See

discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/280530580

Chemibulk Carriers: An Integrative Maritime

Logistics Approach to Increase Flexibility and
Profitability

Conference Paper December 2009

READS

39

3 authors, including:

Piyush Raj Saurabh Chandra

Det Norske Veritas Indian Institute of Management Indore
6 PUBLICATIONS 14 CITATIONS 7 PUBLICATIONS 3 CITATIONS

SEE PROFILE SEE PROFILE

All in-text references underlined in blue are linked to publications on ResearchGate, Available from: Piyush Raj
letting you access and read them immediately. Retrieved on: 05 August 2016
 Chemibulk Carriers: An Integrative Maritime Logistics Approach to Increase Flexibility and Profitability

Saurabh Chandra
Indian Institute of Management Lucknow
Piyush Raj
Goodearth Maritime Limited, Chennai
Rajiv K. Srivastava
Indian Institute of Management Lucknow

Introduction:

Combination carriers, as the name suggests, refers to a type of transportation carrier capable of carrying a combination
of different types of cargo. In shipping trade various types of cargo combinations have been tried from time to time. In
the international sea trade ships termed as Oil-Bulk-Ore (OBO) ships were the first vessels of this kind. These were
designed to carry liquid as well as petroleum and solid bulk cargo like coal and iron ore, in alternate voyages. The choice
of combination carriers in a shipping fleet is aimed at reducing ballast (empty) voyages and taking advantage of the
freight differentials between dry cargo and liquid bulk cargo whenever and wherever they occur. This is particularly
applicable to large ocean going ships which carry cargo one way and return empty (e.g. crude oil from the Middle
East, iron ore and coal from Australia, South Africa and Brazil). The term combination carrier seems to be employed
only to the OBO vessels in shipping parlance as they can carry liquid as well as dry cargo. A combination carrier is more
expensive to build and operate than a conventional tanker or bulk carrier, so this means a continuing battle to recover the
costs of a combined ship (Douet, 1999), and moreover such ships require good maintenance as well as good marketing.
The prime advantage of a combined carrier over a conventional tanker or bulker is its trading flexibility. The vessel is
expected to provide two types of flexibility: combining voyages to reduce ballast time and maximize earnings; and
switching trades occasionally in response to market rates levels, as was practiced for previous combined ships in the past.

The study deals with analyzing the concept of a new type of ship-design, capable of carrying chemical and dry bulk cargo
together. The feasibility of such a chemibulk combination carrier can be examined by independent analysis and
comparison of chemical deep-sea trade and bulk commodity trades. These types of sea trades are usually unidirectional in
nature and constitute long voyage times. The freight rates for bulk cargo trade for any particular trade route is highly
volatile and sought to be captured by the Baltic Dry Index (BDI) as one of the indexes of shipping freight rates. On the
other hand chemical sea trade mainly consists of transportation of industrial chemicals, which may also be
multidirectional in nature across any point. Chemical trade is highly varied in terms of trade routes and parameters such
as freight rates, depending upon the chemical type. No such index exists for chemical trade due to this variability. The
chemibulk combination carriers will be different from conventional OBO ships in terms of trade parameters as they are
supposed to offer much more flexibility. The aim of this paper is to discuss the viability of this new concept and the
operational management issues involved in their employment.

Literature Review:

To understand the dynamics of a chemibulk combination carrier, we have studied the available literature on the existing
combination carriers (OBO/OO vessels), Dry bulk sea trade and chemical sea trade. Nersesian (1981), carried out the
first description of combination carriers. Douet (1999) carried out an empirical investigation into the versatility of
combination carriers. In this paper a detailed description of combination ships, cargoes, history of combination fleets, and
the reasons for the lack of interest in such carrier type have been dealt with. Roar et al (2004) have developed a real
options model of flexibility for shipping and used it for valuing the option to switch between the dry bulk market and wet
bulk market for a combination carrier which is able to operate in both markets. Apart from these few publications,
relatively little work has been done on combination carriers in terms of academic research.

