SHIPPING

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Contents

Introduction

The term shipping, though has broad and multiple meaning, here we refer to the movement of cargo by ships. An individual nation's fleet and the people that crew it are referred to its merchant navy or merchant marine. Merchant shipping is essential to the world economy, carrying 90% of international trade with 50,000 merchant ships worldwide. Merchant shipping follows a "derived demand" as demand of goods drive the demand of ships.

Features

World Shipping lanes

The salient attributes of Merchant shipping is that it transport goods (and people to a small extend) safely and economically and not quickly. The big advantage of this mode of transportation (on water) is that the cost per tonne-kilometer is low compared to rail or air transport.

Why Shipping

Trade, which is the movement of goods from one place to another, i.e. from an exporter to an importer (when referring to international) because of two major factors - absolute advantage or comparative advantage.

Absolute advantage

This is a situation in which one country can produce a good which the other country has none. This can be primarily attributed to climate and geology. An example of climate would be bananas produced in Brazil in abundance whereas there is none in northern Europe. An example of geology would be oil produced in Middle-east whereas countries like Japan has none of it.

Comparative advantage

This is a situation in which one country can produce a good compared to other in terms of factors of production, namely, land, labor, capital and enterprise.

  • Land

The land in this case refers to climate and geology. This reference is slightly different from absolute advantage in the sense that there might be situations where a country might be endowed by nature with abundance of a produce, however, because of factors like ease of extraction or labor cost, they might at an disadvantage compared to another country, and therefore not produce this good. An example of that might be abundance of coal in Britain, but which cannot be extracted cheaper than the one coming from Australia.

  • Labor

This refers to cost of living. A good example of this is the shift of a labor-intensive intensive shipbuilding industry from US and northern Europe to Japan in the sixties, and then to South Korea in the eighties and now to China the beginning of this century.

  • Capital

This refers to availability of money and infrastructure like roads, ports, etc.

  • Enterprise

The combination of labor and capital generates enterprise.