Economics is one of the primary methods of developing the essential professional skills of critical assessment and analysis. The development of such critical faculties in shipbroking students must be firmly grounded in a grasp of the basic fundamentals of economic analysis.
This text offers an understanding of basic economic analysis of the marine industry by developing the reader’s ability to discern why things happen, rather than simply how.
Author(s): Institute of Chartered Shipbrokers
Published: 2005
Binding: Paperback
ISBN 10: 1856092682 ISBN 13: 9781856092685
Contents
Preface
1 The Basic Toolkit
1.1 Introduction
1.2 A Definition of Economics and Maritime Economics
1.3 Factors of Production
1.4 Utility and Price
1.5 Opportunity Cost
1.6 The Price Mechanism
1.7 Demand
1.7.1 Prices of Other Commodities
1.8 Supply
1.9 The Basic Market Model
1.10 Dynamic Adjustment
1.11 Conclusion
1.12 Self-assessment and Test Questions
2 The Demand For Shipping
2.1 Introduction
2.2 An Economic Analysis of the Demand for Shipping
2.2.1 Seaborne Trade
2.3 Distance and the Concept of Tonne Miles
2.4 Derived Demand for Shipping
2.5 Elasticity of Demand
2.6 Derived Demand Elasticity
2.7 Conclusion
2.8 Self-assessment and Test Questions
3 The Supply Of Shipping Services
3.1 Introduction
3.2 A Broad Perspective
3.3 A Framework for Analysing the Supply of Shipping Services
3.3.1 Measuring Output
3.3.2 A Schematic Representation of the Supply of Shipping
3.3.3 Altering the Stock of Vessels
3.3.4 Altering the Way that the Existing Stock of Vessels is Used
3.3.5 Supply in the Very Long Run
3.4 Trends in the World Merchant Fleet, 1970-1999
3.4.1 New Building Trends
3.4.2 Scrapping Trends
3.5 Factors Affecting the Short Run Supply of Shipping Services
3.5.1 Use of Vessels for Storage
3.5.2 Laying up/Reactivating Vessels
3.5.3 Variations in Vessel Speed
3.5.4 Variation in Port Time
3.6 Productivity Trends and Supply Conditions
3.7 Surplus Tonnage and the Concept of the Active Fleet
3.8 Segmented Supply
3.9 Relating Theory to Empirical Evidence
3.9.1 The Short Run Supply of Shipping Output
3.9.2 The Long Run Supply of Shipping Output
3.10 Measuring Supply Responsiveness: The Concept of Elasticity of Supply
3.10.1 Supply Elasticity and Time
3.10.2 Empirical Evidence
3.11 Conclusion
3.12 Self-assessment and Test Questions
4 Shipping Cost Analysis and Economies of Scale
4.1 Introduction
4.2 An Outline of Basic Cost Concepts
4.2.1 Short Run Costs
4.2.2 Behaviour of Total Costs and Output in the Short Run
4.2.3 The General Relationship Between Short Run Costs and Output
4.2.4 The Concept of Marginal or Incremental Cost
4.2.5 Long Run Costs in Economic Theory
4.3 The Conventional Analysis of Vessel Operating Costs
4.3.1 Capital Related Costs
4.3.2 Direct Operating Costs
4.3.3 Voyage Related Costs
4.4 Specific Factors Affecting the Relationship Between Costs and Shipping Output
4.4.1 Changes in the Vessel Load Factor
4.4.2 Changes in Vessel Speed
4.4.3 Changes in Distance Travelled
4.4.4 Changes in Cargo Handling Rates
4.4.5 The Proportion of Journey Spent in Ballast
4.4.6 Changes in the Vessel’s Size
4.5 Long Run Vessel Costs: Economies of Scale and Optimal Ship Size
4.6 The Effect of Different Fiscal Regimes on Costs
4.7 The Effect of Flag of Registry on Costs
4.8 Costs and Quality: The Problem of Substandard Ships
4.9 The Effect of Inventory on Optimal Ship Size
4.10 Trends in Ship Size and the Concept of the Optimum Size of Vessel
4.11 Conclusion
4.12 Self-assessment and Test Questions
5 Competitive Shipping Markets: Bulk Dry Cargo
5.1 Introduction
5.2 Definition of the Dry Cargo Sector
5.3 Economic Characteristics
5.4 Dry Bulk Market Demand Structure and Trends Over the Past 25 Years
5.5 An Analysis of the Cost Structure of Tramp Ship Operators
5.5.1 The Lay-up Decision
5.6 The Use of Breakeven Analysis in Determining Minimum Freight Rates
5.6.1 Finding the Breakeven Rate
5.7 Modelling the Dry Cargo Market
5.7.1 Modelling Demand
5.7.2 Supply
5.8 Determining the Equilibrium Freight Rate
5.9 Confronting the Model with the Evidence
5.9.1 Historical Developments
5.10 Dynamic Considerations
5.11 Conclusion
5.12 Self-assessment and Test Questions
6 Competitive Shipping Markets: Tankers
6.1 Introduction
6.2 Seaborne Trade and the Distinction Between Crude and Oil Products
6.2.1 The Development of Seaborne Oil Trades
6.2.2 Change in Tonne Miles and Journey Length
6.2.3 Changes in the Regional Balance of Oil Consumption and Production
6.2.4 The Behaviour of the Price of Crude Oil
