389
1 INTRODUCTION
As of the humans’ transforming from being the
agrarian society into an industrial one, massive
productionshavebeenperformedsincetheindustrial
revolution that revealed firstly in Great Britain, and
subsequently, overspread all around the world
(Griffin, 2010). This has triggered the increase in
global tradewhich has
grown dramatically over the
lastfewdecades(Fanetal.,2012:133)inaccordance
with the evolution of transportation systems.
Especially carrying different types of cargoes with
various sizes by sea has been possible with the
emergence of specialized vessels in terms of the
supply and demand characteristics for the
specified
routes all around the world. Accordingly, maritime
transport has been a catalyst for economic
development and wealth throughout the history
especiallyfordrycargoeswhichisconsideredasthe
fuelofeconomyoftheworld.
Althoughmajorityofthegoodsarecarriedonthe
open seas, there is a significant
amount of goods
which is traded and transported intra‐regionally. In
Black Sea, Mediterranean and Continental Europe
(herafter“theregion”)asanintra‐regionalarea,short
distancemaritimetransportbycoasters withthedry
bulkandgeneral cargo carrying capacity from1.000
dwt to 12.000 dwt has been conducted from
the
beginning of the 20
th
century in the region which
compriseabout25%oftheworld’sseatradeand50%
of the global short sea shipping (Fejer, 2013: 137).
Althoughthereisasubstantial amountoftradeinthe
region, there has always been a severe competition
among the coaster owners. Especially, due to the
sharp decline in demand after the financial crisis
faced in 2008, coaster owners could not generate
Competitiveness of Turkish Coaster Merchant Fleet:
A Qualitative Analysis By Short Sea Shipping
Perspective
İ.B.Çetin
DokuzEylülUniversity,Izmir,Turkey
E.F.Akgül
BandirmaOnyediEylülUniversity,Balikesir,Turkey
E.Koçak
IstanbulShipping,R&DandConsultancyCorporation,Istanbul,Turkey
ABSTRACT: There is an intense competition across many sectors in the maritime industry. Coaster owners
beinginamarketwhereperfectcompetitionrulesapplyhastobecompetitiveinordertosurvive.Thisstudy
aimstoanalyzethecompetitivenessofTurkishcoastermerchant
fleetthatconsistsofthevesselswhosecargo
carryingcapacitydiffersfrom1.000dwtto12.000dwtandthatcarriesdrybulkgoodsandgeneralcargobased
on short sea shipping concept covering Black Sea, Mediterranean and Continental Europe. Based on a
qualitative research methodology, interviews were held and data
were collected by using semi‐structured
questionnaire, and the data collected from the interviews was categorized in order to describe and explain
patternsandthemes.Thefindingsoftheinterviewswereanalyzedwithinthecontextofsector‐specificexternal
factorsandcompany‐specificinternalfactors,andthecompetitivenessofshipownersoperating
intheTurkish
coastermarketwasanalyzedindetail.Itisexpectedthatthefindingsandimplicationswillespeciallyshedlight
onthedecisionmakersandpolicymakersinthesectorandcontributetothecurrentliterature.
http://www.transnav.eu
the International Journal
on Marine Navigation
and Safety of Sea Transportation
Volume 12
Number 2
June 2018
DOI:10.12716/1001.12.02.21
390
sufficient income to keep their current business
activities alive. Hence, the supply side has been
pushedlowerasdemandfaded.
The competition in international shipping is
gettingfiercer,andshipping companiesarelookingto
expand their service portfolio to attract new
customers and gain a competitive advantage.
Developmentofshipping
tradewhichstandsforgreat
importance in world trade, and efficient use of the
geographical advantages are one of most effective
ways for Turkey to gain competitive advantage. In
thiscontext,coastershippingthatcanbeinvestigated
basedonshortseashippingconceptstandsforward.
Considering the importance of transportation
activities for a country, coaster shipping could be
regardedasastrategicissueforTurkey,andfocusing
onthe issuemaygenerateconsiderablevalueadded
activitytoputtheeconomyfurther.AlthoughTurkey
holdsthefirstrankofbeneficialownershipofcoaster
fleetoperatingin the region (Istanbul Freight Index‐
ISTFIX,
2017),itisabouttoloseitspositioninsucha
competitive environment mainly due to operating
older vessels, weak capital structure, lack of
professionalmanagementandsoon.
