Course Code: SEML 5001 Course Title: Shipping Economics and Maritime Logistics

Programme: M.Sc. OPERATIONAL MARITIME MANAGEMENT

Academic Year/ Semester: Year 2019-2020/ Semester 2
Student ID # 88106

Introduction

People have consistently had a self-serving relationship with the sea-going condition, counting
the early utilization of the ocean for nourishment collecting and correspondence. Today, the
ocean is a significant segment of the transportation framework, with enormous measures of
payload and travelers.
This Assignment provides a short introduction to ships and shipping, focusing primarily on Bulk
Carriers mainly Iron Ore types. Also it introduces a major commodity trade (Iron Ore) and
shipping market segment, an analysis of major developments in the global economy and
international seaborne trade and shipping transportation within the period of 2010 to 2019 in
order to demonstrate that shipping market cycles do exist and are infrequently driven by short
term seasonal changes, medium term market fluctuations in the business cycle and longer term
secular and structural trends in the global economy and international trade. There will an analysis
of data composed with conclusion drawn of the periods mentioned in the above

IRON ORE
About 98% of iron ore is used to make steel one of the greatest inventions and most useful
materials ever created. The modern economy can be described as functioning within the Iron
Age. Iron Ore is used to construct steel: the primary material of the structures, tools and
machines of industrialized society. It is estimated that worldwide there are 800 billion tons of
iron ore resources, containing more than 230 billion tons of iron. It is estimated that the United
States has 110 billion tons of iron ore representing 27 billion tons of iron. Among the largest iron
ore producing nations are Russia, Brazil, China, Australia, India and the USA. Worldwide, 50
countries produce iron ore, but 96% of this ore is produced by only 15 of those countries.

Shipping and Shipping Cycle

About 90% of world trade is carried by the international shipping industry. Without shipping, the
import/export of affordable food and goods would not be possible. The shipping cycle is an
economic concept that explains how shipping companies and freight charges respond to supply
and demand. It inspects how and why ships develop in ocean exchanging ports. The cycle
additionally looks to clarify what influences the selling cost of ship armadas and what kind of
ship sell during moderate business periods. The four phases of the transportation cycle, all
dependent on client request, are trough, recovery, peak and collapse (Stopford, M., 2008).

Stages and drivers involved in a typical shipping cycle

Stage 1: Trough.

A trough has three characteristics.

Firstly, there are clear signs of surplus shipping capacity with ships queuing at loading
points and sea slow-steaming to save fuel.
Secondly, freight rates fall to the operating cost of the least efficient ships, which move
into layup.
Thirdly, as low freight rates and tight credit produce negative cashflow, financial
pressures build up, leading to stagnation as tough decisions are put off, and finally
distress as market pressures overwhelm inertia.

Stage 2: Recovery.

As supply and demand move towards balance, freight rates edge above operating costs,
and laid up tonnage falls. Market sentiment remains uncertain, but gradually confidence
grows. Spells of optimism alternate with doubts about whether a recovery is really and as
 liquidity improves, second-hand prices increase and sentiment firms as markets become
prosperous.

Stage 3: Peak/Plateau

At this point, the shipping freight rates become quite high often double or triple the
amount of fleet operating costs. The levels of supply and demand are almost completely
equal. Quite a bit of market pressure occurs between supply and demand levels, which
could cause the peak to fall at any time. Most of the shipping fleet is in operation, with
only the most inefficient ships left to idle in trading ports. Cash flow for shipping
companies is quite high.

Stage 4: Collapse

This stage occurs when supply levels begin to exceed demand. Freight rates begin to
decline during a collapse. Shipping containers and fleet begin to accumulate in trading
ports once again. Although the cash flow of shipping companies may remain at high
levels, ships begin to slow down their operations. They may take longer to deliver goods,
and inefficient fleets may not ship goods for some time.

The iron ore is the dry bulk cargo with the largest trading volume per year, above coal and
grains. In general, there are not special sub-categories of iron ore as it happens with the coal or
grains. Its main categorization is related with its size and quality. The below table 1 shows the
iron ore (in million Metric Tons) transported by sea each year from 2010 to 2019 and its
percentage share in the total dry bulk trade. As we can see, the volume of iron ore trade reaches a
peak of 12.45% in 2014 and a collapse in market value in 2019 of 0.75
Table 1

Iron Ore Trade 2010-2019

1600 0.14
12.45%
1400 0.12
1200
0.1
1000
0.08
800 6.26% 7.12%
5.41% 0.06
600 4.73%
3.88% 0.04
400
200 1.27% 0.02
Year 2010 2011 2012 2013 2014 2015 2016 2017
0.20% 20180.75%2019
Iron 0Ore 0.00% 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
(Million
Tons) 991 1053 1110 Iron 1189
Ore (Million1337
Tons) 1354% Change
1418 1473 1476 1487
%
Change 0 6.26% 5.41% 7.12% 12.45% 1.27% 4.73% 3.88% 0.20% 0.75%

