vessels, deep-sea calls are limited to one port in each trading area: hence, a strong intra-Mediterranean feeder trade to and from these ‘‘hub’’ ports is being developed. The increase of the feeder activity has contributed to a remarkable growth of containers handled in the Mediterranean ports. In particular, unitized intra-Mediterranean trafﬁc has more than doubled, compared to 1990. Feeder and Roll-on/ Roll-off (Ro/Ro) trafﬁc being the most expanded market niches, the current split between them is well in advance of feeder services for relatively longdistance voyages, and these of Ro/Ro mainly for short-distance coastal shipping. Whilst it is recognized that the volume growth in the trades is at a steady rate, it remains impossible to gauge the amount of capacity on offer. This is because the hub and spoke operators, who account for around 33% of the services on offer, have ﬂexible allocations for these markets. The Mediterranean Ro/Ro services market presents shares of about 50% for each of the western and eastern part of the sea. Because of the longcoastal lines of the countries in the West Mediterranean, a substantial share of domestic trades exists. Moreover, there are several operators offering Ro/Ro services on a mixed liner/tramp basis, which can hardly be attributed to individual countries. In the Mediterranean, the majority of Ro/Ro services are observed in either domestic trafﬁc to Spain and Italy (33%) or

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South Europe/North Africa (40%) and other intra-Mediterranean trades (26%). The remainder consists of services either between the Baltic Sea and the Mediterranean or between Belgium/France and Northern Africa. As far as the spatial hierarchy of the network organization is concerned, the ports of Algeciras, Marsaxlokk and Gioia Tauro constitute the main ‘‘hubs’’ in the western Mediterranean region. The port of Algeciras is ideally located for meeting ‘‘hub and spokes’’ strategies in the region, since any deviation of deep-sea vessels is avoided and signiﬁcant routing optimizations can be achieved. The port of Marsaxlokk is mainly oriented to direct transshipment activities between mother vessels and feeder ships. Gioia Tauro, located near the ‘‘gravity center’’ of Mediterranean ﬂow patterns, also has a strategic advantage for attracting an important share of transshipment business in the region. Moreover, the ports of Barcelona, Marseilles-Fos, Genoa and La Spezia develop hub strategies and constitute important alternatives for transshipment business. In the eastern Mediterranean region, no clear spatial hierarchy arises. The ports of Piraeus, Damietta, Limassol, Larnaca and Alexandria have increased their respective trafﬁc volumes in the transshipment market. However, the trafﬁc evolution and distribution among these ports have not been regular in the recent past. As far as a commodity-based segmentation is concerned, it should be pointed out that a high proportion of the trade growth in the Mediterranean has been in low-value products, once shipped in bulk, but now treated as containerizable. Such products are sugar and chemicals. It is the low value of these products that has been instrumental in making freight rates, at best, stable. It is this reduction in prices that has lessened the competition of trailer operators, whose transit times are marginally better, but whose rates are very signiﬁcantly higher than shipping lines. Rates are also being depressed by new network conﬁgurations substituting direct calls through hub and spoke systems using, for example Gioia Tauro as a hub and spokes exist as far along the eastern Mediterranean as Israel. Elaborating scenarios related to the further developments of the Mediterranean SSS is not an easy task, due to a number of important reasons: A number of transport quality requirements (ﬂexibility, reliability, safety) are changing the behaviours of the market actors either on the supply or the demand side. This inﬂuences more or less, according to the market segment to be analysed, the strategies of actors from the supply side, as well as the modal choice of the ﬁnal customers.

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Structural changes in the socioeconomic and political situation of the Mediterranean countries, particularly in the eastern part of the region, inﬂuence the conﬁguration of traditional ﬂow patterns. Moreover, the Mediterranean Sea consists of a number of heterogeneous geographical areas, with different characteristics concerning the depth and length of changes in process. New logistical concepts are also changing the network organization. Technological developments, such as the new generation of fast ferries, modiﬁes the transport time values and creates a new framework of competition. The European Transport Policy decisions such as the decision for abolishing ‘‘cabotage’’ restrictions, and other relevant policy initiatives are expected to inﬂuence the traditional market structure. In this framework, it is not yet very well known which cargoes have the greatest potential to be shifted from land to sea, either geographically or commodity-wise. In addition, it is early to conclude on the market potential of fast ships in SSS. Finally, there is a number of aspects that future research work on shortsea and coastal shipping needs to further clarify. This, ﬁrstly because existing research results are often heterogeneous. Furthermore, the international character and potential additional beneﬁts of sea shipping have partially been given the appropriate attention. Reliability of evaluation methodologies is not always sound and, scientiﬁcally sound methodologies may not be supported due to data or other constraints. In the origin of these limits, a crucial constraint relates to the large variety of types of available information. The sources are diverse, some data are not in the needed form, other data are not reliable, existing databases are heterogeneous and a lot of other type of data simply does not exist.

10.4. PERFORMANCE AND NETWORK CONFIGURATION OF THE GREEK COASTAL SHIPPING To describe the landscape of the Greek maritime sector, the presentation of a number of magnitudes is necessary. This is done hereafter, at two scales: the position and particular characteristics of the Greek shipping industry in the world market on one hand and the organization of the domestic maritime transport system on the other. Comparing the two aspects, useful

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conclusions can be drawn as far as the perspectives and difﬁculties of developing a national sea–land intermodal transport system. Greece is a nautical country with a long tradition, due to geographical, historical and social reasons. The Greek territory consists of a continental part and approximately 3,000 islands of all sizes, presenting a total coastline of almost 15,000 km. In addition, the country presents a total number of approximately 750 maritime ports, all sizes and types included. The Greek-owned shipping industry is fully internationalized and the world’s leader, representing 18.6% of the total deep-sea maritime trafﬁc in volume and 17.8% of the world’s ﬂeet; this corresponds to approximately 3,500 ships owned by 750 companies of various sizes (Kapros, 2004). Following segmentation according to commodity types, the Greek ﬂeet is intensively present primarily in the market segment of bulk cargo and also in the segments of oil and chemicals. The Greek companies are mainly positioned in the tramping market (ad hoc demand); very few companies operate in regular lines. The domestic maritime – coastal –transport system is based on a ﬂeet of approximately 350 ships of all types and size. This ﬂeet totally ensures approximately 1,500 connections. The coastal ‘‘network’’ is deﬁned by a number of arcs (connections) between 40 continental ports and approximately 100 ports of islands. Practically, the ‘‘national coastal network’’ – spectacular from a ﬁrst view – consists of a small number of sub-networks, not integrated and spatially independent. In addition, the structure of the total network is strongly hierarchical: 13 liner services between continental ports and islands, and 17 ‘‘crossing’’ services represent more than 90% of the total passenger and freight domestic trafﬁc. Moreover, the ‘‘sub-network’’ of the Aegean archipelago is of primordial importance, since it represents more than 70% of the total passenger and freight domestic trafﬁc. It presents a pure ‘‘hub and spokes’’ conﬁguration with the port of Piraeus being the central node of the system. The 10 heavier connections of the country in terms of trafﬁc are structured on the basis of the Piraeus hub. More speciﬁcally, the port of Piraeus serves the insular regions of the Cyclades, the Dodecanese, Crete and Northern Aegean with respective shares of 45%, 15%, 25% and 15% of its total trafﬁc (Hellenic Institute of Local Authority, 2006). The network conﬁguration of the coastal network reveals the complete absence of connections between mainland ports in the current situation. Such connections between continental ports (e.g. Gytheion–Piraeus, Corinth–Piraeus, etc.) were historically an integral part of the system,

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serving both passenger and freight transport demand. They progressively disappeared after the Second World War, taking into account the characteristics of the reconstruction of the country, such as the extended development of road infrastructure and the rapid motorization process. There are also two recent attempts for coastal services connecting continental ports: (a) a regular line connecting Piraeus to Thessaloniki via the islands of Chios and Lesvos with a frequency of three round trips per week and (b) a line connecting Thessaloniki to Piraeus and Heraklion with two round trips per week. They were Ro/Ro services, exclusively oriented to freight transport. Both lines do not operate any more. They stayed in the market a few years, from the 1990s till the middle of the 2000s. Finally, it is worth noticing a speciﬁc case offering possibilities for coastal services between mainland ports: the ferry services operating the Adriatic– Ionian Sea corridor. The Italian–Greek market of the Adriatic Sea is almost exclusively controlled by the Greek shipping industry. Since the war in former Yugoslavia, the signiﬁcant trafﬁc between Greece and Central and Western Europe, a spectacular modal shift from road to maritime has occurred (Ferries, Ro/Ro), also including trafﬁc transiting through the country. The shipping operators have considerably strengthened the competitive position of the maritime services offered between Greece and Italy, increasing frequency, supply of capacity, speed and comfort. These lines usually connect the port of Patras to the Italian ports of Adriatic Sea via the Greek port of Igoumenitsa (and also the Corfu Island). Therefore, the possibility to use part of these international services as an alternative domestic maritime route along the western part of the country exists. In practice, the use of this alternative is quite restricted. The coastal freight trafﬁc in Greece almost exclusively corresponds to Ro/Ro transport, operated by ferries serving passengers and vehicles of various categories. In this framework, the ofﬁcial data available is the trafﬁc of trucks within the total trafﬁc of vehicles by coastal service. More detailed trafﬁc data, such as trafﬁc in volumes and by commodity type, is difﬁcult to collect; it needs extended ﬁeld surveys that are not among the priorities of the responsible actors. The freight trafﬁc estimates in volumes previously presented, result from an analytical methodological process considering various parameters, such as the split of the truck national ﬂeet into capacity categories, usual occupancy rates, etc. Examining the national freight transport system as a whole, the coastal network represents approximately 28% of the total production of domestic freight transport in tonnes kilometres. The road transport presents the lion’s share with 70% of the national trafﬁc with 18,000 million tonne kilometers

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while the railways do not exceed 2%. However, the real competitive position of the sea mode risks to be biased if the previous analysis is not taken into account. The coastal market share does not result from a modal competition, since it exclusively serves the insular regions. The share of coastal transportation is somehow ‘‘independent’’. This becomes much clearer if the matrix of continental origin–destination pairs of the country is examined: road transport represents more than 96% of the trafﬁc, revealing the short limits of railways and, indirectly, of coastal shipping. The road transport sector presents approximately 32,000 commercial vehicles in the country. Among them, 10,000 vehicles are licensed for local transport activities and approximately 18,000 trucks operate at the national level. The strong and continuous trend to increase the road transport share, which has been registered in all European countries, acquires extreme dimensions in Greece. This is conﬁrmed not only by the trafﬁc share evolution (it has almost doubled from 1970 up to now), but also by the dramatic increase of the national road ﬂeet. For the time being, there are not signs showing that these major trends can be reconverted. Various reasons among others related to the production and distribution systems, the quality requirements of users and the quality performance of transport modes, the geography of the countries enforce this belief. These reasons will be in-depth investigated in the following paragraphs of this chapter.

10.5. THE GREEK COASTAL SHIPPING: HISTORICAL BACKGROUND Since the 1940s, when coastal shipping became an industry in this country, the most important initiatives for the development of this sector have been taken by the shipowners, already established in ocean-going shipping. They have been motivated mainly by their pure interest to assist their homelands rather than the economic exploitation of the services. These initiatives have provided stimulants for other shipowners who also expressed their interest to invest in coastal shipping. Very soon, a number of shipping lines were serving the Greek coast and the islands, but they were not enough to be considered as a complete network providing adequate levels of service. During the 1960s and 1970s the rapid growth of tourism in the Greek islands made the need for reliable coastal shipping even more pressing. Coastal shipping had become an industry of major importance to the

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development of the country and the issues surrounding it have been closely followed by governments ever since. The increasing importance of this industry has triggered a series of state initiatives, which after an early deﬁnition period, led to a framework of policy and ﬁnancial measures and provisions. They were aimed to support the effective development of the emerging (at the time) coastal shipping market and to encourage the participation of new, promising shipping companies. Given the ‘‘public service’’ character of coastal shipping, the state, relatively early, assumed control of the various aspects of coastal services. This was done through licensing, price-setting and the development of speciﬁcations for the quality of service. State intervention and the dependence of shipping companies on state subsidies, that this implied, instigated a power game that took place between the enterprises with access (formal or informal) to centres of political decision. The interplay between political authorities and professional interests hindered the growth potential of the coastal shipping market and formed the basis for its irrational development. In such an environment, market players, whose primary concern was to secure state subsidies by exercising informal political inﬂuence, ranked the quality of services and the care for the customer’s needs low. By doing so, some enterprises achieved a dominant position in the market without being exposed to ‘‘open market’’ mechanisms and forces. Highly opportunistic corporate attitudes and cultures developed which, to a great extent, are responsible for the subsequent decline of the sector. The access of organized interests’ groups to state authorities and the susceptibility of the latter to political pressure led to decisions in favour of professional groups with political power, such as shipowners, labour unions, etc. The legislative framework that was formed to mark the territory of the Greek coastal shipping and the solutions it encouraged for its operational deployment are by no means to be considered best-suited (in the sense of being cost-effective) for the needs of the society. Instead, the trade-off between shipping companies, labour unions, port authorities and other market players with inﬂuence to political decisions, determined the way coastal shipping should go for their own beneﬁt. As a result, a ‘‘patch-work’’ of state laws, directives and other legal and regulatory provisions was created in order to secure ﬁnancial support and make it legitimate for professional groups with the power to exercise better control on political decision at the time. There was never any control on how this support is used by the beneﬁciaries or whether they still need it.

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The lack of transparency, on the one hand, encouraged other professional bodies or pressure groups with signiﬁcant political, labour or economic power to claim similar ﬁnancial support from the central government. On the other hand, it made it easier for the public administration to ‘‘selectively’’ give in to such claims.

10.6. NATIONAL INITIATIVES IN THE FIELD OF COASTAL SHIPPING Since the Greek economy has shifted from agricultural to manufacturing and services, the demand for freight transport has correspondingly increased. Most of the generated demand was covered by road means which given the geomorphologic characteristics of the country proved to be more effective than the other means of transportation. The augmentation of road transport which followed was mainly the result of the direct or indirect ﬁnancing received from the State, to increase mobility. It is also the result of the absence of a pricing policy aimed to internalize congestion and environmental costs. Consequently, the real costs of road hauling were kept minimal, which gave a competitive advantage to the sector and contributed in increasing its modal share. So far no action has been taken to facilitate a trafﬁc shift from road to alternative modes of transport such as the environmental friendlier coastal shipping. Besides seldom research that originally identiﬁed the necessity to divert part of the country’s road trafﬁc to water, not much has been done by the Greek State to assist such a modal shift (MPWE, 2001). The government only recently outlined plans to review the case for extending the EU grant regimes of the Trans-European Networks (TENs) and to explore the potential of funding tools such as the motorways of the sea (MoS), in promoting SSS (and subsequently coastal shipping) and in optimizing the competitiveness of the mode. Although these plans have been prepared in line with the European Commission’s measures to enhance the role of coastal shipping within the EU, they should by no means be considered as part of an integrated national strategy for reviving alternative (to road) transport modes and alleviating congestion. This is because such strategy in Greece simply does not exist. On the other side, the State seems reluctant to take the necessary measures to support alternative modes such as coastal shipping. This includes the promotion of policies for the internalization of external costs, for which the road freight industry has shown that it can lead to serious opposition by means of blockades of motorways, etc. The subsequent growth of the sector

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in relation to the fact that no action has been taken recently, suggests that this opposition has been effective. All these are further aggravated by the lack of collaboration between the main market players, which resulted in the low visibility of coastal shipping in terms of intermodality. Despite the fact that ports play a decisive role in determining the intermodal potential of coastal shipping, coastal shipping operators seem unwilling to cooperate with port authorities to boost competitiveness. The same also holds for port and local authorities that have seldom, if ever taken any steps to provide incentives for the creation of distribution centres in or around ports. Given the small share of coastal shipping in intermodal transport, it is not surprising that distribution centres operators rarely opt for sites close to ports. All these over the years have unavoidably discouraged shippers and freight forwarders to use coastal shipping.

10.7. INHERENT LIMITATIONS OF COASTAL SHIPPING 10.7.1. The Time Barrier The most important criteria that control mode choice in the Greek freight market are transport costs, time and reliability. Transport time and reliability are the two criteria that highlight the signiﬁcance of just-in-time deliveries in the overall economy. Based on these criteria as a framework for assessment the main barriers aggravating the potential of coastal shipping into integrated transport chains can be identiﬁed. The most important barrier is the relatively high-transport time in Ro/Ro ferry lines connecting mainland ports. This should be seen in conjunction with the incongruity of freight volumes between large ferries and small consignments which is usually the case. The travel time of the conventional Ro/Ro vessels is the basic disadvantage that most freight forwarders and shippers see in coastal shipping. To an extend, this implies that high-speed vessels would stand a better chance against road freight transport, irrespective of the lower prices that the conventional ferries may offer. Interestingly, after the introduction of fast ships the only visible result was the inﬂated freight rates without any sign of boosted competitiveness, which further discouraged shippers and freight forwarders from sharing the view that the mode can be cost-effective when seen as a component in an intermodal transport chain (Skordilis, 2003). Speed has therefore, proved to be a major constraint on coastal shipping meeting the demand of shippers for rapid transit time.

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10.7.2. Geomorphologic and cargo-related limitations The pattern of economic development in Greece gives coastal shipping a considerable disadvantage compared with the more direct, inland service offered by road-freight transport. More speciﬁcally, a high proportion of inland-freight activity is concentrated on the south–north axis of Athens– Thessaloniki, where the average journey by road takes no more than 6–7 h. It is very unlikely for a slow mode such as coastal shipping (taking almost 12–14 h for the same itinerary) to compete directly with road or rail on this axis. Coastal shipping can only be economic when it deals with heavier cargoes with the origin and destination being relatively close to the main ports. In terms of true economic cost (i.e. the costs of resources utilized) coastal shipping is the domestic transport mode with the lowest cost. However, this competitive advantage does not give coastal shipping the head start needed to play a dominant role in domestic trade, as it would have done in the case of foreign trade. That is because in the domestic trade the shippers of the cargo have the immediate alternatives of road and rail if delays are experienced or if service levels are deﬁcient. As mentioned the shift from the primary sector economy to manufactured goods has boosted the use of road transport within the national freight market. At the same time, the tendency in the coastal shipping market was to increase the size of ships to create economies of scale (PCT, 2007). Both the above tend to compromise the capability of coastal shipping to become an integral part of an intermodal system, where the trend is to dispatch more frequent and smaller in size consignments in order to minimize inventory costs.

10.7.3. Time in Ports The reduction of travel time that resulted from the introduction of highspeed ferries proved to be not enough to render coastal shipping a competitive mode in terms of transit time. Turn-round time in ports should also be drastically reduced, in order to contribute in the overall increase of the mode’s performance. However, for various reasons no major improvements have been made on this. The port costs, which include handling costs, time in port and relative charges can be considered as of about 45% of the overall transport costs for unitized load and something like 60% for bulk freight (Parker, 1995). This is a signiﬁcantly high-cost burden for which not much has been done to reduce it in the Greek ports and to increase their productivity, i.e. handling or else.

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More speciﬁcally, minimal funds have been allocated to technologies that could increase freight handling automation in vessels or ports and thus, contribute in reducing transit time. It seems that, for different reasons, both ports and coastal shipping companies are reluctant to invest in cutting-edge automated handling technology in order to reduce transport time.

10.8. COASTAL SHIPPING AS PART OF INTERMODAL TRANSPORT The Greek transport companies have traditionally questioned the ability of coastal shipping to support just-in-time inventory strategies. This implies that coastal shipping can be seen on one side as generating cost savings, but on the other as being less competitive when integrated in intermodal chains; that is because the door-to-door costs of transshipment and delivery services are added. The later has played a signiﬁcant role in keeping coastal shipping away from being considered an integral part of the national intermodal transport system. Although it seems that the bet of intermodality has been lost, there are cases from other countries that state differently. For example, the US rail companies in the 1980s were not cooperating with road haulers or shippers in providing intermodal services. Today, they have reconsidered their strategies and are providing the line-hauls in large intermodal chains with road transport offering the door-to-door collection and distribution services (Martin, 1996). Given that the road transport cost are expected to increase in the near future when environmentally sensitive legislation will come in force internalizing congestion and pollution, it is most likely that coastal shipping could assume a ‘‘wholesaler’’ position of intermodal chains, exactly like the US rail companies did some years ago. In this view road haulers could deal with the delivering the end services to and from cargo shippers and its recipients. 10.8.1. Dealing with Load Incongruity The incongruity between different load volumes is a commonly occurring problem in the Greek freight market. The difﬁculty to organize the demand of many small consignments and the supply of large loads is considered another important reason hindering the potential of coastal shipping in intermodal chains. In the relatively small Greek freight market the freight

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forwarders appear to be more accustomed in grouping pallets in a truck than semi-trailers on a ferry. The absence of a network of freight distribution centres makes this problem even more pressing. This, in conjunction with the limited investment made in cutting-edge handling equipment has a negative effect on the waiting time of the modes providing the door-to-door services (HCTA, 1997). The situation is further aggravated by the absence of adequate scheduling of collection and delivery services as well as by the availability of limited and unreliable information.

10.8.2. Freight Consolidation As already mentioned an important obstacle in the integration of coastal shipping in intermodal transport is linked to that the majority of coastal shipping operators in Greece abstain from being involved in the operation of freight distribution centres which are linked to ports. Doing so makes it very difﬁcult to promote alternative consolidation plans and, in this context, increase the quality of service. The existence of a network of distribution centres and the likely involvement of coastal shipping companies in their operation would facilitate the geographic segmentation of their customers (Ha, Khasnabis, & Jackson, 1988). This would contribute in creating signiﬁcant economies of scale for both shippers and coastal shipping operators. The latter, however, have not yet fully embarked on the idea of operating freight consolidation centres and that is because the legislation about distribution centres in Greece is still young and unassimilated by the market.

10.8.3. Alliances and Cooperation Effective intermodalism demands that the operators of the different components of the supply chain can cooperate with each other. Despite the fact that this is understood by the coastal shipping operators they, nevertheless, seem to be reluctant in cooperating with other transport market players. A signiﬁcant number of coastal shipping enterprises in Greece do no have an adequate size to operate complete logistic services afar from the endports. This makes the collaboration with other market players very important in order to provide such services (Oestvik, Been, & Vassalos, 1999). Besides, the coastal shipping industry is not well known for its

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cooperativeness. This individualism proved to be, in many cases, an important obstacle that hindered the integration of coastal shipping in intermodal chains. To overcome this and in order to make future alliances most likely to succeed coastal shipping operators must invest in building a more conversable proﬁle.

10.9. OTHER CRITICAL ISSUES Stemming from the above, the main issues affecting the potential for coastal shipping in intermodal chains can be summarized in the following: Rivalry: there are important obstacles that need to be overcome in order to increase the competitiveness of coastal shipping. Types of vessels and loading units: the ‘‘compact’’ approach to coastal shipping, i.e. passengers and freight on the same vessel poses a signiﬁcant problem for the promotion of intermodal transport. Terminals: coastal shipping is depended on terminals, i.e. ports to gain a competitive advantage against road transport in intermodal chains.

10.9.1. Rivalry Since the 1990s, the Greek state has launched an extensive programme for upgrading the national road network. Inevitably this has contributed in increasing the rivalry of road transport against all other modes. In this line the overall position of coastal shipping was further aggravated by the absence of an integrated strategy aiming to shift trafﬁc from road to water. Without a national strategy it is not surprising that freight ﬁnancing aimed to promote competitiveness of coastal shipping were limited, and that no cooperation existed to explore new business opportunities in intermodal transport. This can be partly attributed to the different barriers to cooperation, the most important of which is the absence of trust between the major industry players (Panayides & Gray, 1999).

10.9.2. Types of Vessels and Loading Units The Greek coastal ﬂeet consists of vessels, mainly of large size, which are considered cost-effective for shipowners because of their ability to create

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economies of scale. Such types of vessels provide enough passenger seats during the summer (high-demand) period and excess garage capacity during the typical (winter) period where most of the trafﬁc consists of trucks. Although cost-effective for shipowners, this ‘‘compact’’ approach to coastal shipping, i.e. passengers and freight on the same vessel, is currently questioned by many business experts who believe that it is a signiﬁcant barrier for the promotion of intermodal transport (HILA, 2006). Their view mainly stems from the fact that the operation of large-size ships adds to the unit cost of loads the relatively high-operating cost of the vessel, particularly during the winter period. For this, it has been suggested that new designs are required for coastal vessels to improve the mode’s intermodal potential. Another barrier to the integration of coastal shipping in intermodal chains is the capital intensity of the mode which compromises its market ﬂexibility. Instead, the improvement of hinterland connections at ports can be seen as a step forward to aid the process of intermodality.

10.9.3. Terminals Coastal shipping is reliant on terminals, i.e. ports for the provision of berths, shore stevedoring, cargo handling in the terminals and harbour cartage for the collection and delivery of most cargo. During periods of congestion or due to the lack of labour or equipment in the ports, levels of service deteriorate. Passengers and cargo are immediately lost to the competing modes. As mentioned, ports play an important role in shaping the overall costs of coastal shipping. Besides its many ‘‘internal’’ elements port costs are usually determined by external factors such as the weather which in the majority of cases result in unnecessary delays. In Greece delays of vessels caused by the weather continue to be considered as ‘‘part of the bill’’ thus, further aggravating the market’s opinion for the coastal shipping’s intermodality perspective.

10.10. CONCLUSIONS AND DISCUSSION National authorities and the European Commission seem to be aware, at least in principle, of the beneﬁts offered by coastal shipping as one of the components in an intermodal supply chain. In such a ‘‘quasi-favourable’’ environment any initiative to revive the mode will only be effective if it

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results in effective participation from the market. Thus, new business opportunities have to be identiﬁed and up-to-date strategies have to be pursued. It seems, however, that there is some hesitance within coastal shipping operators to expand in the intermodal transport market. So far they have failed to regularly offer competitive intermodal services, and seem to do this only after speciﬁc request. The disregard of the majority of coastal shipping companies to their intermodal potential has led to the ‘‘low visibility’’ of the industry. Coastal shipping operators have failed to increase their freight modal share by capitalizing the market gap, which resulted from the shrinking rail sector. It is therefore not surprising that coastal shipping is perceived by many shippers and freight forwarders as a less competitive transport service, which cannot be effectively integrated into a modern intermodal system. Moreover, the majority of coastal shipping operators are not kin to the idea of collaborating with road haulers to provide the line-hauls in large-intermodal chains, with the latter offering the door-to-door services at either end. Despite the fact that ports play a crucial role in the development of intermodal coastal shipping, not much has been done to make the best out of using ports. The EU’s policies to enhance their strategic role as well as their operating and handling capacity should be strengthened. This would eventually lead to a stage where ports and coastal services can work together to provide effective intermodal services. Of course there are many types of impedance to achieve this but it is imperative for both to make the necessary steps forward since they depend on each other for their business. The failure to embark on the distribution centre concept further aggravates the potential of coastal shipping in intermodal chains. It contributes in making the operation of a total logistics chain more difﬁcult, especially as regards the interface between road and sea. A distribution centre would signiﬁcantly contribute in decreasing load incongruity by providing the means for better cargo consolidation and the dispatching of optimal load consignments. It should be noted, however, that the concept of the distribution centre only recently started to be assessed by the roadfreight transport industry. The cause for this is a new State Law dealing with the issues concerning freight villages, the response to which will determine if road haulage companies are ﬁnally willing to play their role in such services. The availability of adequate and reliable information is essential for the effective operation of intermodal chains. That is because updated and in some cases real-time information is required for the stage-by-stage operation of a modern intermodal system. This type of information is also required in order to identify business opportunities in the market.

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A standardized electronic platform could facilitate the collection, processing and distribution of such information. To achieve the above the coastal shipping industry must give up their traditional circumvallated attitude and invest more in building strategic market alliances with forwarders, shippers and other important transport players. By doing so, they will gain a competitive advantage with respect to road transport and become a key player in terms of intermodality.

REFERENCES European Commission. (1995). Communication from the commission on the development of short sea shipping in Europe – prospects and challenges. COM(95) 317, Brussels. European Commission. (1997). Intermodality and transport of goods. COM(97) 243, Brussels. European Commission. (2003). Communication from the commission –programme for the promotion of short sea shipping. COM(2003) 155, Brussels. European Commission. (2004). Communication from the commission on short sea shipping. COM(2004) 453, Brussels. Ha, K., Khasnabis, S., & Jackson, G. (1988). Impact of freight consolidation on logistics system performance. Journal of Transportation Engineering, 114, 173–193. Hellenic Chambers Transport Association (HCTA). (1997). Study for a Greek network of freight villages (in Greek). Project Report, HCTA, Athens. Hellenic Institute of Local Authority (HILA). (2006). Coastal shipping: Lifeline for the islands (in Greek). Athens: Papazisis. INRETS et allii. (1999). Intermodoal Quality (IQ Project). 4th Framework Programme on RTD, European Commission-Directorate General TREN, Brussels. Kapros, S. (2004). Rapport sur le Transport Maritime en Gre`ce. Observatoire des Politiques et Strate´gies de Transport en Europe. Paris: Conseil National des Transports. Martin, J. (1996). Intermodal transportation evolving towards the 21st century. Transportation and Distribution, 37(2), 43. Ministry of Public Works & the Environment (MPWE). (2001). Programming complement of operational programme: Road axes, ports and urban development, 3rd CSF 2000-2006 (in Greek). Athens: MPWE. Oestvik, I., Been, K., & Vassalos, D. (1999). Strategic analysis of coastal and inland transportation. Royal Institute of Naval Architects’ International Conference, Conference on Coastal Ships and Inland Waterways, February. London: RINA. Panayides, Ph. M., & Gray, R. (1999). An empirical assessment of relational competitive advantage in professional ship management. Maritime Policy and Management, 26, 111–125. Parker, J. (1995). UK roads to water initiative: A focusing study. In: N. Wijnolst & C. Peeters (Eds), 2nd Round table conference on short sea shipping (pp. 501–511), Delft University Press, Delft. Piraeus Chamber of Trade. (PCT), (2007). Coastal ﬂeet and vessel type information, http:// www.bep.gr/, (in Greek). Assessed on January 2007. Skordilis, G. (2003). Tariff increases in coastal shipping (newspaper article, in Greek). To Vima, 13814, 16 March 2003.

CHAPTER 11 WHITHER PORT STRATEGY? THEORY AND PRACTICE IN CONFLICT Athanasios A. Pallis ABSTRACT This chapter analyses the design of the Greek port reform strategy, and provides a twofold assessment of how this strategy has been implemented in practice. Following a discussion of the background of the port reforms and the new statutory formation of the Greek port system that has evolved during the last eight years, the chapter provides an assessment of the resulting port governance fit. Then, the chapter provides empirical evidence of the financial performance of the Greek ports’ performance in the post-devolution period. This discussion concludes that the endorsed strategy has not managed to reverse the suboptimal state of the Greek port system, due to a conflict between the scope of the governance choices and the actual developments. As the search of a long-term Greek port strategy continues, there is substantial evidence of indecisiveness and a number of failures. Given the dynamics of the economic and policy environment and the challenges and opportunities they pose to the port hierarchy, the need to correct these inconsistencies and enhance the Greek ports’ competitiveness is eminent. Among others, this study argues that future essential changes should include the lowering of entry-barriers and the introduction of intra-port competition, labour reforms, limitation of Maritime Transport: The Greek Paradigm Research in Transportation Economics, Volume 21, 343–382 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 0739-8859/doi:10.1016/S0739-8859(07)21011-X

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the existing political interference and the establishment of really autonomous port authorities.

