In general, maritime economics explains how the shipping market is organized and works, including reasons for sea transport, organization of sea transport, prices and freight rates determination, ship finance, market cycles, shipping companies return on investment, how shipping company survive depressions, drivers in ship design, and market forecasts.
Macro Economics
In macro-economics, the maritime economics addresses the questions of where shipping has come from and where it is now, including sea transport and the global economy, and the economic organization of the shipping market.
In macro-economics, the shipping plays a central part in the global economy, including market covering the transport system, the demand for sea transport, the merchant fleet, how transport is provided, the role of ports, shipping company organization and political influences.
Shipping market cycles dominate the industry’s economic thinking, including characteristics of how shipping cycles leads on to a review of how experts have explained the shipping cycle.
The maritime economic model consists of three components, namely supply, demand and the freight rate mechanism, including key variables which influence the supply and demand functions for the shipping industry. Emphasis is placed on market dynamics.
Shipping business is conducted through four related markets dealing in different commodities, namely freight, second-hand ships, new ships and ships for demolition. Emphasis is placed on dynamics of how they are connected by cashflow.
Micro Economics
In micro-economics, the maritime economics addresses the questions about the practical issues facing a shipping company, including how the shipping costs and revenues are structured, how is the ship financed, and how does the industry make a commercial return on investment.
In micro-economics, the costs, revenue and financial performance are of importance, including costs and revenues of operating merchant ships, where costs are divided into voyage costs, operating costs, and capital costs. The basis for cashflow analysis includes company accounts, income statement, balance sheet and cashflow statement.
Ship finance is the most important item in the shipowner’s cashflow budget. The ship can be financed in many ways through the world capital markets. This also includes the four main ways of financing ships: equity, debt, newbuilding finance, and leasing.
Considering risk and return in a shipping company, it can experience very moderate returns over long periods. However, in intermediate short periods the return can be very high.This will also include the shipping company investment model. Application of the theory of the firm to shipping companies to establish what determines return on investment in shipping and how the shipping industry prices risk.
Forecasting and Planning
Maritime economics also means analysis and forecasting. Market forecasts cover the market in general, whilst market research applies to a specific decision.
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The United Nations (UN) is an international organization founded in 1945. Currently made up of 193 Member States, the UN and its work are guided by the purposes and principles contained in its founding Charter.
The Law of the Sea Treaty, formally known as the Third United Nations Convention on the Law of the Sea, or UNCLOS III, was adopted in 1982. Its purpose is to establish a comprehensive set of rules governing the oceans and to replace previous U.N. Conventions on the Law of the Sea, one in 1958 (UNCLOS I) and another in 1960 (UNCLOS II), that were believed to be inadequate. The United Nations Convention on the Law of the Sea (UNCLOS) sets the broad framework of maritime law.
The Convention comprises 320 articles and nine annexes, governing all aspects of ocean space, such as delimitation, environmental control, marine scientific research, economic and commercial activities, transfer of technology and the settlement of disputes relating to ocean matters.
Disputes can be submitted to the International Tribunal for the Law of the Sea established under the Convention, to the International Court of Justice, or to arbitration. Conciliation is also available and, in certain circ*mstances, submission to it would be compulsory. The Tribunal has exclusive jurisdiction over deep seabed mining disputes.
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The UN has evolved over the years to keep pace with a rapidly changing world. But one thing has stayed the same: it remains the one place on Earth where all the world’s nations can gather together, discuss common problems, and find shared solutions that benefit all of humanity.
In 2015, 193 countries adopted the 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals (SDGs). UN Sustainable Development Goals encompasses 17 goals to transform our world. The Sustainable Development Goals are a call for action by all countries - poor, rich and middle-income - to promote prosperity while protecting the planet. Here is a link to the UN 17 goals: The 17 goals.
IMO – the International Maritime Organization – is the United Nations specialized agency with responsibility for the safety and security of shipping and the prevention of marine and atmospheric pollution by ships. As part of the United Nations family, IMO is actively working towards the 2030 Agenda for Sustainable Development and the associated SDGs.
Indeed, most of the elements of the 2030 Agenda will only be realized with a sustainable transport sector supporting world trade and facilitating global economy. IMO’s Technical Cooperation Committee has formally approved linkages between the Organization’s technical assistance work and the SDGs.
Figure 1 illustrates an outline of the international regulatory system for safety and environmental compliance, including economic, environmental, and social sustainability.
