COURSE:

MARITIME ECONOMICS

TOPIC 0.2:

ECONOMICAL AND COMMERCIAL

CONTEXT OF THE MARITIME
TRANSPORT
Sergi Sauri, Ph.D.

April 2023
 CONTENTS

Major trading regions. An overview

Principals of maritime trade

MAJOR TRADING REGIONS.
AN OVERVIEW
1. Some global data
Maritime trade is dominated by three main economic centers: North America, Europe
and Asia.

All of this covers 90% of the world’s manufacturing industry.

Container ships and other

specialized vessels (car-
carriers, etc.)

Bulk vessels carrying raw

materials (oil, iron, etc.)

The world’s
major shipping
routes. 2007.
Stopford, 2007
2. Geographical areas
Container sector
Container sector
Slow speed
Cost vs speed:

26,158 nautical miles and voyage time of 80 days (13.6 knots)  25$/tonne of
cargo (70,000tons of cargo)

If 23knots, 47 days  55$/tonne of cargo

Bunkering proportional to speed with power 3

PRINCIPALS OF MARITIME
TRADE
 1. Introduction
Dry Cargo Seaborne trade in the world from 1970-2020 (UNCTAD)
Metric tons in
millions

Dry cargo loaded Dry cargo unloaded

Important developments that helps to explain the fast growth of seaborne trade:

- The world was progressively opened to free trade

- Communications has improved (technologies of communication and information)

- Cheaper transport. Maritime side + land side (port productivity, land network)

New opportunities for manufacturing often involving multiple sea voyages.

Ex: high-technology industry: components shipped to an assembler in a low-

cost economy, processed, and exported as finished good.
2. Variables affecting the volume of sea trade
1. The balance of import and exports

Import and export of 40 trading countries accounting for 89% of world

seaborne trade Highly populated and
wealthy regions with
relative por resources

Imbalance of supply and demand

for resources between regions of
the world (main driver for trade)

Resources-right areas where

demand is lower (due to lower
population or income)
2. Size of the economy

Relationship between seaborne imports and GDP:

Rich countries (high GDP) might

be expected to have a higher level
of imports than a poor country
(low GDP). Reasons:

- Larger economies more needs

for raw materials and
manufactured goods.
- Local resources used at the
beginning of their growth.
- Countries can purchase for
imports and has more exports
in return.
2. Size of the economy
2. Size of the economy
Although the GDP seems to be not the only strong indicator of the demand, it is
still correlating with it.

Global TEU trade and real GDP growth

Global financial crisis

182
171 175
TEU trade, millions

163
150 155
130 135 122 139
117
105
95
76 84
67 70
51 54 60

1997 98 99 2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 2016

TEU trade
8.3% 10.8% 3.9%
CAGR1 , %

Real GDP
3.0% 3.4% 2.3%
CAGR , %

Multiplier2 2.8x 3.1x 1.7x

From 1997 until 2007 the growth of the container trade was almost three times higher then the GDP growth.
Since the crisis, the volume of trades goods has increased approximately in line with GDP. It seems like the GDP is
a strong indicator to anticipate future trade volume.

1 Compound annual growth rate.

Source: Container shipping: The next 50 years, McKinsey, 2017 2 Ratio of TEU growth to GDP growth. 7
3. Land area and sea trade

Kind of “Relationship” between seaborne imports and land area:

Imports are inversely related to

county size, but not statistical
correlation.

Trade is more about economic

growth and not physical size.
4. Population and sea trade

No correlation

Stopford,
2007
3. Theoretical approach

Three reasons for trade

1. Differences in manufacturing cost

2. Differences in natural resources

3. Temporary imbalances (it creates a price differential between local and

overseas products). Economical cycles.
Theory of absolute advantage

Adam Smith in Wealth of Nations

Countries are better off if they specialize, trading their surplus production for
the other good they need, because specialization makes them more productive.

Goods are cheaper because trade permits greater division of labour, allowing
more to be produced with the same resources.

As long as transport cost do not exceed the cost saving in production, trade is
bound to be beneficial.
Theory of comparative advantage

David Ricardo in Principles of Political Economy and Taxation (1871)

Motivation: based on the absolute advantage principle, if one country is better

at producing both goods, it should produce all goods and the another country
should not trade to avoid being in poverty. In practice, it is not the case!

Even if one country is more efficient than its trading partners at producing all
goods, trade is still beneficial.

Key element: if the countries specialize in the product in which they are
comparatively more efficient, their production increases.

Free trade allows each country to specialize in its mots competitive products.

More wealth is created by trade because limited “factors of production” are used
more efficiently and all participants are better off than they would be without
trade.
Intra-industry trade

Motivation:

 The principle of comparative advantage is based on the existence of

differences, natural or acquired, in the endowments and/or productive
structures of countries.

 Traditionally, the technological level and the availability of factors have

traditionally been taken into account as differentiating factors.