This study intends to qualitatively highlight the
recentdynamicsofTurkishcoastershippingindustry
based on short sea shipping perspective, and
to
propose recommendations considering the
implicationsonhowtosustaincompetitiveadvantage
by filling the existing gaps. Concept of
competitivenessisanalyzedinthenextsection.Then,
shortseashippingconceptisinvestigatedinthethird
section,andtheforthsectioncomprisestheliterature
review. The fifth explores the short sea
shipping
marketintheregion.Thesixthsectionconsistsofthe
methodology and then findings of qualitative
researchisgiven.Thepaperendswiththeconclusion
anddiscussion.
2 CONCEPTOFCOMPETITIVENESS
The shipping industry comprises a number of
different markets, each with its own distinct market
structure. These market
forms use various
competitivemodels,rangingfromperfectcompetition
to monopoly. In shipping, dry bulk and tanker
markets which are also known as tramp shipping
markets have conform to a model of perfect
competition. (McConville, 1999). Under a perfect
competition, bulk shipping operators operate in a
verycompetitiveenvironment(Veenstra,1999).
Since
coastershippingmarketcomprisesofbulk(bothdry
andliquid)andgeneralcargovessels,coasterowners
operate in a market where perfect competition rules
apply.
2.1 CompetitiveForces
Studies on competitive strategy havebeen based on
two distinguishing groups of competitive factors:
external factors and internal factors. External factors
involve
macro and micro environmental factors
(Cerit, 2000). In a competitive market, Panayides
(2003)indicatesthatcompetitivenesscanbeattained
through the formulation and implementation of
competitive business strategies which are developed
to analyze industry and competitors. The first step
towards formulating a competitive strategy is to
define“the industry structure” within
which it is to
operate.“Thegenericindustrystructure”resultsfrom
a balance of five basic competitive forces (Porter,
1980)whichconsistofthethreatofnewentrants,the
intensity of rivalry between existing competitors,
substituteproductsfromotherindustries,therelative
bargaining powers of buyers and the bargaining
power
ofthesuppliers.
2.2 CompetitiveStrategies
In coping with the five competitiveforces, there are
three potentially successful generic strategic
approaches to outperforming other firms in an
industry. The first, overall cost leadership,
emphasises low cost relative to competitors. The
secondstrategy,differentiation,requiresthatthefirm
createsomethingthatisuniquein
theindustry,thus
permittingthefirmtocommandhigherthanaverage
prices.The third isafocusstrategy,inwhich afirm
concentrates on a particular group of customers,
geographicmarkets,orproductlinesegments(Porter,
1980).
In Porterʹs framework, firm performance is a
function of industry and firm market
positioning.
Porterʹs contentions of positioning only explain part
ofthedifferencesinperformancewithinanindustry
(PanayidesandCullinane,2002)butneglectthefirmʹs
resourcesandskills(Grant,1999).Accordingtothe
resource‐based view a superior performer possesses
not only an attractive position, but also unique and
hardto imitate resources.The resource‐based view
of the firm focuses on the relationships between the
internalcharacteristicsofafirmanditsperformance
(Panayides
andCullinane,2002).
3 SHORTSEASHIPPING
The nature of the study leads us to discuss the SSS
conceptaswedealwiththeshortdistancedrycargo
transportbysea.Definitionoftheconceptisdifficult
as it has not reached an academic agreement yet as
indicated by Medda and
Trujillo (2010). SSS can be
referred as ‘coasting trade’, ‘regional shipping’ or
‘marinehighway’oreven‘motorwayofthesea’ba sed
on the context (Morales‐Fusco and De Melo, 2013:
477). Although the definition of the concept differs
fromtheparties,thecommonlyacceptedpointisthat
SSSisseaborne
goodstransportthatdoesnotcrossan
ocean(Douetand Cappuccilli, 2011: 969). According
toDouetandCappuccilli(2011),thefirstacademically
definition of the concept was asserted by Balduini
(1982) implying that “SSS is a maritime transport
between ports of a nation as well as between a
nation’sportand
theportsofadjacentcountries”.
391
4 LITERATUREREVIEW
The literature on the issue of competitiveness in
maritimeindustry isextensive.However,thestudies
related with competitiveness on maritime
transportation is rather limited. Yang (2010)
determinesthecompetitiveadvantageofthenational
merchant fleet, based on the resource‐based view.