Figure 1 : Review of Maritime Transport, UNCTAD, (Annual Reports), 2010 to 2019)

Analysis and Discussion

In 2010 to 2011 iron ore trade expanded by 6.2% taking the total volume past 1 billion tons. This
growth remains highly concentrated with china being the main driver. Reflecting their weaker
economic stance, European countries reduce their imports by 3.7 per cent, while Asian
developing countries recorded an increase of 2%. Although it remains subject to development in
the wider economy and the steel making sector, and more important, to the effect of the new
macroeconomic policies being indigested by china, the outlook for iron trade remains positive,
with shipment projected by research for growth (Clarkson Research Services, 2010).
Pressures build up in 2012, leading to stagnation as tough decisions are to be made. Australia,
the largest world exporter (44.5 per cent share), increased its shipments by 12.8 per cent.
Similarly, other exporters such as Canada, South Africa and Sweden have also increased their
shipments, while in India, mining bans and taxes on iron-ore exports have significantly
constrained the country’s export volumes 52.8 percent. As a result, India’s market share declined
and a structural shift unfolded, whereby India has moved from being a major exporter to a net
importer and its import demand is likely to increase over the next few years. Australia has been
increasing its market share, while Brazil recorded a decline due to the mine- and infrastructure-
expansion projects being completed in Australia and expansion projects in Brazil being delayed.
Apart from China, there seems to be no other significant contributors to iron-ore trade growth, as
imports into Europe and Japan are stagnating or declining and the import-demand growth in the
Republic of Korea is still relatively small scale.

Supported by increased production and exports from Australia, seaborne iron ore trade is
estimated to have peaked by 12.4 per cent, taking the total to 1.34 billion tons in 2014 (Dry Bulk
Trade Outlook, 2015). While growth in China’s steel production decelerated in 2014 (World
Steel Association, 2015), its iron ore imports remained robust due to lower international iron ore
prices and the ample supply from Australia. The cheaper and higher quality imported iron ore
displaced domestic supply. There are significant concerns, however, about the long-term
developments in China’s steel industry and related implications for dry bulk shipping. On the
positive side for shipping, the increased Indian import demand may indicate the potential of
India to further rely on iron ore imports to support its growing steel production sector.
Iron Ore shipments in 2018 experience some underlying risks that became more apparent.
Growth in Dry bulk (Iron Ore) trade declined by 0.2 per cent in 2018, down from 3.8 per cent in
2017. Some negative trends unfolded in 2018, supply-side constraints in Australia and Brazil
which together accounted for some 83.0 per cent of the global market. In 2018 rising scrap use
for steel industry in China and the use of existing iron ore inventories has limited the demand for
iron ore imports in China. Other exporters, in order of magnitude are South Africa, Canada,
Sweden and India, which contribute only smaller shares to global iron ore trade.
Principle changes in supply and demand

The export and import of iron metal are regularly utilized as an indicator for neighborhood and
provincial economies. Houses, scaffolds, and streets are frequently worked with results of mined
iron, while different metals like copper are all the more ordinarily used to make electrical items.

Supply and demand generally have the largest impacts on the iron ore industry. The interest for
iron mineral is regularly ascribed to monetary conditions in places it is traded to, while mining
and transportation conditions can have an effect too. Occasional varieties that happen during the
year, and rivalry, some of the time do too. Urbanization in developing nations regularly
influences the interest for iron metal, as streets and homes are worked to oblige huge populaces.
Exchange between nations, be that as it may, can be influenced by monetary issues somewhere
else on the planet. Worldwide downturns and obligation can lessen the interest for iron mineral
and numerous different items. Its utilization to check financial conditions, be that as it may, is to
some degree not quite the same as different materials related with nonessential products like
hardware.

Seasonality and other effects in the iron ore market

The iron mineral cargoes are not seasonal and traded all around the year. Its volume basically
relies upon the mechanical action of the creating or created nations and their development.
Besides, because of the way that no principle grain cargoes are delivered in capesize mass
vessels, the regularity of grains doesn't have a high impact in the capesize division. In any case,
the capesize business is needy and profoundly impacted by two parameters: The monetary
conditions in China and the port blockage. Since China is the significant merchant of iron
mineral with a gigantic offer, a downturn in its modern movement will have a considerably
harder impact on the interest for iron metal. Additionally, since there are just scarcely any
stacking ports, it is exceptionally regular the port clog to be expanded during the times of more
popularity. An expansion in the port blockage may have a constructive outcome in the cargo
rates since the accessible stockpile is diminished. Seasonal temperature variations can affect the
demand for iron ore, as can weather conditions such as monsoons. Regional situations like
increases in taxes can impact demand, while changes in stock prices and the condition of
industrial mills and mines sometimes have unpredictable results. The cost of freight transport,
which can be affected by other variables such as security and fuel costs, can be another factor to
consider.

