UBC Theses and Dissertations

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UBC Theses and Dissertations

The control of shipping in Canadian seaborne bulk trades Aandahl, C. Loren


As part of the negotiation of a trade contract, commercial buyers and sellers of goods in domestic and international trade must agree on shipment terms. Shipment terms fix the responsibility for the costs and risks of carriage between the two parties. The basic objective of this thesis is to describe the factors which influence the decision of Canadian trading firms to exercise responsibility over the ocean shipping arrangements in their trades. There are two secondary objectives. The first is to describe some of the advantages and disadvantages associated with the control of shipping by Canadian trading firms. The second is to provide some indication regarding the extent of Canadian participation in the control of shipping in Canadian ocean borne trade. The scope of the thesis is restricted to dry bulk commodity trades utilizing deep-sea shipping. These commodities account for nearly 90 per cent of Canadian exports and together with crude petroleum account for nearly the same percentage of imports. Many factors influence the control of shipping in Canadian deep sea trades. The very first factor which must be analyzed is whether the Canadian trading firm has the option to do so. In a free market situation, trade negotiations between two parties are conducted on a commercial basis with a minimum of interference from government authorities. This applies to the control of shipping as well as to other aspects of trade. However, Canadians trade with many countries where governments do exercise a considerable deal of influence in trading and shipping matters. Trade may be conducted with foreign government trading agencies who insist on controlling shipment. In addition, foreign governments may have imposed direct legislation, commonly referred to as flag discrimination, which reserves a certain proportion of trade or type of cargo for national carriers. These can favour control by the foreign trading counterpart. Canadian trading firms may also not have the option to participate in the control of shipping in trade with firms which is conducted on a commercial basis. The relative size and bargaining power of the other party may be such that the Canadian trader has no chance of pursuing the issue. If the control of shipping is a viable option for a Canadian trader, the intensity with which the opportunity is pursued is basically the tradeoff between benefits and risks. A trading firm can benefit in several ways through the control of shipment. If cost savings can be achieved through Canadian control, the net back to the trader can be improved or the commodity may be more competitively priced. Cost savings may be achieved through chartering policies, through economies of scale in shipment size, by reducing port time and costs and by better coordinating the shore-ship interface. The trading firm may also realize marketing advantages by controlling shipment. These relate principally to the service aspect. The Canadian trader may make life easier for the foreign party by assuming responsibility for the shipping arrangements. Risk is a vital consideration which strongly influences the policy of a firm with respect to the control of shipping. Involvement in ocean shipping entails some risks a firm must deal with. Common risks associated with shipping include rate fluctuations, availability of shipping and demurrage. The negotiation of the terms of shipment is a vital part of every trade contract. The individual trading firm must weigh in the balance the benefits and risks of controlling shipment. Evidence gathered in the course of this thesis indicates that the position of most Canadian trading companies is well thought out in regard to the control of shipping When the option to control shipping is available, Canadian firms act in their own best interests.

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