Brooks (1993) identifies the sources of competitive
advantageforoceancontainercarriers.Denktas(2005)
analyzescompetitivepowerofTurkishMercantFleet
inDryBulkShipping.Leeetal.(2014)identifiesthe
factors influencing a country’s shipping
competitiveness and shipping policy. Davies (1986)
analyzes the competition and contestability in liner
shipping industry. Devies (1990) has studied on
destructive competition
and market unsustainability
in the liner shipping industry. Panayides and
Cullinane (2002) address the issue of competitive
advantage by considering the main themes that
appearintheliteratureregardinglinershipping.Sys
(2011) examines the competitive conditions of the
containerized liner shipping Industry.Panayides
andGray(2010)hasexplainedthe
roleofintangible
resources in order to achieve competitive advantage
inshipmanagementcompanies.Panayides(2010)has
empirically examined the competitive strategy‐
performance relationship in the context of ship
managementcompanies.Yang(2010)determinedthe
competitiveadvantageofthenationalmerchantfleet,
based on the resource‐based view.Yang (2014)
conducteda
comparativeanalysis ofthecompetitive
advantages of the national fleets of Taiwan, Korea,
and Japan, and explored the effect of shipping aid
policies on a national fleetʹs competitive advantage.
Wang (2012) has assessed the impact of OSRA (the
Ocean Shipping Reform Act) on the structure and
competition of shipping
market after 1999 in Trans‐
Atlantic eastbound and westbound routes. Graham
(1998) tries to give answer to question of how to
achieveanequilibriumbalancebetweenstabilityand
competitioninintermodalshipping.
Thestudiesoncompetitivenesswithinthescopeof
short sea shipping concept are mainly about modal
shiftofthe
goods fromothertypes oftransportation
modestothesea(See:Ng,2009;PaixaoandMarlow,
2002;Suarez‐Alemanetal.,2015a‐2015b,Galatietal.
2016).Inthisstudy,generalassessmentisconducted
on competitiveness of Turkish coaster ship owners
operatingintheregionactivelyasthereisa
gapinthe
literature.Tofillthisgap,thisstudyaimstoprovide
contribution on competitiveness from a different
perspective to the current literature on short sea
shipping.
5 METHODOLOGY
This study employs a qualitative research in an
attempt to explore the competitiveness of Turkish
CoasterOwnersinshortseashipping.
Thereasonfor
using a qualitative approach is to obtain deeper
insight regarding this issue. In this study, a semi‐
structured interview method has been used to
provide reliable qualitative data. Semi‐structured
interviews work well with other qualitative data
collection methods which allow researchers to
developamorein
depthunderstandingofthetopicof
interest(Lyndsayetal.2018).
5.1 DataCollection
Aliteraturereviewoncompetitivenessofshipowners
hasbeenconductedtocompilepromptquestionsfor
semi‐structured interviews. In addition to the
questionsregardingtheprofileoftheparticipants,an
interviewinstrumentwascreated.
In this study,
interviews were conducted either
face‐to‐face or a questionnaire was sent to the
participants by e‐mail. 4 face‐to‐face and 3 e‐mail
interviews were conducted and responses were
received during March and April 2018 from 7
participants from ship owning and shipbroking
companies in Turkey (For
the details of participants
see Table 1).Participants were recruited by
purposive sampling method. All participants were
askediftheywerewillingtoparticipateinaresearch
study.Thestudywasexplainedandanoralinformed
consentwasobtained.
Table1.ProfileofRespondents
_______________________________________________
No Age Education Position Years Sector
inthefirm inthefirmExperience
_______________________________________________
1 37 College Shipbroker,216
Founder
2 36 College Shipbroker,515
Founder
3 36 College Shipbroker711
4 51 Master SecretaryGeneral 2,515
(Associationof
Turkish
Shipowners)
5 36 Master ResearchDirector 715
(Associationof
TurkishCoaster
Owners)
6 46 Master Shipowner
1520
7 32 College Shipbroker88
_______________________________________________
The face‐to‐face interviews took place in
participants’ offices and lasted for approximately 1
hour.In face‐to‐face interviews, the interviewer
transcribedtherespondent’sresponses.Ininterviews,
whenthenumberofinterviewsreached7(4face‐to‐
face and 3 e‐mails), it was reached theoretical
saturation
whichisthe pointwherenonewinsights
are gained (Solvang et al, 2018) and the interviews
werestopped.
