THE SHIP OWNER’S STAND ON THIRD PARTY SHIP MANAGEMENT
A Dissertation Presented in Partial Fulfilment
of the Requirements for the Degree of
18 March 2016
TABLE OF CONTENTS
CHAPTER 1 – INTRODUCTION 1
1.1 BACKGROUND 1
1.2 RESEARCH JUSTIFICATION 5
1.3 RESEARCH AIM AND OBJECTIVES 6
CHAPTER 2 – LITERATURE REVIEW AND METHODOLOGY 7
2.1 INTRODUCTION 7
2.2 LITERATURE REVIEW 7
2.2.1 Emergence and development of TPSM 7
2.2.2 Significance of TPSM 8
2.2.3 Sourcing 10
2.2.4 Attraction and Influential Factors 10
2.3 METHODOLOGY 13
2.3.1 Strategy and Approach 13
2.3.2 Sampling method 15
2.3.3 Data collection method 16
2.3.4 Analysis method 16
CHAPTER 3 – REASONS FOR TPSM 17
3.1 INTRODUCTION 17
3.2 TYPES OF TPSM 18
3.3 PREDOMINANT TPSM TYPE 20
3.4 INFLUENTIAL FACTORS IN TPSM DECISIONS 21
CHAPTER 4 – DEVELOPMENT OF THE TOOL 27
4.1 INTRODUCTION 27
4.2 THE PROCESS 27
4.3 BUILD HIERARCHY 28
4.4 MAKE COMPARISONS 29
4.5 CALCULATE WEIGHTS 30
4.6 CHECK CONSISTENCY 30
4.7 PRODUCE RESULT 30
CHAPTER 5 – APPLICATION OF THE TOOL TO NIGERIAN SHIPPING COMPANIES 33
5.1 INTRODUCTION 33
CHAPTER 6 – ANALYSIS 38
6.1 PROFILE OF THE RESPONDENTS AND COMPANIES 38
6.2 USAGE OF THIRD PARTY SHIP MANAGEMENT COMPANIES BY NIGERIAN SHIP OWNERS 39
6.3 USE OF SHIP MANAGEMENT BY THE NUMBER OF OWNED SHIPS 40
6.4 REASONS FOR NOT USING SHIP MANAGEMENT 40
6.5 TYPES OF MANAGEMENT FOR FIRMS THAT USE SHIP MANAGEMENT 41
6.6 REASONS FOR TURNING TO SHIP MANAGEMENT 41
6.7 SELECTION CRITERIA FOR THIRD-PARTY SHIP MANAGEMENT PROVIDERS 42
CHAPTER 7 – CONCLUSION 48
CHAPTER 1 – INTRODUCTION
Professional ship management represents a major structural change in the maritime industry (Panayides, 2001). The first major structural change in the maritime industry was the early use of water transport by man, followed by the quest for maritime power occurring in the 17th and 19th centuries (Selnes and Sallis, 2003; Selviaridis et al., 2008; Kleeman, 1994). The third major wave in structural change in the maritime industry began after the Second World War and culminated in the trans-nationalization of shipping with the greatly increased dependence on manpower from developing countries and flagging out. The forth wave in the international shipping is the professional ship management (Panayides, 2001).
The management of the ships by the ship owners continued until 1957 in which the first third-party ship management contract was signed between a ship owner and a professional ship management company (Downard, 1996). Third party ship management refers to the professional supply of services by a management company separate from the vessel’s ownership (Hoffman 2006, 2007; Quinn, 2006; Gourdin, 2006; Parashkevova, 2007; Marasco, 2008). Here, professional supply implies the supplier (ship manager) provides service(s) to the user (ship-owner) according to contracted terms and in return for management fee. In the third-party service provision, the ship manager is required to ensure that the vessel always complies with international rules and regulations is run in safe and cost efficient manner without threat to the environment and is maintained so as to preserve as far as possible its asset value (Willingale et al., 1998).
Since the time of the signing of the first third-party ship management contract, professionalship management evolved into an industry in its own right (Mitroussi, 2004a). In this view, the provision of ship management services by third parties is a relatively new type of service in international shipping when compared to the time period during which ships have Ship operation is increasingly a specialised and technical business (Lieb and Bentz, 2004; Langley et al., 2005). The third-party ship management service is undertaken by specialist ship management companies (Downard, 1996; World Bank, 2007; De Langen, 2007; Van de Voorde and Vaneslander, 2009). These services, typically do not own the ships themselves, but contract to operate them, manage and maintain them, and provide the detailed technical management to keep them operating efficiently (Langley et al., 2005).
Over the last decade, outsourcing has become a predominant strategic option for firms (Lieb and Bentz, 2004). Eighty-two percent of logistics and supply chain managers of 60 large US manufacturers made use of third-party logistics services in 2004 (Lieb and Bentz, 2004; Langley et al., 2005). Progressively, companies are moving into foreign markets and globalizing their supply chains and sources of materials (Anderson et al., 2010). Also, the outsourcing of vessel management has become an option considered by most ship-owners (Drewry Shipping Consultants, 2004; Sletmo, 1989), as ship ownership and operation are complex activities for which specific expertise is needed (Drewry Shipping Consultants, 2004).
Although outsourcing is a strategic choice that is growing in importance (Drewry Shipping Consultants, 2004), the extent of outsourcing and the reasons behind the adoption of an outsourcing strategy are not well documented in shipping, at least on the global level, for several reasons (Patterson et al., 2010). The first reason relates to the fact that the extent of outsourcing is generally difficult to capture, as a variety of activities can be outsourced – transport management, warehousing, distribution or even the management of the entire supply chain (Goulielmos and Mitroussi, 2003; Filntisi, 2008; Polit and Beck, 2004; Saunders, 2009; Patterson et al., 2010). The second reason relates to the fact that statistics on potential “shareholding ties” among the various stakeholders involved in the provision of shipping services are not readily available, which makes the identification of the extent of outsourcing difficult (Mitroussi, 2003; Mitroussi, 2004b; Pallari, 2009; Chapman 1994; Panayides and Gray, 1997).
In the shore-based and shipboard management, day-to-day operations of a ship include crewing, technical management, commercial management, bunkering, dry-docking, and accounting services (Drewry Shipping Consultants, 2004). Thus, outsourced ship management shifts responsibility for all the day-to-day operations to a third-party specialist, and thus enables asset-owner to focus on core strategy (Drewry Shipping Consultants, 2004).
The contract between manager and ship owner will specify the degree of the management that takes place (Vanelslander, 2005; MLTC/CATRAM, 2013; vanDyck, 2015; van Dyck, 2015). The ship-owner may wish to trade the ship himself, alternatively he may wish the manager to undertake full commercial operation of the ship, organising the insurance, the purchase of stores and full technical maintenance and operation, along with the provision of a properly trained crew. In such cases the manager will treat the ship as his own for the period of the contract, ensuring that it is always available, and maintained in good condition (Panayides, 2001).
There are numerous advantages in employing ship managers (Spruyt, 1994; Perry, 1994; Chapman 1994; Pallari, 2009), not least the ability to outsource many difficult and labour intensive elements of ship operation and management (Porter, 1990; Van de Voorde and Winkelmans, 2002; Slack, 1985). It is an arrangement that suits an industry where demand for ships and shipping is notoriously cyclical. It also enables an owner of perhaps just a few ships to operate them without the need for a large in-house organisation (Panayides, 2001; Downard, 1996; Willingale et al., 1998). Moreover, placing this small fleet with a sizeable ship management company will generate the advantages of being with a large fleet, such as excellent purchasing power for stores, repairs and other matters which the large manager will be able to obtain (Lieb and Bentz, 2004; Langley et al., 2005; Langley et al., 2005; Anderson et al., 2010; Drewry Shipping Consultants, 2004; Sletmo, 1989). As the operation of ships becomes more heavily regulated, the demand for these ship services continues to grow (BIMCO, 2016; Drewry Shipping Consultants, 2004; Patterson et al., 2010; BIMCO, 2016; Goulielmos and Mitroussi, 2003).
One third of the world’s fleet is in the hands of ship management companies, which themselves have been innovative in developing sophisticated systems of management (BIMCO, 2016; (Mitroussi, 2003; 2004a; 2004b; BIMCO Shipman, 1998; BIMCO Shipman, 2009). There is brisk competition between management companies, so that there is always an incentive to be more efficient and innovative. Many of the larger management companies are highly regarded, developing methods of running ships more efficiently, organising the training of their own staff and providing a fine career structure for professionals ashore and afloat (Sletmo and Holste, 1993; Sletmo, 1989; Perry, 1994; Spruyt, 1994; Chapman, 1994; Goulielmos and Mitroussi, 2003; Filntisi, 2008; Willingale, 1998). And as shipping itself becomes more specialised, the managers are developing accordingly, able to provide specialist services for every kind of fleet (BIMCO, 2016).
