The high cost of failing is the most dangerous challenge to the profitability in shipping and logistics industry. Therefore, cost optimization, streamlining and unlocking value in supply chain processes, while ensuring customer focus, are some of the imperatives of shipping and logistics firms.
Sea transport is a derived demand where shipping demand occurs as a result of seaborne trade. The demand determinants affecting sea transport include government and political factors, the world economy, seaborne commodity trade, average haul, and transport costs. On the other hand, determinants for shipping supply are fleet size and operational efficiency. The shipping supply function shows the quantity of shipping services by sea transport carriers that would b offered at each level of the freight rate, whereas the shipping demand function shows how shippers adjust their demand requirements to changes in freight rates. In the shipping market, the supply and demand curves intersect at the equilibrium price, where both carriers and shippers have reached a mutually acceptable freight rate. Furthermore, the concept of the shipping cycle is introduced in this chapter. A shipping cycle starts with a shortage of ships and increases in freight rates, which in turn stimulates excessive ordering of new ships. The delivery of new ships leads to more supply in shipping capacity. The shipping cycle is a competitive process in which supply and demand interact to determine freight rates. shipping and logistics courses
The shipping business uses the market mechanism to regulate supply and demand. Demand for freight transport is determined by demand for physical commodities in a given location. Because of the uneven distribution of natural resources and specialization of production, some areas experience an oversupply of certain commodities, whereas other areas suffer from a deficit. This geographical imbalance gives rise to the fluctuation in demand for freight transport.