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The Shipping Market Model

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Shipping is concerned with the transport of cargo between seaports by ships. “Shipping” is a term that is open to interpretation. Trends in the shipping business are moving towards the concept of economies of scale in operation, development of network based management, and the adoption of technology to improve efficiency and effectiveness. The varied interpretation of shipping has become increasingly dynamic and complex. (Lun, Lai & Cheng 2010).The structure of the shipping market is somewhat unique yet similar to that of the other markets where commodities are sold or bought on one platform. This structure is shaped by various factors such as the supply of service being offered, the type of product, the number of operators, the entry and exit …show more content…

It is built on the basic theory of supply and demand. The main driver in the shipping industry is freight rates which determine the revenue of shipping companies. Other influencing factors include government restriction on shipment, climatic condition, demand for oil and dry bulk, trade growth, access to and suitability of other modes of shipment, geographical concentration of trade and threats of war etc. Stopford(2009) presents ten variables in the shipping market model each on the demand and supply side, Demand: 1.World Economy, 2. Seaborne Commodity Trade, 3. Average Haul, 4. Political Event, 5. Transport Cost. Supply: 1. World Fleet, 2. Fleet Productivity, 3. Shipbuilding Production, 4. Scrapping and losses, 5. Freight rates. These variables are influenced by freight markets which links the other two cash flows. When ships are in short supply, the price of sea transport (freight rates) increases. The ship owners will probably start ordering new ships, while the shippers look for ways to cut their transport costs by delaying cargoes, switching to closer suppliers or using bigger ships. As a backlash, the market becomes saturated and rates are bid down and ship owners have to draw on reserves to pay fixed costs such as repairs and interest on loans. As reserves diminish some owners are forced to sell ships to raise cash. Prices of ships fall to a level where ship breakers offer the best price for the older ships, reducing supply. This model lends shipping market cycles their characteristic pattern of irregular peaks and troughs. This market model outline controls shipping

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