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The Nature of Demand for Shipping

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Introduction

The Nature of Demand for Shipping The shipping industry is engaged in the production of water borne transport of goods and people. This industry can be defined as a group of individual industries or sectors operating within different markets and reacting to different economic conditions. The primary economic function of shipping services is, like all transport, to bridge the gap which exists between producer and consumer. Shipping is an expanding, global business which carries most of the world's traded goods; it is relatively free of capacity constraints, and less harmful to the environment than other transport modes. The future offers substantial opportunities for the shipping industry, bringing with them the potential for significant inward investment and wider economic benefits for the world. For example if we look in to the economic contribution of shipping in UK we can see Efficient shipping is vital to our economic well-being: 95% of our external trade by weight (77% by value) and 7% of domestic freight tonnage (but around 25% in terms of tonne kilometres), moves by water. 1 So when we will judge the nature of demand for shipping we have to look into the traditional demand supply rules of economic theory. Human wants are the core of all economic activities. This is the core of economic analysis that how people choose what needs they are going to satisfy through the use of which resources. In economics, demand means 'effective demand' or demand that is backed by ability to pay. ...read more.

Middle

Freight cost is always important, but the greater the proportion of freight cost in the overall cost equation , the more emphasis shipper are likely to place on it. B. Speed : Time in transit incurs an inventory cost which have direct effect on overall cost. So shippers of high value commodities have to value speed factor. C.Reliability: With the growing importance of supply chain management system where 'just in time' stock control is vital for todays business, transport reliability has gained new significance . Some shippers may be prepared to pay more for a service which is guranteed to operate on time and provide the promised service. D.Security: Loss or damage in transit is an insurable risk but raises many difficulties for the shipper who may well be prepared to pay more for the secured transportation of the product. If we look in to the nature of the goods transported by sea then we will be able to understand more of its derived demand nature in the world economics. Those commodities which are traded by the sea are-7 1.Energy : This accounts for 45% of seaborne trade whuch comprises crude oil, oil products,liquefied gas and coal. Energy is vital player of every economy so its naturally dominates the shipping demand. 2.Agricultural Products : A total of 12 commodities, accounting for 13 % of sea trade. These are products or raw material of agricultural industry. 3.Metal Industry : This major commodity group, which accounts for 25% of sea trade, represent the third building block of modern industrial society. ...read more.

Conclusion

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. 09 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. ...read more.

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