In this study, the data collected from the
interviews was categorized in order to describe and
explainpatternsandthemes.Thedatacollectedfrom
the respondents was categorized under 3 main
categories
which are macro external, micro external
andinternalfactors.
In the next part, the findings of the study are
presentedintheformofrelevantquotationsfromthe
interviews.
392
6 FINDINGS
Basedonthequestionsdiscussedwiththeparticipant,
thefollowingpointshave been revealed.Theresults
of the study have been classified according to two
maincompetitivefactorswhichareknownasexternal
and internal factors. External factors involve macro
andmicroenvironmentalfactorsandinternalfactors
include
firmresources.
6.1 Externalfactors
External factors have been categorized under macro
andmicroenvironmentalfactors.
6.1.1 Macroenvironmentalfactors
Macroenvironmental factors have been classified
undertheheadingsofeconomicandpoliticalchanges,
technological developments and effects of shipyards
oncoastershipping,legalDisputes.
6.1.1.1 Economicandpoliticalchanges
Ashipownerwillbeindifferentwiththedomestic
crises in Turkey if s/he has no vessel running in
cabotage. However, the variations in Turkish export
cargoes will have an impact on Turkish coaster
owners. One participant specifies regarding the
effects of national and international market
fluctuationson
shipownersasfollows:
“Regional developments have influenced Turkish
shipowners making business heavily in these regions,
especially the chaos experienced in Libya and Egypt had
much more effects. Nonetheless, the coasters running in
cabotagearemerelyundertheeffectofdomestictides.
Another participant commented on the effect of
macroexternal
factorsinthecoastermarketas:
“Regionally,thecoastermarketcanbeincrisisthough
global setting is much better. The exporting countries in
theregion mayexperiencethe cyclicalpeaksand troughs.
An example like this was undergone in Arab Spring. In
this period, BDI (the Baltic Dryİndex)
and ISTFIX
(IstanbulFreightIndex)actedtotallydifferentlyfromeach
other. As BDI was going up, ISTFIX had decrease in its
intensephase.Anytrouble,economicorpolitical,relatedto
theregionaldemandwillaffectthefreightsinthisregion.
Turkish coaster owners were hit at every turn during
Russian
crisis,Ukrainiantensions,andSyrianchaos.
Maritime industry is exactly under the impact of
global developments. In the periods of international
economic crisis, Turkish coaster owners have been
influencedasmuchastheirrivals.Especiallyseveral
shipowners who gave ship order to shipyards with
the optimistic expectation towards the markets have
notbeenabletobouncebackyetorhadtopulloutof
the market. However, traditional shipowners who
hadexperienceaboutgood andbadcyclesinmarkets
andaccordinglyadoptedtheconsistentpolicieshave
somehowmanagedtosurvive.
6.1.1.2 Technological Developments and Effects of
ShipyardsonCoasterShipping
One of the respondents has opined as follows:
“There is no specific new technology for coasters.
However, Ballast Water Management (BWM) and
Sulphur Cap are two critical restrictions globally
influencing navigation. BWM compliance costs
between300,000$and500,000$foranormalcoaster
of
6,500DWTwhilethecostofSulphurcapreachesup
to1.6million$.Thetotalcostofbothinvestmentsis
almostequaltothesalepriceofa6,500DWTvessel.
The operations of alternative fuel and eco‐designed
vessels are limited in coasters just like in all
other
segments.”
Thecompetitivenessofalltheoldcoasters willbe
adversely affected by the constraints of BWM and
Sulphur, in particular. Furthermore, Turkish coaster
owners have found quite opportunity to regenerate
their fleet by means of these regulations. Port State
Controls may help the vessel conditions being kept
above a
certain level, which is otherwise increasing
therunningcosts.
Turkeyhascoveredalotofdistanceintheareaof
shipyard services and become one of the first five
countries which are favorite of many shipowners
worldwideduetoaqualityupkeepservice,lowcost,
and its locational advantage. Nevertheless,
the
importantthinginshipyardservicesisatwhatextent
the domestic share is rather than the availability of
shipyards. From this perspective, Turkey is not at a
desiredlevel.Inthecasethatdomesticsharerises,the
advantagesofcost‐efficiencyandupkeepserviceswill
offerahighcompetitivepower.