Even though the last four decades have witnessed the birth and the rise of third-party ship management, Robbins and Coulter (2005) suggested that core business is never delegated outside the company. In the views of Robbins and Coulter (2005), ship owning companies often handle finance among other core business by top management. The non-core functions are naturally the easier target for TPSM companies (Koufopoulos et al., 2010; Klikauer and Morris, 2003; Chin, 2008). The third-party ship management may offer an easy solution by providing comprehensive services in cases where the ship owner is unable or unwilling to undertake the day-to-day tasks personally (Downard, 1996; Tallack, 2000; Raghuram etal., 1998; Willingale et al., 1998). However, one has to look also at management’ style (Gilberth, 1993; Panayides, 2001; Celik, 2009). Here, ship ownership should not just be seen merely as a way of making a profit by investing money in an industry without knowing anything about it (Gilberth, 1993; Panayides, 2001; Panayides and Cullinan, 2002).
1.2 RESEARCH JUSTIFICATION
The stance that ship owners in Nigeria take on third-party ship management attracts research to reveal the value in such a stance. There are various types of ship management provision in the maritime industry (BIMCO, 2016), which therefore, call for a research to evaluate the optimum and most effective type of ship management provision in the context of Nigeria. Moreover, investing in third-party ship management does not make any business sense if the ship owners and service providers alike do not understand the factors that influence the effectiveness of service delivery and outcome (BIMCO, 2016). Hence, this research aimed to enlighten stakeholders in the Nigerian shipping industry on key factors that should always be considered in view of embracing the use of third-party management in the industry. This research is called for following a number of challenges and needs in the shipping industry. Research has revealed crew shortages, inflationary cost, regulatory compliance, fuel consumption, and seafarer criminalization as the top challenges facing the shipping industry. In view of these challenges, research shows that many shipping companies are extending their operations globally, which calls for global regulatory compliance. Unfortunately, the ship owner’s companies lack the expertise to fulfil global requirements on safety, which is the opposite situation with ship management service providers.
1.3 RESEARCH AIM and OBJECTIVES
This research aimed to evaluate the value in the ship owner’s stand on third party ship management in Nigeria.
The objectives of the research in line with the aim were as mentioned below:
1. To identify the various types of ship management provision in the maritime industry
2. To examine the factors that influence the effectiveness of the ship management function
3. To develop a tool using AHP to assess the optimum type of ship management provision in the case of Nigeria
4. To analyse the most effective type of ship management provision for Nigerian Shipping Companies
To achieve the above objectives, the subsequent chapter (chapter 2) in this paper is literature review and methodology. Chapter 2 was extended to detail the investigated areas within the topic of study. Chapter three entails development of the AHP tool. Chapter 4 explains the application of the tool to Nigerian shipping companies. Chapter 5 is the analysis of research results. Lastly is the conclusion chapter, which summarize the whole study with some insight of the researcher.
CHAPTER 2 – LITERATURE REVIEW AND METHODOLOGY
Chapter two entails a broad body of literature in line with the research topic and objectives. The body of literature in this research traces the emergence and development of third-party ship management as well as factors that influence it. The literature review further discusses the value of using third-party ship management in light of internal and external factors.
The chapter also presents the methodology for this research. Here, the chapter explains the research strategy and approach, which suited to achieve the research objectives. The methodology section further discusses the sampling and data collection methods. The chapter concludes with the analysis method, which was AHP.
2.2 LITERATURE REVIEW
2.2.1 Emergence and development of TPSM
The growth and the importance of ship management have been recognized since early 1970s (Panayides, 2001). Although one third of the world’s fleet is in the hands of third party ship management companies (BIMCO, 2011), this sector is not well developed in Nigeria as it has done in some other maritime countries. Therefore, this study aimed to analyze the value in the Nigerian ship owners’ stance on third party ship management companies and the demands for the services of these companies from Nigerian ship owners.
Third party ship management (TPSM) companies have no equity stake in the vessels or have no vessels of their own (Panayides, 2001). The development of third party ship management represented an instance of true change in the shipping business. With the employment of third party managers, despite the fact that the offices of a shipping company remain ashore and perhaps under the control of the owner (Goulielmos and Mitroussi, 2003), the real asset, in which huge capital investments have been made and from which the profits of the company are expected to derive, the vessel, is in the hands of others (Mitroussi, 2004a).
Panayides and Gray (1997) contended that there has been a dramatic growth in the TPSM industry, indicating that companies seek ways to ensure competitiveness. This was done by improving the quality of services, adopting market entry strategies, establishing in strategic locations and promoting. In 1999, Panayides and Gray reasoned further that given the intense competition in general, and in professional TPSM in particular, the quest for achieving competitiveness continue and it will be intensified. Organisations in the shipping industry have indeed started to cooperate (partnerships-integrations) to achieve competitive advantages. For TPSM the establishment and maintenance of a relationship with clients is an intangible resource, which can be utilised to become competitive as well as with generic strategies. In most cases, TPSM companies achieve competitiveness if pursued stable and long-term relationships with their clients.
2.2.2 Significance of TPSM
There is an important part to be played by good independent ship management companies to help the small owner in developing business (Panayides, 2001). In the views of Panayides, there may also be special circumstances where some larger companies may benefit from employing independent ship management companies (Panayides, 2001). The author further regards the existence of good independent professional management companies as conductive to efficiency in the shipping industry (Panayides, 2001).
Besides the Rochdale Report, BIMCO (2011) also indicates the importance of ship management companies as the ability to outsource many difficult and labor intensive elements of ship operation and management. The third party ship management is regarded as an arrangement that suits an industry where demand for ships and shipping is notoriously cyclical (Mitroussi, 2003; 2004a; 2004b). The third party ship management enables an owner of perhaps just a few ships to operate them without the need for a large in-house organization (Mitroussi, 2004b). Moreover, placing small fleet with a sizeable ship management company generate the advantages of being with a large fleet (Mitroussi, 2004a), such as excellent purchasing power for stores, repairs and other matters which the large manager will be able to obtain (Mitroussi, 2004b). So what is the place of third party ship management companies in Nigeria? The answer lies in macro and micro analysis of various factors.
The services that may be offered by ship managers have grown to include virtually anything required to run a ship profitably excluding the provision of equity finance (Panayides, 2001). In the BIMCO Shipman (1998) and BIMCO Shipman (2009), one can find explicitly outlined the variety of levels of management services that ship owners have at their disposal. In broad terms, these include crewing, technical management, insurance, freight management, accounting, chartering, sale and purchase, provisions, bunkering and operations (BIMCO Shipman, 2009). In case a ship management company is accepted to give a full management service, that company is expected to serve at least two basic services, which are technical management and crew management services (Willingale et al., 1998).
The ship management companies that offer such service are mainly located in world’s shipping centers such as The United Kingdom, Germany, Cyprus, Greece, Hong Kong, Norway, Singapore and the Unites States of America (Panayides, 2001). The major third party ship management companies in the world involve in full independent management (BIMCO Shipman, 2009). Some of the companies include: Aboitiz Jebsen Bulk Transport Corp, Anglo-Eastern (Ship), ASP Ship Management Group, Bernhard Schulte Ship Management, Bibby Ship Management, Columbia Ship Management Ltd, Diamond Ship Management, Fleet Management Limited, Haque and Sons Ltd Crew management, International Shipping Partners Inc. Additional third party ship management companies include OSM Ship Management AS, Terra Marine Ship Management (Pvt) Ltd, Thome Ship Management Pte Ltd, V. Ships and Wilhelmsen Services (BIMCO Shipman, 2009).
2.2.4 Attraction and Influential Factors
Third party ship management companies are attracted by friendly environments (Sletmo and Holste, 1993). The friendly environment here implies taxation, cost of social security, free crew selection, telecommunication costs and office administration costs are lower (Sletmo and Holste, 1993; Sletmo, 1989; Perry, 1994). Spruyt (1994) argued that ship owners entrust their vessels to third party ship management to be relieved of the pressures imposed by their external environment. Chapman (1994) noted that maritime industry moves towards places where one can find the latest knowledge about management, as well as the latest technology. Chapman states that this process has been accelerated by the increased responsibility on the captains (Chapman, 1994).
