The Nature of Demand for Shipping Essay Example for Free

The Nature of Demand for Shipping Essay 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 worlds 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. 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. The demand for shipping is effective demand because it has actually been satisfied by the world fleet. Generally demands for transport results from demand for goods. Without the demand for goods there would be no demand for transport. Here transport itself is not the primary demand, its the secondary one. Where it (the demand for transport) derives from the need of goods to be transported. Thats why the demand of the mode of transport, here shipping, is a derived demand. So shipping demand is determined by the final consumers for the Product. Here the level of sea borne trade determines the number of shipping and cargo space required. For Example, after 02nd world war ,the rapid world wide industrialization, resulted in concentrated centres of production and consumption, which led to rapid growth of world trade and particularly shipping. 3 So Shipping is directly related to world trade. And world trade is directly related to world output or production. Here industrial economic development is the central factor in the volume of sea borne trade, but the volume can also be influenced by technological development and political factors. And this demand for shipping is mainly derived from two sources, the demand for the commodities for industrial utilisation and demand for those commodities for final consumption. As said before that shipping demand is an effective demand because the demand for the quantity of an economic good which can be transported by ships at each and every possible price during a given time period. And also because the shipping of commodities creates utility because it creates user value in a number of ways like 4 1. The Utility of Place and Location : Shipping makes it the availability of goods in a certain place where they are wanted. For example Australian apple or Costarican banana is available in the UK super market. 2. The Utility of Time : Shipping makes the availability of goods when they are required heating oil during the winter. 3. The Utility of Form :Shipping services contribute to make the change in the material or physical form of a good in such a way to increase its ability to satisfy wants. For example ,middle east crude oil converted to gas or petroleum in refineries adjacent to consumer markets. 4. Intangibles: Like other services, shipping service is also intangible in that it does not result in the physical production of a commodity. The growth rates of 1999 had been strongly distorted by the Asian crisis. In 2000 a sound recovery took place. Both world trade growth of 8. 0 per cent and the world output growth of 3. 0 per cent represent favourable values, but did not entirely approach to the higher levels in 1994, 1995 and 1997. For the years 2000 and 2001, OECD and other international organisations expect a growth rate of real world output of 4.3 per cent and 3. 8 per cent, respectively, with clearly higher rates for world trade, namely about 10 per cent and more than 8 per cent, respectively. This will boost especially world container shipping towards even higher growth rates5 Table 01: World Output, World trade and shipping trend 1993 to 2010. (IMF/World Bank ISL-Estimates) Source: ISL Shipping Statistics and Market Review 2000 Table 02: World merchant fleet Annual tonnage changes as of January 1st, 1987-2001 (dwt-% change) Source: ISL Shipping Statistics and Market Review 2000