In the Review of Maritime Transport published every year by UNCTAD, the study of dry bulk and other sea trades is
carried out (UNCTAD secretariat, 2007). Bornozis (2006) reports a review of Dry bulk shipping. An independent body,
The International Association of Independent Tanker Owners, publishes chemical tanker trade issues from time to time
(INTERTANKO, 2003). Apart from that literature on trade characteristics with relevant data are published every year by
many inter-governmental agencies, ship consultancy firms, ship owners forums etc. The annual data for commodity
trades between countries are published in the UN Comtrade Database (United Nations Statistics Division, 2009). In
academic literature, the aspects of sea trades being dealt with are market forecasting, freight rate volatility studies,
empirical models for bilateral dry cargo trades, price dynamics and related themes.

The literature on commercial shipping covers many problems related to operational aspects. These papers can be divided
on the basis of strategic level problems like optimal fleet size, design of maritime logistics network, determination of
optimal ship size, etc. At the tactical level the ship routing and scheduling problems have been discussed in detail for all
three types of ship trades, namely liner, tramp and industrial. Ronen (1983, 1993) conducted comprehensive surveys on
ship routing and scheduling, and a more recent literature review is documented in Cristiansen et al (2004).

This study has been conceptualized by Chennai based Indian shipping company, which has trade requirements as
discussed below. The analysis is based on the companys data and project reports. Simultaneously with this study the
organization went ahead to complete design modifications required to complete the conversion process and has also
applied for a patent for this new design.

Comparison between Chemical and Dry Cargo Sea Trades:

To understand the complexity involved in making a combination of chemical and dry cargo vessel we need to compare
and analyze the characteristics and parameters of chemical sea trade and dry bulk trade. The following table compares
both the trades with respect to some important characteristics as follows:

Characteristics Chemical sea trade Bulk sea trade

Ship sizes 5000 9,999 dwt: 41%
10,000-19,999 dwt: 26%
20,000-29,999 dwt: 10%
30,000+ dwt: 23%
(INTERTANKO, 2008)
Major Cargo Iron Ore: 716 million tones
Coal: 728 million tones
Grain: 281 million tones
Bauxite/Alumina: 72 mill. tones
Rock Phosphate: 31 mill. tones
(UNCTAD 2007)
Major trade routes Its a global business, but few major
trade routes for bulk commodities: coal
from Australia and Canada to Far East
and Europe; Iron ore from Australia and
Brazil to China, Japan and Europe:
Grains mostly from Americas to Far
East and Europe.
Regulatory requirements Comparatively less stringent
Voyage, loading and Employed either in spot or period time
discharging charter. Longest loading and
discharging times as compared to all
types of vessels. Ranging from 5-120
hrs.
Parcel sizes for cargo Large parcel sizes varying from 10,000
to 100,000 tones.
Capesize (100,000+ dwt): 32%
Panamax (60,000- 99,999 dwt): 28%
Handymax (40,000-59,999 dwt): 28%
Handysize (10,000-39,999 dwt): 28%
(UNCTAD 2007 figures)
Vegoil: 49 million tones
Organic Chemicals: 77 million tones
Inorganic Chemicals: 16 million tones
Others: 16 million tones
(www.oilsandfatsinternational.com)
Major trade routes are from US and Europe to
S.E Asia, India and Middle east. Bilateral trade
between US and Europe as well. With new
production facilities in Arabian gulf and far East
new trade routes originating from this region.
One of the highest standards in all types of
vessels.
Employed mostly in spot cargo and sometimes,
period time charter. Loading time may go up to
2 days depending on cargo quantity.
Mostly small parcel size cargo with numerous
ports per voyage.

Although the characteristics of two trades look very different from the table above, there are many types of specific
cargoes, dry as well as chemical, which have similar characteristics as per sea trade parameters are concerned. The idea
of chemibulk combination carrier takes into consideration the option of chemical and dry bulk cargoes with similar parcel
sizes, similar voyage, loading and discharging characteristics, and same trade route. The regulatory requirements for the
combined vessel will be even higher than that for two types of ships together.