6.2.5 OPEC as a cartel
6.3 Changes in the Tanker Fleet
6.4 The Relationship between Tanker and Dry Cargo Markets
6.5 The Structure of the Tanker Market
6.5.1 Large Numbers of Buyers and Sellers
6.5.2 Identical Service
6.5.3 Freedom of Entry and Exit
6.5.4 Full Information
6.6 Segmented Supply
6.7 Modelling Demand
6.8 Modelling Supply
6.8.1 The Market Model
6.9 Tanker and Dry Cargo Rate Volatility Compared
6.10 Fluctuations in Market Freight Rates
6.11 Conclusion
6.12 Self-assessment and Test Questions
7 The Liner Trades: An Example of an Oligopolistically Competitive Market
7.1 Introduction
7.2 Definition of a Liner Shipping Service
7.2.1 Fleet of Ships Under Common Ownership or Management
7.2.2 Fixed Services at Regular Intervals
7.2.3 Vessels Sail, Full or Not
7.3 Ship Types Serving in the Liner Trades
7.4 The Nature of Demand for Deep-sea Liner Services
7.5 The “Container Revolution”
7.6 Pricing Behaviour in the Liner and Tramp Trades
7.7 The Conference System: Key Institutional Element or Historic Throwback?
7.7.1 Activities of the Conference Organisation
7.7.2 Types of Conferences
7.7.3 The UNCTAD Liner Code
7.7.4 Conference pricing of cargoes
7.8 Price Discrimination in the Liner Trades
7.9 The Conference Paradox
7.9.1 The Short Run Profit Maximisation Hypothesis
7.9.2 Evidence
7.9.3 The Contestable Markets Hypothesis
7.9.4 The Empty Core thesis
7.10 Recent Developments in the Liner Trades
7.10.1 Strategic Alliances
7.11 The European Commission and the Liner Trades
7.12 Conclusion
7.13 Self-assessment and Test Questions
8 Ports, Sea Canals and Waterways
8.1 Introduction
8.2 Definition of Ports and Harbours
8.3 The Function of Ports
8.4 Port Costs and Ships’ Time
8.4.1 Port Infrastructure and Investment
8.4.2 Ships and Port Time
8.4.3 Port Efficiency or Inefficiency with Regard to Ship Turn Round Time
8.5 Port Cost Structure
8.5.1 Port Costs
8.5.2 Ships’ Costs
8.5.3 Total Port Costs
8.6 The Aims or Principles of Port Tariffs
8.7 Port Privatisation: Ownership and Efficiency
8.8 Port Competition
8.9 Sea Canals and Inland Waterways
8.10 Conclusion
8.11 Self-assessment and Test Questions
9 Shipping and International Trade
9.1 Introduction
9.2 The Pattern of World Trade
9.3 Trade and Economic Growth
9.4 Types of Trade Flows: Intra-industry and Inter-industry Trade
9.5 Trade Growth and the Demand for Shipping Services
9.6 Economic Models of Trade Flow
9.6.1 Absolute advantage
9.6.2 Comparative Advantage
9.6.3 Formal Models of Comparative Advantage
9.6.4 Opportunity Cost
9.6.5 Gains from Trade and the Terms of Trade
9.6.6 The Production Possibility Frontier
9.6.7 Trade Equilibrium
9.6.6 Implications and Limitations of the Theories of Comparative Advantage
9.6.7 Multinational Company Trade: The International Product Life Cycle
9.6.8 Economies of Scale and Product Differentiation as Sources of Trade Advantage
9.7 The Benefits and Costs of Free Trade
9.8 Free Trade Versus Protectionism
9.8.1 The ‘Infant Industry’ Argument
9.8.2 ‘Smoothing the Reallocation of Resources’ Argument
9.8.3 The ‘Strategically Important’ Industry Argument
9.8.4 To Counter ‘Dumping’ Behaviour by Foreign Governments or Companies
9.8.5 To correct a Temporary Balance of Payments Disequilibrium
9.9 Methods of Protection
9.9.1 Tariffs
9.9.2 Ad Valorem
9.9.3 Specific Duty
9.9.4 Tariffs as a Source of Revenue
9.9.5 The Effect of a Tariff
9.9.6 Quotas
9.9.7 Voluntary Export Restraints
9.9.8 Exchange Control
9.9.9 Embargoes
9.9.10 Subsidies
9.9.11 Criticisms of the Free Trade Argument
9.10 Transport Costs and International Trade
9.11 Developing Free International Trade: The Role of the World Trade Organisation
9.12 Conclusion
9.13 Self-assessment and Test Questions
10 The Balance of Payments and Exchange Rates
10.1 Introduction
10.2 Definition of the Balance of Payments
10.3 The Structure of the Balance of Payments
10.4 The Current Account
10.4.1 Trade in Visibles
10.4.2 Trade in Services
10.4.3 Investment Income
10.4.4 Transfers
10.5 The Capital Account or Transactions in UK Assets and Liabilities
10.6 Accounting for Government Intervention in Foreign Exchange Markets
10.7 The International Monetary Fund (IMF)
10.8 Exchange Rates and the Balance of Payments
10.9 Dealing with a Balance of Payments Deficit: Fixed Exchange Rates
10.10 Dealing with a Balance of Payments Deficit: Floating Exchange Rates
10.11 Exchange Rates and Shipping
10.12 Conclusion
10.13 Self-assessment and Test Questions
Mock Exam
The Purpose and Scope of this Book and Course Guide
