1.1. The economics of shipping
An important feature of the economics of shipping relates to its capital costs, which require financing. Because of their size, ships represent a significant capital outlay. For instance, cruise ships represent the most expensive class of vessels, costing up to billions of dollars to build. Container ships of the largest class represent an initial capital outlay of several hundred million dollars. The annual cost of servicing the purchase of these vessels accounts for over half of the annual operating costs.
The main advantage of maritime transportation is obviously its economies of scale, making it the cheapest per unit of all transport modes. On the other hand, maritime transportation has one of the highest entry costs in the transport sector. Typically, a ship has an economic life between 15 and 20 years and thus represents a significant investment that must be amortised. For instance, a Panamax containership can cost $50,000 per day to operate with most of the expenses related to fuel and port charges.
The operation of the maritime transport system requires financing that can come from two sources:
- Public. The public sector is commonly responsible for guidance infrastructures (beacons and charts), public piers, dredging, security, and in several cases for the administration of ports (under the umbrella of port authorities).
- Private. The private sector is mostly responsible for specific facilities such as piers, transshipment infrastructures, and ships, which are commonly owned by private maritime companies.
In the past, governments have intervened in the maritime sector to fulfill different goals such as economic development, national defense, prestige, the balance of payments, and the protection of the domestic industry. To reach these goals, governments relied on methods such as regulations, subsidies, national fleets, preference of cargo, and ports of entry. Cabotage regulations have been one of the privileged measures to protect the domestic maritime transportation industry.
Cabotage refers to transport between two terminals located in the same country irrespective of the country in which the mode providing the service is registered. Cabotage is often subject to restrictions and regulations. Under such circumstances, each nation reserves for its national carriers the right to move domestic freight or passenger traffic.