Question

Dry bulk cargo is typically transported by tramp ships, which are often chartered on the spot market. Although tramp shipping is often considered as a competitive market, its operations rely on ports that tend to have substantial market power.

a ) Explain how charterers in bulk shipping may be subject to the double marginalisation problem? [4 Marks]

b ) Would the double marginalisation problem affect tramp ship operators in the same way as it affects charterers? Explain and justify your answer. [4 Marks]

Please provide elaborated answers minimum of 250 words each for both the subquestions if possible. Thanks in advance.

Answer 1

Answer:-

Possible Explanations are:

i)  Use of different methods to calculate the stow factor. Each method has its own way of calculation and has measurable different result from other.

ii)  Different methods are used to calculate the value of bulk density and the result of each is different from other. Therefore causes the case of dead freight.

iii) Pellets may absorb the moisture as they are kept in open near the sea coast

The source of shipping discrepancy is calculation of stow factor because the company are following different methods which causes dead freight.

Let the material be X

For stow factor 53ft3/MT, Hamburg capacity = 1915470/53

                                                                        = 36140MT

Total Weight of X = 30000MT

Total capacity of X 30000*53 =1590000Ft3

Specific recommendations are:

i)     Use of common method to calculate the stow factor

ii)  Use of common method to calculate the bulk density

iii)  Organize the cargo in a specific way that minimizes the waste space

Use of common method brings the uniformity in the communication and avoid the differences occured due to it.A proper planning of the material in shipping also helps in minimizing the waste space.