The container freight market

Last ten years trend and involved mechanism


Essay, 2011
7 Pages, Grade: A

Excerpt

Table of content

List of abbreviations

List of figures

1. Introduction

2. Definition and parties involved

3. Key concepts
3.1. Mechanism of freight-rates
3.2. Trade elasticity of demand

4. Key influences on supply and demand

5. Container market freight-rate index

6. Conclusion

List of references

List of abbreviations

illustration not visible in this excerpt

List of figures

Figure 1 - supply-demand equilibrium

Figure 2 - Illustration of High Elasticity and Low Elasticity

Figure 3 - Influences on supply and demand

Figure 4 - Container freight rate index

1. Introduction

Ship owners trade in four different markets: The new building market, the freight market, the sales- and purchasing market and the demolition market (Stopford, 2008). This paper summarises the part of the container freight market presented in class from group number two.

At first the paper will define the market and involved parties. Secondly key concepts as well as involved mechanism of the freight market will be introduced. After that, the last ten years trend will be presented and mentioned mechanism and concepts will be applied accordingly. Finally the summary will end with a conclusion.

2. Definition and parties involved

According to Stopford (2008: p180) the freight market is a market place where “sea transport is sold and bought”. Three parties are involved: The ship-owner who needs cargo to transport, the cargo-owner who needs ships for transportation and the broker who puts the deal together (Stopford, 2008). After negotiating, both parties mutually accept a price for the transportation, which is the freight-rate (Lun, Lai and Cheng, 2010).

3. Key concepts

3.1. Mechanism of freight-rates

The mechanism of freight-rates is an adjustment mechanism linking supply and demand (Stopford, 2008). In general this mechanism underlies the law of demand and supply, which says that the quantity of purchased goods act contrariwise to its price (McConville, 1998). And furthermore if demand increases and supply remains fixed, a higher equilibrium price will be reached - and vice versa (Carbaugh, 2004).

Figure-1 illustrates the law of demand and supply within the shipping market. The equilibrium price of $ 170 is the price the ship-owner and cargo-owner agree and represents the freight-rate. All in all, the equilibrium price represents the balance of ships and cargoes available in the market (Stopford, 2008).

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3.2. Trade elasticity of demand

The concept of trade elasticity of demand for sea-transport describes the relationship between freight-rates and quantity demanded (McConville, 1998). Figure-2 shows, that one percentage change in the costs has much more impact on the percentage change of volume if the trade elasticity is high in comparison with low elasticity.

According to Stopford (2008) the shape of the demand curve for bulk commodities is almost vertical, which indicates a low elasticity. Reasons are that bulk commodities like grain or coal are necessities which has to be shipped regardless of cost. A lack of substitute transport mode and the relatively low proportion of transport costs to the total cost reinforce this argument (Metaxas, 1971). In turn this means that trade elasticity of container shipping is higher than for bulk commodities, because containerized cargo has often a very high value and represent luxurious goods (Stopford, 2008). Therefore demand is much more depended on the cost of transport.

4. Key influences on supply and demand

Several variables influence supply and demand and therefore the freight-rates. The key variables are listed below and will be discussed in the next section.

illustration not visible in this excerpt

Figure 3 - Influences on supply and demand (Source: Stopford, 2008)

5. Container market freight-rate index

illustration not visible in this excerpt

Figure-4 shows the container market freight index from 1998 to 2011. The timeline is labelled with several marks where freight-rates have been increased or decreased.

[...]

Excerpt out of 7 pages

Details

Title
The container freight market
Subtitle
Last ten years trend and involved mechanism
College
Heriot-Watt University Edinburgh
Grade
A
Author
Year
2011
Pages
7
Catalog Number
V198723
ISBN (eBook)
9783656250807
File size
478 KB
Language
English
Tags
Maritime Business, container freight market, container market, freight market, container trend
Quote paper
Christian Schwab (Author), 2011, The container freight market, Munich, GRIN Verlag, https://www.grin.com/document/198723

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