Toll-Free Numbers

      Call me back Live Support
support ukraine
Free «Shipping Economics Data» Essay Sample

The globalization of economies is generating new maritime transport flows. Particularly the bulk shipping industry has benefited from this development. Beuthe et al (2004) say that the transportation of bulk cargo can be done by the shipper himself or he can decide to have it outsourced to a third party carrier. The market structure of bulk shipping is characterized by the fact that large numbers that own bulk ships are able to provide similar bulk shipping services. Lun, Lai & Cheng (2010) says that there are fewer regulatory or economic obstacles for bulk shipping firms to withdraw from the market. This means that their exit is unlikely to result in a corresponding decrease in the supply of tonnage as the exiting bulk shipping firms may have sold their tonnage to other shipping firms in the second hand sale and purchase market (Lun, Lai & Cheng, 2010).

There are currently about 200 carrier companies with lines serving multiple continents. Beuthe et al (2004) says that some 30 companies make up the elite, whereas others serve in niche markets or on specific routes. The largest companies offer door to door transport services and have an extensive network of agents and focus on customer relations (Beuthe et al, 2004). In the intercontinental container shipping industry potential competitive advantages depend on size which in turn can depend on consolidation. The table below shows the top 15 shipping companies by estimates of their TEU capacity.

Rank Carrier Fleet Size (TEU) Ships Alliance
1. Maersk Sealand 544,558 228 -
2. Evergreen/Uniglory Marine Corp 311,951 132  
3. P&O Nedlloyd 268,625 117 Grand
4. Mediterranean Shipping Co 225,636 124  
5. Hanjin Shipping Co 217,804 70 United
6. NOL/APL 199,881 74 New World
7. Cosco Container Lines 189,016 121  
8. NYK Line/TSK 156,821 76 Grand
9. Mitsui OSK Lines 146,026 71 New World
10. Zim Israel Navigation 144,751 82  
11. CP Ships 133,006 77  
12. CMA-CGM 127,147 76  
13. Hyundai Merchant Marine 109,105 33 New World
14. Yangming Marine Transport Corp 101,445 40  
15. OCCL 94,967 34 Grand

From the industrial organization perspective, the demand and supply conditions in the bulk shipping market can influence the market structure. Lun, Lai & Cheng (2010) says that the market structure affects the operations and investment decisions of firms in the marketplace. Also in the bulk shipping market, buyers and sellers trade transport services to set the freight rate and determine the fleet. Lun, Lai & Cheng (2010) further says that in the bulk shipping market, the freight rate is affected by seaborne trade which is the key to the demand for bulk shipping services. The freight rate can influence carrier’s decisions on adjusting the fleet size to meet the market demand.



    Preparing Orders



    Active Writers



    Positive Feedback



    Support Agents


Title of your paper ?
Type of assignment ?
Number of pages ?
Academic level ?
Timeframes ?
Spacing ?
Currency ?
  • Total price
Continue to order

Stopford (2009) says that one of the contributions of shipping to the global trade revolution has been to make sea transport so cheap that the cost of freight is not a major issue in deciding where to source or market goods. The shipping business was very successful in maintaining costs during a period when the cost of commodities it carried increased by 10 or 20 times. Stopford (2009) says that for many commodities freight is now a much smaller proportion of costs than it were 30 years ago. For example in 1960 the oil freight was 30% of the cost of a barrel of Arabian Light crude oil delivered in Europe. By 1990 it had fallen to less than 5% and in 2004 it was about the same, making the tanker business less important to the oil companies (Stopford, 2009).

Currently the supply of market data in bulk shipping is dominated by two types of data series daily indices on various bulk shipping markets developed by the Baltic Exchange and weekly or monthly time series of average freight rates for specific ship size, commodity and route combinations (Cullinane, 2011). Cullinane (2011) says that “the way published freight rate series are constructed may affect the understanding of economic phenomena in shipping such as price determination, price volatility analysis and character contracting” (p. 64). It is important to note that the shipping industry is a capital intensive industry characterized by great uncertainty. This uncertainty according to Cullinane (2011) is the result of the mobility of the ship, the fragmentation of the market on both the demand and the supply side and the relationship with other volatile markets such as the oil market.

Many players in the bulk shipping market both characters and ship-owners rely on various types of market information for their decision making. Cullinane (2011) says that the default information package usually covers the supply of capacity such as order book information, ship deliveries, ships in lay up, scrapping of ships, the demand which includes seaborne trade carried in previous periods, growth of seaborne trade and prices of charter contracts and ships.

According to Gwilliam (1992) the effect of economics of scale in shipping is much diminished and the differentiation of shipping along service lines is increased. In this context shippers are increasingly searching foe efficient partnership like arrangements rather than the lowest freight rate. Except where liners are in directional imbalance and competing down to get quasi-bulk commodities such as forest products, occasional vessels on berth are not significant competition for container services (Gwilliam, 1992). 

The extent in which demand and supply are affected by less capital intensive strategies depends on the orientation of the strategy. Talley (2012) says that demand oriented strategies in bulk shipping such as tariff strategies have via the price mechanism, a direct impact on the attractiveness of bulk shipping. Talley (2012) says that the combination of strong inter-port competition and tariff strategies may lead however to price wars between ports. Supply oriented strategies such as upgrading of logistic services and technological improvements are largely private undertakings and closely related to a substantial reduction in the need for space for storage and distribution activities (Talley, 2012).   