Studies have found management and ownership of shipping companies to be separate, and that the number of owners increased in a wide dispersion of stock ownership (Goulielmos and Mitroussi, 2003; Filntisi, 2008Willingale, 1998). Moreover, the size of companies has led to economies of scale and scope and to lack of coordination, and the need for large amounts of capital usually found in stock exchanges (Panayides and Cullinan, 2002; Celik, 2009). Size has also been reported as responsible for deeper division of labour and inevitable delegation of management power (Koufopoulos et al., 2010; Klikauer and Morris, 2003; Chin, 2008). Thus, owners may lack time, information, commitment, specialised knowledge, education and expertise. What ship owners lacked is believed to be found in salaried persons, educated for this purpose and being technically competent (Downard, 1996; Tallack, 2000). The separation of ownership from management was helped by the evolution of the large, multifunctional enterprise, and the divisionalisation brought about by the extension of market and the increase in the size of firms (Raghuram etal., 1998; Willingale et al., 1998). The emergence of new technologies in production and distribution also needed knowledgeable managers (Gilberth, 1993; Panayides, 2001). It is as a result of these reasons that the long celebrated doctrine of ‘profit maximisation’ was replaced by other theories, like sales maximisation; own utility maximisation; sustainable growth of the firm and professional managers pursuing their own objectives (Celik, 2009; Gilberth, 1993; Panayides, 2001; Panayides and Cullinan, 2002).
Mitroussi (2003) remarked that ‘the traditional custom of doing business with the ship owner being also the ship manager was abandoned and a revolutionary model of assigning the role of the manager and the role of owner to two different entities was proposed’. This is in effect a separation of the two identities. Mitroussi concluded that certain variables such as size, type and age of company led to separation. Additional factors that influenced the use of TPSM include technological advances and the specific business environment such as shortages in specialised labour and enhanced regulatory system.
Mitroussi (2004a) investigated the factors that are conducive to the employment of professional ship managers among ship-owners in Greece and the UK. She concluded that ship managers do not always undertake managerial responsibility of all assets of a particular firm as owners entrust less than 50% of assets/fleets to TPSM. Ship owners are likely to outsource crewing and technical services. Commercial management (chartering) is not so frequently handed over. The ship owners were willing to hand over chartering and sale and purchase, but to retain ultimate decision. The Greek owners in particular were negative to the idea of giving up technical management, as connected closely with cost control and cost savings. The ship owners stated that there are decisions that they prefer to have complete control over them and make decisions by themselves. The owners were sensitive on such matters as levels of maintenance, crew nationality and selection of officers, as well choice of flag, trading areas and insurance agreements. From Mitroussi’s study, it can be learnt that ship owners have a solid knowledge of the particularly critical decisions/items that maintain/create a competitive advantage (cost control) and wish to keep them in-house.
Moreover, a number of studies concur on why shipping companies usually resort to outsource management service. One of the reason is flexibility, meaning to get out of, and into, market sectors without problems of employment and less cost effective methods (Spruyt, 1994; Perry, 1994). The second reason is relief from economic pressures (Chapman 1994; Pallari, 2009), and hence the ship owners aim to have competitive advantage, through cost reduction or through specialising in new types of ships (Mitroussi, 2004b; Pallari, 2009). Availability of expertise and access to qualified crew form the third reason, which enables ship owner’s companies to access the know-how in certain ship types that client requires (Chapman 1994; Panayides and Gray, 1997). Additional reasons include changes due to technology and the environment, better quality of services, and better overall risk management due to arms-length relationship that facilitates speedier remedies (Spruyt, 1994; Pallari, 2009). As a result of TPSM, it becomes easier for ship owner to focus on core business and revenue generation (Goulielmos and Mitroussi, 2003; Filntisi, 2008).
To conclude this literature review, it was noted that the whole issue of TPSM is under-researched in the African context, and hence the academic gap that this research bridged by using Nigeria as a case study.
2.3.1 Strategy and Approach
The methodology is a system by which theoretical and practical activity are organized (Wacker, 2008). Wacker (2008) defines methods as ways in which data is collected and analyzed. The type of methodology relies on the nature of the study (Creswell, 2009). This study was phenomenological in nature, and thus suited the use of qualitative methodology. The qualitative methodological approach suited because the data comprised descriptions and phrases.
The researcher used survey, as a strategy, and a qualitative research approach to access and analyze adequate data and information for answering the research questions. The use of survey and a qualitative approach entailed using simple random sampling method and an open-ended questionnaire in the data collection process (Polit and Beck, 2004; Saunders, 2009). The use of simple random sampling allowed unbiased representation of sample population because the identified companies had an equal probability to participate. The researcher collected the experiences and views of respondents about the stance on third party ship management through in-depth interviews using an open-ended questionnaire through Skype, as a tool for data collection.
The use of an open-ended questionnaire as a tool for data collection was instrumental in facilitating the collection of broad, diverse and in-depth views (Saunders, 2009). Interview method enhanced the understanding of ship management services and the manner in which people would benefit from sustainable ship management services in Nigeria. A qualitative research approach enabled the collection of needed data about sustainable ship management service delivery in Nigeria.
The qualitative research method was the most appropriate to examine the stance on third party ship management in Nigeria as well as to address feelings and experiences of managers in shipping industry. Phenomenological design was most suitable to address the stance on third party ship management in Nigeria. The design was important in capturing existential experiences of ship company managers about the challenges, they faced, their experiences and measures needed to ensure sustainability is ship management delivery in Nigeria. The findings of this study and the research design were intended to offer cogent results on understanding how sustainability of ship management can be achieved in Nigeria.
This qualitative study unlike quantitative study enabled in-depth examination of the stance on third party ship management in Nigeria. The analysis of the data gathered from interviewing ship management managers in Nigeria provided primary information, which offered valuable insight for establishment of sustainable ship management delivery type in Nigeria.
2.3.2 Sampling method
The research relied on random selection from a list of 15 numbers from the list of all the ship management companies in Nigeria using a random number generator. An online random number generator known as Stat Trek (Stat Trek, 2015) generated 15 numbers from a sample population of 30 ship owners and ship management companies from 1–N where N represented 30.
The use of simple random sampling facilitated the identification of 15 companies from 30 companies thus obtaining the study respondents. The 30 companies, in alphabetical order, linked to numerical numbers from 1 to 30. The creation of a simple random sample took place in six main steps including the definition of the population, choosing sample size, listing the population, assigning numbers to the units, finding random numbers, and selecting the sample.
The 15 selected companies received notice of their participation through email and phone call. The email and phone call further facilitated the process of requesting permission from relevant authorities to allow one of the managers of the company to participate. The list of companies emerged after obtaining the consent from their respective managers to take part in the interview. After creating a listed-based sampling framework, a random number generating process facilitated the process of obtaining a simple random sample size of 15 from the listed companies.
The participants in the study of third party ship management delivery in Nigeria were from Africa and specifically from Nigeria. The research used a list-based sample framework to select 30 ship owners and ship management companies. The 30 companies represented all the ship management and ship owners’ companies in Nigeria. After assembling the list of 30 companies against the respective email addresses, the researcher created a sample framework by numbering the companies from one through 30. Random sampling played a role in identifying 15 companies whose three top managers participated. In total there were 45 respondents from 15 companies.
2.3.3 Data collection method
Primary data in this research emerged from the use of Skype interviews in conjunction with an iFree Skype Recorder.
2.3.4 Analysis method
This research employed qualitative technique of analysis through the use of an Analytic Hierarchy Process (AHP) tool. The output of the AHP lends itself to analysis to gain much information about the decision-maker’s priorities and thought processes in third-party ship management service in Nigeria.
CHAPTER 3 – REASONS FOR TPSM
The researcher investigated reasons for outsourcing TPSM in the Nigerian shipping industry against the overall findings of previous studies established. In this view, logistics outsourcing is commonly adopted by companies as a means to obtain a competitive advantage (Hoffman 2006, 2007; Quinn, 2006; Gourdin, 2006; Parashkevova, 2007; Marasco, 2008). Outsourcing provides companies with opportunities to focus on core competencies, to access best management practices and to increase competitiveness in implementing new technologies developed by third-party service providers. Furthermore, through relationship learning, outsourcing enables customers and suppliers to identify ways of removing redundant costs, improve quality and reliability, and increase speed and flexibility (Selnes and Sallis, 2003; Selviaridis et al., 2008). At the same time, the potential for a loss of control, uncertainties about the quality of service and questions concerning the true costs of using a third party remain (Gourdin, 2006; World Bank, 2007; De Langen, 2007; Van de Voorde and Vaneslander, 2009).
