The Future of the Bulk Shipping Market in the Next Three Years in 2012-2015 - Essay Example

The future of the Bulk Shipping Market in the next three years, 5) in respect of capa trade and port facilities Tutor: Date: Introduction Shipping industry plays a major role in global trade given that it contribute two thirds of the worlds goods transported to different destinations (Branch 2007). However, the global economic crisis has severally affected shipping building industry. Nevertheless, with its capacity and experience, the industry is capable of surviving over the peaks and slumps of the economy (Global Dry Bulk Shipping Industry Report 2011). This is evident by the fact that although ship building market suffered great decline in new shipbuilding orders in 2008 and 2009, the industry managed to revive itself in 2010 due to global economic recovery. Furthermore, with increased demand for oil all over the world, the market for shipbuilding is forecasted to increase by 2015. However, prediction of the future of shipping could be a difficult task. Therefore, given the statistics of shipping in the past and current ones, it would only be applicable to focus on what is happening, what might happen, and what ought to happen (Branch 2007). Some of the issues to investigate and assess their implications as far as the future trends are concerned include and not limited to, capacity, trade, and port facilities. In fact, these are core issues to be considered by all other sectors in the market worldwide. The bulk shipping market in the next three years According to current statistics, economies of both developed and developing countries have tremendously grown over the past few years. A major contributor of this growth in world economy and globalisation is the dry shipping market which plays a major role in the international trade (Global Dry Bulk Shipping Industry Report 2011). With this kind of a trend, it is possible that this development would continue in the coming years if all the stakeholders channel their energy in improving the economy. According to global dry shipping industry report 2011, the global seaborne is expected to grow at a rate of 4.6% between 2012 and 2015 (Global Dry Bulk Shipping Industry Report 2011). Cost reduction is considered to have a big share in revolutionalising the shipping industry. However, there are many factors attached to cost reduction and which can plays a role in enhancing cost reduction (Madura 2006). One of these factors is a revolution in international communications. With the new era of internet and technology, it is easier to call abroad, send a broadcast telex and store cargo booking information on a computer. On the other hand, environmental issues that posse big threats to the world economy are treated with concern by the shipping industry. Companies all over the world are now focusing on building eco-friendly ships that are more efficient and comply with environmental regulations in order to reduce the amount of carbon emissions. Due to globalisation, business has evolved with many people using ships to transport their goods. With such a development, the shipping market is expected to thrive even more by 2015. Nevertheless, it is important for the key players in the market to consolidate necessary infrastructure in order to facilitate trade (Branch 2007). For example, it is apparent that the cost of transport would reduce greatly if new bulk ships are increased. However, this would depend with catalysts of the shipping market which includes oil demand, economic growth, and seaborne trade. In this regard, it means that many things would require some advancement if the market have to improve by 2015. For example, if new ships would be increased, it is important to ensure there are adequate port facilities to cater for the ships. Concurrently, ports would require new manpower to facilitate operations (Bjerke 1999). This would help reduce traffic in the ports as well as diversify the sipping market in many ways. Additionally, the greater availability of finance for shipbuilding is also a major driving force. However, the underutilized capacity of shipyards and increasing delivery setbacks pose a serious challenge for the shipping industry all over the world. The future of the market can not be bound by what is happening today. Everything can change. It is also very important to note that the worst or the best can happen in the next three years. This is so because of the changes in economic and political aspects of different countries (Dacko 2008). If the economies of different countries improve, then there is high probability of the shipping market improving as well (Branch 2007). However, economies directly depend on political stability of different countries. If there is no political stability, it means that the economies of the unstable governments are also compromised thus reducing the possibility of improved shipping market. Competition is another factor to be considered by various key players in the shipping industry. However, all the stake holders in the shipping market can create avenues through which there can be improved services which would facilitate trade in the shipping market (Muller 2002). Some of the factors to consider include productivity and production range of shipyards, technical advancement, and the level of workers skill and competence, among others. For this reason, there is need to have a detailed market research and careful planning in order to take care of the emerging complex businesses (Stern 2009). For example, demand for seaborne iron ore is set to stagnate while the fleet is expected to rocket over the next three years. In this regard, there is need to have adequate research and planning in order to avoid unpredictable effects of such