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INTERNATIONAL TRADE AND SHIPPING




Abstract the shipping business is essential to the development of economic activities as international trade needs ships to transport cargoes from places of production to places of consumption. In this chapter we discuss several fundamental questions in the shipping business.

These questions include the following: Why is there demand for shipping? What is a shipping system? Who are the actors in shipping? Broadly speaking, sea transport can be divided into tramp and liner shipping.
 The purpose of tramp shipping is to provide convenient and economical transport for bulk cargoes that require cross-ocean movement.
Bulk cargoes can be classified into dry bulk and liquid bulk. The demand for the transport of liquid bulk by sea is served mainly by the sector of tanker shipping. The main function of liner shipping is to satisfy the demand for regular cargo transport. Shipping and international trade are interrelated. This chapter also examines fundamental topics in the shipping business such as the sea transport system, international trade patterns, and international maritime passages.

The Importance of Shipping

Shipping is concerned with the transport of cargo between seaports by ships. “Shipping” is a term that is open to interpretation. For some, “shipping” means ships and seaborne businesses. For others, “shipping” refers to any mode of transport that moves goods between two geographical points. Trends in the shipping business are moving towards the concept of economies of scale in operations, the development of network-based management, and the adoption of technology to improve efficiency and effectiveness. The varied interpretations of shipping imply that the shipping business has become increasingly dynamic and complex.
Shipping is one of the world’s most internationalized industries. Shipping should not be viewed only from a narrow national perspective. Rather, it should be looked at from a broad view of world development, particularly in the international trade sector (Farthing 1993). In studying the shipping business, we need to understand the world economy as well.

Shipping is fundamental to international trade as it provides a cost-effective means to transport large volumes of cargo around the world. Shipping and seaborne trade have made possible the progression from a world of isolated areas to an integrated global community. For example, China and India have been rapidly expanding their export of industrial parts and products, and this resulted in a global shortage of cargo vessels in 2004.

Shipping as a core element of economic development has a long history. Adam Smith, the father of economics, considered shipping as a source of low-cost transport that could open up markets. Smith (1776) mentioned that “as by means of water carriage a more extensive market is opened to every sort of industry … it is upon the sea-coast that industry of every kind naturally begins to subdivide and improve itself”. Water carriage facilitates specialization that enables products to be sold at low prices.
 Movement of goods by sea is the economic lifeblood of many countries. The shipping business has been essential to the development of economic activities as business transactions and trade need ships to transport cargoes from the place of production to the place of consumption. This chapter starts by discussing some basic questions in shipping.

Why Is There a Demand for Shipping?

Demand for shipping services arises from demand for goods. Economists refer to merchant shipping as derived demand. The demand for a shipping service results from the demand for the goods that it transports. Freight, which generally refers to the cargo carried, is generally not transported to a location unless a demand for the product exists. Thus, demand for shipping is derived from customers’ demands for the product. The movement of cargo by sea transport comes about as a result of trade with one party (i.e., the consignor) selling commodities to another party (i.e., the consignee).
N.B:

- The consignor is the person or company shown on the bill of lading as the shipper.

- The consignee is the person or company to whom commodities are shipped.

What Is a Shipping System?


The shipping business involves the physical transport of cargoes from an area of supply to an area of demand, together with the activities required to support and facilitate such transport. A transport system involves three key components that are used for the movement of goods, with nodes linking them together
1. fixed infrastructure such as ports or terminals;
2. vehicles such as ships or barges using the fixed infrastructure to move cargoes;
3. organizational systems necessary to ensure that the vehicles and the fixed infrastructure are used effectively and efficiently.

A shipping network is a kind of transport system comprising sea lanes that link up ports, with connecting services provided by other actors in the shipping industry. Hence, shipping services involve a number of commercial activities, including the provision of infrastructure, the operation of vehicles, and the management of organizational systems such as enterprise resource planning, which is an information system that integrates all the operations and related applications for an entire enterprise.

Who Are the Actors in the Shipping Business?


Shippers seek shipping services to transport their cargo from a port of loading to a port of discharge. The principal contributors for hiring ships include exporters and importers, shippers and receivers, and consignors and consignees. The shipping business involves a number of actors to support and facilitate the transport of cargoes by sea. These actors include:

• Ship owners: Parties that own ships and make decisions on how to use existing ships to provide shipping services, when and how to buy new ships, and what ships to buy.
• Shipbuilders: Parties that build new ships and sell them to shipowners.
• Scrap dealers: Parties that buy old ships from shipowners for scrapping.
• Terminal operators: Parties that provide port services to ships, such as berthing and cargo handling.
• Intermodal transport operators: Parties that provide intermodal transport services for the door-to-door movement of cargoes. Other actors in the shipping business that are closely related to the shipping business include:
• Ship agents: Companies that represent owners of the vessels, and are engaged in the routine business related to vessel arrival, operation, and departure of ships.
• Charterers: Entities that employ ships to transport cargoes.
• Ship-brokers: Specialist intermediaries between shipowners and ship charterers, or between buyers and sellers of ships.
• Common carriers: Transport operators that provide services to the general public at published rates.
• Non-vessel-operating common carriers (NVOCC): Transport operators that have no operating vessels but coordinate the provision of shipping services.

International Trade and Shipping 

As shipping involves a number of business activities, the transport of goods by sea is important from an economics perspective for many countries. The shipping business is essential to economic development since international trade and related business activities rely on the efficiency and availability of shipping services. Sea transport and economic development always go hand in hand with each other.

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