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Ships come in various sizes so there are no space constraints. The bigger the ship lower is the freight cost and vice versa. This is a very important criteria when it comes to shipping of raw materials which are usually shipped in large amounts

2.5.3 Carbon footprints

Shipping is one of the least polluting forms of transportation. This is especially of importance in the container shipping where green shippers like IKEA, Starbucks and Wal-Mart pay very close attention to the emissions of their preferred carrier. Regulations and advanced technology will further bring down emissions in seaborne transport which will increase the demand for shipping

2.5.4 Safety

Shipping also has a reasonable safety record in terms of accidents, spills and collisions. Regulations, fines and public opinion has resulted in shipping becoming a safer means of transport

2.5.5 Accessibility

3/4ths of the world is covered with water, shipping also permits access even to remotely located countries unless they are landlocked

the low cost of maritime transport

Typical Ocean Freight Costs

CHAPTER 3

My old saying: No loss should hit us, which can be avoided with constant care; this must be a watch word throughout the entire organization – A.P. Moller

3.0 The variables of the demand for sea transport

“Ship demand, measured in ton miles of cargo, is mercurial and quick to change, sometimes by as much as 10 – 20 per cent in a year” (Stopford, 2003).

The following are the variables on which the demand for shipping is dependent upon:

3.1 The world economy

The profile of world trade has changed a lot in the last 20 years or so. It has become more complex and it is dependent upon many elements such as technology, logistics, politics, finance and marketing. World trade has also become very highly competitive. “It is against this background that the role of shipping must be focused as the international trade cannot be effectively undertaken without the provision of the sophisticated global network of maritime services which exist today” (Branch, 1998). The demand for shipping is a derived demand and the world economy is the greatest influencer of the demand for shipping services. This happens through the import of raw materials and the export of finished commodities. Because of this there is a strong relationship between industrial production and growth in the maritime fleet. Therefore the shipping business is also highly cyclical as it is also affected by the fluctuations in the world economy. We will now briefly discuss the causes of business cycles.

3.1.1 The multiplier and accelerator effect

The most important cause of business cycles is the interaction between consumer demand and investment. As local investment in a country goes up it gives rise to consumerism. People working in growing industries have surplus cash which they spend. This is basically known as the investment multiplier. This extra circulation of cash in the economy causes growth and this is known as the income accelerator. This in turn causes even more demand for consumer goods. Finally when the economy heats up the reverse happens and the economy goes into a slump. This causes instability.

3.1.2 Time-Lags

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