Maritime Economics

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In what ways do environment-related shipping policies affect the following components of the maritime industry?

Even though effective ports are significant to the financial growth of their neighboring regions, the associated ship traffic, the management of merchandise in the harbors, and the inland supply can result in various undesirable ecological impacts (Damas 60). Environment-related shipping policies affect new building and scrapping, liner conferences and alliances, and shipping companies’ profitability in a number of ways. The affected areas indicated above are major components of the maritime industry.

Newbuilding and scrapping

Salvarani indicates, “Environment related shipping policies require maritime industries to come up with new buildings that are ecologically safe” (Salvarani 30). For example, recent environmental policies focused on the maritime industry emphasize the need to reduce carbon emissions (Grammenos 34). The policies acknowledge that road and sea transport industries are among the major contributors to global warming. The policies call upon the maritime stakeholders to design new buildings that minimize carbon emission and use green energy. With respect to scrapping, the policies encourage the industry players to embrace ship recycling. If the ships are to be demolished, they should be done in a manner that does not harm the environment.

Liner conferences and alliances

Linear conferences and alliances refer to a cluster of ship operating firms that offer global liner services. Their services are restricted to specific routes and geographical locations based on a treaty. As such, environment-related shipping policies affect linear conferences and alliances. Grammenos advises, “Environment related shipping policies require these alliances to embrace measures meant to minimise carbon emission and reduce sea pollution” (Grammenos 23).

Similarly, the policies mandate the alliances to come up with their own self-regulatory measures to safeguard the environment. For example, the EU recently passed a policy requiring big ships to monitor and report their emissions levels by the year 2018 (Whyke 28). The above policy will affect the linear conferences and alliances operating within the EU. Therefore, the owners of large ships within the existing alliances have to comply with the law or seek other alliances outside the region. In such instances, the alliance would have to be restructured. Based on the above illustration, it is apparent that environment-related shipping policies have an effect on linear conferences and alliances.

Shipping companies’ profitability

Environment-related shipping policies also have an effect on shipping companies’ profitability. Grinter asserts, “Environmental policies have an undesirable effect on the lucrativeness of the shipping companies” (Grinter 23). The policies come with added expenditure required in coming up with new infrastructures that comply with the directive. Even though these guidelines help in safeguarding water sources, air quality, and marine life, it should be noted that they lead to a substantial cost burden on the marine industry. To remain lucrative, maritime industries have been forced to be innovative.

The industries have had to conduct a number of researches that have enabled them to reduce on the cost of operation and increase their effectiveness. Notably, the cost of conducting and sustaining these researches is very high. For example, the recently passed EU policy requiring big ships to monitor and report their emissions levels by the year 2018 will make ship owners to incur an extra cost. The cost will be used in the installation of the required devices meant to monitor their emission levels. Similarly, some older ships may have to be retired since their emission levels are higher compared to those permitted by the regulators. The above example illustrates how environment related shipping policies have an effect on shipping companies’ profitability.

Three Companies A, B, and C are providing liner shipping services. What effect will each of the following have on the demand for liner shipping services? For each effect, provide a brief explanation and justification

In a case study, three companies offer liner-shipping services. The companies are A, B, and C. The section below analyses the effect every firm will have on the demand for liner freight services under specific conditions.

Company B increases the frequency of services in a shipping route connecting to a particular port that is also serviced by Company A

In the first instance, company B augments the frequency of services in a shipping route linking to a specific port serviced by company A. Under such a circumstance, an increase in competition on the route will be witnessed leading to a drop in demand for linear shipping services. As such, company A will witness a drop in the number of its cargoes because company B will deliver some of its freights. Because of this, the company will have to differentiate its services to retain its market share.

In a bid to do so, it may decide to offer unbeatable logistics services or lower the prices of its services. Similarly, by differentiating its services the company will gain a competitive advantage over its competitors. On the other hand, company B will also have to offer quality services to gain a market share in the route. Ultimately, the above practices will have an effect on the demand for linear shipping services. The demand for the services will be lower following an increase in the supply of the services. Because of this, the price of linear shipping services will decrease. In the long-term, the consumer will benefit from the changes because the price of consumer goods will decrease.

