Economics of Sea Transport and International Trade

AIM

  1. To give a basic understanding of the economic theory of shipping and international trade.
  2. To develop analytical skills and relate theory to empirical evidence.
  3. To communicate effectively through the use of graphs and have an appreciation of statistical evidence.

BASIC ECONOMIC CONCEPTS

  • Price mechanism.
  • Factors affecting demand and supply; opportunity cost.

THE DEMAND FOR SHIPPING

  • The demand for shipping – derived demand, elasticity of demand.
  • Demand measurement – distance, ton/miles and tonnes/kilometres.

THE SUPPLY OF SHIPPING

  • Factors influencing the supply of shipping – tonnage, number and flag.
  • Productivity and supply trends – surplus tonnage, active fleet, short run supply.
  • Measuring elasticity of supply.

COST ANALYSIS AND ECONOMIES OF SCALE

  • Basic economic cost concepts – conventional cost analysis in shipping.
  • Economies of scale in shipping and optimal ship size.
  • Factors affecting costs including fiscal regimes and flag of registry.

COMPETITIVE MARKETS – TRAMPS

  • The dry cargo sector and its market characteristics. The cost structure of tramp ships.
  • The use of breakeven analysis in determining minimum freight rates.
  • Determination of the equilibrium freight rate.

COMPETITIVE MARKETS – TANKERS

  • Seaborne trade in crude and products. The structure of the tanker market.
  • The relationship between the tanker and dry cargo markets. The effect of political and environmental factors and recent changes in the tanker fleet.

LINER TRADES – OLIGOPOLY AND THE COMPETITIVE MARKET

  • Characteristics and demand for liner services. Pricing behaviour including price discrimination. The relationship between profit maximisation and optimal utilisation
  • Conferences, alliances and consortia. The effect of international regulation
  • Customer demand and operators’ search for market dominence.

PORTS, CANALS AND WATERWAYS

  • The functions of ports, canals and waterways. Structure, costs and efficiency.
  • Policy with reference to tariffs and investment. Ownership and regulation.

SHIPPING AND INTERNATIONAL TRADE

  • The pattern of world trade and the demand for shipping.
  • Trade and economic development – trade flows; absolute and comparative advantage.
  • Global trading. Free trade versus protectionism.
  • The role of the World Trade Organisation and G8.

EXCHANGE RATES AND BALANCE OF PAYMENTS

  • How exchange rates are determined – free floating and regulated markets.
  • The effect of fluctuations on shipping.
  • The components of a balance of payments with particular reference to shipping.
  • The relationship between exchange rates and the factors affecting their fluctuations and a country’s balance of payments.

N.B. This syllabus does not require an understanding of statistical techniques or methods