Port efficiency and performance are factors of the service level of a port (Vanelslander, 2005; MLTC/CATRAM, 2013; vanDyck, 2015; van Dyck, 2015; Porter, 1990; Van de Voorde and Winkelmans, 2002; Slack, 1985). The higher the quality of service provided to port users, the higher the competitiveness of the port. The attributes to be considered include technical port efficiency, ship waiting time, container dwell time, ship turnaround time, crane productivity and truck processing time. These factors represent ship-to-shore and terminal efficiency of port productivity and directly influence the efficiency of shipping companies and other port users. Based on research, the factors which are indicative of performance show that ship management companies, which provide services in a timely manner outperform the ones that do not (Panayides, 2001; Downard, 1996; Willingale et al., 1998; Lieb and Bentz, 2004; Langley et al., 2005; Langley et al., 2005; Anderson et al., 2010; Drewry Shipping Consultants, 2004; Sletmo, 1989).
3.2 TYPES OF TPSM
A number of TPSM types were examined in this research against the existing research findings. This was meant to determine the best strategy that the ship owners in Nigeria should employ to select and procure services. Some of the investigated topic under ‘types’ include outsourcing, out-tasking, Public Private Partnership, Total Facilities Management, Traditional, and Partnering.
Outsourcing – Hui and Tsang (2004) explained that outsourcing is a whole package of support function is off-loaded to an external service provider. Sheng (2012) also stated that outsourcing prepares the organization to engage an external specialist for the provision of certain specialized trade of service under contract basis. Outsourcing can trade of service under several types of contract which include outsourcing by: Lump Sum Contract, Measured Term Contract, Specialist Term Contract, Day work Term Contract, Tendered Schedule Term contract, Repair and Maintenance Contract, Cost Reimbursement Contract, and by Service Level Agreement (Drewry Shipping Consultants, 2004; Patterson et al., 2010; BIMCO, 2016; Goulielmos and Mitroussi, 2003). Outsourcing has increasingly become an important approach that can significantly assist organizations to leverage their skills and resources to achieve greater competitiveness (Quinn and Hilmer, 1994). Lau and Zhang (2006) stated that outsourcing strategy enable organizations to gain competitive advantage through cost reduction and improved responsiveness to changing business environment and market demand. This is agreed that outsourcing is a supply strategy often chosen as a means of increasing organizational effectiveness and efficiency (Mitroussi, 2003; 2004a; 2004b; BIMCO Shipman, 1998; BIMCO Shipman, 2009; Sletmo and Holste, 1993; Sletmo, 1989; Perry, 1994; Spruyt, 1994).
Out-tasking – Out-tasking refers to a management process whereby specific tasks, as opposed to a whole package of support function in the case of outsourcing, are performed by a contractor (Kleeman, 1994). According to Hui and Tsang (2004), the company usually employs a small number of staff to serve as coordinators between internal customers and the external service provider when outsourcing is practised. This is in contrast to out-tasking where the internal staff members play a proactive role of planning and initiating service activities and leading the external service provider for delivery of the needed service (Chapman, 1994; Goulielmos and Mitroussi, 2003; Filntisi, 2008; Willingale, 1998). Thus, the internal personnel are fully responsible for the consequences of out-tasking (Kleeman, 1994).
Public Private Partnership (PPP) – Public Private Partnership (PPP) refers to a strategic alliance formed between the organization and service provider based on a sharing of the responsibility for the delivery and performance of the service, including the sharing of the benefits arising from any efficiency gains and cost savings” (Koufopoulos et al., 2010; Klikauer and Morris, 2003; Chin, 2008).
Total Facilities Management (TFM) – An entire scope of services are packaged together and externalized to a solitary supplier which gets to be completely in charge of the monitoring, control, delivery and accomplishment of execution objectives which relate to operational benefit (Kleeman, 1994).
Traditional – According to Straub (2007), maintenance projects mostly adopted traditional procurement method where three to five competitive bids are solicited and the lowest tender price will be selected. Espling and Olsson (2004) claimed that traditional procurement produce low productivity, litigation, an adversarial environment and a reduced ability to absorb technological and business process innovations.
Partnering – Espling and Olsson (2004) defined partnering as “a managerial approach used by two or more organizations to achieve specific business objectives by maximizing the effectiveness of each participant’s resources”. The approach is based on mutual objectives, an agreed method of problem resolution and active search for continuous measurable improvements (RICS, 2009). Partnering is becoming increasingly used for procurement of maintenance services (Hoffman 2006, 2007; Quinn, 2006; Gourdin, 2006; Parashkevova, 2007; Marasco, 2008). Partnering requires changing traditional relationships to a shared culture without regard to organizational boundaries. The relationship is based on dedication to common goals, trust and an understanding of each other’s individual expectations and values. Expected benefits include cost effectiveness and improved efficiency, the continuous improvement of quality products and services and increased opportunity for innovation (Downard, 1996; Tallack, 2000; Raghuram etal., 1998; Willingale et al., 1998)
It should further be noted that these types of arrangements do not create a business partnership (RICS, 2009).
3.3 PREDOMINANT TPSM TYPE
The researcher investigated the dominance type of third-party ship management service across the world, and assess its suitability in the Nigerian context. According to Lieb and Bentz (2004), the most frequently used third-party logistics services were direct transportation services (67%), custom brokerage services (58%) and freight payment services (54%). Although the reasons for outsourcing these activities are often similar, differences remain in terms of the motives, extent and context within which such outsourcing takes place (Fugate et al., 2009; Hannon, 2007; Lieb and Benz, 2004; Peters et al., 1998; Silver, 2005; Tompkins, 2006). In the shipping sector, outsourcing provides access to cost-efficient factors of production, such as vessel crews, and access to the specific technical expertise of large ship management companies, which offers economies of scale, marketing and bargaining power (Ebsworth, 1989; King, 1997; Gunton, 1997; Richards, 1989; Sletmo, 1989; Schulte, 1989;). Access to potential tax exemptions is another likely motive (Stopford, 2009; Goulielmos and Mitroussi, 2003; Filntisi, 2008; Polit and Beck, 2004; Saunders, 2009).
3.4 INFLUENTIAL FACTORS IN TPSM DECISIONS
The researcher further investigated the factors influencing the type of third-party ship management. As discussed in previous chapters, a ship-owner’s decision to outsource the management of a vessel involves a set of characteristics related to both the vessel and the owner. Among the latter, the country of registration for a ship-owner’s domicile is a decisive factor (Drewry Shipping Consultants 2004; Mitroussi 2003, 2004a, 2004b; Panayides and Cullinane 2002). This element is the focus of this section, although the limitations related to registered ship-owners and the true nationality of owners should be kept in mind.
Outsourcing involves both a choice with regard to the activities to outsource and the selection of an appropriate service provider to handle those activities (Anderson et al., 2010; Gilberth, 1993; Panayides, 2001; Celik, 2009; Gilberth, 1993; Panayides, 2001; Panayides and Cullinan, 2002). In vessel management, outsourced activities primarily concern commercial and/or technical elements. In 2003, the management of 1,500-1,700 global vessels (out of 23,000 vessels) was outsourced to technical managers, while 4,500-5,500 global vessels were outsourced to specialized crew management companies (Drewry Shipping Consultants, 2004). A 6-8% increase in the fleet managed by professional ship managers is expected over the long term, mainly driven by two factors: the growth of new shipping/exporting nations without shipping expertise, and changes in traditional shipping nations that support the outsourcing of vessel management.
Although many studies about the extent of outsourcing and the choice of third-party ship managers exist (Panayides, 2001; Panayides and Cullinane, 2002; Mitroussi, 2003, 2004a, 2004b), they have been carried out on a case-to-case basis through surveys, and they often focus on differences in behaviour among the Western ship-owners. Panayides (2001) as well as Panayides and Cullinane’s (2002) surveys of 48 ship management companies, and 36 Greek and UK owners concurred with other studies that the primary criteria considered by a ship-owner in the selection of a third-party ship manager is technical ability, followed by the experience and qualifications of personnel, while price is not a decisive criteria. Another motive is the need to benchmark the ship-owner’s own vessel management performance (Spruyt, 1994; Perry, 1994; Chapman 1994; Pallari, 2009). Finally, the authors suggest that outsourcing is more likely for liner shipping companies operating a large number of vessels (Mitroussi, 2004b; Pallari, 2009; Chapman 1994; Panayides and Gray, 1997).
