Political Events and Shipping Demand Essay

Introduction Modern merchant marine is the life-blood of the human being with protrude it, much of the prerequisite for imports and exports would non be met. In 2006, introduction mobile treat was estimated to consume reached 30,686 one thousand one thousand meg ton-miles, having grown by 5. 5% everyplace the previous year. Despite the preponderance of air transport, up to 90% of world profession is carried over the oceans in humble ventures. The requisite for seaborne trade is driven primarily by the world parsimony various industries produce the goods that need to reach diametric split of the world. In its nearly re cent demesne Economic prospect , the International Monetary Fund (IMF) forecasted global growth of 3. per cent for the balance of 2008, lower by 0. 2 per cent from the previous months estimate. In spite of the dusk, the world economy is still growing annu eachy, take by the emerging markets that be hungry for preferences to discharge their growth. Beyond the economy, in that respect are several some other factors that determine demand for transit. This newsprint seeks to tax the role of policy-making events and its impact. In addition, it seeks to look into which commodity is most stirred by such(prenominal) incidents. In his book, Maritime Economics, Martin Stopford writes that no discussion of sea transport demand would be complete with extinct reference to the impact of political sym avenueies.In the following paragraphs, this musical theme will address the main types of events that arrogate conveyance demand both positively and adversely. 2. 0Political events that have bear on shipping demand the most 2. 1Opening-up of the Chinese economy The accession of china into the ranks of the World Trade Organization (WTO) and capital of Red chinaware winning the bid to host the Olympics in 2001 were events that had large political motivations and caused a tremendous rise in demand for shipping. Since then, chinas economy has seen astronomical growth.In order to fuel this development, the rustic has increased both its imports and exports in almost every industry. This has taken the world by storm as countries the world over debate to feed and fuel the worlds most populous country. Hence, seaborne trade and demand for shipping worldwide has been skyrocketing as a turn out of chinas booming economy. 2. 2War and the economic trade stoppagees Conversely, war and economic embargoes and sanctions are the leading cause of a drop in maritime activity. In broad terms, the hostilities in the Middle-East region have conduct to disruptions in movements of petroleum shipments to the developed world.In the 1950s, the Suez Crisis among Britain, France and Israel against Egypt, led to the diversion of ships around the drape of Good Hope to avoid the tensions. Two decades later on 17 October 1973, the ongoing Yam Kippur War caused the Organization of Arab Petroleum Exporting Countries to get a round shipping anoint to nations that supported Israels war efforts. The impact of this embargo on shipping was the collapse of the crude tanker market and led to a series of recessions and periods of high inflation that persisted until the 1980s. Other patterns would include the Korean War in 1950 and the Gulf War in the early 1990s. . 0Commodities affected Crude oil colour accounted for 26. 9 per cent of total goods loaded in 2006. Due to the sheer quantity of oil cosmos shipped worldwide, any political event jeopardizing seaborne trade would usu solelyy entail oil shipments being affected. This is because the resource is abundant in merely certain parts of the world the Middle-East is one such region that is plagued with rogue political regimes and instability. In the above-mentioned events in the region, the hostilities resulted in disruptions to the oil trade and consequently, oil price.This would be discussed in the section on Iran. Another sector that would be affected would be the metal industry trades and in particular, that of iron ore. Western Australia and Brazil are major exporters of iron ore to growing markets like china which need it for its proceed development. 4. 0Opening of mainland chinawares economy Since the 1970s, China has been gradually introducing economic re work outs and providing enterprises with autonomy. However, it was only in the last 2 decades that the worlds 2nd largest economy has blossom outed itself up to greater foreign investment and world trade.This was carried out through the relaxation of import and export controls and trade reforms in the form of reduced tariffs. wholly this led to a significant milestone for China and the world its ascension into the ranks of the WTO on 11 December 2001. In addition, Beijing won the bid to host the 2008 Olympics that same year. These 2 events have model the stage for Chinas fast development. In the following paragraphs, this piece will explain its effects on the worl d and global trade and shipping.Based on a working paper by the IMF scripted in 2004, the international impact of Chinas ascension into the WTO is further reaching. Firstly, sustaining the growth of China would provide benefits to its trading partners beyond the processing of trade, in that location has been significant growth in imports for national use and outbound tourism. Secondly, Chinas insati able thirst for energy and metal imports have since fuelled the rapid rise in imports of such commodities. Lastly, multinational companies are tapping into the large domestic market especially with the freeing up of the countrys banking sector.This paper believes that Chinas meteoric rise over the last devil decades and more(prenominal)(prenominal) significantly, since the dawn of the new millennia, have acquired a surge in demand for world seaborne trade and shipping. 4. 1Chinas role in transforming Western Australia and beyond As a result of Chinas booming steel industry, Austra lian exports of iron ore to China reached more than A$4 billion last year. BHP Billiton and Rio Tinto, two of the worlds largest resource companies, share the metal-rich Pilbara of Western Australia to feed Chinas demand. The latter is hoping to prototype its 2007 iron-ore production in four years.This mining boom in the traditionally sleepy side of Australia spells good news for its economy and residents. In an interview with the Economist , Eric Ripper, finance minister of Western Australia, said that his state has been rubbish to bring in a A$9 million overplus seven years ago. Last year, the countrys largest state (by the three estates area) grew by 6. 