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port. An example here is the import of iron ore by European steel mills from Australia and Brazil. Thirdly relocation of the processing of raw materials can also have a direct effect on vessel type/size and the quantities transported. As raw materials like Bauxite are refined, it produces Alumina which is lower in volume and therefore requires a smaller vessel. As Alumina is further processed it produces Aluminium which has an even less volume and therefore needs a smaller tonnage than Bauxite. Fourthly the demand for sea transport also relies heavily on the shipper’s transport policy. In the 1970s oil majors in the USA chartered in tonnage on long term basis or built ships in conjunction with ship owners against long term contracts. However after the 1973 oil crisis their policy changed and they distanced themselves from long term charters and used the spot market. Fifthly on account of bad harvest or drought or on account of adverse climate a country may be forced to import which in turn increases the demand for shipping services.

3.4 Average haul and ton miles

As distances over which cargoes are transported increases so does the demand for shipping. If export cargoes of crude oil from the Persian Gulf are transported to Europe via the Cape of Good Hope then the demand for shipping will be more than if the cargoes would be shipped via the Suez Canal. This distance effect is defined as average haul and is measured by ton miles which basically are the product of tons of cargo shipped and the average distance. During the Arab-Israeli conflict, Egypt closed the Suez Canal which led to ships being diverted via the Cape of Good Hope. The ton miles thus went up which increased the demand for shipping overnight. At the same time orders were placed at yards for supertankers. The Panama Canal is currently being widened to a width of 49 meters which means that it will be able to accommodate many vessels which earlier could not transit the Panama Canal on account of a beam greater than 32.9 meters can now transit via the Panama Canal. This is going to reduce the ton miles for these vessels and could result in an over supply of these vessels and a resulting fall in demand.

3.5 Political disturbances and the Geopolitical scene

Political events such as wars, revolutions, coups, hostilities, political nationalization of foreign assets and strikes can all have an indirect effect on the demand for shipping. Their effect on shipping is sudden and unexpected and moreover is usually not directly felt but has an indirect effect. For example the closure of the Suez Canal in July 1956 caused crude oil tankers to sail to Europe via the Cape of Good Hope. This in turn increased the ton miles which again increased the demand for shipping. “In general, political stability is a condition for economic stability and prosperity, as well as for investment attractiveness and meaningful economic value creation” (Lorange, 2010). Although historically it can be seen that very often freight rates increase when there is political instability, in the long term growth of shipping is a function of political stability. A change in government may cause a change in foreign policies which may alter her foreign trade. After 11 September, 2001 terrorism and piracy have also negatively affected shipping on account of the growing concern for the cost of security.

3.6 Transport costs

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