Figure 1: The International Regulatory System (Source: JG Consultant & Ocean Engineering Services)
In addition, the member countries of the IMO, have their own national authorities or governmental agency concerned with maritime safety, which draft and enforces the shipping legislation of that country, see Figure 1.
Figure 2 illustrates member states in role as flag state or coastal state as maritime authority.
Figure 2: The Role of the National Authority (Source: JG Consultant & Ocean Engineering Services)
Flag State refers to the authority under which a country exercises regulatory control over the commercial vessel which is registered under its flag. This involves the inspection, certification, and issuance of safety and pollution prevention documents. Much of the legislation applied to ships, such as IMO codes and conventions, is usually administered and enforced by the appropriate government department of the country where the ship is registered, the Flag State.
A ship is also subject to the laws of the Coastal State. A state having a coastline is entitled under international law to take certain limited steps to protect its own interests.
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Blue Economy - Term in Economics
Blue economy is a term in economics relating to theexploitation, preservation and regeneration of the marine environment. The term is generally used in the scope of international development when describing a sustainable development approach to coastal resources.
The concept or new paradigm of the Blue Economy emerged in the context of the Rio+20 Conference on Sustainable Development and the Green Economy. At that time, it could be seen as a branch of the Green Economy.
Blue economy includes sustainable use of ocean resources for economic growth, improved livelihoods and jobs, while preserving the health of marine and coastal ecosystem.
The most referenced definitions emphasize sustainability and make an explicit connection between the utilization of marine resources for economic advancement, and the maintenance and improvement of the ocean, coastal and marine resources and ecosystems.
The concept of the Blue Economy rests on the following themes:
- Sustainable and inclusive growth and development
- Reducing the risk of over exploitation and risky methods of extraction/usage of the ocean’s resources
- Enhancing the welfare of coastline communities in terms of economic opportunities and social protection
- Ensuring resilience of countries to natural disasters and the impact of climate change.
In O-36 Maritime Economics we will only concentrate on the maritime economic part of 'Blue Economy'.
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Sustainability - Definition
Sustainabilityis a broad term that describes managing resources without depleting them for future generations, whereas sustainable developmentdescribes the processes for improving long-term economic well-being and quality of life without compromising future generations’ ability to meet their needs.
This concept of sustainability goes beyond environmental sustainability only, which concerns earth’s natural resources, to include economic and social sustainability, which relate to meeting people’s current economic and social needs without compromising future generations. Thus, it encompasses a tribble support by economic, environmental, and social sustainability:
- Economicsustainability canters on the idea of an efficient and responsible use of resources that leads to long-term profitability by transitioning to a sustainable business to improve the chances of operating over the long term.
- Environmentalsustainability means reducing carbon footprints, waste, and water usage while maximizing energy efficiency to provide both environmental and financial benefits, and show responsiveness to community opinion.
- Social sustainability focuses on the interrelationship of systems and processes that support the creation of healthy and liveable communities that can sustain themselves.
Sustainability can only be achieved when economic, environmental, and social are addressed together.
Integrating sustainability and sustainable development is fundamental to designing effective short- and long-term strategies, including sustainability problems related to climate change and United Nations sustainable development goals.
Commercial sustainabilityaims to achieve the balance between economic, environmental and social impacts through the effective management of resources whilst maximising organisational profitability.
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The Doughnut, or Doughnut economics, is a visual framework for sustainable development – shaped like a doughnut or lifebelt – combining the concept of planetary boundaries with the complementary concept of social boundaries. The name derives from the shape of the diagram, i.e. a disc with a hole in the middle. Below figure is a classic image of the Doughnut; the extent to which boundaries are transgressed and social foundations are met are not visible on this diagram.
The centre hole of the model depicts the proportion of people that lack access to life's essentials (healthcare, education, equity and so on) while the crust represents the ecological ceilings (planetary boundaries) that life depends on and must not be overshot. The diagram was developed by University of Oxford economist Kate Raworth in her 2012 Oxfam paper A Safe and Just Space for Humanity and elaborated upon in her 2017 book “Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist”.
The framework was proposed to regard the performance of an economy by the extent to which the needs of people are met without overshooting Earth's ecological ceiling. The main goal of the new model is to re-frame economic problems and set new goals. In this model, an economy is considered prosperous when all twelve social foundations are met without overshooting any of the nine ecological ceilings. This situation is represented by the area between the two rings, considered by its creator as the safe and just space for humanity.
