Economic?Report?and?forecast?on?capsize?dry?bulk?shipping

Market Structure analysis
Market structure analysis is vital before performing the supply and demand analysis. The shipping sector that this report will expand on is the capsize dry bulk shipping. According to Karatzas (2015), the capsize dry bulk shipping market is most of the times offered as a case of perfect competition. Nonetheless, it is meaningful to examine the following conditions that result in a perfect competitive capsize dry bulk shipping market.

No existing barriers of entry and exit (no government interference)
The capsize dry bulk market gives companies the freedom to enter or exit the market. New companies are free to enter the marker, whereas existing firms are free to exit the market, resulting in many people interacting in the market. Also, governments do not tend to get involved in the market leaving companies the ability to evolve.

Product offered is homogenous
With no exception, all companies in this market compete in delivering the most efficient service to their customers. Thus, the product offered is homogenous, as all companies try to sell the same service, which is, the space in a ship times the distance travelled (Thien, 2005).

Significant amount of buyers and sellers
Due to the fact that barriers of entry and exit do not exist, it can be assumed that there is a significant amount of buyers and sellers. Such people can include ship-owners, charterers, brokers and many more.

Buyers and sellers are price takers
Both buyers and sellers are said to be price takers. This means that the price is set by the market as a whole rather than specific large companies.
Profit maximization
There is a vast array of information about freight rates, fixtures and prices. Therefore, trade houses can easily get informed about price changes, resulting in both buyers and sellers being able to easily gain perfect knowledge of the market. Examples of such sources of information include, Lloyd s List, Baltic Exchange and Fairplay.

Supply and Demand analysis

Supply Analysis
It is said that the supply of the capsize dry bulk shipping market is responding in slow rate, comparing to the quick and sometimes unexpected changes of demand. Below, the five key influences of supply are going to be analysed.

The world fleet
It is said that from 1980 to 2007 the dry bulk merchant fleet increased from 141 m.dwt to 370 m.dwt. There was a high demand for the transportation of commodities such as coal iron and many more due to the fact that such products were sold at a low price. Besides, low prices were achieved by economies of scale, resulting in the sudden increase in demand.

Fleet productivity
The productivity of a fleet of ships depends on four factors: speed, port time, deadweight utilization and loaded days at see. Even in the tight market of 2007 most ships are approximately 200 days at sea. First and foremost, speed regulates the time a vessel will take to reach the desired destination. Secondly, port time is vital for efficient productivity. For instance, the introduction of containers reduced the times liner ships are anchored.
Thirdly, deadweight utilization describes as a ship carrying part-cargoes, preventing a full loaded cargo to be transported. This results in a decline in the productivity of the fleet. Fourthly, the final factor is loaded days at sea and unproductive days. It is crucial that unproductive days are reduced in order for loaded days at seas to increase.

Shipbuilding production
The production of ships is highly dependent to demand. The drawback of shipbuilding is that it is time consuming. A ship needs between one to four years to be built and orders are placed according to future demand estimates.

Scrapping and losses
Scrapping of ships is vital in control the supply of ships according to changes in demand. Scrapping involves a business decision and in line with the future profitability that a ship can offer. Scrapping is dependant to the age of the ship, scrap prices and future market expectations.

Freight revenue
Freight revenue is the fundamental valve for the market to effectively operate. The dry bulk market is affected by coal, steel or grain prices, resulting in profits or losses for the ship owners.

Demand Analysis
By the same token, demand is measured in ton mile of cargo and most of the times will involve quick and unexpected alterations. Below, the five key influences of demand are going to be analysed.

The world economy
Unquestionably, the world economy describes as the most vital influence that affects ship demand. It is said that the growth rate of sea trade is dependant on the worldwide GDP. Generally, sea trade and ship demand are determined by business cycles . However, business cycles are no the the only influence of demand. Also, the economies of the countries that generate seaborne trade will affect demand. Moreover, another influence is the local demand of countries that import supplies. Sometimes local demand can boost or lower worldwide ship demand.

Seaborne commodity trades
Seaborne commodity trades need to be broken down to short and long term trades. On the one hand, for the short term trades, they depend on seasonality. For instance, the transportation of many agricultural products such as sugar depend on seasonality. On the other hand, long term trades will be affected by the following four changes: changes in the demand for a particular commodity, changes in the source from which supplies of the commodity are obtained, changes due to a relocation of processing plant which changes the trade patter and finally changes in the shipper s transport policy .

Average haul and ton miles
Transport and ship demand is regulated by the distances that a ship travels, which determine the time it takes the ship to complete a journey. Different voyages will involve different travel distances. Average haul can be defined as this distance effect. Ton miles can be described as the average travel distance multiplied by the tonnage of the cargo.

The impact of random shocks
The shipping industry can be influenced by random shocks such as politics and economic shocks. Economic shocks can result in dramatic changes of demand. Additionally, political situations such as wars can impact the demand of certain commodities.

Transport costs
Finally, transport cost is a significant influence of demand. The cost of transporting the commodities by capsize dry bulk ships need to at a profitable level for the ship owner. Further, transport costs were managed to be lowered in the recent years.

References

1) Maritime economics, Stopford, 3rd Edition 2008
2) http://commons.wmu.se/cgi/viewcontent.cgi article=1241&context=all_dissertations

 
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