Economics of Shipping Essay Example | Topics and Well Written Essays - 4750 words

Economics of Shipping - Essay Example This paper deals with how different factors affect bulk carrier's demand and supply and how Baltic Dry Index be used to predict the demand and supply of Dry Bulk Carrier for next three months. This paper also describes how recent global economic recession has caused decrease in steel production and thus decreases in global demand for iron, coal and minor bulk commodities and how this has affected the demand for bulk carriers. The paper also deals with industry specific risk factors and how they can affect the earnings of the companies supplying bulk carriers. A bulk carrier is a merchant ship that is used to transport bulk cargo that is not packaged such as coal, ore and grains. The ship usually carries cargo in its cargo holds. It is a ship in which the cargo is carried as bulk. The bulk carriers were first made in 1852 but with time, the economic forces caused these ships to become more sophisticated and caused them to increase in size. There are two types of bulk carriers, wet bulk carrier and dry bulk carrier. The bulk carriers are dominating merchant ships. In terms of tonnage they comprise about one third of total world's fleet. So far the world's largest bulk carrier is able to carry about 365,000 metric tons of dead weight (DWT). The bulk carriers are divided into six main categories: small, handy size, handy max, panamex, capsize, very large bulk carrier (VLBC) (MAN Diesel Group, 2005, p. 3-4. ). Small bulk carriers have capacity of about 10,000 DWT and mini bulk carriers are most popular amongst them. They have a capacity of about 500 to 2000 tons and are usually used for river transport. Such ships easily pass under bridges and they have small crew. Handymax and Handy size have a capacity of more than 10,000 DWT and these two represent about 71% of all bulk carriers. Handymax ships have a capacity of about 52,000 DWT and have about four holds to carry cargo. Panamax canal's lock chamber limits the size of Panamax vessels. And it can accommodate ships with beam of up to 32.31m, a length of overall of up to 294.13m, and a draft of up to 12.04m (Autoridad del Canal de Panam, 2005, pp. 11- 12) Capesize vessels are very large vessels and have capacity of about 20,000 DWT. They carry cargo mainly like coal and iron. Large capacity capesize ships are specially designed to carry iron. Baltic Dry Index Baltic Dry Index is based on Baltic Exchange. This index is means of providing prices of raw materials transported by sea (Baltic Exchange, 2009).. The Baltic Exchange is a membership organization and its member is at the heart of world trade. Every day brokers around the world want to know how much it would cost to transport cargo around the world. These indices are made by assessment of international broking companies. The bulk cargo market relies on the mutual agreement and cooperation of ship owners and brokers to ensure a smooth flow of business(Baltic Exchange, 2009).. It is a rule of Baltic Exchange that all members should follow a code of business and abide by the rules. In case any member fails to follow rules then the member is expelled. There are about five hundred companies and about two thousand people that are member of Baltic Exchange