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A precarious business

Economics and shipping

Shipping is enormously important to the world`s economic system, and to the economies of countries that own ships. Ships carry 95% of all freight carried between countries: far more than in trucks, trains or planes. World trade, and the standard of living we enjoy, depends almost totally on ships. Shipping, however, is a risky business.

In 2003, there are around 43,000 sea-going ships. They earn money for their owners, and give employment to millions of seafarers. Governments benefit from taxation on ships, and are keen to have as many as possible flying their flag. Ships support the major industries of shipbuilding and repairing, vital to the economies of some countries, especially in the Far East.

`Barrad Wave`: refrigerated cargo ship

Magnifying glass`Barrad Wave`: refrigerated cargo ship

Britain was once the biggest owner and builder of ships. In the late nineteenth century, its lead in shipbuilding and trade encouraged owners to build up a huge fleet of ships. Between 1870 and 1910, one in three of the world`s ships were British. For steamships, the figure was even higher: four out of ten. Over half of the world`s trade was carried in British ships.

Since the First World War, the British fleet has declined; slowly at first, but much faster in the last 30 years. There are many reasons, including the flags-of-convenience [definition] under which running ships is much cheaper. In recent years, the government has eased the burdens of taxation and regulation on ships flying the UK flag, and the British fleet has actually grown again. However, this has mainly been due to owners from the continent of Europe taking advantage of lower charges. The number off ships actually owned in Britain, and the employment opportunities for UK seafarers, continue to decline.

This underlines the point that shipping is a precarious business. Economic factors, such as oil price rises, or a recession in trade, can have a serious effect on a shipowner. In a recession, there are too many ships chasing too few cargoes, and freight rates fall. Often, a ship will earn less than it costs to run. The owner then has a choice of selling it, often for scrap if it is old, or laying it up in the hope that trade will improve. A boom can have the opposite effect. Because ships take a long time to build, an upturn in trade can mean there are not enough available. Freight rates increase, and owners who have ships available do well. Successful shipowners are the ones who can survive and prosper through these trade cycles.


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