An interstate highway connected to a port, serviced by Companies B and C, is completed

Under the second situation, a regional highway linked to a port serviced by companies B and C is finalized. In such an event, the demand for liner shipping services offered by companies B and C will be witnessed. The interstate highway will increase trade between the region and the international market. The highway will enable the inland residents to export their goods via the port serviced by companies B and C. Similarly, the highway will lead to an increase in imports.

The international goods will become readily available in the interstate markets owing to the improved infrastructure in the region. With improved trade and infrastructure, the economy will also progress leading to the creation of more industries in the region. Because of the above changes, the demand for linear shipping services offered by the two companies will increase. The changes will lead to an expansion of the two companies. Similarly, new entrants in the shipping industry will be expected as the demand for linear shipping services increases.

The economy experiences a moderate upturn, trade increases, and business confidence is improving. But Company A’s image is tarnished as a result of a recent strike in one route where both Company B and C also provide shipping service

In the third situation, the economy witnessed a modest improvement, trade surges, and business confidence expands. However, company A’s image is compromised following a current slowdown in one of its routes. Company B and C also service the route. Because of an increase in economic growth, the demand for linear shipping services offered by the three companies is expected to increase (Grey n.p.). However, due to the current strike incidence witnessed in company A, the firm may not benefit from the increase in demand.

Company B and C will benefit from the economic changes. The demand for their freight services will increase. The increase will result from an increase in export and import services in the region because of economic growth. Similarly, companies B and C’s increase in the demand for their services will result from the damaged reputation of their key competitor. Company A’s clients will choose the services offered by companies B and C leading to an increase in the demand for companies’ services.

Identify and discuss the market structure and key economic issues related to the global dry bulk trades of iron ore, coal, and grain

The maritime industry is an indispensable connection in global trade considered that sea vessels symbolize the most effective means of moving huge volumes of basic merchandise and consumer products. Flynn suggests, “It is estimated that in the year 2013 4.1 billion tons of dry bulk freight was ferried by sea” (Flynn 34). Dry bulk freight is transported in large amounts and can be packed in one container with ease with the slight risk of merchandise damage. Dry bulk freight can comprise of iron ore, coal, or grain.

Iron ore constitutes a major dry bulk material in the maritime industry. The product is utilized as a natural resource for the manufacture of steel products and limestone. The products are the most significant building and engineering resources used all over the world. During the year 2013, 1.2 billion tons of iron ore were ferried globally. The major markets for iron ore are China, the EU, and Japan. The key and exporters of the product are Australia and Brazil (James 70).

The product is usually affected by periodic demand variations. With an increase in manufacturing and construction industries in Asia, the demand for the product has increased steadily over the last few decades. The demand for the products is also expected to increase in the future as manufacturing and construction industries are anticipated to expand in developing countries.

Grains are also considered under dry bulk. Grains comprise of wheat and coarse grains. Wheat is utilized in the production of products meant for human consumption. On the other hand, coarse grains are utilized in the production of livestock feed products. Oilseeds are utilised in the production of cooking oil and other industrial products. The major producers of grains and coarse grains are the USA. Argentina, Canada, and Australia are also the key producers of the products.

The largest consumers of the products are the Asia-Pacific countries. Latin America, Africa, and the Middle East also offer the largest market for the products. The product is usually affected by periodic demand variations. Grain production is periodic. As such, the demand is influenced by the harvest sequence of the northern and southern hemispheres. Considered that the USA, Argentina, Canada, and Australia are the largest producers, yields reach seaborne marketplaces all through the year.

Another product categorized under dry bulk cargo is coal. Steam coal is majorly utilized in power production. Following the latest discoveries of coal, several developing countries are now building power plants reliant on the product. The above has led to an increase in the coal market. The greatest intense growth has been witnessed in China and Indonesia. The two countries have augmented their export bulk in the Asian market. In the international market, China is the leading consumer of the product. On the other hand, Australia is the leading producer and exporter of the product. The product is usually affected by periodic demand variations.

Coal is connected to the energy markets. In this regard, its demand increases towards the end of the year. Towards the end year, a number of power supply companies expect the winter season, which comes with an increase in demand for power. In other countries, the demand for coal is also higher during summer. During such seasons, the demand for electricity needed for air conditioning increases. Based on this, it can be argued that the demand for coal is influenced by climatic conditions.