3%, twice that of the entire country. In addition, it now boasts a healthy surplus of A$2 billion. Besides iron ore, China has a tremendous hunger for other natural resources. All across the world, Chinese firms are finding new sources for crude oil, natural gas, metal and coal.Ships have been queuing off Newcastle in Austra lia to load cargo bound for China at one point in June 2007, the queue was 79 ships longsighted . In short, the rise in import demand by the Mainland has helped countries in Latin America and Africa grow their own economy. Another country that has seen pedigree grow is the shipping giant of Greece. 60 per cent of Chinas imports of raw materials and energy are carried on the backs of Greek ships. Greek ship owners want to capitalize and many have made orders to build ships in China which has caused the order books of the large manufacturers to bulge and many smaller players to colligation in the fray. . 2Chinas effect on shipping demand In terms of shipping, China is a force to be reckoned with. Just 2 years after connective the WTO, China handled 48 million twenty-foot equivalent weight units (TEU) in 2003, an increase of 11 million TEUs the year before. This made the country the largest container shipping market for the first time with both Shanghai and Shenzhen joining the meg a-port league of over 10 million TEUs throughputs . On two of the most important container trades from Asia to North America and Europe, mainland China and Hong Kong corner 60 per cent of the market share.More recently, with an increasing portion of Chinas imports of oil products coming from Latin America and West Africa, ton-miles demanded associated with this trade has increased. Referring back to the example of Australian iron ore, Chinas high volumes mean that Chinese companies are sourcing for metals from further abroad such as Brazil. In addition, China has always been a net exporter of coal. However, in the last few years, China has become a net importer this forces its neighbors to source for coal from further afield. All these factors serve to increase ton-miles demanded.It is important to note that though ton-miles demanded may increase, material volume may remain unchanged. 5. 0Iran and the passings of Hormuz The on-going tension between Israel, the fall in States of America (USA) and Iran over its suspected nuclear-weapons programme has brought about fluctuations in oil prices in recent times. Several factors have made this all the more pressing in the last few months. These include a enervating Bush administration, Irans continued uranium-enrichment programme, a lackluster Western diplomatic approach to handling the situation and Israels jitters have elevated the idea of a possible war in the Middle-East.In retaliation to suggestions of a military strike, Iran has threatened to cut oil exports and close the Strait of Hormuz . This straits importance lies in that it is the only viable path for much of the oil from the gulf to reach the rest of the world. By comparison, the Suez and crewman Canals are passages that have alternative albeit costlier, routes. A horseshoe-shaped body of water that stretches between Iran and the northern tip of Oman, the Strait is the only passage in and out of the Gulf. Every day, around 50 tankers carry between 4 million and 17 million barrels of oil and oil products through the 180km-long strait roughly 40 per cent of the worlds internationally traded supplies . If Iran were able to close this waterway by use of anti-ship missiles, only 3 million barrels would be able to be diverted via the Red Sea. Thus, oil and oil product shipment would be greatly hit worldwide. In addition to oil, Jebel Ali, a port-town in the United Arab Emirates, handles about half of all maritime trade between Europe and Asia. Currently, it is the largest port between Rotterdam and Singapore. outsize portions of what enters some of these free zones in the gulf are transshipped to other parts of the world. Experts who have monitored the Suez Crisis in the 1950s and how it led to the Six-Day War understand that such an action from Iran would result in the Middle-East suffering economically. On a large scale, the world would be faced with supply cuts in almost all goods. 6. 0Maritime terrorism Another threat to the maritime industry is terrorism at sea. Terrorism is broadly defined as set ons to create fear and ofttimes have an underlying belief that the terrorists want to spread.Since the world-changing September 11th attacks on the United States of America in 2001, many other acts of violence have been carried out with ships as targets. An example would be the infamous Al-Qaeda attack on the French oil tanker, the Limburg, in Yemen in 2002. Such attacks create not only a sense of uncertainty in the shipping industry, but have raised the costs of shipping as well. In the case of the Limburg, the insurance payout reached US$70 million . This example highlights the slew of insurance companies charging higher insurance premiums to shipping companies whose ships sail through more dangerous waters.As a result, shipping cost has risen over the years and this has led to a dip in demand. Amongst the main clay routes that ships often ply, the greatest number of such incidents happens in the South C hina Sea and the Straits of Malacca. These acts of terror also do not nock between the types of ships they target almost everything from boats to tankers has been looted for their cargo and entire ships stolen. This paper would like to caution that the distinction between maritime terrorism and buccaneering is blurring. 7. 0Conclusion This paper has looked at examples of how political events have caused a stir in the maritime world.This is largely a result of the correlation between world trade, shipping and movement of commodities. Such incidents can spark both a decrease as well as an increase in demand for shipping. In the case of Chinas reforms towards a more open economy, trade between this country and the rest of the world has increased dramatically. This has spurred the shipping industry not just in terms of seaborne trade but in other forms such as ports and shipbuilding. Beyond its shores, it has helped to run up the economies of countries that enjoy a high level of trad e with China.On the other hand, the tensions in the Middle-East have brought about uncertainty throughout the world over oil prices and world trade. The strategic position of the most hostile nations in the region has given them leverage over the Western world in terms of threats to block the major waterway, the Strait of Hormuz. Lastly, the concerns over maritime gum elastic and rising insurance costs to cover ships and their owners have caused a dip in demand for shipping. This is because of the higher costs now associated with shipping it is spontaneous yet unfortunate that the worlds major shipping routes are also the most dangerous.