11.1. INTRODUCTION Although Greece is a traditional shipping nation, its national administration has placed little importance on ports and relevant maritime infrastructure development. The state has focused on ‘ﬂag-state’ policies supporting the large Greek-ﬂagged and Greek-owned ﬂeet, rather than on ‘port-state’ policies providing port services. A key role in this decision was played by the small size of the country in the global marketplace. The location of the Greek ports at the crossroads of three continents, and their potential to become among the most important nodes in the route connecting the Far East with Europe through the Suez Canal, have been neglected. A longstanding tradition of state-controlled comprehensive port organisations developed in the 1930s with this model remaining ‘untouchable’ until the late 1990s. This was in contrast to worldwide trends, whereas relevant policy-actors had already tried to adjust the traditional port models adopting so many various and complex institutional settings that have led to the absence of a standard model for port ownership and institutional structuring (Bichou & Gray, 2005). In 1999, Greece embarked on a major port governance reform. Twelve ports of national interest were devolved, and the two major ports of the country, Piraeus and Thessaloniki went public and were listed in the Athens Stock Exchange. The objective was to overcome the observed deﬁciencies of the earlier port structures and facilitate adjustment to a complex economic context. The means to achieve this objective is the transferring of port management and the responsibility for the production and provision of port services from the national government to port-level entities. Apart from well-known physical factors such as the location, maritime accessibility, and hinterland infrastructure, the governance of ports is conceived an important input that determines port performance. This chapter provides a review of the deployed port strategy and a twofold assessment of how this strategy has been implemented in practice. First, it reviews the background of the port reforms and the new statutory formation of the Greek port system. Then, it provides an analysis and an assessment of the resulting port governance ﬁt. In doing so, this analysis employs a ‘matching framework governance approach’ (Baltazar & Brooks,

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2001) and focuses on the study of three key variables in order to analyse how Greek ports are currently structured and managed following these port policy decisions. These variables are the adopted port structures, the strategy (objectives) of the port entities and the operating environment. Then the chapter provides empirical evidence of the ﬁnancial performance of the Greek ports’ performance in the post-devolution period (for a more analytical discussion see Pallis & Syriopoulos, 2007). While this might be an early and a partial assessment of the newly devolved port entities, it provides vital information on the Greek port performance. The merits and the limits of these two types of port-devolution assessment are brieﬂy discussed and established before the analysis of the case study. This analysis concludes that the endorsed strategy has not managed to reverse the suboptimal state of the Greek port system, due to a conﬂict between the scope of the governance choices and the actual developments. As discussed in the following sections, the search of a long-term Greek port strategy continues. There is substantial evidence of a number of failures and of the need to correct these inconsistencies and enhance the Greek ports’ competitiveness. Among others, this study argues that future essential changes should include the lowering of entry-barriers and the introduction of intra-port competition, labour reforms, limitation of the existing political interference, as well as the establishment of really autonomous port authorities.

11.2. THE MEANS TO ASSESS PORT-DEVOLUTION PROGRAMMES 11.2.1. Assessing the Input: Merits of Governance Approaches The extent of the changes throughout the ports of the world is such that the search for an understanding of the various models of port ownership and organisation is extensive (cf. Cullinane & Song, 2002, 2007; Brooks & Cullinane, 2007a). With the number of actors involved in the life of a port increasing, and the relationships within the emerging hybrid organisational entities becoming perplexing, scholars adopt port governance approaches aiming to address the institutional changes. The focal point is on the principles and the institutions, by which authority is exercised, as well as on the process by which ports select, monitor and replace strategies and the capacities of those in authority to effectively manage port resources, implement sound policies, and govern economic interactions.

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Several studies concentrate on the agencies involved in port governance. The list of these agencies includes the state, as manifested by the various national policies administered by the relevant ministry, the regulatory institutions and the port authorities. Each agency has a distinct role to play depending on the issue at stake, though there are several interrelations between them (cf. Chlomoudis & Pallis, 2004). On the one hand, it is argued (Newman & Walder, 2003) that a decentralised port development system allows port authorities to make decisions that produce adaptability, and to direct systemic economic coordination towards interconnection, technical interoperability and various forms of operational (intra-port, local, regional, hinterland, strategic) networking and integration. On the other hand, the thesis that public agency port governance is outdated is challenged. Rodrigue (2004) examines the Port Authority of New York and New Jersey, which has a remit extending well beyond a governance model focused narrowly on the management of port land use, support for terminal operators, and trafﬁc regulation activities, and has successfully assumed responsibility for a wide array of infrastructures. He concludes that a centralised inclusive port authority – in terms of a diversiﬁed portfolio of activities infrastructures and terminals within a coterminous geographic and administrative entity – might also provide a successful and stable framework at continuously re-inventing itself and deploying effectively its diversiﬁed mandate to serve the needs of the port’s users. In essence, these (anti)theses suggest that it is worth shifting discussions from ownership towards governance. The latter is the input of the port reform and might be deﬁned as the process through which the institutional power, together with private and public economic subjects and with individuals, makes decisions and establishes interventions in the different sectors in order to meet the community needs in the process. Governance approaches are theoretically formulated in such a way in order to avoid the pitfalls of universal reform discourses through stronger qualitative understanding of the institutional embeddedness of industrial change, whilst the emphasis of these is on the informal character of institutional arrangements (Wang, Ng, & Olivier, 2004). Notteboom and Winkelmans (2002) include in the notion of governance the management of (internal, external, public policy, and community) stakeholders’ relations. Concentrating on the logistics integration in ports, as well as on the importance of inland freight distribution, Notteboom and Rodrigue (2005) argue that the hinterland ‘regionalisation’ of the sector demands new approaches to port governance. De Langen (2002) suggests that an analysis

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of the mix of relations of coordination used in a port cluster adds to the understanding of port competition and performance. This is because the levels and the scope of coordination beyond price, in short the quality of governance, differs between clusters. Wang and Slack (2002) drawing from the social sciences have pledged for a broader concept that would allow for greater weight of social and cultural variables. Their notion of port governance includes three axes, namely spatial-jurisdictional scales, stakeholder community and logistical capabilities. All these are suggestions for a cluster governance approach, which is about the port communities’ governance. In a different vein, Baltazar and Brooks (2001, 2007) endorsed a corporate governance approach to analyse port governance. This concept draws on three streams of research – namely strategic management, organisation theory and conﬁguration theory. The approach focuses on the (inter)actions of the two ‘core’ governing institutions in developing a port governance model. These are the responsible government department (ministry or other relevant policy-actors) and the port authorities which are in essence the ‘ﬁrms’ governing a port. The authors put forward the notion that the port governance model is deﬁned by the conﬁguration of three inputs: (a) the structure, which is implemented as a result of government regulation and policies and the strategy chosen by the Port Authority; (b) the strategy (in other words, the objectives, the decisions about its product-market scope, and the plan for effecting these) of the port, as developed by the Port Authority; and (c) the environment in which a port operates. These inputs produce an output (performance), the quality of which results from the consistency or ﬁt of the inputs when taken together. One of the conﬁgurations with ‘ﬁt’ is marked by an environment of low uncertainty, low complexity and dynamism, an efﬁciency-oriented strategy that focuses on the delivery of the basic services, and a mechanistic structure of centralised decision-making characterised by procedural standardisation; to determine if this port is successful in optimising its performance, the performance must be measured against its efﬁciency-seeking objective. A second conﬁguration with ‘ﬁt’ is marked by a highly uncertain environment, an effectiveness-oriented strategy of peripheral products and services, and an organic structure of decentralised decision-making; the success of this conﬁguration is determined by measuring effectiveness. Port performance is, therefore, the ‘output’ of any, ﬁtting or not, governance conﬁguration. That is, those ports with dual objectives imposed by the government will ﬁnd it difﬁcult to optimise performance and will be focused on choosing measures from both ﬁelds.

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Case studies of port-devolution programmes (Hoffman, 2001, and the 14 country-studies in Brooks & Cullinane, 2007a) advocate that there are several inconsistencies between the characteristics and requirements of the environment on the one side, and the strategy and structures on the other. The overwhelming conclusion that is reached is that the components of the inputs do not always ﬁt. The second conclusion is frequently based on the evaluation of speciﬁc-performance indicators that are aggregated for academic reasons, or qualitative assessments; while governments may have had the best of intentions in establishing a more commercialised footing for port operations, the programme of reform has not always delivered the full beneﬁts sought. The port systems examined in the above cases are representative of a major trend: the shift of port governance to locally controlled public or private entities. The strategy is to build a ﬁnancially self-sustaining autonomous national port system, and in the last decades of the 20th century it took place in several countries worldwide. The result is the development of hybrid port organisations that exist in the intersection of two distinct spheres, the public and the private, with the provision of port services frequently relying on the presence of private port operators. A similar strategy is underway in the case of the Greek ports; thus, it is worth being assessed in the light of this theoretical debate.

11.2.2. Assessing the Output: Merits of a Financial Performance Approach In a context of institutional reform, managerial restructuring and adoption of new port governance models, the evaluation of the ﬁnancial performance of a port system, as the Greek ports in this case, can offer insights into the bottom-line ﬁnancial impact of the speciﬁc adjustments that have taken place. Port-devolution policies have been employed, targeting improved operational efﬁciency and control of the heavy ﬁnancial burden to support a capital-intensive industry. In doing so, they aim, inter alia, to lead to an improvement in economic efﬁciency and, hence, ﬁnancial performance. Financial performance indicators contribute to assessing whether the implementation of the speciﬁc port governance model has been successful or corrective policies should come into play. It has been rightly argued that focusing on ﬁnancial aspects and criteria in order to assess port performance may not be sufﬁcient to reveal present or future success. This is not least because, as Bichou (2007) notes, port performance is a broad concept that covers almost any objective

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of operational management and competitive excellence of a ﬁrm and its activities. The addition of more performance indicators – other than simply operational ones – is a key suggestion in recent port research (Heaver, 2006; Brooks, 2007a; Brooks & Cullinane, 2007b; Talley, 2007). This is not surprising as user assessment and the attractiveness of a port are dependent on several factors (cf. Lirn, Thanopoulou, Beynon, & Beresford, 2004, and Ng, 2006, respectively). There is the potential of decomposing port performance to a range of different ‘performances’ with certain stakeholders focusing on some of these types of performance. Given the complexity of the contemporary port product, port authorities should apply a multifaceted examination of different port performances grounded on the distinction between cargo transfer, port logistics and port manufacturing product, and the development of several respective performance indicators (De Langen, Nijdam, & Van Der Horst, 2006). Following port governance devolution, the port industry needs to engage in monitoring the different efﬁciency and effectiveness components of its performance in order to generate a process of realigning previous port governance decisions (Brooks & Pallis, 2007). The analysis of ﬁnancial developments in the Greek ports implies that ﬁnancial performance might stand as one, yet not the only, type of performance to be measured. Focusing on the ﬁnancial evaluation of port performance bears its own merits for a number of reasons. Financial appraisal depicts directly quantitative as well as qualitative managerial decisions and policy implications; such decisions are reﬂected in the ﬁnancial results. Since the Greek ports are shifting towards a market model and are relaxing their earlier state embracement, ﬁnancial proﬁtability plays a central role to judge managerial efﬁciency as well as successful asset and capital utilisation. Following an assessment of the governance model in place, this ﬁnancial evaluation contributes to a further assessment of the port-devolution process in Greece. This is in line with De and Ghosh (2003), who develop a composite performance index that includes ﬁnancial performance as one of the three key components, along with operational and asset performance. Moreover, port ﬁnancial performance is a critical issue for stakeholders and market participants, since it reﬂects a dynamic signalling of a company’s growth prospects and economic robustness. Moreover, port management is judged on the grounds of corporate value maximisation rather than simple proﬁt attainment. Since the major port entities (Piraeus and Thessaloniki) are already listed in the domestic stock market (Athens Stock Exchange),

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a robust ﬁnancial performance is expected to result in an enhanced ﬁrm market value with positive implications for the shareholders’ wealth. It might still be argued that a well-performed operation does not necessarily translate to a proﬁtable ﬁnancial outcome. To ﬁll this gap, Su, Liang, Liu, and Chou (2003) proceeded to a ‘comprehensive’ evaluation of 31 alternative port performance criteria, including ﬁnance, customer, internal business process, learning, and growth perspectives. In doing so, they concluded that, for port managers and investors, port ﬁnancial performance criteria are still most considered. Nevertheless, focusing strictly on proﬁt maximisation policies alone may lead to a future earnings decline. Non-ﬁnancial aspects, such as a well-trained working force, efﬁcient operating procedures, and shipping carrier satisfaction should also be considered. This study applies a standardised, yet well tested, ﬁnancial evaluation framework, which, though fairly standard, still lacks the empirical literature on port reforms, governance models and performance assessment. The core ﬁnancial input is provided by the ﬁnancial accounts of Greek Port Socie´te´s Anonymes (SAs), which are the sole source to draw ﬁnancial information from. The focus of the empirical investigation is on the ﬁve-year period 2000–2005, which corresponds to the implementation phase of the new governance model. As this discussion emphasised, this evaluation can of course be enriched by future research comparing Greek ports to international competitors and, not least, by blending the ﬁnancial evaluation with complementary analytical tools that contribute to a better understanding of the post-devolution port performance.

11.3. REFORMING THE GREEK PORT SYSTEM The Greek port system consists of over 1,300 ports, marinas and ﬁshing ports. This signiﬁcant number of ports serves a country of a multi-island geography. According to the latest statistics available,1 the total gross weight of goods handled in all these Greek ports in 2004 was 158 million a change of 29% compared to 2001. Container cargo the same year reached 1.866 million TEUs (full and empty containers) of which 1.551 million were handled in the Piraeus Port. The same year, the signiﬁcant Roll-on/Roll-off (Ro-Ro) trafﬁc reached 96.4 million passenger journeys in 2004, and 28.9 million tonnes. The liquid cargo transported via the Greek ports was 42.3 million tonnes and the dry bulk cargo 37.3 million tonnes.

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11.3.1. The Pre-Reform Model Throughout the 20th century, these ports were organised, as state-controlled ‘public law undertakings’ and ruled according to the general regulatory regime of public entities (utilities, schools, hospitals) in Greece. The prevailing concept of ports as public welfare services justiﬁed a governance and operational model wherein national-level authorities act both as regulators and as managers responsible for the provision of services. In this ‘Mediterranean’ tradition of port organisation, a state-appointed and controlled public port authority owned and maintained the infrastructure and superstructure, and provided all port services. The private sector was involved in the provision of these services solely in the cases when port authorities lacked the capacity or the equipment (i.e. handling cranes, towing) to provide them, while some service provisions (i.e. pilotage) were directly controlled by the Ministry of Mercantile Marine (MMM). In the mid-1990s, it was apparent that the Greek ports with an international reference (foremost Piraeus and Thessaloniki) had failed to improve by any international standard. Meanwhile several factors (including the recovering of world trade, the restructuring in shipping, the expansion of unitisation, the transhipment developments, the advancement of information technologies, and economic integration) started transforming ports to a capital-intensive sector demanding heavy ﬁnancial burdens. International competition in seaborne trade was already intensifying the struggle of shipping companies to retain their market shares. The majority of ports were investing in infrastructure, improvement of their managerial efﬁciency, operational processes, and customer services. In this competitive environment, cargo trafﬁc is gradually being channelled towards ports with the most cost-effective industrial bulk-handling techniques and better intermodal coordination. In Greece however, public investments had stagnated. Despite the then EU initiatives to improve port infrastructure via public/private partnerships (Pallis, 1997), there was no signiﬁcant private capital mobilisation and the situation deteriorated. The country’s commitment to meet the convergence criteria of the Maastricht Treaty of the EU (1991) and be part of the European Monetary Union posed additional limitations. It implied economic policies to reduce public deﬁcit and inﬂation; hence investments in ‘public law undertakings’ were further constrained. In the 1990s, lowproductivity levels, serious infrastructure shortcomings (i.e. transhipment installations, inland transport infrastructure), and outdated infrastructure were common (Chlomoudis & Pallis, 1997).

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Apart from complaining about the delays of necessary capital expenditure in order to reverse unproductive investment deﬁciencies and meet the market demands, the port community was intensively criticising despite the absence of innovative ideas by port managers who also lacked sectoral experience (INU, 1995). Greek ports were experiencing a quite common phenomenon (cf. Notteboom & Winkelmans, 2001): the ‘political management’ structures impeded public port organisations from developing enough ﬂexibility and versatility to cope with the lack of productivity and innovation and respond to structural changes. Politicians also used ports to solve employment problems and exercise other social policies. In 1997, the Port of Piraeus had 1,300 employees and was obliged (under a 1961 Law Act!) to spend almost 20% of its annual income to provide pensions to 1,800 retired port workers (Psaraftis, 2005). This amount spent was higher than the then investment budget of the major port of the country. To some (Goulielmos, 1999) this was a policy of ‘privatisation through bankruptcy’. At the end of the 1990s, the port owed 261 million Euros to pension funds, while its revenues were then 150 million Euros (Psaraftis, 2007). Apart from this, political intervention also resulted in the absence of effective pricing mechanisms, the most illustrative and well-known example being the preferential treatment of coastal shipping (Psaraftis, 2005). Failing to fulﬁl the stakeholders’ expectations resulted in cargo losses. These losses accelerated following reform in Italy (1994). In 1996 the container lines Evergreen and Lloyd Triestino switched their transhipment hub from Piraeus to the newly established Gioia Tauro in southern Italy (Regio Calabria) resulting in a 25% reduction of transhipment trafﬁc through the port. The new container terminal Voltri in Genoa, initially operated by FIAT and later by PSA, also became the choice of other users previously using the Greek state ports. In this context, the Greek Government elected in 1996 sought ways to transfer the management of certain ports to local authorities, entrusting them either to prefectures or municipal authorities. This ﬁrst move was ideologically driven: it was initiated for the purpose of decentralisation, but had nothing to do with relaxing state ownership and/or control, and/or management (Goulielmos, 1999). On the other hand, the deregulation of utilities became part of the government’s agenda, as a means to facilitate the Single European Market project. Still, there were no immediate waves of change. The resistance in the domestic front was apparent and structural reforms in the Greek public sector were limited. The publication of an EU Green paper on seaports stating the intension of the EU to create a

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‘level-playing ﬁeld’ between and within EU ports with international trafﬁc throughout Europe contributed to a ‘wait and see’ policy; following EU-level decisions minimised political costs. Nonetheless, the pace towards reforms accelerated as the formation of EU policies proved to be remarkably slow (Chlomoudis & Pallis, 2002) and the dynamics of the economic context continued to pose adjustment pressures.

11.3.2. The Post-Reform Model The reform of the new port policy was deployed in two phases that took place in 1999 and 2001 respectively. Since then Greek ports are classiﬁed in four categories: The two major trans-European port organisations, ports of Piraeus (Table 11.1) and Thessaloniki (Table 11.2), which are the backbone of the system; The 10 ports of national interest (Table 11.3); The 53 Municipal port funds; The 1,250 Peripheral ports, marinas, ﬁshing harbours subject to the jurisdiction of 188 port authorities. The ﬁrst phase of the port reform concerned the two ‘trans-European port organisations’ of the country. The ports of Piraeus (Table 11.1) and Thessaloniki (Table 11.2) became corporations, ‘Socie´te´s Anonymes’ (SAs), at that time wholly owned by the Greek State (Law 2688/1999). Following a later decision, these ports were listed in the Athens Stock Exchange Table 11.1.

Piraeus Port Authority SA Statistics (1998–2005).

Year

Cargo

Passengers

Containers

Vessels

Total Personnel

1998 1999 2000 2001 2002 2003 2004 2005

12,988,385 13,899,454 15,628,523 16,318,143 18,424,180 21,425,318 20,586,765 19,814,061

9,112,624 9,515,053 10,162,865 10,967,042 11,797,856 12,536,608 11,916,826 12,410,545

933,096 964,902 1,161,099 1,165,797 1,404,939 1,605,135 1,541,563 1,394,512

28,348 27,197 28,888 30,721 27,902 26,333 29,206 26,742

n.a. n.a. 1,696 1,709 1,673 1,687 1,607 1,519

Source: Port of Piraeus Authority SA, Annual Reports.

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ATHANASIOS A. PALLIS

Table 11.2.

Statistics of the Thessaloniki Port Authority SA (1998–2005).

Year

Cargo

Passengers

Containers

Vessels

Total Personnel

1998 1999 2000 2001 2002 2003 2004 2005

13,851,613 12,804,545 15,465,613 14,589,284 14,707,369 14,898,720 16,476,739 16,722,343

261,163 246,219 248,429 231,580 218,032 201,282 209,066 217,538

182,102 216,911 229,745 233,904 240,439 269,552 336,096 365,925

3,429 3,669 3,424 3,431 3,224 2,855 2,939 3,010

760 745 742 737 715 673 626 592

Source: Thessaloniki Port Authority SA, Annual Reports.

Table 11.3.

Greek Ports of National Interest.

Port

Goods Throughput (in Tonnes)

Passenger Trafﬁc (in persons)

Main Activities

Heraklion Port Authority SA

3,350,000

1,651,946

Patra Port Authority SA Elefsina Port Authority SA

3,399,034 3,249,750

1,263,124 800,000

Kavala Port Authority SA

1,633,445

1,454,222

Volos Port Authority SA Igoumenitsa Port Authority SA Raﬁna Port Authority SAa Corfu Port Authority SAa Alexandroupoli Port Authority SA

1,240,911 494,826 96,772 642,432 638,660

392,395 1,193,148 1,760,776 2,146,179 168,604

208,500

213,412

Passengers/Ro-Ro; dry bulk cargo; containers Passengers/Ro-Ro Dry bulk cargo; general cargo (non-unitised) Passengers/Ro-Ro; dry bulk cargo Dry bulk cargo; containers Passengers/Ro-Ro Passengers/Ro-Ro Passengers/Ro-Ro Dry bulk cargo; general cargo (non-unitised) Passengers/Ro-Ro

Lavrio Port Authority SA a

Note: 2004 Data. 2003 Data. Source: Data provided by Port Authorities and the Ministry of Mercantile Marine.

(Thessaloniki Port Authority SA since 2001; Piraeus Port Authority SA since 2003), with the state retaining 75% of their shares. Two years later (Law 2932/2001), ten other ports of national interest (Table 11.3) were converted from port funds to limited companies. Each company has one share owned by the state. These ports are supposed

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355

to operate as ‘private-sector’ businesses with the objective to develop infrastructure and offer quality and competitive services. Local and municipal authorities have undertaken the management of the remaining Greek ports, replacing managing boards directly appointed by the central administration. The objective is the better utilisation of the public funds and other resources, and better service for residents and the local tourist industry. Part of the reform was also the establishment of a Ports and Port Policy General Secretariat (PPPGS) by the MMM, which started operating in January 2003. Its goal and the competences of the Secretariat, the current structure of which is presented in Fig. 11.1, are as follows: The general design and planning of a National Port Policy for the development of modern port infrastructure so as to meet the requirements of supply of services to passengers, ships, and cargoes; The responsibility for the smooth operation of the Port Development and Planning Committee established by Law 29327/2001.

Fig. 11.1. Structures of the Port and Port Policy General Secretariat. Source: Ministry of Mercantile Marine (2007).

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ATHANASIOS A. PALLIS

The new framework also established Port Planning and a Development Committee, members of which are representatives of eight ministries. This Committee is responsible for the general planning, monitoring, and implementation of port programmes, as well as for the allocation of ﬁnancing for the adaptation of infrastructure.

11.3.3. Traffic, Main Activities and the Geography of the Ports of National Interest The port of Piraeus serves almost all types of cargo and passenger maritime transportation (Table 11.1). Containers, automobiles, general (non-unitised) cargo, dry bulk cargo, and coastal passengers/Ro-Ro, with Piraeus being the tenth biggest container port in the European Union (EU) and a major container hub in the Eastern Mediterranean. Its dominant position seems unchallenged domestically, at least for the foreseeable future. The port of Volos has been labelled as a potential container alternative to Piraeus (and Thessaloniki) for cargoes to and from central Greece, but this is still a speculation. The completion of a rail connection to Piraeus Port container terminal might expand the port’s hinterland to markets that Volos and even Thessaloniki serve. This project would be completed in a few years, though this deadline has already been postponed several times. In contrast to the lack of serious domestic competition, some competition currently exists with foreign ports, mainly as regards container transhipment, a sector in which Piraeus competes mainly with Gioia Tauro, and secondarily with other ports such as Malta, Limassol, Damietta, and Port Said (Psaraftis, 2007). Piraeus was established as a Mediterranean hub port in 1997, with the doubling of its container trafﬁc in just four years (1996–2000). Thereafter, growth continued but not at the pace that the growth of the regional trafﬁc did. The port of Thessaloniki serves dry bulk cargo, and containers. As Table 11.2 illustrates since the reform, with the geopolitical developments stabilised (i.e. the end of the conﬂict in former Yugoslavia), and seaborne trade towards Europe expanding, cargo trafﬁc in the port of Thessaloniki increased by 21%, and the volumes of container trafﬁc doubled. On the other hand, the port is visited by 12% less vessels per annum, a fact that to a certain extent can be attributed to the increasing vessels’ size. Last but not the least, the completion of the Burgas–Alexandroupoli pipeline would see Thessaloniki emerge as a major oil port in the region, and the completion of the ‘Egnatia’ east–west motorway axis (Igoumenitsa–Thessaloniki–Kavala– Alexandroupoli) would reinforce the role of Igoumenitsa as a gateway to the

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357

Adriatic Ro-Ro trafﬁc. Over the same period, the total personnel decreased by 22%. As regards the geographical location and the activities of the 12 top-tier ports, the ports of Patra, Igoumenitsa, and Corfu, are the main gateways to the rest of the European Union via the Adriatic. The ports of Thessaloniki, Kavala, and Alexandroupoli are gateways to the provinces of Macedonia and Thrace and to the Balkan countries north of Greece. The port of Volos serves mainly the region of Thessaly. The ports of Piraeus, Raﬁna, and Lavrio are main passenger ports to the Aegean islands. Elefsina is mainly a cargo port complementary to Piraeus. The port of Iraklio is the largest port of the island of Crete.2

11.4. PORT GOVERNANCE CONFIGURATION 11.4.1. The Objectives of Port Reform3 The pattern of the regulatory change in Greece is in line with the ‘portdevolution’ and ‘port corporatisation’ concept. The ownership of the ports’ assets has passed (from port funds) to the State which signed a 40-year concession agreement with the respective port authorities for the exclusive right of use and exploitation of land buildings and infrastructure within port zones, in order to provide all users with port services. The concession fee is 2% of the operating income. Public control remains and all ports are under the supervision of the MMM. Using the World Bank (undated, module 3:46) taxonomy, this reform follows ‘a corporatization process in which a public sector undertaking is transformed into a company under private corporate law that conducts the port’s business and holds its assets, although the shares are issued and y owned entirely by the government. The main objective is to decrease direct government control over the company and to make it more responsive to market forces’. The objective is to generate a degree of autonomy regarding port management and operation, whilst a special governmental secretariat administers the national port system. In theory, the PPPGS is expected to operate as an external state, which intervenes with a view to maximising the common good, by developing strategic objectives. According to the MMM, the port reform was part of the decision to structure a national policy ‘to support port infrastructure and increase the participation of Greek ports in the global share of maritime transport, due to the increase in the volume of maritime transport worldwide, the

358

ATHANASIOS A. PALLIS

geopolitical changes in Eastern Europe and the Balkan countries, and the observed emphasis of the European Union on the role of its members as ‘‘port-states’’ ’. The core policy objectives include ‘the need of the greatest possible participation in the provision of port services’. The national administration also acknowledged that a rational port policy should be based on the circumstances of mainland and island Greece, the new volumes of international trade, new technologies and information technology in the port-service provision sector and endorse organisational structures and infrastructure, attract high-yield investments, adopt new technologies and become competitive. In this vein, the contemporary national port strategy is summarised in ﬁve objectives: Bilateral maritime relations with countries which export a signiﬁcant volume of cargo; Support for port competitiveness in the light of the challenges of a constantly more competitive international environment; Sustainable and integrated development of ports in order to meet the social and environmental needs; Social cohesion of the island area and the island populations; Safeguarding cargoes transported through Greek ports to other countries. This is a strategy aiming at efﬁciently delivering core and additional services. The desired strategy is one that would enhance the ports’ capacity to integrate in intermodal logistics chains and relationships with port users. This matches considerably the changes that had taken place in the other Mediterranean EU countries (Italy, France, and Portugal). The tradition that led to a distinct Mediterranean port region within the EU (CEU, 1997) is alive, albeit its features are structurally different from those of the past. As regards Piraeus and Thessaloniki, public listing was a move to secure private funds and limit the ﬁscal burden of port modernisation. For those advocating the privatisation of ports this was a ﬁrst step towards this direction.

11.4.2. Economic Context This port reform strategy has taken place within an economic environment which is characterised by high levels of uncertainty, complexity and dynamism. Both successes and failures of ports in the Mediterranean region are common, especially in the case of dynamic market niches. The stakeholders’ relations are volatile and loyalties are undermined as port users seek to place themselves in the best conditions in order to beneﬁt from

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359

globalisation and trade restructuring. Overall, the existing port hierarchy in the Mediterranean port region might be altered by the presence of actors involved in core operations, investments in dredging, hinterland connections and infrastructure, logistics, and market-oriented strategies. The progress of the European integration expands the potential of changes in the port hierarchy at local, regional and, not least, continental level. The situation in the Mediterranean is not static, particularly regarding containers. The successful evolution of the Medcenter in Gioia Tauro, which started operating in 1995 and turned into a major container terminal within less than ﬁve years, provides a major example. The terminal operators’ investments in several ports in Spain and Italy have been extensive in recent years. With shipping lines developing ‘hub and spoke’ systems, which ports establish themselves as hub ports in the Mediterranean and thus accommodate the trafﬁc on the route connecting the Far East with Europe, or markets in the Black Sea is up for grasps. For the moment, similarly to several other Mediterranean ports, Greek ports handle mostly trans-oceanic trafﬁc and represent the least integrated part of the industry into intra-EU trafﬁc. This is not to say that the level of trafﬁcs has not increased. In the 1990s, container handling in Greek ports increased from 480,000 to 1.3 million TEUs. As already detailed, during the period 2000–2005 this volume continued to rise, mainly due to the incoming cargoes from the Far East and China. Piraeus attempts to act as the major gate in the southeast Mediterranean region and serve transhipment trade, a strategy that has been quoted successful (transhipment increased by 20% annually and in 2004 represents 63% of the containers handled), though trafﬁc increases have not managed to match those observed in the region. Container trafﬁc in Piraeus has increased by 20% since 2000, while this percentage in the major Italian ports was 27%.4 Given that during the same period the trafﬁc in Turkish ports almost doubled,5 and the success of the Constantza port in Romania is remarkable,6 the observed loosing market share of the eastern Mediterranean range in gateway trafﬁc (as illustrated in Fig. 11.2) is not irrelevant to the slow pace of port trafﬁc expansion in container handling in Greece. Piraeus dropped from the 41st position in 1998 to the 60th position in 2005 in the list of the top container ports in the world. Port users however, continue to press towards value-added services and labour adaptations. As operational deﬁciencies continue, some of them have thought about the re-direction of cargoes to nearby ports. The main user of the Piraeus container terminal, MSC (approximately 700,000 TEUs per annum), considers using alternatives (Cyprus and Italy) to accommodate

360 100%

ATHANASIOS A. PALLIS 1.6%

5.3%

5.4%

7.3%

30.1%

28.5%

25.5%

8.4%

9.9%

14.6%

15.7%

36.8%

36.2%

28.9%

24.7%

19.4%

19.9%

23.6%

24.9%

11.5%

20.0% 80% 12.4% 60%

40%

48.5%

23.3%

20% 17.5% 0%

1980 West Med

Fig. 11.2.

