Short-Term Freight Market: Sentiment & Equilibrium

Maritime Economics: Introduction

• When productivity exceeds local market capacity, businesses seek new markets.
• Shipping becomes efficient, facilitating economies of scale and leveraging integrated transport.
• Ships achieve speeds unmatched by land transport because of the speed limitations of speed on land.

Shift in Maritime Trade Centers

• Maritime trade's commercial hub shifted westward.
• It moved from the Mediterranean/Indian Ocean to the North Atlantic, then to the Pacific, and eventually to the China Sea.
• Each transition involved an economic competition among adjacent shipping super centers.
• The old center was replaced by the new one.

Early Trade Networks

• Earliest sea trade network emerged 5000 years ago.
• It connected Mesopotamia, Bahrain, and the Indus River region in Western India.
• River systems support concentrated populations.

Mediterranean Trade and the Rise of Tyre

• The Mediterranean trade era saw Tyre in Lebanon as a key maritime city.
• Tyre was positioned at the crossroads of East-West trade routes.
• It benefitted from a trading network extending from Memphis, Egypt, to Babylon, near Baghdad.

Iberian Peninsula and Trade Routes

• Resource depletion drove trade expansion, with discovery of Spain.
• The Iberian Peninsula became a major source of metal after the settlement of Sades, for the Eastern Mediterranean economies around 1000 BC.
• This consolidated Tyre's commercial dominance.
• Domestication of camels enabled routes between the Mediterranean, Arabian Gulf, and Red Sea.
• This linked trade between the Ganges and the Persian Gulf.

Suez Canal and Greek Dominance

• King Darius of Persia initiated the first Suez Canal around 500 BC.
• This aimed to foster trade by enabling direct shipping from the Nile to Persia.
• The Greeks, with a market economy, gradually replaced Phoenician merchants, more centrally placed in the region.
• As Athens grew, the city became reliant on imported grain.
• Athens, Rhodes, Antioch, and Alexandria became the main trading centers 200 years later.
• Alexandria and Antioch thrived due to Eastern trade links via the Red Sea and Arabian Gulf.
• Silver discovery in Laurion funded Athenian navy, secured Ionian liberation at Salamis, and ensured grain ship passage from the Black Sea.

Roman Empire and Transition

• Trade shifted to Rome with widespread network construction.
• Minerals from Spain and grain from Northern Africa were imported.
• Special grain ships fleet supported this commerce.

Byzantine Empire and Arab Caliphate

• The Byzantine Empire, with Constantinople as its capital, rose as the Eastern Roman Empire.
• Its stability allowed control from Sicily to Greece and Turkey.
• The Arab Caliphate then controlled the Mediterranean's southern and eastern shores.
• Safer passage re-established sea trade, dependent on political stability.

Northern Europe's Growth and the Rise of Venice and Genoa

• Northern Europe saw a resurgence with the wool industry in England and the textile industry in Flanders.
• This led to prosperity in towns and the rise of Venice and Genoa in the Mediterranean.
• It also led to the Hanseatic League in the Baltic.

15th Century Global Trade

• By the 15th century, China, Japan, India, and Europe were the four developed regions.
• The silk routes through Constantinople and Tabriz to China, along with the spice route via Cairo and the Red Sea from India, linked these large populations.

Chinese Innovations and European Expansion

• Chinese sial technology was more advanced, leading to unprecedented economic progress.
• The Chinese eventually withdrew from global trade, opening doors for European seafarers.
• Northwest European nations, blocked by the Ottoman Empire, sought routes around the Cape.
• Naval strength was utilized to control global trade routes, shifting trade power west.
• Europe established foundations for a global sea trade network, seeking Asia's spices and silk.

Columbus, Portuguese and the New World

• Christopher Columbus discovered the Bahamas while seeking Asia.
• The Portuguese, trying to reach Asia, intensified their efforts.
• They established coastal East African strongholds seizing Goa in 1510.
• Malacca and Hormuz controlled the straits into the Persian Gulf.
• The trickle of trade between the east and west became a flood.
• Ships began carrying hundreds of tons of cargo.

Establishment of Sea Routes

• Europe established sea routes worldwide using improved navigation.
• Superior weaponry and New World trade winds added to the trade revolution.

