THE INSTITUTE OF CHARTERED SHIPBROKER

2022 May ICS Examiner’s Report

Economics of Sea Transport & International Trade (EST)

General comments

I am happy to present the May 2022 Economics of Sea Transport & International Trade Examiner's
Report. In keeping with the tread in recent years, the pass rate continues to be well above average.

Once again, an above average of number of essays had a brief and solid introduction, a well-
structured body, with arguments anchored on sound theory and practice and, supported by
examples from the international trade and maritime Industry.

Candidates are once again, reminded that additional marks are earned by those candidates that
make appropriate and relevant use of maps, as well as graphs and diagrams. To secure a pass ,
candidates must demonstrate an understanding of the key terms and concepts in the course, such as
for example, supply elasticity, shipping cycles, utility, economies of scale, short and long run costs,
break even analysis, principles of port tariffs, supply and demand, and opportunity cost.

Q1. Identify and comment on five key building blocks on which a Liner service is constructed.
This question required candidates to identify and comment on five of the eight building blocks
on which a liner service is constructed, namely; ship characteristics, service schedule, capacity
utilization, ship costs, port charges and canal tolls, deployment of containers, container costs,
and administration.

Q2. The tanker market is perfectly competitive. Discuss this statement, explaining the principles
involved.
This was a straightforward question and required candidates to identify and explain the six
properties of a competitive market, namely: all owners seek to maximize profits, large number
of buyers of the service, large number of sellers, none big enough to influence price,
homogeneous product, freedom of entry and exit, and full information.
Q3. Identify and explain the demand factors that influence a lay- up decision.
This was a popular question and required candidates to identify and explain the factors that
influence a lay-up decision. The best answers defined the concept, identified the demand
conditions including, recessionary conditions, low productivity, diminishing global trade, high
operational costs, low future growth prospects, making reference to costs such as : capital,
direct operating and voyage related, flag, crew, essential maintenance and management, and
argued how the above influences the owners lay-up decision.

Q4. Using a diagram to support your answer, explain how, the price of bunkers affect freight
rates as well as the costs of imports.
This question required candidates to explain how the presence of transport costs means that
there is a potential barrier to trade and have the effect of raising the price of imported goods in
the same way that a tariff does, so the size of and trends in transport cost influence the way the
market develops. Surging bunker costs are a result of increased oil prices and impact
transports costs, causing among other things : major slow- down in seaborne trade, fundamental
realignment in trade patterns, freight sensitive low value cargoes are first casualties, with
containerisation making transport costs more vulnerable to fuel-cost swings.
Appropriate Diagram

Q5. Examine the critical role of ports and their impact on the global supply chain.
This was a popular question and required candidates to examine the critical role of ports and
their impact on the global supply chain including : that ports are the third component in the
transport system and provide a crucial interface between land and sea, including several
important functions which are crucial to the efficiency of the ships which trade between them,
secure location where ships berth, Improved cargo handling facilities, facilities for different
cargoes, storage facilities for and in outbound cargo, fully integrated land transport systems with
port, industrial manufacturing facilities –export processing zones, increased role in globalization
and trade liberalization, being an integral part of international supply chains.

Q6. Explain what you understand by “Embargoes” and their impact on maritime trade.
This question was topical and very popular, the best answers defined the term, provided current
examples and explained the impact of embargoes on maritime and international trade, citing
current and modern cases in which trade with a particular country economy is prohibited by one
or more countries, covering areas such as banking – swift, port facilities, ship building/ financing,
insurance, loan facilities and flagging etc.

Q7. Describe All of the following concepts:

a. Demand & Supply model
b. Short run costs
c. Utility
d. Opportunity cost
This question required candidates to provide concise definitions of these key economic concepts
and therefore straight forward.
Q8. Consider and discuss the impact that a rise in crude oil prices is likely to have on shipping
and world economic recovery.

It was a topical question and very popular. The best answers highlighted the centrality of oil and
associated gas industry to the global economy, and their immense impact on world economic
activity and included comments on:
- the welcome release of 60 million barrels of strategic oil reserves by US and 30 countries
aimed at stabilizing energy markets, push for the development of green energy industry.
- high oil prices ability to derail the fragile economic recovery with very serious global
implications:
- Increased cost of food, basic household needs, manufacturing, include comments on state of
world economic recovery particularly that of the OECD countries with their heavy dependencies
on oil and gas.
- reduced consumer spending as petrol prices impact the motorist
- impact of higher production costs on domestic and global manufacturing, reduced production,
spending on goods and services leading to more economic, recessionary woes.

Shipping
Bunker prices and input costs rising across the world leading to an increase in freight rates with
resultant decline in world economic activity, trade and shipping.
- Reduced earnings for the shipping industry, investment in ship building, infrastructure etc.
Governments and stakeholders will intensify their efforts aimed at exploring ways of securing
more sustainable energy sources and indeed taking other measures to make their countries less
vulnerable to these unprecedented price hikes.
- The need for the global international trading and shipping community to work in unison to
tackle inflation and other unprecedented socio-economic woes facing humanity.