 But before, technology transfer was slow between countries. The same
was true of factor endowments….but these situations do not exist
anymore.

 In addition there is the Leontief Paradox (exported products incorporate

those factors that are relatively well endowed in the country). Ex: USA
export products had more labour factor, when this country the capital
factor is more relative important)
Intra-industry trade

Solution:

 Differentiate between traditional international trade and intra-industrial

trade .

 The intra-industrial trade deals with the trade between similar countries
and similar products.

Factors affecting the intra-industry trade:

1) Product differentiation
2) Economies of scale.
4. Economical cycles

Important effect on the shipping cycle.

Seaborne trade highly correlated with GDP

Types:
Commercial cycles (12 years aprox). Juglar (1819-1905)
Long cycles (40-50 years). Related to innovations. Kondratieff (1892-1931)
Short cycles (months). Kitchin (1861-1932)

Schumpeter indicated that the 29 crisis the three types of cycles were located at the lowest
possible point.

Possible reasons: innovations, overproduction, over demand, over investment, etc.

Keynes: increasing the demand (public) as an anti cyclical solution

Theory of Growth

Function of production for a country:

A: Technology
L: labor factor
K: capital factor
Y: production

Model of Solow: y

y is the production per capita

k is the capital factor per capita

k
Theory of Growth
Theory of Growth
5. Main drivers affecting the seaborne trade

Policy

Institutional
Planning and
investment Demography and social
Finance changes
Operational Urbanization
Financing regulatory patterns
instruments Pricing EU population
subsidy growth and ageing
Changing of
work patterns

Economic growth Energy prices and fuel costs

Globalisation of
Climate change Energy and environment
production and
consumption
Biofuels
Economy
Information and
Communication
Technologies
(ICT)
Technology
 Policy. The case of the EU

Types of policy measures(World Bank’s guidelines): institutional; planning and investment;

operational, regulatory and licensing; and pricing, cost recovery, taxation and subsidy.

• The first category of policy measures (institutional) relates to the role of governments,
public authorities and private sector in developing and operating transport
infrastructure and services.

• The planning and investment policies define the criteria for economic, financial or
environmental and safety standards to govern public investments and controls that
should be applied to the private sector investments.

• Operational, regulatory and licensing policies aim to (1) define how public safety and
environmental should be protected; (2) define how should regulations be imposed in a
way that is effective, minimizes costs to transport operations and allows responsiveness
to demand; (3) to regulate and control infrastructure and service operations; (4) to
encourage competitive markets; and (5) to curb congestion are other objectives that are
addressed through this policy category.

• Finally pricing, cost recovery, taxation and subsidy policies define the principles for tariff
setting, level of cost recovery to be achieved for publicly owned transport
infrastructures, and the circumstances in which subsidies are justified
EU shipping policy measures
Some regulations that try to encourage a transport mode in order to increase its
competitiveness and, on the other hand, regulation which is derived from a major driver
(e.g. climate change).
Policy measures to improve
competitiveness
[1] Maritime Transport Strategy until
2018 [COM(2009) 8] (Institutional)
[3] White Paper on Transport 2011
[COM(2011) 0144] (Institutional)
[5] Communication and action plan
with a view to establishing a European
maritime transport space without barriers
[COM(2009) 11 final] (Institutional)
[7] Directive 2010/65/EU simplifying
port reporting formalities (Institutional)
[9] EU e-Maritime Initiative
(Institutional)
Policy measures to mitigate the impact of major
drivers of change
[2] Maritime Policy Green paper [COM(2006)
275]
(Operational, regulatory and licensing)
[4] Annex VI to MARPOL: Regulations for
the Prevention of Air Pollution from Ships
(Operational, regulatory and licensing)
[6] Directive 2000/59/EC of the European
Parliament and of the Council of 27 November 2000
on port reception facilities for ship-generated waste
and cargo residues. (Operational, regulatory and
licensing)
[8] Directive 2005/35/EC on ship-source
pollution and on the introduction of penalties for
infringements.
(Operational, regulatory and licensing)
[10] EU Marine Fuel Directive 2012/33/EU as
regards the sulphur content of marine fuels
[11] Directive 2005/33/EC
[12] EU Sulphur Directive (1999/32/EC)
(Operational, regulatory and licensing)