The recent development in modern ship‐building
remains insufficient in Turkish shipyards. It is very
costlytodesignamultipurposevessel.InEurope,full
productivityisessential and particularlydesignsare
formed over emissions. The studies are focused on
buildingtheshipsoperatingbyfullelectricitydueto
thecriterion
ofzeroemissionby2020.
6.1.1.3 LegalDisputes
In Turkey, specialized courts regarding maritime
issues do not much work in practice, that’s all the
contracts are made in accordance with the British
code.Infact,Turkeywhohasagoalofbeingfinancial
center should necessarily become a legal center as
well, and if he would like
to develop the trade
capacity,Turkeyshouldorevenmustbringmaritime
lawintoforceandraiseitslegislationuptothelevel
ofglobalmaritimecapitals.
6.1.2 Microenvironmentalfactors
Inthissection,theframeworkisbasedonPorterʹs
fivecompetitiveforces:theentryofnewcompetitors,
the threat of substitutes, the bargaining power of
buyers;thebargainingpowerofsuppliers;andrivalry
amongcompetitors
393
6.1.2.1 The threat of new entrants into the Coaster
Market
Because of financial abundance and attraction of
shippingactivities,newentrieshavebeenmadeinto
the coaster market. The new entries that have
occurred in last decade are far lower than those in
several years ago. In short‐run, huge quantity of
entriesmade may lead to supply surplus. However,
theycanbeabsorbedata reasonablepacebecauseof
the shrinkage of fleets. Furthermore, the vessels still
joining the market are limited to stimulate the
competitionsincetheyaresecond‐hand.
Now,high‐capitalinvestmentgroups,attheleast,
may enter
into the coaster market. These invest the
shipping industry, from very distinct sectors. They
previouslyperformthedetailedfeasibilitystudiesvia
financial counselors and make their investments
consciously.
6.1.2.2 Thebargaining powerofthesuppliers
Thepricesofgoodsandservicesmayhavedirect
effects on the competition power of shipowners as
wellasmarketcredits,inparticular.Thesuppliersfor
the supply materials such as bunker, lubrication oil,
provision, spare parts, etc. can in effect finance the
shipping companies
as much as their term structure
allows.ThisisnotmuchseeninEurope.Inthisway,
thesuppliersmightprovideasignificantcompetition
supportforTurkishshipowners.
6.1.2.3 TherelativebargainingpowersofCharterers
Havinglargetradevolume,thecharterersarethe
natural players in the market and expect reasonable
freightandqualityfromtheshippingcompanies.The
freights are based on demand and supply
equilibrium,reputationoftheshipowner,relationship
ofcargoownerandshipowner,criteriadesiredfor
the
vesselbythecharterer,andpresenceofreturncargo.
6.1.2.4 The intensity of rivalry between existing
Shipowners
Turkishshipownershavecostsnotlessthanothers
inthegeographicalregion,andsoreasonablefreight
is impossible. Charterers often prefer the European
shipping companies because Turkish ships are aged
and have low condition. Furthermore, Turkish
shipownersareafraidofthedetentionriskrelated
to
thevesselduetonotmeetinghighstandardsinPSC
controlstonavigatetoEuropeanports.Unfortunately,
there is no possibility to make use of that market
despite very high freight rates compared to
MediterraneanSeaandBlackSea.
Arab shipowners, particularly Syrian and
Egyptian ones, rather operate old
and low‐
conditioned ships. Such owners may have low
running costs and even mostly do not demand
demurrage. They often run their ships in
Mediterranean Sea and Black Sea waters, and carry
the lowest‐cost cargo. For operating costs, Turkish
shipowners have difficulty in competing with Arab
counterparts.
6.1.2.5 The Subsitute Services from other
transportationmodes
Consideringthetypeofcargoandthevolume of
shipments carried in coaster shipping, land and rail
transportation cannot be a substitute to the coaster
shipping in Black Sea and Mediterranean Sea.
However,inEurope,thereisasignificantcompetition
betweenlandandsea
transportation.
6.2 InternalFactors
6.2.1 CorporateStructure
OutofdifferentnationalitiesinMediterraneanSea,
BlackSea,andContinentalEurope,manyshipowners
compete in coaster market. In that region, Turkish
shipowners who have the biggest fleet region‐wide
setaboutthisbusinesswithsmallmetalboatscalled
“taka” and then by
means of huge state aid to the
industry,havegrownsolargethattheyhaveasayin
the coaster business. Because of the increasing
numberofshipowningcompanies,Turkishfleetsare
desired by the charterers in the region, whether
domesticorforeign.
