How Modern Shipping Increases International Trade - Essay Example

Q1) Explain how shipping facilitates and makes possible international trade. Show how modern shipping increases international trade. A1) Shipping is one of the key facilitators of international trade in today's global market. And even though the word shipping is often associated with ocean transport, shipping actually means the transport of goods across distances. With shipping, the distance between the manufacturer and the importer reduces. This allows for the opening up of many new markets for the manufacturer and also increases the variety available for the importer, a win-win situation for both. Also with the arrival of newer and faster ships, it is now possible to transport larger quantities of goods in a single journey and faster than before, and with the advent of refrigeration and many other new technologies goods that could not earlier be transported can now be done. This has made possible the process of 'outsourcing' reach new levels. Now many countries where the manufacturing costs are high have outsourced the manufacture to countries where the cost is relatively low and then re-imported back into the country. And with freight rates being relatively low, now companies source raw materials from one country, export it to another country where it is processed and finally sold in another country. This has caused the international trade to increase from 0.55bt in 1950 to 4.3bt in 1995 an 8-fold increase. 2) Explain the logic for the choice of a ship, and shipping service transport line for the following cargo, parcel size. (a) Crude oil (b) Petroleum products (liquid) (c) Grains (d) Iron ore (e) Our domestic air-conditions A2) The choices of ships are as follows: For the transport of crude oil we would use a Crude Oil Tanker such as a ULCC with a capacity of up to 500,000t DWT since we want to transport as much crude oil in a single journey as possible due to high demands. For the transport of Petroleum products we would use a Product tanker which are specialised for such cargo. For the transport of grains, we would use a Dry Bulk Cargo ship such as the handymax or the panamax. They are the most economical to build, and therefore the freight rates offered would be low allowing for the commodities to be traded at economical rates. For the transport of iron ore we can also use a Dry Bulk Cargo ship but with a much higher DWT such as those found on the Capesize. For the domestic air-conditioners, we would use a container ship. The advantage offered would be that transport costs would be low; the goods can safely stored on board the ship and can easily and quickly be loaded and discharged. 3) How is the simplicity of design of the dry bulk carrier relevant to the fact that it carries law value cargo A3) Dry Bulk carriers mostly transport cargoes of low value which would have very few specialised needs. This would mean that the design of the Dry Bulk carrier would not require many special additions as compared to other ships which carry specialised cargoes such Crude Oil Tankers or Reefers. This would translate into lower costs in terms of manufacturing, which would mean lower investments for the ship owners. This advantage would be seen in that; the freight rate of a Dry Bulk Carrier would be a lot lower as compared to a Tanker. And since most of the cargoes transported by these ships are of low values that would mean that the profits would not be as high and therefore the need to transport the goods at economical costs. 4) What are "flags of convenience" How have they changed over the last decades How have classification societies and IACS influenced their developments A4) 'Flags of convenience' is when a ship is registered in one country but is owned by a party present in another country. Under international maritime laws, the country where a ship is registered in determines the regulations to be applied upon the ship irrespective of the country of origin of the ship's owner. As many countries have become stricter and labour costs have risen, many ship owners register their ships in other countries so as to avoid high taxes, hire crew from countries where labour costs are lower, and avoid many strict environmental laws that would otherwise increase operating costs. Due to this there are many more ships that are registered in other countries than in the one in which the ship owner is based. Classification Societies grade ships according to the condition of the ship and the type of cargo it handles. As each society has different regulations and standards, the ship owners often have to bear the costs of different types of regulations and the subsequent fines for not following them. Due to this many ship owners continuously change societies to reduce overall operating costs. The IACS on the other hand is trying to create a uniformity in its members regulations and standards, thereby reducing the switching of affiliations by ship owners. 5) Explain clearly how the value of second hand ships is related to the scrap value of ships. A5) The value of a ship is closely related to its scrap value. As a ship grows older the cost to maintain it also increases, thereby reducing the profits. Since the main aim of a ship owner is to maximise profits, he has to look at whether the ship is worth more to him if he scrapped the ship or if he kept running it. As a ship gets older, its maintenance costs are higher and it's net worth decreases. In a booming market, the ship would still be considered useful because the freight rates would be high, and the possibility of profit is still there. But on the other hand if the global market is in a decline, then the freight rates will be low and also the demand for the ship would be low, therefore reducing the possibilities of making a profit. Thus the ships net worth can be determined by the scrap value of the ship. Read More

 

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