The Tanker Shipping Market

Abstract

Oil tanker is designed for the bulk transport of oil. Basic types of tankers include crude tanker and product tanker. Crude tanker transports unrefined crude oil from extraction locations to refineries while product tanker ships refined products to points close to consuming markets. Tankers are generally categorized by size, e.g., Panamax, Aframax, Suezmax, VLCC, and ULCC. Tanker shipping provides an economical and convenient way to transport liquid bulk for international seaborne trade. Many maritime economists believe that the supply of tanker shipping operates under perfect competition is characterized by several conditions. The first feature is number of shipping service providers. There are a number of ship owners that own tankers that provide identical shipping services. The second characteristic is the availability of information. In the tanker market, information on freight rate can be searched via such means as the Baltic Index. Hence, shipping service providers are unable to manipulate the price. Obstacles to entry to and exit from the industry exist but these challenges can be managed. Entry barriers, such as government regulations, economic factors, and marketing condition, are not present in the tank shipping industry. On the one hand, huge capital investment is needed to acquire ships (new ships from the new building market or secondhand ships from the sales and purchase market) to enter the industry. On the other hand, shipping firms may withdraw from the market by selling their assets (i.e., ships) in the secondhand vessel sale and purchase market. In 2010, the tanker trade volume reached to 2,767 million tons due to growth in demand for energy commodities. The increased cargo volume in the tanker market leads shipping firms to adjust their supply by building new ships in the new building market, and acquiring secondhand vessels in the sale and purchase market. In tanker shipping, price level (i.e., freight rate) is influenced by the market (i.e., demand for shipping service and supply of shipping service). In the context of research in tanker shipping, the demand for shipping is seaborne trade in energy products because demand for tanker shipping occurs as a result of demand Y.