[13] The e-Freight project
(Institutional)
[15] The Blue Belt Communication
(Institutional)
[17] Programme for the promotion of
short sea shipping: legislative, technical and
operational actions (Institutional)
[19] Green paper of 10 December 1997
on seaports and maritime infrastructure
[COM (97) 678] (Planning and investment)
[21] Council Regulation (EC) No
3094/95 of 22 December 1995 on aid to
shipbuilding
(Operational, regulatory and licensing)
[22] Eco-bonus to improve synchro-
modal transport (Pricing, cost recovery,
taxation and subsidy)
[23] Council Regulation No
3577/92/EEC of 7 December 1992 applying
the principle of freedom to provide services
to maritime transport within Member States
[24] Implementation of Regulation
3577/92 applying the principle of freedom to
[14] Communication from the Commission to
the European Parliament and the Council, of 20
November 2002, “A European Union strategy to
reduce atmospheric emissions from seagoing ships”
[COM(2002) 595 final] (Operational, regulatory and
licensing)
[16] Communication from the Commission to
the European Parliament and the Council
Reinforcing Quality Service in Sea Ports: A Key for
European Transport [COM(2001) 35 final]
(Operational, regulatory and licensing)
[18] Directive 2005/65/EC of the European
Parliament and of the Council of 25 October 2005 on
enhancing port security (Operational, regulatory and
licensing)
[20] Regulation (EC) No 725/2004 of the
European Parliament and of the Council of
31 March 2004 on enhancing ship and port facility
security (Operational, regulatory and licensing)
[27] European Sustainable Shipping Forum (ESSF)
to assess compliance with the new sulphur limits
(Operational, regulatory and licensing)
[28] Agreement on a European Directive on the
deployment of alternative fuels infrastructure
(Operational, regulatory and licensing)
Demography and social changes

EU population The majority of the European regions are projected to have a larger
growth population (natural change and total net migration) in 2030, which is
expected to rise by 5% between 2008 and 2030, but considerable
variations between regions are shown.

EU population The median age of the population was 40.4 years in 2008, but is
ageing projected to increase in almost all regions. The combined effect of
three factors – the existing population structure, fertility lower than
replacement levels, and steadily rising numbers of people living longer
– is likely to increase the median age to 45.4 in 2030 and almost one in
four regions may have a median age of the population higher than 48
years.
Demography and social changes

EU urbanization The process of urbanization historically has been associated with

prospects other important economic and social transformations, which have
brought greater geographic mobility, lower fertility, longer life
expectancy and population ageing.
Regarding Europe, the73% of its population in 2014 is living in urban
areas, and is expected to be over 80% urban by 2050 (United
Nations, 2014).

Changing of The world of work is changing because of (1) the development

work patterns imperative (need for a more equitable global development path); (2)
the technological transformation which involve new means of
information processing and communications; (3) an intensification of
global competition following trade and financial liberalization as well
as a dramatic reduction of transport and communications costs; and
(4) a shift in political thinking towards greater reliance on markets
and a reduced role for the State.
Energy and environment

Energy prices Transportation costs are expected to rise on the short and medium term,
and fuel costs and transport demand will be readjusted, depending on the price
elasticity of each mode of transport.

Climate Emissions from the global shipping industry amount to around 1 billion
change tonnes a year, accounting for 3% of the world’s total greenhouse gas
(GHG) emissions and 4% of the EU’s total emissions.
The Commission’s 2011 White Paper on transport suggests that EU CO2
emissions from maritime transport should be cut by at least 40% of 2005
levels by 2050, and if feasible by 50%.

Role of Biofuels may be able to meet up to 10% or 20% of current transport

biofuels demand (TRANSvisions, 2009), but no more than this without major
advances in technology.
 Technology

Technological progress is a considerable driving force behind economic growth, structure

of production, job creation and the use of leisure time. Information and communication
technologies (ICTs), in particular, are reshaping many aspects of the world’s economies,
governments, and societies, and is a potential tool that can also contribute to decelerate
the exploitation of the environment (e.g. air pollution controls).

Advanced information and communication technologies contribute towards co-modality

by improving infrastructure, traffic and fleet management and facilitating a better
tracking and tracing of goods across the transport networks. Moreover, it also will help to
minimize risks for safety and the environment, while maximizing the efficiency of
waterborne transport and the whole supply chain.
 Economy

Economic Strong positive relationship between economic and transport growth.

growth
From previous studies (e.g. TRANSvisions, 2009) it can be said that
freight transport demand tends to grow faster than GDP growth in time
of economic growth in the EU-15 area, but slower in the EU-10, due to
the shift from heavy industries towards the service sector in that
economies.

Globalisation Trade has been reinforced by the integration of China, India, Brazil and
of production Russia. As a consequence, the increasing globalisation has led to a
and strong increase in international shipping activity.
consumption
The length and complexity of logistical chain have grown faster, resulting
in the increase of the average distance of freight trips and their
frequency.
 Finance

Transportation projects and infrastructures are highly capital intensive because of their
size and technological complexity, assets value and the revenue they generate.

Available funding from traditional sources (i.e.: allocations from national and EU
budgets, loans and cohesion funds) falls short of the investment needs of the EU
transport sector due to the significant financial gap in public resources. Under these
conditions, one way is to mobilise private investment in infrastructure projects or
investigate mechanisms for generating more resources from off-budget sources. The
public-private partnerships have played an important role in this process as well as
capital markets’ financial instruments
Thanks