Mitroussi (2003) highlights four elements that lead a ship-owner to use third-party ship managers. These factors are company size, company type (private/family or public), company age and technological change. In its investigation of the impact of these attributes, Mitroussi’s survey (2004a, 2004b) of 46 Greek and 20 UK ship-owners identifies distinct profiles. For instance, while 55% of the UK based companies use third-party management companies, only 8.3% of Greek companies use the same services. Crew and technical management are the activities that are outsourced the most often, while the choice of flag of registry, maintenance and commercial matters often remains the owner’s responsibility. Furthermore, the primary reason for outsourcing is flexibility, followed by access to technical expertise. In contrast, existing in-house expertise (98%), the need for control (89%) and the cost of outsourcing reduce its likelihood. With regard to the latter, Drewry Shipping Consultants (2004) estimates the fee of a third-party ship manager at USD 100,000 to USD 175,000 per year and per vessel, while Justad (2008) estimates the cost at 5% of annual operating costs.
Dyck and Ismael (2015) established that port costs represent the financial aspect of competitiveness and generally impact supply chain costs. Port users are therefore drawn to ports that offer competitive rates for the provision of port services (Selnes and Sallis, 2003; Selviaridis et al., 2008; Kleeman, 1994). The lower the rate, the more competitive the port is adjudged. In this study, container handling cost is the sole attribute assessed as other costs and codes of practice are quite different amongst the countries under study. Lagos, Dakar and Tema have the lowest handling cost ($155, $160 and $168) respectively with Abidjan charging the highest rate ($260), which is twice the global benchmark (Dyck and Ismael, 2015).
The ship-owner’s characteristics also have an impact on the choice to outsource (Mitroussi, 2004b; Spruyt, 1994; Chapman, 1994). Small and large companies outsource in similar proportions (around 16%). This similarity is explained by the need for expertise for the former and by the need for a reduction in administrative costs for the latter. The age of the company is also a significant factor. Firms controlled by at least third-generation owners are more likely to outsource. Greek family-owned companies maintain control over the majority of their vessels (86.7%), while private UK companies use third-party managers (53.9%) more extensively. Finally, 53% of owners outsource 100% of their fleet, while 26.7% of owners outsource less than 25% (Mitroussi, 2004a).
Masterman (1992) claimed that many clients had been selecting procurement systems in a cursory manner simply based upon subjective past experience and the conservative decisions and some client even employ a specific procurement strategy by default without making a deliberated choice. Although past experiences may be an essential factor that influences the selection of procurement strategy (Richards, 1989), but experiences and solutions to problems retrieved from past projects may not be applicable to the current projects because each building has its own distinct characteristic (Sletmo, 1989; Schulte, 1989).
To conclude, the investigated chapters clearly brings it out that previous research has dealt with the identification of factors affecting the decision to outsource ship management. However, the scope of previous research remains limited to case studies comparing the Western countries. Therefore, we attempt to enlarge the comparison by considering a sample of 15 companies from Nigeria, Africa. The Professional ship management represents a major structural change in the maritime industry. There are numerous advantages in employing ship managers, not least the ability to outsource many difficult and labour intensive elements of ship operation and management. As the world fleet grows, it is significant to note that third party ship management companies are significant in today’s marine business. Investing in third-party ship management does not make any business sense if the ship owners and service providers alike do not understand the factors that influence the effectiveness of service delivery and outcome. Hence, this research enlightens stakeholders in the Nigerian shipping industry on key factors that should always be considered in view of embracing the use of third-party management in the industry.
This research examined a number of challenges and needs in the shipping industry. Research has revealed crew shortages, inflationary cost, regulatory compliance, fuel consumption, and seafarer criminalization as the top challenges facing the shipping industry. In view of these challenges, other research showed that many shipping companies are extending their operations globally, which calls for global regulatory compliance. Unfortunately, the ship owner’s companies lack the expertise to fulfil global requirements on safety, which is the opposite situation with ship management service providers. The investigated chapters were in line with the aim and objectives of the research. Based on a broad body of literature in line with the research topic and objectives, the researcher traced the emergence and development of third-party ship management as well as factors that influence it since its inception. The researcher attempted to examine the value of using third-party ship management in light of internal and external factors in the business environment. One of the investigated chapters entailed the emergence and development of TPSM since early 1970s to date. The significance of TPSM was examined in detail, and shown that there should be independent ship management companies to help the small owner in developing business.
Additionally, this research examined the sourcing of TPSM companies, and showed that ship management companies that offer such service are mainly located in world’s shipping centers in the West. Third party ship management companies are attracted by friendly environments such as lower cost of taxation, social security, custom thesis writing service free crew selection, telecommunication costs and office administration costs. The chapter further examined how the size of companies influence the choice on TPSH, and established that it relates to economies of scale. Size has also been reported as responsible for deeper division of labour and inevitable delegation of management power. Thus, ship owners may lack time, information, commitment, specialised knowledge, education and expertise. Further investigation was done on the factors that are conducive to the employment of professional ship managers. The most common services that ship owners outsource, as per the examined chapters include crewing and technical services. However, the ship owners are still willing to retain ultimate decision as they prefer to have complete control over them and make decisions by themselves.
CHAPTER 4 – DEVELOPMENT OF THE TOOL
The Analytic Hierarchy Process (AHP) that was used in this research to examine the ship owner’s stance on third party ship management. The historical development of Analytic Hierarchy Process dates back in the late 1960s with Dr. Thomas Saaty, one of the pioneers of Operations Research (OR), who directed research projects for the Arms Control and Disarmament Agency at the U.S. Department of State. These projects were designed to implement arms control strategies and policies. They brought together many of the country’s top scientists, to formulate ways to reduce arms numbers, and lawyers, to interpret the laws governing arms control. In spite of the talents of the people Dr. Saaty recruited, he was disappointed in the results of the team’s efforts (Foreman and Gass, 2001). The AHP is a tool used by decision-makers, including many third-party ship management ones (Goulielmos and Mitroussi, 2003; Filntisi, 2008; Willingale, 1998). The output of the AHP enabled the researcher to examine and gain much information about the decision-maker’s priorities and thought processes in the Nigerian shipping industry. The development of Analytic Hierarchy Process (AHP) in this research started with the process as described below.
4.2 THE PROCESS
In his book, Decision Making for Leaders: The Analytic Hierarchy Process for Decisions in a Complex World, Dr. Thomas Saaty breaks the AHP into five steps (Saaty, 2001):
i Step 1 – Build a hierarchy
ii Step 2 – Make comparisons
iii Step 3 – Calculate weights
iv Step 4 – Check consistency
v Step 5 – Produce result
This study also adopted the above steps as developed by Dr. Thomas Saaty.
Before beginning the in-depth explanation of the AHP, a few terms frequently used in the process had to be defined. The terms included hierarchy, factors, sub-factors, weight, consistency, and ‘n’. Hierarchy refers to the representation of a decision broken down into its constituent pieces, here called factors (Koufopoulos et al., 2010; Klikauer and Morris, 2003; Chin, 2008). Factors refers to the constituent pieces that combine to make a decision. These are broad categories, often lacking detail (Downard, 1996; Tallack, 2000; Pallari, 2009). Sub-factors refers to the pieces of factors broken down to smaller pieces (Raghuram etal., 1998; Polit and Beck, 2004; Saunders, 2009). As factors are to the decision, sub-factors are to factors. Depending how in depth the decision-maker wants to go, sub-factors can be divided into sub-sub-factors. Weights refers to the numerical interpretation of how important a factor is to the decision, usually reported as a decimal (Willingale et al., 1998). All of the factors in a decision will sum up to 1. Sub-factors can have weights as well, representing how important that sub-factor is to its factor. Consistency refers to the measure of how close a matrix is to obeying the rule of consistency, that if A is twice as important as B, and B is twice as important as C, then A must be four times as important as C. ‘n’ refers to the number of factors or sub-factors used in the final composition of the decision hierarchy (Gilberth, 1993; Panayides, 2001; Celik, 2009; Goulielmos and Mitroussi, 2003; Filntisi, 2008).
4.3 BUILD HIERARCHY
To begin the AHP process, the researcher had to first determine the parts of the decision that contribute to the overall outcome. To do this, the researcher divided the decision into broad categories, then subdivide them into smaller pieces. For instance, the ship comparison example decision could be divided into the factors cost and speed. The cost factor could be divided into sub-factors purchase cost and sustainment cost and speed could be divided into sub-factors cruising speed and top speed.
