Maritime Logistics Diploma

Module #1: World Trade Patterns

 Upon the successful completion of this module, you should be able to:

o Analyze world trade patterns and how they affect global trading. 

o Identify the basic functions of the multilateral trading system. 

o Discuss why tariffs, duties or import restrictions are imposed. 

o Outline the preconditions for trading. 

o Outline the major drivers of the trading industry. 

o Explain the major trade blocs of the world

 Global Trade Changes
 Global trade continues to accelerate both in volumes and complexity, with the
WTO’s most recent trade forecast revised to show improved growth in world
merchandise trade volume. Just look at the numbers from Alibaba and their most
recent Singles Day, where products were purchased from 192 countries. 

The number of tons shipped by ocean containers has multiplied many times over
in recent years-almost 17 times-from 102 million tons in 1980, to 1,720 million
tons in 2016. After years of stagnation, trade has been soaring as an upturn across
major global economies picking up momentum However, Political unrest, myriadi
of and ever-increasing regulatory requirements including veiled protectionism
have all added to layers of distress.

1|Page


 The volume of world trade continued to grow slowly in 2015 recording growth of
2.7 per cent in April 2016. Trade growth was roughly in line with world GDP
growth of 2.4 per cent. The current dollar value of world merchandise exports is
at US$ 16.0 trillion.
 Changes in the Global Economy

 The main changes in the global economy are:


o The emergence of regional trading blocs, where members freely trade with
each other, but erect barriers to trade with non-members, has had a
significant impact on the pattern of global trade. While the formation of
blocs, such as the European Union and NAFTA, has led to trade creation

2|Page
 between members, countries outside the bloc have suffered from trade
diversion.

o Like several advanced economies, the UK's trade in manufactured goods

has fallen relative to its trade in commercial and financial services. Many
advanced economies have experienced de-industrialization, with less
national output generated by their manufacturing sectors.

o The collapse of communism led to the opening-up of many former-

communist countries. These countries have increased their share of world
trade by taking advantage of their low production costs, especially their
low wage levels.

o Newly industrialized countries like India and China have dramatically

increased their share of world trade and their share of manufacturing
exports. China, in particular, has emerged as an economic super-power.
China's share of world trade has increased in all areas, and not just in
clothing and low-tech goods. For example, in 1995, the US had captured
nearly 25% of global trade in hi-tech goods, while China had only 3%. By
2005, the US share had fallen to 15%, while China's share had risen to
15%.
 Growth in Trade

 Although subject to short term fluctuations as a result of the economic cycle, the
value of trade has continued to grow, reflecting the increased significance of trade
and globalization. The chart below shows that, as a % of world GDP, trade
increased from 40% in 1990 to 60% in 2014. The effects of the financial crisis
and subsequent recession can also be seen, as world trade fell as a % of GDP
between 2008 and 2010.

3|Page
 Container Trade-Some Details

4|Page


 NA - Not Available

 Note: TEUs are fully loaded.

 Source: IHS Global Insight, World Trade Service

5|Page
 Container Trade-Some Details

 Cryogenics may sound like a science of the future but reefer containers get pretty
close today. Special super-freeze reefers can keep goods frozen at temperatures as
low as -60 degrees C. But other reefers can preserve goods at warmer
temperatures if that is necessary. 

De-humidification systems are able to ensure optimal humidity inside reefer

containers. Some reefers also allow the atmosphere in the container to be
controlled so for example, bananas can be shipped between continents without
turning brown. Even fresh flowers can remain fresh in reefer containers while
they are travelling many miles over several days. It is because of reefer
containers, that grocery stores are able to stock and sell all kinds of fresh produce
all year round

Reefer containers generally come in 20 foot and 40 foot lengths, with the same
general dimensions as that of dry cargo containers of the same size. However,
there is slightly less cargo space available inside the reefer container due to the
space taken up by the refrigeration unit and ventilation equipment.

6|Page
 Multilateral Trading System Under the WTO

 The multilateral trading system under the WTO aims to encourage free and fair
trade globally. The most basic goal is to eliminate tariffs on goods moving
between countries. However, even if tariffs are eliminated, trade is not necessarily
fully free if there are other, non-tariff barriers restricting trade.

Countries have historically used many strategies to restrict imports in order to

protect their local industries. The global trade system functions optimally when
countries agree to import goods that they don’t produce competitively, but are
free to export goods they do produce competitively.

An example of a non-tariff barrier is complexity of paperwork involved in

customs clearance and excessive administrative fees. Another may be a local
health and safety regulation when there is no scientific basis. For example,
consider that a shipment of apples enters country A. First, it has to clear Customs,
which it does after verification that tariffs have been paid. The shipment can’t
enter the country officially until the agricultural inspection service certifies that
the goods are free of disease. 