ThecapitalstructureofTurkishcoastercompanies,
most of which are family businesses that are small‐
scale structured and cannot be frequently
institutionalized,isnotatsufficientlevels,especially
comparedtoEuropeancounterparts.Inthisissue,one
oftheparticipantshasputthisintothesewords:
“Inthecoasterbusinesscompanies,familymembersare
often working in
the offices so departmentalization is not
muchclear.Onepersondoesmorethanonejob.Heorshe,
forexample, performsbothpersonnel affairsandISM. Its
advantageisreducingthecosts.Thedisadvantageishuge
fines that will be imposed in ports and crew ‐related
problemswhenthereis
lackofprofessionaland competent
staff.”
Another participant has suggested that
institutionalizationinthecoasterenterprisescanonly
bemadeviathecoasterrenewalprojectandexplained
thisasfollows:
“BymeansoftheCoasterRenewalProject,economiesof
scalewillbecreatedfromthedispersedfleetsof2‐3
shipsto
50 or 100‐ship fleets per company. This project outcome
will develop corporate governance, form a credible
structure for charterers and bankers, and also provide
marketingpowerforthecompanies.”
Inthepast,thecoasteroperatorsweremostlyself‐
educated, however they now have a more educated
and
visionary perspectives, with new generations.
Even though Turkish shipowners may have not so
much market maker power as their neighbors,
Greeks,theirroleinglobalNGOs(non‐governmental
organizations)isincreasingdaybyday.
6.2.2 BusinessModel
Not well engaged in asset play requiring self‐
confidence and capital, Turkish coaster
owners
commonlyaimtomakemoneyfromshipoperations.
Whenever ships are traded at right times, this will
probably become a lucrative business. For this, it is
essential to remain liquid especially in crisis times
394
andtobuyashipduringunderpricingandbeableto
sell her out in market boom. Of our rivals in the
coastermarket,Greekshipownersarequiteactivein
tradingships.Oneparticipantpointsoutthisissueas
follows:
“In February of 2016, BDI reduced to 291 and
many
shipownersscrappedtheirownshipsforthelowestmarket
prices.Newshipinvestmentsvirtuallyalldriedup.Greek
shipownershadcapitalandbythismeans,theycouldafford
thevesselswhosepricesfellnearlyuptoonethird.These
purchased at low prices are now at a premium of 40
to
50%.”
6.2.3 CoasterType,TonnageandAge
Turkish coaster fleet consists of old ships having
generally similar features to each other while
Europeanshipownersrunratheryoung,modern,low
draft, river going, box type, multi‐purpose, and
flexible vessels. Therefore, these can carry more
valuableandhigher‐freightcargo,
andsoitisdifficult
forTurkishcoasterfleettocompetewiththoseships.
Turkish coaster fleet by and large comprises
general cargo carrying coasters and river going
vessels. Turkish coaster owners mostly have 5,000
DWTto6,000DWTcapacityvesselsthoughtheyrun
anycoaster‐typeshipsof1,000
DWTto12,000DWT.
Mean age of these vessels is above 20 years. The
second most frequent use is of 7,000 DWT to 8,000
DWTsegment,whichisanewareaofinvestmentand
hasaloweraverageage.Duetodecliningfreightrates
in the markets, the market share of
Turkish owned
fleet some time has reduced to 28% and in recent
yearshasrisenabove30%intheregion.
InTurkishcoasterfleet,thenumberofnewly‐built
coasterisverylow.Ingeneral,thecoastersownedby
European shipowners that become inoperative
because of the emission standards valid
in the
NorthernEurope are included in their fleet.Turkish
shipownersstruggletoearnmoneyfromtheirvessels
havinghigheraverageageandoldertechnologiesin
the fierce competition environment created by
European, Syrian and Russian shipowners.
Nonetheless, the weak safety of life, property and
navigation in such ships leads to
the increasing
operational costs including maintenance, upkeep,
repair and insurance expenses and weaker
competitiveness. A participant has stated the results
ofrunningoldshipsasfollows:
“An old fleet is the first and worst influenced from
economic crises all the time. It calls for more upkeep
operationsanddrydock
andspecialsurveyexpensesmore
increased after a certain age. In decreasing operating
income,higheroperatingcostswillproduceverydangerous
outcomes. Operating the aged ships will become totally
impossible.”
