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Part I: Introduction
1
General Introduction
Wayne K. Talley
This chapter provides a general introduction to the contents of the book. Specifically, a two-paragraph synopsis of each of the chapters, 2 through 34, is provided.
In Chapter 2 the evolution of maritime economics as a field of study is discussed. Maritime economics as an explicit field of study is less than fifty years old. Before 1960 there were publications on the subject, but they did not have a separate identity. The field has evolved from the study of the history of shipping, e.g., trade-offs among alternate ship designs, contractual arrangements for shipping and trade, and managing port infrastructure and services to efficiently serve the needs of trade.
Research in maritime economics has become more complex and its quantity and quality are higher than ever. Improved availability of data, methods to analyze these data and theories have contributed to this growth. University programs in maritime studies worldwide have been established and a greater number of journals are publishing research in maritime economics.
An historical perspective of shipping â evolving worldwide from primitive to developed societies â is presented in Chapter 3. The ancient cultures of Egypt, Greece, Mesopotamia and Rome were involved in the early stages of the development of shipping. Shipping is the oldest mode of transportation for moving large quantities of cargo.
The business of shipping has been impacted over time by a number of factors: (1) geopolitical factors that affect the demand for transportation, (2) development of maritime technology, (3) development of ship types to transport certain types of cargoes, e.g., such bulk cargoes as oil, ore and grains, and (4) intra-modal (among shipping companies) competition and intermodal (e.g., from land routes to and from ports by railways and trucks) competition. Without shipping the development of the modern industrialized world would have been impossible.
Chapter 4 considers commodity trade flows in shipping. The commodity-trade classification system of the United Nations includes one hundred major categories of commodities, each containing several subcategories. Given this granularity of information, the chapter restricts itself to providing an overview of the major worldwide commodity trade flows â the main export and import flows in recent years, in the context of the underlying factors driving each commodity. The chapter is divided into two main sections â major bulk commodities, and general cargo and containerized trade flows.
A slowdown in world trade followed the financial crisis in 2008. The majority of trade flows are still growing, but at a slower pace; other flows have contracted. What does the future hold? Will the rate of worldwide oil depletion result in prohibitive energy prices for shipping, thus leading to a further slowdown? Will natural gas suffice as a bridge fuel?
Chapter 5 describes a maritime carrier from a microeconomic theory perspective. A maritime carrier is a firm that provides for-hire transportation service by transporting goods and/or individuals in vessels over a waterway from one location to another. Maritime carriers are described by the type of vessel utilized â for example, ferry and cruise lines use ferry and cruise vessels respectively â and by the type of cargo transported â for example, LNG and container carriers transport liquefied natural gas and containers respectively.
If the amount of transportation service provided by a maritime carrier is the maximum amount that can be provided given the resources at the carrierâs disposal and the amounts of cargo (numbers of passengers) provided by shippers (individuals) to be transported, then the relationship may be described as the maritime carrierâs production function in the provision of transportation service. If so, the maritime carrier is technically efficient. A maritime carrierâs operating options are the means by which it can vary the quality of its service. A maritime carrier is cost-efficient if it minimizes cost in provision of its technically efficient services. The demand by passengers and shippers for maritime transportation services is a derived demand.
Maritime freight markets in which cargo is transported by water are discussed in Chapter 6. These markets tend to be cyclical in nature because of the volatility in both the demand for and the supply of world shipping services. Variations in service demand reflect world economic activity and global trade and tend to be short-term in nature, while variations in service supply tend to be long-term in nature. Beyond vessel speed adjustments and lay-ups, adjustments in service supply tend to take longer. When shipbuilding capacity is scarce, it may take three to four years after a contract is signed for a new vessel to be built. Thus, prices for shipping services may fluctuate greatly because of adjustments to differences in demand and supply for these services, which results in volatile maritime freight markets.
Maritime freight markets are dominated by eastâwest trade flows. This dominance has been strengthened by the importance of Asia and the increasing importance of interregional Asian trades. The fragmentation of geographical production processes has added intermediary products to these trade flows, especially since many of the production processes are outsourced to emerging markets in Asia and transition economies in Eastern Europe.
Chapter 7 discusses intermodalism and new trade flows. Intermodalism is the transportation of freight in an intermodal container or vehicle, using two or more modes of transportation. Before the 1950s, freight was packed in boxes, barrels and bags for transport by two or more modes from origin to destination. In the 1950s the introduction of containers provided for a more efficient intermodal transportation system, which, in turn, stimulated a significant growth in world trade â because of the lower rates and reduction in delivery times that ocean container transportation brought. Intermodal container transportation has also impacted trade routes; for example, rather than seaborne trade from Asia arriving at the US East Coast via the Panama Canal, an alternative land route to this all-water route came into being in April 1984, when container ships began calling at ports along the US West Coast to unload their containers for placement on double-stack trains for transport to the East Coast (a landbridge service).
Data for new trade (cargo) flows into the US from foreign ports without a history of flows to the US are also analyzed. The analysis suggests that new trade flows are greater for exporting foreign countries which have relatively large amounts of hinterland transport infrastructure and whose foreign ports handle container cargoes. Further, the more developed a foreign port is from an intermodal perspective in providing new trade flows to the US, the greater the likelihood that it will grow and the smaller the likelihood that it will fail.
