Political Events and Shipping Demand Essay

founding Modern ecstasy is the life-blood of the world without it, much of the select for imports and exports would not be met. In 2006, world seaborne calling was estimated to possess disc everyplaceed 30,686 billion ton-miles, having getn by 5. 5% over the earlier year. Despite the prevalence of air transport, up to 90% of world pot is carried over the oceans in humble ships. The demand for seaborne trade is driven primarily by the world miserliness various industries produce the goods that need to reach different parts of the world. In its more or less recent World Economic Outlook , the International m startary Fund (IMF) forecasted global growth of 3. per cent for the rest of 2008, lower by 0. 2 per cent from the previous months estimate. In spite of the dip, the world economy is still growing annually, lead by the emerging markets that atomic itemize 18 hungry for resources to fuel their growth. beyond the economy, there argon several other factors that circu mscribe demand for cargo ships. This paper seeks to evaluate the role of political events and its mend. In addition, it seeks to look into which commodity is close to impact 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 Copernican types of events that affect shipping demand two positively and adversely. 2. 0Political events that take over affected shipping demand the most 2. 1Opening-up of the Chinese economy The accession of chinawargon into the ranks of the World Trade Organization (WTO) and Beijing winning the tender to host the Olympics in 2001 were events that had large political motivations and caused a tremendous rise in demand for shipping. Since then, chinawares economy has seen astronomical growth.In order to fuel this development, the rural has profitd both its imports an d exports in almost every industry. This has taken the world by storm as countries the world over cope to feed and fuel the worlds most populous country. Hence, seaborne trade and demand for shipping worldwide has been skyrocketing as a result of Chinas 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 ground, the hostilities in the Middle-East region have led to disruptions in movements of oil color shipments to the developed world.In the 1950s, the Suez Crisis between Britain, France and Israel against Egypt, led to the frolic of ships around the Cape of Good Hope to avoid the accents. Two decades later on 17 October 1973, the current Yam Kippur War caused the Organization of Arab Petroleum Exporting Countries to stop shipping oil to nations that supported Israels war efforts. The impact of this embargo on shipping was the collapse of the oil tanker market a nd led to a series of recessions and periods of high inflation that persisted until the 1980s. Other frameworks would include the Korean War in 1950 and the disjuncture War in the early 1990s. . 0Commodities affected Crude oil accounted for 26. 9 per cent of total goods pixilated 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 sealed 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 orbit 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 C hina which need it for its continued development. 4. 0Opening of Chinas economy Since the 1970s, China has been gradually introducing economic reforms and providing enterprises with autonomy. However, it was only in the last 2 decades that the worlds second largest economy has looseed itself up to greater foreign investment and world trade.This was carried out through the respite of import and export controls and trade reforms in the form of reduced tariffs. All this led to a world-shaking milestone for China and the world its ascension into the ranks of the WTO on 11 December 2001. In addition, Beijing won the bid to host the 2008 Olympics that same year. These 2 events have set the stage for Chinas quick development. In the following paragraphs, this paper will explain its military forces on the world and global trade and shipping.Based on a working paper by the IMF written in 2004, the international impact of Chinas ascension into the WTO is far reaching. Firstly, sustainin g the growth of China would provide benefits to its trading partners beyond the impact of trade, there has been significant growth in imports for domestic use and outbound tourism. Secondly, Chinas insati commensurate-bodied thirst for energy and metal imports have since fuelled the rapid rise in imports of such commodities. Lastly, multinational companies are tapping into the large domestic market especially with the freeing up of the countrys banking sector.This paper believes that Chinas meteoric rise over the last two decades and more significantly, since the dawn of the new millennia, have created a surge in demand for world seaborne trade and shipping. 4. 1Chinas role in transforming Western Australia and beyond As a result of Chinas booming steel industry, Australian exports of iron ore to China reached more than A$4 billion last year. BHP Billiton and Rio Tinto, two of the worlds largest resource companies, share the metal-rich Pilbara of Western Australia to feed Chinas demand. The latter is hoping to double its 2007 iron-ore production in four years.This mining boom in the traditionally sleepy side of Australia spells good news for its economy and residents. In an interview with the Economist , Eric Ripper, finance minister of Western Australia, said that his state has been fighting to append in a A$9 million surplus seven years ago. Last year, the countrys largest state (by land area) grew by 6. 3%, twice that of the entire country. In addition, it now boasts a healthy surplus of A$2 billion. Besides iron ore, China has a tremendous smart for other born(p) resources. All across the world, Chinese firms are finding new sources for crude oil, natural gas, metal and coal.Ships have been queuing off Newcastle in Australia to load cargo bound for China at one point in June 2007, the queue was 79 ships long . In short, the rise in import demand by the Mainland has helped countries in Latin America and Africa grow their own economy. Another country t hat has seen business grow is the shipping giant of Greece. 