Get 24/7 Free consulting
Toll free

Analysis of Shipping Economics Data

The balance of overall supply and demand over a multiyear time horizon determines the overall levels of freight rates in the marketplace. Kogel, Trivedi & Barker (2006) vessel demand is also subject to short-term economic influences, weather, seasonality and market timing. Also technical, structural and physical disturbances, mechanical breakdowns, inefficiencies or plant production problems are factors. Kogel, Trivedi & Barker (2006) indicated that supply chain influences to or from the plants can and will cause delays and congestion which in turn will affect overall vessel supply.

Demand can be very volatile especially where a number of characters may be competing for available vessels. Kogel, Trivedi & Barker (2006) says that because of the many raw materials moved in bulk carrier vessels, shippers of industrial minerals may face rates that are determined exogenously. According to Kogel, Trivedi & Barker (2006), vessel supply is less flexible, involving capital investments in long lived assets. The economic life of bulk carrier’s is typically 20 to 25 years. It is important to note that the interaction of semi fixed supply and rapidly shifting demand brings about volatile freight markets. The strength of the sector from 2003 to 2004 resulted from a sharp increase in demand in the face of little new tonnage on order for vessel supply.

Save up to

We offer 10% more words per page than other websites, so actually you got 1 FREE page with every 10 ordered pages.

Together with 15% first order discount you get 25% OFF!

Economics of scale in shipping are known to be considerable and hence are central to shipping economics. Cowie (2009) says that capital costs in shipping are fairly significant be4cause in medium life vessels they account for around 40% of the total operating costs and even and an even higher 48% in newer vessels (Cowie, 2009). Lipsey & Chrystal (2011) indicated that bulk products whose transport costs are high relative to their production costs tend to be produced and sold in geographically distinct markets. This means that whatever the transport costs, there will be some price differential at which it will pay someone to buy in low priced market and ship to the high priced market. There is therefore always some potential link between geographically distinct markets when shipping costs are high.  

The figure 1 below shows the forecasts of bulk seaborne shipments from 1950 to 2030. Gallagher (2008) says that the demand for shipping services as indicated in the graph will follow the general economic growth. Growth in demand for shipping services will be driven by both increased cargo (tonnage) and increased cargo movements (ton-miles).

VIP services

Get an order prepared
by Top 30 writers 10.95 USD

VIP Support 9.99 USD

Get an order
Proofread by editor 4.33 USD

SMS notifications
3.00 USD

Get a full
PDF plagiarism report
5.99 USD


Economic Models to the Shipping Sectors

There are five economic models used in shipping. These include world economic, the shipping fundamentals, market investment, the risk management and the company microeconomic models. Stopford (2009) says that the world economic model provides the main stimulus to the shipping cycles. At the same time the micro-economic model is less interested in the finer points of demand which are dealt with in the shipping fundamentals model than with the overall changes (Stopford, 2009). The market investment model brings together the economic forces which press cargo owners and ship owners to adjust their behavior in response to market situations with sentiment which in the absence of reliable forecasts is one of the main business drivers (Stopford, 2009).

The final stage is the risk management model. Shipping is a risk and it is intimately connected with the market investment model. Stopford (2009) says that it is fundamental to consider that world economy generates uncertainty about how much trade will be conducted in future years. Stopford (2009) says that the risk management model addresses issues such as if the charterers decided that it is cheaper to take risk themselves, they may decide to purchase large fleets and award secure times charters to ship-owners (Stopford, 2009).     

Top 30 writers

Get the highly skilled writer in the chosen discipline for $10.95 only!

Graphical and Tabular Analysis

There is a close relationship between the world economy and bulk sea transport. Stopford (2009) thus says that judging trends in the shipping market requires up to date knowledge of developments in the world economy. Fluctuations in the rate of economic growth work through into bulk sea transport create a cyclical pattern of demand for ships. The table below shows that the demand of bulk sea trade and world GDP (indicated by the line) which is vulnerable to world economic crisis of the type noted on the chart.

Beenstock & Vergottis (1993) says that the supply of freight services depends on the size of the fleet and freight rates. This also implies that supply in the current period is not necessarily equal to demand since the response of rates to excess demand is sluggish (Beenstock & Vergottis, 1993). As indicated in the above graph, the demand of shipping bulk products is determined exogenously by world trade and is completely intensive to freight rates. The graph also shows that the actual change in the freight rate is assumed to be proportional to this level of excess demand.

VIP support

VIP support services:
special attention is assured! $9.99 only!

In addition, Branch (2007) indicated the pricing of bulk cargo ships is dependent on the forces of supply and demand but the factors affecting both supply and demand are perhaps more complicated than in the case of most other industries and services. Branch (2007) further says that the demand for shipping is derived from the demand for the commodities carried and is therefore affected by the elasticity of demand for these commodities.

According to Branch (2007) there is a need to balance between the expected availability of shipping capacity and the demand for shipping services. The graph below indicates that there is some oversupply but not excessive in dry bulk.

Chew, Lee & Tang (2011) says that in 2012 the total container fleet is expected to grow at 9.6% while demand is expected to go down by 9.1%. The growth rates of supply and demand in global container shipping from 2000 to 2009 are shown in figure 4 below. It van be seen that in 2009, there is a huge gap between the growth rates for demand and supply.

Want an expert to write a paper for you Talk to an operator now  

 In conclusion the demand for freight transport is a function of the freight rate and shipping demand per time period. Research however shows that the speed of the capacity expansion is quite fast and the problem of overcapacity would likely to remain in years to come. This overcapacity problem has been recognized by many industry experts and carriers have adopted several measures to deal with the problem (Chew, Lee & Tang, 2011). When the growth of seaborne trade triggers a shortage of ships, the shipping industry adjusts by increasing the fleet size.


What Our Customers Say

Click here to chat with us