Part 2 Flashcards
What two things should a successful shipowner focus on?
- The change in world economy and world political conditions
- The changes in the shipping market
What is the starting point in the Shipping Market Supply/Demand Model?
Balance of supply and demand
How are freight rates affected in the Shipping Market Supply/Demand Model?
Imbalance between supply and demand
What can a change in frieght rates prompt?
- Ordering of new ships, scrapping of old ones
- change in the performance of the fleet
What does a change in freight rates determine in terms of supply?
How supply responds to changes in demand
What generates most of the demand for sea transport?
World Economy
List all:
Five Factors affecting the demand
for sea transport
- World Economy
- Seaborne Commodity
- Average Haul
- Transport Costs
- Political Events
List all:
Five Factors affecting the Supply
for sea transport
- World Fleet
- Fleet Productivity
- Ship Building Productivity
- Scrapping and losses
- Freight Rate
What are the three aspects of the world economy that may change the demand for sea transport?
Business cycle, trade elasticity, trade development cycle
What is an important cause of short term volatility in seaborne commodity trades?
Seasonality of some trades
Which agricultural commodities are subject to seasonal variations caused by harvests?
Grain, sugar, citrus fruits
When do grain exports from the US Gulf reach a trough and build up?
Summer, September
During which seasons is more oil shipped in the oil business?
Autumn, early winter
In terms of average haul, What does the demand for sea transport depend upon?
Distance of cargo shipment
How Shippers deal with transport of seasonal agricultural commodities?
Shippers of these commodities rely heavily on the spot charter market to meet their tonnage requirements
As a result, fluctuations in the grain market have more influence on the charter market than some much larger trades such as iron ore where tonnage requirements are largely met through long-term contracts.
Seaborne commodity trades:
What are four types of change to look out for
1- changes in the demand for that particular commodity (or theproduct into which it is manufactured);
2- changes in the source from which supplies of the
commodity are obtained;
3- changes due to a relocation of processing plant which
changes the trade pattern; and
4- finally changes in the shipper’s transport policy
What does the demand for sea transport depend upon?
Distance of cargo shipment
What is the distance effect referred to as in this context?
‘Average haul’ of the trade
How is sea transport demand measured?
How is Average Haul derived?
tonnage of cargo shipped, multiplied by the average distance over which it is transported.
What are examples of events that dramatically illustrate the effect on ship demand of changing the average haul?
Closure of Suez Canal, Closure of Dortyol pipeline
Why has the average haul changed in most trades over the last few decades?
Due to demand and source of supplies changes
Political disturbances
The term, ‘political event’ is used here to refer to
as a localized war, a revolution, the political
nationalization of foreign assets or even strikes
What do many developments in sea trade depend on?
Economics of shipping operation
Why will raw materials be transported from distant sources?
If cost can be reduced or major benefit obtained
How has the industry seen a reduction in transport costs over the last century?
Improved efficiency, bigger ships, more effective organization
Why is the supply of shipping services slow in responding to changes in demand?
Takes years to build and ships have long physical life
What determines the rate of fleet growth in the long run?
The fleet refers to a group of ships or vehicles.
Scrapping and deliveries
What is the Physical Life of a ship?
ships have a physical life of 15-30 years
So responding to a fall in demand is a lengthy business, particularly when there is a large surplus to be removed
What is a key feature of the shipping market model?
mechanism by which supply adjusts when ship demand does not turn out as expected
What is the average Economic life of a ship?
about 25 years
a small proportion of the fleet is scrapped each year, so the rate of adjustment to changes in the market is measured in years not months
What is fleet productivity in the shipping industry?
The fleet refers to a group of ships or vehicles
Efficiency of ship operation
How is fleet productivity Expressed?
The fleet refers to a group of ships or vehicles.
in ton miles per dwt per annum.
How is fleet productivity calculated?
The fleet refers to a group of ships or vehicles.
Total ton miles divided by deadweight fleet
What Plays an active part in the fleet
adjustment process?
The fleet refers to a group of ships or vehicles.
The shipbuilding industry
What is shipbuilding considered?
Longcycle business
Due to delay between ordering and delivering a ship is between 1 and 4 years
What is the delay between ordering and delivering a ship?
1-4 years
What impacts the market prospects of specific ship types?
Peaks and troughs in deliveries
What does Fleet Productivity Measure?
The fleet refers to a group of ships or vehicles.
Fleet productivity measures the efficiency with which ships (or vehicles) are operated. It considers factors like speed and waiting time. Even with a fixed fleet size, optimal utilization adds flexibility.
Scrapping and losses:
What does the rate of growth of the merchant fleet depend on?
Balance between deliveries of new ships and deletions
What factors affect the scrapping of ships?
Age, technical obsolescence, scrap prices, current earning and market expectation.
What is the ultimate regulator that the market uses to motivate decision-makers to adjust capacity in the short term?
Freight rates
What does supply respond to in the short run?
Prices
When prices change, ships can adjust their operation speed and move to and from layup (temporary storage or inactive status).
What do freight rates contribute to in the longer term?
Investment decisions which result in scrapping and ordering of ships
What is a point at which the supply curve interact with demand curve determining the agreed freight rate between charterer and shipowner at a certain point
Equilibrium Price
How many time periods are there to consider?
three
Momentary Equilibrium
Short run Equilibrium
Long run Equilibrium
Short-run or Long-run:
When shipowners have time to take delivery of new ships and shippers have time to rearrange their supply sources?
Long run Equilibrium
Short-run or Long-run:
when there is time to adjust supply by short-term measures such as layup, reactivation, combined carriers switching markets or operating ships at a faster speed?
Short-run Equilibrium
What is Momentary Equilibrium?
When the deal must be done immediately; describe the day to day position as prompt ships in particular loading area compete for available cargoes.