Another has acknowledged that the coaster fleet
hasbeennotonlyagedbutalsowornoutmorethan
itsmeanage,
likethis:
“AlongwithagingTurkishcoasterfleet, thevesselsare
poorergroundaccordingtotheirageduetolackofproper
technical management. The shipowners, who are in
financialcrisisandhaveinsufficientworkingcapital,have
losttheirbargainingpowerandadoptedmakeshiftpolicies
includingusingless qualityfuel,
employingless qualified
personnel, performing urgent, not periodic maintenance.
Thisnaturallyresultsinearlieragingofthevessels’main
enginesorworseconditionthantheirage.”
Higher mean age of the fleet increases running
costs.Infact,theshipownersinTurkeycanseemingly
have lower costs than those in Western Europe
in
consideration of regional dynamics, however there
are high freights in there, not in Mediterranean Sea
andBlackSea.Anywatersinwhichavesseloperates
have different requirements and in turn different
returns. What is important here is how Turkish
shipowners can manage to maintain the quality of
vessel
and crew in the Eastern Mediterranean
freights.Therefore,therecanbeageneralequalitybut
the substandard competition made by Syrian and
Russianshipownersisinsurmountable.
6.2.4 Class,Insurance,FlagandCrew
Turkish coaster owners may become members in
any P&I club or class their vessels under different
classes. However, the
charterers favor IACS classed
andA1P&IClubvessels.Thehighestcostitemsofthe
shipownersareclassandinsuranceexpenses.Rather
thanclubinsurance,constant‐premiumP&Iinsurance
ispreferablebecauseofpriceadvantages.In classes,
IACS member organizations are more favorable but
secondary classes may find a chance
unless they
frighten charterers. However, class is a key
commercial sign and Turkish shipowners have no
competitionpowerwiththesesecondarytypeclasses
totradeoutsideBlackSeaandEasternMediterranean
SeaWaters.
Turkish shipowners operate both foreign and
Turkish flagged vessels. High insurance premiums
forTurkishflaghavedisadvantagesas
well astrade
and credit conditions, heavy custom and flag flying
procedures. This situation attracts the escapes to
foreign flags to provide more facilities on crew
salaries, insurance, etc.Furthermore, Turkish
shipowners can access to cabotage cargo provided
thattheirshipsoperateundertheTurkishflag.
It is difficult to
recruit and work with well‐
educated and experienced seamen in coaster ships.
The shipowners who have crew lower licensed but
more professional and well trained are much more
competitive as well as those who have invested in
lowersafemanningrequiringvessels.Turkishcoaster
fleetnowhavewell‐qualifiedlandpersonnel.
6.2.5 Finance,StateAidsandExpectations
MostoftheshipownersinTurkishcoastermarket
have small equity. This forces shipowners to make
use of external financing in ship investments and
business operations. Shipowners seek ways to meet
theirfinancingneedsviabankcredits.However,there
are some difficulties in access
to finance for coaster
companies. In this issue, the shipowners in higher
tonnage and/or in different segments are more
advantageous thanks to their corporateness and
transparencythanthecoasterenterpriseswhoareless
transparentandhavelackofhighfinancialstandards.
Thesecurityissue isoneof thedrawbackswhich
the
coaster owners have in finding credit. The
banking system currently finds maritime mortgage
395
insufficient for credit and additionally conditions
landmortgagesuchasanapartment,realestate,etc.
Until 2008, it was satisfactory that 20% of ship
investment cost be financed by the shipowner and
remaining 80% by the bank. Afterwards, both
maritime and land mortgages have put Turkish
shipownersintotrouble.One
oftheparticipantsclears
upthefinancialstructureandaccessofshipownersin
Turkeylikethis:
“From 1996 to 2002, there was no money in Turkey.
Ship purchasers were mostly foreign centered companies.
Creditbuyerswereveryrare.InTurkey,therewasnobank
tofinance.Thisportraitcanbe
seenyet.Nobankcreditthe
market with low profit margin by way of bearing risks,
knowing the maritime industry and making good project
appraisals.Thosewhocanfindmoney abroad invested in
vessels. From 2002 onwards, ship purchases increased
muchmore.In2006,purchasingstoppedwithplummeting
shipprices.”
