Political Events and Shipping Demand

Topics: International trade, Globalization, World Trade Organization Pages: 6 (2271 words) Published: September 15, 2008
Modern shipping is the life-blood of the world; without it, much of the demand for imports and exports would not be met. In 2006, world seaborne trade was estimated to have reached 30,686 billion ton-miles, having grown by 5.5% over the previous year. Despite the prevalence of air transport, up to 90% of world trade is carried over the oceans in humble ships. The demand for seaborne trade is driven primarily by the world economy; various industries produce the goods that need to reach different parts of the world. In its most recent World Economic Outlook , the International Monetary Fund (IMF) forecasted global growth of 3.9 per cent for the rest of 2008, lower by 0.2 per cent from the previous month’s estimate. In spite of the dip, the world economy is still growing annually, led by the emerging markets that are hungry for resources to fuel their growth. Beyond the economy, there are several other factors that determine demand for shipping. This paper seeks to evaluate the role of political events and its impact. In addition, it seeks to look into which commodity is most affected by such incidents. In his book, Maritime Economics, Martin Stopford writes that ‘no discussion of sea transport demand would be complete without reference to the impact of politics’. In the following paragraphs, this paper will address the main types of events that affect shipping demand both positively and adversely. 2.0Political events that have affected shipping demand the most 2.1Opening-up of the Chinese economy

The accession of China into the ranks of the World Trade Organization (WTO) and Beijing winning the bid to host the Olympics in 2001 were events that had large political motivations and caused a tremendous rise in demand for shipping. Since then, China’s economy has seen astronomical growth. In order to fuel this development, the country has increased both its imports and exports in almost every industry. This has taken the world by storm as countries the world over compete to feed and fuel the world’s most populous country. Hence, seaborne trade and demand for shipping worldwide has been skyrocketing as a result of China’s booming economy.

2.2War and the economic embargoes
Conversely, war and economic embargoes and sanctions are the leading cause of a drop in maritime activity. In broad terms, the hostilities in the Middle-East region have led to disruptions in movements of oil shipments to the developed world. In the 1950s, the Suez Crisis between Britain, France and Israel against Egypt, led to the diversion of ships around the Cape of Good Hope to avoid the tensions. Two decades later on 17 October 1973, the ongoing Yam Kippur War caused the Organization of Arab Petroleum Exporting Countries to stop shipping oil to nations that supported Israel’s war efforts. The impact of this embargo on shipping was the collapse of the oil tanker market and led to a series of recessions and periods of high inflation that persisted until the 1980s. Other examples would include the Korean War in 1950 and the Gulf War in the early 1990s. 3.0Commodities affected

Crude oil accounted for 26.9 per cent of total goods loaded in 2006. Due to the sheer quantity of oil being shipped worldwide, any political event jeopardizing seaborne trade would usually entail oil shipments being affected. This is because the resource is abundant in only certain parts of the world; the Middle-East is one such region that is plagued with rogue political regimes and instability. In the above-mentioned events in the region, the hostilities resulted in disruptions to the oil trade and consequently, oil price. This would be discussed in the section on Iran. Another sector that would be affected would be the metal industry trades and in particular, that of iron ore. Western Australia and Brazil are major exporters of iron ore to growing markets like China which need it for its continued development. 4.0Opening of China’s economy

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