Type of vessel. (Bulk Carriers)

Greece, Japan, and China are the top three owners of bulk carriers, with 1,326, 1,041, and 979
vessels respectively. These three nations account for over 53% of the world's fleet. These vessels
are single-deckers and they are not ready to stack compartments. Their portals have huge
openings so as the vessel to be stacked/released rapidly and the holds are unlimited and liberated
from impediments. Because of the mass idea of the payload they load, the holds of these vessels
have been developed to act naturally "cutting" to permit the simple and fast stowage and cutting
of the mass cargoes. As opposed to the general payload vessels which can stack a few distinctive
cargoes, load in mass vessels are normally similar. There are a few unique kinds of ships with
the fundamental differentiation between one another being their size. In this manner, as per their
size, see beneath table of classes for easy of reference:

Figure 2
Corona virus affects bulk carriers form trade

Case Studies
Brazilian Giant Vale Provides New Warning on Iron Ore Production

Brazilian iron ore rival, Vale, has raised the possibility of curbing or suspending iron ore
shipments because of the growing threat of the COVID-19 virus. The price for 62% Fe fines
Shipped to northern China rose 96 cents on Friday 13th to $US91.91 a tonne, according to the
Metal Bulletin. That’s up 1.6% from the previous week’s close of $US90.19 a tonne. Iron ore
prices have been held up by supply constraints from brazil due to heavy rain and transport
hitches, and from Rio’s lower than expected output from its Pilbara mines because of the damage
caused by Cyclone Damien in February.
News that supplies from Brazil might be further constrained is likely to see Chinese steel mills
and traders chase iron ore higher this week.
The three big Australian iron ore companies have not issued a statement about the impact of the
COVID-19 virus on their mining operations, especially iron ore.
Source:https://www.sharecafe.com.au/2020/03/14/brazilian-giant-vale-provides-new-warning-
on-iron-ore-production/

COVID-19 Virus Disrupts China’s Shipping, and World Ports Feel the Impact
SHANGHAI — Some docks in China are clogged with arriving shipping containers or iron ore.
Warehouses overflow with goods that cannot be exported for lack of trucks. And many factories
are idle because components are not reaching them. Global shipping has been one of the biggest
casualties. More tonnage of container ships is idled around the world now than during the global
financial crisis, according to Alphaliner, a shipping data service. Daily charter rates for tankers
and bulk freighters have plummeted more than 70 percent since early January as China buys less
oil, iron ore and coal, said Tim Huxley, the chief executive of Mandarin Shipping, a Hong Kong-
based freighter shipping line
Source:https://www.nytimes.com/2020/02/27/business/economy/china-coronavirus-shipping-
ports.html.
Conclusion

One of the most significant highlights of development in world economies and globalization as
of late, is the dry bulk (Iron Ore) delivery showcased in the above literature, which establishes
the foundation of the universal exchange. Having indicated a development in the course of recent
years except for year 2009, the worldwide seaborne dry bulk iron ore exchange is required to
keep on developing with consistent growth as shown in the graph above. Of all the seaborne dry
bulk trade, Asian nations continue to dominate as consumers with China being the largest
consumer of iron ore as previously mentioned in the analysis in addition supply and demand
continue to have a major impact of the shipping industry while the transportation aspect has
equal influences in the shipping business. The capesize business is needy and profoundly
impacted by two parameters: The monetary conditions and the port blockage. Since China is the
significant merchant of iron mineral with a gigantic offer, a downturn in its modern movement
will have a considerably harder impact on the interest for iron metal.
Carriers have tried to cope with the coronavirus-led fall in cargo demand by withdrawing sailings
and also faced with the possibility of shrinking revenue and increased losses. Experts agree that
long-term consequences remain difficult to determine at the time; however, if the SARS
epidemic is any indication, Chinese markets will manage to recover once coronavirus has been
contained, resulting in only short-term interruptions.

Reference

Forecast, U.C.T., UNCTAD Review of Maritime Transport 2010-2019.

Stopford, M., 2008. Maritime economics 3e. Routledge.
https://www.sharecafe.com.au/2020/03/14/brazilian-giant-vale-provides-new-warning-on-iron-
ore-production/
https://www.nytimes.com/2020/02/27/business/economy/china-coronavirus-shipping-ports.html
Stopford, M., 2008. Maritime economics 3e. Routledge.