Shift to Antwerp

• Antwerp on the River Scheldt became a crucial maritime capital.
• Portuguese traders preferred its distribution over costly voyages to the Indies.
• English merchants and German and Spanish bankers followed.
• Antwerp grew as a financial headquarters.
• After Spanish troops sacked Antwerp, Amsterdam rose as the maritime capital as traders migrated.

Dutch Shipping Success Factors

• Success resulted from low costs, achieved through increased cargo ability.
• The success was also due to competitive shipbuilding.
• Thriving second-hand ship sales lowered freight rates significantly, too.
• Amsterdam's position as a financial centre grew with the Bourse Stock Exchange opening.
• The Dutch needed large ships, fortified trading posts, and military power.
• The Dutch East India Company was formed to manage this trade.
• It was chartered to trade westward into the Pacific from the Straits of Magellan to the Cape of Good Hope with total authority.

Impact of steam engine

• By 1750, steam engines powered machinery, replacing manufacturing labor.
• This increased textile outputs.
• New raw resources such as coal and cotton were introduced.

London's Rise

• London replaced the earlier trade centers in the 18th century.
• This was fuelled by increasing manufacture exports and financial services.
• Long-haul Asian commerce remained concentrated in the hands of the English, but also the Dutch East India Companies, too.

Rise of Independent Ship Owning

• There was a rise in indepedent ship owning and rise of shipbrokers, marine underwriters, and overall insurance brokers.
• They were wholly involved in shipping.
• 19th-century shipping changed more than the previous two millennia.
• Bigger ships, better sails, and improved navigation techniques still involved wooden sailing ships.

Technological Advancements

• The Industrial Revolution in Great Britain/Europe boosted productivity.
  • Textiles became more consumed locally, thus necessitating trade.
• Engineering advances from textiles transformed transport systems.
• The impact of new transport advances include:
  • Steam engines which freed ships from wind dependency.
  • Iron hulls protecting cargo permitted larger vessels.
  • Screw propellers yielding more seaworthy vessels.
  • Deep-sea cable network enabling real-time communication and information.

Revolutionized Transport System

• Shipping developed into a system that raised speed and efficiency.
• It had 3 parts:
  • Passenger Liners
  • Cargo Liners
  • Tramp Shipping
• Quantity of industrial cargoes greatly increased, especially for coal fueling industry/steamships.

Expansion of Textile Trades

• Textile fiber trades notably cotton, wool, jute expanded greatly to supply industrial Britain.
• Grain trade increased after the repeal of Corn Laws in 1847 from 1842 to 1887.
• The trade came from Black Sea initially but broadened as railroads in North/South America opened.
• Trades to US East Coast, River Plate became key.
• Timber and Baltic trades grew significantly, too.

Development of Trades

• Development of Global trade also included tremendous passenger transit and mail.
• Commerce applied stress to improve the overall speeding of services.

Advancement in Technology

• Steamship tech dramatically improved.
• During the first half of the century, sailing began to set the pace.
• Competition arose between the US and shipyards to produce the most efficient merchant sailing equipment.
• Fuel consumption was measured in coal, using 40% cargo space on Atlantic.
• As a result, steamers did not have the economic ability to be on the deep sea routes and they were too inefficient.

Suez Canal's Impact

• The Suez Canal opened in 1869 generating a breakthrough of investor innovation.
• The 650-ton John Bowes used in Jarrow achieved a 600% increase in productivity.
• Compared to 5 weeks on a sailing ship in 4 hours it loaded 650 tons coal and arrived to London in 48 hours.
• Iron hulls were more consistently watertight, greatly reducing cargo damage.
• Cargo payload increase of +25% in comparison to ships using wooden material.

Expansion and Undersea Cables

• By the end of the century, ships of 4600 GRT had become typical. Technical advances peaked in the early 20th century.
• Triple expansion steam engines reduced costs for steamships despite build.
• Steel hulls and opening of the Suez Canal shortened the East-Europe route by 4000 miles.

Importance of Undersea Cables

• The undersea cable network linked the continents, which allowed quick availability of cargo availability / caroges and need for a better information source for ships to transit around.
• Until the 1860s, international communication used letters, there was little ship information.

Explore the dynamics of the short-term shipping market. Understand how sentiment impacts freight rates even with balanced supply/demand. Learn how shipowners and charterers adjust strategies in response to price changes and how momentary equilibrium shapes supply and demand.