Refrigerated cargoes are being carried by both container vessels and specialized reefer vessels. Compare and contrast the likely future growth in refrigerated cargo in both types of vessels. Include examples and economic justification for your views

Both container ships and dedicated reefer ships transport were frozen freights. The most common temperature-regulated shipments transported by these vessels comprise refrigerated cargo foodstuff, frozen foodstuff, and non-foodstuff consignment. In the future, a decline in the dedicated reefer industry may be expected. In the past, dedicated reefers have been a choice for many exporters of perishable goods.

Dedicated reefers were preferred because they offered devoted services in the transport of perishable goods. However, the industry has been facing immense competition from the container ships fitted with refrigeration devices. As a result, the dedicated reefer ships have lost up to 12% of their market share. In the year 2007, the world fleet of marine refrigerated containers was made up of 1,378,000 containers. By 2012, the number had increased to 2,049,000. The figures indicate that the container ship business is experiencing growth compared with dedicated reefer ships.

Maritime industry experts assert that it is more economical to transport refrigerated goods in containers than in dedicated reefers. According to the experts, it takes approximately 2 to 3 years to recoup a dollar invested in a container. On the other hand, it takes 15 to 20 years to recoup a dollar invested in a dedicated reefer (“Special Report ” n.p.). Similarly, investors are more interested in investing in a container than in a dedicated reefer. As such, a container can carry both perishable and non-perishable goods. The above implies that containers can be used as dual-purpose vessels. On the contrary, dedicated reefers have been customized to carry only perishable goods. Based on this aspect, it is apparent that in the near future containers will gain a bigger market share.

Chinnery suggests, “The use of dedicated reefers is not expected to end in the near future” (Chinnery 48). The experts argue that in some instances the use of dedicated reefers is more economical compared to the use of containers. The experts argue that seasonal trade favors the use of reefer vessels. They point out that there has been an increase in the use of dedicated reefers in some routes. Ostergaard notes, “The routes used in the transportation of bananas from South America to Europe have seen an increase in the use of dedicated reefers” (Ostergaard 10). Others argue that the use of reefer relies on the infrastructure available. For instance, infrastructure in some nations like Argentina favors the use of dedicated reefer vessels. The above implies that the use of dedicated reefers in the near future is still visible.

Based on the above illustrations, it is apparent that the growth in refrigerated cargo in both container and dedicated reefer vessels is uncertain. The environment operated by the two vessels will remain competitive as the two industries try to outdo one another (McKay 18). The industry that will be able to come up with innovative services will be able to sustain the anticipated competition. Because of this, the price of linear shipping services will decrease. In the long-term, the consumer will benefit from the changes because the price of consumer goods will decrease.

Works Cited

Chinnery, Kevin. “Stevedoring’s New Wave.” Lloyd’s List Maritime Asia 10.4 (2003): 47- 48. Print.

Damas, Philip. “Tranship or Direct-Areal Choice”. American Shippers 12.2 (2001): 56- 60. Print.

Flynn, Mathew. “Big Is Beautiful In Dry Bulk Carriers”. Lloyd’s List Maritime Asia 11.3 (1999): 34-36. Print.

Grammenos, Costas. The Handbook of Maritime Economics and Business. 2nd ed. Hoboken: Taylor and Francis, 2013. Print.

Grey, Michael 2010, Real Dangers of a Stricken Cruise ship. Web.

Special Report on Maritime Thames: PLA toughs out the difficult year 1993. Web.

Grinter, Mike. “Coastal Vessels Go Electric”. Lloyd’s List Maritime Asia 3.1 (2007): 23- 24. Print.

James, David. “Australia’s Wealthiest 200 People”. BRW 6.2 (2010): 69-70. Print.

McKay, Rob. “New Zealand seeks coastal Renaissance.” Lloyd’s List Maritime Asia 6.1 (2008): 18-19.Print.

Ostergaard, Tue. “Quarterly Financial Overview”. Containerisation International 13.2 (2007): 9-11. Print.

Salvarani, Roberto. “Raising the Standards”. Lloyd’s List Maritime Asia 8.1 (1999): 29- 30. Print.

Whyke, Nicola. “Catch CO2”. Shipping Economist 32.1 (2009): 27-32. Print.

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