situations in the market (Carbaugh 2009). The dilemma is that people can expect to continue to see shipping companies trying to balance long-term and short-term focuses in dealing with the markets. This means that they will depend on the spot market and on developing long-term, customer relations and alliances (Bjerke 1999). In the latter case, there might also be a sharing of benefits as well as risks between the ship owners and the shippers. As evident in many studies done on shipping market thus far, there has been a tendency for a gradual shift away from unilateral short- term market exposure toward a build up of long- term relationships, but in a way that would still maintain reasonable flexibility to reap short- term market development benefits (Bjerke 1999). The ever increasing demand for steel world wide especially in china has attracted building of various ship sizes which facilitate freight rate improvements (Tvedt 1996). As seaborne ore trade has shown a constant growth in the past decade, the same is expected to continue in the next three years. This is evidenced by the ever increasing demand for steel in major economies, mainly Japan and China. However, there is need to have the whole shipping industry revolutionalised in order to cope with new demands in the market (Bjerke 1999). In this regard, there is need to have a uniform professional standards in terms of skills and experience, which would result in the development of ship board crew qualification standards. This forms the basis of forming professions to man ships. It is apparent that when qualified personnel man the shipping activities, it becomes easy to enhance efficient flow of cargo and reduced cases of traffic on the ports. The other major area of concern that would dictate the future of the shipping market is ship building which also forms an important part in the maritime sector. The price of shipping plays a major role in determining how the shipping market would be in terms of either increased or decreased freight rates (Auestad and Tjøstheim 1990). It is actually directly related to the state of shipping market. For example, when there is high demand for seaborne trade, freight rates will be driven up by the limited transport capacity (Tvedt 1996). This stimulates the ship owners’ desire to expand their current fleets and thus order new ships at shipyards. It usually takes two to three years for a ship to be delivered after placing an order. For this reason, ship owners are prepared to take ship building contracts and the price they are willing to pay, depend on their expectations of the future shipping market (Bjerke 1999). If the long period of the thriving market shortens, the owners tends to suffer the loss of new newly purchased ship which goes a long way in affecting the future freight rates as the owners hike them in order to recover the cost of purchasing the new ship (Duffie 1996). However, this trend can still be avoided if good market analysis is done in order to have accurate timing of purchasing new ships. Another important issue to consider is the challenge for the shipping business to offer the transport services needed to support the rising new trading world (Duffie 1996). As much as it would be presumed that the current situation is fine, the future technology would create a new market opportunities. In this regard, there is need to create and tighten new systems to support new market demands. On the other hand, for the bulk shipping industry, the focus of its future is not expected that the industry would change dramatically (Auestad and Tjøstheim 1990). The major innovations took place in the 1960s. Nonetheless, with new technologies at hand, challenge in the next three years is to use what is already there and utilise all the available technology to develop the market (Auestad and Tjøstheim 1990). Actually the major focus should be moving away from the market driven system of bulk transport into a logistic system. In this kind of system, the web could act like a catalyst to precipitate this change (Uslu, Faaij and Bergman 2008). It is believed to offer cheap and easy access to an industry wide information system that will allow everyone in the bulk transport chain to coordinate their activities. Nevertheless, to achieve this, there is need to have a tighter supply chain management. With help of web, it will be possible to maintain a database that records information supplied by every party that touches the cargo (Beenstock and Vergottis 1993). This way, all the necessary information concerning the cargo can be easily traced. However, this requires high level involvement of skilled personnel, who professionally handles such issues. Still to note, it is equally important to ensure that port facilities are improved in order to facilitate trade. Each ship must deal with port facilities to handle its cargo (Beenstock and Vergottis 1993). When planning the construction of a new vessel, a ship owner must also determine that the appropriate port facilities are available to allow efficient operation of his vessel (Hochstein 1996). Characteristically, the more specialized the ship, the more specialized port facility must be (Juhel 1997). Fully cellular containership requires construction of specialized container terminals. Roll-on/ roll off vessels require ramps with sufficient parking space terminal (Uslu, Faaij and Bergman 2008). Regulatory framework The shipping industry is subjected to a number of regulations which are in the area of safety and the environment (Goss 2004). It is important for governments to enact policies that would ensure sanity is maintained in the shipping industry in order to maintain adequate standards in maritime safety and maritime environments for the common and genuine good of the public (Kavussanos 1996). Reforms also need to be effected to provide unrestricted market access for all flag vessels. With the involvement of intergovernmental organizations, most of the existing international regulations have been enacted to facilitate shipping market. One of these international regulations involving safety of the ship and protection of the environment is among the series of international conventions agreed at the international maritime organization (Goss 2004). These conventions are reflection of the agreement of the international community on acceptable measures in order to minimise the cost of loses in the shipping industry (Bar-Ilan and Strange 1996). If these conventions are followed accordingly, the shipping market will have a strong foundation to develop to a higher level since safety forms the basis of trade in the shipping market. With respect to bulk shipping, if it operates in an open environment, and the services respond to market developments in relation to supply and demand pressures, it is likely that the shipping market would thrive in the next three years (Bjerksund and Ekern 1990). However, it is important to evaluate the operations aspect of current regulatory requirements to make sure they are working as intended. Therefore, it is important to create changes in the institutional framework to facilitate international agreements. These changes should ensure that all players- including brokers, insurers, financiers and cargo operators work in harmony to raise standards (Goss 2004). In looking ahead, the biggest challenge is to build into forecast. However, with new technological developments, both shipping and trade are expected to thrive (Madura 2006). Better and cheap communication will help broaden trading matrix to evolve. If web based e- commerce is utilised accordingly, it will allow manufacturers to widen their search for new suppliers and markets (Goss 2004). The other important thing that all stakeholders in the shipping market need to consider is new commercial relationships (Madura 2006). The current spot market is not an ideal system since it encourages secrecy which is not ideal for tighter planned logistic system. Safety issues in the ship, cargo and crew members Since safety of the ship and the cargo on transit have always been at risk due to increased piracy activities in the high seas, there is need to instill some measures to curb the menace (Natalie, Joanna and Donald 2009). Through the use of GPS tracking systems, it is possible for one to locate ships. GPS is the short form of Global Positioning System (Natalie, Joanna and Donald 2009). It is a satellite navigation system that can tell the exact longitude and latitude of a FPS receiver device at any place on earth. GPS is made up of more than a dozen global positioning satellites that orbit the earth. All the satellites transmit radio signals that are used to determine the location, direction and speed of the device. The tracking system determines the precise location that an individual or vehicle carrying the device is. Data relating to the location and other things can be stored in various ways and forms which vary with the tracking unit in use. The location of the individual or object that is being tracked is often recorded in regular intervals. It is apparent that change is primarily driven by economic considerations, but environmental, safety, and security related issues now exert a more influence than before. What cannot be ignored is that shipping today is a global transport system with incidences of each and every day (Bibi and Putten 2010). Therefore, the future of the shipping market is heavily dependent on the security of both the ships and the cargo and passengers on board. However, much of these problems are attributed to lack of proper international policies to safeguard the shipping industry. However, this trend can be changed if the international community unites and provide solutions to such problems. Unfortunately, some of these policies may take several years to be enacted. This means that the only way the shipping market can survive with such problems is by use of all available means to evade them (Bibi and Putten 2010). The issue of piracy has been a contentious issue especially to the shipping companies and other stakeholders. The issue of piracy through the international law has been a challenging one perhaps due to unclear interpretation of piracy by the international law (Bibi and Putten 2010). The only legal Interpretation That Exist Currently is the Economic gains by the pirates as a result of criminal activities along major coasts and in deep waters (Bibi and Putten 2010). In this regard, piracy activities have greatly affected the shipping market in various ways. For example, since Somali attracted the international attention due to piracy activities, very little has been done by the international community to curb the menace (Bibi and Putten 2010). This is what has led to increased piracy activities along the Somali coast. In fact, the international community disregards the Somali piracy with the simple reason that Somali is a messed up country (Great Britain Parliament 2010). They link Somali piracy to the fighting that goes on among Somalis thus, failure to see any consequences facing the rest of the world. This has led to massive loss of business by the shipping companies and business entities that use the Somali coast to trade in the east Africa. The international law defines piracy as illegal acts committed on the high seas for private ends. The law also states that all countries have a right to seize and prosecute those found committing pirate acts on the high seas (Great Britain Parliament 2010). However, what the law failed to clarify is the issue of failed states like