1990

1995

North Med

Central Med

2000 East Med

2004 Black Sea

Market Share of the Gateway Trafﬁc in Med ranges: Losers and Winners. Source: Musso and Parola (2005).

trafﬁc expansion and transhipment, unless operating conditions improve. The users of Thessaloniki port have stated their dissatisfaction with the inactivity of the port authority regarding the upgrading of service quality. The circumstances are not better in the other ports where some companies have recently decided to stop using some of them. Then, there is the rise of logistics and distribution centres in European ports. Companies opt for a hybrid structure of both centralised and local distribution facilities; hence a certain degree of decentralisation of European distribution structures. The recent enlargement means that the new EU covers a much larger geographic region, making more likely the potential of a two-tiered European distribution structure (Notteboom & Winkelmans, 2004). The latter will consist of central European distribution centres together with regional distribution centres established in southern Europe and the eastern Mediterranean port region. Which ports will manage to attract such centres is still questionable and the port hierarchy might be altered substantially. In Greece, a recent Law (3333/2005) aims at the establishment and operation of intermodal distribution centres, acknowledging the necessity to adjust to a wider environment of high complexity and dynamism. Yet, there are no concrete actions towards the implementation of the particular legislative act and no indications that the Greek ports will

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361

develop to habitats for logistics services and thus satisfy users who are increasingly focused on landside logistics. A further initiative that has yet to be implemented is Law 3389/2005, which provides the framework for public–private partnerships in order to develop transport infrastructure, and has the potential to mobilise substantial funds towards port modernisation. The EU port policy developments add to the complexity. The EU decision (2001) to include ports in the Trans-European Transport Networks (TEN-T) plans permits the ﬁnancing of (a) international ports, the annual trafﬁc of which exceeds 1.5 million tonnes or 200,000 passengers that have established intermodal links with the TEN-T; (b) community ports, the annual trafﬁc of which exceeds 500,000 tonnes or varies between 10,000 and 199,000 passengers that have established intermodal links with the TEN-T; and (c) local ports that do not fulﬁl the criteria (a) and (b) but are located in islands or remote inland areas and are considered necessary for the provision of steady connections with speciﬁc areas. The Greek ports that are classiﬁed in category (a) is extensive and contains all the ports of national interest except one (Alexandroupolis) as well as eleven other Greek ports.7 Apart from the impact of the TEN-T plans, which might be substantial, a number of other EU policy initiatives further the challenges and opportunities for all ports in the wider geographical end economic region.8 Access to ﬁnancial resources might also be gained due to the development of a set of concentrated EU actions to support the shipping industry and intermodality. Advancing the use of short-sea shipping in Europe, the Marco Polo II programme aiming to support intermodality, and the concept of developing Motorways of the Sea (MoS) as a high-quality alternative to the congested road transport, are all EU strategies providing capital to increase port capacity, improve intermodal links, and streamline efﬁciency in parts of the sector. The status quo might change as ports can effectively exercise their rights and enhance their performance (i.e. Gioia Tauro beneﬁted noticeably by EU funds). Moreover, the EU policies insofar the interface of the public/private sector involvement in European ports is still in transition (cf. Pallis, 2007b). Following the rejection of the revised EU proposal for a ‘port services directive’, the rules that would govern direct private sector involvement in the provision of port services, as well the charging and ﬁnancing practices in European ports are once more under consideration in the context of the EU policy-making, with the European Commission expected to publish relevant guidelines within 2007.

362

ATHANASIOS A. PALLIS

11.4.3. Port Authorities Strategies As national port reforms began only ﬁve years ago, the governance of Greek ports is still in a state of ﬂux. Infant autonomous corporate entities have yet to ﬁnalise long-term business plans and strategies. Most Greek ports have directed their efforts towards efﬁciency-oriented strategies aiming explicitly to become competitive third-generation ports, port authorities. Strengthening investments and enhancing the uninterrupted handling of all kinds of cargoes stand as major targets. Due to the lack of intermodal connections, delivery of core port services is a key theme. However, national ports have not secured funding for implementing recently deﬁned business plans. It was only at the end of 2006 that funding for the development of Piraeus and Thessaloniki container terminals expansion was secured, via a European Investment Bank (EIB) loan. In other cases neither public nor private funds have been secured. Almost two years ago, the EIB expressed the interest to provide additional loans with favourable terms, but Greek ports ﬁrst have to guarantee the feasibility of the projects to be undertaken, and the public sector has to secure capital mobilisation that equals 40% of the total costs of these projects. None of these has been completed in mid-2007 and there are no such projects in progress. Port authorities are attempting to decide on whether to focus on transhipment or origin–destination trafﬁc. They are also in a process of choosing between searching for the beneﬁts of competition (Elefsina vs. Piraeus), or endorsing co-operation and port-networking strategies, either between them (Piraeus and Heraklion) or with other ports in the region (Cyprus, Syria). At port level, this implies planning rationalisation to reach optimal utilisation levels. Comparing actual TEU throughput with throughput capacity, Piraeus and Thessaloniki have a utilisation rate (78.9%) that is not lower than the ratios observed in other European ports. Thus, the emphasis is on operational efﬁciency (berthing systems, new technologies) and port tariff restructuring, so as to better attract cargoes, and achieve simpliﬁcation in service provision. Greek ports are also interested in developing user-oriented adaptability. This is based on the assumption that the biggest ports could be assisted by synergies with shipping and cargo handling companies, in order to satisfy user demand. Signing contracts with container carriers (i.e. MSC, Norasia, China SCL) was among the main priorities following the transformation of Piraeus into a corporation. The potential of storage facilities and equipment concessions to port users are strongly promoted in Thessaloniki. Smaller

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363

ports pursue a niche market strategy, as they lack both the experience and the capabilities to develop multi-services provision strategies. In this vein, CEOs governing Greek ports seek developments that could beneﬁt them by enhancing their autonomy, or by allowing more ﬂexible strategies. For instance, they have supported the potential of an EU imposed ‘port services’ directive that would open access to the port services markets (Pallis & Vaggelas, 2005). With geographical powers eroding, the vital issue for them is the presence of commercial ethos rather than the ‘nature’ of competition. In conditions of limited private sector involvement, they seek the disappearance of public monopolies and/or the generation of conditions for labour reform. Notably, given the pro-privatisation intentions of the current government, the strategic planning that is followed anticipates the highest support for ‘the imminent privatisation. According to the planning of the MMM, this will be completed in two phases, with 51% being owned by the public y (and) will take place with the consent of the Port’s personnel’ (ThPA, 2005).

11.4.4. Entry-Barriers and Absence of Intra-Port Competition Meanwhile, regional competitors have introduced reforms that allow freer access to port services provision, in order to address calls for developing an advanced logistics strategy and specialisation. Spain has allowed concessions, while international groups have been involved, and currently control, large-container terminals in Italy. Dedicated capital-intensive terminals have emerged, mainly to ﬁll the gap between the objectives of conventional port providers and shipping lines and create a positive sum ‘win-win’ strategy for all those involved. Cyprus is developing a concession programme while the Marsaxlokk’s success was followed by a thirty-year concession of the Freeport Terminal. On the contrary, Greek ports have not implemented an organisational restructuring. Given the consolidation in the European container-handling market (ESPO, 2005), the interest from shipping and other private companies for investing in both cargo and passenger terminals and the provision of port services is explicit but national legislation continues to limit concessions and intra-port competition. Port authorities remain the sole providers of core services (i.e. handling) whilst the provision of some nautical services by private ﬁrms (i.e. towage) is heavily regulated. The direct private sector involvement in port services provision is still outlawed. The attempts by a private company to offer port services (operate a car

364

ATHANASIOS A. PALLIS

terminal in Elefsina) were blocked (September 2003) as illegal. One company, Astakos SA has gained the right to serve cargoes in Western Greece; still it has to limit its activities to the development of an industrial and commercial free zone that provides logistics solutions. This situation diminishes, inter alia, the advancement of specialisation and adaptation to users’ requirements, and the implementation of new technologies and business models. At the same time it generates the potential of excess rent seeking by port authorities (De Langen & Pallis, 2006). For example, the Competition Regulatory Authority already examines port users’ complaints regarding the Piraeus Port Authority (PPA) practices, and has in principle decided that the PPA has abused its dominant position favouring particular users. Lowering legislative entrybarriers in port services provision can introduce intra-port competition and reverse the situation (De Langen & Pallis, forthcoming; Goss, 2006). However, such entry-barriers in Greece remain substantially higher than in any other EU member-states. The absence of intra-port competition, along with the lack of business culture and the inexperience of the newly formed port entities in long-term planning, contribute to the existing lack of efﬁciency (Barros & Athanassiou, 2004). Of course, intra-port competition may be desirable, but not always possible to introduce. An important condition for the viability of intra-port competition is that the market should be at least twice as large as the Minimum Efﬁcient Scale (MES – see De Langen & Pallis, 2006). A small market size relative to the MES for providing a port service prevents intraport competition, and this is a situation observed in the Greek ports. The MES of a port activity can be reduced through the various strategies of a public authority (i.e. the port authority) that owns assets and leases assets to private ﬁrms. Policy options include tender procedures, tariff monitoring and benchmarking of port service providers, as well as access regulations (Flor and de Filippi, 2003). None of these policy activities have been undertaken in Greece. Moreover, there has been no decision to introduce intra-port competition in those dynamics that the MES is not a problem, and there is a growing demand. The most illustrative case of such markets is that of the container port terminals. In 2005, the government expressed its intention to tender part of the port of Piraeus. This movement has the potential to become the biggest substantive reform of all, yet no decisions have been reached. Reportedly, the MMM has been in direct talks with several terminal operating companies (COSCO, HPH, DP International, APM Terminals, MSC, and ZIM) and governments (China, Korea) that are interested in investing and

Whither Port Strategy? Theory and Practice in Conflict

365

providing services in the Greek ports. COSCO, long seen as a front-runner in partnering the development of container business in Greece’s two biggest ports, has stated it wants to develop Piraeus as a transhipment hub in the Mediterranean by establishing a facility that would eventually be able to handle up to 1 million TEUs annually. At the end of 2006, when moves seemingly designed to put the Piraeus and Thessaloniki container terminals under Chinese management sparked controversy, the government conﬁrmed plans for an international tender for a 30–year period, only for port unions to call an industrial action in opposition. Notably, this would be a long-term concession of the entire port terminal, a move that would in essence work as an entry-barrier and result in the continuation of the existing intra-port competition limitations. Port employees opposed such moves and their exclusion from relevant discussions, refused overtime and weekend works and applied a ‘go-slow’ practice during weekdays. With the two major ports effectively closed for two months (December 2006–January 2007), income losses were reported to have reached 12 million Euros in Piraeus (where weekday work handling fell by 60%) and 3.2 million Euros in Thessaloniki.9 The eight-week crisis, which was the second within less than two years (the ﬁrst one evolved in the summer of 2005), prompted the port users’ reactions. Piraeus’ largest user, MSC, switched some services to rival Mediterranean hubs in Italy and Turkey; China Shipping announced a surcharge for cargo transported to Greece and stopped taking cargo from North America to Piraeus and Thessaloniki; feeder lines and the International Maritime Union of shipping agents also imposed surcharges; and Zim Lines warned of impending legal action to seek compensation for damages it allegedly incurred during the dispute. A number of critical parameters remain under discussion, including whether intergovernmental agreements or port-level concessions will be preferred; the length of authorisations/concessions, the presence of intra-port competition, the role of port authorities, the extent of labour reform, the endorsement of privatisation or not, inter alia. These decisions can be deterministic for both the operational and the ﬁnancial results of any port. For example, the speciﬁc design of the foreseeable concessions, their regulatory regime, the tariff regime, and the way the concessions might be awarded can structure the supply and encourage port service providers to optimise the use of scarce resources (Notteboom, 2007). As the experiences in other countries suggest,10 the ‘devil might be in the detail’ of the reform and the governance model. The disruption ended by the MMM’s decision to postpone any tendering plans. In effect the existing situation has not settled anything so far. In the

366

ATHANASIOS A. PALLIS

meantime, all sides committed themselves to a process of dialogue about the future development of the container terminals, with port management accepting that a public sector model for growth would be given equal consideration.

11.4.5. Lack of Labour Reform Meanwhile, there was neither a new labour statute, nor any personnel retraining to increase commercial orientation and improve managerial procedures. Many of the ‘stone-age’ regulations (organograms, operational practices, dockers’ payment schemes) are still the same. Whilst modern container terminals employ approximately ten people per crane, the Greek ports employ almost twenty. The legal framework does not allow for redundancies in the public sector and ports are overstaffed. Moreover, there is no provision for re-training port workers and for integrating technology usage in their core skills; neither is there a mechanism for certifying port workers’ qualiﬁcations. A port reform would mean that the future of the existing unskilled port workers would be in danger, while it would have to develop schemes for providing appropriately trained personnel. Otherwise, there could be a serious problem in meeting the demand of skilled labour, which is required in order to deploy strategies towards quality services. As it has been suggested by the port authorities themselves (Pallis & Vaggelas, 2005), the path followed by Italy in the 1980s, with the state assuming speciﬁc responsibilities regarding port labour restructuring, might be the one to be followed in Greece as well. Although the endorsed attitude in pushing reforms was to let the real reforms be done by the ports themselves, the central government continues to control several aspects (i.e. the process of hiring employees), questioning how substantive the reforms have been in practice. In all 12 ports of national interests, port services are provided by the port’s personnel. As Psaraftis (2006, p. 429) reviews, the dockers’ work regulations vary among ports, with ports such as Piraeus and Thessaloniki having a strict employer–personnel relationship with their dockers’ workforce (which guarantees, among other things, a minimum salary), whereas others such as Elefsina having a more loose relationship and engaging dockers on an ad hoc basis. The scholar notes, that there are exceptions concerning the unofﬁcial (yet very much active) presence of ‘shipping-line

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367

agents’ within the terminals of Piraeus, for the provision of supporting services to the shipping lines, such as the lashing of containers, yard planning, logistical support, and others. Yet, the computerisation of the Piraeus container terminal in 2001 reduced drastically the role of the agents in the terminal. Another exception to the ‘service’ rule is the piers leased to industrial operators (mainly in the dry bulk and liquid bulk trades) for their own exclusive use. As none of these leases is to stevedoring companies or private port operators, Psaraftis (2006) was led to the conclusion that the ‘landlord’ model which prevailed in other European countries is by and large absent in Greece. All (former and current) civil servant personnel of Greek public ports are unionised under the Federation of Permanent Employees of Greek Ports (OMYLE), which, together with the Federation of Cargo Handlers of Greece (OFE), representing dockers, are the two main port labour unions in Greece. Lower-level unions also exist in all ports. With the total of port personnel actively participating in these unions, the latter have managed to advocate successfully the absence of substantial port labour reforms. This trend ‘ignores’ previous experiences of port reform, where the beneﬁts of labour reforms in terms of port efﬁciency and productivity exceeded the, nevertheless questionable, beneﬁts of privatisation – an illustrative example being the case of the UK seaports’ privatisation and performance in the 1980s and 1990s (see Thomas, 1994; Saundry & Turnbull, 1997).

11.4.6. Political Interference All these are accompanied by a centralised decision-making process, characterised by procedural standardisation and bureaucratic interferences. Politicians continue to involve party-politics and political interference continues to take various forms. The governmental involvement is not limited to general regulatory, planning, or ﬁnancial issues. An interventionist state interferes in strategic decisions and daily port life. The change of the political party in power in 2004 was accompanied by inertia. This had commenced in the pre-election period and ended a year later with the appointment of entirely new Boards of Directors and CEOs in all ports of national interest. Before that, a ‘ﬁrst generation’ of autonomous port managers had been appointed via a supposedly transparent and independent process. This approach resulted in further delays, as the ‘second generation’ port managers decided to follow a public sector ‘tradition’ and

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ATHANASIOS A. PALLIS

review the existing business plans. Three months later, the inexperienced (as regards ports) CEOs of the Port of Piraeus resigned. Within seven years, the ports of Piraeus and Thessaloniki have been managed by ﬁve and three different CEOs, respectively. The 12 autonomous port entities (trans-European ports and ports of national interest) also participated in the self-governed Hellenic Ports Association that was established in 2003 in order to ensure collaboration among them, aiming to achieve the objectives of the port strategy. This Association became inactive following the 2004 elections, and was dissolved in mid-2006, only to be replaced by a National Centre of Port Development that is governed by the PPPGS itself. Still, inertia continued as it took more than eight months to appoint a Board of Directors to this new national centre. Interferences in tariff setting are also present, favouring particular shipping sectors, or even companies. The evidence provided by Psaraftis (2005), who served as CEO of the Piraeus port in the period 1996–2002, is illustrative, i.e. by refusing to approve requested increases in low-domestic ferry berthing rates, the Government essentially provided a subsidy to private coastal shipping companies, many of which are listed in the Athens Stock Exchange. Then, it was the government that expressed at two different times, summer of 2005 and December 2006, its intention to tender the container terminals of the ports of Piraeus and Thessaloniki. Anecdotal evidence and the content analysis of the relevant daily press suggest that, at least in one of these cases, the Piraeus Board of Directors was not involved in the planning of these initiatives.

11.4.7. An Inconsistent Governance Framework The preceded discussion suggests that until now, the implementation of policy reforms has not provided a port governance ﬁt that responds to a potential conﬁguration that might advance port competitiveness. As detailed in Table 11.4, the port strategy is based on the need to overcome long-term inefﬁciencies. Greek ports, which have experienced a model of impersonal port service structures, inﬂexible labour regimes, and the lack of capacity to provide value-added services, are currently aiming at efﬁciently delivering core and additional services. Yet, another strategy is in the agenda. All ports seek ways to be engaged in an effectiveness-oriented strategy building relationships with port users, potential investors and/or other ports, and enhance their capacity to integrate in intermodal logistics

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Whither Port Strategy? Theory and Practice in Conflict

Table 11.4.

Greek Ports Governance and the Matching Framework. Conﬁguration 1

Environment Strategy

Conﬁguration 2 High uncertainty, high complexity and dynamism

Current

Efﬁciency-oriented, focus on delivery of the basic product and service

Target

Structure

Effectiveness-oriented strategy, focused on delivery of peripheral product and services Mechanistic Centralised decision-making characterised by procedural standardisation (subject to bureaucratic interferences)

Source: Pallis (2007a).

chains. This strategy would match the requirements of the contemporary economic context. However, both the current and the desired strategies are undermined by the delays in lowering the barrier to market entry in order to allow the participation of additional (private) actors and the establishment of the beneﬁcial intra-port competition. The lack of labour reform, both in terms of employment practices and increase of labour specialisation, has been an additional obstacle. These issues are not irrelevant to the fact that such adjustments imply signiﬁcant political costs, at a time when the decision-making process is remarkably centralised (thus politically sensitive). The procedural standardisation of this process goes hand in hand with extensive bureaucratic interferences. The latter is not limited to general regulatory, planning, or ﬁnancial issues. An interventionist state interferes in strategic decisions and daily port life. This is the case even in the ports that are listed in the stock exchange (Piraeus, Thessaloniki) and thus are subject to published business plans and stricter corporate responsibility. According to port governance approaches, this inconsistency of the enacted features of port governance ﬁt is vital. The question that has yet to be answered is whether Greek port performance, the output of this ﬁt, has been undermined by this lack of response to a matching port governance conﬁguration.

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ATHANASIOS A. PALLIS

11.5. HAS THE OUTCOME BEEN POSITIVE? 11.5.1. Financial Performance of the Greek Ports There are several common objectives when a port undergoes reform, including economic, social, and political factors (notably the share of power and authorities between different parties, both public and private). In the Greek case, all these have been part of the agenda. Yet, as in a growing number of countries (Musso, Ferrari, & Benacchio, 2006), the improvement of the ﬁnancial performance (proﬁtability, economic impact of mobilised private capital, and ﬁnancing of investments) was, and reportedly remains, among the primary objectives of the attempt to reinforce market mechanisms within the context of port operations. The study of the ﬁnancial statements of the 12 Greek ports11 operating as SAs indicates that over the ﬁrst ﬁve years of the post-devolution period (2000–2005), the new port governance model struggled to provide a positive ﬁnancial output. Both revenue and net earnings experience steadily declining trends. Eight out of twelve ports indicate declining revenue growth rates, and a further one indicates stagnation of revenues (Table 11.5). This is also the case of the two largest of these port entities, namely Piraeus and Thessaloniki, even though these ports have been listed in the Athens Stock Exchange, since August 2003 and August 2001, respectively – a decision that provided capital for investing in port activities’ expansion and modernisation. A highly crucial ﬁnding though is revealed when operating proﬁts, in particular Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) are examined; the results deteriorate considerably, as ten out of twelve ports show declining operating proﬁt growth rates. This results in six out of twelve ports showing declining net proﬁt growth rates. Comparing net proﬁts against operating proﬁts, in some cases net proﬁts appear to be higher than operating proﬁts. This outcome is mainly associated with the realisation of one-off extraordinary earnings that result to a slight improvement in bottom-line results. The improved port proﬁtability due to irregular factors imposes some scepticism on the robustness of the ports’ long-term growth potential. Apart from that, the economic swings seen in the shipping industry affect the port business as well. As a result, proﬁt margins have been squeezed substantially, leading to considerable earnings’ volatility. Overall, in 2005, the vast majority of the Greek ports attained proﬁtability, with the exception of Volos, Kavala, and Alexandroupoli. Based on revenue, the Port of Piraeus consistently holds the major market

Port

Piraeus Thessaloniki Volosb Kavalab Alexandroupolib Igoumenitsab Herakliob Kerkyrab Patrab Elefsinab Lavriob Raﬁnab

Cumulative Financial Impact of Port Devolution (2000–2005).

Revenue Growth (%)

Operating Proﬁt Growth (EBTDA, %)

Net Proﬁt Growth (%)

Own Equity Growth (%)

Assets Growth (%)

Liabilities Growth (%)

Productivity Ratio Growtha (%)

21.8 31.2 0.1 154.0 20.8 19.6 8.5 3.4 17.7 8.9 216.0 40.1

13.7 80.8 170.9 85.8 47.6 80.7 9.1 69.7 77.2 267.0 394.0 303.0

10.0 73.2 33.7 113.0 57.5 88.9 382.0 67.3 83.8 901.0 490.0 244.0

36.5 13.2 24.3 45.7 5.3 0.7 481.0 18.1 6.3 14.3 177.0 48.9

30.4 16.7 24.9 44.5 8.4 4.4 348.0 9.3 5.6 58.3 329.0 131.0

14.0 81.5 34.6 14.4 569.9 42.7 11.2 35.3 1.6 224.0 760.0 116.0

42.1 12.3 187.0 29.5 179.0 89.0 534.0 597.0 4.2 167.0 167.0 10.8

Whither Port Strategy? Theory and Practice in Conflict

Table 11.5.

EBITDA, Earnings before interest, taxes, depreciation and amortization; liquidity, current assets/short-term liabilities; capital adequacy, own equity/total liabilities; ROA, net proﬁts/total assets; ROE, net proﬁts/own equity; productivity ratio, operating proﬁt/employee. Source: Company ﬁnancial accounts. Piraeus and Thessaloniki port ﬁgures are based on the International Accounting Standards (IAS) approach. a Productivity ratio growth refers to period 2003–2005. b Financial data cover period 2002–2005; 2002 was the ﬁrst year that these ports published ﬁnancial accounts on an annual basis.

371

372

ATHANASIOS A. PALLIS

share among its peers and Thessaloniki, Patra and Volos ports follow at a distance. According to 2005 revenue ﬁgures, the market shares of Piraeus, Thessaloniki Patra and Volos ports were standing at 65.5%, 22.2%, 3.7%, and 2.2%, respectively. Despite the recent positive ﬁnancial results (Table 11.6), the operating proﬁt growth rates over the 2000–2005 period deserve closer inspection regarding the major port of the country in particular. Operating growth rates in the case of Piraeus Port Authority SA stand at 13.7%. However, the fact that the negative ﬁnancial results of 2005 were accompanied by a stagnated general cargo throughput (4.552 million metric tonnes), a drop in volumes of vehicle throughput in the car terminal, and a second successive year of diminishing container throughput (see Table 11.1), raises some questions about the potential for more positive results in the near future. The equivalent ﬁgure is more worrying for the Thessaloniki Port, as it comes down to diminishing operating growth rates of 80.8% and to net proﬁt growth rates of 73.2% within ﬁve years, despite the positive trafﬁc developments illustrated in Table 11.2. As regards the rest of the Greek ports, most of them experience deteriorating growth rates in operating proﬁtability, particularly the Heraklio port. All these negative trends were observed within a period that was characterised by a signiﬁcant growth in world seaborne trade, and especially in containers. The overall ﬁnancial performance of the Greek ports appears to be far from promising, with a number of ports – such as Volos, Kavala, and Alexandroupoli – exhibiting consistent losses. This outcome may be related to excessive administration and labour costs and inefﬁcient capital utilisation. In the case of Kavala, Alexandroupoli, and Volos ports administration expenses as a percentage of revenue accounted for 60%, 57%, and 30%, respectively in 2005, although these are the ﬁnancial accounts of the port entities that stand as the sole port service providers. What is most problematic, though, is the deteriorating productivity ratio, deﬁned as operating proﬁts over employees, and employed as a productivity proxy index (Table 11.5). Six out of twelve ports indicate worsening productivity ratios; Heraklio and Piraeus ports rank at the top of the list. Lower-labour productivity may indicate that a number of Greek ports remain overstaffed. This outcome underlines the persisting deﬁciencies, experienced during the previous port governance model, where state intervention and ‘inward-looking’ policies dominated port management decisions. The examination of the trends of the key ﬁnancial indices (as shown in Table 11.7) supports the conclusions drawn upon proﬁtability trends. The

Greek Port Net Proﬁts (Euro).

2000

2001

2002

2003

2004

2005

D% 2000/2005

15,531,259 21,219,857 – – – – – – – – – –

28,771,553 6,508,016 – – – – – – – – – –

30,070,813 4,326,998 813,928 141,340 106,261 1,833,873 10,589 216,614 2,594,169 626 76,180 189,325

30,545,998 4,686,577 810,456 299,040 45,780 674,986 117,561 79,696 942,593 5,671 12,372 188,013

20,904,656 6,165,664 766,113 130,611 51,895 510,566 775,703 466,840 188,534 5,789 275,918 2,949

17,082,724 5,695,859 539,352 301,320 167,540 204,285 51,019 70,880 420,398 5,011 297,030 271,723

10.0 73.2 33.7 113.0 57.5 88.9 382.0 67.3 83.8 901.0 490.0 244.0

Whither Port Strategy? Theory and Practice in Conflict

Piraeus Thessaloniki Volos Kavala Alexandroupoli Igoumenitsa Heraklio Kerkyra Patra Elefsina Lavrio Raﬁna

Table 11.6.

Source: Company Financial Accounts. Piraeus and Thessaloniki port ﬁgures are based on the International Accounting Standards (IAS) approach.

373

374

Table 11.7. Financial Ratio Revenue growth trend EBITDA growth trend Net proﬁt growth trend Net proﬁt margin trend Total assets trend Total liabilities trend Own equity trend Liquidity trend Capital adequacy trend

ROE trend Productivity ratio trend

Piraeus

Thessaloniki

Volos

Kavala

Alexandroupoli

Igoumenitsa

Heraklio

Kerkyra

Patra

Elefsina

Lavrio

Raﬁna

k + k k + k k + 2 2 + k + k + k + k + k

m 2 2 + 2 + m + m + m + 2 + 2 + 2 + 2 + m

k + k k k k + m k + k + k k k + m

+ m k k k + m k + m + 2 + m k k k

k k k k + m + m 2 + k + k k k k

k k k + k k k + m + m + m + k + k k

k k + 2 + k + m + 2 + m + m + m + 2 + 2 + 2

2 k k + 2 k + k k + k + k + 2 + 2 + m

k k k + 2 + m + m + m + k + k + k + k + m

2 + m + 2 + k + m + m + m + 2 + 2 + 2 + 2 + 2

+ m + m + m + m + m + m + m + 2 + 2 + 2 + 2 + m

+ 2 + 2 + 2 + 2 + m + m + m + 2 + 2 + 2 + 2 + 2

Liquidity, current assets/short-term liabilities; capital adequacy, own equity/total liabilities; ROA, net proﬁts/total assets; ROE, net proﬁts/ own equity; productivity ratio, operating proﬁt/employee; growth, [ (xt – xt1)/xt1], x refers to the variable of interest; mk2, increasing/ decreasing/volatile trend.

ATHANASIOS A. PALLIS

ROA trend

Port Devolution in Greece: Summary of Financial Performance.

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Whither Port Strategy? Theory and Practice in Conflict

liquidity ratio (current assets over short-term liabilities) is found to be low, predominantly in the case of Lavrio, Elefsina, and Piraeus ports. Similar conclusions hold for the capital adequacy ratio (own equity over total liabilities) that appears low, especially in the case of Lavrio, Elefsina, and Raﬁna ports. Furthermore, with the exception of Piraeus, Thessaloniki, and Lavrio ports, return on assets (ROA) and return on equity (ROE) appear exceptionally low and in some cases even negative; this outcome points to poor asset and resource utilisation rates. The ﬁnancial ratio analysis of the Greek ports is further enriched by a useful as well as revealing exercise. Table 11.8 provides a summary of key ﬁnancial ratios compared and contrasted to a benchmark level that has been set a priori. Although somewhat arbitrary, this benchmark ratio level is chosen on the basis of standard empirical ﬁnance and practice (rules of thumb), related, in other words, to cumulative conventional corporate wisdom for (conservative) empirical valuation of the ﬁrm’s ﬁnancial decisions. The benchmark ratio level is set at 4% annual growth rate for

Table 11.8. Port

Benchmark Piraeus Thessaloniki Volos Kavala Alexandroupoli Igoumenitsa Heraklio Kerkyra Patra Elefsina Lavrio Raﬁna

Port Devolution in Greece: Financial Performance Comparison vs. Benchmark.

Revenue Growth

Net Proﬁt Growth

Liquidity

Capital Adequacy

ROA

ROE

4%

4%

2x

2x

7%

12%

– – – O – – – – – – O O

O – O – – – O – – – O O

– O O O O O O O O – – O

– O O O O O O O O – – –

O – – – – – – – – – O O

– – – – – – – – – – O O

Notes: See explanation of ratios at the end of Table 11.6. Source: Company Financial Accounts. Piraeus and Thessaloniki port ﬁgures are based on the International Accounting Standards (IAS) approach. Financial data cover period 2002–2005. Ratios refer to 2004–2005, in order to have a meaningful interpretation.

