TRL3704
ASSIGNMENT 3
SEMESTER 1
2023
, Question 1.1: Why does the freight rate of different products fluctuate so much?
The freight rates of different products fluctuate due to various factors. Some of the key
factors that affect freight rates include supply and demand, vessel capacity, fuel prices, port
congestion, weather conditions, and geopolitical events. For example, when the demand for
a particular product exceeds its supply, the freight rates for that product may increase due to
the limited availability of shipping capacity. On the other hand, if the supply of shipping
capacity exceeds demand, freight rates may decrease as shipping companies compete to fill
their vessels.
In addition to supply and demand, other factors such as fuel prices and port congestion can
also have a significant impact on freight rates. Fuel costs account for a significant portion of a
ship's operating costs, and fluctuations in fuel prices can affect freight rates accordingly.
Likewise, port congestion can cause delays and increase costs for shipping companies,
leading to higher freight rates for customers.
The case study highlights some of these factors and how they have affected the dry bulk
shipping market. For example, the rebound in demand for dry bulk cargo, particularly for iron
ore and grain into China, led to a surge in freight rates in the second half of 2020. Similarly,
port congestion in Brazil in early 2021 contributed to delays and increased costs, leading to
higher freight rates for carriers.
1.2 “…….dry bulk demand should continue to grow and the capacity should be manageable so
rates are likely to remain high….” From the statement above, how does the size of the ship
affect the unit cost of cargo
In the dry bulk shipping industry, the size of the ship plays an important role in determining
the unit cost of cargo. Larger ships have a higher carrying capacity, which allows for
economies of scale in transportation costs. This is because larger ships can transport more
cargo per trip, which reduces the transportation cost per unit of cargo. For instance, a
Capesize vessel can carry up to 180,000 metric tons of cargo, while a Panamax vessel can
carry up to 70,000 metric tons of cargo (Clarksons Research, 2021b). Due to their larger size,
ASSIGNMENT 3
SEMESTER 1
2023
, Question 1.1: Why does the freight rate of different products fluctuate so much?
The freight rates of different products fluctuate due to various factors. Some of the key
factors that affect freight rates include supply and demand, vessel capacity, fuel prices, port
congestion, weather conditions, and geopolitical events. For example, when the demand for
a particular product exceeds its supply, the freight rates for that product may increase due to
the limited availability of shipping capacity. On the other hand, if the supply of shipping
capacity exceeds demand, freight rates may decrease as shipping companies compete to fill
their vessels.
In addition to supply and demand, other factors such as fuel prices and port congestion can
also have a significant impact on freight rates. Fuel costs account for a significant portion of a
ship's operating costs, and fluctuations in fuel prices can affect freight rates accordingly.
Likewise, port congestion can cause delays and increase costs for shipping companies,
leading to higher freight rates for customers.
The case study highlights some of these factors and how they have affected the dry bulk
shipping market. For example, the rebound in demand for dry bulk cargo, particularly for iron
ore and grain into China, led to a surge in freight rates in the second half of 2020. Similarly,
port congestion in Brazil in early 2021 contributed to delays and increased costs, leading to
higher freight rates for carriers.
1.2 “…….dry bulk demand should continue to grow and the capacity should be manageable so
rates are likely to remain high….” From the statement above, how does the size of the ship
affect the unit cost of cargo
In the dry bulk shipping industry, the size of the ship plays an important role in determining
the unit cost of cargo. Larger ships have a higher carrying capacity, which allows for
economies of scale in transportation costs. This is because larger ships can transport more
cargo per trip, which reduces the transportation cost per unit of cargo. For instance, a
Capesize vessel can carry up to 180,000 metric tons of cargo, while a Panamax vessel can
carry up to 70,000 metric tons of cargo (Clarksons Research, 2021b). Due to their larger size,