In most cases, these inspections are a legitimate way for Country A to protect its
citizens. But if Country A is trying to protect its local apple growers, the
inspectors might delay shipment and this could result in excessive warehouse fees
at the port of arrival and perhaps the spoilage of the shipment. This is an example
of a non-tariff barrier.

 Aims of the Multilateral Trading System

 Another aim of the multilateral trading system is to promote the healthy economic
growth of nations by fostering a system of balanced trade between exports and
7|Page
 imports. A country with a balanced trade is able to sell the goods and services that
it produces, thereby being able to import goods and services that it needs. This
situation leads to improvement in standards of living in the country.

However, when there is a continuing imbalance in trade, that is, more imports
than exports, the economy of a country is negatively affected. How does this
happen? When a country is spending more money on imports than it receives for
exports, it leads to an imbalance of payments. There is an overall gap between the
total amount of money that a nation brings in and the money that is leaving the
nation. In order to make up for this gap, the nation has no choice but to borrow
from other nations. In doing so, it becomes a debtor nation, which often leads to a
devaluation of its currency. When a country’s currency is devalued, its exports are
priced more competitively, but it has to pay more for imports.

An example of the success of the WTO is the fact that on a global basis, there is a
relative balance between exports and imports. In 2005, for example, world trade
was worth US7.7trillioninexportsagainstUS8.1 trillion in imports.

However, between many pairs of individual countries, there exists a large trade
imbalance, which is unhealthy and ultimately unsustainable. Trade imbalances are
a major cause of the economic instability in the world that began in 2007.

 Explaining Trade Balance

 The following chart shows trade imbalances that exist in major global economies.
You can see, for example, that the trade gap in the U.S. is very large, while the
gap in other countries is smaller. The following media explains about the Trade
Balance:

8|Page
 Imposition of Tariffs

 The imposition of tariffs or duties is necessary to check the unfair exchange of

goods between countries. A protection or retaliatoryii action such as temporary
duty is imposed to resolve such problems.

Prior to the imposition of income taxes, which is a relatively recent phenomenon,

customs duties often provided the primary source of Government revenues. The
second reason for the imposition of tariffs is to protect and nurture a home grown
industry.

India’s protection of the automobile industry is a classic example of the use of

high tariffs to protect a home grown industry. Today, in a major Indian city like
Mumbai, you will see many older model cars. This is because low priced and
higher quality imports have not been allowed into the country. This protectionist
policy has prevented the Indian auto industry from modernizing and thus it does
not build internationally known vehicles.

9|Page
 In contrast, US automakers were exposed to global competition and although US
automakers have struggled in recent times, their products have continually
improved to compete against foreign competition. The bottom line is that opening
the local industry to foreign competition is a painful process that often results in
severe dislocation and hardship, but ultimately results in a more competitive
industry.

 Reasons for Imposing Tarrifs

 There are certain situations where tariffs will nurture a local industry, buying time
for the industry to develop, before it is exposed to the pressures of global
competition. An example is the Indian banking sector. For many years foreign
banks were barred from entering the Indian market while the Indian banking
sector developed. Once Indian banks achieved a level of maturity, the Indian
banking market began to open to foreign banking institutions, with the confidence
that Indian banks would not get decimatediii by foreign competition.

In addition to protecting local industry and raising revenue for the government,
there are additional reasons as to why governments impose tariffs. These relate to
furthering different government policies. For example, Singapore has a policy of
keeping roads free from congestion and encouraging citizens to use public
transport. Therefore, the nation places a high tariff on imported automobiles. For
example, if a BMW normally sells for 40,000,inSingaporeitmightsellfor140,000
due to the import tariff. In India, high tariffs are placed on luxury goods to
encourage the spending of money on necessities like food and housing.

Besides tariffs, governments also prohibit the importation of many types of goods
and assess steep fines or impose long jail terms on offenders. These prohibitions
are designed to advance many different types of policies.

For example, to discourage the use of child labor in the manufacturing of goods,
many countries prohibit the imports of goods where child labor is used. To
discourage the harming of endangered species, many nations will not allow

10 | P a g e
 importation of known products made from the fur, hides, bones or tusks of
endangered species like elephants.

Certain nations with strict religious policies will prohibit importation of alcohol or
other goods. Since the use of narcoticsiv is considered by many nations to be
detrimental to health and conducive to crime, they bar the imports of illegal
narcotics. In addition, many types of plants could be legitimately harmful to local
crops, and are thus banned.

 Dumping 

 Nations also restrict imports due to alleged unfair trading practices by other
nations. When a manufacturer or industry in one country sells its product in
another country at a price lower than its cost of production or selling rate in its
home country, it results in dumping. This is done with the intention of putting the
importing country’s own producers out of business.

