«prof, I am importing a million tons of coal; what
difference does it make if I bring it from the US or Australia?»
At first sight, and for someone introduced for the first
time to shipping economics, the question appears plausible and legitimate. But
the question only arises if we do not explain, right at the outset of the class, that,
opposite to the supply of tonnage which is a ‘stock’ variable, as we say in
economics, i.e., so many ships in the world as of January 1st, demand for
shipping is a ‘flow’ variable; i.e., I am importing so many tons per year.
Still, the concept wasn’t clear to all. But there comes a young
chap from the end of the room, saying:
«hey prof; can I try to explain this with a very simplistic example?»
I nodded him to the blackboard. And here he goes: (the text
below is mine; Michael just did the calculations).
Assume the annual demand for shipping capacity is 1.2
million deadweight tons for the transportation of iron ore from Australia to China:
distance (approx.) 4,000 nm. The voyage
takes 15 days and the job could be done by a single bulk carrier of 100,000 dwt
in twelve trips (15x2x12=1 year). Now assume China decides to stop buying from
Australia and switches to Brazil which, however, is three times the distance to
Australia; i.e., 12,000 nm. The voyage of our bulk carrier would now take 45
days and thus the ship could make only 4 trips in a year (45x2x4=1year) and
transport just 400,000 tons of iron ore. To bring 1.2 million tons to China in
a year (our annual imports), we need either a bulk carrier of 300,000 dwt,
i.e., three times bigger, or three bulk carriers of 100,000 dwt, like ours. The
demand for shipping capacity has tripled.
P.S.1: Needless to say Michael is exempted from next week’s
exam and he proudly knows it. 😊
P.S.2: Brokers: please don’t shoot the pianist: as Michael said, the
example is simplistic and for illustrative purposes only. As such, the example has
done its job (or so I hope).
HH
