Important technical development Essay

The most important technical development was the unitization of the liner shipping business. The shipping industry has been so successful at exploiting this technical development that the cost of sea transport has hardly increased. Coal and Oil cost little more to transport in the mid 1990s than in 1940s. Those important causes which are mostly affecting the demand for sea transport are 8 The World Economy : As it was discussed before that world economy with its output and trade is the most important single factor to generate demand for shipping and any crisis in the world economy reflects in the demand for shipping. In table 01 its clear that ups and downs of shipping demand is also proportionate to world trade. There are 03 different aspects of the world economy that may bring about change in the demand for sea transport ,which are- The Business Cycle: The business cycle lays the foundation for freight cycles. Fluctuation in the rate of economic growth work through in to the sea borne trade, creating a cycle pattern of demand for ships. For example, two major recession in shipping business in 1975 and 1981-1983 ,which co-incited with the recession of the world economy. This economic cycles arise from a combination of external and internal factors. The external factors include events such as wars or sudden changes in commodity prices such as crude oil, which cause a sudden change in demand. Internal factors refer to the dynamic structure of the world economy itself, which it is argued, leads naturally to a cyclical rather than linear growth path. Five of the most common business cycles are- I. The Multiplier and accelerator : The main internal mechanism which creates cycles is the interplay between consumption and investment. II. Time-lags: The delays between economic decision and their implementation can make cyclical fluctuation more extreme. The shipping markets provides and excellent example for this. During a shipping market boom, ship owners order ships that are not delivered until the market has gone into recession. When the arrival of the new ships at a time when there is already a surplus, further discourages new ordering just at the time when shipbuilders are running out of work. The result of their time lags is to make booms and recession more extreme and cyclical. III. Stock building : It produces sudden burst of demand as industries adjust their stocks during the business cycle. On several occasion shipping boom have been driven by short-term stock building by industry in anticipation of future shortage or price rises. Examples are the Korean war in 1952-53, the dry cargo boom of 1974-75, mini tankers boom in 1979 and summer 1986. Tanker booms were caused by temporary stock building by the world oil industry. IV. Mass psychology : If people act in an imitative manner a particular trend will build up to a level where they can affect the whole economic system. Their periods of optimism and pessimism become self fulfilling through the medium of stock exchanges, financial booms and the behaviour of investment. V. Random shocks : Random shocks such as wars, weather changes, new resources, commodity price changes, which upset the stability of economic system may contribute to the cyclical process. Its impact on the shipping market is often very severe ,for example ,1930s depression which followed by the wall street crash of 1929. Other two aspects are The ‘trade elasticity’ and The ‘trade development cycle’-which are correlated to business cycle. Other factors which have very strong influence on shipping demand are Transport cost. Transport cost are an element in the costs of production and If transport Costs are low ,its possible for domestic commodities to be substituted for the cheaper goods supplied over great distances, which will create business opportunities for shipping. The globalisation of the world economy has reinforced the inherent and unique internationalism and fluidity of the shipping industry, while over the same period the industry has become vastly more productive, with very much larger, faster ships and new techniques such as containerisation. By understanding and exploiting world economic activities and trade pattern along with all the other factors stated above, which are mostly controlling the shipping demand, ship owners and shipping management can achieve maximum business profit. From table one it is clear that the future growth of world trade and out put will definitely create more demand for shipping. Thus the ‘derived demand’ nature of ‘shipping demand’ creating huge opportunity for ship owners and shipping management to profit from the ups and downs of world trade. References 1. whitepaper of DTLR on British Shipping Charting a New Course ,para-9,obtained from www. shipping. dtlr. gov. uk/cnc/index. html ,or menu-whitepaper, october2001. 2. Chrzanowski I, 1985, An Introduction To Shipping Economics, Fairplay Publications. 3. Abrahamsson B J, 1980,International Ocean Shipping: Current Concepts and Principal, WestView Press. 4. McConville J,1999,Economics of Maritime Tansport,p42,The Institute of Chartered Shipbrokers, London  www.isl.org