376

ATHANASIOS A. PALLIS

revenue and net proﬁt; 2% for liquidity and capital adequacy; and 7% and 12% for ROA and ROE, respectively. To summarise the empirical ﬁndings, most of the 12 Greek ports perform higher than the set benchmark levels in terms of liquidity and capital adequacy. However, their performance is extremely poor in terms of ROE and ROA. This outcome is directly related to weak proﬁtability (revenue and net proﬁt) growth rates for the vast majority of the Greek Port Authorities. It appears that Greek ports should accelerate their pace towards relaxing earlier state embracement and intervention, in an attempt to improve key ﬁnancial ratios, such as ROE and ROA. On the other hand, low-productivity rates, for instance, reﬂect overstaffed business units, an outcome associated with political decisions rather than rational resource planning. The peripheral Greek ports appear to exhibit a weak ﬁnancial performance, which implies that they should attempt to improve their service mix and quality standards.

11.6. CONCLUSIONS Following a lengthy period of inertia, a major Greek port policy reform is underway. The inefﬁciencies of the existing traditions of port organisation, the adjustment pressures of the economic environment, and the ﬁscal constraints have contributed to this reconsideration. The adopted design follows international trends, aiming to a new port governance model that supports autonomous and commercially driven port entities. Policy reforms have included the corporatisation of 12 ports of national interest, and the listing of the ports of Piraeus and Thessaloniki in the Athens Stock Exchange. Whether these developments constitute a permanent pattern, or the prelude to privatisation of some or all of these ports, remains to be seen. Meanwhile, this chapter provided a twofold assessment of the implementation of these decisions. The examination of the input of this port reform, which is the port governance ﬁt in place, identiﬁed inconsistencies between the economic context, the port strategy, and the Greek ports structure. Infant autonomous corporate entities have yet to ﬁnalise appropriate business plans, organisation structures, and strategies in order to face the dynamics of the economic and policy environment and the challenges and opportunities they pose on the port hierarchy. While the EIB is ready to provide loans for port modernisation, the Greek ports have failed to identify feasible port development projects and gain access to European funding.

Whither Port Strategy? Theory and Practice in Conflict

377

Institutional entry-barriers remain substantial and the public sector retains the monopoly in port services provision. The rules that would allow direct private sector and additional actors’ involvement in the provision of port services remain under consideration. The absence of a clear vision on that front (i.e. the speciﬁc design of the foreseeable concessions, their regulatory regime, the tariff regime, the way the concessions might be awarded, the ways to optimise public sector involvement, or the use of scarce resources) is evident. The blending of a centralised decision-making and direct political interference in Greek ports management and daily operations (including tariff setting) increases the political sensitivity of such decisions and the political costs involved in endorsing further reform strategies. They also diminish the autonomy of the newly devolved port entities. All these, contribute to the absence of the essential port labour reforms. The latter is essentially related to the expected deﬁnition of the public/private interface. Without such decisions being reached, the supposedly autonomous port authorities are struggling to implement efﬁciency-related strategies that focus on delivery of the basic product and service. Moreover, they postpone the deployment of effectiveness-oriented strategy that focused on delivery of peripheral product and services and would allow enhancing their potential as logistics centres. To conclude, in certain aspects, it is debatable how substantive the national policy reforms have been in practice. As a result the various elements of port governance do not correspond to a consistent ﬁt. This inconsistency has a direct impact on the ﬁnancial performance of the Greek ports. While Greek port exhibit positive bottom-lines in their ﬁnancial accounts, yet they still have not attained a solid course of robust growth and competitive development. Scrutinising the ﬁnancial accounts of Greek ports suggested that certain rigidities are still present and raised considerable doubts as to the efﬁciency of their organisational structures. Even though ﬁnancial performance is part of the overall performance of a port system, these ﬁndings underlines an imminent need for further reforms. It has to be acknowledged that as national port reforms began less than ten years ago the governance of Greek ports is still in a state of ﬂux. Port governance decisions are part of a process that unfolds over time (see Fig. 11.3). Likewise in other industries, they ﬁrst demand a certain period in order to impose new structures (systems and processes) and develop the objectives of a speciﬁc governance model (Brooks & Cullinane, 2007b). Afterwards, they demand lengthy, transition times with change involving

378

ATHANASIOS A. PALLIS st

2ndstage Input

1 Stage Input t

t Implementation

Generation of governance adjustments

Governance Decisions (input)

Output t Transition

t Governance model (input)

Defined by governance decisions

Defined by external factors

STRUCTURE Ownership management Model selection Model adjustment made by PAs and/ or relevant policy actors

t Performance (output)

Efficiency

Internal performance ENVIRONMENT FIT

STRATEGY Policy Objectives

Effectiveness External (perceived) Performance (i.e. user satisfaction)

objectives/regulations

Fig. 11.3.

Port Governance and Performance. Source: Brooks and Pallis (2007).

both a cultural and operational adjustment by all those involved in the development and management of port services/activities, and perhaps respective adjustments by other stakeholders. There is however a clear indication of paths that could enhance a better performance reversing many decades of an inefﬁcient and ineffective interventionist public sector management and inward-looking policies. These include amendments and a re-consideration of political practices that might further modify the structures of the sector, thus enabling the Greek ports to adjust their strategies. Among others, this study highlighted that future essential changes should include the lowering of entry-barriers and the introduction of intra-port competition, labour reforms, limitation of the existing political interference, and the establishment of really autonomous port authorities. Given the dynamics of the economic and policy environment and the challenges and opportunities they pose on the port hierarchy in the wider port region, further legislative amendments and a re-consideration of political practices might enable Greek ports to adjust their strategies towards a more competitive stance and advance towards a more positive overall performance. Lengthy controversies regarding the details of port reform are costly and nowadays non-captive users switch ports easier than

Whither Port Strategy? Theory and Practice in Conflict

379

in the past. Both situations might deteriorate the Greek port entities’ performance, so the sooner decisions are made the better it is.

NOTES 1. Reported from a compilation of various sources (mostly Eurostat databases) and reported by European Seaport Organisation (ESPO) at www.espo.be, as of 1 March 2007. 2. In February 2007, the MMM reviewed the list of the Greek ports of ‘national interest’. The new list includes 16 additional ports. However, this decision has not yet been accompanied by any institutional or other development; thus these ports are not included in of the analysis of the port SAs that is undertaken in this study. For the record the 16 additional ports that have been included in the list of ports of national interest: Argostoli, Chios, Halkida, Kalamata, Katakolo, Korinthos, Kyllini, Kos, Lagos, Paros, Preveza, Rethimno, Santorini, Samos Syros, and Zante (Law 8315/2007). 3. Parts of this section are based on Pallis (2007a). 4. For a thorough analysis of Italian port developments: Valleri, Lamonarca, & Papa (2007). 5. In 2000, container trafﬁc in Turkish ports was 10,647,377 TEUs. In 2005 and 2006, container trafﬁc reached 17,727,189 and 19,171,551 TEUs, respectively (Source: Turkish State Railways, 2007, www.tcdd.gov.tr/liman/esya.htm, assessed on March 2007). 6. Containerised trafﬁc in Constantza Port in 2006 was 1,037,077 TEUs, compared to 118,645 in 2000 (Source: Port of Constantza, www.portofconstantza. com, assessed on March 2007). 7. These eleven ports are: Chios, Kyllini, Mytilene, Halkida, Paros, Skiathos, Naxos, Souda, Tinos, Mykonos, and Rhodes. 8. For a review of the implication of the EU policies on port governance, see Pallis (2007b). 9. Lloyd’s List, Greek port strike ends, 3 January 2007. 10. Illustrative examples are the Canadian (Brooks, 2007b) and the Australian (Everett, 2003) cases of port governance reform. 11. This analysis, including Tables 5–8, draws on: Pallis and Syriopoulos (2007).

REFERENCES Baltazar, R., & Brooks, M. R. (2001). The governance of port devolution: A tale of two countries. Proceedings of the 9th world conference on transport research (CD-ROM), Seoul. Baltazar, R., & Brooks, M. R. (2007). Port governance, devolution, and the matching framework: A conﬁguration theory approach. In: M. R. Brooks & K. Cullinane (Eds), Devolution, port governance and port performance, research in transport economics (Vol. 17, pp. 379–403). London: Elsevier.

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Barros, C. P., & Athanassiou, M. (2004). Efﬁciency in European seaports with DEA: Evidence from Greece and Portugal. Maritime Economics and Logistics, 6(2), 123–140. Bichou, K. (2007). Review of port performance approaches and a supply chain framework to port performance benchmarking. In: M. R. Brooks & K. Cullinane (Eds), Devolution, port governance and port performance, research in transport economics (Vol. 17, pp. 567–598). London: Elsevier. Bichou, K., & Gray, R. (2005). A critical review of conventional terminology for classifying seaports. Transportation Research Part A, 39(1), 75–92. Brooks, M. R. (2007a). Issues in measuring port devolution program performance: A managerial perspective. In: M. R. Brooks & K. Cullinane (Eds), Devolution, port governance and port performance, research in transport economics (Vol. 17, pp. 599–629). London: Elsevier. Brooks, M. R. (2007b). Port devolution and governance in Canada. In: M. R. Brooks & K. Cullinane (Eds), Devolution, port governance and port performance, research in transport economics (Vol. 17, pp. 237–257). London: Elsevier. Brooks, M. R., & Cullinane, K. (Eds). (2007a). Devolution, port governance and port performance, research in transport economics (Vol. 17). London: Elsevier. Brooks, M. R., & Cullinane, K. (2007b). Conclusions and research agenda. In: M. R. Brooks & K. Cullinane (Eds), Devolution, port governance and port performance, research in transport economics (Vol. 17, pp. 631–660). London: Elsevier. Brooks M. R., & Pallis A. A. (2007). Linking port performance and post-devolution port governance models. Proceedings of the international association of maritime economists 2007 conference (CD-ROM), Athens, Greece. Chlomoudis, C. I., & Pallis, A. A. (1997). Investments in transport infrastructure in Greece: Have the EU initiatives promoted their balanced and rational distribution? World Transport Policy and Practice, 3(4), 23–29. Chlomoudis, C. I., & Pallis, A. A. (2002). European port policy: Towards a long-term strategy. Cheltenham: Edward Elgar. Chlomoudis, C. I., & Pallis A. A. (2004). Port governance and the smart port authority: Key issues for the reinforcement of quality port services. Proceedings of the 10th world conference on transport research (CD-ROM), Istanbul. Commission of the European Union (CEU). (1997). Green paper on seaports and maritime infrastructure. Com (97)678, final. Brussels: European Commission. Cullinane, K., & Song, D. W. (Eds). (2002). Port privatisation policy and practice. Maritime Policy and Management, 22(1), 55–75. Cullinane, K., & Song, D. W. (Eds). (2007). Asian container ports: Development competition and co-operation. Basingstoke: Palgrave Macmillan. De Langen, P. W. (2002). Clustering and performance: The case of maritime clustering in the Netherlands. Maritime Policy and Management, 29(3), 209–221. De Langen, P. W., Nijdam, M., & Van Der Horst, M. (2006). New indicators to measure port performance. Proceedings of the international association of maritime economists (IAME) annual conference (CD-ROM), July, Melbourne, Australia. De Langen, P. W., & Pallis, A. A. (2006). The effects of intra-port competition. International Journal of Transport Economics, 33(1), 69–85. De Langen, P. W., & Pallis, A. A. (forthcoming). Analysis of entry barriers in seaports. Maritime Policy and Management, 34.

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Pallis, A. A. (2007a). Port governance in Greece. In: M. R. Brooks & K. Cullinane (Eds), Issues on devolution, port governance and port performance, research in transport economics (Vol. 17, pp. 491–508). London: Elsevier. Pallis, A. A. (2007b). EU port policy developments: Implications for port governance. In: M. R. Brooks, & K. Cullinane (Eds), Devolution, port governance and port performance, research in transport economics (Vol. 17, pp. 161–176). London: Elsevier. Pallis, A. A., & Syriopoulos, T. (2007). Port governance models: A ﬁnancial evaluation of Greek port restructuring. Transport Policy, 14(3), 232–246. Pallis, A. A., & Vaggelas, G. K. (2005). Port competitiveness and the EU ‘port services’ directive: The case of Greek ports. Maritime Economics and Logistics, 7(2), 116–140. Port of Constanza. (2007). Statistics. www.portofconstantza.com, assessed on March 2007. Psaraftis, H. N. (2005). Tariff reform in the port of Piraeus: A practical approach. Maritime Economics and Logistics, 7(4), 356–381. Psaraftis, H. N. (2006). Greece. In: ISL. Public financing and charging practices of seaports in the EU, Study prepared for European Commission, DG-TREN, 424–472. Psaraftis, H. N. (2007). Institutional models for the Piraeus port authority. Paper presented at the international scientific conference: Competitiveness and complementarity of transport modes. Chios, Greece. Rodrigue, J. P. (2004). Appropriate models of port governance: Lessons from the port authority of New York and New Jersey. In: D. Pinder & B. Slack (Eds), Shipping and ports in the 21st century (pp. 63–81). London: Routledge. Saundry, R., & Turnbull, P. (1997). Private beneﬁt, public loss: The ﬁnancial and economic performance of UK ports. Maritime Policy and Management, 24(4), 319–334. Su, Y., Liang, G. S., Liu, C. F., & Chou, T. Y. (2003). A Study of integrated port performance comparison based on the concept of balanced scorecard. Journal of the Eastern Asia Society for Transportation Studies, 5, 609–624. Talley, W. K. (2007). Port performance: An economics perspective. In: M. R. Brooks & K. Cullinane (Eds), Devolution, port governance and port performance, research in transport economics (Vol. 17, pp. 499–516). London: Elsevier. Thessaloniki Port Authority (ThPA). (2005). Strategic—investment planning of Thessaloniki port authority, www.thpa.gr, assessed on September 2005. Thomas, B. J. (1994). The privatisation of United Kingdom seaports. Maritime Policy and Management, 21(2), 135–148. Turkish State Railways. (2007). www.tcdd.gov.tr/liman/esya.htm, assessed on March 2007. Valleri, M., Lamonarca, M., & Papa, P. (2007). Port governance in Italy. In: M. R. Brooks & K. Cullinane (Eds), Devolution, port governance and port performance, research in transport economics (Vol. 17, pp. 139–153). London: Elsevier. Wang, J. J., Ng, K. Y. A., & Olivier, A. D. (2004). Port governance in China: A review of policies in an era of internationalizing port management practices. Transport Policy, 11(1), 237–250. Wang, J. J., & Slack, B. (2002). Port governance in China: A case study of Shanghai. Occasional Paper Series, Paper No. 9, The Centre for China Urban and Regional Studies, Hong Kong. World Bank. (undated). World Bank Port Reform Toolkit, www.worldbank.org/transport/ ports/toolkit

CHAPTER 12 DIGITAL SHIPPING: THE GREEK EXPERIENCE Nikitas Nikitakos and Maria A. Lambrou ABSTRACT While electronic business (e-business) is developing rapidly, the pace and pattern of development of these technologies and related business practices are quite variable across countries and industries. In the shipping industry today, we observe various implementations and modes of use of maritime electronic services, which target at the facilitation of maritime business operations and tasks such as, chartering, procurement, manning, planned maintenance, technical and operational monitoring of the vessels, voyage planning and navigation as well as safety, security and emergency operations. Additionally, great efforts are made in order to integrate applications and provide value-added services. For some scholars, the global economy is converging towards common, homogenized and integrated organizational models, whereas e-business methods are seen as a set of practices congruent with the ‘‘modern’’ way of organizing economic activities. In our work, we review current practices and emergent patterns regarding digital shipping, we cite empirical evidence on e-readiness and maturity related with e-business models, digital modes of operation and enabling technologies, as well as perceptions of key barriers and incentives in the Greek-owned shipping sector, as interlinked with overall firm characteristics and strategies.

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Whereas in the Greek-owned financially robust shipping sector, we observe a low level of use and very moderate technology evolution trends, we seek a more thorough understanding of the digital mode of operation in the international shipping industry context; we devise a combined frame of analysis consisting of (a) a typology of digital shipping business models and (b) an extended Technology Acceptance Model for digital shipping. We consider postulations about emergent digital shipping modes of operation and important determinants of an organizational decisional context, as essential means in order to set digital shipping strategies, design market policies, and design and implement business models and technical options towards a future frictionless and networked shipping environment.

12.1. INTRODUCTION At present, information and communication technologies (ICTs) have gone far beyond a mere means of electronic information and transaction handling, becoming a foundation for efﬁcient and innovative applications linked to the core business capabilities and systems. Electronic business (e-business) refers to the exchange of information and electronic transactions across organizational networks, at any stage in a value/supply chain, whether within an organization, between businesses, between businesses and customers or between public and private sectors; these electronic transactions may refer to commodities, tangible goods or information goods and services (Castells, 2000; Filos & Ouzounis, 2003; Jelassi & Enders, 2005). E-business technologies and methods primarily allow enterprises to effectively and directly connect with clients, suppliers and business partners. Hence, a direct translation of this deﬁnition in the shipping environment allows us to initially understand digital shipping, as any form of information exchange and electronic transactions across electronic shipping organizational networks, at any stage in an integrated and intermodal value/supply chain; These transactions can be realized within a shipping company, or a shipping actor such as a shipping broker or charterer, between shipping business partners (i.e., shipping company–broker–charterer interactions), between businesses and customers (i.e., shipping company–cargo forwarder) or between public and private sectors (i.e., public port authorities–shipping agent interactions).

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Electronic shipping transactions may refer to any particular shipping market, namely freight transportation, passenger shipping, the cruise industry, short-sea and ocean shipping, bulk or the container sector. While e-business is developing at a rapid pace in most developed and developing countries, the pace of development of these technologies and related business practices are quite variable across countries and industries. The pricing of ICTs and related services (in particular telecommunications), the dynamics of the ‘‘local’’ IT industry, the ‘‘globalization’’ and openness of the economy, the existence of lead users and positive governmental policies are all seen as strong drivers for the rapid adoption and intensive use of ICTs. Understanding the broad spectrum of determinants of the contrasted pace and path of e-business development across countries and sectors is essential, because differences in rate and pace of adoption can be explained either as being various stages along a common pattern of technological and innovation diffusion or as being the result of differentiated paths of development across countries and sectors. For some analysts, e-business methods are a set of practices congruent with the ‘‘modern’’ way of organizing economic activities, whereas the global economy is converging towards a common and integrated organizational model. Today however, it is generally agreed that ICTs are quite ﬂexible and do not ‘‘impose’’ any organizational model, rather their enactment is determined by broader political, cultural or socio-technical factors. Given contrasted initial conditions and differentiated processes of adoption and use, the type of technology that is implemented and used, and the related learning processes, lead to much contrasted paths of change across organizational settings. Understanding the change process, drivers, barriers and dominant perceptions are essential in order to make decisions about the design and implementation of various technical options and the articulation of strategies and public policies within the shipping environment.

12.2. ICTs IN SHIPPING The shipping industry has evidently been affected by the emergence of new ICTs. The adoption and use of ICTs is increasingly being recognized as the optimal medium for the exchange of information between shippers and carriers throughout the supply chain. The beneﬁts of utilizing new ICTs along the entire shipping value-chain include quicker access to information, improved communication with customers and business partners, better

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customer service, reduced costs, higher productivity and quality of service. Fig. 12.1 demonstrates a high-level model of the maritime actors (stakeholders) and their possible electronic interactions and operations (the model refers in particular to freight shipping). Modern ICTs have become a focal point for shipping companies in their effort to gain a competitive advantage over their rivals by collaborating closely with afﬁliated partners in their network-oriented value-chain activities. Today, installations of communication networks in ﬁrms, interlinking external value-chain participants and internal departments enable companies to coordinate their informational, virtual and physical value-chains in order to create added value for their customers, partners and indeed for internal improved organizational performance (Dourmas, Nikitakos, & Lambrou, 2005). The maritime sector, encompassing a diverse set of interacting stakeholders that includes manufacturers and distributors, shipowners, managers and brokers, terminal operators, port authorities, regional and national governments, ship builders and other third parties (associations, etc.), is currently constrained by the lack of widely accepted standards and by relatively high costs of software and hardware e-business solutions. At the moment, the lack of interoperability between applications from different vendors prevents shipping companies from maximizing the beneﬁts of deploying ICTs onboard ships and ashore. Since few (if any) vendors of maritime software systems can deliver a fully integrated system, the industry is loosely faced with ad hoc, if not at all, integrated information systems. Currently, maritime electronic services primarily target the facilitation of routine and critical maritime business processes and tasks such as chartering, procurement, manning, planned maintenance, technical and operational monitoring of the vessels, voyage planning and navigation and Shipping Company Insurance Organization

Ship

Regulations compl.

Register Flag Int. Organ.(IMO)

Operation Repairs and Maintenance

Find Freight to transport

Shipyard

Transaction Withdrawal Ship-Broker

Charterer Maritime transport implementation Agent

Local Authorities (Ports)

Fig. 12.1.

Shipping E-Actors and Interactions.

MRO Supplier

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safety, security and emergency operations. Additionally, great efforts are made in order to link and integrate applications and provide value-added services. A differentiation in available software solutions and practices is observed in the market, whereas added value e-services in creating shipping e-markets and interconnecting applications are apparent as well. Extensible Markup Language (XML)-based integration standards can greatly facilitate such a task. All future ICT systems supporting e-shipping can be built to be XML compliant, following proven approaches for business process integration, which have emerged in other business sectors in the last years. In the maritime industry, various initiatives such as the MTML (Maritime and Trade Markup Language) utilize the XML standard to encode marine and trading transactions. Moreover, particular maritime tools in digital form, incorporated in shipping processes, namely the digital electronic navigational charts (ENC), weather, trafﬁc, navigational or environmental information systems exist. Several initiatives (within the European Union and internationally) have established the Vessel Trafﬁc Management and Information Systems (VTMIS). These developments signal a growing demand for integrated ship–ofﬁce computer and communication systems, and therefore a close cooperation and interoperability between shipping service providers and the network or ICTs service providers. The introduction of ICTs in the shipping companies’ operations onboard and ashore, associated with national or international actions (i.e., offering offshore or satellite coverage), diffuse information about weather forecasting, navigational hazards, changes in nautical charts, tides and sea states, etc., already has a considerable momentum. In the last years, the ICTs’ infrastructures on ships have impressively been upgraded. Newbuildings are being equipped with satellite systems which give the ability for instant and uninterrupted communication between the ship and the ofﬁce. The broad implementation of GMDSS (Global Maritime Distress and Safety System) from INMARSAT, multiplies maritime communications. Today there is the ability for connection with wired networks on shore such as, PSTN (public switched telephone network), PSDN (public switched data network) and communication services such as ISDN (integrated digital network) or xDSL (digital subscriber line). Ships are also equipped with modern radiotelephones VHF/DSC (digital service call), VHD/GMDSS, AIRBAND and SSB MF/ HF. According to INMARSAT data, most of the big shipping companies follow an offensive ICT strategy. About 75% of ocean-going ships are equipped with

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computers in order to communicate with the company. Most of the shipping companies adopt modern SMA (ship management applications) with Swedish companies leading the way. The fast pace of satellite communication developments during the last years has resulted in innovative technologies that will provide broadband connections to the maritime industry. In the telecommunications market, a variety of alternative satellite communication services are offered by new providers to the ocean-going but also to the short-sea shipping industry, where INMARSAT held the leading role for many years. Iridium and Globalstar present competitive products in voice services, whereas VSAT systems provide broadband connections to the vessel. Systems based on geostatic satellites like Thuraya, in combination with land mobile telephony systems, comprise an alternative solution at a lower cost of use in speciﬁc geographical areas. The choice of the suitable/ convenient service depends both on the speciﬁc users requirements/needs and on the equipments’ acquisition cost. On the other hand, the competition between the providers is expected to minimize costs and offer many companies the opportunity to adopt new services. This will result in the efﬁcient exchange of data, the support of total solutions and ﬁnally, a virtual incorporation of vessels into the corporate network. Telecommunication services are not within the scope of this study, but there is a direct link with the communication and data exchange capabities between the ofﬁce and the vessel, and the e-business readiness of shipping companies. Against this background, the use of state-of-the-art ICTs and e-shipping applications is expected to ﬂourish in maritime practices, processes and transactions, leading to the modernization of the shipping companies globally, in all respects and levels of operations, between the ship and the shore. In the following section, we focus on the patterns and trends of this digital shipping evolution, as regards in particular the Greek-owned shipping sector.

12.3. THE OPERATIONAL FRAMEWORK OF DIGITAL SHIPPING According to Stopford (2002), maritime communications were developed during the 1950s and 1960s with the use of telex. In the 1970s, the development of new technologies boosted telecommunications with the use

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of databases and software for voyage estimation. In the 1980s, electronic data interchange (EDI) networks were developed resulting in the use of e-services, not only by big shipping companies, but also by small and medium-sized ones (SMEs). During the last decades, with a giant leap which occurred in the ICT sector, the cost of ICT solutions’ acquisition has decreased considerably whereas the operational costs remain high, as in terms of training, use and efﬁciency, more experienced staff is needed and the cost of labour is increasing, compared to the past decades where hardware systems prices were quite high and the labour was cheap. More precisely, the adoption of ICT in shipping companies started before the last century following three main phases: (1) the ‘‘communication’’, (2) the ‘‘cooperation’’ and (3) the ‘‘coevolution’’ phase, which is related to the development of advanced digital shipping models. The communication and cooperation phases include some speciﬁc stages, which are connected with chronological evolution. The gradual adoption of ICTs by shipping companies, increases the interchanged value among cooperating (or connected speaking of networks) productive units internal or external to the company. Each stage builds on the previous, steadily approaching the bold vision of a networked and cooperative digital environment. The appeal of this vision is considerable, since the competition and cooperation strategies are seen as the basis of the future digital economic activities. The ‘‘communication’’ phase. When we take a really long-term view of business communications in shipping, the Web is not quite as revolutionary as it seems at ﬁrst sight. Over the last 150 years, the technology for generating and receiving messages has improved – telegraph, telex, fax and now e-mail and web technologies – but the basic tasks are to a great extent unchanged. What has changed is the cost, both in terms of communications and the labour required to use them. Both are dramatically cheaper today. A revolution came in the 1960s when a computer could be interconnected to a network allowing information to be processed and managed. Previously, telegrams and the telephone had relied on operators to handle messages and calls, so messaging was too slow and expensive to run, for instance in a negotiation involving several charterers/owners. In the 1990s, a whole new dimension was opened up when information networks became available. Internet emerged as a cheap and easy way of communication between the company mainframe and PC networks. The usage of Internet for exchanging e-mails leads to the next phase, that of cooperation. The ‘‘cooperation’’ phase. When technology ﬁnally allowed the use of Internet to perform economical and commercial transactions on-line, between enterprises on a business to business basis, a real commercial

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cooperation started using ICT as a tool, allowing the companies to process orders, purchases, sales, e-payments or negotiations and contracts, among others. The ﬁrst step was the use of the EDI systems, which have occupied a central place mainly in the liner business in recent years. EDI is a speciﬁc type of inter-organizational information system, which facilitates the transmission of structured machine-readable data from computer to computer memory across organizational boundaries. Unfortunately EDI is expensive, inﬂexible and not very user friendly. Each shipping company has developed a system, supported by a large and very expensive IT department ($10–15 million per annum spent). Compatibility is as much of a problem as cost. It is common sense that businesses in the following years will migrate from EDIs to more interoperable information systems and networks. The second step was the network development via Internet. Internet technology at present has gone far beyond a mere means of electronic transactions, becoming a foundation for applications linked to the core business systems, attributing the primary concept of e-business. E-business technologies allowed enterprises to effectively and directly connect with clients, suppliers and business partners. The connection has recently been made easier by the continuous emergence of new interoperability techniques and standards (like XML, ebXML). Modern ICTs work as a tool for shipping companies in their effort to gain a competitive advantage over their rivals by selecting and integrating the appropriate partners in their network-oriented value-chain activities. Today installations of Internet-based networks in ﬁrms, connecting external value-chain participants and internal departments enable shipping companies to coordinate their virtual and physical value-chains in order to create added value for their customers, partners and especially for themselves. In this phase, the whole evolution develops a network-centric enterprise (NCE). One of the main characteristics of NCE is viewing the actors as composing a continuous networked and adaptive digital environment. The ability of a competitive digital business network to generate and exploit competitive awareness (an awareness of one’s competitive domain or competitive space) has emerged as a main point. Connectivity and awareness about customers, competitors and the environment allow shipping companies to understand better what the characteristics or attributes of their services are or need to be in order to maximize value. Awareness of customer needs also contributes to improved capacity and logistics planning which, in turn, can improve service availability. In the process of exploring awareness, the most signiﬁcant item is the role of a virtual world. Virtual collaboration enables individuals to collaborate in a

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virtual domain. These individuals can be geographically dispersed, which is very common in shipping business. One of the major advantages of collaboration is an improved service provision process – one that is not only faster and less costly, but also produces value-added services. The main task in shipping is the offering of transportation services for cargos or passengers. Shipping stakeholders, who cooperate to produce the transport service most of the time, are located in different geographical areas. This characteristic results in the foundations of a distinctive virtual organization. More speciﬁcally, the personnel ashore and onboard may work in virtual teams. These teams support the ‘‘productive’’ units, which are the nodes of a network, which could be globally extended. The nodes cooperate and interact by gathering, diffusing and sharing information. These nodes can be departments/units of a shipping company or belong to other external, third-party companies which participate in the network (permanently or when needed). The value and productivity that each node offers, depends on its information capacity. Another contribution of the network-centric concept is that it exploits the use of information to suppress transaction costs and risk. Shipping companies attempt to limit administrative and operational cost and risk by using Management Information Systems (MIS) in most operating procedures. An example is the implementation of SPS (ship positioning system) towards suppressing costs and risks. Checking the ship’s position gives the head ofﬁce the ability to suggest and order alternative courses in order for a ship to avoid hazardous conditions at sea or harbour which can threaten the safety of the ship, the crew and the cargo (e.g., deviation for avoidance of bad weather conditions, belligerent zones, terrorist or pirate actions). In addition, the head ofﬁce can give orders to master ship operations relative to the commercial activity of the ship, such as limit the daily operational cost by reducing the operational speed or changing the ship’s course, or delivering freight by deviating the ship in a harbour where demand came up. Even after the completion of a carrying task, the management needs information about the results of the ship’s commercial activity in order to avoid the repetition of mistakes and record the operation in order to perform statistical and business intelligence tasks. The ‘‘coevolution’’ phase. Coevolution is described as a process in which interdependent species evolve in an endless reciprocal cycle – ‘‘changes in species A set the stage for the natural selection of changes in species B’’ – and vice versa. The same holds true in business. Managerial efforts are primarily focused on day-to-day product and service-level struggles with direct competitors. Over the past few years, more managers have also emphasized

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cooperation; strengthening key customer and supplier relationships and in some cases, working with direct competitors on initiatives like technical standards and shared research to improve conditions to everyone. As a consequence of this evolution, the dynamic networking of the organizations drives to the dynamic cooperation of the players (could also be the competitors) on the marketplace and the connection of the resources in a system, building a community that shares business, knowledge and infrastructures. This will dramatically affect the ways enterprises, including shipping organizations, are constructed and business is conducted in the future and the actual less adaptive organizations will be replaced by more, ﬂuid and often transitory structures based on alliances, partnerships and collaboration (Fig. 12.2).

12.4. DEMAND FOR ICT AND ELECTRONIC SERVICES AND APPLICATIONS The signiﬁcant differences in maritime markets brought up different needs for telecommunication systems and electronic services. To be more precise, vessels that endeavour in the markets of bulk cargoes perform a small

Fig. 12.2.