Somalia. On the other hand, the law specified that piracy that takes place on the high seas, but failed to address the issue on a country’s territorial waters. The other contradicting issue about the international law on piracy is that the law assumes that the individual states would be responsible for patrolling their own waters and arraign the culprits in court (Kraska 2011). But the worry is that not all states have the resources to ensure maritime security. This has been the case of Somalia which is still in the process of setting up a functional government. Many countries surrounding areas with increased piracy activities are currently faced with several maritime security threats. Due to lack of both clear international law and stable governments, their waters remain in a condition of lawlessness (Kraska 2011). Attacks directed to merchant vessels in the Gulf of Aden region has been on the increase in the recent past and this pauses a threat to global business brought about by the shipping industry (Little 2010). According to various surveys carried out by different humanitarian organizations, the effects of piracy are not only felt by the countries where pirates come from but also by the neighboring countries (Little 2010) and other players in the shipping market either directly or indirectly. Therefore, if less is done on the issue of piracy, the future of bulk shipping market may be doomed. External environment The external environment factors that influence the performance in any industry are usually beyond the control of the management. External factors can be grouped into social factors, political factors, environmental factors, legal factors, technological factors and economic factors (Dixit and Pindyck 1994). Social factors are the changes in social trends like population demography, literacy levels, and attitudes towards work and income distribution that affect the demand in the market (Schwartz 1997). Political factors that will determine the performance of shipping market include international trade agreement, taxation policies, wars and terrorism (Alderton and Winchester 2002). The level of global trade is on the increase due to globalization hence the shipping industry should start targeting to major international business destinations (Alderton and Winchester 2002). Economic factors are beyond the control of the management of shipping industry yet they affect the performance of the market (Veenstra 1999). These factors include the rate of economic growth, inflation and exchange rate, taxation changes and interest rates (Veenstra 1999). Strong currencies may make exportation difficulty because the prices of production material rise in terms of foreign currencies (Stopford 1993). Strong foreign currency reduces the amount of profits when converted in to domestic currency hence a firm should enter in to currency hedging arrangements with a global hedge fund (Alderton and Winchester 2002). All these determining factors will play a major role in the shipping market and it is important for all the stakeholders to analyse such factors in order to trade on safe grounds (Tvedt 2003). With all these factors prevailing in the market, unless something strategic is done about them the future of the bulk shipping market may not be bright as well (Tvedt 2003). The trend of World seaborne trade 1969-2010 (the following figure will provide an overview of the expected trend of the bulk shipping market in the next three years.) In the last century the shipping industry has seen a general trend of increases in total trade volume. Increased industrialisation and the liberalisation of national economies have facilitated free trade and a growing demand for consumer products. Advances in technology have also made shipping efficient and swift method of transportation. Following this trend, it is therefore possible that the upward trend will continue even in the next three years if the prevailing circumstances remain in tact. Conclusion The major factors that influence shipping markets are freight rates, economic growth, shipping supply and shipbuilding prices. Statistics show that there is a close correlation between GDP and ship demand. In this regard, it is true to say that invariably economic forecast can be radically wrong. Much of the volatility in shipping must be attributed to supply-side management. Over- ordering of new ships has been major cause of high volatility in most sectors. Owners tend to order new ships to rising markets and take delivery in falling markets. However, the future of the shipping market is not wholly dependent on the ordering of new ships to failing markets. It is also important to point out that issues like increased cases of piracy has led to losses of business both to ship owners and shippers. Therefore, it is the responsibility of all stakeholders to ensure that the most obvious and avoidable impediments of development of the shipping market are prevented at all costs. The future of bulk shipping will also depend on the way the key players in the market would cooperate. They need to be closely integrated where ship-owners and cargo interests are partners, not competitors. It is also apparent that the shipping market operates within the framework of a supply and demand mechanism. This means that the future of shipping market will also depend on how the shipping industry manages the supply and demand mechanisms. It is also important to incorporate importers/exporters and ship agents trucking companies who have formal contractual relationship with the port. This will go a long way in providing a wider understanding of infrastructure needs as well as constrains that need to be overcome to take the shipping market to higher grounds. 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