Restructuring of world shipping capacity under the conditions of the United Nations Conference of Plenipotentiaries on a code of conduct for liner conference

The decade of the 70's has experienced the worst slump in international shipping in over a hundred years. Shipping firms, both private and government owned, had little warning of the political and economic factors that caused this slump to occur. As a result, the world shipping industry has substantial tonnage laid up, being used at less than full capacity, and slated for early scrapping. This overcapacity problem has been compounded by recent trends to promote national flag shipping, particularly by the developing countries of the world. This culminated in the l974 United Nations Conference on Trade and Development proposal requiring 4O% of liner trade to move in the exporting country's ships, 4O% of the trade to move in the importing country's ships, and allowing only 20% to be available for third flag movements. More recent proposals want to expand this cargo splitting procedure to tanker and bulk carriage as well as the liner trades. Obviously, such cargo reservation requirements will lead to greater overcapacity since many of the developing countries will have to build or acquire ship capacity sufficient to meet their 40% requirements.

This particular research is an attempt to provide a model that can be used by an individual country in determining its required capacity for maritime transportation. Such a model would be of benefit to policy makers, financial institutions, as well as the ship building industry in forecasting future needs. The model developed is as follows:

Equation

where S_x= The shipping capacity required for country

A_ji= Trade contract j for exports to country i

A_mi =Trade contract m for imports from country i

G_x= Rate of growth of imports of country x

R_x= Rate of growth of exports of country x

C_x=Amount of reserve needed by country

E_x = Efficiency factor of country x [1+dead freight/capacity]

Nine years of data, 1967-1975, was applied and then compared with actual capacity to test the accuracy of the model. In addition, three specific countries, Argentina, Norway, and Yugoslavia, were analyzed in detail to explain the operation of the model and reasons for possible deviations. Measures used were both on the national and international level. The results indicated that international level variables tended to explain merchant shipping changes much stronger than variables on the national level. This supports the conclusion that any solution to the world shipping overcapacity problem has to be at the international level. The actions of individual countries in determining their shipping needs and cargo reservation policies cannot lead to a global solution.