Networked and Collaborative Shipping Models.

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number of voyages during the year, carrying one kind of cargo most of the times. Bulk carriers have a limited volume of transactions as they perform 6–10 voyages per year. Thus, they do have fewer requirements regarding the needs for the exchange of data. In the case of tanker ships, although the same number of voyages per year (6–10) is observed in these markets, depending on the charter party (time, voyage charter or Contract of Affreightment), the need for the exchange of data is constantly increasing, due to strict legislation frameworks imposed for pollution prevention and security assurance (IMO), as well as for the monitoring of the vessel’s performance. In liner shipping, vessels (namely, containerships, ro/ro, passenger shipping) have circular voyages to perform. The result is the increasing need for the trip’s organization and coordination, the vessel’s monitoring (technical and operational), cargo loading/discharging and last but not the least, issuance of documents and certiﬁcates. Thus, vessels endeavouring in liner shipping have an increasing need for data exchange. Furthermore, in the era of intermodal transportation, where different transportation modes are combined and serve the integrated supply chain, vessels play a major role, and coordination with other modes and nodes of a networked transport chain is required. As aforementioned, electronic services enable the facilitation of maritime business tasks and processes, from chartering to safety and security operations. Providers of electronic maritime services (EMS) and solutions are fulﬁlling more and more the present needs of their customers and are positioned to cover the emerging ones. Additionally, great efforts are being made by software solution providers in order to link applications (integration) and provide continuous support so as to gain competitive advantage. On the other hand, a lot of shipping companies that have the size and the know-how appeared to develop their own in-house applications and in certain cases, to commercialize their products. A differentiation in the ICT products provided is also apparent; this happens in order for software solution providers to attract greater number of customers and thus acquire a bigger portion of the market by customizing the software/solutions, targeting to ‘‘lock them in’’. Providers are also trying to give added value services by creating shipping e-markets and interconnecting applications of their competitors. Electronic maritime services (EMS) can be divided into 10 basic categories, according to the type of intended use: 1. Communication software/teleconference 2. Planned maintenance/ship performance/monitoring/hull and machinery maintenance

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3. 4. 5. 6. 7. 8. 9. 10.

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ISM and ISPS code monitoring Inventory control (provisions/stores/spares) Electronic procurement (provisions/stores/spares) Operations/voyage management Crew manning/human resource management Financial applications/MGA Chartering and S&P solutions Maritime electronic marketplaces.

This categorization is adopted based on the available EMS provided by vendors in the shipping industry. However, the solutions are not exhaustive as new needs of the shipping companies are constantly covered by new developments and customizations in the existing solutions for ofﬁce and onboard purposes. The Greek-owned ocean-going ﬂeet in particular is ranked in the ﬁrst place globally numbering 2,923 vessels greater than 1,000 gross registered tonnes, and shows continuous adjustment to the changing conditions of the shipping market by developing infrastructure, increasing efﬁciency and quality of services. Moreover, its investment programme in newbuildings has exceeded US $20 billion during the last ﬁve years. However, in the ﬁeld of communication and e-business applications, the investments are not following the same trend. According to the ship management companies’ perspective and prevailing perception, the reasons accounting for the major obstacles in the adoption of electronic services are start up costs or costs of acquisition, lack of reliability and efﬁcient technical support, as well as the high cost of satellite communication services. Additional reasons are compatibility and interoperability problems in the present framework of processes, the lack of standardization in digital forms and documents that constrain the advantages stemming from the adoption of e-business applications. As far as the Greek short-sea sector is concerned, it is evident that large operators, such as ocean-going carriers, are to a certain degree able to handle the ﬁnancial, operational and cultural problems regarding the use of ICTs today and in the near future as they rely on a more robust asset basis, relatively large staff of well experienced and trained personnel and adequate further resources. On the contrary, small operators are expected to experience serious difﬁculties in daily operations with tighter administrative and operational activities related in particular with regulation compliance. Short-sea shipping (SSS) companies appear to be very vulnerable and this

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applies to the shipowners, as well as to the companies servicing the ship approaching or staying in port. Recent work suggests that Internet may be revolutionizing traditional small and medium-sized business practices. By offering location and time independence, and ease of communication, Internet can help smaller ﬁrms gain efﬁciencies and cost savings that previously only larger ﬁrms could enjoy. A variety of reasons have been offered for the apparent reluctance of some ﬁrms to engage in e-business, notably ﬁnancial and human resource constraints and the failure to see its beneﬁts, of which, the failure to understand the beneﬁts is the most critical, since it increases the perceived risk of engaging in e-business. Thus, robust ICT applications, though at an infant stage in Greek-owned enterprises, can be seen to offer a signiﬁcant beneﬁt for SSS. Although larger carriers are still being consolidated since the 1950s and 1960s plethora of ship operators, small operators are still responsible for a signiﬁcant part of the regional trafﬁc or SSS in Europe. This is the case in the Mediterranean, as well as in other parts of Europe. SSS accounted for 63% of the entire volume of goods transported by sea in the EU-15 in the year 2003, totalling over 1.6 billion tonnes. The United Kingdom and Italy accounted for the largest share of cargo handled by SSS, totalling 342 and 302 million tonnes, respectively. The Mediterranean and the North Sea had the largest share of SSS, with 30% (491 million tonnes handled), and 27% (448 million tonnes handled), respectively . In this context, a central problem for SSS actors is to combine knowledge (about application of rules, legislation, standards, etc.) with information (data on route, port, ship, cargo, crew, etc.), towards more efﬁcient operations. This problem is deteriorated by the fact that both knowledge and data are heavily distributed.

12.5. EMPIRICAL DATA 12.5.1. The Greek-Owned Ocean Shipping Sector During the works of the Greek Research and Technology Committee of the e-business Forum in January 2005, a special task force was formed with the main objective to investigate the current state, trends and issues in the Greek-owned, ocean shipping industry with regard to EMS. The research focused on the assessment of critical factors of demand and supply

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regarding telecommunication (satellite) solutions and electronic services. This is a study of the characteristics of telecommunication and maritime software solutions that are recommended by the Greek and International ICT Market and analysed the global market on maritime electronic services and solutions, their present state and prospects. Furthermore, the research team created a workgroup which consisted of 138 members, representing different groups of experts in the maritime sector and the Greek shipping industry such as ship operators, satellite communication services and telecommunication providers, software solution providers and maritime or business administration and information technology research and education institutions. Roundtable sessions were organized and discussions with all parties simultaneously took place in order to understand the problems faced by all parties, the prospects for their solutions and promotion of new developments in both the telecommunication and business application sectors. For the purposes of this study, we created a questionnaire to be answered by the ICT managers or general managers of ship management companies in Greece, endeavouring in the ocean-going market. Brieﬂy, these questions addressed the size of the company (number of ofﬁce staff, type/size/number of vessels), the telecommunication solutions used and intended to be used, planned future developments, the EMS used, the type and level of integration of applications, the type and level of connection and data exchange between the shore and the vessels, motivation and the perceived barriers in the adoption of new technologies and software solutions. The respondents were primarily general managers and ICT managers who were responsible for making the ﬁrm’s ICT-related decisions. In addition to the roundtable sessions and the questionnaire, a number of semi-structured interviews were conducted in order to ensure that the questions being asked will cover the needs and the research objectives of the team. The overall research objectives were (a) to study the characteristics of telecommunication and maritime software solutions that are recommended by the Greek and International ICT Market, (b) to analyse the global market on maritime electronic services and solutions, their present state and prospects, (c) to record the present use of the electronic services and solutions in the Greek shipping industry and the potential for further development according to international practices and ﬁnally (d) to study the necessary business processes and actions that are required, as well as the mechanisms of promotion of the technological solutions in the maritime industry.

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In the following section, the most important questions and underlying issues examined are presented, as well as the results extracted from the questionnaire survey, in combination with the overall methodology used (roundtables and interviews). The Greek-owned ocean-going fleet: According to the given answers by 13 ship management companies, the number and types of vessels managed are the following:

Bulk carriers: 48 Crude tankers/product carriers: 109 + 13 Containerships: 1 Reefer: 4 Ro-Ro: 1.

In total 176 vessels (Fig. 12.3). IT department in ocean-going shipping companies: A 77% of the companies have IT departments experts, while 23% do not have an IT department or an expert; they outsource the IT support to third parties (Fig. 12.4). Decision-making for investments on telecommunication and IT solutions: The decisions are mostly made by general managers (62%) and by IT managers (38%). The general manager is in most cases the shipowner, even if the company already has an IT department and an IT manager. The IT manager always proposes to the general manager who is the one that approves (Fig. 12.5). A formal budget document and IT policy are not present in the majority of the companies and decisions on new developments in the company are made, only on occurring events.

Container ships 1%

Product Carriers 7%

Reefer 2%

Bulk Carriers 27% Crude tankers/ 62% Ro-Ro 1%

Fig. 12.3.

Percentage of Type of Vessels Operated by the Questioned Ship Companies’ Management.

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NIKITAS NIKITAKOS AND MARIA A. LAMBROU No 23% Yes No Yes 77%

Fig. 12.4.

Do you have an IT Department in your Company?

IT Manager 38%

Fig. 12.5.

General Manager 62%

Who makes the Decision on Investments on Telecommunication and IT Solutions?

In-house development – IT outsourcing infrastructure and application monitoring: Hardware support. According to the given answers, the hardware support is made in-house by 46% of the companies, 23% is outsourced and/or 31% have a combination of both in-house and outsourced support (Fig. 12.6). The software used by the shipping companies in the ofﬁce and onboard are classiﬁed into two categories: (a) Operating systems (Windows, Linux, etc.) and general applications support (e.g., MS Word, MS Excel, etc.): 46% of the ship management companies use their staff for the installation and maintenance of the clients’ operating system, while 31% use third-party companies and 23% use both solutions (Fig. 12.7). (b) Specialized/customized maritime applications support: The specialized maritime applications are either developed in-house or by solution providers (vendors). It is logical that 69% of the companies that use a bespoke application, use vendors’ services (help desk, after sales services) as deﬁned in the terms of the contract signed by both parties (Service Level Agreements) (Fig. 12.8).

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Digital Shipping: The Greek Experience Inhouse / Outsourced 31%

In house 46%

Outsourced 23%

Fig. 12.6.

In house 46%

Hardware Support.

Inhouse / Outsourced 23%

Outsourced 31%

Fig. 12.7.

Technical Software Support (Operating Systems/Other Applications).

Inhouse / Outsourced 31%

Outsourced 69%

Fig. 12.8.

Technical Support for Maritime Applications.

Technical support of the enterprise network. The technical support of the enterprise network is supervised by the IT departments (62%) of the companies; their responsibility covers the maintenance (installation, repairs, administration, etc.). A smaller percentage (23%) of the companies outsources these tasks due to the high technical knowledge required for the maintenance of the network support, while 15% combines both solutions (Fig. 12.9).

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NIKITAS NIKITAKOS AND MARIA A. LAMBROU Inhouse / Outsourced 15% Outsourced 23%

Fig. 12.9.

Inhouse 62%

Technical Support of Enterprise Network.

Support of web-enabled applications. Shipping companies apparently treat web-based applications as of secondary importance, while these are used by the companies for informational or transactional purposes. The Company’s website, the remote access environment to the corporate network for managers can be classiﬁed in this category. The development of such applications is 31% in-house or outsourced development, but 38% do not have remote access capabilities and web presence. Web presence is not needed in most cases according to the survey responds, but can be used as a marketing tool for their services. Only shipping companies/ship management companies that are listed in the NYSE maintain an updated webpage for their investors (Fig. 12.10). Systematic acquisition of information from the World Wide Web. There is an extended use of Internet services for data mining concerning the operational cycles of the companies. Most of the information pulled, concerns weather forecasting, bunker prices, market intelligence, freight prices, port infrastructure, prices for spares/provisions and last but not the least sale and purchase information. Such applications are considered advantageous tools in the hands of managers for efﬁcient, decisionmaking (Fig. 12.11). The use of electronic maritime services: The study pinpointed 15 maritime operations where shipping companies already use software/applications in order to facilitate their day-to-day operations. In our sample, the percentages of their use are depicted in Table 12.1 12.5.1.1. Motivation for the Adoption of Electronic Maritime Services E-business motivation can be deﬁned as a reason or a business goal that provides impetus and direction for a ﬁrm to adopt e-business applications. Organizations anticipate or perceive certain beneﬁts of implementing e-business applications, and these perceived and anticipated beneﬁts

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Inhouse 31%

Not applicable 38%

Outsourced 31% Fig. 12.10.

Support of Web-Enabled Applications and Web Presence.

Web-based market information services S & P Information 13%

16%

13%

Chartering Fixtures 9% Bunkering Information Weather Forecasts 15%

17% 17%

Ports’ Details Spare parts / Provisions / Stores Prices

Fig. 12.11.

Percentage of Type of Information Acquired from the Internet.

(e.g., increased proﬁts, minimized operational costs) drive decision-making, regarding technology adoption. Commonly, organizations perceive e-business beneﬁts and their motivation for adoption is inﬂuenced by the following aspects: building relationships (e.g., customers, suppliers or employees); marketing, sales and service improvement (e.g., improvement of corporate image, attraction of customers or distribution of information); improving ﬁnancial performance (e.g., reduction of operations’ cost); obtaining information (e.g., ﬁnding new sources of supply, industry-related information or marketing intelligence). As the literature suggests, other important factors are also inﬂuential on e-business adoption motivation, including: ﬁrm strategy (strategic orientation); ﬁrm characteristics (age, size, industry sector, market scope) and ﬁrm owner/manager demographics (age, education, leadership style).

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Table 12.1.

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Percentage of Maritime Processes Where EMS are Used.

Communications (combined internal & external/ship to shore) Teleconference Inventory control (provisions/stores/spares) Electronic procurement ISM code/ISPS monitoring Voyage management Planned maintenance/ship performance Crew/human resources Accounting/MGA Monitoring/hull maintenance Training Insurance Loadicator Ship investment analysis Decision support system

85% 15% 69% 38% 62% 62% 62% 69% 77% 23% 38% 23% 100% 15% 8%

Against this background, the study also examined the motivations for the adoption of electronic applications by the shipping companies, which are ranked below according to the importance given by the responders: 1. 2. 3. 4. 5.

Improvement of service quality Increase of efﬁciency Increase in security Improvement of internal controls Decrease of cost.

12.5.1.2. Obstacles in the Adoption of Electronic Services/Applications As the literature suggests, factors constituting perceived barriers on e-business adoption include attitudinal, structural, procedural and operational issues which inhibit e-services and the development of applications. The central factors range from general macro-level dimensions (economic, political, institutional, legal aspects) which impinge across businesses and industries to speciﬁc micro-level factors (ﬁnancial, human resources, set of business competencies, security concerns, resistance to change, inertia in decision-making) which impact on businesses employing ICTs. In addition, barriers include particular product and sectoral characteristics, hence e-business in certain cases is deemed irrelevant. A conservative, risk-averse orientation of an owner/manager may mean that a dominant negative attitude is displayed towards its adoption. There may be a sense that,

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business is dictated mainly by the end customer, supplier or distributor who does not want to embrace e-business technology, instead preferring conventional, traditional methods. Conversely, those owner/managers exhibiting entrepreneurial characteristics and implementing decisions based on core sets of interacting conventional business and e-business competencies will be more able to take advantage of the medium for the longerterm proﬁtability of the ﬁrm. Against this background, the study also examined the perceived obstacles for the adoption of electronic applications by the shipping companies, which are ranked below according to the importance given by the responders: 1. 2. 3. 4. 5. 6. 7.

Initial cost of acquisition Lack of efﬁcient technical support Annual operational cost Lack of compatibility with the present state of business cycles Lack of standards Need for expert employees Lack of sufﬁcient data security.

12.5.2. The Greek-Owned Short-Sea Shipping Sector The Department of Shipping Trade and Transport, University of the Aegean, conducted a survey in June 2003, with a sample population of 40 Greek-owned short-sea cargo shipping companies. These companies were examined in order to identify the level of ICT adoption and e-business practices and EMS, the potentiality, the motivation and the major obstacles these shipping companies encounter in moving towards advanced digital shipping models. The researched Shipping Companies (SC) were divided into four categories, according to the number of ships they operate. The shipping companies’ categorization and the sample’s percentage are presented in Table 12.2. The following were the main issues examined: the level, maturity of ICTs use, the perceived beneﬁts of ICTs and the e-business practices’ adoption, the perceived obstacles hindering the exploitation of advanced e-business models, the networking ability in shipping business processes and operations.

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Table 12.2. Shipping Company Category SC1 SC2 SC3 SC4

SSS Sample.

Number of Ships

Sample’s Percentage

1–5 6–10 11–20 W 20

25 20 25 30

The questionnaire design included different question groups concerning the targets set at the beginning of the project. The questionnaire, although recording opinions, experiences and facts, to a certain extent, did not fully detect the examined issues and their causalities. Consequently, with the majority of the examined companies, semi-structured interviews followed, interviewees were asked to focus on speciﬁc issues. The selection of the participating individuals was made from four different working departments (technical, operations, HRM and R&D) of the shipping organizations ashore. The largest part of the questionnaire was covered by quantitative questions requiring a rating by the participants. Open questions were limited in the questionnaire but were abundant during the interviews, the goal being to achieve a fruitful conversation. As far as the style of the questions is concerned, we preferred to use all kinds, and more speciﬁcally the percentages for each type of question were the following: 25% directive questions, 60% deductive questions and 15% hypothetical questions. The most important survey results stemming from the questionnaire and the interviews data collection and analysis are: (1) Shipping companies target a competitive advantage through cost and risk reduction and suppression of response time, trying to offer highquality services and make a good reputation. Companies cooperate with other shipping actors, building business networks and acting all together as a team but networking is not fully supported by ICTs. Only big and medium-sized shipping companies pioneer in network development, expansion and functions supported by ICTs. (2) Business networking costs, based on the ICTs implementation and use could not be deﬁned precisely and a considerable percentage (40%) ignored it. Answering to open questions, managers admitted that the ﬁrst priority of the company is to cover the cost for digital communication with the ships ﬁnancing for satellite connections and

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(3)

(4)

(5)

(6)

(7)

(8)

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to a lesser extent for infrastructures integrating the ship and the head ofﬁce’s information systems. For the majority, business networking supported by ICTs contributes to the company’s viability, market solidiﬁcation and quality of services but did not conﬁrm that all the above results depend exclusively on the ICTs’ enabled networking. The main problems for using ICTs are the systems’ compatibility and apprehension and information management resources and skills. Most companies outsource the organization’s computer centre operations, telecommunication networks and software applications development to external vendors. The applications that are mostly used by the shipping companies are primarily related to ship safety and secondarily related to the facilitation of their commercial activities. The ﬁrst priority is to ensure continuous and safe communications with the ships. More precisely, the most common systems for the Greek shipping companies are Radio-Satellite communication systems and Internet, ship maintenance information systems, ship positioning systems and information systems for commercial transactions. The main perceived beneﬁts of the above systems’ usage are: ﬂexibility increase, time response reduction, information acquisition/exchange and particular services offer. Managers witness that the high frequency of transactions and the need for communication imposes the ICTs’ adoption in order to support the business process which is based on a ‘‘sense and respond’’ mentality. The main perceived problems of the networked software systems’ use are related to interoperability, incompatibility and the frequency of the systems’ malfunctions. Most of the shipping companies use software programs and ICTs applications that are commercially available for sale as software packages. The main reason for the ICTs outsourcing preference is that software packages are supported by vendors (for installation, updating and maintenance) and can cover common functions for all ships. The main reasons why shipping companies do not use networked software systems are: the high cost of the initial investment, the high cost of legacy system migration, the lack of knowledge and skilled personnel, the lack of technological solutions and interoperability and complexity of regulations for e-business. Although most shipping companies continue investing money on installing computers and application and communication systems, interviewees admitted that the management

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demands a visible and clear relationship between the costs of the ICTs and the ultimate company’s economic performance. Correlating the market sector, the ﬁrm’s characteristics – company size and ICTs and advanced e-business practices and stance – gives us the following important results: (1) Big and medium-sized SSS companies participate in networks with more nodes and do not have problems with compatibility in contrast to small SSS companies. Of course networking cost is higher for bigger companies. (2) Big and medium-sized SSS companies use almost all referred software systems to broadly support the business process in contrast to small companies, which use the necessary systems to support (especially in safety and security issues) ship navigation and communication with the head ofﬁce. (3) In big and medium-sized SSS companies, the extended use of networked, integrated software systems is hindered by the preoccupation that the personnel will react to the change, and software systems will cause declination of standard functions. For small companies on the other hand, the most important hindering factors for the use of integrated systems are the high costs for initial investment and conversion, the lack of knowledge and skilled personnel, the lack of technological solutions, the interoperability problems and the complexity of regulations on e-business.

12.6. A TYPOLOGY OF DIGITAL SHIPPING BUSINESS MODELS E-business models are deﬁned as concepts, methodologies or frameworks/ architectures that aim at guiding companies to identify and develop sustainable initiatives in order to exploit ICTs and hence support their strategic goals; create value for their stakeholders, capture a dominant market position or a viable market niche, reduce cost and improve efﬁciency. The popularity of e-business has resulted in the rise of a number of e-business models theories and typologies (Timmers, 1998; Kauffman & Dai, 2002; Viehland, 2005) Foundation theories of digital business models include MIS concepts and techniques, Business Strategy and Strategic Information Systems’ principles.

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Currently, e-business models theories seem to have converged and coevolve with the quite mature stream of e-business strategy. The following six main functions could be attributed to a business model (Chesbrough & Rosenbloom, 2002): articulation of the value proposition, identiﬁcation of a market segment, deﬁnition of the structure of the ﬁrm’s value-chain, specifying the revenue generation mechanisms, description of the ﬁrm’s position within the value network and formulation of a competitive strategy in the digital business environment. In the following section, we explain the basic concepts and principles that pertain e-business models in order to analyse and present innovative, emergent and future digital shipping business models, as based on the experiences and lessons learned from studying and empirically testing the Greek-owned shipping sector, regarding the adoption of ICTs and e-business strategies and practices. The classic literature of e-business models identiﬁes a number of the most important modes of digital business operation; their emergence into the shipping environment context can be viewed as follows: 1. E-presence: A basic transformation of the traditional-physical, commercial activities of the company into electronic forms are implemented, such as basic business information provision and exchange, i.e., informational website of a shipping company, information pages with details such as ports of call, ﬂeet capacities, etc., or interactive services such as electronic shipping orders, cargo electronic shipping reservations. 2. Electronic maritime operations: Information systems and communication infrastructures can enable an efﬁcient operation of the central shipping operations of a company activated in a particular shipping sector (bulk, container, etc.). These digital operations supported by particular state-of-the-art software platforms, include: Communications (combined internal & external/ship to shore) Teleconference Inventory control (provisions/stores/spares) Electronic procurement ISM code/ISPS monitoring Voyage management Planned maintenance/ship performance Crew/human resources Accounting/MGA Monitoring/hull maintenance

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Training Insurance Loadicator Ship investment analysis Decision support system. 3. E-intermediaries and e-markets: A new type of intermediaries, third part information portals, e-brokers, e-charterers have appeared and developed, aiming at providing added value services such as information brokerage (i.e., routes, available carriers, third parties), electronic negotiations and chartering, electronic auctions for cargo transportation or an integrated electronic marketplace platform of a shipping sector (bulk, container, short-sea, etc.) that resembles and rationalizes a physical shipping market environment into its digital form. A critical, still open question regarding this business model is whether the new electronic intermediaries disintegrate or re-integrate a shipping market. 4. E-supply chain management and multimodal e-transportation: Various forms of electronic services and technologies support upstream and/or down stream activities across a supply chain. These may include cases such as, real-time ﬂeet management and product/freight distribution based on wireless communications technology or e-auctions for optimized intermodal logistics realization. In this model, the digital shipping companies’ activities are seen as integrated with the overall, intermodal activities across a supply chain that offers rationalized and added value services with a door-to-door customer service provision orientation. 5. Electronic port services: Within a port community, the effective ﬂow of information is considered to be an important variable, whereas a highly sophisticated information technology is required to provide reliable and timely information for a multitude of actors within the port community. Among them are freight forwarders, transport companies, rail operators, and container carriers in terminals, customs, and port employees. To carry out an effective data management, appropriate electronic devices must be used; furthermore they should be integrated into the port and transport network communications via a computer system. Since the introduction of the EDI systems in the mid-1980s, the port sector has progressively endorsed several ICTs such as web portals, intranets, extranets and support software platforms (i.e., ERPs, Workﬂow Managements Systems) and communication platforms (i.e., wireless and sensor systems, RFID technology).

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However, despite the fact that several technologies and devices are available in the market, they are not broadly employed yet. Only a few international ports have taken maximum advantages of the existing ICTs to improve their operational efﬁciency, minimize terminal congestion and establish a fully integrated system. Shipping companies should be able to integrate their applications with port applications towards a seamless, networked shipping environment. 6. E-regulations’ compliance-safety and security: Maritime safety and security remains a critical issue, requiring shipping companies and ports to expand capacity without compromising the safety and security of organizations and citizens. Most of the necessary maritime information required for shipping rules and regulations’ compliance is currently available as unstructured textual data maintained and provided by multiple distributed sources. With security regulations likely to continue to intensify, more research is needed on freight shipping and passenger shipping security technology such as electronic seals, container tracking (such as RFID) and equipment screening. FAL has urged the IMO member states to work towards a ‘‘single window concept’’, an idea also pursued by a number of European and international projects on Electronic Port Clearance, by one-stop port based intermodal web portals. Tools for automatic compliance check are also useful (i.e., ISM, ISPS compliance assessment tools). Research can also assess the effectiveness of Homeland Security programmes also help to determine funding requirements for port and shipping security. 7. Ancillary and value-added shipping services: Apart from the core shipping and port operations that are digitally provided and support based on state-of-the-art ICTs and e-business methods, a number of ancillary, yet important, value-adding electronic services and applications are emerging, including, e-learning, e-health, e-government services: e-learning: e-learning platforms can be developed and used in the shipping industry environment, where trainees/seafarers have speciﬁc learning needs in order to adapt and perform successfully in a continuously changing organizational, business and employment environment. Common career paths in the shipping industry may require alternate career changes and job rotation such as acquisition of different positions onboard, work on different types of ships, and employment, ashore, in an ofﬁce position related with the shipping and port operations management. The e-training pedagogical and information processes, enable ﬂexible and individualized content and training provision in terms

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of adaptive-blended learning (combined traditional lectures, e-learning in the ofﬁce, e-learning onboard with an instructor), cooperative learning (practice onboard, emergency drills with peers) and contextualized learning and content, based on real shipping business situations and problems. 8. Third-party services: In the shipping environment a multitude of actors co-exist and interact, including international organizations (i.e., IMO), educational and research institutions, industry associations, insurance organizations, P&I clubs, ship surveyors, etc. These shipping third parties may implement and use information systems and e-business applications that interoperate with shipping companies’ e-services. 9. Mobile shipping data services: Following the Internet revolution, a second wave of technological innovation has emerged, regarding digitized information using wireless technology and personal communication services, including short messaging services, email, download services and Internet connection services, enabling communication and informational applications for shipping managers, employees, port ofﬁcers and workers, etc. The users of M-shipping data services are provided with timely and accurate information, data and communication capabilities anywhere, anytime – a comparative advantage over ﬁxed-network services that present geographic and time constraints. Efﬁcient shipping decision-making and operations management can be greatly facilitated by timely management of perishable information and data, as well as by individualized communication (i.e., chartering negotiations, vessel technical maintenance and repair operations). 10. Communication network services: The enabling infrastructure for advanced digital shipping services consists of, onboard telecommunications (i.e., short range or satellite communications) and ashore–ofﬁce communications (i.e., xDSL, Internet, Wiﬁ, etc.). Although communication services do not represent a pure digital shipping business model, they are included in the typology since they constitute a dominant and important type of the ICTs used in shipping. Apart from the digital shipping business models presented above, hybrids and combinations or variations of these are also apparent and foreseen. In addition to the above-proposed taxonomical analysis of digital shipping services and models, a useful distinction is the one that cites e-business models with regard to the side that it primarily implements, and

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offers the electronic services under consideration; hence a digital shipping business model can be: (a) a supply-side or seller-oriented system, where in a one to many relationship, a shipping company can offer informational and transactional services to its customers, i.e., passenger trip/ticket e-reservations, cargo shipping capacities e-booking, cargo capacities e-auctions; (b) a demand-side or buyer-oriented system, where an e-shipping application is offered by a shipping customer (i.e., shipper, cargo forwarder) and a shipping company may act as a ‘‘user’’ of this service (i.e., cargo booking, vessel oil procurement, etc.); (c) a third party or an e-marketplace platform, where a third party or a consortium of shipping or ICT stakeholders own and operate an intermediary application (i.e., a chartering platform). Complementary to this understanding is the meticulous identiﬁcation of all the stakeholders (actors) who are involved in a particular business model, the information ﬂow for its realization, as well as the revenue or economic model, which ensures the sustainability and attractiveness of each one of the digital shipping business models (Fig. 12.12). The above-presented taxonomical analysis serves as a generic roadmap for understanding digital shipping options and respectively aid in decision and policy making in the shipping context. Its normative character offers a complementary means towards an integrated, strategic orientation of the shipping companies and the shipping stakeholders in an emergent digital, information and knowledge intensive environment (Fig. 12.13).

12.7. A TECHNOLOGY ACCEPTANCE MODEL FOR DIGITAL SHIPPING A technology acceptance model (TAM) represents an important theoretical contribution towards understanding information systems, e-business usage and respective acceptance behaviours. The goal of TAM is ‘‘to provide an explanation of the determinants of computer acceptance that is explaining user behaviour across a broad range of end-user computing technologies and user populations’’. A TAM considers that perceived usefulness and perceived ease of use, determine intentions to use a system. Perceived usefulness is also seen as being directly impacted by the perceived ease of use. Attempts to extend

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Fig. 12.12.

Digital Shipping Business Models.

TAM have generally taken one of three approaches: by introducing factors from related models, by introducing additional or alternative belief factors, and by examining antecedents and moderators of perceived usefulness and perceived ease of use (Wixom & Todd, 2005). More precisely, the TAM consists of two main beliefs, perceived utilities and perceived ease of application, which determine attitudes to adopt a new technology. The attitude towards adoption depicts the prospective adopter’s positive or negative orientation/behaviour about adopting a new technology. Attitudes are determined by relevant internal beliefs. Attitude towards adoption is inﬂuenced by factors such as: (1) perceived ease of adoption, (2) apprehensiveness, (3) perceived utilities of technology (extrinsic motivation) and (4) enjoyment (intrinsic motivation). In addition, the individual managers’/users’ characteristics like age, qualiﬁcation, their prior experiences in adopting technology, technology suppliers’ commitment, compatibility with existing technology and enhanced value are important factors. Social pressure is another important factor. Based on a strong

Digital Shipping: The Greek Experience

Fig. 12.13.

413

An Extended Technology Acceptance Model for Digital Shipping (TAM-DS).

behavioural elements orientation, TAM assumes that when someone forms an intention to act, this immediately results in the freedom to act without limitation. In practice, constraints such as limited ability, time, environmental or organizational limits, and unconscious habits will limit the freedom to act (Davis 1986; Davis, Bagozzi, & Warshaw, 1989; Wang, Hsu, & Fang, 2004; Pisanias & Willcocks, 1999). Against this background, in the following section we present an extended TAM adapted and extended to the context of an emerging digital shipping environment, in particular the shipping work environment, in order to formulate a framework that allows for a broader and less normative understanding of digital shipping business models, their adoption and implementation organizational contexts and consequently enable knowledgeable and strategic decision-making of the shipping companies and the shipping stakeholders, in a emergent and information intensive environment. In the extended TAM for digital shipping (TAM-DS), we present a twolayered model that encompasses both background factors as well as direct, critical factors for the adoption and use of digital shipping services.