4.4 MAKE COMPARISONS
Once the factors and sub-factors have been determined, pairwise comparisons of the factors was to be made to determine how much each factor contributes to the decision (Gilberth, 1993; Panayides, 2001; Panayides and Cullinan, 2002). These comparisons were made by a panel of subject matter experts chosen by the decision-maker for this purpose. The number and composition of the expert panel was not defined. There could be any number of experts, balancing the experience gained from a large panel, with the ability to reach consensus of small panel. Likewise, diversity in the backgrounds of the panel would increase the knowledge brought to the decision, but could make consensus harder to achieve. There were two ways that the comparisons could be made. The first way was for each expert to assert his/her opinion, and then some method (averaging, weighting, determining means) was used to achieve a single value to represent the group. The second method was to discuss the decision, and achieve a consensus number together. Whether every expert compiles their own matrix of comparisons, or all experts decide on a general consensus, the necessary result is a single matrix of pairwise comparisons.
In order to make the pairwise comparisons, Dr. Saaty developed a 9-point scale (Spruyt, 1994; Perry, 1994; Chapman 1994). The scale is based on determining whether one factor compared to another is equally important (1), slightly more important (3), more important (5), greatly more important (7), or absolutely more important (9). Values of 2, 4, 6, and 8 are reserved for intermediate values. The reciprocal value is achieved when comparing the factors in the opposite direction, i.e., if A is more important than B (5), B could be said to be less important than A (15). Ultimately, each of the sub-factors had to be compared to each other. There are two ways this could be done. In the first method, the factors of cost and speed were compared to each other, followed by comparing each sub-factor under each factor separately.
4.5 CALCULATE WEIGHTS
The calculation of the weight of each factor or sub-factor is an exercise in matrix mathematics (Mitroussi, 2004b). The vector of weights was the normalized eigenvector of the matrix associated with the largest eigenvalue, iMax, of the matrix. The next step in determining each sub-factor’s contribution to the overall decision was simply to multiply each sub-factor’s value by its corresponding factor’s value (Pallari, 2009).
4.6 CHECK CONSISTENCY
Once all of the overall weights had been calculated, the next step of the AHP was to check the factor matrix for consistency (Panayides and Gray, 1997). Consistency in the matrix was important, because it reflects how precise the result of the process will be. The basic idea of consistency was that for any given n by n matrix: Put into plain language, if factor X was two times more important than factor Y, and factor Y is two times more important than factor Z, factor X had to be four times more important than factor Z (Pallari, 2009).
4.7 PRODUCE RESULT
Now that the factors’ weights had been calculated and consistency had been determined to be within acceptable limits, the final step in the AHP was to determine each alternative’s value for each factor. The first way was to submit the alternative’s parameters to the same pairwise comparison process used for the factor’s weights, where elements of the same factor are compared, say purchase cost. This method may be preferred if there are many constraints on the factor. The result of this would be a list of weights for each alternative’s contribution in each of the factor areas that adds up to 1. A second method for obtaining the values is to use a utility function. A utility function allows the decision-maker to set boundaries on the parameters, or to use a scale that is other than linear. This utility function method has a few advantages over the first. One, no more subjective comparisons will have to be made, which can save time and effort on the part of the expert panel. Two, the functions can be reused when new alternatives are submitted, again saving time (Mitroussi, 2003; 2004a; 2004b; BIMCO Shipman, 1998; BIMCO Shipman, 2009)
The information that could be gained from analysis of the output of the AHP include the factors that a particular decision-maker in TPSM relies on to make decisions, and how those factors compare to each other in priority (Sletmo and Holste, 1993). In addition, the decision itself could be examined for susceptibility to rank reversal. Knowing whether rank reversal is possible in a decision aids in being able to predict the outcome of a decision with new inputs. Over and above the information that could be directly gained from the output of the AHP, two techniques could be employed, based on the knowledge gained from analyzing the output, in order to exploit AHP decisions. These techniques are overestimation and under estimation (Sletmo, 1989; Perry, 1994). Under estimation allows the determination of the optimal specifications of a new alternative that will cause a rival decision-maker to detrimentally forgo the commitment of additional resources in response to an altered decision. Overestimation allows the determination of the optimal specifications of a new alternative that will cause a rival decision-maker to needlessly commit resources in response to the altered decision. This can be done while minimizing the required resources needed to produce this new alternative. Two case studies, one unclassified and one classified, demonstrate the viability on the use of these techniques in operational and strategic decision-making scenarios.
CHAPTER 5 – APPLICATION OF THE TOOL TO NIGERIAN SHIPPING COMPANIES
AHP model, since its development by Thomas L. Saaty, has been applied to a variety of decision making problems ranging from simple to complex. AHP has been applied to some maritime transport. However, external determinants of port competitiveness outside the scope of port operations are rarely applied in determining the level of port competitiveness.
In the case of West Africa, Nigeris, with its volatile political history, the evaluation of projected political stability is important, and highlights the unique nature of this research as applied to port competitiveness in West Africa. Moreover, the application of a political stability index expressly shows how the perceived stability of a country can affect its level of competitiveness and in effect port business in general.
AHP is a method that is used in Nigeria to establish and connect both physical and social measures, including cost, time, public acceptance, environmental effects, and so on. In its general form, it is a framework for performing both deductive and inductive thinking. AHP has been noted to provide structure on the decision-making process in addition to providing trade-offs embedded within the decision-making process. Some authors however argue that AHP lacks theoretical basis for constructing hierarchies, hence users can construct different hierarchies for identical situations to produce different results.
The AHP considers a set of evaluation criteria, and a set of alternative scenarios among which the best decision is to be made. It generates a weight for each evaluation criterion and scenario according to the information provided by the decision maker. AHP provides a consistent framework to formally incorporate subjective judgments. Their elicitation and subsequent discussion is particularly encouraged in group decision making. The AHP is considered as a powerful and straightforward tool to support such group sessions. A unique feature of the approach is the possibility to compute a measure of inconsistency of the decision makers. This enables them to identify “errors”, revise the judgments, and improve the quality of the decision. In using the AHP, one constructs a hierarchy (consisting of goal, criteria and alternatives), and then makes judgments (or performs measurements) on pairs of elements with respect to a controlling element. Ratio scales are derived from these judgments and then synthesized throughout the structure to select the best alternative.
The following steps represent the process followed in the multi-criteria evaluation of port competitiveness in West Africa, Nigeria.
i Developing the hierarchy structure with the main goal at the top through to major and then minor criteria
ii Computing the vector of criteria weights and computing the matrix of option scores
iii Ranking the options according the total weights
Developing the hierarchy is required to be done with respect to achieving the goal of evaluating port competitiveness. In computing the vector of criteria weights and the matrix of option scores, there should be a pairwise comparison of elements in each level relative to their importance to an element in the higher level. The procedure requires that a top-down hierarchical approach is observed. Preference matrices are created in the process of comparing elements at a given level and judgments of preference are made on pairs of elements in the structure using the scale.
There are nine values (1-9) attached to nine metric descriptions considered in the weights and the matrix of option scores. These include Equal importance =1, Weak importance=2, Moderate importance=3, Moderate importance plus=4, Strong importance=5, Strong importance plus=6, Very strong importance=7, Very strong importance plus=8, Extreme importance=9.
In the ranking of options, the composite weights of the decision alternatives should be determined by aggregating the weights throughout the hierarchy. This is done by following a path from the top of the hierarchy to each alternative at the lowest level and multiplying the weights along each segment of the path. The outcome of this aggregation is a normalized vector of the overall weights of the options. The option with the highest overall weight is ranked highest and so on.
Overall the basic steps for conducting study using AHP are as follow:
(a) Define the problem and determine its goal
(b) Structure the hierarchy with the decision-maker’s objective at the top with the intermediate levels capturing criteria on which subsequent levels depend and the bottom level containing the alternatives
(c) Construct a set of n × n pair-wise comparison matrices for each of the lower levels with one matrix for each element in the level immediately above. The pairwise comparisons are made using the relative measurement scale. The pair-wise comparisons capture a decision maker’s perception of which element dominates the other
(d) There are n (n−1)/2 judgments required to develop the set of matrices in step (c). Reciprocals are automatically assigned in each pair-wise comparison
(e) The hierarchy synthesis function is used to weight the eigenvectors by the weights of the criteria and the sum is taken over all weighted eigenvector entries corresponding to those in the next lower level of the hierarchy
(f) After all the pair-wise comparisons are completed, the consistency of the comparisons is assessed consistency ratio (CR) calculated by the formula below:
Consistency Ratio (CR) = Consistency index (CI)/ Random Index (RI)
CI = (λmax – n)/(n−1), with n the number of elements,
λmax= the maximum eigenvalue of the comparison matrix and
RI = the consistency index of a randomly generated reciprocal matrix within a scale of 1 to 9.