The
lendingpoliciesofworldbankswereseverely
hitbytheglobalcrisisof2008.Themaritimesectoris
oneofthemostandworstinfluencedindustriesfrom
this chaos. After 2011, shortage in supply have
gradually become outstanding, and hence maritime
markets hit historical trough levels in 2016. In this
period, the capital of shipowners ran out and the
willing banks to make loan available disappeared.
The subsidy channels were also closed for private
enterpriseslikemaritimecorporationssincethestates
madecashinjectionsfirstintothebankruptbanksto
raise and then government in pursuit of the
Keynesian policy. Major
financing sources in
maritime sector are special capital funds, leasing
operations and intra‐financing of shipowners.
Particularly in small purchases, financing can be
madethroughBareBoatHire andPurchase(BBHP).
Inthiscase,securitiesbecome critical,andagainthe
transparency and institutionalization of the
shipownerwillstandout.In
thecoastermarket,when
consideringTurkish shipowners’rivals,German and
Dutch ones can more easily access to the financing
sources.
Inrecentyears,aflowofmoneyfromtheMiddle
East has been towards Turkey as foreign loans.
Many investors have tended towards Turkish
economyduetosomecrisesinthere,
andthenumber
of the shipping companies with Arabian capital has
risen. This monetary inflow has change the Turkish
shipownerprofileandtheyarenowextendingtothe
largertonnages.
Inprojectfinancing,sustainableloansismajorone
oftheexpectationsfromthestatetoterminateforeign‐
dependence and make
positive contributions to the
Turkish shipbuilding and marine technologies
industry. The state should adopt this sector as a
strategic area because of non‐obtained funding
resources abroad due to the low rating of the
financinginstitutionsandthusprovidenecessaryaids
todevelopaselectivefinancingmodel.Inthissense,
scrap
incentive law is a key step, and its execution
willalsobeavaluableprogress.
IntheTurkishStarProject,aTurkishcoasterfleet
renewalproject,thestate support is stillexpectedto
obtain the required financing. In this context, a
financingmodelcanbedevelopedthat70%ofproject
finance will be met by government, 15% by the
shipowner’s equity and remaining 15% by the scrap
valueofashipthathaslostitseconomicvalue.Also,
thereisanadditionalexpectationthatthestate’spart
of the financing source will be loaned with the
favorable interest rates below market
and 10 year
paymentterm.
7 DISCUSSIONANDCONCLUSION
Of the most important factors obstructing the
competitiveness of Turkish coaster fleet, operating
agedandoutdatedgeneralcargovesselsiseaturedin
interviews. This increases the running costs and
adversely affects the competitive advantage against
European, Russian and Arab shipowners. In
order
thatTurkishcoasterownersoutclasstheirrivals,itis
necessarytobuildlowdraft,rivergoingandboxtype
vessels. Legal requirements including high
compliancecostssuch as Ballast Water Management
and2020SulphurCapdistressTurkishshipownersas
well as weaker competitive power. For instance, the
biggest problem in
modernization or new fleet
establishment is unavailability of sufficient financial
resources. Coaster owners have to make business
withsmallequitiesandhencerequirebutstruggleto
haveexternalloansinshippinginvestments.
The employment of seamen having no quality
training and satisfactory experience may lead to
irreversible adverse consequences and
insurmountabledamages.Furthermore,thestructure
thatisfarfromtheinstitutionalizationprinciplemight
particularly obstruct the professional corporate
management and thus make a negative impression
uponthecharterersandcreditorssuchasbanks.
Turkish coaster owners that have insufficient
capital structure to finance the investment projects
place their hopes on state
aids. Turkish Star Project
comestotheforeoutoftheseexpectations.Theywill
be able to accomplish a more modern structure and
becomemarketmakerthankstothecredibilitygiven
to various stakeholders, particularly charterers and
banks, by the fact that corporate structure is getting
muchmoreprofessional.The
modeldiscussedunder
theProjectwillprovidethattheshipscanbemanaged
by a corporation established in public private
partnership,economiesofscalewillbecreatedinthe
cooperativemodelinsteadofthedispersedfleets,and
by this means with a huge fleet, more competitive
freightscouldpossiblybeoffered
tocharters.
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