Shipping Economics Essay Example | Topics and Well Written Essays - 2000 words

Shipping Economics - Essay Example Marx (1953) describes it as " agreements organised by shipping lines to ports of call to arrange the pooling of cargo, freight monies or net earnings. They generally control prices, i.e., freight rates and passenger fares. They create a permanent body with a Chairman or Secretary. The conferences were either informal (oral) or formal (written), containing carefully established rights and obligations of membership." Such an authority to set and fix the price gives them the power of a cartel to monopolise the industry. The shipping industry has evolved from birth and continues to evolve in the wings of technological advances. Globalisation has taken place, and as shared by Notteboom (2004, p.86), it is reshaping the shipping industry. According to Jansson and Shneerson( 1987, p16), the liner shipping is geared towards providing regular services between ports following time-tables, and prices are advertised well in advance. It resembles a public transport system wherein the service is open to all with some cargo to carry, known as 'general cargo' which are transported in various packaging, such as pallets, boxes, barrels, crates. Providing such service requires extensive logistics, i.e., ships/vessels, loading and unloading equipment and agencies to broker the port operations. The liner is bound to keep its schedules and be stringent in implementing its policies, thus, it has to leave ports on schedule full or half-full in load capacity. The high cost of operating a shipping line is fixed. The salaries of managers, engineers and crew members, the port handling expense, and other administrative and operational expenses are regularly paid regardless of whether the vessel is full to capacity, or there are large or small stocks to carry when sailing. This creates supply and demand imbalance, a market condition which would either push prices upward or pull them downward, as the case may be. In this particular case, there is an excess vessel capacity (supply quantity) with respect to actual load (quantity demanded), a situation which triggers a downward trend of freight rates or conference tariffs. Profits have been low and relatively small in liner shipping. Under a loose market condition, trading losses may even be incurred. The problem is compounded by the inability of carriers to make quick turn-arounds to be able to reduce costs and operate at marginal profits. Sturmey (1975, p125) stresses that the best approach to reduce shipping costs lies in speeding up the turn-around of ships. Liners spend 60% of time in port cargo handling, a complete waste of expensive capital tied up in engines, accommodation and hull". The inefficiency of handling in both loading and discharging ports causes the congestion of ships at the wharf rendering it difficult for them to make another round or more of sailing. Container