Chapter 8 discusses the evolution of the cruise industry â water carriers that provide transportation, leisure and tourism services. In the early days of the industry it was often stated that passengers aboard cruise vessels were either just married or nearly dead. However, this is no longer true. Cruise passengers now are of all ages. Cruise lines seek to tailor their services to accommodate the wishes of their customers.
Some old markets of cruise lines have reached saturation, e.g., the Alaska market. New markets in the Far East, the Middle East and Australia are experiencing explosive growth in new cruise business. Expedition tourism, targeting the affluent passenger, will continue to gain popularity. Remote destinations unspoiled by mass tourism that feature secluded and out-of-the-way places, such as Antarctica and the many historic islands dotting the Pacific Ocean, are drawing cruise passengers. The inland-waterway cruise market in Europe is another growing market and is expected to experience double-digit growth in coming years. Small river-cruise vessels offer amenities far surpassing those of the average hotel and restaurant associated with typical bus tours.
Chapter 9 describes the worldâs ferry passenger markets and identifies the main characteristics of these markets. The worldâs ferry industry transports almost as many passengers each year as the worldâs airline industry. The services demanded by ferry passengers range from pure transportation to entertainment and sightseeing. From a supply perspective, ferry operators have a wide range of technologies from which to choose.
There are a few ferry companies that provide ferry services far outside of their home region, but no ferry company provides global ferry services. The establishment of new ferry routes tends to be difficult, since access to marine terminals at the end points of these routes must be obtained. Ferry routes face limited intra-modal competition, something which is evident from the fact that only a very few ferry routes in the world have more than two competitors. The majority of ferry routes are served by only one ferry company. In addition to passengers, ferries worldwide transport millions of cars and trailers each year.
Chapter 10 discusses the world dry bulk shipping industry. In 2009 its fleet of ships had the largest carrying capacity of any shipping industry fleet, surpassing the tanker industry fleet. The dry bulk shipping market has experienced volatility over time. Sources of the volatility include external influences (such as changes in the economic geography of bulk trades and in the state of the world economy) and inherent dynamics (such as inter-firm competition and changes in the distribution of maritime activity among countries). The volatility in the market had reached new heights by late 2008. The magnitude of the decline in the market was historic.
The chapter also focuses on the changing dynamics of the dry bulk shipping industry over time and the adaptation of the industry to globalized conditions. Shifts in geographical patterns, fleet characteristics and market traits are discussed. In the twenty-first century, the market transformation of the dry bulk shipping industry will be affected by economic geography and the mechanics of shipping markets.
Chapter 11 presents a discussion of the world liquid bulk shipping industry. Liquid bulk cargo is bulk cargo that is transported in tanks, into and out of which the cargo is pumped. The largest amounts of liquid bulk cargoes shipped are crude oil and oil products. Other categories of liquid bulk cargoes, for which the amounts shipped are much smaller, include: liquefied gas (LNG and LPG), vegetable oil and liquid chemicals. The liquid bulk shipping industry is vital for the transportation of oil and its products from a limited number of oil-producing countries to the rest of the world.
Liquid bulk cargoes represent one-third of the total volume of maritime cargoes. Although oil is transported over land by vast pipeline, specialized truck and specialized rail networks, the amount transported is small in relation to the amount transported by tanker vessels. The liquid bulk shipping industry has drawn worldwide attention for its vessel oil spills and potential spills. In order to reduce oil spills from tanker vessel accidents, many countries in the world are now requiring that by 2012 or 2015 tanker vessels must be double-hulled in order to enter their waters.
Chapter 12 provides a comprehensive overview of current issues in the container shipping industry. Topics include market growth, the changing geography in container shipments, capacity management, the pricing problem in the container shipping industry, the search for scale and scope operations by container shipping lines, and evolving networks over which container shipping lines operate. Container ships transport a limited range of standardized containers: the twenty-foot equivalent unit (TEU) and the forty-foot equivalent unit (FEU). Slightly diverging container units include 45-foot containers, high-cube containers, and tank and open-top containers.
The advantages and cost savings from container shipping include faster vessel turnaround times in ports, a reduction in cargo damages and the associated insurance fees, and integration with inland transportation modes, e.g., truck, barge and rail. With the advent of container shipping, globalization of intermodal transportation was established. Container shipping has been instrumental in reshaping global supply chains, allowing multinationals to reshape their global sourcing strategies and develop global production networks. New supply chain practices, in turn, have placed stricter requirements on container shipping lines with respect to frequency, reliability and global coverage of service. Before 2009, container shipping lines operated in a market characterized by moderate to strong growth. Asian economies represent an ever-increasing share of global container volumes.
Chapter 13 discusses business models and strategies for shipping. The shipping industry market is complex, dynamic and risky, which is attributable to its being fixed-asset-intensive, having assets with long lifetimes and being exposed to volatile global flows in cargo and energy prices. Recent events, such as the significant decline in world trade, the dramatic decline in ship prices and the lack of available capital for the purchase of new ships, have accentuated the complex, dynamic and risky aspects of the shipping industry market. Emergent business models and strategies that ma...