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In the TAM-DS background factors we include: Firm-specific characteristics: The particular sector (i.e., bulk, container) in which the ﬁrm operates, the size (vessel ﬂeet), the ﬁnancial basis, the organizational culture of a shipping company regarding new technologies and technical change, the company’s prior experience regarding the ICTs projects’ implementation, their ICTs procurement and staff training processes all inﬂuence the adoption decisional context. Accumulated technical knowledge of the adopters and positive working relationships with the technology suppliers through previous shared experiences, have a positive relationship with the intention of adoption. Shipping owner/manager personal factors: The decision-maker of a digital shipping service investment and operation is most commonly a high-level manager or shipping owner; the demographic characteristics of the decisionmaker, that is age, education, stance to new technologies, personal skills and knowledge regarding new technologies, prior experience with ICTs projects, relationship with the ICTs’ suppliers, all inﬂuence the decisional context of adoption. Type of digital shipping services: The type of digital shipping services, as presented in the digital shipping business models, whether the adoption and use decision refers to a simple or heavyweight application or core or ancillary application, i.e., (a) a simple informational web service, (b) the integration with a complex procurement platform of a supplier and (c) a stand alone security assessment application, etc., embeds complexity, and organizational impacts elements, thus inﬂuence the perceptions regarding usefulness, ease of application and cost implications, hence inﬂuence the decisional context of adoption. Furthermore, the application functionality, the operations–tasks’ characteristics and the respective task–technology ﬁt also impact the decisional context of adoption. ICTs maturity: Whether the examined digital technology and application are innovative with limited previous proven successful implementation business cases, or it is a state-of-the-art solution, inﬂuence the decisional context of adoption. Shipping companies with an orientation towards technological innovation are prone to experiment with new ICTs and seek a competitive advantage. ICTs vendor factors: The image, the size, the capabilities (such as the sales and negotiation capabilities) and the assets (experienced programmers, integrators and consultants) of the ICTs’ vendor, as well as a prior

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relationship with the shipping company are signiﬁcant factors in promoting digital shipping, and inﬂuence the decisional context of adoption. Socio-economic factors: The globalization and international competition, social pressure on sensitivity and corporate social responsibility regarding environmental, safety and security issues, respect and appreciation for innovation, learning and knowledge creation are factors that inﬂuence the decisional context of adoption. All the above TAM-DS background factors determine the ﬁrst layer, direct–critical TAM-DS factors, namely: Perceived usefulness: Applying the new technology in order to beneﬁt for the adopting company’s well being is regarded as a subjective perception. Usefulness or utility for the adopting organization, usually means economic beneﬁts resulting from adopting a digital shipping service. These beneﬁts may consist of increases in productivity, enhancement of service quality, cost savings, improvement in the market share and entry into a new market. It may also consist of improved shipping employees’ seafarers’ job performance and job satisfaction and the associated intrinsic and extrinsic rewards. Other forms of beneﬁt relating indirectly to the adoption of the technology such as the generation of a quality image or enhancement of the corporate image also account to perceived utilities. When the new ICT technology threatens organizational continuity (disruptive technology), the digital shipping service’s utilization may be perceived as negative. Perceived ease of application: The degree to which the shipping company’s management expects the new technology adopted to be free of exceeding effort and support, regarding its transfer and utilization is a direct factor of adoption intention. Compatibility with existing the company’s information systems, work operations, work norms and culture are embedded elements in the digital shipping technology complexity of application. Perceived cost: an additional factor that we explicitly include in the TAM-DS, is the perception of monetary costs of shipping decision-makers, regarding the adoption of digital shipping services. Actually, this is considered a strong determinant that has a negative relationship with adoption intention, unless clear cost-beneﬁt arguments can be contributed to the decisional context. The last three important TAM-DS factors have a direct impact on the digital shipping services’ intention of adoption and result in varying digital shipping services settings across markets, geographical regions and companies.

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12.8. SUMMARY AND DISCUSSION Digital shipping is deﬁned as any form of communication, information exchange and electronic transactions across shipping electronic organizational networks. These transactions can be realized within a shipping company, between shipping business partners (i.e., shipping company– broker–charterer interactions), and between businesses and customers (i.e., shipping company–cargo forwarder). Electronic shipping transactions may refer to any particular shipping market, namely freight transportation, passenger shipping, the cruise industry, short-sea and ocean shipping, the bulk or the container sector. This chapter overviewed the generic phases and patterns of the ICTs and electronic services’ evolution in the maritime sector and we explain pertinent characteristics for their use and diffusion. Furthermore, we cite empirical evidence from two research studies regarding the adoption of digital shipping services: (i) in the Greek-owned ocean-shipping sector and (ii) in the Greek-owned SSS sector. In these studies we address ﬁrm and sector characteristics, EMS used, type and level of integration of applications, type and level of network cooperation and data exchange between the shore and the vessels, planned future developments, motivation and perceived barriers in the adoption of digital technologies and software shipping solutions. Building on the above theory and empirical ﬁndings, we present a theoretical, combined frame of analysis consisting of (a) a typology of digital shipping business models and (b) an extended TAM for digital shipping, broadly applicable in the international shipping environment. We consider that digital shipping evolves around 10 dominant business models, namely e-presence, electronic maritime operations, e-intermediaries and e-markets, e-supply chain management and multimodal e-transportation, electronic port services, e-regulations compliance-safety and security, ancillary and value-added shipping services, third party services, mobile shipping data services and communication networks services. In order to explain how different organizational actors adopt various digital shipping business models and services, we present an extended TAM-DS that includes the adapted, direct Adoption Intention determinants (perceived usefulness, perceived ease of application, perceived cost) and their background factors, including ﬁrm-speciﬁc characteristics, shipping owner/manager personal factors, type of digital shipping services, the ICTs’ maturity, the ICTs’ vendor factors, and socio-economic factors.

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This chapter formulated a frame of analysis that allows for a broader and less normative understanding of digital shipping business models, their adoption and implementation organizational contexts in order to assist in knowledgeable and strategic decision-making of the shipping companies and the shipping stakeholders in a emergent and information intensive environment.

REFERENCES Castells, M. (2000). The rise of the network society. London: Blackwell. Chesbrough, H., & Rosenbloom, R. (2002). The role of the business model in capturing value from innovation: Evidence from Xerox corporation’s technology spin-off companies. Industrial and Corporate Change, 11(3), 529–555. Davis, F. D. (1986). A technology acceptance model for empirically testing new end-user information systems: Theory and results. PhD Dissertation, Registered at the Sloan School of Management, Massachusetts Institute of Technology, Cambridge, MA. Davis, F. D., Bagozzi, R. P., & Warshaw, P. R. (1989). User acceptance of computer technology: A comparison of two theoretical models. Management Science, 35(8), 982–1003. Dourmas, G., Nikitakos, N., & Lambrou, M. (2005). The concept of digital business ecosystems applied to the shipping industry. Proceedings international association of maritime economists 2005 conference, Cyprus. Filos, E., & Ouzounis, V. K. (2003). Virtual organizations: Technologies, trends, standards and the contribution of the European R&D programs. International Journal of Computer Applications in Technology, 18, 6–26. Jelassi, T., & Enders, A. (2005). Strategies for e-business: Creating value through electronic and mobile commerce. London: Prentice Hall. Kauffman, R., & Dai, Q. (2002). Business models for internet-based B2B electronic markets. International Journal of Electronic Commerce, 6(4), 41–72. Pisanias, N., & Willcocks, L. (1999). Understanding slow Internet adoption: ‘Informediation’ in ship-broking markets. Journal of Information Technology, 14, 399–413. Stopford, M. (2002). E-commerce implications, opportunities and threats for the shipping business. International Journal of Transport Management, 1, 55–67. Timmers, P. (1998). Business models for electronic markets. Electronic Markets, 8(2), 3–8. Viehland, D. (2005). Overview of business models for electronic commerce, http://www.massey. ac.nz/Bdviehlan/busmodels.html Wang, C., Hsu, Y., & Fang, W. (2004). Acceptance of technology with network externalities: An empirical study of internet instant messaging services. Journal of Information Technology Theory and Application, 6(4), 15–28. Wixom, B. H., & Todd, P. A. (2005). A theoretical integration of user satisfaction and technology acceptance. Information Systems Research, 16(1), 85–102.

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CHAPTER 13 GREEK MARITIME TOURISM: EVOLUTION, STRUCTURES AND PROSPECTS Mihail N. Diakomihalis ABSTRACT This chapter examines a particular activity of shipping services that of maritime tourism. Following the formulation and the clarification of contemporary concepts which define maritime tourism, the chapter discusses the evolution and the structure of the market, for each one of the three main activities which comprise maritime tourism in Greece. The analysis focuses on the characteristics of each of the three main activities. These activities are cruising, private maritime tourism – yachting and coastal leisure shipping, with the analysis emphasizing the advantages and disadvantages which distinguish each of these activities and their prospects of evolution. The chapter also assesses the impact of the sector on the main macroeconomic data of the Greek economy.

13.1. INTRODUCTION This chapter examines the structure of maritime tourism in Greece, which includes all the activities connected with the sea, and evaluates its impact on Maritime Transport: The Greek Paradigm Research in Transportation Economics, Volume 21, 419–455 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 0739-8859/doi:10.1016/S0739-8859(07)21013-3

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the major macroeconomic values of the Greek economy. In an attempt to achieve this aim, it analyses the theoretical and empirical framework of the various economic activities which make up maritime tourism. Furthermore, it evaluates the major economic impacts which are brought about by the main activities of maritime tourism (on the Greek economy). These activities are cruising, private maritime tourism – yachting, and coastal tourist shipping. In particular, the analysis builds on a distinction of the different tourist products of maritime tourism, conceptually established through a discussion of the deﬁnitions provided in the relevant literature. Where commonly acceptable deﬁnitions are lacking, the sub-products of maritime tourism are speciﬁed through the conceptual analysis of the market and as they are described by both the supply (enterprises) and the demand (consumers) side of the market. The sub-products supplied by maritime tourism are precisely clariﬁed so that their integration in the conceptual context of (maritime) tourism is possible. This chapter also provides the output of empirical research on the economic structure of the supply-side revenues, and on the structure of the consumption expenditure of tourists who purchased the products of maritime tourism. Finally, it evaluates the economic impact brought about by the three major activities of maritime tourism in Greece, via the application of a tourism satellite account. This evaluation is expressed through the qualitative approximation of major macroeconomic values that include: tourist consumption; gross domestic product; national income; balance of invisible transactions; employment; investments and public revenue. Both a theoretical approach of the content of each activity of maritime tourism in Greece arises, and the evaluation of the economic impact of maritime tourism on the major macroeconomic values of the Greek economy are lacking from the existing literature.

13.2. THE CONCEPT OF MARITIME TOURISM The concept of maritime tourism, at an international level, includes the total of tourist, recreational and leisure activities which take place in the marine space of a country receiving and offering hospitality to tourists. Therefore, issues pertaining to the impacts of maritime tourism on insular societies, the natural borders of which are deﬁned by the sea surrounding them, constitute a signiﬁcant ﬁeld for research.

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Maritime tourism is one of the world’s largest industries of contemporary tourism, with a signiﬁcant participation in the tourist economies of the countries which have developed it (Hall, 2001), and with a tendency for continuous and fast rates of development (Webe & Mikacic, 1994; Pollard, 1995; Kim & Kim, 1996; Orams, 1999). Yet, the sector is characterized by a great difﬁculty in the recording of statistical data for the precise estimation of its real size. Characteristically, the exact number of tourists that select maritime tourism remains unknown (Miller, 1993; Warner, 1999). As a consequence, an approach to calculate the size of the world maritime tourism is commonly attempted through its percentile participation in the total of the tourist activity of each region. This approach has limitations, and, at best can simply attribute an indicative estimation. The world’s maritime tourism market is estimated at h174 billion for 2005, that is 10.5% of the total expenditure of tourism. However, how much of it can be attributed to each ‘‘sub-sector’’ (speciﬁc activity) is a subject of much controversy (Douglas-Westwood, 2005). It is important to note that this total does not include the trip and the expenditures in coastal regions, which, if included would formulate a wider deﬁnition of the sector. In the attempt to obtain a precise evaluation of maritime tourism, this should include only activities such as cruise vacations, and maritime leisure, while other maritime activities such as diving tourism, recreational ﬁshing, etc. are more problematic given that at an international level there are no available comparative data.

13.2.1. Conceptual Approaches The term ‘‘maritime tourism’’, refers to a particular form of tourism, and is the search of a more direct and more permanent contact of the tourist with the ocean (Lekakou & Tzannatos, 2001). This term includes every tourist activity pertaining to the sea and the coasts. Apart from the use of leisure crafts and the cruises, it includes a wide range of activities such as water skiing, windsurﬁng, underwater ﬁshing, scuba diving, swimming and tours to maritime parks. According to Hall (2001), maritime tourism is closely related to coastal tourism but it also includes every tourist activity deriving from the sea such as deep-sea ﬁshing and cruising. Orams (1999 p. 9) deﬁnes it as a term including ‘‘those leisure activities which focus on the maritime environment, the consumption or use of which requires that the consumer travels away

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from his/her place of residence’’. This deﬁnition is very signiﬁcant because apart from the essential characteristics which determine the consumer and his/her activities, it places emphasis on the fact that maritime tourism includes coastal activities such as shows with sea mammals (whales, dolphins, seals), walks by the sea, the use of cruisers and yachting activities. The sea constitutes a distinctive criterion of this special form of tourism and simultaneously the differentia in relation to the prevailing form of organized vacation or mass tourism, as well as the other special forms of tourism. The strict deﬁnition of the term directs to the quest of a more direct and longer lasting contact of the tourist with the sea. The contribution of shipping infrastructures and means to the realization of this relationship is decisive, includes, on the one hand ports, marinas and vessel shelters along the sea routes and, on the other hand, the vessels themselves. The latter are an integrated system fully incorporated in the activities of cruising, coastal shipping and recreation. With the participation of shipping, maritime tourism acquires its real content since it enables the tourist to truly experience the marine environment. In the absence of shipping, the tourist’s approach to the coast through other transport systems (by land or air) and his stay in coastal facilities (hotels, etc.) weaken his interaction with the sea and hence distort the concept of maritime tourism (Lekakou & Tzannatos, 2001). Modern cruising provides pure elements of integrated maritime tourism, since beside the port-calls of tourist interest and the onboard activities of dancing, sports (tennis, basketball, polo, swimming, etc.), cinema and theatre, conferences and exhibitions, it is also connected with a series of ‘‘en route’’ off-board recreational activities like the water sports of windsurﬁng, skiing, diving, etc. Sailing on the other hand provides the tourist with characteristic directness with the sea, since it combines the unique experience of navigating the vessel to destinations of personal choice and the immediate contact with the sea element. Further, elements of maritime tourism are also detected in coastal passenger shipping by virtue of the onboard services and the port-calling character of these shipping lines (Lekakou & Tzannatos, 2001). By the selection of maritime tourism which the consumer-tourist decides to spend most or all of his vacation time ‘‘onboard’’, selecting as a place of stay and recreation a boat which offers a predetermined programme of maritime touring or a vessel on which he can co-decide the programme of maritime tour to be performed. In both cases, the boat or vessel is simultaneously a means of transport (Diakomihalis, 2006) (Fig. 13.1).

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Transport

Tourism and recreation

Travel

Maritime tourism

Fig. 13.1.

Structure of the Maritime Tourism Market. Source: Wild (2003).

13.2.2. Activities The relation of the tourist activities with the sea does not constitute a distinguishing criterion so as to be considered a characteristic point of reference of the special tourist clientele of maritime tourism. For example, swimming, windsurﬁng and other sea sports, or travelling to the islands by costal shipping do not constitute a criterion or a special interest. As a distinguishing criterion for the activities of maritime tourism in Greece, this analysis considers only the participation in an organized cruise on a cruiser and the realization of sea routes by a leisure craft or ship, professional or private, luxury yacht or sailing boat, with a crew or without (bareboat), by sails or motorized. Consequently, maritime tourism has two main tourist activities: Cruising and Yachting (professional that is, realized by the chartering of a professional boat). This is in line with the international experience and practice (Miller & Auyong, 1991).

13.3. MARITIME TOURISM IN GREECE Maritime tourism in Greece began developing during the 1960s. In recent years it has evolved at rapid paces according to all the quantitative

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data of its activities.1 The major forms of the organized market of maritime tourism to be further analysed are the main products which were previously mentioned and constitute the international market (Cruising and Yachting), and a third as a separate product are the Daily Maritime Excursions (that is daily cruises), which is that activity of Coastal Leisure Shipping. The cruises offered fall into the category of international cruises and speciﬁcally those of the Mediterranean. Greek ports are the main destination for a large number of cruise programs, with complementary destinations the neighbouring ports of Italy, Turkey, Cyprus or Egypt. In other cruise programs, Greece is the complementary destination with calls of a few, or even one, port. Yachting in Greece is very popular among both Greeks and foreigners and seems to have an upward course. The existing network of marinas and shelters of tourist vessels though it needs further development and improvement, provides choices of maritime touring which can offer the visitor beyond enjoying the sea routes, the acquaintance with many regions of the insular and continental Greece. Yachting is offered with manned leisure crafts (motor yachts, etc.) or sailing boats which are usually chartered without a crew. The day boats offer daily cruises departing from continental or insular ports to coastal or insular destinations in the frame of daily sea excursions organized by tourist agents. Fig. 13.2 depicts the total of the maritime tourism market in Greece. A detailed report of the characteristics of ships and maritime tourism programs follows in the corresponding chapters of Cruises, Yachting and Coastal Leisure shipping. This is followed by a brief report on the institutional and legislative framework of the operation of maritime tourism in Greece aiming at stating and interpreting the terms related to the deﬁnition and distinction of the means providing the products of maritime tourism. This is necessary in order to approximate the economic values related to the activities of maritime tourism. Quoting the determinations of legislation which deﬁne which ships and vessels are professional is considered purposive for the complete and precise evaluation of the maritime tourism ﬁnancial ﬁgures. Special ‘‘accommodation’’ (and simultaneously means of transport) at the service of maritime tourism are considered the Professional Leisure crafts and Boats and the Cruisers. According to Law 438/76, a leisure craft or boat is every vessel, which can sail by its own means with or without cabins and overnight stay (that is, a luxury yacht or sailing boat) which, due to its

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Maritime Tourism

Cruise Tourism

Coastal leisure Shipping

Yachting

Cruiseships

Day-Ships

Motor Yachts*

Internati onal

Local

Sailing Yachts*

Motor Sailers*

Sailboats (bareboat)

Fig. 13.2. Maritime Tourism in the Greek Market. *Manned. Only Sailboats are chartered without crew (bareboat) Source: Diakomihalis (2006, p. 32).

construction in general, is exclusively used for the performance of maritime leisure and touring voyages. Initially, the capacity of the tourist yachts could not exceed 25 passengers, crew excluded. However, the 1999 amendment of the law increased their capacity to 49 passengers. The professional leisure crafts and boats are those which are chartered and actually in the form of total chartering (and not those which require fare, as on the Cruisers). This is what distinguishes them from the ‘‘tourist leisure crafts’’ that is those used by their owners for voyages without any payment and the ‘‘athletic ships’’ that is the ones used by recognized water sports, clubs for sailing races. Laws 438/76 and 2743/99 regulate among other matters, the way of recognizing a leisure craft as professional, the shipowners obligations, issues related to the obligatory collection of the minimum fare in exchange and its conversion into the country’s equivalent currency, the way of recognizing of a ship under a foreign ﬂag as professional, etc. It should be noted that after the abolishment of cabotage in 2004, the professional leisure crafts can operate under any European ﬂag (according to European Regulation 3577/92) and the recognition of a ship under any other foreign ﬂag as ‘‘professional’’ is only possible as an exception.

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13.4. CRUISERS The cruise industry is a dynamic maritime tourism sub-sector with substantial investments being made worldwide mainly on port facilities as well on the shipbuilding of luxurious cruisers. It also constitutes a considerable foreign currency inﬂow activity of maritime tourism which shows a signiﬁcant demand increase at an international level. Cruising is the maritime tourism activity aiming exclusively at producing and offering the tourist product of the cruise. The cruise is a multi-complex concept and combines a large part of the so called tourist chain: transport, catering/provisioning, tourism, entertainment and travel (Wild & Dearing, 2000). The modern organized cruise combines, apart from the above, shopping, educational and athletic activities and constitutes by itself a particular ‘‘destination’’. The cruise tourism is any leisure travel, for a settled fare, paid by the ship passengers with the purpose of their accommodation on the ship and their visits to various destinations (Wild & Dearing, 2000). Cruise Tourism is used to describe the selection of an appropriately designed ship, which can be used both as an accommodation and entertainment place and a means of transport, according to a predeﬁned programme by an individual-tourist, who agrees to his integration into a common environment with a group of people participating in the common programme of maritime touring the purpose being leisure (Diakomihalis, 2006). Cruisers offer to a large number of travellers the opportunity to visit big ports after long voyages, in contrast with a sailing or motor yacht which offers a small number of travellers the opportunity of access to small ports after short voyages. The inspiration of cruising originated in 1835 with the Peninsula & Oriental (P&O) company, with the Mediterranean being the ﬁrst destination (1844). Even until today the Mediterranean Sea along with the Caribbean and recently the Baltic Sea, constitutes one of the major call regions of cruisers. On a global level, the cruise industry is a relatively ‘‘new’’ industry. Since 1980 (it is estimated that 100 million passengers have realized a cruise of at least two days’ duration. 61% of this total refers to passengers of the last decade and 37% refers to the last 5 years (CLIA, 20042). The standardestablished size of large cruisers today is approximately 70,000 (gross register tons) with a total capacity exceeding 2,000 passengers, whereas a tendency of gigantic constructions of cruisers is recorded with the shipbuilding of cruisers approximating 150,000 grt and transport capacity 3,000 passengers.

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Modern cruising provides pure elements of maritime tourism as beyond the calls at ports of tourist interest, the tourist’s staying on the ship is connected to a variety of recreational-leisure activities ‘‘onboard’’ such as attendance and participation in shows, theatrical performances, cinema, music shows, sports, congresses as well as activities off-board like water sports.

13.4.1. Greeks in Cruising: The History The development of the cruise in Greece started in 1930. Since then Greece has been regarded as one of the most popular destinations in the Mediterranean. Nevertheless, reviews suggest that to date no complete research on cruising has been conducted in Greece. One of the ﬁrst Greek cruising companies was AKTEL, which offered cruises in the Mediterranean from 1935 until the Second World War. ELMES (Greek Mediterranean Lines) sprang from AKTEL and continued its activity in shipping and cruising. Aquarius (built: 1972) was the ﬁrst Greek cruiser for ELMES and Kastalia (built in 1975; 5,258 dwt), was the largest ferry boat of the time, which offered cruises. In the 1930s, Karvounidis Steamshipping Shipping Ltd company was considered a pioneer in the development of maritime tourism. The company’s main activity was coastal shipping and the conversion of second-hand ships to cruisers. In 1976 the company withdrew from the coastal shipping market and became exclusively activated in cruises, founding two afﬁliated companies (AMK Greek Cruises and Hellenic Cruise Monrovia, respectively). The company deﬁnitely withdrew from cruising in 1987. Meanwhile, many companies offered cruises as a by-product of coastal shipping. The emergence in the mid-1950s of the ship Semiramis, owned by Potamianos’ company, is regarded as the herald of the development of modern cruising in Greece. The development of maritime tourism principally started in the 1960s. Since then vessels of the Potamianos brothers’-owned ‘‘Epirotiki’’ company have been related to the offering of cruises in the Aegean Sea. Modern cruising, however, is identiﬁed with the company ROC (Royal Olympic Cruises, established in 1995). This company was the result of the merging of two companies ‘‘Epriotiki’’ (1965) and ‘‘Sun Cruise Lines’’ (1958) owned by X. Kiseoglou. This collaboration ended in 1999 when ROC entered the NYSE and acquired a new basic shareholder, K. Loizou, having great experience in the ﬁeld of tourism. Eventually, ROC merged with the Cypriot company Louis Cruise Lines.

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Other signiﬁcant cruising companies are Celebrity (1989, ex-Chandris) which merged with Caribbean Cruises in 1987, Festival Cruises (1994), and Golden Sun Cruises owning one cruiser. Those who wished to remain in the cruiser market inevitably had to operate more on an international and less on a national level. In fact, Greeks continue to claim great portions of the global cruise market, even though some important businessmen like the Chandris brothers and P. Panagopoulos have decided to shift their interest to other shipping activities. The Chandris brothers retired from the cruise market in 1999 focusing their interest on the transport of bulk and dry cargo, as well as on container ships. In 1971, P. Panagopoulos founded his own company, Royal Cruise Line, which appeared in the market for the ﬁrst time with the pioneer, for that time cruiser Golden Odyssey. At the beginning of the 1980s, the company acquired its second cruiser, Royal Odyssey and ordered a third cruiser, Crown Odyssey, which made her maiden voyage in May 1988. In 1989 with a move which surprised the international shipping industry, P. Panagopoulos sold Royal Cruise Line to Norwegians. Festival Crociere was founded in 1993 by G. Poulidis and gradually developed into one of the most important European cruising companies. Festival Corporation controlled two afﬁliated companies, Festival Crociere and Festival Cruises seated in Genoa and Piraeus, respectively. In less than a decade, Festival invested approximately h950 million on modern ships. h800 million concern new cruisers which have been built on its behalf after 1996. Approximately h90 million have been invested on the modernization of its older ships, whereas almost h50 million have been spent on its sales promotion in Europe and elsewhere. The company’s ﬂeet in 2002 consisted of six cruisers: European Star (the newest one), Azur, Bolero, Flamenco, Mistral and European Vision. In 2000, Festival Cruises possessed 14.7% of the European cruiser market, in 2001 16.7% whereas in 2002 it reached 22%. According to 2001 data, the Europeans travelling by the company’s ships originated from France by 25%, from Italy by 19.5%, from Germany by 18.3% and from Spain by 7.3%. The cruise industry exhibits the characteristics of a growing market that contributes substantially to the EU economy. The continuous growth of demand has been the driving force towards ﬂeet expansion and services modernization. The Mediterranean market is among the market segments whereas social and economic trend contribute to the presence of a market expansion potential. At the same time, the industry is marked by strong consolidation trends that question the contestability of the market. The presence of insurmountable ﬁnancial difﬁculties of key

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market players (ROC in 2003, Festival in 2004) makes apparent that the Greek market has been inﬂuenced by these trends. This inﬂuence that has strongly expressed either via ﬂagging-out practices of companies offering cruises in the region, or complains regarding the cost of the Greek registry. It should be noted that until 1999, Greek cruising operated under the protection of cabotage. This has changed as the EU adopted a policy aiming at market liberalization, reinforcing the conditions for free competition and easing entry into the market (Lekakou & Pallis, 2005). Largely, as a concequence, in 2004, the Union of Shipowners of Passenger Shipping decided to rename in Association of Passenger Shipping Enterprises. This was because its members want ‘‘to convince policy makers, that there is a need to re-consider their national and international policy strategies, in order to guarantee fair competition according to the rules of the international market’’. Moreover, they seek a policy strategy that ‘‘concentrates on the fact that the cruise companies compete with companies offering tourism services’’ (Panagopoulos, 2004). Along with this strategy, to cruise operators whose vessels operate under the Greek ﬂag, it remains critical to restructure the regulatory framework governing the cost of the Greek registry, as a mean to enhance competitiveness and reverse the continuous ﬂagging-out trends. (Lekakou & Pallis, 2005). 13.4.2. The types of Cruises and the Services Provided Cruises can be generally grouped into the following ﬁve categories, depending on the combination of products offered, the duration and their specialized purpose: 1. Traditional cruise: This is a recreational voyage or excursion to the sea, departing from and returning to the same port. The duration of the cruise is 14–21 days and includes 4–6 calls at different ports during the voyage. In relation to their duration the cruises are classiﬁed as short cruises and long ones the duration of which is more than 21 days. 2. Fly–cruise: This is a combination of air trip and cruise. The passengers ﬂy from their permanent place of residence or from the nearest airport, to the port from which the ship departs. The cruise organizers achieve special prices from the airline companies for ﬂights from big cities to the port cities from which the cruisers depart. 3. Mini cruise: This is a short cruise the duration of which is 3–5 days. Cruises in the Aegean Sea belong to this category.

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4. Cruise and stay: This is the combination of cruise and stay of the touristspassengers, in a determined area on the coast. Visits to local sights are realized by bus or train. 5. Educational cruise: This is a cruise realized with students travelling with their professors. During the travel lectures take place followed by visits to regions, related with the educational purposes of the cruise. Education and recreation are offered for a fee. With cruise being the sea leisure travel on luxurious cruisers for a speciﬁc duration, the level of the services offered is extremely high: restaurant, bar-night club, leisure programmes, library, organized gym, barber shop – hairdresser salon, telecommunications, excursions to ports of call, babysitting, children’s playground, duty-free shops, casino, meeting hall, inﬁrmary, laundry, photo studio, safes, room service. All these services offered remind of services offered by a well-organized hotel. 13.4.3. The Greek Market of Cruising The Greek market of maritime tourism products belongs to the wider Mediterranean market and more speciﬁcally to that of the Eastern Mediterranean, within which four local markets can be identiﬁed:

The Aegean Sea The Black Sea Levante (Cyprus – the Holy Places – Egypt) Venice – the Adriatic Sea – the Ionian Sea

Cruising in Greece today is provided by two types of vessels. The ﬁrst one is modern, large-size ships departing from Piraeus or foreign ports, performing tours and calling at national ports or those of other neighbouring countries. The second category is smaller ships, sailing or motor ones, constructed of steel, wood or plastic material, which depart from Greek ports and call at inbetween Greek ports during the voyage (Piraeus, Salonica, Patra, Rhodes, Iraklio, Kos, Patmos, Mykonos, Santorini, Corfu, Cephalonia, Skiathos and so on). These ships perform shorter voyages than the main cruise, to domestic destinations most of the time, but occasionally to neighbouring countries’ ports like that of Turkey. The cruisers under a Greek or even a foreign ﬂag perform three-day, fourday, seven-day, or longer cruises to Greek ports or other ports of the Eastern Mediterranean. In particular, cruises to the Greek coastline and the

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islands are provided by: Ships of Greek interests, ﬂying the Greek ﬂag, which have as destination only Greek ports in their circular ‘‘closed’’ route Ships of foreign interests, ﬂying the ﬂags of the EU member states, the European Economic Space and the European Zone of Free Trade (except Switzerland). These ships have a right to use Greek ports – as ports of departure or home ports or/and ﬁnal destination Ships under any third country ﬂag which have a right to visit Greek ports only in the context of circular routes with a foreign port as departure/ﬁnal destination point. The duration of stay of the cruisers at the Greek ports ranged from 5–6 h (Katakolo, Iraklio) to 9 h (Corfu) and 10 h (Rhodes, Piraeus). 20% of the cruisers (17 of the 84 recorded cruisers) remained at the port of Piraeus (in 2003) for at least one day. The cruisers under the Greek ﬂag travelling in the Greek waters belong to associations – members of the Association of Passenger Shipping Companies. In the late 1970s, they made up one of the largest ﬂeets in the world which numbered approximately 32 cruisers. In 2000, this ﬂeet decreased to 18 ships with total capacity approximately 11,000 passengers, in 2001 to 15 ships while 2004 only one ship has remained ﬂying the Greek ﬂag, the Greek-owned Aegean 1. The Greek ﬂeet of cruisers for 2005 numbers ﬁve cruisers: four ships owned by the Cypriot company Louis Cruise Line – The Emerald, The Calypso, Perla and Coral – and the Aegean 1 owned by Golden Star Cruises. The average age of cruisers worldwide is 18 years, whereas that of the Greek cruisers is 37 years (Douglas-Westwood, 2005). The largest percentage of ships is under ﬂags of convenience mainly due to the low taxation and other conveniences they may provide, thus eliminating the operation cost of the company. The relatively small sizes of the above ships range mainly from 3,000 to 30,000 grt. Overall, there are seven categories of cruisers: 1. Luxurous Mega Yachts: The ships of this category have a total capacity of 3,000–8,000 grt and can accommodate from 72 to 180 passengers the largest one, while the duration of the cruise ranges from 7 to 21 days. 2. Exhibition Ships: The size of this cruiser category ranges between 50 and 24,000 grt, with an accommodation capacity of 20–700 passengers and with largest cruise duration that of 36 days. The Corinthian belongs to this category.

