Maritime Economics

Module 2 Seaborne trade

Module objectives:

Reasons for trade

Development of seaborne trade
Seaborne cargo classification (shipping operational perspective)
Trade patterns

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Introduction

Demand of shipping is derived from trade

World trade is increasingly active Reasons?
Globalisation
Efficient resource allocation
Technological transfer
Higher level of specialisation

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Why countries trade

Why countries trade?

They benefit from trade (profitable)!

Trade theory explains!

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Basic trade theory

Absolute advantage
Comparative advantage
Factors of production
Labour (differences in costs, habits, regulation, etc.)

Capital (differences in availability, quantity, cost, etc.)

Land (differences in climate, resources, location,
availability, cost, etc.)

Technology (differences in production and management

know-how, marketing, etc.)

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Basic trade theory

Absolute advantage:
To compare productivity of one producer, firm or nation
with that of another.
The producer that requires a smaller quantity of inputs
(factors of production) to produce the same quantity of
a good is said to have an absolute advantage in
producing that good.
The ability to produce a good using fewer inputs than
another producer .

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Basic trade theory

Comparative advantage:
A country has a comparative advantage in producing a
good if the opportunity cost of producing that good is
lower in the country than in other countries.
The benefit or advantage of a country in producing a
commodity at a lesser opportunity cost than other
countries is referred to as comparative advantage in
international trade theory

What is opportunity cost?

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Basic trade theory

Opportunity cost
Whatever must be given up to obtain some item
The most valuable forgone alternative
Marginal cost

What you must give up to get one additional unit of it

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Absolute and comparative advantages

When countries specialize in production of a good which
they have comparative advantage, more goods and
services can be produced and consumed.
Trade benefit does not depend on whether countries have
absolute advantage or not.

What is competitive advantage?

It occurs when an organisation acquires or develops an
attribute or combination of attributes that allows it to
outperform its competitors
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Development of international trade

International trade expand 1,700% (over the last 5 decades)
Customs tariffs from 40% to 6% (past 15 years)
Industrialised countries 70% of total world trade
US is the largest single participant in international trade
Emerging Newly Industrialized Countries - NICs (esp. China) are
significant in world trade
1970s-1980s: Hong Kong, South Korea, Singapore and Taiwan;
Late 2000s: South Africa, Mexico, Brazil, China, India, Malaysia,
the Philippines, Thailand and Turkey
Current:

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Booming world trade and seaborne trade

Source: UNCTAD, 2015

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1990=100

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Growth in the volume of world merchandise trade

and GDP

Source: WTO secretariat 2014

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Main determinants of trade

Resources (Heckscher-Ohlin model)
Technology differences
Distance (Gravity model)

Trade promotion policies (diminishing trade barriers)

Regional economic changes (open market)

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Relationships among trade, GDP and maritime

transport
A strong relationship between GDP growth and trade
growth figure shows (3 tremendous downturns)
A close relationship between trade and maritime transport
regression result shows

Fleet size (ln of DWT)

Trade pattern transport pattern

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19
17
15
13
11
9
7
5

y = 1.0011x - 10.965
R = 0.65

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International trade (ln)

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Maritime transport

Source: UNCTAD 2012

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Seaborne trade by country group

Source: UNCTAD 2015

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Seaborne trade participation of developing

countries

Source: UNCTAD 2015

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Seaborne trade by region

Source: UNCTAD 2015

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International seaborne trade by type of cargo

Millions
of tons
loaded

Source: UNCTAD, 2015

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Seaborne trade commodities

Source: UNCTAD, 2015

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Containerized cargo flows on major East-West routes

Million
TEUs

Source: UNCTAD, 2015

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Major dry bulk seaborne trades

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Source: Paragon Shipping

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Crude export in 2015 and growth in 2009-1015

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Crude oil trade flow

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Source: BP 2015

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Contributing to trade growth

Development of transport, especially maritime transport
Without Shipping?

No globalisation
Societies will remain separated
No interchange of cultures

Full economic potential unrealised

Half the world would starve and the other half would freeze

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