CHAPTER 1

Services rendered by sea transport

to international trade

FUNCTION OF SHIPPING AND ITS RELATIONSHIP

TO INTERNATIONAL TRADE

Transport is an essential facility for the exploitation or development

of economic resources on a national or international scale. It allows
articles or materials to be conveyed from areas of low utility to areas
of high utility.
The reasons for the provision of transport may be economic, social
or political. For example, the presence of a steel works in South
Wales is due to a number of factors, including the local availability of
coal and labour and the existence of reliable, cheap sea transport.
which allows the importation of iron ore through Port Talbot. Ore
mined in South Australia, where it has little local value, is shipped to
an area of steel production such as South Wales, where the industry
originally developed owing to the proximity of high grade iron ore
mined in the local coal measures. Efficient shipping has enahled the
industry to remain in the locality despite the exhaustion of local ores,
and the development of huge iron ore carrier vessels has made South
Australian ores competitive with Swedish, Algerian and Canadian
ores in spite of the longer distance over which the ores must be
carried. Similarly, rail and sea transport enables Canadian wheat
growers to ship substantial quantities of grain from the prairies to
processing and consuming areas such as India or the United Kingdom
and allows cars manufactured in Japan to be sold at competitive
prices in the United Kingdom and the USA.
Generally speaking, the demand for shipping is derived from the
demand for goods. Certain forms of transport, such as pleasure
cruises and holiday travel, may be regarded as 'consumer services',
but the basic function of shipping involving economic, social or
military needs is the creation of utilities of place.
A. E. Branch, Economics of Shipping Practice and Management
© Alan E. Branch 1988
2 Sea Transport to International Trade
In a society where transport costs are relatively high, the need for a
balanced social policy is paramount if isolated communities are to
remain in existence. Thanks to liner conference services and, more
recently, the introduction of containerization and specialized bulk
carriers, shipping has facilitated the development of world resources
in terms of both raw materials and manufactured goods. The
exchange of goods has brought countries with a high level of in dust -
rial advancement, such as those in Europe, into contact with nations
at a lower level of industrialization such as India and other countries
in the East. In so doing. it has helped nurture community life through
the development of local industry producing goods for overseas
markets.
Shipping therefore allows economic resources to be developed to
the full. It permits specialization in economic activity, whether it be
mining, car-making or farming. Without cheap, reliable and well
managed shipping services, the exchange of goods and services
would be far smaller, to the serious detriment of living standards
worldwide.

BALANCE OF TRADE AND BALANCE OF

PAYMENTS

When a country engages in international trade there emerges what is

called the 'balance of payments'. The people of every country event-
ually require payment for the goods they make or the services they
render to be made in their own currency - which is normally the only
legal tender in their own country. If we buy goods or services from the
USA we must pay in dollars; if we buy from Germany we must pay in
Deutschmarks. The best way to obtain these currencies is to sell some
of our own goods and services tothe USA and to Germany. Ifwe can
sell to them just sufficient to cover the cost of our purchases from
them, then our payments with those countries will be in balance. In
practice, of course, trade does not work out as simply as that, as we
may want more, or less, from a country than it requires from us, so
that our balance of payments with that country will be in disequi-
librium. Fortunately, in most cases we can overcome the problem by
paying in some other currency acceptable to them, as explained in
Chapter 2. Because our balance with different countries may be in
our favour or in theirs, we have to consider our balance of payments
against all the other countries of the world in total. The balance of