The consistency ratio (CR) is acceptable if it does not exceed 0.10. Repeat and review the judgment if the CR is greater than 0.10.
Using the available information, this study focussed on several characteristics to explain the suitability of TPSM type and benefits in regard to the company size, type (bulker/combination, container, dry cargo, offshore, passenger/ferry, reefer, roro, tanker), and age. In light of the AHP analysis, this study examined a decision made using the AHP in two parts. The first part was analysis of the decision, the decision hierarchy, the alternative’s hierarchy, and the results, in order to extract what capabilities and thought processes can be gleaned from the decision. The second part of the examination was an analysis of the ways the decision could be exploited. This analysis consisted of checking the decision output’s resistance to rank reversal, developing a method for inserting an alternative into the output list at a specific point, and using the decision’s mechanic to pick what information about a new alternative to be shared with the decision-maker.
CHAPTER 6 – ANALYSIS
The Analytic Hierarchy Process (AHP), as a theory of measurement through pairwise comparisons and relies on the judgments of experts to derive priority scales, was applied in this study.
6.1 PROFILE OF THE RESPONDENTS and COMPANIES
According to the findings, 33 % of the participants are at general manager positions in their company. Technical managers and commercial manager are the second biggest respondent groups with an equal rate of 19%. The ship owners, DPAs and operation managers follow the first three groups accordingly.
In the first part of the study, type of companies, number of ships operated by ship owning and third party ship management companies, capacity of the ships operated by both ship owning and third party management companies and flags of the ships operated by ship owning and third party management companies were subjected to frequency analysis. In the study, first question was regarding the type of the companies. Here, 10 participants stated that they are ship owning companies. This group constitutes the biggest part in the sample. 3 participants stated that they are owner-managers. Besides their own vessels, they have the ability to manage other owners’ vessels. 2 participants presented themselves as third party ship management companies.
While analyzing other companies rather than third party ship management companies, 6 out of 10 companies are the biggest companies of Nigeria, remaining 4 companies are small and medium size ship owning companies. The study revealed that there are very limited third party ship management companies in Nigeria. This is due to the lack of demand for these companies in Nigeria.
6.2 USAGE OF THIRD PARTY SHIP MANAGEMENT COMPANIES BY NIGERIAN SHIP OWNERS
Clearly the majority of the total sample, 60%, did not indicate any use of third-party managers for their fleets and only 40% are currently employing some form of third-party ship management for their ships, with a percentage in the order of 10% stating that they used to use third-party ship management in the past but they no longer do so. The study revealed that only 1 dry bulk owner and 1 chemical tanker owner use ship management services and 3 general cargo owners have a past experience of outside management. However, the other companies stated that they did not take ship services before and now do not have the willingness to take services of third party ship management companies in the future.
The Nigerian ship owners are not much more favourably inclined to using third-party ship management for their vessels. The results of the interviews revealed that the Nigerian ship owners have scepticism and hesitancy. The ship owners believed that ship management companies cannot give cost effective and high quality services. The owners also argued that the control of the ships must be in their hands. Even the ship owners having the ship management services do not give the commercial management of the ship to ship managers’ control.
With regard to the proportion of third-party managed fleet to total owned fleet, 90% of the ship owning companies give the full control of their fleet to the management companies. On the other hand only 10% of the ship owning companies give 60% of their fleet to the control of management companies.
6.3 USE OF SHIP MANAGEMENT BY THE NUMBER OF OWNED SHIPS
This part of the study aimed to examine whether there seem to be any associations between the different sizes of fleet and the employment of third party ship Management Company. Only ship owners having the fleet of 1-5 and 16-20 categories had relations with ship management companies. The 1-5 category shows that 60% of the owners use ship management currently and 20% of owners used in the past management services. When analyzing 16-20 category, the owners had a fleet of 18 ships consisting of tankers and bulk carriers. Since owner is specialized in tankers, the management of 4 dry bulkers has been given to a ship management company. Therefore, the bulk carriers was categorized in 1-5 category. The examination indicated that a higher proportion of ship owning firms use professional ship management in 1-5 ships category. So there is an association between different sizes of fleet and the employment of third party ship management companies. In our sample, the ship owning companies, which had employed management companies have no management organizations and/or management experiences. Since they are at the beginning of ship management, they start with small fleet and they require the assistance of ship management companies.
6.4 REASONS FOR NOT USING SHIP MANAGEMENT
The reasons of not using third party ship management services by the ship owners were observed in this study. The studies revealed that the availability of in-house expertise of the ship owning companies was repeated by 100% of the owners. The lack of confidence in ship management with 75% took the second place. The desire for control of the ship with 65 % took the third place. Keeping contact with the market took third place with the rate of 45 %. These four reasons are the main points for not taking on ship management services. Although cost minimization by management companies is an important argument, one ship owner argues that costs can be better controlled and minimized if the repairs are done by the company himself rather than by ship managers.
6.5 TYPES OF MANAGEMENT FOR FIRMS THAT USE SHIP MANAGEMENT
In connection with the services ship owners tend to be provided with, the majority of the firms assign the technical and the crewing management of their vessels to independent managers with the rate of 100% and 85% respectively. These two main services are followed by the provisions, operations, and bunkering services with a rate of 65% each. The employment of outside managers for chartering of the vessels was limited and restricted to only 45% of the total sample. The owners wanted to keep chartering in their control since it is directly related to the income of the vessels.
6.6 REASONS FOR TURNING TO SHIP MANAGEMENT
From the research findings, it was clear that the majority of the total sample, 100%, initially turn to outside managers for their expertise. The second most frequently chosen reason for using ship management appears to be not having an in house ship management organization or having an organization but not having enough qualified employees. Additional reason was declared as satisfying the ISM requirements by the management company. The least frequently expressed reason was cost minimization. In Nigeria, some small ship owners with 1 or 2 coaster size vessels sometimes approach the other ship owners or management companies or sometimes even to shipbrokers to charter their vessels since they do not have market potential or in efficiency in foreign language. In this case, ship owners take the responsibility of technical and personnel management and give commercial management to the others. Another reason for taking management services from other companies is to obtain financial support from the management companies to run the ship. Owners are also taking on management services to have their ship insured or having insured the ships from highest class insurance companies. Still another point for using ship management companies was to get the technical know-how from the managers. Some newly established ship owning companies are also taking third party ship management services while they acquire a new ships on credit. Because the creditors want to work with a professional ship management company since the vessels belong to the creditors until the payments of credit. Shipyards are also a good market for the ship management companies during the economic crises. The unsold vessels are given to the management of third party ship management companies.
6.7 SELECTION CRITERIA FOR THIRD-PARTY SHIP MANAGEMENT PROVIDERS
The research respondents reported a number of factors that they consider in selecting their third-party ship management providers. This research broadly categorized the factors under client requirement and characteristics and project characteristic.
The client requirement and characteristics included:
• Experience contractor availability
• Working relationship
• Risk allocation or avoidance
• Time Certainty
• Dissatisfaction with previous process
• Knowledge of the strategy
• Intuition and past experience
• Degree of complexity
• Public accountability
• Degree of flexibility
• Clarity of scope
• Degree of responsibility
• Client in house technical capability
• Client’s financial capability
• Price or cost certainty
• Price competition
• Involvement of owner in the project
• Quality level
The project characteristic included:
• Project size
• Existing building condition
• External environment/ factor
• Dispute and arbitration
• Objective or policy of organization
• Political issue/constraint
• Government policy
• Cultural differences
From the AHP analysis, there were a number of observations were made. The researcher observed that a significant proportion of newly established companies in Nigeria, that is, with less than 10 years in existence, take on third party ship managements. The companies established between 1971 and 1990 did not employ ship managers. When the researcher analyzed the owners who have taken on the ship management services, it was noted that they are newly established unexperienced companies.
The magnitude of the outsourcing rate in Nigeria was significantly influenced by a vessel’s characteristics. Here, the study noted a trend where by the older the vessel, the more likely it is to be managed in-house. One explanation for this finding could be the fee charged by ship managers, which represents a burden for older vessels generating lower earnings. Another finding was that the proportion of outsourced vessels was much higher for larger vessels. Furthermore, it was observed that there is significant differences across vessel types. The management of offshore, roro and tanker vessels is outsourced more often than it is for reefers and, to a lesser extent, passenger/ferry and dry cargo ships.