On October 6, 2006, the European Union imposed anti-dumping duties, in

addition to regular duties, of 16.5 percent and 10 percent, respectively. These
duties were imposed on European imports of certain leather footwear from China
and Vietnam. According to the American Apparel and Footwear Association, the
duties were imposed for a two-year period beginning from October 5, 2006.. 

The case originated out of complaints by European footwear makers that Chinese
and Vietnamese imports were flooding the European market and driving down
prices, forcing European makers out of business. 

 Countervailing1 Duties

1
having equal force but an opposite effect:
11 | P a g e
 Countervailing duties is another type of duty imposed to neutralize the effects of
subsidized exports by a foreign government. If a government subsidizes an
industry, allowing that industry to sell its goods at an unfairly low price, the
importing country may impose countervailing duties to neutralize this impact.

According to the WTO, countervailing duties can be imposed to neutralized

"subsidies that require recipients to meet certain export targets, or to use domestic
goods instead of imported goods. They are prohibited because they are
specifically designed to distort international trade, and are therefore likely to hurt
other countries' trade."

For example, the European community, which has shipyards in several countries
such as Spain, Portugal, Germany and Denmark, alleged that the South Korean
government directed state controlled banks to bail outv troubled shipyards, thereby
enabling the Korean yards to sell ships at low prices. The case was taken to the
WTO.

For additional information on WTO agreements on anti-dumping, subsidies and

safeguards , visit the
website: https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm8_e.htm#subs
idies

 Preconditions of Trade

 The most basic precondition for trade is peace. When nations are at war, they do
not trade. As soon as World War II ended, one of the first initiatives was to create
the GATT so as to restart the process of global trade, which had decimated during
the war.

Trade requires the presence of a stable government as a precondition for its ability
to buy and sell goods in the international market. In order to trade effectively, a

12 | P a g e
 country has to have a functioning internal economy, which should include basic
infrastructure such as roads, telecommunications, ports, electricity, and other
services.

A functioning internal economy provides the government with an income to buy

goods and services, and also provides the private sector with capital to buy goods
and services that it needs. A functioning internal economy also leads to the
creation of goods and services that the country can competitively sell to the world
market.

Even countries that have a limited internal economy but are rich in natural
resources, (such as Saudi Arabia in its early stage of development) are able to
trade, assuming an initial investment in basic infrastructure. Therefore, the basic
pre-conditions of trade are peace, a stable government, a functioning economy,
and a supporting infrastructure.

 Major Drivers of Trade

 The most significant factor affecting the amount of trade that occurs, is economic
growth. When countries experience periods of economic growth, reflected in the
Gross Domestic Product (GDP Growth), it results in healthy increases in imports
and exports. 

A sustainable state of equilibrium in trade will exist if the imports and exports of
a country are relatively balanced. However, when imports and exports fall out of
balance, pressures begin to effect the economy and will ultimately have to be
corrected.

Exchange rates is another major driver of trade. The exchange rate is the value of
the currency of one country in relation to another. A statement such as "The US
dollar is declining," means that the dollar is declining, not just against one
currency but many at the same time.

13 | P a g e
 If the currency of country A is falling in relation to the currency of country B, the
goods of country A will become cheaper in the market of country B, and
conversely, the goods of country B will become more expensive in the market of
country A. Therefore, all else being equal, it is likely that country A's exports in
relation to country B will increase, while country B's exports in relation to
country A, will decline.

 Example of Trade

 A classic example of this occurred in the trade between South America and the
US beginning in 2001. Argentina's currency, which was pegged to the U.S. dollar,
one peso for one dollar, was de-pegged in 2001 and fell by 70 percent in value
against the dollar in 2002. Argentina defaulted on its foreign debt and its economy
shrank by 11 percent. 

Brazil's economy, too, was negatively impacted by Argentina's default. However,

even though the economies of both Brazil and Argentina suffered, their exports
soared and in the process helped their economies to recover.

The following table illustrates the pattern of growth in exports due to fall in a
country's currency relative to the currency of another country.

14 | P a g e
 Did you know: In 2007, shipments were sharply skewed the other way due the
decline in the Argentine Peso and other South American currencies. In 2002,
426,887 20-foot containers or the equivalent (TEUs) moved northbound into the
U.S. and only 270,554 moved southbound to Argentina and Brazil, according to
PIERS, the Port/Import Reporting Service, a sister company of The Journal of
Commerce. U.S. imports from Brazil exceeded U.S. exports by a margin of 5 to 2.
This was due to the decline in the South American currencies relative to the U.S.
dollar, which made their products more competitive in the U.S. market and at the
same time made U.S. exports less competitive there.

 Trade Structure

 It is essential to have the knowledge of world trade patterns to understand the

movement of cargo across the globe. It also helps sellers, buyers, and carriers plan
their business operations accordingly.