432

MIHAIL N. DIAKOMIHALIS

3. Master Sailing Ships: Ships with a size of 12–15,000 grt and capacity of 12–439 passengers, which perform cruises of maximum duration of 15 days. Club Med II, Sea Cloud, Sea Cloud II, Star Flyer, Wind Spirit and Star Clipper all belong to this category. 4. Small Cruise Ships: This category includes ships the capacity of which ranges from 3,000 to 30,000 grt, with minimum capacity 72 passengers and maximum capacity 1,200, while a cruise of this category lasts from 2 to 9 days. 5. Mid-Size Cruise Ships: The cruisers of this category have a minimum capacity of 30,000 grt and a maximum of 60,000 grt, while their accommodation capacity ranges from 120 to 800 passengers. A cruise on a mid-size ship lasts from 2 to 9 days. 6. Large Cruise Ships: From 60,000 to 90,000 grt, ships of this category have a capacity of 1,380–2,852 passengers, and perform cruisers of maximum duration of 21 days. 7. Mega Ships: This last category of cruisers, that of mega ships has a capacity ranging from 90,000 to 150,000 grt and an accommodation capacity of 1,950–3,838 passengers and performs cruises lasting from 3 to 14 days. Passengers’ arrivals by cruisers at the borders (coastal border stations) (during 1981–1997 according to data provided by the Statistical Service of Greece) decreased from 482,760 to 447,776 in 1998 (9.3% decrease in the total of the above time) whereas in 2001 the corresponding number increased to 621,357 passengers showing an increase of 40% for the period 1999–2001. It should be noted that in the period 1981–1997 the increase of the general arrivals at the borders exceeded 90%. Arrivals by cruisers show remarkably decreasing ﬂuctuations, whereas due to the Gulf crisis 1991 was the worst year where arrivals are concerned, with 235,131 arrivals (46.2% in relation to 1990). The period 1983–1997, the ﬂuctuated number of cruising visitors to Greece, ranged on an average annual basis at around 5.5% of the total arrival of tourists who visited the country, with this percentage returning to these levels only in 2004. The arrivals percentages observed in Greece are not differentiated from the global scene. The ﬂuctuations are indicative of their impact exogenous factors such as the economic condition that prevails in the origin countries of visitors, socio-political instability in neighbouring countries, and so on, have on demand. The period from the end of 2001 (after the attacks of 9/11) until 2004 a fall in the cruise market worldwide was recorded which reaches 50%. This is due to the fact that the American market supplies 78% of the world maritime tourism where the cruise and the professional manned leisure boats are concerned while the remaining percentage of 12% is distributed to the European market and 10% to other destinations.

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On the cruises which Louis Cruises (of Cypriot interests) performs in the Eastern Mediterranean (calling at Greek ports as well) with Italy as starting point, the distribution of passengers per nationality for 2004 and 2005 was in order the following: the French, the Italians, the Germans, the Australians, while the Americans at the 13th position. On these cruises the Greek passengers constitute 8.2% of the total passengers. On the Greek cruises of the same company for 2004 and 2005, the percentages of passengers per nationality are the Americans (46%), the Canadians (14%) and the Greeks (11%). Diagram 13.1 illustrates the arrivals of foreign tourists per means of transport for the period between 1996 and 2003, while Diagram 13.2 presents the arrivals of foreign tourists on cruises for the period between 1990 and 2004. Table 13.1 which follows, overall shows the number of 1996 1997

16.000.000 14.000.000 12.000.000 10.000.000 8.000.000 6.000.000 4.000.000 2.000.000

1998 1999 2000 2001

2002

2003

0 BY AIRPLANE

Diagram 13.1.

BY RAIL

BY SEA

BY ROAD

TOTAL

BY CRUISES GRAND TOTAL

Foreign Tourist Arrivals Per Means of Transport.

1000000

Non-Resident Tourists

900000 800000 700000 600000 500000 400000 300000 200000 100000 0 1990 1991

1992 1993 1994 1995 1996

1997 1998 1999

2000 2001 2002 2003 2004

Year

Diagram 13.2.

Tourist Arrivals by Cruises, 1990–2004. Source: Diakomihalis (2006).

Means of Transport

By aeroplane By rail By ship By road Total By cruisesa Grand total

Year 1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

7,683,659 28,383 578,044 943,295 9,233,295 548,766 9,782,061

8,147,921 36,752 565,706 1,319,946 10,070,325 518,164 10,588,489

8,645,841 31,706 834,516 1,403,983 10,916,046 447,776 11,363,822

9,961,836 38,808 797,106 1,366,338 12,164,088 441,840 12,605,928

10,454,089 63,969 836,010 1,741,477 13,095,545 471,908 13,567,453

10,754,927 86,070 870,344 2,322,037 14,033,378 621,357 14,654,735

10,437,910 89,254 797,017 2,855,818 14,179,999 738,178 14,918,177

10,417,072 94,561 629,787 2,827,973 13,969,393 815,167 14,784,560

9,973,822 91,612 555,213 2,691,982 13,312,629 954,791 14,267,420

10,426,245 103,929 759,829 2,986,462 14,276,465 1,172,668 15,449,133

Means of Transport

Ratios (%) 1997/1996

1998/1997

1999/1998

2000/1999

2001/2000

2002/2001

2003/2002

2004/2003

2005/2004

6.04 29.49 2.13 39.94 9.07 5.58 8.24

6.11 13.73 47.52 6.37 8.40 13.58 7.32

15.22 22.40 4.48 2.68 11.43 1.33 10.93

4.94 64.83 4.89 27.45 7.65 6.8 7.6

2.88 34.55 4.11 33.44 7.16 31.67 8.01%

2.95 3.70 8.43 22.99 1.04 18.80 1.80

2.00 5.95 20.98 0.98 1.49 10.43 8.96

4.26 3.12 11.84 4.81 4.70 17.13 3.49

4.54 13.44 36.85 10.94 6.90 22.82 8.28

Source: Compilation of data provided by the National Statistics Services of Greece (NSSG). a Cruise arrivals concern the total number of tourists that enter any port of Greece on cruisers, participating in a long Cruise the starting point of which can be one of the neighbouring countries (Italy, Turkey, Israel, Cyprus, Croatia, Egypt) or a major Greek port. All in and out passengers are recorded as cruise passengers. This number also includes Greek cruise tourists as well because all cruisers enter at least one port outside the Schengen treaty and are therefore counted in during passport control. From the average time of the Cruise, which is 7 days, these passengers spend 50% of their holidays in Greek territory (3.33 days in Greek ports). The clients of 3–4 day Cruises are tourists that spend the total of their holidays in Greek ports. The ﬁnal share of stay in days spent in Greek ports that satisﬁes the total of cruise passengers is considered to be 3.5 days.

MIHAIL N. DIAKOMIHALIS

By aeroplane By rail By ship By road Total By cruises Grand total

434

Foreign Tourist Arrivals per Means of Transport.

Table 13.1.

Greek Maritime Tourism: Evolution, Structures and Prospects

435

tourists who arrived in the country by cruisers during the last 10 years, as well as the corresponding number of tourists who reached the country by other transport means, according to the data provided by the National Greek Statistical Service. 13.4.4. Distinctive Programmes of Cruises in Greece Signiﬁcant cruisers have been developed both in the Aegean and the Ionian Seas. The companies involved in cruising perform their programs from April to November whereas during the winter period, from November to April, they realize cruises off Greek waters. The duration of a cruise varies according to the port of call, the range of the programme and the combinations of destinations. The organized cruises offered in the Greek seas, depending on their home port and the ports of call, fall into three distinctive categories. The ﬁrst one is domestic cruises: They are realized only in the Greek territory, having as home port that of Piraeus or other Greek ports and calling only at Greek ports. (They belong to the form of mini cruises). The mini cruisers with a capacity of 50–100 passengers can offer cruises to a few individuals. According to the offered product, manned Yachts (motor yachts, sailing yachts, motor sailers) belong to this category.3 The same category includes, as to the content of the product, the Daily Sea Excursions (one-day cruises) which are usually performed in all the insular complexes of the country and in ports of coastal tourist destinations such as the Argosaronikos Gulf, the Cyclades, the Dodecanese, the Sporades, Crete, the Northern Aegean Sea, Chalkidiki, the Ionian Islands.4 The second category is mixed cruises: They depart from Greek ports but apart from Greek ports they call at ports of other countries such as Cyprus, Turkey, Italy, Egypt, Israel, Croatia. three-day, four-day and seven-day cruises are included in this category. The third category is the Mediterranean cruises: they depart from other countries’ ports but they call at Greek ports among as well. Some seven-day or even longer cruises, for example 12 or 13 days are included in these cruises. 13.4.5. The Cost of Cruising The cost of travelling constitutes a major factor with an impact on the cruise demand. The essential parameters of the cruising cost are two: (a) the cost of transporting tourists from their place of origin to the port of embarkation

436

MIHAIL N. DIAKOMIHALIS

on the ship and (b) the fare which includes the voyage, food, dues at the ports of call and the tours. Therefore, it is concluded that high-income tourists mainly support maritime tourism. Beyond these there are other factors, which determine the cost of a cruise: The characteristics of the ship. A new, super modern, big ship with various choices and interesting activities which can involve the passenger is more costly compared to a corresponding more aged ship of restricted facilities. The class of the cabin reserved by the tourist. The cost of fully equipped suite, with all the facilities and a private balcony overlooking the sea is different from an outside cabin with a window or even from an inside. The period when the cruise is performed. In May for example the fares are lower compared to August when demand is higher. The cruise destination. The cost of the cruise in the Caribbean is different from a corresponding one to Alaska and the Mediterranean. The kind/type/duration of the cruise such as the 3-day, 4-day, 5-day, 7-day or 12-day cruise. Further to the predeﬁned cost, determined in the fare of the cruise, depending on the additional services and goods the passenger wishes to consume, an additional cost emerges. The price of the cruise commonly includes: Facilities on the ship (all the cabins offer comforts). Existing dues and taxes (all the companies under Law 89/67 are exempt from VAT). Recreational activities onboard, games, lectures and different shows. All the meals onboard. Cabin boy and 24-hour room service. Night-entertainment, shows, live orchestra and nightclub. Gym and aqua spa. Cocktail party by the captain and gala buffet. The experience of visiting many destinations by only one cruise.

13.5. YACHTING The term private maritime tourism, which is offered by yachting, refers to the chartering of a vessel to be used as a place of stay and recreation leisure as well as a means of transport, by a group of individuals who have the

Greek Maritime Tourism: Evolution, Structures and Prospects

437

possibility to select and formulate jointly the programme of their maritime tour, leisure being its purpose (Diakomihalis, 2006). Yachting offers the tourist a particular directness to the sea combining, on the one hand the experience of navigating and governing the vessel, destinations of personal choice and on the other the directness to the sea. Yachting is identiﬁed with the chartering of various categories of professional leisure craft. The leisure craft, yachts or sailing boats are the means which are used by a number of tourists in order to realize a leisure travel in the sea, stopping at various ports or coasts. The chartering of any kind of vessel such as luxurious yachts, sailing boats, high-speed boats and so on is considered the most productive and foreign currency inﬂow activity of maritime tourism (Igoumenakis, Kravaritis, & Lytras, 1998). It is mainly addressed to clientele of high income while the demand of the product illustrates a signiﬁcant increase worldwide (Hall, 2001). Vacation on a chartered vessel even if considered costly has so many advantages that they amortize their apparently high cost, especially when the vacation on the vessel is realized by a group of visitors. Summer vacations of this kind provide the luxury of time to organize the visits to sights or other destinations, offer absolute freedom of moves, are free of waiting in queues and other ordinary inconveniences even from the need to book tables and rooms. Above all, the leisure craft offers the passengers the freedom of choosing the destinations. It gives them the opportunity to organize their programme by themselves and to modify it according to their own preferences, to visit many places, to enjoy activities such as swimming, diving or ﬁshing at the time they choose and in places that may not be accessed otherwise. Besides, the most characteristic advantage of vacationing on a leisure craft is the constant movement to places hardly accessed otherwise, the discovery of picturesque islands, ports and coasts and the sense of a different life away from the every day life and routine. The crews that man these vessels are very experienced, willing to offer their services to the passengers of the yacht, to satisfy their gastronomical preferences, to teach them water sports, making sure with their discretion and care that the passengers enjoy and relax. The choices of boat types are many due to their great variety. More analytically, the leisure craft are divided in the following categories: 1. Sailing vessels moving only by sails and chartered with a crew, known as Sailing yachts as well. 2. Sailing vessels without a crew (called bareboats), for those who are acquainted with the secrets of sailing.

438

MIHAIL N. DIAKOMIHALIS

3. Traditional small caiques or Motor Sailers. 4. Luxury caiques or Luxury Motor Sailers, which combine both sails and motors. 5. Motor small boats that is Motor Yachts. 6. Motor luxury or Mega Yachts moving with a motor and manned chartered. 7. Big caiques or big motor boats (groups boats) serving many passengers and usually performing predeﬁned cruises. For the proper evaluation of the above phenomenically high prices of vacations on a leisure craft, two issues must be taken into account. First that those prices should be divided by the number of passengers. Second that they include not only the voyage but: stay, comfort, hotel services, entertainment, tours, free sports lessons (according to the agreement made) and the great luxury of independence. Flotilla sailing, which is a variation of the system of bareboat chartering, is a very popular sport in the Mediterranean and it refers to the group (up to 12 vessels) movement of sailing vessels under the guidance of professional captains. Flotilla programmes are available in the Greek market too, both in the Aegean and the Ionian Seas. The two main categories of vessels are sailboats and motor boats. The pure sailboats constitute 90% of the professional leisure ﬂeet and 95% of these are bareboats. The remaining 10% of the total are motor boats and motor sailers (Lekakou & Tzannatos, 2001). Converted ﬁshing boats and commercial caiques which are more spacious, cheaper and seaworthy belong to the category of motor boats. A third category is that of Luxury Motor Yachts, a large number of which concerns private and not a professional use. The demand of leisure craft is of foreign origin at approximately 95%. The Europeans (mostly the Germans and the French) prefer sailboats while the Americans prefer motor boats. The Greek tourists who are considered demanding clients of high-income salary, usually charter bareboats as well as manned vessels such as motor yachts or motor sailers. According to the data provided by ‘‘Kyriakoulis Mediterranean Cruises Shipping SA’’ for the year 2004, 29% of the company’s clientele originated from Germany, 11% from Italy, 9% from Great Britain, 9% from France, 8% from Holland, 7% from Austria, 5% from the Scandinavian countries, 3% from the Czech Republic, 2% from Switzerland, 2% from Belgium, 1% from the USA and Australia. 12% comes from other countries, while 3% originates from the Greek market. From the end of 2001 (after the terrorist attack on New York

Greek Maritime Tourism: Evolution, Structures and Prospects

439

on September 11th) and until 2004 a 20–25% decrease was recorded, according to the Greek Professional Tourist Yachts Owners Union (GPTYOU), in the market of bareboat leisure craft which constitute mainly a preference of European tourists.

13.5.1. The Greek Market of Yachting The Greek market of professional leisure craft (Sailboats) emerged in the 1970s. In 1960, the Greek Tourism Organisation (GTO) began the construction and operation of service stations and depot for yachts, providing bunkers, water and supplies at 85 points in the country. The contribution of GTO was signiﬁcant as far as the establishment of the necessary technical and institutional infrastructure. The ﬁrst marinas were constructed (Vouliagmeni: 1963, Zea: 1966, Aretsou: 1973), as well as 65 yacht supply stations all over the country for the provision of tourist vessels with bunkers, water and other supplies. These initiatives by GTO were materialized with the cooperation of the Ministry of Mercantile Maritime (MMM), the Ministry of Economics and the former Royal Yachting Club of Greece (RYCG) today YCG which was at the time the only organized, according to international standards, sports yachting club. In 1961, the log procedures of entry and exit of vessels in Greece were simpliﬁed, the Transit Log as well as the incentives for duty free and fuel are established. Until the 1960s, the RYCG was the only yachting club with the necessary infrastructure to host leisure craft, and until 1968 it had undertaken the task of keeping all the statistical transit data of yachting in the whole country as well as the promotion of Greek Yachting with international organizations and athletic events. Greece was the ﬁrst country in the world to set the legal framework for the operation of companies exploiting leisure craft. Speciﬁcally in 1976, with Law 438 which is still in effect today even though it was updated by the MMM with Law 2743/99, the organization of professional yachting started aiming at the provision of incentives for leisure crafts market. According to data kept by the MMM, 6,100 vessels have been characterized professional, out of which approximately 4,800 are in service-active today given that as already mentioned for taxation reasons several leisure craft (that is, those used by their owners privately for voyages without a fare) are characterized professional without being chartered. It is almost deﬁnite that under the new Law 2743/99 the non-chartered vessels, the virtually professional ones, are limited in number, hence the quantitative picture of professional yachting is clearer.

440

MIHAIL N. DIAKOMIHALIS

There are two Unions of leisure crafts owners, Greek Professional Tourist Yachts Owners Union (GPTYOU) and the Professional Tourist Bareboat Yacht Owners Union (PTBYOU). Members of PTBYOU are owners of sailboats and some of them may simultaneously be members of GPTYOU. The picture, as far as the registered leisure craft belonging to these two yachting unions in Greece are concerned, is illustrated in Table 13.2. The number of leisure crafts of which the owners are members of the professional unions GPTYOU and PTBYOU do not make up the total ﬂeet, as there are some craft owners who are not registered in the above unions. The development of the number of professional craft in service during the last decade, according to empirical research data (taking also into Table 13.2. Yachts by Category, Registered in Tourist Yachts Owners Union (GPTYOU), and Professional Tourist Bareboat Yacht Owners Union (PTBYOU), as in 2004.

1 2 3 4 5 6 7 8 9 10 11

Yachts by Category (Registered in GPTYOU)

Number of Boats

Motor yachts – manned (length 20 mW) Motor yachts – bareboat (lengtho20 m) Motor sailers – manned (mechanically and sails driven)a Motor sailers – bareboat (mechanically and sails driven)* Sailing yachts – manned Sailing yachts – bareboat Sailboats (bareboats) Total of manned boats (1+3+5) Total registered boats in GPTYOU Yachts by category (registered in PTBYOU) Registered sailing boats in PTBYOU

135 53 34 19 11 4 946 180 1,202 370 900

Source: Diakomihalis (2006). a Traditional caiques (wooden boats) are included.

Table 13.3. Year Removals New investments Net change Total yachts

Number of Private Professional Yachts.

1995

1997

1999

2001

2002

2003

2004

2005

– –

– –

– –

– –

– –

4,500

4,230

3,980

3,413

3,300

200 +00 +100 3,400

– +200 +200 3,600

300 +700 +400 4,000

Source: Diakomihalis (2006).

Greek Maritime Tourism: Evolution, Structures and Prospects

441

account the data of the professional associations) is presented in Table 13.3.5 This market started with 25 vessels which operated under the Greek ﬂag and today yachting in Greece is offered by the largest and newest ﬂeet of bareboat sailers worldwide.6 A basic procedure in the market operation of yachting is the chartering of leisure craft. The signing of a carter-party between the involved parties is necessary for the chartering of a craft. The contract is a threefold form, approved by MMM, stating the terms of the charter (amount of freight, guarantee sum, dates and ports of departure and return) and signed on both sides. A down payment is given to the owner or to his recognized representative, while the rest of the charter sum must be deposited before the departure of the craft. Along with the charter, an inventory list is signed, according to which the shipowner ‘‘charges’’ the charterer with all the equipment stated in it. Charters can be realized either via a recognized broker or a travel agent or directly by the shipowners and ship managers. Both brokers and shipowners have their professional contacts–links to whom they can address for information. For the protection of the charterers, the Greek state requires that the brokers have a relative license from GTO and that they have deposited a letter of guarantee for the coverage of any claim by their clients. In all cases, craft chartering agreements must be made with the ofﬁcial form deﬁned by Greek Legislation. Chartering ofﬁces are the legally organized enterprises, which with the means they have and the services they offer, undertake the chartering of a ﬂoating means of any kind (yacht, cruiser, passenger ship, boat of various types, etc.), under the Greek or a foreign ﬂag, to Greeks or foreigners, for the performing of voyages of leisure under total chartering, according to a chartering of licensed type, within or outside the Greek waters. The monitoring and the supervision of chartering ofﬁces is carried out by MMM and GTO (or by the Tourist Police after an order by GTO) (EythimiatouPoulakou, 1994; Hatzinikolaou, 2002). The professional organization of the brokers’ sector is the Greek Liaison of Yachts’ Brokers and Experts (GLYBE), the members of which are composed in local chambers. Among the aims of GLYBE are: The exercise of professional activity of those involved with yachts, in accordance with the requirements of morality, as well as the formulation of rules of professional ethics. The drawing up of a uniﬁed charter and a uniﬁed deed of purchase and sale of a boat.

442

MIHAIL N. DIAKOMIHALIS

The determination of the amount of day boat fares. The determination of the amount of commission on charters and sales and purchases of craft. The arbitrary resolution of differences among the members and among the members and third parties, if requested by involving parties. The enterprises dealing with the provision of chartering services and other correlated services in the ﬁeld of yachting are members of GLYBE. 55 out of the totally 90 registered members are exclusively involved in yacht chartering and have a relevant license from GTO. The rest 35 members are mainly shipbuilders and experts (brokers of sales and purchases). Apart from the ofﬁces-members of GLYBE, it is estimated that 60 more enterprises (mainly in the province) operate having as main object the chartering of yachts. The occupations–jobs created by the members of GLYBE (brokers and experts) range from two to seven per ofﬁce. An average estimation is four persons per ofﬁce. Therefore, in total the provision of services in chartering and broking creates jobs for 360 persons. According to data by GPTYOU, the practice followed in the Greek market of charterings allows for a 30% on the charter as a commission of tourist agents who carry out the charter, 20% of that percentage is that fee of the ofﬁce abroad which ﬁnds the client and 10% is the fee for the ofﬁce in Greece. In the largest enterprises of the sector, e.g. Kyriakoulis, the ofﬁce abroad may receive 15%, while the rest 5% goes to the shipowner. In recent years, the direct client form of chartering has emerged, that is the chartering agreement via Internet. A 10% discount is offered to clients who choose the Internet for the chartering of a craft, while the rest 20% of the agent’s commission (out of the 30%) ends up in the domestic ofﬁce.

13.5.2. Chartering of Leisure Crafts Greece has the most advantages in the ﬁeld of maritime tourism compared to the other Mediterranean countries, due to its large complexes of islands in the Aegean and the Ionian Seas to its extended coastlines and its favourable climate. The tourist period lasts seven months (April–October). The chartering market of small and large vessels illustrates a huge potential growth. According to data by GTO, the calls of leisure crafts companies in Greece mainly focus on three periods: from June to August which corresponds to 54% of total calls, from April to May and from September to October which corresponds to 40%.

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According to data kept by the NSSG and GTO on the charters of tourist vessels, in 1984 4,867 leisure crafts were chartered and the number of charters reached 7,994 (1.6 charter per chartered vessel). According to the tables of NSSG and GTO on the rentals of yachts per port, it is illustrated that in 1996 the number of vessels reached 19,148 and the charters reached 20,995 (1.09 charter per leisure craft). The total number of charters presented a constant increasing rate during 1991–1995 with a total increase of 42%. In 1997, there were 21,436 charters in total, and 23,135 charterparties while in 1998 the number of vessels which were chartered reached 21,788 with 25,582 charters (1.17 per vessel). In 2001, approximately 30,000 vessels were chartered by 80 brokers’ ofﬁces with average charter duration 9 days. According to the empirical research by the professional associations GPTYOU, GPTBYOU and to data by MMM, the charters of leisure crafts for 2004 reached 40,000 with average charter duration of 7 days. The mentioned data may be considered to simply illustrate the virtual picture which Law 438/76 created where professional vessels are concerned, that is for (mainly due to taxation reasons) the existence just in name of professional vessels which are not chartered. There also seems to be incomplete keeping of relevant data where the charters of tourist vessels are concerned (ICAP, 2000, p. 24). Yachting in Greece in 1995 covered approximately 0.9% of the annual tourist trafﬁc: from the 10,712,145 tourists who visited the country, 93,000 purchased yachting services. More recent data, based on the empirical research conducted by GPTYOU, suggest that in 2004 the percentage of yachting tourists in the total of the tourist trafﬁc of the country reached 1.56%. Speciﬁcally out of the 15 million tourists who visited the country that year, approximately 234,000 purchased yachting services. The ﬁeld of yachting constitutes an important source of income in exchange, as 95% of the charters are realized by foreign tourists. The cost of hire (chartering) of a leisure craft depends on its size, the comforts it offers, the degree of luxury it provides and the related service. The essential agreed price (in the contract or in the charter party) for a vessel with a crew, usually includes all the running operational cost of the vessel, fee and catering of the crew (for manned yachts). In some case, depending on the type of vessel and the season of the year, it is possible to be included in the cost fuel and lubricants (for example in sailers) or to be charged extra (example, in the motor sailers), while it is possible for water and port dues for a speciﬁc number of sailing hours to be included. The cost of food, drinks, refreshments, laundry and any other special request by the charterer is not included in the daily price. The cost for the dues of Corinth Canal is

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neither included in the price (if the vessel sails through) nor the dues in foreign ports. In practice it is customary for shipowners to make a special agreement with the charterer for the provision of food at a daily price per person, which is agreed upon by both parties. For bareboat vessels (without a crew) the charter terms are different from those of manned vessels. The charter price solely includes the hire of the vessels and its insurance. A down payment concerning the case of equipment loss or damage is required, which is refunded upon the delivery of the vessel as long as it is in its initial state. The skipper’s fee (if requested) is not included in the daily fare. The charterers of bareboat vessels usually undertake their own catering but the broker undertakes, if requested, the provision of food before its departure.

13.5.3. Tourist Ports – Marinas Marinas are considered very signiﬁcant facilities for the development of maritime tourism. Marinas are usually called the big leisure ports which are especially constructed to receive approximately 500–2000 leisure craft on a daily basis. Among other things, they offer well-equipped posts of stern and/ or alongside moorings, security services, land spaces for the securing of vessels, parking for the owners of vessels or visitors, shopping mall (food, shipping supplies, etc.). A marina of course as big ports also has shipbuilding and repairing units for the maintenance and repair of leisure crafts. Apart from the bunkering station it should also have an organized garbage collection and biological cleaning, so that the sea and land are protected from pollution. Other important services which should be offered to the owners of leisure crafts are hygiene spaces, showers, restaurants, taverns, an administration and reception station (Customs, Port Police, Weather Service, etc.) etc. The establishment and operation of port and land services for leisure crafts, constitute an essential infrastructure for the development of maritime tourism. In the early 1960s, the GTO initiated a programme of port construction exclusively for leisure crafts. The Marina of Vouliagmeni was the ﬁrst one to operate (1963–1965), followed by the Marinas of Zea, Aretsu, Alimos, Gouvies, etc. Due to the increasing demand for moorings, the initiative of GTO was followed in the 1980s by the Organisations of Local Authority, the Port Funds, as well by private investors. An institutional framework for the establishment of such facilities in Greece did not exist prior to 1993, as the existing until that time legal regime

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on the one hand allowed for the construction of port works after the approval of many co-competent authorities (Ministry of Economics, MMM, Ministry of Planning and Public Works, the Navy, GTO), on the other excluded private initiatives from the establishment of such investments. The rapid development of tourism in the 1980s and the great increase of the number of private and professional leisure crafts led to the necessity for the creation of a modern legislative framework which would resolve the complexity of the existing regime and would facilitate the entry of private capital for the special infrastructure on maritime tourism. This special infrastructure was almost exclusively under state control (except the Marina of Porto Kara) with managers from GTO, Municipalities (e.g. Marina of Glyfada) or Port Funds (e.g. Marina of Patra). A small ﬁshing port is practically a small Marina with limited facilities, which has often been created in a section of an existing commercial, ﬁshing or historic port. It offers well-equipped posts of stern and/or alongside moorings, an administration and reception centre, some food stores, assured garbage collection without being a shipbuilding and repairing base. The passengers of leisure crafts that moor in a ﬁshing port remain for one or more days depending on the general interest of the region. Shelter of tourist vessels is considered a natural port which is well protected from winds and bad weather conditions. It is created in protected bays or ports and the least required facilities and services for tourist vessels concern the provision of water, electricity, telecommunications, fuel, residual collection, garbage collection, ﬁre protection, food and hygiene. Apart from the mooring posts provided by public or private marinas, approximately 3,000 leisure crafts can be hosted in Greek ports. In many ports of Greece, besides the big commercial ports of Piraeus and Salonica, small moorings have been appropriately formed and equipped. With the construction of docks and breakwaters safe places have been created, in which tourist vessels moor paying the relative port dues. In most of these ports the essential facilities and services are provided to the moored vessels. Such ports have been created in Mikrolimano of Piraeus, Egina, Poros, Hydra, Spetses, Nafplio, Gythio, Pylos, Zakynthos, Ithaca, Cephalonia, Lefkada, Paxoi, Ios, Mykonos, Patmos, Symi, Samos, Plomari of Lesvos, Chios and other places.