Chemibulk Combination Carrier Viability:

The parameters for many types of chemical and bulk cargo sea trades make them appropriate for the deployment of
chemibulk combination carriers. Apart from developing new carriers, existing bulk carriers of large capacities can be
converted to chemibulks by allocating and modifying a part into chemical carrier. The currently published BDI graphs
(investmenttools.com) suggest that freight rates have been dropping drastically and are going to be low for quite some
time (BDI Trends, 2009). It can be reasonably assumed that bulk carrier tonnage is in high supply for quite some time to
come now. As per construction a chemibulk combination carrier can be proportionately segregated in numerous tanks
(for chemicals) and holds (for bulk cargo) having associated handling equipments. This way a carrier is developed which
can carry simultaneously, various types of dry and chemical cargoes together. The chemibulk carrier concept is
particularly suited for the trades having certain characteristics as described. Bulk cargoes carried in small to medium
parcel sizes, say 5,000 to 30,000 Metric tones. As the parcel sizes are small, spot cargo types may be more suited to this
kind of vessel, but period time charter markets can also be looked at for medium sized long run cargoes having fixed
origins and destinations. The overall trade routes for such a vessel should be such that it has various options of chemical
as well as dry cargo trade possibilities in sufficient volumes.

This type of combination is expected to yield certain advantages over conventional carriers. A major difference between
a chemibulk carrier and a conventional OBO/OO carrier trade is that the former can have chemical as well as dry bulk
cargoes together, as chemical trade can be bi-directional in many cases as compared to petroleum trade. With
heterogeneous and variable industrial demand and origin for chemicals and bulk minerals across countries, the
possibilities of medium to small parcel sized cargoes are higher. A chemibulk carrier is suited for this kind of trade.

A ship owner may also face certain additional difficulties in operating this type of carrier. The cost of building a new
chemibulk carrier or even converting an existing asset may be very high. Thus the additional profits due to increased
flexibility would negate the high initial cost. The infrastructure in ports around the world is not quite appropriate yet for
this kind of vessel. The chemical tanker and bulk carriers are very distinct ships. The ports having facilities for chemical
handling are very few and many of them are distinct from bulk carrier terminals. Thus the increased empty runs between
dry cargo ports and chemical tanker ports may offset the advantage of reduced ballast runs. The chemical tankers and
bulk carriers have distinct technical and HR requirements. Thus the hybrid vessel will have additional difficulty in
technical operations and crew scheduling. As the combined carrier is expected to carry different types of chemical and
bulk cargoes simultaneously, the vessel routing and scheduling will be much more complicated as compared to a
conventional carrier. In case of a chemical tanker, the most critical factor in operation is determination of compatibility
between chemicals carried successively in same tank, or carried together in adjacent tanks. This is ensured to avoid
dangerous reactions between mutually volatile chemicals. Many chemicals also react violently with some dry mineral
cargoes. Thus compatibility will need to be established between various chemicals and dry cargoes as well, if carried in
adjacent compartments, so as to avoid safety hazards and accidents.

To demonstrate the trade viability of chemibulk carriers we have selected two different trade routes: (a) India-Africa and
(b) India-ASEAN region countries. The data in Appendix 1 gives the annual traded volume of major chemicals and dry
bulk commodities traded among the regions. In both the trade routes a pure chemical or bulk carrier will have much less
flexibility, as it may have to return empty in the return voyage. Also the expected parcel sizes for chemical or dry bulk
cargo are not expected to be large enough to give economies of scale. Thus a chemibulk carrier is expected to yield
higher returns.

Operations Management Issues in Chemibulk Combination Carriers

In this section, we attempt to outline the major and distinctive Operations Management aspects of designing and running
Chemibulk carrier ships. The issues identified are mainly limited to those apart from and/or distinct from those involved
in general ships as well. A shipping company, as any other company, needs to plan at the three different levels i.e.
strategic level, tactical and operational level (Cristiansen, Fagerholt, & Ronen, 2004). In case a shipping company is
planning to commission a chemibulk combination carrier, the hierarchical planning structure needs to be customized for
this unique type of asset.

