Since the latter half of 2007 the world economy has been in a severe downward spiral as a result of the reckless lending practices of the world banks, the implications of which have trickled down into the industrialized economy over the last two years. This assignment aims to analyze the global seaborne trade industry with a focus on the dry bulk sub-sector and its major commodities by assessing the effect on factors that are influencing the demand and supply of dry bulk vessels and the future growth of the dry bulk market, examining the behaviour of freight rates, as well as evaluating the profitability of the dry bulk industry as well as its future survival prospects in respect to overall impact of the recession on this major sub-sector the global shipping industry. Sea transport involves delivering items from one harbour to another. If the demand for a certain item in one country increases, the demand for the transport of that item to that country will increase. This is how the demand for sea transport capacity arises.
The demand for goods by one country and the supply of that good by another country falls under the description of world trade. As the world trade increases, so does the demand for sea transport. "The engine that drives world trade is the economic growth performance of trading nations."(Jones, 1987: 20). Bulk cargo comprising 30% of world sea trade plays a major role in this demand level and relies heavily on the sea industry to deliver goods from one destination to another. Thus the demand for sea transport is a derived demand, derived from the demand for the goods being transported." (Jones, 2010). The need arises for sea transport when one country has a shortage of something, such as iron-ore, grain or coal, and another country has a surplus. These three types of commodities make up the dry-bulk industry.
As such, when analysing the demand level of sea transport, we realize the overall level of demand for sea transport activity has consistently been above average in comparison to demand levels of any other modes of transport. The largest constituent of dry bulk is that of iron ore. The trading of iron ore therefore affects demand quite substantially.
The demand for iron ore is sensitive to the business cycle and is also driven by the needs of the international steel industry (Jones, 1987:25). During the years preceding the global economic crisis the demand for iron ore was expected to increase. China in particular, which was experiencing rapid growth at the time, was expected to increase their demand for ore (China Daily, 2007). This would have had a huge effect on the overall demand of iron ore due to the rapid growth of China’s economy, and in turn, have an effect on the demand for sea trade of iron ore, causing it to increase significantly. However when the credit-crisis hit and the world entered recession, the demand for iron ore slowed in 2008 as Chinese steelmakers decreased production due to lower demand and high ore prices (Ship Chartering, 2009). However, Chinese steelmakers are the world's greatest buyers of iron ore and as a result of the drop in 2009 prices of steel products, the Chinese were demanding 20% higher price cuts of iron ore as compared with 2008, which had a positive impact on the demand for iron ore (China Coal Resource, 2009). Towards the latter part of 2009 and the beginning of 2010, there was a surge in the demand for ore which was mainly due to a speedy recovery in the emerging markets of China and India (Ratandhara, 2010). Demand for seaborne iron ore in China increased by 40% from 2008 to 2009 compared to the rest of the world’s drop of 30%, and is forecasted to further increase in 2010 as the demand for steel increases and lower mining capacity of local Chinese mines is experienced (Chinamining.org, 2010). Demand will only be curbed slightly by the large increase in iron ore prices experienced over the past year.
The next commodity traded in the dry-bulk...
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