LINER AND BULK

SERVICES
SEMO3813
MARINE TRANSPORT AND ECONOMICS
PROF IR DR. AB SAMAN B. ABD KADER, P.ENG,
FARAH ELLYZA HASHIM, PhD.
ARIFAH ALI, PhD

1
TOPIC 3.2

BULK COMPETITION

2
Objectives

i. To explain the theory of perfect competition.

ii. To explain the application of theory of perfect

competition to bulk shipping.

3
Introduction

i. Bulk ships only sails when there is cargo booked for it.

ii. Cargo booking is by bidding process e.g. At Baltic Exchange.

iii. Freight rate for the carriage of good is determine on the basic
of the lowest offer made by the potential ship owner / carrier.

iv. Hence bulk ships operate following demand and supply thus
closed to the condition perfect competition where the economic
of certain commercial operation is not influenced by any other
factors except demand and supply.

v. Please note that the theory applicable to liners shipping is of

non-perfect competition.

4
Theories on perfect competition
There are few assumption for the industry / company to operate within
a perfect competition environment, as follows:
i. First there is large number of sellers (ship owner) and buyers
(shippers)
ii. Second the cargo is homogeneous, that is must be bulk and
not bulk and liners combined
iii. Third there is free entry and exit of firms within the market
iv. Fourth there is no government interference in the market
environment.
v. Fifth there is perfect mobility of factor of production
vi. Sixth ship owners and shippers have perfect knowledge of the
condition of the market.

5
Demand characteristic of
bulk shipping
i. Demand of bulk shipping is actually coming from major oil company.

ii. In the short run demand is inelastic, that is change will have no
significant effect to the quantity demanded

iii. The main reason for the inelasticity is due to no real substitute for
bulk shipping.

iv. The shape of demand curve in bulk shipping (oil market) is as

follows, which is called the ‘ cobweb ´ demand curve.

v. It shown the impact of price elasticity to expectation.

6
• The cobweb model or cobweb theory is an economic model that
explains why prices might be subject to periodic fluctuations in
certain types of markets.
• It describes cyclical supply and demand in a market where the
amount produced must be chosen before prices are observed.
Producers' expectations about prices are assumed to be based on
observations of previous prices.
• Nicholas Kaldor analyzed the model in 1934, coining the term
"cobweb theorem" (see Kaldor, 1938 and Pashigian, 2008), citing
previous analyses in German by Henry Schultz and Umberto Ricci.

Cobweb model - Wikipedia

7
 Low supply
causes rise in
price

High supply
causes fall in
price

Q represent the quartile/period

Q3 Q1 Q2 Q4

8
4 Factors Affecting Bulk Shipping
Prices
i. Size and weight: Combined, these are the two factors that most
influence shipment costs. You will be required to provide accurate
weight and measurements of your cargo, and every item being
shipped will have a National Motor Freight Classification (NMFC)
number depending on its weight and size.

ii. Freight class: This takes into account things like density, the value of
the shipment, how susceptible your items are to damage, and the
product’s load ability and handling characteristics. Fragile and
valuable products usually have higher freight classification, hence
higher freight rates.

9
4 Factors Affecting Bulk Shipping
Prices
iii. Dimensional weight: This is a standard formula that considers the
shipment's density to determine shipping costs. Transportation fees
may be based on dimensional weight or gross weight, whichever is
greater. For example, items that do not weigh much but take up a
lot of space will be charged by dimensional weight.

iv. Distance travelled: Although the distance travelled sometimes plays

a role in influencing bulk shipping costs, rates don’t usually increase
on a per-mile basis. Instead, a complicated formula is used to
calculate rates taking into consideration groups of origins,
destinations, and the type of shipment. Sometimes, per-mile freight
rates decline with distance depending on line-haul costs and
terminal costs for different transportation modes.

10
CURRENT STATUS

• The dry bulk business has had an unusually strong start during the
forecast period of 2021-2031 because the customary seasonal
decline in cargoes was postponed.
• Thus, the average earnings are significantly higher than in recent
years which may ultimately bring exponential growth for the dry bulk
shipping market.
• All these aspects are expected to bring immense growth
opportunities for the dry bulk shipping market.

Dry Bulk Shipping Market Demand and Research Insights by 2030

(transparencymarketresearch.com)
11
 CURRENT STATUS
• Dry bulk is the main product shipped in bulk. Steel plates, steel rods,
and iron ore are the products shipped in dry bulk.
• The transportation of dry bulk involves a number of processes,
including storage, technical challenges, delivery inspections, and
modification.
• The two main raw materials that are shipped in large quantities are
iron and coal. Because of the rapid increase in power consumption,
there is a demand for both imported and exported coal. Due to
industrialization, the demand for iron has also increased.
• Marine transportation has expanded, which has boosted the demand
for dry bulk shipping because it is the least expensive form of
transportation.
• Utilizing the available resources, it is now simple to trace the shipping
of supplies anywhere in the world by using the provided
identification number. These aspects are likely to open new growth
avenues for the dry bulk shipping market.
Why is the demand for coal in the world always increasing? (lecvietnam.com)
Dry Bulk Shipping Market Demand and Research Insights by 2030 (transparencymarketresearch.com)
12
 TREND AND OPPORTUNITIES
• Industrialization, urbanization, and economic growth are the main
factors influencing the need for dry transportation materials. The
massive amount of construction taking place in the industrial,
residential, and non-residential sectors created a demand for steel.
• Due to a rise in the shipping of steel and coal, the market share for
dry bulk shipping significantly changed. Improvements in the supply
chain management system have hastened the automation of
automotive production planning systems.
• The dry bulk shipping sector is extrapolated to profit from an
increase in sea travel since it is the least expensive mode of
transportation and technological improvements, such as the capacity
to track and identify individual components of shipping cargo.

Dry Bulk Shipping Market Demand and Research Insights by 2030

(transparencymarketresearch.com) 13
Conclusion

i. Bulk shipping operates according to demand and supply.

ii. The exact demand curve is ‘ cobweb ´ type.

iii. Fluctuation in rate for the carriage of bulk cargo is at its

extreme when the market totally collapsed

14
Thank You

15