Strategic Level Planning:

Chemibulk Carrier Evaluation:

At the strategic level, a company needs to first evaluate its current fleet of vessels and trade routes. The use of a
chemibulk carrier is advisable for the fleet only if the trade routes served by the company serves make the use of such a
combined ship feasible. Thus a long-term profitability analysis needs to be carried out for the combined vessel as
compared to a conventional one.

Conversion or New Build:

Once a company decides that it wants to commission a chemibulk combination carrier, the second major decision is
whether to order a new construction or to convert an existing asset like a bulk carrier into a combination ship. The trade
offs involved are between cost and time of conversion versus the safety and operational ease after conversion. In case of
a new build combination carrier the safety and operational aspects would be taken care of right from the design level. The
expected life for a new build vessel would be higher as compared to a converted ship. In most sea trades especially
chemical and dry bulk, the charterer inspects the ship before employing her for cargo. A new ship of better design will
have higher chances of getting high freight earning trades. The initial cost of building a new chemibulk carrier would be
much higher than converting an existing bulk carrier. A similar long-term analysis needs to be carried out as per costs
involved and revenue generated subsequently. The commissioning time of a combination carrier will be much lower if
one is going for conversion. Thus the excess earnings generated during this period should also be considered. As per ease
of subsequent operation, a present bulk carrier asset would have been designed to suit handling, loading and discharging
of dry bulk cargo. If it is converted to a chemibulk combination carrier, the facilities for handling chemical cargo may not
be designed and incorporated in the best possible way in conjunction with the original equipments. This may lead to
delay in loading/discharging timings and consequent losses. The other considerations involved may be required speed of
the ship, overall size of the ship, age of the ship to be converted, etc.

Determination of Size and Subdivision of Cargo Space:

An important long-term decision involved in construction of a chemibulk carrier would be to decide the optimum size for
a combination carrier depending on the trade volumes in the given trade routes and also the size limitations due to the sea
transport infrastructure like ports and canals in the route. The next long term decision is to determine the ratio of
subdivision between chemical and dry cargo spaces. This decision would be partly based on technical reasons like
stability and it may also be based on the proportion of respective trade volumes in the prospective trade routes of the
vessel. These plans have to be made before the shipbuilding or conversion stage i.e. at the vessel design stage. Thus these
are some of the most important decisions, as they cant be easily changed at a later stage. Another important decisions
would be design of cargo handling gear, machinery equipments, pipelines and out-fittings, as these would affect the
voyage, loading and discharging characteristics in the long run.

Optimum Size of this Fleet Type:

A shipping company has to decide on the number of vessels of this kind it should incorporate into its fleet. This depends
on the trade requirements together with the already existing mix of fleet. As this is a new type of carrier, it is better to
start with one or two Chemibulks initially and study their performance for some time, before commissioning new ones.
The shipping company under study is going for a pilot project initially by converting one of its dry bulk carriers to
chemibulk carrier.

Design of Maritime Logistics System:

A maritime logistics system refers to any logistics system of which the sea transport forms a part. A chemibulk
combination carrier would be capable of carrying many different types of chemical and dry bulk commodities in a single
voyage. Thus it is going to be a part of many different maritime logistics networks simultaneously. From the point of
view of the shipping company operating the vessel, it may design the logistics network for at least some cargo, which has
been planned as a long-term cargo for the prospective vessel.

Tactical Level Planning:

At the tactical level the first major consideration is determining the trade route on which the vessel will ply. This trade
route selection should be based on the criteria that the vessel should have adequate options of chemical as well as dry
bulk cargo trades. Also the route should have ports with infrastructure to handle the vessel (size, loading/unloading etc.).
The next important decision area is the vessel routing and scheduling. The vessel needs to be assigned to a certain trade
legs in the given route and also sequence and timings need to be established. The objective would be to maximize profits
under the constraint of overall cycle time between a particular set of ports. This task becomes much more complicated for
a chemibulk carrier, as both chemical and bulk trades have different parameters. In the case of the chemibulk carrier, the
ship routing would correspond to a tramp-shipping scenario, with one or two fixed cargo trade legs. The ships may have
constraint of maximum cycle with respect to origin port. Thus the case of chemibulk carrier presents special types of ship
routing and scheduling problems.

