Book Series
SHIPPING AND TRANSPORT LOGISTICS
VOLUME TWO
THE BUSINESS OF SHIPPING

Chapter 1: Determinants of shipping capacity

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1 - 17Ships carry 90% of international trade. Shipping and global trade are essential elements for world economic development. To understand the shipping industry, it is necessary to identify the key determinants that influence the capacity of the shipping industry and explain how these determinants are related to capacity adjustment. This chapter builds on the industrial organisation (IO) paradigm that 'industry structure determines the conduct of firms and their joint conduct determines the collective firm performance in the marketplace'. In this study, we interpret firms' conduct as their organisational choices on key decision variables such as capacity. There are four separate but interrelated markets in shipping, namely the freight market that trades sea transport, the secondhand market that trades used ships, the new building vessel market that trades new ships, and the demolition market that deals with scrap ships. These four shipping markets are closely interrelated. This chapter also provides insights into the four shipping markets and explains how these separate markets interact to affect one another. We present an empirical study to how that seaborne trade significantly affects shipping capacity.
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