The study revealed that all participating ship owners are familiar with the concept of professional ship management and what that involves. This has made it easy for the authors to conduct this study and to get the perceptions of Nigerian ship owners. The first main conclusion reached is that big portion of Nigerian ship owners joining the study, 80% of the sample in the study, do not have the willingness of giving their vessels to the management of third party ship management companies. Although a small portion of the owners take on the management services, they do not frequently assign full management to third parties. Ship owners who declared the use of ship management affirmed that they tend to give out more frequently the crewing and the technical management of their vessels and less frequently the commercial management. This is because of the fact that Nigerian ship owners traditionally operate their vessels themselves and they prefer to have complete control over them. In fact, Nigerian ship owners do not trust in the third party ship management companies. They believe that third party ship management companies cannot give cost effective and high quality services. Even the owners using the third party management companies prefer to keep complete control over the management companies. In other words, Nigerian ship owners seem to be skeptical and hesitant in this particular matter.
The study revealed that four types of management organizations exist in Nigeria. Vessels are operated by ship owning, owner-managing, manager owning or third party ship management companies. Majority of the companies are ship owning companies, the number of manager owning or third party ship management companies are very limited due to the organizational culture of Nigerian ship owrners and their attitudes towards ship management companies. Besides these companies, Nigerian owners which operate their vessels under foreign flags establish a ship management company and operate their vessels through this company. So it is a purpose-built fifth type ship management company.
The third party ship management services are mainly taken by dry bulk and tanker owners in Nigeria. Especially chemical tanker owners are the major clients of these companies. The reason behind is that chemical tanker market is an emerging and profitable market and due to this reason many investors have invested in this sector without having managerial experience. Therefore, a demand occurred for the highly sophisticated services of the third party ship management companies. Another source of clients is the shipyards which could not deliver the newly built vessels to the owners due to the cancelling of the ship building contract as a result of economic crises. Although majority of the owners, which prefer to use third party managers’ services, give the control of all fleet to the management company, one owner prefers to give only 25% of his fleet. The owners who give full fleet to the management companies either do not have managerial experience or an organization to operate their ships. The other aims of the company are to get experience and know-how from the ship management company.
The study indicated that higher proportion of ship owning firms use professional ship management in 1-5 ships category. So there is an association between different sizes of fleet and the employment of third party ship management companies. The ship owning companies with small fleet require the assistance of ship management companies. As for the effect of the ship owning company’s age on the employment of third party ship management, the results of our study indicates that the ship owning companies which were established in last 10 years are far more likely to turn to third party ship management than any others. Since they are new companies, they have no experience or have no management organizations. For those ship owners who have never hired outside managers, owners’ in-house expertise, a potential lack of confidence in third party ship management itself, their desire to keep overall control over their assets, contact with the relevant markets, high total costs of ship management and low services quality of ship management companies are the most significant reasons for their reluctance to employ third party ship management companies. Considerable attention was also given to the reasons that make ship owners turn to third party management. For those owners, expertise of the management company, the ability to relieve the owners from economic pressures, complying with the international ship management requirements of the ships and providing ship management organization for the owners were especially stressed as the main reasons for turning to outside managers. The ships are operated in a competitive market under enhanced legislations, which come from international conventions, flag state laws, port state laws and classification societies ‘rules. Besides, there are economic crises that ship owners cannot control. To deal with all these circumstances, ship owners are required to have enough knowledge and experience. Not all shipping companies can cope with all to survive in the market. Therefore, an outside support, a third party ship management company, may bring solutions to the needs of the owners. This study shows the Nigerian ship owners’ perception of third party ship management companies. The results of the study help the ship management companies, which want to enter in to the Nigerian shipping market as a third party ship management companies.
Having the output of the Analytic Hierarchy Process of a decision-maker has many advantages. One is the ability to surmise precisely what the decision-maker’s priorities are, both in the factors that make up the decision, and in the alternatives that have been considered in the actual decision as well. Further, knowing the mechanics of the AHP, one is able to test the decision output for its susceptibility to rank reversal, the knowledge of which is useful. Finally, one can use the AHP decision output to gain an understanding of the decision-maker, allowing the decision-maker to be deceived using the techniques of underestimation, overestimation, or misinformation.
CHAPTER 7 – CONCLUSION
This research aimed to examine the ship owners’ stance on third party ship management. The study addressed four objectives related to various types of ship management provision in the maritime industry, the factors that influence the effectiveness of the ship management function, developing a tool using AHP to assess the optimum type of ship management provision in the case of Nigeria, and to analyse the most effective type of ship management provision for Nigerian Shipping Companies. A comprehensive literature review done in line with the research topic and objectives showed that the use of TPSM adds value to the competitiveness of shipping companies. Although a number of shipping companies subscribes to ship management companies, this sector is not well developed in Nigeria as it has done in some other maritime countries. The study has shown that independent ship management companies play significant role to small and new ship owners.
The research employed survey, as a strategy, and a qualitative research approach to access and analyze adequate data and information for answering the research questions. The use of an open-ended questionnaire as a tool for data collection was instrumental in facilitating the collection of broad, diverse and in-depth views. The investigated chapters in line with the study topic showed that companies use TPSHM as a means to obtain a competitive advantage as outsourcing provides companies with opportunities to focus on core competencies. A number of TPSM types were examined in this research against the existing research findings. Some of the investigated topic under ‘types’ include outsourcing, out-tasking, Public Private Partnership, Total Facilities Management, Traditional, and Partnering. Among these types, outsourcing emerged to be the most preferred third party ship management service followed by total Facilities. In the shipping sector, outsourcing provides access to cost-efficient factors of production, such as vessel crews, and access to the specific technical expertise of large ship management companies, which offers economies of scale, marketing and bargaining power. The researcher investigated the dominance type of third-party ship management service across the world, and assess its suitability in the Nigerian context. The most frequently used third-party logistics services were direct transportation services
The outsourced activities primarily concern commercial and/or technical elements, and hence what guides the decision process of ship companies include the technical ability, followed by the experience and qualifications of personnel. Price was not a decisive criteria. Among the four elements that emerged in leading a ship-owner to use third-party ship managers comprised company size, company type, company age and technological change. Of these elements, company size was the most influential factor followed by technological change and company age respectively. Crew and technical management were the outsourced services inorder to improve flexibility.
In developing a framework through AHP model to assist the Nigerian ship owner companies justify their stance on the use of third-party ship management service, the researcher considered a number of factors highlighted in both primary and secondary sources. The research showed a number of factors that they consider in selecting their third-party ship management providers. This research broadly categorized the factors under client requirement and characteristics and project characteristic. The client requirement and characteristics included: experience contractor availability, working relationship, risk allocation or avoidance, time certainty, dissatisfaction with previous process, speed, knowledge of the strategy, intuition and past experience, degree of complexity, public accountability, degree of flexibility, clarity of scope, degree of responsibility, client in house technical capability, client’s financial capability, price or cost certainty, price competition, involvement of owner in the project, and quality level. The project characteristic included project size, existing building condition, external environment/ factor, dispute and arbitration, objective or policy of organization, political issue/constraint, government policy, and cultural differences.
The AHP process entailed building a hierarchy, making comparisons, calculating weights, checking consistency, and generation of results. The development of the strategy was significant in the Nigerian shipping industry due to its limited application in the sourcing of third party ship management companies. From the descriptive results, the majority of the ship owner companies do not use third-party managers for their fleets. The reasons of not using third party ship management services by the ship owners include the availability of in-house expertise of the ship owning companies was repeated by 100% of the owners. The lack of confidence in ship management with 75% took the second place. The desire for control of the ship with 65 % took the third place. Keeping contact with the market took third place with the rate of 45 %. These four reasons are the main points for not taking on ship management services. Although cost minimization by management companies is an important argument, one ship owner argues that costs can be better controlled and minimized if the repairs are done by the company himself rather than by ship managers. In connection with the services ship owners tend to be provided with, the majority of the firms assign the technical and the crewing management of their vessels to independent managers with the rate of 100% and 85% respectively. These two main services are followed by the provisions, operations, and bunkering services with a rate of 65% each.
This paper is unique in the sense that it considered aspects of the political stability of the Nigerian’s port environment though it emerged that political stability does have a huge impact on competitiveness of TPSM in the country of study. However, the drawbacks of this research lie in the basic characteristics of the AHP model, as some authors have argued that AHP lacks theoretical basis for constructing hierarchies; hence, users can construct different hierarchies for identical situations to produce different results. Based on data for the base year of 2012, each criterion and sub-criterion were evaluated with respect to the ports under study. From the above results, port efficiency and performance were the most important criterion for evaluating the competiveness of ship companies in line with the country’s political stability, costs and infrastructure.
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