Operational Level Planning:

At the operational level an important planning task is the Selection of cargo mix based on chemical compatibility among
cargoes carried in adjacent tanks or for two cargoes carried successively in same cargo space. A general problem of this
kind is called tank allocation problem or TAP. When allocating loads to different tanks and holds onboard the ship
numerous constraints must be satisfied, such as capacity, stability, and hazmat (hazardous materials) regulation
constraints. In addition, different products cannot be mixed in the same tank. The TAP can be considered for a single set
of loads on a given leg, or for a complete vessel route where loads are moved on and off the ship in association with port
calls (Magnus, Kjetil, & Amaral, 2009). This problem may also need to be considered at the tactical level when
determining the vessel routing and scheduling. Another important operational issue may be selecting best course for the
sip between two ports, depending on weather and sea conditions.

Research Issues in Operations Management for Chemibulk Carriers:

The above discussion on operational management aspects for Chemibulk carriers describes many decision areas. These
are unique in complexity to this kind of vessel. To enumerate, the main problems concerning operational aspect of
chemibulk combination carrier are determination of size of the ship, determination of proportion of subdivision between
chemical tanks and holds, optimal size of each segregated tank or hold, vessel routing and scheduling, Cargo space
allocation problem etc. These problems need to be addressed as research issues. The complexity of the problems makes
them very difficult to be solved optimally by ship operators experience only, thus indicating the potential for use of
rigorous academic analysis.
An important research can be carried out for the feasibility study of chemibulk carriers. Earlier Roar et al (2004), have
commented on the value of market switching option for combination carriers. They have carried out an assessment of
the value of the flexibility of combination carriers in a formal real options framework under stochastic prices. A model
can be developed to showcase the viability of switching to Chemibulk combination carriers in the long run, although the
type of flexibility shown by this kind of vessel is expected to be different, as it can carry both types of cargo together.

Jansson et al (1982) have developed a model for the determination of optimal ship size (for general ship types). A similar
model can be developed for this specific type of vessel. The ship size has been analyzed on the basis of several factors
like minimizing costs involved in operation at sea and in port, trade specific parameters etc. A related research problem is
the problem of subdivision of a ships cargo space into chemical tanks and dry bulk holds, once the overall ship size and
design has been formulated. The decision will again depend on the specific trade parameters for each case.

In case of a Chemibulk combination carrier, the ship routing and scheduling problem is going to be much more complex
than any other kind of vessel, as it can simultaneously carry various chemicals as well as dry cargoes, having various
origins and destinations. An important decision issue is cargo space allocation problem, which can be formulated as a
model similar to Tank Allocation Problem, as discussed earlier.

Conclusion & Future Work:

The ever-increasing competitive scenario in shipping industry today calls for innovative transportation techniques to
improve efficiency and profitability. The deployment of chemibulk combination carriers in the fleet of a shipping
company, operating in appropriate trade routes is expected to increase flexibility and consequent profitability. A long run
market trend and profitability analysis needs to be carried out before taking such a complex decision. The decision issues
involved in commissioning and operation of such kind of vessel are unique. These can range from strategic decisions to
operational decisions, in other words, right from the idea generation level to day-to-day operation planning.

As a result of these unique decision issues in operation management aspects related to this kind of vessel, various
research issues arise at all decision levels. We have planned to take up two important problems for our future research.
The first one is a strategic level problem, which deals with design of overall maritime logistics system involving such
type of carrier. The second problem is a tactical level problem dealing with routing and scheduling for such a kind of
vessel. The above studies would be carried out for commercial shipping industry in general, with a special focus on
chemibulk combination carriers

