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Module 2 Seaborne trade

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Maritime Economics

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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 activeReasons?

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 managementknow-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 anattribute or combination of attributes that allows it tooutperform 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

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Source: UNCTAD, 2015 1990=100

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Growth in the volume of world merchandise tradeand 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 maritimetransport

A strong relationship between GDP growth and tradegrowthfigure shows (3 tremendous downturns)

A close relationship between trade and maritime transportregression result shows

Trade pattern transport pattern

y = 1.0011x - 10.965

R = 0.65

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15

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21

15 20 25 30

Fleetsize

(lnofDWT)

International trade (ln)

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Maritime transport

Source: UNCTAD 2012

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Seaborne tradeby country group

Source: UNCTAD 2015

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Seaborne tradeparticipation of developingcountries

Source: UNCTAD 2015

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Seaborne tradeby region

Source: UNCTAD 2015

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International seaborne trade by type of cargo

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Source: UNCTAD, 2015

Millions

of tons

loaded

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Seaborne trade commodities

Source: UNCTAD, 2015

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Containerized cargo flows on major East-West routes

Source: UNCTAD, 2015

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MillionTEUs

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Major dry bulk seaborne trades

Source: Paragon Shipping

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Crude oil trade flow

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