Some Thoughts on the Dry Bulk Shipping Sector

Abstract

THE purpose of this paper is two-fold; firstly to examine the possibility of the shipping industry providing the economy with certain indirect benefits and to suggest a method of quantifying these benefits; secondly to examine the effects of an increase in the size of a nation's fleet generated by a subsidy programme. The two aspects of the study overlap and the econometric model designed to help answer both parts is able, in addition, to provide a basis for forecasting future values of freight rates and ton-miles. The first aspect involves an estimation of the area of consumers surplus and of its division between importers and exporters, while the second entails building a model capable of providing demand and supply equations for shipping services. We have confined our analysis to the dry bulk sector of the market and we have assumed that this sector can be adequately represented by the five major dry bulk commodities (grain, coal, iron ore, bauxite and alumina, and phosphates). In fact 53% of dry bulk ton-mileage was accounted for by these five commodities in 1976.1 The prime reason for choosing this sector is that it approximates very closely to an unrestricted competitive2 situation where the levels of freight rates and quantities demanded and supplied are determined by the interaction of market forces. We are examining the trade of the five major dry bulks and the group of OECD countries as a net importer of these goods. As shipping is an international business and imports may be carried by ships of various flags it is necessary to consider the total world demand for dry bulk shipping services and, as the commodities we are dealing with are mostly raw materials, we shall take the developed countries as the demanders of such services. For purposes of simplicity we shall treat the group of OECD countries as an