Bibliography

1. (2009, September 7) Retrieved September 7, 2009, from www.investmenttools.com:

http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm
2. Bornozis, N. (2006), Dry Bulk Shipping: The Engine of Global Trade, Barron's.
3. Cristiansen, Fagerholt, & Ronen. (2004), Ship Routing and Scheduling: Status and Perspectives, Transportation
Science, 38 (1), 1-18.
4. Doll, F. (2007, July 27), Vegetable Oil and Chemical Tanker Market Coverage, Retrieved September 5, 2009, from
www.dollship.com: http://www.dollship.com/DownloadArticle.asp?DocumentID=26.
5. Douet, M. (1999), Combined Ships: An Emperical Investigation about Versatality, Maritime Policy and
Management, 26, 231-248.
6. Magnus, H. L., Kjetil, F., & Amaral, A. V. (2009), Tank Allocation Problems in Maritime Bulk Shipping,
Computers & Operations Research, 36, 3051 -- 3060.
7. Narsesian, R. (1981), Ships And Shipping, A Comprehensive Guide, Pennwell.
8. Owen, J. J., & Shneerson, D. (1982), The Optimal Ship Size, Journal of Trnasportation Economics and policy, 16
(3), 217-238.
9. Roar, A., Steen, K., & Sigbjorn, S. (2004, May 28), The Value of Market Switching Options for Combination
Carriers, Retrieved July 24, 2009, from www.realoptions.org:
www.realoptions.org/papers2004/SodalCombinationCarriers.pdf
10. Ronen, D. (1983), Cargo Ships Routing and Scheduling: Survey of Models and Problems, European Journal of
Operations Research, 12, 119-126.
11. Ronen, D. (1993), Ship Scheduling: The Last Decade, European Journal of Operations Research, 71 (3), 325-333.
12. The International Association of Independent Tanker Owners. (2003, June). Chemical tanker issues. Retrieved
September 6, 2009, from www.intertanko.com: www.intertanko.com/pdf/weeklynews/chemicaltanker%20issues.pdf
13. UNCTAD secretariat. (2007). Retrieved September 5, 2009, from http://www.unctad.org:
http://www.unctad.org/Templates/webflyer.asp?docid=9248&intItemID=4398&lang=1&mode=downloads
14. United Nations Statistics Division. (2009, September). comtrade.un.org/db/. Retrieved September 2009, from
comtrade.un.org.

Appendix 1: Tables Showing Annual Major Trade Data for Chemical and Dry Bulk Commodities in Two Trade
Routes

Chemical Imports (Africa to India) Chemical exports (India to Africa)

Commodity Qty in MT(2007-08) Commodity Qty in MT(2007-08)
Phosphoric Acid 646,570 Sulphuric Acid 164,602
Dry cargo Imports (Arica to India) Benzene 97,020
Manganese ore 182,915 Dry Cargo exports (India to Africa)
Disodium Carbonate dense 114,991 Rice parboiled 1,788,776

Copper ores and concentrates 95,741 Sugar 233,897

Aluminum ingots 47,400 Products of iron /non alloy 213,349

steel
Calcite 35,950 Ordinary Portland cement 112,075

Potassium Chloride 33,000 Petroleum coke Calcined 91,451

Chromium ore 27,530 Slag from Iron/steel 73,414

Chemical imports (ASEAN to India) White cement 61,539
Crude pal oil and fractions 1,933,604 Chemical exports (India to ASEAN)

Industrial monocarboxylic 223,360 P-Xylene 113,405

fatty acids

Acetic Acid 136,809 Napthalene 88,690

P-xylene 125,344 Benzene 41,320
Styrene 97,561 Cyclic hydrocarbons 36,621
Crude palm cernel oil 60,382 Dry Cargo exports (India to ASEAN)
Dry cargo imports (ASEAN to India) Maize (corn) 1,161,161
Natural Gypsum and 322,472 Residues of Rape or Cozla 198,487
Anhydrite seeda
Limestone flux 243,843 Oil cake and oil cake meal 142,229
of Soya
Other Limestone 239,937 Cane sugar 138,897
Natural Calcium Phosphates 216,510 Shelled groundnuts kernel 131,520
unground
Petroleum coke 126,900 Non alloy pig iron 126,097
Copper ores and concentrates 79,508 Salts 116,205

Anhydrous Ammonia 75,098 Mild steel billets 98,112

Wood Pulp sulphate 73,075 Aluminum Ingots 62,257
Calcium Carbonate 40,005 Felspar Powder 42,917

(Source: UN Comtrade database)