Marine Technology - July 2008 - Page#42

<BODY> <span id="lblContents">Freight Market Drivers Supply of ships versus the demand for ships has been thought to be the foundation of tramp shipping rates, but it is not the only factor. Here are a few more. I. Supply v. Demand Both Supply and Demand are multi-dimensional. They are ship size and type speFigure 6 ? Non public companies still own most of the fleet cific as well as place and time as a service to the ship owner to be. What specific (i.e. ? are the required is new today is that the finance people size and type ships available when and are extending their businesses into ship- where they are needed?). ping on many fronts and are threatening to eclipse the brokers and traditional II. Expectations charter market experts. New jobs have An unacknowledged factor in the tradbeen created in shipping, but they have ing of any commodity is "expectations." mostly been in the area of financial ser- It is "expectations" that define whether vices. a buyer or seller sees the present and FREIGHT MARKETS The Webster Unabridged Dictionary defines freight as the "compensation paid for the transportation of goods." A secondary definition is "that which is loaded for transportation" ? i.e. cargo. Through common misuse of the word, the secondary definition has become the accepted primary meaning. There is no single overarching freight market. The "market," such as it is, consists of hundreds of micro-markets that are ship size and characteristics specific, place specific and time specific. Most people are not familiar with the idea of "freight" as a commodity that can be traded in person, over the phone, online, or on a bourse or exchange. Liner (a.k.a. - Container) Shipping is regulated by governments, but not so the Tramp sector. Governments have regulated Liner Shipping very much as they regulated railroads after the robber barons disrupted the rules of competition in the early 19th Century. We will see more on regulation later and how we may relive the past at least in part. future price for a commodity or product as rising or falling. Obviously, this real or simply perceived trend upward or downward may be viewed differently by ship owners and shippers. The elasticity of these expectations and the degree of asymmetry between those of the freight buyer and ship owner contributes to the determination of a negotiated freight rate (and as we see in the post sub-prime mortgage debacle, the same goes for real estate.) Figure 7 (Trading Routes) and graphics like it were often used 40 years ago to illustrate the idea of front-hauls, backhauls or how the use of OBOs (oil-bulkore carriers) might turn the ballast legs of most tanker voyages into revenue producing time. More recently a world view of sea lanes has been used to highlight the many geographic and geopolitical bottlenecks inherent in seaborne trade today. I have introduced this graphic though to reintroduce all of those ideas, but also to link them to the remaining pair of freight market drivers that are related to commodity prices, which in turn determine the distribution of vessels around the world and thus influence both supply and demand for ships... and thus both spot and forward freight rates. III. Sourcing and economic geography In the world of commodities and industrial raw materials the closest source to the buyer is not always the lowest cost supplier. Beyond qualitative issues of the commodity or raw material, there are specific limitations that describe the size or characteristics of ships that are suitable for certain load or discharge ports. There are seasonal aspects such as ice or river depths related to rainy seasons, or cargo growing and harvest times related to hemispheres. All of these factors may influence the sourcing decision that favor sources more distant rather than the closest. Economies of scale (i.e. - the ability to use larger and therefore more economically sized vessels) might offset the cost of the longer distance, but the longer distances will still result in more ship-days for the fleet which, in turn, influences the real supply of ships available. Sourcing decisions impact ship supply and ship owners do "game" that fact. Figure 7 42 SNAME NEWS</span> <br /> <br /> <a href="http://www.digitalwavepublishing.com/" title="Digital Magazine">Digital Wave Publishing</a> </BODY>