60 per cent of Chinas imports of raw materials and energy are carried on the backs of Greek ships. Greek ship owners want to capitalize and many have made orders to build ships in China which has caused the order books of the large manufacturers to bulge and many smaller players to join in the fray. . 2Chinas effect on shipping demand In terms of shipping, China is a force to be reckoned with. proficient 2 years after joining the WTO, China handled 48 million twenty-foot equivalent units (TEU) in 2003, an growing of 11 million TEUs the year before. This made the country the largest container shipping market for the first time with both Shanghai and Shenzhen joining the mega-port league of over 10 million TEUs throughputs . On two of the most important container trades from Asia to North America and Europe, mainland China and Hong Kong corner 60 per cent of the market share.More recently, with an increasing percent of Chi nas imports of oil products coming from Latin America and West Africa, ton-miles demanded associated with this trade has increased. Referring back to the example of Australian iron ore, Chinas high volumes mean that Chinese companies are sourcing for metals from further oversea such as Brazil. In addition, China has always been a net exporter of coal. However, in the last a a couple of(prenominal)(prenominal) years, China has become a net importer this forces its neighbors to source for coal from further afield. All these factors serve to increase ton-miles demanded.It is important to note that though ton-miles demanded may increase, actual volume may remain unchanged. 5. 0Iran and the Strait of Hormuz The on-going tension between Israel, the United States of America (USA) and Iran over its suspected nuclear-weapons programme has brought about fluctuations in oil prices in recent times. Several factors have made this all the more pressing in the last few months. These include a we akening Bush administration, Irans continued uranium-enrichment programme, a lackluster Western diplomatical approach to handling the situation and Israels jitters have raised the idea of a contingent war in the Middle-East.In retaliation to suggestions of a military strike, Iran has threatened to cut oil exports and conterminous the Strait of Hormuz . This straits importance lies in that it is the only viable path for much of the oil from the gulf to reach the rest of the world. By comparison, the Suez and Panama Canals are passages that have alternative albeit costlier, routes. A horseshoe-shaped ashes of water that stretches between Iran and the northern tip of Oman, the Strait is the only passage in and out of the Gulf. either day, around 50 tankers carry between 4 million and 17 million barrels of oil and oil products through the 180km-long strait roughly 40 per cent of the worlds internationally traded supplies . If Iran were able to close this waterway by use of anti-shi p missiles, only 3 million barrels would be able to be diverted via the Red Sea. Thus, oil and oil product shipment would be greatly belt worldwide. In addition to oil, Jebel Ali, a port-town in the United Arab Emirates, handles about half of all maritime trade between Europe and Asia. Currently, it is the largest port between Rotterdam and Singapore.Large portions of what enters some of these free zones in the gulf are transshipped to other parts of the world. Experts who have monitored the Suez Crisis in the 1950s and how it led to the Six-Day War understand that such an consummation from Iran would result in the Middle-East suffering economically. On a larger scale, the world would be faced with bring cuts in almost all goods. 6. 0Maritime terrorism Another threat to the maritime industry is terrorism at sea. Terrorism is broadly defined as attacks to create fear and often have an underlying mental picture that the terrorists want to spread.Since the world-changing September 11th attacks on the United States of America in 2001, many other acts of hysteria have been carried out with ships as targets. An example would be the infamous Al-Qaeda attack on the cut oil tanker, the Limburg, in Yemen in 2002. Such attacks create not only a sense of distrust in the shipping industry, but have raised the costs of shipping as well. In the baptistery of the Limburg, the insurance payout reached US$70 million . This example highlights the trend of insurance companies charging higher insurance premiums to shipping companies whose ships sail through more dangerous waters.As a result, shipping cost has risen over the years and this has led to a dip in demand. Amongst the main trunk routes that ships often ply, the greatest number of such incidents happens in the South China Sea and the Straits of Malacca. These acts of terror also do not differentiate between the types of ships they target almost everything from boats to tankers has been looted for their cargo and e ntire ships stolen. This paper would like to reprove that the distinction between maritime terrorism and piracy is blurring. 7. 0Conclusion This paper has looked at examples of how political events have caused a stir in the maritime world.This is largely a result of the correlation between world trade, shipping and movement of commodities. Such incidents can spark both a decrease as well as an increase in demand for shipping. In the case of Chinas reforms towards a more open economy, trade between this country and the rest of the world has increased dramatically. This has spurred the shipping industry not barely in terms of seaborne trade but in other forms such as ports and shipbuilding. Beyond its shores, it has helped to lift the economies of countries that enjoy a high level of trade with China.On the other hand, the tensions in the Middle-East have brought about uncertainty throughout the world over oil prices and world trade. The strategic position of the most hostile nation s in the region has given them leverage over the Western world in terms of threats to block the major waterway, the Strait of Hormuz. Lastly, the concerns over maritime safety and rising insurance costs to get through ships and their owners have caused a dip in demand for shipping. This is because of the higher costs now associated with shipping it is self-generated yet unfortunate that the worlds major shipping routes are also the most dangerous.