Economics of Shipping NOTES

Microeconomic Foundations: Understanding shipping through demand/supply, costs, and price formation. Key ideas:

• Derived Demand: Shipping demand comes from goods traded.

• Elasticity: Freight rates are unstable; demand is inelastic.

Supply Theory: Factors that affect shipping supply include:

• Fleet size, vessel productivity, speed adjustments,

• Short run is inelastic, long run is elastic due to newbuilds and regulations.

Business Cycles: Shipping experiences cycles:

• Boom: Increasing trade and freight rates.

• Bust: Decreasing trade and falling rates.

Demand Drivers: Sea transport demand is influenced by:

• Population growth, industrialization, and energy demand.

Freight Rate Influences: Rates depend on reliability and port efficiency.

Shipping's Economic Role: Essential for trade:

• Around 80–90% of trade volume is by sea.

• Promotes lower transport costs, market growth, and job creation.

Market Structures: Differentiates between alliances and independent carriers, and various market types:

• Bulk shipping is competitive, while liner shipping is oligopolistic with high entry costs.

• Shipping cycles include phases from trough to collapse.