13.5.4. Services Provided by Marinas The total capacity of tourist ports in Greece for 2005 comes to 6,661 mooring posts in 19 marinas (gnto.gr marinas-moorings). The competition

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for the Greek ports of leisure crafts comes from the countries of the Northwestern Mediterranean (France, Italy, Spain), as well as from those of the Northeastern Mediterranean (Turkey, Croatia). The marinas of the Northwestern Mediterranean (France, Italy, Spain) absorb, as estimated, 80% of the total demand of services in the Mediterranean. The Northeastern zone of the Mediterranean serves 14% of the total demand while the remaining 6% is absorbed by Algeria, Morocco, Cyprus and Egypt. The saturation of the marinas of France, Spain and Italy, the opening of the Eastern Europe countries, the increase in the income and the free time, but mainly the construction of an adequate number of posts in marinas of higher speciﬁcations are expected to reinforce the demand for services of maritime tourism in Greece. The ports are supervised by the Coast Guard. The leisure crafts that use the ports of the country are obligated to pay port dues determined by regulatory acts by the competent MMM. The port dues are paid at the local Port Authorities for the account of Port Fund and are estimated according to (a) the category of the vessel; (b) the total length of the vessel and its total capacity (grt) and (c) the duration of stay in port. The services and goods provided at the marinas constitute part of the tourist consumption by the tourists who select the activity of yachting for their leisure. These goods simultaneously constitute part of the supply by ‘‘other sectors’’ which participate in the formulation of the speciﬁc tourist product. The evaluation of the quality and value of the supplied (and consumed) goods is necessary for the total evaluation of the economic impacts of maritime tourism on the economy. The major categories of goods and services provided at the marinas are fuel, lubricants, water, other supplies, equipment and repairs. As regards the demand of marina services, this is determined mainly by three factors: (a) the cost of services provided by organized marinas and port dues; (b) the quantity and quality of marine services provided per mooring post in other Mediterranean countries and (c) the developments in the market of leisure crafts. The demand of the services of marinas is different depending on the season of the year. During the summer period, the trafﬁc of leisure crafts increases resulting in higher demand for stay at marinas and ports. On the contrary, during the winter period the demand for shelter increases in order for vessels to be repaired and maintained. The cost of the Greek marinas are lower than the corresponding ones of the Northwestern Mediterranean, although their high-quality speciﬁcations. The prices of the expensive Greek marinas are 20–40% lower than the prices of marinas of the above region, but they are 30% higher than the

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corresponding Turkish ones as well as those of former Yugoslavia. However, some of the low-cost Greek marinas offer lower prices than the organized marinas in Turkey. According to GPTYOU, the revenues of marinas in Greece during 1989–2003 have risen 9 times, while the consumer price index has tripled. Protests have been expressed for the fact that marinas constitute a monopoly and have a dominant position in the yachting activity, a fact that allows them to impose any prices they wish.

13.6. COASTAL LEISURE SHIPPING In this activity of maritime tourism the daily cruises are classiﬁed, which are called Daily Maritime Tours so they can be distinguished from the ‘‘classical’’ activity of cruises. The differentia of the ‘‘sector’’ of Coastal Leisure shipping producing the product of Daily Maritime Tours from Cruising is that it is offered on small boats which are day boats that always perform voyages during the day because they do not have the speciﬁcations (passenger cabins, restaurants, etc.) for voyages during the night or for voyages of a larger distance, which last many hours and are more tiring for the passengers (Diakomihalis, 2006). In Greece like in other countries as well, we consider that the activity of daily cruises can be characterized as a special activity due to the existence of insular complexes and of the short distances from neighbouring coasts of every tourist destination, a fact which increases the demand for the activity to such a degree that it constitutes the major form of tourism for many insular and coastal regions. The daily maritime tour offered by coastal leisure shipping in some cases may have the form of a cruise, of a smaller range with no in-between stops. In other cases, the work of the enterprises is purely transport, when the small boats and vessels are chartered for daily excursions from coastal or insular ports which are more or less developed tourist destinations to neighbouring ports of the continental or insular country, which have a satellite dependence where their tourist activity is concerned (Diakomihalis, 2004).

13.6.1. The Greek Market of Coastal Leisure Shipping The activity of coastal leisure shipping appeared in the insular complexes of the Aegean and the Ionian Seas during the 1960s and it was a result of the

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‘‘demand’’ for travels to ‘‘dependant’’ – in terms of transport, administration and development – neighbouring islands of larger size and greater recognition, on which foreigners or natives were vacationing. The reasons of the visits were the visit to tourist sights of neighbouring islands as well as the professional or scientiﬁc interests of the visitors. In other cases, the emergence of the daily maritime tours was a result of the effort on the ‘‘supply’’ side for the enrichment of the tourist product with the opportunity of providing more choices to the visitors (for example, excursions from Rhodes to Symi and Turkey). In the meantime from the emergence of the activity even until today, the ‘‘product’’ of Daily Maritime Tours has developed both qualitatively and quantitatively. In almost every port of insular or continental tourist destination of the country, there are small boats performing daily maritime tours. The destinations and programs of the excursions have been enriched as well as the provided services both onboard and at the coastal destinations. In parallel, the small boats performing this activity are modern, larger in size and travel at greater speeds in order to reduce the duration of the voyage. Some examples of daily tours being performed in Greece are: from Kos to Nisyros, Kalymnos, Pserimos, Patmos, Turkey; from Rhodes to Symi, Chalki, Telos, Nisyros, Turkey; from Patmos to Lipsi, Arkii, Leros; from Parga and Corfu to Paxi, Antipaxi; from Lefkada to Cephalonia, Ithaca, Meganisi; from Skiathos to Skopelos, Alonesos, the coasts of Pelio; from Mykonos to Naxos, Delos; from Paros to Naxos, Koufonesia; from Chios to Psara, Inouses, Turkey; from Ierapetra to Chrisi and many others. In the ﬁrst case, the object of the small boats and vessels is purely of a touring nature and concerns excursions with the purpose of touring around islands, to neighbouring islets, to beaches inaccessible by other means. In these cases, the transport task is only one of the offered products while mostly leisure services, catering onboard or on the coasts of approach are offered. In the second case, the activity of the enterprises exploiting the small boats is limited to their passengers’ transport from the main tourist destination to neighbouring ones, whether they concern smaller islands or coasts of other islands or the mainland. In some cases the direction of the tour may be opposite that is, the day boat may be directed to the neighbouring, touristically developed and recognized destination, with tourists who have chosen to stay during their vacation in a less developed or smaller or less recognized destination. The two categories of tours mentioned are considered to make up the market of coastal leisure shipping, which may also be called market of the daily maritime tour.

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Table 13.4.

Basic Values of Coastal Leisure Ships Companies.

Number of Ships Number of shipowners-companies Number of passengers (per year) Number of ships’ crew (includes shipowners and family members) Number of ofﬁce personnel(includes shipowners and family members) Average gross income per ship

600 470 4,000,000 2,000 1,000 h130,000

Source: Diakomihalis (2006, p.73).

13.6.2. The Enterprises of the Coastal Leisure Shipping Sector The product of the Daily Maritime Tour is offered by small vessels called day boats, due to their speciﬁcations (and to the limitation imposed by port authorities) for the performing of daily trips. The enterprises of the ‘‘sector’’ of vessels performing daily cruises compose the Pan-hellenic Association of Tourist Dayship Owners (PATDO). Table 13.4 illustrates a synopsis of the values of the economic values of the ﬁeld, based on PATDO estimates. In their largest part, the enterprises are shipowning companies and personal enterprises, while fewer are corporate schemes (Ltd, S.A). As a whole, the ﬁrms are Maritime companies under Law 959 and are exempted from income taxation and they pay only tonnage tax. Approximately half of them were constructed during the last decade, while the rest are older, 20–40 years old, and very few are even older. Their transport capacity (number of passengers) ranges from 40 passengers for the small ships to over 400 for the bigger ones. They are in service from three to seven months, depending on the region they serve and the duration of the tourist period of each region. The construction material of the ships is wood in the largest percentage, while the ships with a larger passenger transport capacity are made of steel. There are also small boats, fewer than the two previous categories, made of plastic.

13.6.3. Programs of Coastal Cruising As mentioned at the beginning of the chapter, the programmes which make up Coastal Leisure shipping are divided in two categories: those offering transport services and those that perform a daily cruise of a small range, respectively.

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The ships participating in daily excursions organized by a tourist agency from a tourist destination to another, of which one or both may be an island or the mainland, belong to the ﬁrst category. In these programmes, the distance between the departure point and the destination point is taken into account in order to estimate the time necessary for the travel, a fact that will determine the time of departure and arrival of the ship. Another important factor in the determination of the time of arrival, departure and duration of the excursion is the distance from the region where the clients-tourists come from, so that the time needed for their transport from the hotel to the port and vice versa (transfer) by the organizing agency’s bus is known. The departure time will be deﬁnite, after taking into consideration the above factor, in relation to the fact that the clients cannot depart before breakfast time, since breakfast is included in the price of the majority of the tourists (bed & breakfast, or halfboard, or full-board reservation agreement). A relative estimation takes place for the return time of the ship to the departure point, after taking into account the necessary time for the transport of the clients to their hotels so that they have time for dinner, which most of them are entitled to (it is included in the price for reservation agreement half-board or full-board). Having determined, according to the above requirements, the time of departure and arrival, the excursion in which the ship participates as a means of transport is performed according to the analytical programme of the tour. There is no leisure or any other activity onboard included in the fare during the whole trip. The bar of the ship offers sandwiches, refreshments, water and drinks for which the passengers pay. In the case of daily cruise of small range and duration no longer than 12 h, what has been mentioned about the determination of departure and arrival of the vessel is in effect. The daily cruises’ programmes are divided in the following categories: Excursion to one or more beaches of the island or the mainland destination. Travelling round the island by vessel with one or more stops for swimming or/and food. Excursion-cruise to sights which are accessible only by sea. An excursion for maritime activities such as ﬁshing, diving or other water sports. The above excursions-cruises, besides the transport work provided by the Tourist day boats, offer additional services either onboard or at the point of the coast it approaches, such as: prepared food (cold dish), a snack

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(sandwich, etc.), drinks, refreshment, fruit; leisure activities such as live music, song, etc. and a picnic on the beach or barbeque or beach party. Some services and activities, such as the previous ones, may be offered both by daily and by night excursions-cruises. In parallel with the above, essential information about the activities scheduled and the speciﬁc region and its sights ought to and is usually provided by a steward or the excursion organizer or by a crew member if there is no professional guide.

13.6.4. The Consumers (Users) of the Coastal Leisure Product The clients participating in the daily excursions are tourists who spend their vacation in the region where the excursion is organized. The excursion for them is a by-product that they can choose and which gives them the opportunity to visit another destination as well, even for one day that they might not have the possibility and the opportunity to visit otherwise. The daily maritime excursion – having as a main product the visit to another destination – also gives many the opportunity to choose this destination for their next vacation in the future or to combine it with other destinations as well (Diakomihalis, 2004). The role of daily excursions is very important for the destinations of the excursions due to the beneﬁts they bring from the consumption of the tourists at the local market and mainly for the opportunity – possibility for development, promotion of the product directly to potential clients – targets. The clients–tourists choose the daily maritime excursion for various reasons such as (Diakomihalis, forthcoming): visit to additional destinations at a low cost, since the tourists have already paid the cost of their vacation and the excursion adds comparatively little surcharge; the opportunity to ‘‘escape’’ from the place they have chosen to spend their whole vacation; the opportunity to buy local products of handicraft, popular art, etc., which they might otherwise not be able to ﬁnd; and the direct contact (not through photos, descriptions, ads, etc.) with a place which may in the future become the destination of their vacation.

13.7. CONCLUSIONS Maritime tourism activities constitute one of the world’s largest markets and it is likely to show high growth in the future. This chapter analysed the

452

Table 13.5.

MIHAIL N. DIAKOMIHALIS

Maritime Tourism’s Impacts to the Major Macroeconomic Values of the Greek Economy (in %).

Tourism consumption Gross domestic product National income Balance of invisible resources Balance of services Balance of tourism Balance of trade deﬁcit Public revenues (taxes) Investmentsa Maritime tourism direct employment Total direct employment of maritime tourism (including ‘‘all other industries’’) Total employment of maritime tourism (direct – indirect – imputed)

To the Total Economy

To Tourism Industry

To Total Tourism Economy

1.15 0.48 0.49 9.25 8.81 16.95 5.36 0.41 0.20 0.37 0.57

– 8.73

13.28 3.50

6.18

1.48 2.43 3.71

1.44

9.43

Source: Diakomihalis (2006). a For the Cruise industry only repairs that take place in the Greek Shipyards are included.

structures of three distinctive sub-markets of maritime tourism activities in Greece, namely Cruise Tourism, Yachting and Coastal Leisure Shipping. These activities have shown a considerable increase in the last years, resulting to a substantial contribution to Greek balance of payments. Table 13.5 illustrates the overall impact of maritime tourism on the Greek economy, as estimated via the Tourism Satellite Account, for the year 2004. The ﬁrst of the examined sub-market was Cruise Tourism. This type of maritime tourism has become signiﬁcant for a number of ports because cruise tourists are higher income tourists, spending, on average, larger amounts per day than other categories of international tourists (Dwyer & Forsyth, 1996, 1998; Ritter & Schafer, 1998). The Greeks made their appearance and have participated actively in the cruising market since 1930. The Greek cruise constitutes a part of the wider Mediterranean market and mainly the cruise market of the Eastern Mediterranean. The Americans constitute the large percentage in the pure Greek cruises, while the Europeans are the main customers of the Eastern Mediterranean cruises. The ﬂeet of the Greek cruisers has shrunk considerably the last years and the cruise supply is offered mainly by ships of foreigner interests under foreign ﬂags, only ﬁve ships are operating under Greek ﬂag. This is considered to be

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the main disadvantage of the Greek cruise market, as for the extent of the economic impact of the ‘‘sector’’ on the national economy. Despite the individual ﬂuctuations in the number of Cruise tourist arrivals in Greece, up to 2000, the number of passengers has shown a constant increase in the last 6 years. Greece continues constituting one of the most popular destinations of cruises wordwide, spotlighting its strong advantage of the great variety of tourist destinations and shore excursions offered to the cruise passengers. Cruising remains an activity that employs many Greek seafarers (about 80% of a total of 4,450), while it contributes to the reinforcement of the economies of the ports approached by the cruisers. Greeks own or operate the largest professional ﬂeet worldwide for the supply of Yachting services. The activity that initially appeared in the 1960s, nowadays offers the possibility of selecting among modern ships of different types such as, sailing boats, motor yachts, sailing yachts, motor sailers, mega yachts, etc. The higher percentage of tourists purchasing Yachting services are Europeans (Germans, Italians, British, French, Dutch, etc.). Americans prefer motor yachts to sailing boats. The owners of yachting companies participate in two major professional unions. The operation of the ﬁrms is under the supervision of the GTO (regarding the tourist agencies) and the MMM (for matters concerning the ships and the operation). A signiﬁcant factor for Yachting development is the port infrastructures and the possibility of supplying adequate services to the yachts’ passengers. Comparatively to the Western Mediterranean countries, Greece falls short so much in the number of mooring posts as in the quality of services provided. Nevertheless, yachting constitutes an important source of income and employment for the coastal and island regions. It is been estimated that yachting contributes to a total of 9,200 jobs, as direct and indirect employment. Coastal Leisure Shipping made its appearance in the Aegean and the Ionian during the 1960s. The ‘‘sector’’ provides the possibility of daily sea excursions to more than 4,000,000 tourists annually. It occupies roughly 2,000 seamen in the 600 tourist day ships that constitute the ‘‘sector’’ and about 1,000 employees in the tourist ofﬁces. Today, Coastal Leisure Shipping contributes to all major indices of the local economies of the regions that have developed this alternative form of tourism.

NOTES 1. http://www.grektourism.gr/maritime toursim; http://www.Traveling Internet/ Traveling news/ Special forms of tourism are extended.

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2. Cruise Line International Association. 3. The manned yachts’ activity is a sub-set of yachting tours, which constitutes the second activity of maritime tourism and is analysed in Section 5. 4. The daily sea excursions constitute the coastal leisure shipping activity which is analysed in Section 6. 5. The quantitative comparison of the growth rates of yachting to the growth rates of Greek tourism does not lead to safe conclusions due to the insufﬁcient statistical monitoring of the yachting sector. 6. According to estimates by the professional associations GPTYOU and Pan-hellenic Association of Tourist Dayship Owners (PATDO), every year approximately 4.5 million tourists travel by leisure craft and ships performing daily cruises to the Greek islands and the continental ports of the country (traveldailynews.gr, 2004:17333).

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Miller, M. (1993). The rise of coastal and marine tourism. Ocean and Coastal Management, 21(1–3), 183–199. Miller, M. L., & Auyong, J. (1991). Coastal zone tourism: A potent force affecting environment and society. Marine Policy, 15(2), 75–99. Orams, M. (1999). Marine tourism: Development, impacts and management. London: Routledge. Panagopoulos, P. (2004). Transformation of USPS to Association. 20.4.2004. Naftemporiki, Athens (20 April). Pollard, J. (1995). Tourism and the environment. In: P. Breathnach (Ed.), Irish tourism development (pp. 61–77). Maynooth: Geographical Society of Ireland. Ritter, W., & Schafer, C. (1998). Cruise-tourism: A chance of sustainability. Tourism Recreation Research, 23(1), 65–71. Warner, J. (1999). North Cyprus: Tourism and the challenge of non-recognition. Journal of Sustainable Tourism, 7(2), 128–145. Webe, S., & Mikacic, V. (1994). The importance of market research in planning the development of nautical tourism in Croatia (in Croatian). Turizam, 42(5/6), 71–74. Wild, G., & Dearing, J. (2000). Development of and prospects for cruising in Europe. Maritime Policy & Management, 27, 315–333. Wild, G. P. (2003). Cruise industry statistical review 2002. Sussex: Wild GP.

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SUBJECT INDEX accessibility, 257, 285, 291, 306, 319, 344 age limit, 247, 286–287 age structure, 31–32, 36–37, 54, 136, 141, 143 alliances, 14, 17, 173, 217, 239, 338–339, 342, 392 anticyclical investment, 37–38, 55 Asset Backed Securities (ABS), 203 asset play, 37–38, 69, 86, 183–184 Association of Greek Coastal Shipping Companies (AGCSC), 14, 226, 245, 252 Association of Passenger Shipping Companies (APSC), 226, 431 asymmetric information, 257, 272 Athens Stock Exchange, 8, 263, 266, 277, 344, 349, 353, 368, 370, 376

business environment, 11, 64, 75, 78, 85, 100, 102, 115, 171, 181, 407 business model typology, 384, 406, 410, 416 cabotage, 8, 14, 227–229, 231–233, 237–238, 241, 245–246, 258, 262–263, 291, 324, 329, 425, 429 capability, 69, 71, 277, 299, 319, 336 Capital Asset Pricing Model (CAPM), 186 capital ﬁnancing, 13, 173 capital markets, 3, 13, 48, 64, 73, 75, 171–173, 181, 187, 190, 193–196, 200, 202–203, 207–208, 216–217 chartering, 12, 18, 53, 76, 86, 89, 96, 106, 116, 211, 383, 386, 393–394, 401, 408, 410–411, 423, 425, 436–438, 441–443 Chios, 19–20, 52, 82, 261, 280, 309–314, 318, 320, 331, 379, 445, 448 coastal leisure shipping, 18–19, 419, 424–425, 447–449, 452–454 coastal network, 330–331 coastal shipping, 2, 8, 14–17, 28, 226, 230, 233, 245, 252, 257–261, 263, 265, 267–268, 270–271, 273, 276, 277–282, 285, 287–290, 323–325, 327, 329, 332–342, 352, 368, 422, 427 coastal shipping issue, 265 Common Maritime Space, 231 competition, 3, 8, 15–17, 33, 37, 64, 73, 86, 98, 100, 130, 172, 217, 229, 231–234, 238, 243, 247–248, 252–253, 258–260, 263–264, 266,

bank lending, 13, 171, 173–174, 178–180, 216 bareboat arrangements, 236 behavioural model, 300 BIMCO, 7, 20, 129–131, 134, 141, 143, 159, 243 bond issue, 13, 171, 196–200, 202, 216 bond spread, 198–200 bulk carriers, 28–30, 35, 53, 86, 105, 115, 129, 136, 138, 150, 191, 393, 397 bulk shipping, 4, 25, 27, 33–37, 39, 46, 57, 64, 72, 75–76, 78–79, 81–82, 86, 96, 106, 108, 115, 117, 181–182, 190–191 business culture, 76–77, 81–82, 84–85, 364 457

458 270, 274–277, 279–280, 282, 284–286, 288–290, 292, 297, 299–300, 309, 319, 324, 327–329, 332, 343, 345, 347, 351, 356, 362, 415, 445 competitive advantage, 6, 11–12, 34, 63–64, 68–70, 78, 80, 84–86, 95–96, 111, 115, 177, 233, 334, 336, 339, 342, 386, 390, 393, 404, 414 concentrated markets, 258, 280 containers, 6, 47, 196, 207, 327, 350, 353–354, 356, 359, 367, 372 containerships, 6, 67, 207, 393, 397 cooperation, 20, 79–80, 82–83, 97, 130, 156, 226, 338–339, 387, 389–390, 392, 416, 439 corporate governance, 181, 191, 195–196, 217, 347 Credit Default Swap (CDS), 205 credit rating, 198, 201, 206 cruise ships, 207, 227–228, 248, 432 cruising, 9, 18, 419–424, 426–430, 432, 435, 447, 449, 452–453 customer corporation, 260–261 cycle time, 100, 107, 112 debt markets, 173 default probability, 197, 199–202 democratic consultation, 285, 292 deregulation, 233, 246–247, 265, 277, 282, 288, 298, 352 derivatives, 174, 209, 211–212, 216 digital shipping, 18, 383–384, 388–389, 403, 406–408, 410–417 discrete choice model, 299, 301, 308, 312, 314, 319 distribution centres, 335, 338, 360 diversiﬁed ﬂeet, 73, 112, 114 dockers, 366–367 door-to-door transport, 326

SUBJECT INDEX dry bulk, 12, 41, 49, 54, 74, 104–106, 115, 129, 186, 190–191, 208–210, 212–215, 350, 354, 356, 367 economic impact, 370, 420, 446, 453 education, 13, 16, 69, 154–155, 163, 167–168, 214, 227, 243, 298, 305, 307, 312–313, 315, 396, 401, 426, 430 Electronic Maritime Services (EMS), 393, 400 employment, 7, 28, 70, 105, 121–125, 131–139, , 144–145, 148–169, 208, 226, 243–246, 257, 352 employment patterns, 12 entrepreneurial philosophy, 4, 76–79, 81–82, 85, 88, 96 entrepreneurship, 2, 11, 65–68, 70, 73, 85–86, 234, 236, 251, 263 entry-barriers, 17, 343, 345, 363–364, 377–378 equity markets, 13, 173, 181–186, 190, 193, 216–217 EU Regulation 3577/92, 15, 226–227, 231, 246, 250–252, 263 European Commission, 8, 229, 231, 234, 244, 324–325, 334, 340, 361 European Community Shipowners Association (ECSA), 20, 228 family ﬁrms, 4, 38, 74–76, 80, 87–88 ferries, 14, 223, 237–240, 245–249, 252, 269, 270, 295–296, 300, 329, 331, 335–336 ﬁnance, 6, 26, 68, 75, 171–182, 187, 193–196, 202–207, 260, 350, 375 ﬁnancial performance, 17, 196, 343, 345, 348–350, 370, 372, 374–377, 401 ﬁnancial ratio analysis, 375 ﬁxed costs, 262, 280 ﬂagging-out, 5, 9, 228, 231, 250, 429

459

Subject Index Forward Freight Agreements (FFAs), 13, 171, 173 fragmentation, 76, 78–80 freight consolidation, 338 freight distribution centers, 338, 408 freight transport, 331, 334–336, 341, 385, 416 futures, 213 Greek Chamber of Shipping, 225, 228 Greek controlled ﬂeet, 6, 122–123 Greek ﬂag, 6, 9, 10, 29, 31, 40, 122, 126–150, 224, 236, 244–246, 263, 429, 441 Greek owned ﬂeet, 2, 4, 6, 10–11, 20, 23, 25–27, 31, 38, 48–49, 54, 63, 68, 70, 73, 78, 80, 344 Greek owned shipping, 3, 10, 18, 23–26, 31–40, 43, 45–46, 48–49, 51–53, 56, 58, 60, 65–66, 68–83, 85, 86, 107, 117, 129, 221–222, 330, 383, 388, 407 Greek owned tonnage, 27, 29, 34–35, 39–40, 43, 47, 54 Greek Seamen’s Pension Fund (NAT), 12, 121–122, 168, 225 Greek seamen, 12, 121, 221–222, 227, 230, 235, 245, 248–249 Greek shipping companies, 2, 11–13, 63–64, 72, 77, 82, 85, 95–97, 104, 171, 216 Greek Shipping Co-operation Committee, 5, 45, 47, 52 Greek-ﬂagged ﬂeet, 6 Hellenic Short-Sea Association (HSSA), 226 high-speed vessels, 335 high-yield bond market, 187, 196, 200 human resources, 7, 11, 66, 68–70, 83, 85, 112, 402, 407 hysteresis, 122–123, 158, 167

ICT maturity, 403, 414, 416 ILO, 169, 227 IMO, 7, 21, 55, 223, 227–228, 241, 386, 393, 409–410 Information and Communication Technologies (ICT), 319, 384 Initial Public Offerings (IPOs), 171 innovation, 28, 30, 66–67, 216, 263, 266, 352, 385, 410, 414–415 Intercargo, 7, 20 interest groups, 221–222, 228, 230, 242 intermodal, 2, 16–17, 209, 300, 323–325, 335–341, 361, 393, 408–409 International Shipping Federation, 7, 21 Intertanko, 7, 20 intra-port competition, 17, 343, 345, 363–365, 369, 378 ITF, 149, 152–153, 169 just-in-time strategy, 117, 335, 337 knowledge based-view, 68, 90 labour market, 12, 121–123, 129, 147–148, 159–162, 166–169, 243 large size companies, 106, 109–110, 113 Law 2932/2001, 253, 264, 354 lead loan managers, 176–177 leasing, 13, 171, 173, 180–181, 216–217 level of service, 12, 113, 261, 265, 282, 298 leverage, 134, 196, 210 liberalisation, 8, 14–15, 229, 231, 242 liquid bulk, 104–106, 115, 367 LNGs, 6, 45–46, 86, 88, 190 load incongruity, 337, 341 loan bookrunners, 178–179 loan portfolio, 175–176, 204 logistics, 99, 102, 115, 245, 341, 346, 349, 358–361, 363–364, 368, 377, 390, 408

460 loyalty, 12, 77, 81, 121–123, 151, 154, 156–157, 159, 163, 167 LPGs, 45–46 mandated loan arrangers, 178–179 maritime operations, 400, 407, 416 maritime safety, 232, 409 market capitalization, 188–189, 191 market concentration, 49, 275–277, 279 market shares, 16, 27, 34, 229, 248, 271–272, 276–279, 298–299, 351, 372 medium size companies, 12, 108–109 Ministry of Mercantile Marine, 7, 14–15, 35, 40, 87, 222–224, 262, 273, 288, 351, 354–355 mode choice models, 300, 308–309 mono-hub network, 268 monopsony, 12, 121–123, 148–149, 157, 161, 163–164, 167, 169 Motorways of the Sea (MoS), 334, 361 NASDAQ, 187, 190–193 network-centric organization, 390–391 networking, 11, 15, 48, 80–85, 89, 251, 273–274, 403–406 New York Sock Exchange (NYSE), 186–187, 191, 216 North Aegean, 268–269 O.B.Os, 30 ofﬁcers, 4, 68–71, 131, 138–140, 143–145, 151–152, 221–225, 243–246, 410 open registries, 27, 33–34, 53 options, 18, 214–215, 233, 277, 364, 384–385, 411 organisation, 7, 11, 16, 19, 43, 108, 223–224, 227, 231, 345, 347, 351, 376, 379, 439 organisational culture, 11

SUBJECT INDEX Panhellenic Union of Shipowners of Coastal Cargo Vessels (PUSSCCV), 226 passenger shipping, 16, 226, 259, 267–268, 297–302, 422, 431 PNO, 151, 228, 288 port authorities, 18, 272, 333, 335, 344–347, 353–354, 362–366, 376–378, 384, 386, 446 port devolution, 9, 371, 374–375 port governance, 17, 343–349, 357, 368–370, 372, 376–379 port performance, 344–345, 347–350, 369 Port State Control (PSC), 83, 225, 250 port strategy, 17, 343–345, 358, 368, 376 private equity funds, 14, 193–194, 217 productivity, 12, 122–123, 149, 153–154, 163–164, 166–168, 352, 372, 391, 415 public service obligations, 264, 270, 281 quality, 4, 39, 64, 95, 97–98, 100–102, 106–112, 114–116, 159, 239, 257–258, 275, 282, 284–287, 325, 347, 386 quality shipping, 4, 39, 188 ratings, 13, 121, 144, 151, 167, 308 regulated oligopoly, 15, 257, 260 regulatory authority, 264, 266, 280, 364 resource based-view, 11, 65–66, 68, 80 road haul, 16, 334, 337, 341 roll on/roll-off, 327, 350 satisfaction deﬁcit, 282 seafarers, 4, 12, 70–71, 121–169, 228, 287, 453 seasonality, 162, 247, 265, 268, 275, 279, 310–312 second-hand vessels, 32, 173, 210

461

Subject Index sector strategy, 101, 104, 112–115 securitization, 171, 173, 202–208, 216–217 service level, 95, 102, 116, 274, 287, 336, 398 shareholder value, 195 ship ofﬁcers, 4, 11, 66, 68–69, 78, 82, 85, 243–244 shipowner (non-traditional), 78–79, 88 shipowner (traditional), 78–79, 88, 97, 182, 195–196, 216, 222, 227, 250, 263, 403 shipowners associations, 14–15, 221–223, 225, 227, 229, 231, 233, 235, 237, 239, 241, 243, 245, 247, 249–251, 253 shipping policy, 14, 24, 221–222, 224, 229, 231, 234, 236, 241, 250, 285, 287 short-sea shipping, 2, 8, 14, 16, 18, 124, 126, 136, 143, 231, 244, 249, 299, 323–324, 326, 361, 388, 394, 403 Single European Market, 352 small sized ﬁrms, 11, 85–86, 88 social security system, 13, 122, 148, 157, 167–168 Special Purpose Vehicle (SPV), 204–205 specialisation, 6, 10, 23, 25–26, 28–29, 31, 33, 35, 38–39, 45–46, 49, 51, 111, 363–364, 369 state regulation, 261 STCW, 227 subordinated debt, 196, 207 supply chain, 12, 95, 97–102, 105–106, 109, 112–117, 338, 340, 384–385, 393, 408, 416 supply chain management, 12, 95, 97–102, 109, 113–115, 117, 408, 416

syndicated loans, 173, 177–178 tacit knowledge, 11, 69, 81, 84–85, 91 tankers, 6, 20, 28, 35–41, 46, 53–56, 74, 86–87, 128–129, 190–193, 213, 244, 397 tax, 5, 51, 72, 180, 194, 232, 235, 243, 246, 248, 277, 287, 449 Technology Acceptance Model (TAM), 384, 411, 413 thin lines, 269, 281, 287–288 tourism satellite accounts, 420, 452, 454 training, 13, 152, 154, 159, 168, 226–227, 236, 243, 257, 284, 366, 389, 402, 408–409, 414 tramp, 1–5, 81, 84, 231, 327 Trans-European Networks-Transport (TEN-T), 361 transaction cost, 4, 81, 83, 85, 106, 108, 192, 206, 391 transport power, 277–279 trust, 4, 71, 75, 77, 79–83, 85, 88, 108, 113, 208, 232, 339 turn-round time, 336 Union of Greek Shipowners (UGS), 52, 226, 228 universal service, 284, 291 vertical integration, 72 Vessel Trafﬁc Management and Information Systems (VTMIS), 387 volatility, 43, 49, 172, 186, 190–191, 193, 196, 199, 205, 208–211, 275, 370 wage, 12, 121–123, 149, 151–153, 156–158, 160–164, 167–169