15 | P a g e
 Countries form regional groups or Trade Blocs and together facilitate trade
amongst the members of the bloc. 

They create a unified interface with other nations and blocs. 

 There are many regional blocs but the largest are the North American Trade
Agreement (NAFTA) and the European Union (EU) made up of the 25 Western
and Central European countries, called the European Common Market. Other
trade blocs exist in Latin America, Southeast Asia, Southern Africa, the
Caribbean, and Central America. The map above illustrates the major trade blocs
of the world.

The following link provides more information on the roles of regional trade blocs.

16 | P a g e
 https://brainmass.com/business/wto-and-gatt/major-regional-trading-blocs-world-
101605

 Breakbulk Trade Flow

 The structure of world trade constantly changes depending upon the supply and
demand of goods. Developing countries have a demand for manufactured goods
while developed countries have a demand for raw materials. Over time, the
constant flow of trade in specific regions of the world creates a trade pattern. The
graphic illustrates the breakbulk trade flow. Multipurpose ships of all nations are
generally free to engage in worldwide ocean trade without restrictions. Based on
the breakbulk trade pattern, they carry cargo from developed countries to
developing countries.

 World Trade and Breakbulk Shipping

 Breakbulk ocean transportation tends to flow from the developed world to the
developing world as it is based on the movement of heavy equipment. Developing
countries require heavy equipment to extract their natural resources, which are in
turn exported to the developed nations of the world. Manufactured goods and
infrastructure are imported by developing countries. This flow of trade
encourages growth and development of developing countries.

The growth of Dubai into a world-metropolis on the edge of a desert is an

example of the benefits of proper vision, investment and infrastructure.

World trade and particularly breakbulk shipping, contributes greatly toward the
growth and development of nations. Breakbulk liner shipping is especially suited
to assist in the early stages of any industrial enterprise. It helps to bring in capital
goods and machinery to develop the site, create the infrastructure, and get prime
commodities to the market. Following this, the breakbulk operator is able and
equipped to assist the project through its development and expansion stages.

 Did you know: Large areas of Northern Australia, the Pacific Islands, Indonesia,
the Philippines, East and West Malaysia, Burma (Myanmar), South and North
China, the Arabian Gulf countries, anywhere in Sub Saharan Africa, South Africa,

17 | P a g e
 the Caribbean Island nations, much of South America, the Black Sea countries,
and the Northern areas of Canada and Russia are all likely areas with growth
potential for breakbulk shipping operation.

 Why Exports are Necessary

 Exports are necessary for the following reasons:


o To turn excess domestic manufacturing into revenue

o To turn excess production of raw material into revenue

o Revenue obtained from exports keeps the domestic currency and exchange
rate strong

o To provide jobs

o To pay for domestic infrastructure development

o To encourage the growth of international trading

o To encourage the development of a ocean shipping industry

 However, the main reason is that exports pay for imports. Imports and
infrastructure development create jobs. For example, the oil rich middle-east
countries have a major preponderance of exports in the form of crude oil. With
flourishing export trade, these countries have been able to generate revenue for
imports of infrastructure, building material, equipment, and project cargo.
Construction and development of various projects provides a variety of jobs for
the citizens. A good export strategy helps in the development and prosperity of a
country.

 Lesson Summary

o The imposition of tariffs or duties is necessary to check the unfair
exchange of goods between countries. Protection or retaliatory action such
as temporary duty is imposed to resolve such problems.

18 | P a g e
 o Prior to the imposition of income taxes, which is a relatively recent
phenomenon, customs duties often provided the primary source of
Government revenues. The second reason for the imposition of tariffs is to
protect and nurture a homegrown industry.

o Countervailing duties are another type of duty imposed to neutralize the

effects of subsidized exports by a foreign government. 

o The most basic precondition for trade is peace.

o A functioning internal economy provides the government with an income

to buy goods and services, and also provides the private sector with capital
to buy goods and services that it needs. A functioning internal economy
also leads to the creation of goods and services that the country can
competitively sell to the world market.

o The most significant factor affecting the amount of trade that occurs is
economic growth. Exchange rates are another major driver of trade.

o Multipurpose ships of all nations are generally free to engage in

worldwide ocean trade without restrictions. Based on the breakbulk trade
pattern, they carry cargo from developed countries to developing
countries.

https://arabicschoolny.com/palestinian-arabic-audio.html

19 | P a g e
i
Myriad: Plentiful.
TEU: The twenty-foot equivalent unit (abbreviated TEU or teu) is an inexact unit of cargo capacity, often used for
container ships and container ports.

ii
A retaliatory action is one that is harmful to someone who has done something to harm you:
iii
to kill a large number of something, or to reduce something severely:
iv
an illegal drug such as heroin or cocaine:
v
to jump out of an aircraft with a parachute because the aircraft is going to have an accident: