Research Articles Base: Shipbuilding Industry

Govermental effectiveness can be measured according to several standards

Govermental effectiveness can be measured according to several standards

Job Order Costing and the Process Costing

Job Order Costing and the Process Costing   Introduction The process of accounting is an important process for many of the companies which engage their business in keeping the track for which the money had been spent for the distribution and into the production process. In understanding the costs will be the initial step for controlling allocating and controlling them. Therefore, it is only important that the company needs to choose the precise system of costing for the industry and to the product type. There are many processes in the costing systems which are being used by most of the industries and the example of which is the process costing and the job order costing. These types of costing system which the cost accountants and the management are using can have the differences. Every costing system that can handle by these costing procedures may have different way of entries ( 2008). The process costing and job-order costing are the major products costing that approaches for the accumulating the cost in order to assign the services and products. Thus, the concept of product costing is accomplished though the process costing and to job order costing system. Whatever the chosen approach of product costing, the managers needs to make the number of decisions which can require the information to the cost of treating the customers. The process costing can be used in the industries which can produce some of the homogenous products as the flour, bricks, and cement in the continuous process. The job order costing is the system of cost wherein the cost can be accumulated by the jobs (2008).   Process Costing and Job Order Costing – An Overview The process costing system is the ways wherein the manufacturing cost had been accumulated at the processing department. The said department is the location of the organization whereas the work had performed for the product in which the materials, the overhead costs, and labor are added into the product. Therefore, at the processing department must have two other features. The first one is the fact that the all the activity that passes by the processing department must be the same fro all of the units that pass into the department. The other one need to have the output of the department must be the homogenous. In the costing process, the average processing unit cost in the period needs to be assigned in every unit that part into the department. In the process costing system, there are two methods which had been illustrated and they are the FIFO or the first in first out method and the weighted average method. The FIFO method can provide accurate and current cost of data in the purpose of performance and decision making evaluation. On the other hand, the job-order costing had been recognized when the cost and the other data are being recorded to the materials requisition forms, job cost sheets, and to the time tickets. Since, nowadays, most of the companies are entering into the computer databases as well as the dispensed of the paper documents. But, the data in the computer are consisting of the virtual version into the manual system. The principal flow of the costs in the job-order system is primary begins in the records of the cost, the materials, and the labor as well as manufacturing of the overhead. The manufacturing of the overhead control account were all been temporary control account. In this system, it is also used for the different types of jobs, products, and batches being produced which are typically over and rather than the short period of time. In this costing system, the direct material cost and the direct labor costs are usually traced into the jobs. The overhead is applied to the jobs whereas it is used in the predetermined rate and the actual overhead costs are not being traced into the jobs. The industries which the used the job-order costing includes the shipbuilding, the printing, the hospitals, constructions, and the professional services as the movie studio and the law firms (Ibid).   Similarities and Difference of Job Order Costing and the Process Costing             The job order costing and the process costing are sharing their same characteristics whereas they both have the same basic aims which is to assign into the labor, assign material, and the overhead cost for the products. Both of the systems that are being used are all been used into the same basic manufacturing accounts which can be segmented as the Raw Materials, Manufacturing Overhead, and the Work in Process as well as the Finishing Goods. They are also the similar when it comes to the flow of the costs as it was through the manufacturing accounts. There are differences between the process costing and the job order whereas the job order for the companies can make the limited quantities for the specific services of the customers while the process costing is using into the companies that can make the quantities for the homogenous output on the continuous operations. The cost in the process costing is all accumulated into the department and not by the individual job. The production report department is the key document in the showing of accumulation, the process of costing, and into the disposition of cost while the job order costing has the key document of cost sheet ( 2005 ).             In the job order costing, it requires it does not allow much of computations for the cost per unit when all of the units. The job order cost can either use the normal cost system which combines the direct labor, actual direct materials with the aide of the predetermined overhead system of standard cost or the actual cost system that combines the direct labor, the direct material, and the overhead. The process costing can use the same type of the system cost valuation though the standard cost system can significantly more prevalent at the costing process ac compared to the job order cost. Since at the job order costing, it requires sheet in tracking for the direct material, the actual or applied overhead, and the direct labor for every customers while the process costing simply accounts for the direct materials and labor, the actual or the applied overhead, and the and the batch at every department              The other difference which accounted between the two can be determine as the job order costing except to the repair of work and to the certain applications has the basis of accumulating the relevant costs into the work or to the job that are primarily specifies to the quantity of the particular product that needs to be manufactured. The cost that required the performance of the specified operations are all been accumulated in contrast to the job order which are being incurred while these costs are all attributed into the quantity for the item as produced under the job order. On the other hand, the process costing has the basis for the accumulation of the relevant costs can be considered as process while or it is somewhat said to be cost center. The said cost then are being attributed into the quantity produced for the homogenous product output or for the process during the time period for over the costs had been accumulated. The key differences for the concept of the two approaches can be seen into the bases of the cost accumulation. For the system of job order, the entire relevant costs for the particular lot can be specified by the job orders as they are accumulated against the order with regards to the periods of the incurred. In the process costing system, the entire relevant costs that incurred into the particular process or the process of costing into the accumulated against the said process in the specific period. In either way, the costs being accumulated can be computed by dividing the recorded production in yield units cost for the production (  1991 ).             Certain features in the process of costing method can differ as well to the job order system. In the process costing method, every process or stages of the production can becomes the center for the accumulation of the cost. Taking the example of the product that can go through the steps or to the processes as in cutting, the assembling, painting, finishing, and to the quality control or inspection. In this process method, the cost in carrying the every five processes in determined in separate ways. In this method, the costs are also accumulated by the process in the duration of the production run into the particular product or to the shorter period which is consistent to the normal accounting reporting periods. The number of the units that produced in the every process can be determined to the unit cost and to the process of calculating total cost in the period into the total number of units being produced. Determining the total or the final unit cost for the specific product is commonly one of the adding together for the units’ costs and for every process through the product flows. On the other hand, the job order costing have also features which can provide the basis for the managers in evaluating the efficiency of operation by the comparing the standard and the actual cost. The differences at the midst of the actual cost and the standard cost are all captured in the variance accounts which can analyze the variances wherein the managers can gain understanding for the factors which can cause the costs that can differ from the expected amounts. Additionally, both the normal and the abnormal losses can emerge in the system of ob order which can account in the normal losses and anticipated in the all of the jobs while included and estimated in the development for the predetermined overhead rate. The normal losses also can be associated in the particular job yet changed in the job and the abnormal losses are always been charged to the loss account the incurred period (1991).   Conclusion             Every organization needs to have a range of options in distributing its cost of products. There are two primarily ends for the said spectrums which are the process costing and job ordering cost. Based on the aforementioned analysis, the organization that uses the job order costing is one which makes the unique, large, and or the special-order products. Thus, it is consider being a customer order in the specific number that specially designed for the product which is made to order. It measures the cost every complete unit. Thus, while products are manufactured, the direct labor and the direct materials are being transferred to the account of Process Inventory control. On the other side, the institutions that uses the process costing is the one that produce the large similar or amounts of liquids or products which has the continuous product flow. In this regard, at the system of process costing, the direct labor, direct materials, and the manufacturing overhead are traced primarily in work cells and to the processes but assigned to the produced products by the work cell or to the process. Generally, some of the companies are need of the process costing whereas the products are produced to the never ending or continuous basis. This methodology of tracking and capturing the costs associated to the form of process manufacturing is greatly different from the methodology needed in the use of the discrete process of manufacturing.                                     Credit:ivythesis.typepad.com

Job Order Costing and the Process Costing

Job Order Costing and the Process Costing Introduction The process of accounting is an important process for many of the companies wh...

LAW CASE STUDY

Contracts Voidable based on Economic Duress             Economic duress is a ground for setting aside a contract. [1983] provides that an important element of economic duress is the presence of the compulsion of the will or economic pressure. However, this is difficult to prove in actual cases. Thus, the case provides guidance in determining acceptable pressure by directing the courts to look into the nature of the pressure based on the means used and the demand made based on the end sought.      [1979] provides the lack of consideration as another important element justifying the setting aside of a contract. The case involved a contract to build a tanker but there was no agreement on foreign currency adjustments. Due to exchange rate fluctuations, the shipbuilder asked for an additional amount with a corresponding letters of credit, which the buyer paid under protest. Eight months after the tanker was built, the buyer asked for a refund of the excess amount paid.  The court held that there was economic duress there being a threat to break the contract if there was no payment. However, the buyer forfeited the right to claim a refund because eight months has already passed and the lapse of the period is deemed as an affirmation of the contract to pay an additional amount. The decision in [1980] held that the threat to break the contract does not constitute economic duress because the plaintiff agreed to pay more in order to avoid litigation. The case shows the difficulty in determining whether an action constitutes economic duress. The case provides that economic duress is a question of fact.             Based on the facts given, there was economic duress because of the threat by the builder to break the contract if there was no additional payment. The plaintiff paid reluctantly to avoid delays in finishing the building. The plaintiff has reasonable grounds to claim a refund and damages on the ground of economic duress. However, there was a consideration for the additional price, which is the increase in the letters of credit. Thus, the action is justified by the presence of economic duress due to the threat to break the contract but not based on the lack of consideration. References   Credit:ivythesis.typepad.com

LAW CASE STUDY

Contracts Voidable based on Economic Duress Economic duress is a ground for setting aside a contract. [1983] provides that an...

Law Case Study

Contracts Voidable based on Economic Duress             Economic duress is a ground for setting aside a contract. Universe Tankships of Monrovia v ITWF [1983] provides that an important element of economic duress is the presence of the compulsion of the will or economic pressure. However, this is difficult to prove in actual cases. Thus, the case provides guidance in determining acceptable pressure by directing the courts to look into the nature of the pressure based on the means used and the demand made based on the end sought. North Ocean Shipping Co. Ltd v Hyundai Construction Co. Ltd. [1979] provides the lack of consideration as another important element justifying the setting aside of a contract. The case involved a contract to build a tanker but there was no agreement on foreign currency adjustments. Due to exchange rate fluctuations, the shipbuilder asked for an additional amount with a corresponding letters of credit, which the buyer paid under protest. Eight months after the tanker was built, the buyer asked for a refund of the excess amount paid.  The court held that there was economic duress there being a threat to break the contract if there was no payment. However, the buyer forfeited the right to claim a refund because eight months has already passed and the lapse of the period is deemed as an affirmation of the contract to pay an additional amount. The decision in Pao On v Lau Yiu Long [1980] held that the threat to break the contract does not constitute economic duress because the plaintiff agreed to pay more in order to avoid litigation. The case shows the difficulty in determining whether an action constitutes economic duress. The case provides that economic duress is a question of fact.             Based on the facts given, there was economic duress because of the threat by the builder to break the contract if there was no additional payment. The plaintiff paid reluctantly to avoid delays in finishing the building. The plaintiff has reasonable grounds to claim a refund and damages on the ground of economic duress. However, there was a consideration for the additional price, which is the increase in the letters of credit. Thus, the action is justified by the presence of economic duress due to the threat to break the contract but not based on the lack of consideration. Credit:ivythesis.typepad.com

Law Case Study

Contracts Voidable based on Economic Duress Economic duress is a ground for setting aside a contract. Universe Tankships of M...

Shipping Economics

The Role of Shipping Economist in Ship Design             In a dynamic realm of ship design, a shipping economist can basically contribute on how architects confront design challenges arising from ambiguous environment.  His task for an architectural firm (herein referred to as firm) is encapsulated into three broad economic functions; namely, maximizing wealth-creation capabilities, efficient allocation of scarce resources and welfare preservation.  Generally, a shipping economist is equipped with mathematical tools and economic models to aid the firm to pinpoint factors that can have significant effects in the field of ship design.  Specifically, his experience in the shipping industry can inject valuable knowledge about varying ship-owner approaches to internal and external issues and their decision-making patterns.  To have clearer understanding on these, further explanation would be necessary.               In designing a ship, architects are like less concerned with the involvement of economic factors considering that ship specification is subject to continuous change.  They may prefer to reach a specific output undermining factors that can disrupt the project.  In doing so, they would come-up with a remarkable design which would resolves functionality, safety, style and some economics.  However, “some” economics is likely biased on how to adapt ship design on the level of budget of ship-owners or the selling amount specified in the contract.  It is largely a cost-minimization approach.  In a different scenario, architects would accomplish a design with larger deck space to entice ship-owners to maximize their revenues per travel.  As a result, they would engage in revenue-maximization approach.                What a shipping economist can do is to provide architects “what if” scenario planning or simply this would refer to cost-benefit analysis.  This approach combines cost-minimization and revenue-maximization biases into one veil available for comparison.  Complementing the technical aspect of ship design in which architects are adept, shipping economist will be a useful partner in transforming the ship lay-out from mere functional ones into outputs that are also suitable for certain kinds of ship-owners and applicable to certain kinds of external conditions.  The bottom line of demanding ship designs is for ship-owners to gain optimal future returns in the actual ship building investment.  With the contribution of shipping economist, ship-owners would not only receive a design which is cost-effective but also a model that can be a source of competitive advantage over competitors.               His experience in shipping industry gave him understanding about the value chain of ship-owners.  This will not only remind architects to connect ship design to primary (Operations, Logistics and Marketing) and secondary activities (Human Resource, Procurement and Technological Development) at least on the shipping industry’s average but also obtain precise judgment on what to prioritize among them.  For example, there is a newly developed navigational technology that can make ship travel persistent to storms.  Architects’ limited knowledge about ship-owner decision making patterns would be supported by shipping economist to address the issue of incorporating the technology in the design based on ship-owner’s priority in the value chain.  In effect, designs would adhere to core competencies of the ship-owners, thus, maximizing the wealth-creation capabilities of their ships.  Shipping market cycles is also a concept in the industry which shipping economist can discuss.               Outside the operations of ship-owners, external factors have direct affect on them as well as they could undermine, in some cases, disallow developed core competencies to be applied and exploited.  This is especially true from government and international regulations.  Since wealth maximization and welfare preservation is usually negatively related, increasing operational restrictions like maximum quantity of load per travel for safety purposes diminishes the incentive of ship-owners.  As a result, the latter are expecting for a design that is guided by legal and political constraints including other external factors to prevent reduction in future returns forecasts.  A shipping economist has familiarity and matching characteristics with politics and regulations which can address this problem.  In a similar manner, demand for shipping (either passenger or cargo) is also an important external factor to ship-owners that a shipping economist can apply repercussions of the law of demand and supply.               Assuming that ship-owners and architects intends to execute a ship design that qualifies for key internal and external factors (that is, gaining core competencies and addressing external constraints) before anything else, shipping economist can insert some cost reduction scheme in pre-shipbuilding.  For example, the floor size can be reduced into a level which ship-owners will accept or the ship can be fed with a cheaper gas up to the minimum level allowable by environmental policies.  However, this type of contribution is additive and secondary to the precedents since no other cost-effective strategy can alter the devastating effects concerning safety or environmental externalities.  In the contrary, this endeavor can increase the value-added service architects can provide to ship-owners.                As observed, shipping economist links ship-owners and architects to persuade the latter to prioritize shipping factors that can satisfy the former and provide added-value for design fees.  Added-value because functionality would be a suggestive criterion in ship design (the task of architects) while integrating internal/ external factor analysis, trending, forecasts and cost-benefit approach (the task of shipping economist) would be the ship-owner incentives.  In addition, he also makes analysis of different factors possible (as architects may particularize functionality and reduction of shipbuilding timeframe while ship-owners may particularize revenue-creating capability of the ship, its lifespan and cost of maintenance) to come-up with trade-off summary.  More importantly, they can present their arguments in quantitative and measurable variables which are agreeable with architects’ firm conviction with their field and experience and ship-owner’s limited considerations in calculating their future returns and determine their net present values.  In effect, subjective factors in designing and margin of errors in investing that confront architects and ship-owners respectively are minimized.  As a result, managing the risk involved in ship design is probable for monitoring, evaluation, re-implementation and learning processes.    Board Criteria: Application of Shipping Economics to Ship Design               From this point forward, it is to be assumed that the firm is designing a ship based on its own decision-making that will undermine instances wherein ship-owners tend to customize their orders.  In doing so, the firm is expected to come up with designs that consider shipping economics in order to maximize the event that their models will be saleable or leasable and minimize the idea that they will have sub-optimal market value, if not, has not been allowed to be manufactured due to weak economic considerations.  The vital role of shipping economics is to fulfill the objective of ship design (which is the actual ship construction).      The speed factor.  Shipping cycle is categorized as short-term and long-term with varying effects to demand for ship either owned or chartered.  Short-term cycle relies on market factors especially industry specific and political ones while long-term cycle relies on one-big technological breakthrough that can induce turn-around in the whole shipping industry.  In this view, ship design should be able to attain not only the deadline of finishing an order, but more importantly, the cycle in which the order is associated and pegged especially in short-run cases.  With each passing months, market factors tend to diminish its advantageous value for industry players.  In effect, the rationale of placing an order for new ship also looses its value-adding capability to them.  The ship design should partake in just-in-time aspirations of the firm to satisfy customers.  Better yet, it should use its economic research capabilities in order to anticipate changes in demand.    In the long-run cases, however, speed factor is less crucial especially when the technological boom came from a public/ non-profit organization.  This is because industry players are in homogenous footing regarding market information while the specification of the technology will likely be disclosed.  However, if the technology is created by private firms or developed with national interests in it, it is unlikely that it will be shared to the whole industry rather selected entities.  This could delay orders from the industry for ship design waiting for approval to sell of the newly founded technology.  Investors want to maximize future earnings in buying new ships.  As it takes decades for a technological breakthrough, in both cases, ship design is likely to accomplish speed factor.                      The price factor.  This has closer relationship with the demand for ship design.  Investors are adept to compare investment alternatives before coming up with their final decision.  If freight rates are high followed by numerous sea trade under shot-term cycle, the demand for new ships may less likely occur because ship-owners/ shippers tend to speculate about the length of time and returns the period can be exploited.  For this cyclical change, it is expected that it is coupled with lower prices of ships to post incentive to buy and deter speculations.  In effect, pricing can derive adjustments according to the design of ships.  Short cycle advantages can be sufficed by less ornamented ships in favor of reliability.  The design can specify lower material grade or lesser divisions to cut production costs in procurement, completion time and labor.                                 The challenge, however, is that the firm may not coupe with the fact that short shipping cycle has no simple formula to predict the shape of the next cycle.  Research, timing and luck would be helpful but the firm should have sufficient strength in its value chain to support any contingent events in the market.  In doing so, market knowledge applied to ship design benefits may only be offset by the cost of research including research leakage to prominent competitors, higher compensation due higher risk and organizational shocks from mobilizing firm resources.  At the end, whatever anticipation and responses the firm would apply, the ship-owner/ shipper appraisal on the future cash generation of the produced ships will serve as their reference point in buying.                The security and reliability factors.  Perishable, fragile, expensive and regulated cargoes requires ships that can deliver the intended service to protect and even add values to the merchandise.  Ships that carry these items should be able to stand natural calamities and ship/ engine malfunctions.  Since orders on these kinds of ships tend to be price takers except significant customers, ship design should prioritize these aspects.  In a similar manner, they are also crucial in ships that are intended to serve its owners longer or perhaps through greater distances.  In doing so, the speed and price factors would be undermined to give way for the design to achieve these goals.  The design should also take into consideration the current and forecasted commodities that will top sea trade.  This is to allow ship features to take its position on whether it will serve as a shipper of bulk or general cargoes.  If however, architects tend to create a flexible ship (somewhere in between of these general types of cargo ships), it can be said that added feature will be enjoyed by buyers/ lessee.                Economics of Ship Design for Different Kinds of Ships Demand Factors Significant Events Supply Factors Significant Events World Economy (assuming that sea trade is very elastic to industrial production p.122)  (International) China’s largest offshore oil exploration firm ready to invest at least billion to secure stability of energy level. (Europe) According to EuroGas, the demand for natural gas will consistently increase from 2003-2025 that will hasten importation.  World Fleet (this is affected by four shipping market)   Ships have an average life span of 25 years.  North and South American countries particularly those within Panama Canal region hold at least 70% of different fleet types.  Seaborne Commodity Trades [assuming that it is affected by seasonality factors, demand and supply of commodity, change in processing (Short term), Shipper policies (Long term)] Energy products will continue to be the most sea-traded commodity with reference to Euro Gas forecasts. Fleet Productivity (this is affected by speed of voyage, port time, cargo capacity, vessel time of productive of unproductive days in percent) Bigger ships will positively affect its cargo capacity but this is restricted by the ability of national ports to provide a compatible infrastructure.   Average Haul (affects by changing the ship route that can increase/ decrease of ton miles) In the future, many countries will invest in energy exploration that may limit maritime transport due to internalization.  However, global projections show that supply will be deficient with the demand growth rate at 0.2% Shipbuilding Deliveries Far East is the only region that has significant increase in deliveries.  Probably, these are likely the causes of ship importations due to lack of building capabilities.   Political events Germany conceded about Iran nuclear enrichment that may intensify energy trading between Europe and other Arab countries.  On the other hand, US refusal on this may shift relational ties with Europe.     Scrapping (affected by age, technical obsolescence, scrap prices, current earnings and market expectations) Scrapping processes are increasing in developing countries due to lower labor costs.  Developed countries like US almost abolished its scrapping industry. Transport Costs (should be low or the trade will provide higher advantages to the customer) In the past 10-20 years, transport cost has been able to be sliced from 4-5% of cost of goods into mere 0.50% today.  Freight Rates (short run – supply respond to prices, long run – prices contribute to investment decision of scrapping and buying ships) According to 1997-1999 data, freight rates are lower with time charters than single voyage rates.     Cruise Liner of 2,500 Passengers                  This type of ship is considered the most expensive among the classes of ships which carries the most important cargo – humans.  In effect, its design should basically emphasize safety and convenience for travelers specifically vacation goers.  The satisfaction of passengers are directly related when the ship provides vacation atmosphere they deserve.  They should be able to view marine scenery outside the ship and be provided with enough space and internal design to enjoy socialization with other people.  Ship design should contain amenities suitable for longer travel in which passengers can find the ship similar to their homes otherwise demand will not be optimized.                Freight rates are lower when the ship is intended to operate under time charters.  Due to this, designers should be able to balance the economic status of this type of ship against the value-added features of the ship.  As a prerequisite, safety should be incorporated in the design no matter what the future demand for cruising is.  This is because it is more expensive and with reputation stake to risk safety just because ships are insured.  In addition, analysis of frequent destination of travelers should be considered.  If the common country/ regional attractions have modern ports, amenities like pools or gym would be less significant in the design.  This should be offset by routing strategies in which there will be frequent stop-over.                        Cruise liners may frequently encounter unused deck space at times of work peaks.  This can serve as opportunity for designers to impose flexible decks for them to be used when spaces are idle.  Parcel size distribution (PSD) information can aid in such decision making in which the ship-owner can forecast and specify wide range of parcel sizes.  For example, the cruiser is forecasted to have a passenger-cargo ratio of 90:10 as vacation peaks but diminishes to 40:60 on off-peaks.  To increase the productivity of this ship, designers should think of optimal size of the ship or provide specifications about possible combination of commodities that the ship can carry.                     Fast Ferry             Smaller than cruise liners, ferries are bound to connect inland islands to the mainland that suitably fits on its second name as water taxi.  Unlike the preceding liner, ferries have lesser commitment to passengers regarding its facilities.  In design, it can have limited amenities emphasizing on the speed of arriving at scheduled ports.  Ports need not be modernized as the passengers would likely have the objective of visiting their relatives or probably going to their work.  Design should emphasize more on its strategy to minimize average haul travel compared to cruise liners in which the travel should maximize the vacation.  In effect, the design is more inclined in improving the functionality of the ship.  But similar to cruise liner, ferries should have strategy in maximizing its cargo capacity.  However, this should be a primary consideration for ferries not simply maximizing the use of decks because short travelers often have their merchandise probably to sell in other nearby islands.                  As transportation costs are being minimized each year, it is expected that the future of fast ferry will become relevant and increasing to small to medium scale businesses.  Inter-island trade will increase and can consider fast ferries as an efficient shipper of general cargoes.  The world sea trade accounts for 13% of agricultural commodities and this support the fact that short-travel will flourish especially as the economies are being industrialized.  In effect, the requirement of food supply will rise and regular shipments should be conducted to prevent spoilage of such goods.  Due to this, ship design should be able to transport different kinds of cargoes probably a wide range of dry and wet agricultural goods.  Compartments/ divisions, technology and other supporting equipments should be accomplished in the design to maintain profitability of ship use especially when general cargoes are seasonal outputs.                      Container Vessel of 7,500 Tonnages             Without passengers and exclusively cargoes, container vessels far exceed the economies of scale of ferries although the latter has differentiation in its service that may unleash some value to other customers.  Due to its large size and mostly dry (manufactured) commodities on-board a container, specialized divisions and technology are less required compared to ferries.  The focus of the design instead is on the strength and reliability of the container.  The design should be flawless in the ease of loading and unloading heavy commodities in order to prevent damage or delay.  It might incorporate flat racks, open top containers, platforms and other necessary adjustments of design to the features of goods to be carried.  Metal industry shares the 25% of world sea trade suggesting that this type of ship should have a water tight design in order to protect such of cargoes.  Since the security and reliability factors are very vital in such sea trades, the design of the container will dictate whether ship-owners/ shippers will pass the risk of loss/ damage to customers or rely on the vessel itself and absorb default.               The concentration of ship production is in the American continent while the major regional ship deliveries are in the Far East.  This suggests that future designs would prioritize the cost aspect of shipbuilding to adjust in the capacity to buy/ charter of mostly developing countries.  On the other hand, internal customers within the economic developed regions would prioritize the productivity and value-adding aspect of the ships.  This is so because developed countries have their long-term liquidity to finance ship maintenance and absorb the risk of losing a ship or default a shipment agreement.  Unlike developing countries whose operations/ profitability is volatile in terms of security and economic recessions.  In effect, ship designs for developing economies should have shorter life span probably with sub-standard building materials.  LNG Tug Operating in Major Sea Ports                                 Liquefied natural gas (LNG) carried by ships may not have the capacity, may loose efficiency or may simply not compatible with certain port characteristics that tugboats would be necessary.  Unlike large size of preceding ships above, tugboats are far smaller in size.  To optimize efficiency, tugboats should be designed according to the size an average LNG racks.  This is because bigger tugboats would necessitate larger amounts of energy in the form of diesel or electricity while smaller ones would loose the opportunity to serve larger racks of LNG.  Assuming that the size of tugboats and engine energy requirements are positively related, tugboat design should reflect the incapacities of LNG carriers to maximize their use.                Political events suggest that developed countries like Germany are open-minded about the environmental risk of energy explorations putting into consideration that the world’s natural resources are depleting.  As a result, the future trending of energy sea trade would continue to rise probably exceeding 50% of sea commodities.  LNG carriers can maximize their performance if their internal design has storage properties prerequisite for LNP commodities.  In effect, it also becomes crucial for tugboat designs to be able to perform notch tug or even be an integral unit of LNG carriers to have vertically integrated operation.  Due to this, there will be lesser need to contract with port administrators in chartering tugboats and also LNG carriers could prevent engine malfunction delays because tugboats intended for deep waters can provide back up engines. Ore Carrier              This kind of ship requires a different kind of design untypical for the preceding ships to obtain functionality and efficiency.  Since ore has higher mass than its volume, the importance of the ship design is pegged to having higher center of gravity to prevent stagnation in the sea.  Otherwise, the ship may not reach optimal utilization of its capacity.  Its design should also allow port infrastructure to have ease in unloading the merchandise that suggest that the design should make the ship stable and with open platforms.  In addition, the heavier weight of the cargo makes them more dangerous to the carrier during accidents.  In effect, the enclosure of working and populated places inside the carrier should have more durable properties than other parts of the ship.               The world economy and commodities that will be sea-traded are supportive to the production of ore carriers.  As this would partly result to mass production of such ships, the design should not be undermined in favor of productivity.  In doing so, the shipping operators and shipping customers may engage in shipping market economics (that is, they will halt the new building market in favor of chartering).  This is to minimize the risk of losing investments due to low quality carriers.  In addition, the trend also indicates that ship designs should prioritize ore carriers because of the increasing world demand for energy.  Unlike container vessels, requirements of ore carrier designs are almost synonymous and significant for different country economies as it is commonly shipped as bulk cargo (higher risk) and also has national interest in them.     Credit:ivythesis.typepad.com

Shipping Economics

The Role of Shipping Economist in Ship Design In a dynamic realm of ship design, a shipping economist can basically contribut...

MBA

Contents 1.      Introduction   2.      China and its economy   3.      India and its economy   4.      China and India’s economic development and its effects to western MNC   5.      Its effects to Japanese and South Korean MNC   6.      It’s effects to ASEAN companies   7.      Conclusion   8.      References                                             Introduction The degree to which business is internationalized is a function of changes and developments in the world economy. Central to these developments in recent years is the process of globalization or increased global interdependence which many allege took place in the closing decades of the twentieth century. Globalization has also thrown up new challenges for the world’s international economic institutions like the World Trade Organization (WTO), the World Bank and the International Monetary Fund (IMF). The establishment of the WTO in 1995 represented a more extensive and legally grounded international trading system. The pressures of globalization imply a need for an even greater shift of regulation and powers to international institutions. Anti-globalization protestors single out international institutions as the servants of international business and the cause of many of the world’s ills. Many of these ills are said to reside in the developing world which, according to globalization critics, is excluded from any benefits of greater international integration and, at worst, exploited for the benefit of wealthier countries (2003).   For those who welcomed the supremacy of markets and economic liberalism, globalization offered the possibility of boundless growth and prosperity, not only for developed countries but also for those developing countries brave enough to embrace rather than resist globalization in all its manifestations. For others, globalization threatened rising inequality, economic anarchy and a surrender of political control. In developed countries, job losses and the unraveling of social progress were anticipated as a result of greater competition from low-cost countries whereas developing countries feared that their former colonial subjugation had been replaced by the dominance of market forces and its agents in the form of multinational corporations (MNCs) ( 2003).   Business activities are becoming increasingly global as numerous firms expand their operations into overseas markets. Many U.S. firms, for example, attempt to tap emerging markets by pursuing business in China, India, Brazil, and Russia and other Eastern European countries. MNCs, which operate in more than one country at once, typically move operations to wherever they can find the least expensive labor pool able to do the work well. Production jobs requiring only basic or repetitive skills such as sewing or etching computer chips are usually the first to be moved abroad. MNCs can pay these workers a fraction of what they would have to pay in a domestic division, and often work them longer and harder. Most U.S. multinational businesses keep the majority of their upper-level management, marketing, finance, and human resources divisions within the United States ( 2002).   They employ some lower-level managers and a vast number of their production workers in offices, factories, and warehouses in developing countries. Mergers and acquisitions are also becoming more common than in the past. With large mergers and the development of new free markets around the world, major corporations now wield more economic and political power than the governments under which they operate. In response, public pressure has increased for businesses to take on more social responsibility and operate according to higher levels of ethics. Firms in developed nations now promote and are often required by law to observe nondiscriminatory policies for the hiring, treatment, and pay of all employees. Some companies are also now more aware of the economic and social benefits of being active in local communities by sponsoring events and encouraging employees to serve on civic committees. Businesses will continue to adjust their operations according to the competing goals of earning profits and responding to public pressures for them to behave in ways that benefit society ( 2002). The paper will discuss about china and its economy, India and its economy, China and India’s economic development and its effects to western MNC, China and India’s economic development and its effects to Japanese and South Korean MNC and China and India’s economic development It’s effects to Asian companies. The information acquired from such will be used to create a proper conclusion.   China and its economy Officially the People’s Republic of China, China is a country in East Asia, the world’s largest country by population and one of the largest by area, measuring about the same size as the United States. The Chinese call their country Zhongguo, which means Central Country or Middle Kingdom. The name China was given to it by foreigners and is probably based on a corruption of , a Chinese dynasty that ruled during the 3rd century B.C. China proper centers on the agricultural regions drained by three major rivers the Yellow River in the north, the Yangtze in central China, and the Pearl River in the south. The country’s varied terrain includes vast deserts, towering mountains, high plateaus, and broad plains. Beijing, located in the north, is China’s capital and its cultural, economic, and communications center. Shanghai, located near the Yangtze, is the most populous urban center, the largest industrial and commercial city, and mainland China’s leading port (1977).   In the 1950s China’s Communist government began bringing a majority of economic activity under state control and determining production, pricing, and distribution of goods and services. This system is known as a planned economy, also called a command economy. In 1979 China began implementing economic reforms to expand and modernize its economy. The reforms have gradually lessened the government’s control of the economy, allowing some aspects of a market economy and encouraging foreign investment; however, the state-owned sector remains the backbone of China’s economy. China refers to this new system as a socialist market economy. As a result of the reforms, China’s economy grew at an average annual rate of 10.2 percent in the 1980s and by 10 percent annually in the period of 1990–2001. This was among the highest growth rates in the world. However, the reforms also have caused problems for China’s economic planners. Income gaps have widened, unemployment has increased, and inflation has resulted from the extremely rapid and unbalanced development ( 2003).   In 2001 China’s gross domestic product (GDP) was ,159 billion. The size of the country’s economy, which is comparable to that of Canada (4 billion), makes China a significant economic power; despite this, it remains a low-income, developing country because it must support a huge population of more than 1.2 billion. In 2001 China’s per capita GDP was just 0, compared to ,340 in Canada. Industrial activity that includes manufacturing, mining, and construction contributes the largest percentage of the country’s GDP, amounting to 51 percent in 2001. Transportation, commerce, and services together accounted for 34 percent. And agriculture, together with forestry and fishing, contributed 15 percent (2003).   The information technology (IT) industry is a pillar of China’s national economy. It has developed rapidly since the market opening and reform policy was introduced. The IT industry contributes more than any other industry to the growth of the national economy as measured by output value and sales revenue. IT is one of forty industries in the industrial sector; its market share increased from 3.1 per cent in 1990 to 8 per cent in 1999. The IT industry has developed more rapidly than any other Chinese industry and has the largest output, best profits and largest export turnover (2004).  From 1990 to 1999, the Chinese IT industry grew by 32.1 per cent per annum, compared with a total industry figure of 14.2 per cent and national economy growth of 9.7 per cent. In 2000, the output of the IT industry exceeded US0 billion, sales revenue increased by 34 per cent to US billion, and profits and taxes grew by 66 per cent to US.7 billion. Exports reached US.1 billion, up by 41.2 per cent from 1999. In 2000, the IT industry created value added of US$l6.7 billion, which accounted for 1.54 per cent of gross domestic product (GDP), compared with 1.29 per cent in 1999 (2004).   India and its economy India is bounded on the north by Afghanistan, China, Nepal, and Bhutan; on the east by Bangladesh, Myanmar which is formerly known as Burma, and the Bay of Bengal; on the south by the Palk Strait and the Gulf of Mannār which separates it from Sri Lanka and the Indian Ocean; and on the west by the Arabian Sea and Pakistan. India is divided into 28 states and 7 union territories including the National Capital Territory of Delhi. New Delhi is the country’s capital. The world’s seventh largest country in area, India occupies more than 3 million sq km encompassing a varied landscape rich in natural resources. The Indian Peninsula forms a rough triangle framed on the north by the world’s highest mountains, the Himalayas, and on the east, south, and west by oceans. Its topography varies from the barren dunes of the Thar Desert to the dense tropical forests of rain-drenched Assam state. Much of India, however, consists of fertile river plains and high plateaus. Several major rivers, including the Ganges, Brahmaputra, and Indus, flow through India. Arising in the northern mountains and carrying rich alluvial soil to the plains below, these mighty rivers have supported agriculture-based civilizations for thousands of years ( 1952).    India has struggled financially since independence, experiencing slow economic growth and economic setbacks due to climatic extremes or political disturbances. The country has been gradually transforming its economic base from agrarian to industrial and commercial. Under British rule in the 19th century, India’s cottage industries and thriving trade were virtually destroyed to make way for European manufactured goods, paid for by exports of agricultural products such as cotton, opium, and tea. Beginning in the late 19th century a modern industrial sector and an extensive infrastructure of railways and irrigation works were slowly built with British and Indian capital. Nevertheless, India’s economy stagnated during the last 30 or so years of British rule. At independence in 1947 India was desperately poor, with an aging textile industry as its only major industrial sector (2000).   Economic policy after independence emphasized central planning, with the government setting goals for and closely regulating private industry. Self-sufficiency was promoted in order to foster domestic industry and reduce dependence on foreign trade. These efforts produced steady economic growth in the 1950s, but less positive results in the two succeeding decades. By the early 1970s India had achieved its goal of self-sufficiency in food production, although this food was not equally available to all Indians due to skewed distribution and occasional shortfalls in the harvest. In the late 1970s the government began to reduce state control of the economy, making slow progress toward this goal. By 1991, however, the government still regulated or ran many industries, including mining and quarrying, banking and insurance, transportation and communications, and manufacturing and construction. Economic growth improved during this period, at least partially as a result of development projects funded by foreign loans (2000).   A financial crisis in 1991 stimulated India to institute major economic reforms. After the Persian Gulf conflict of 1990 to 1991 caused a sharp rise in oil prices, India faced a serious balance of payments problem. To obtain emergency loans from international economic organizations, India agreed to adopt reforms aimed at liberalizing its economy. These economic reforms removed many government regulations on investment, including foreign investment, and eliminated a quota and tariff system that had kept trade at a low level. Also, reform deregulated many industries and privatized many public enterprises. These reforms continued through the mid-1990s, although at a slower rate because of political changes in India’s government. In 1993 India permitted Indian-owned private banks to be established along with a minority of foreign banks (2000). With the reforms, India made a dramatic shift from an economy relatively closed to the global economy to one that is relatively open. By 1996 to 1997, foreign investment had increased to nearly billion, up from 5 million in 1990 to 1991. Exports and imports also grew dramatically in this same period. Economic growth since the 1980s has brought with it an expansion of the middle class, which was estimated to form 20 to 25 percent of India’s population in the mid-1990s. As a result, the demand for consumer goods from soap to luxury cars has expanded rapidly. In 2000 India’s annual gross domestic product (GDP) was 7 billion. In 2000 agriculture, forestry, and fishing made up 25 percent of the GDP, compared with 27 percent for industry including manufacturing, mining, and construction and 48 percent for services (2000).   In India, the upsurge of innovative activity seems to have had more to do with the advent of liberalization than with the Silicon Valley phenomenon. Liberalization has dramatically changed the market and supply conditions, from being shortage and seller driven to being buyer and competition driven. To survive and grow, firms have to focus on improving their competitiveness. They are realizing that the real source of industrial competition today lies in innovation and the rapid technological change taking place throughout the world. Technology is now a key determinant of strategic change in Indian firms. Industrial development based on indigenous technology development is still an elusive dream, but the ‘process’ of technology acquisition and assimilation is now very much a strategic process, aligned with firms’ need to build competencies (2004). Liberalization has stimulated the rapid growth of innovation-driven industries such as information technology (IT), communications technology, biotechnology and pharmaceutical industries. This has led to a new type of business enterprise known as the knowledge enterprise and a new sector of the economy known as the knowledge economy. This sector is now a significant component of the national economy and accounts for a large portion of economic growth. Liberalization created renewed interest in innovative entrepreneurship as a key driver for the rapid diffusion of innovation in business and industry. Entrepreneurship occupies centre stage in the wealth creation process in the knowledge economy (2004).   China and India’s economic development and its effects to western MNC In the past, as have been seen, Asia has not been high on the list of investment targets for Western multinationals. Even during the boom years of the 1990s, firms were at first slow to understand the growth possibilities of the region, and later held exaggerated expectations. Their emphasis was on gaining a foothold to keep up with their competitors and making short-term profits, rather than building up a good cadre of managers with Asian expertise who could run the business for long-term growth and solidly based prosperity. Those expatriate managers sent to Asia often found themselves overwhelmed by the number of VIP visitors from headquarters demanding a guided tour of Asian interests.  In the wake of the currency crisis of 1997, the instinct of many Western multinationals was to withdraw until the better times came round again, perhaps leaving a lone manager in charge of a scaled-down operation. Others saw the crisis as providing unparalleled acquisition opportunities at bargain basement prices. But as many of them now realize, having read it so often in the business press, making an acquisition is only the opening paragraph of the story. If they are not to lose the plot, but achieve the sort of returns on these investments that their shareholders require, they will have to manage their Asian operations much more effectively than ever they have in the past (2003).    China and India is said to be on the verge of being an economic giant in the year 2020 and it can affect western companies. Different effects can be felt by the western companies. This include tougher competition, harder time penetrating or controlling the Asian market, loss of potential clients, and loss of ability to attain income. When India and China gain an economic supremacy western companies can have harder competition. The western companies can have a hard time in dealing with these two countries and they have to make better products and services.    When China and India gain economic supremacy western companies can have harder time in penetrating or controlling the Asian market. Not only the western companies will have new and probably better competitors but they also can’t easily penetrate or control Asian markets.  Instead of finding ways to gaining their goal in the Asian market they have first to worry about how to penetrate the said market. Another effect of China and India’s projected economic supremacy is the loss of potential clients. The western companies cannot easily get clients from Asian regions because there can be markets in there that offers their product and services. Lastly China and India’s projected economic supremacy gives western companies lesser chances to gain income. Lesser clients, tough competition and inability to control the market lead to lesser chance for the western companies to gain income.   Its effects to Japanese and South Korean MNC During the mid to late 1980s, Japanese corporations rushed headlong into Asia, pushed in part by the sharply rising value of the Japanese yen and pulled by the alluring prospect of lower labor and other factor costs, plus very large and rapidly growing markets. MNCs based in Japan remain the largest national source of foreign direct investment (FDI) in Asia, a driving force behind much of that region’s rapidly growing trade in goods and services and a principal source there of technology transfer. By weaving these FDI, trade, and technology flows into cross-border networks, Japanese multinationals have fundamentally reorganized production across Asia (1999).   Partly because foreign firms have been kept out, the South Korean economy is dominated by a small number of very large multinational companies. Twelve of these ranked in the Fortune Global 500 list for 1995. These South Korean multinational companies have achieved significant global successes. The Samsung, Daewoo, LG, and Hyundai groups have become global household names. Samsung Electronics, a flagship company of Samsung Group, is the world’s largest producer of memory chips and color monitors, and the second largest maker of microwave ovens with global market shares of 15%, 17%, and 18% respectively as of 1995. It is also the company that in 1996 acquired U.S.-based AST Research, then the fifth largest personal computer maker in the world. Daewoo Electronics is the company that tried to become the largest color television producer in the world by acquiring Thomson Multimedia of France, but was blocked by French nationalist resistance ( 2000).   Hyundai Automobile is the twelfth largest automaker in the world and the biggest player from a developing country. LG Electronics became a force in multimedia by purchasing Zenith of the United States. These companies also hold oligopoly power in many domestic South Korean industries: Samsung, LG, and Hyundai in semiconductors; Hyundai, Samsung, and Daewoo in shipbuilding; Hyundai, Daewoo, and Kia in automobiles; Samsung, LG, and Daewoo in consumer electronics. These South Korean multinationals have become even more active in globalization in recent years, a response to the changing domestic and foreign market environment: deteriorating factor cost conditions in South Korea, emergence of regional economic blocs such as the European Union, pressures for domestic market opening, and the rise of emerging markets such as China and India ( 2000).   When China and India becomes economic superpowers Japan and South Koreas’ MNC will be affected. The main effect to Japan is it losing the power it has over the Asian market. As mentioned Japan is the largest source of foreign direct investment. This benefits not only Japan but the whole of Asian region as well. China and India will then be having most of the power in the region and it will be divided among the two. On the other hand the main effect to South Korea is it having a more powerful competition when it comes to producing technologies that is patronized not only in the region but in the most parts of the world. South Korea’s sales on the technology it has can go down. It may be forced to discover new technologies or trends to come up with the competition. Technology is one thing needed and valued by people in most parts of the world and South Korea is the one providing it to the Asian market this could all change when China and India becomes an economic superpower.   Its effects to Asian companies What has changed along with the Asian economic crisis is not just that Asian firms are struggling against a prolonged recession, pressing though it is. Nowadays, the prevailing view is that Western companies had learned everything they needed to know about Asian management, and that it is the Asian companies that now have to learn again from the West. An important contribution to organizational efficiency and the business success of Asian companies has been their long-term investment in people particularly their humanistic approach to management. When the organization and its employees are strongly identified with and committed to each other, business success is no longer an abstract concept (2002).  Asian companies have long promised employees a job for life, but they have had to announce unprecedented layoffs as they reorganize their businesses. The Asian and, in particular, the Japanese employment system was heavily influenced by the crisis, which slowed down the growth of Asian companies. During the economic miracle the growing enterprises could offer solid career development paths. Asian firms have to learn to operate in environments in which capital is limited and pricey; and they will have to convince capital markets that they can use money efficiently. In addition, pressure is rising from multilateral agencies and global markets for more disclosure of financial data. Asian companies that want to access international capital markets must meet more stringent reporting requirements (2002).   When China and India becomes economic superpowers the companies in Asia can be affected.  The effects include a more radical perspective on business operations, improved ways of personnel management, and a more powerful competitor for the western mnc’s. When China and India becomes economic superpowers Asian companies will have more radical business operations. They will have a different perspective in running a business since they have to pattern the way they manage with China and India. Another effect is improving ways of personnel management. Asian companies will then improve their employees according to the changes they need and what the situation calls.  Lastly an effect of China and India becoming economic superpowers is Asian companies becoming a more powerful competitor for western MNC. The focus of consumers will then shift to the Asian region and more clients will be enticed to purchase products coming from this region. Conclusion Business activities are becoming increasingly global as numerous firms expand their operations into overseas markets. MNCs, which operate in more than one country at once, typically move operations to wherever they can find the least expensive labor pool able to do the work well. The IT industry is a pillar of China’s national economy. It has developed rapidly since the market opening and reform policy was introduced. In India, the upsurge of innovative activity seems to have had more to do with the advent of liberalization than with the Silicon Valley phenomenon. Liberalization has dramatically changed the market and supply conditions.   China and India is said to be on the verge of being an economic giant in the year 2020 and it can affect western companies. Different effects can be felt by the western companies. This include tougher competition, harder time penetrating or controlling the Asian market, loss of potential clients, and loss of ability to attain income. When China and India becomes economic superpowers Japan and South Koreas’ MNC will be affected. The main effect to Japan is it losing the power it has over the Asian market. . On the other hand the main effect to South Korea is it having a more powerful competition when it comes to producing technologies. When China and India becomes economic superpowers the companies in Asia can be affected.  The effects include a more radical perspective on business operations, improved ways of personnel management, and a more powerful competitor for the western mnc’s. References Credit:ivythesis.typepad.com

MBA

Contents 1. Introduction 2. China and its economy 3. India and its economy 4. China and India’s economic ...

Business Profile

Business Profile

Developing a Rational Maritime Policy for Saudi Arabia

Developing a Rational Maritime Policy for Saudi Arabia   Introduction: The Untapped Potential of Saudi Arabia’s Maritime Resources         Saudi Arabia is not a nation whose fate has been historically associated with the oceans.  Images conjured of Saudi Arabia will involve oil fields and vast deserts.  At first blush, there seems little reason to even consider a maritime policy for the nation, let alone a rational and holistic one that incorporates information from many maritime interests and successfully coordinates policy decisions for all.  This is a misconception.  In fact, Saudi Arabia has an intimate and strategic relationship with two major oceanic routes: the Red Sea and the Persian Gulf.  As the importance of these routes is certain to grow in the coming years and decades, it is important for Saudi Arabia to consider today the means by which a sensible maritime policy can be devised and implemented.         Despite the conception that Saudi Arabia is a landlocked desert nation, its fate and success depends on cogent management of its maritime resources.  Unlike Western—and in particular European—nations, Saudi Arabia does not have an extensive history as a seafaring nation.  The European age of imperialism, combined with Europe’s natural maritime resources, meant that the West has had a long and powerful relationship with the seas.  Of course, just because the West has a stronger historical link with its maritime resources has not meant that it has deployed significantly more holistic maritime policies than Saudi Arabia.  The European Commission’s Maritime Policy Task Force (2006) recently reported the fundamental problem the EU faces regarding its maritime resources: So far our policies on maritime transport, industry, coastal regions, offshore energy, fisheries, the marine environment and other relevant areas have been developed separately.  Of course we have tried to ensure that their impact on each other was taken into account.  But no one was looking at the broader links between them.  No one was examining in a systematic manner how these policies could be combined to reinforce each other. Fragmentation can result in the adoption of conflicting measures, which in turn have negative consequences on the marine environment or may impose disproportionate constraints on competing maritime activities.  Moreover, fragmentation of decision-making makes it difficult to comprehend the potential impact of one set of activities upon another.  It prevents us from exploring untapped synergies between different maritime sectors.  (p.  4)         From this we can see that even the European Union, with its long history as a collection of sea-faring nations, faces fragmentation of its general maritime policies.  If this is the case, then we should expect that a similar focus on creating a singular, cohesive maritime policy in Saudi Arabia would address similar concerns and would, perhaps, have even more powerful effects.  If Saudi Arabia can work toward the development of a sustainable, holistic maritime policy it has the real opportunity to ensure its long-term success as a nation whose fortunes are very much dependent on the seaways it controls.         The purpose of this study isn’t to develop a definitive maritime policy for Saudi Arabia.  Instead, this examination will probe the dominant and prevailing maritime issues that Saudi Arabia faces and suggest some means by which a holistic approach could improve management of Saudi Arabia’s maritime resources.  The aim is not to override existing maritime policies in Saudi Arabia in favor of ones cut whole from new cloth.  Instead, the overall goal will be to find new ways to integrate existing policies and attitudes, but leaving room within the policy to develop new protocols for the gaps that exist.         For a holistic maritime policy to be a success in Saudi Arabia it must strike a balance between a diverse set of competing needs.  The nation’s maritime resources are significant, but not limitless.  In order to be sustainable, any policy recommendations must weave their way through economic, social, environmental, and security issues.  Despite the challenge this represents, it is an achievable goal.  Saudi Arabia’s maritime resources constitute an important component of the nation’s future success.  Developing the policies now that will allow the nation to move forward sustain-ably toward that future is paramount.         Saudi Arabia must consider the development of a holistic maritime policy that integrates currently fragmented policy protocols to create a cohesive plan for the nation’s maritime resources.  Some of the major issues that currently face Saudi Arabia in terms of its maritime resources and policies include a lack of understand of the extent of the resources available.  In other words, because all of the interested parties are not fully aware of each other and their competing or complementary interests, effective and efficient policy decisions cannot be easily made.  Additionally, marine infrastructure in Saudi Arabia is in significant need of advancement.  Only this year has the Saudi Port Authority devised plans to expand port facilities throughout the kingdom—of course, this announcement came without any other examination of how expansion would fit into an overall maritime policy.          Whereas other nations can develop a maritime policy with only slight regard to security issues, Saudi Arabia’s strategic geographic position, its vast energy resources, and its location in a volatile region of the world all contribute to the greater need for active policing of territorial waters.  Any effective maritime policy must make allowances to ensure the safety and security of the seas and oceans.  For the sake of Saudi industry, development, and continued trade with the world, it is important that Saudi Arabia minimizes any potential disruptions to marine commerce as possible including terrorist, political, and criminal threat.         As a final note, attention must be paid to environmental integrity in any maritime policy.  Failure to do so is likely to result in the fast deterioration of existing marine resources and the ineffectual ability of those resources to continue to produce value for the nation.  Marine resources can be sustain-ably harvested if care is taken to protect the environment in the process.  In the interest of a maritime policy that fosters long-term sustainability, attention to the environment is crucial. The Extent of the Maritime Sector for Saudi Arabia         Saudi Arabia’s maritime sector is more significant than one might at first realize.  For this reason especially, we must consider a cohesive and rational maritime policy that can integrate information and action from a variety of interests into a simple whole.  Maritime resources include control over or access to major shipping lanes in the Red Sea and the Persian Gulf.  This is in addition to access to offshore energy reserves, primarily in the form of oil and other fossil fuels.  Saudi Arabia’s maritime sector must also consider potentially new industries beyond the tried and true venues of shipping and energy production.  Additionally, Saudi Arabia has access to potential aquaculture resources, desalinization facilities, and tourism primarily along the Red Sea coastline.         The maritime sector for Saudi Arabia must consider other factors, however, beyond simply the vast opportunity for development and management that already exists.  Because of the volatile nature of the region in which Saudi Arabia is situated, unique and persistent threats challenge the nation’s maritime resources and may limit the effectiveness to which the nation can access and control its maritime resources.  Providing for safe, secure, and efficient transport and usage of the marine environment is crucial to long-term efforts to sustain-ably manage the resources ( 2006).         In that regard, Saudi Arabia must try to secure the region from criminal and political threats such as groups engaged in piracy or political terrorism.  Such actions undermine the safe passage of legitimate travelers and cargo through the area.  Saudi Arabia already controls significant political leverage on shipping because of its proximity to two major bodies of water and because of its important oil shipping industry (Saudi Arabia 2006).  Enforced security that is quickly able to respond to threats throughout Saudi Arabia’s territorial waters is an important component in the regional maritime policy.  The nation cannot afford to be so naïve as to assume that all other interested parties in the region will simply play nice.  Saudi Arabia’s maritime resources are significant and could represent an enticing target to a motivated group or nation.         An additional form of manmade threat includes pollution.  This can be runoff from land-based industry and development.  However, given the nature of the ocean-going vessels that frequent Saudi ports, it is much more likely that environmental degradation will occur because of oil spills (Saudi Arabia 2006).  Protection of the nation’s maritime resources requires a clear focus on marine health and environmental integrity.  While this is often considered an anathema to normal economic development, this attitude is shortsighted and prosaic.  In fact, environmental and marine ecosystem health is an important factor that affects a number of industries and marine resources.  Pollution and spills can disrupt shipping activities, damage fragile aquaculture resources, negatively impact tourism in the region, and even threaten efforts to produce freshwater via desalinization treatment.  Rational environmental policies must form a key component in any holistic maritime policy because the state of the marine environment is likely to have such a significant effect on so many aspects of the maritime policy and development. Maintaining Peak Efficiency: Shipyards, the Merchant Marine Fleet, and New Technology         Saudi Arabia, in order to develop a powerful maritime economy, should take note from the actions and attitudes of other maritime nations such as Norway.  The Norwegian authorities have long supported a holistic approach to maritime management, which is reflected in their interest in maintaining equal footing for a variety of maritime interests.  These interests include fishing/aquaculture, maritime traffic, and marine infrastructure ( 2006).          Among the most important element in the Norwegian approach to maritime policymaking is the focus on the development of efficient seaports and other marine infrastructursen 2006).  For Saudi Arabia, this is especially important as existing infrastructure and technology isn’t necessarily up to the tasks required.         Saudi Arabia currently has five major commercial ports and two industrial ports.  The commercial ports are at Jiddah, Dammam, Jizan, Jubail, and Yanbu.  The industrial ports are at Jubail and Yanbu.  There is also a dedicated oil port at Ras Tanura, however the Saudi authorities do not directly consider this port to be either commercial or industrial in nature.  In 2000/2001 alone, the main industrial ports themselves handled more than 60 million tons of cargo (Shipping and ports 2006).  This significant amount of traffic that passes through the busy Saudi Arabian ports is suggestive of the need for improved and expanded infrastructure as part of a cohesive maritime policy.  After all, without acceptable port facilities, any efforts to manage or exploit the national maritime resources will be highly ineffectual at best.         In fact, there have been recent efforts in Saudi Arabia to expand and update the existing port facilities to better keep pace with demand and improve the quality of import/export processes.  The Saudi Port Authority announced in 2006 that it had plans to expand port facilities throughout the nation, with the intention of improving the existing infrastructure.  By June 2006 bids were already being taken for plans to double the existing shipping container throughput at the King Abdulaziz Port in Dammam (Port activity 2006; Harboring ambitions 2006).  These efforts represent an important step in the creation of a total maritime policy so long as planner and policymakers can fully consider and grasp the implications that port expansion will have for other interested parties and agencies also involved in utilizing Saudi Arabia’s maritime resources.  Development for development’s sake does not constitute a rational approach to maritime management.         Further, thought must be given to the state of the Saudi Arabia merchant marine force.  Currently, that consists of 64 total ships: five cargo ships, fifteen chemical tankers, four container ships, eight passenger/cargo ships, twenty petroleum tankers, three refrigerated cargo ships, and nine roll-on/roll-off ships ( 2006).  A useful maritime policy for the future will not consider these as static resources that can be tapped and utilized forever—or even that should be.  First, expansion of the fleet is an important step in economic development.  Second, existing ships will be phased out over time as they become obsolete.  Third, new developments in maritime technology will require upgrades and updates to the existing fleet in the interest of efficiency, productivity, safety, and security.  Ignoring advances in technology today will only hamstring the merchant marine fleet in the decades to come, as it will inevitably fall behind the resources and infrastructure available to other nations.  Only through concerted development and upgrading as part of a national maritime policy can the nation expect to see consistent and regular improvements in the state of the fleet and its positive effects on the maritime economy.   Unique Regional Security Concerns         Saudi Arabia is a nation in the midst of one of the most politically contested regions of the world, with highly valuable natural energy resources, and a host of extremist groups willing to use terrorist actions to achieve their goals.  Currently, estimates put Saudi Arabia’s untapped energy potential in oil at roughly 262 billion barrels (Appleyard 2005).  Without question, incorporation of specific solutions to the security issues of the region is necessary toward the development of a coherent maritime policy that provides for safe and secure use of the nation’s resources.         Saudi Arabia currently holds some of the world’s largest untapped oil resources along with other Middle Eastern nations such as Iraq and Iran.  Unlike those latter two examples, however, Saudi Arabia has a relatively congenial relationship with the West, one of the primary destinations of all the oil resources extracted from the region.  Oil is literally the lifeblood of the Saudi economy.  Without it Saudi Arabia would face political turmoil and likely economic collapse.   As such, it is important that Saudi Arabia maintains strict control over the oil resources it has and the means to move it from sites of productions to consumers all over the world.  For Saudi Arabia, this means securing ports and its surrounding territorial waters.  Threats to the continued flow of oil tankers abroad include foreign powers intent on claiming Saudi Arabia’s oil resources as their own as well as terrorist organizations that might be interested in disrupting Saudi shipping lanes in order to halt the cheap transport of oil to the West.         The fact is that terrorism has long been used as political currency in the Middle East.  Saudi Arabia’s seemingly benign presence in the region does not make it immune from such attacks.  In fact, Saudi Arabia’s maritime resources could well make it a prime target at some future date.  The nation possesses more than 2,400 kilometers of coastline, nearly equally divided between the Red Sea and the Persian Gulf (Saudi Arabia 2006).  With major ports on both coasts, Saudi Arabia enjoys a significant strategic presence in two of the most important shipping and naval passages through the Middle East.  In this position, Saudi Arabia sits at the crossroads of the East and the West, with clear access to ports in Europe and Africa as well as Southeast Asia and the Pacific Rim.  From a shipping standpoint alone—not to mention as a nation that deals in oil resources—this is a highly valuable position, one that could well be coveted by other nations.  It is important that Saudi Arabia recognizes this value and act accordingly to secure its territorial waters as part of its overall maritime policy.         Saudi Arabia already has a naval presence.  This presence should be more fully integrated with the overall maritime policy that will be highly influenced by the relative security of the nation’s territorial waters.  In addition to terrorist threats, ocean-going vessels must be cognizant of illegal trafficking and piracy.  A comprehensive maritime policy for the region must include a coast guard force that is highly responsive and trained to deal with a wide variety of potential threats.  Under this proposal, the Saudi coast guard should be able to deal with crises within the territorial waters of Saudi Arabia—amounting to roughly 29,000 square kilometers—of a criminal, terrorist, or even rescue nature.  This is an impressive swath of ocean, one of the largest territorial waters in the Middle East.  Effectively policing an area that large will, by consequence, not be simple.         This is why the security of the maritime resources of Saudi Arabia depends on successful holistic management.  The best equipped coast guard in the world, with the best equipment and highly trained personnel, still would be unable to monitor every incidence within a region this large—especially when it is home to so many major shipping routes.  Security will not be achieved by simply increasing the budget for the Saudi coast guard forces, though that would certainly help.  More importantly, there must exist a central site of coordination for the large amount of information regarding the maritime resources of the area.  Security will depend on the ability of the coast guard forces to receive, understand, and react to information from a variety of sources including the merchant marine, port authorities, and even scientific research.  Data collection and integration is the first step toward ensuring a secure sea zone for Saudi Arabia.  Importance of Environmental Integrity         Too often overlooked, the marine environment must be an integral part of any holistic, sustainable maritime policy initiative.  In fact, one of the reasons that marine environmental integrity is overlooked or ignored is because it is too often deemed incompatible with desired economic development.  This is a mistake.  Environmental concerns, especially in the modern age, cannot be taken lightly.  Responsible treatment of the environment is not an enemy of business and development, but rather a check that permits long-term, sustainable development.  Sacrificing environmental integrity for short-term financial or economic gains will only result in long-term failures.  A holistic approach to Saudi Arabia’s maritime resources will seek a responsible way to manage those resources.         Saudi Arabia’s environmental concerns can be isolated to a few key categories.  These include the importance of a healthy marine environment for the development of aquaculture resources, the possibility of eco-tourism, the importance of desalinization initiatives, and the primary threats to environmental integrity.  Each of these components must be considered in any holistic maritime policy.  Striving for sustainable management of existing resources constitutes an important component of the environmental maritime policy.  One Norwegian official estimates that 80-90% of all marine pollution is derived from land activities n 2006).  The potential for oil spills off the shores of Saudi Arabia may modify that number slightly, but it is nonetheless a useful starting point in any discussion of marine environmentalism.  Identifying the primary sources of contamination is the first step in ensuring that existing resources are available for future use.         Consider first, and briefly, the potential for aquaculture exploitation.  While fisheries do not make up a significant portion of the current Saudi economy, there is little reason why this could not be so.  Aquaculture potential, especially in the Red Sea area, is relatively high.  With some concerted developmental efforts, it could be possible for Saudi Arabia to encourage the creation of a fishing industry.  Unfortunately, aquaculture in any form is dependent upon a healthy and stable marine environment.  Just as with agriculture on the land, it does the industry no good if the medium of growth is depleted or destroyed.  Potential threats include contaminated run-off from land-based industry, oil or chemical spills from shipping tankers, and damage caused by irresponsible development and overuse of the region by sea-going vessels.         Eco-tourism is another untapped industry that Saudi Arabia could exploit, dependent upon successful management of the marine environment.  Eco-tourists are unlikely to visit Saudi coastlines and undersea environments if the waters have been polluted with chemicals or oil.  Instead, it is important for such interests that the marine environment be kept as pristine as possible so that tourists can enjoy the naturally occurring regional marine resources.  In this case, economic development of an industry is highly dependent upon promoting the integrity of the marine environment.  Continuing threats to eco-tourism potential include extensive shipping, pollution, and a lack of necessary infrastructure for the industry.         Another important developmental effort that needs a clean marine environment is efforts by some in Saudi Arabia to create a desalinization infrastructure in the region.  While Saudi Arabia possesses an abundance of fossil fuel resources, potable water is not a significant resource for the nation.  In fact, some believe that water will become a greater source of contention and conflict in the coming years than will oil in the region.  Tapping formerly unusable sources of freshwater may well be crucial to the future health and success of the Saudi people.  Desalinization offers one such opportunity.  With a significant amount of coastlines, easy access to salt water, and extensive energy resources, Saudi Arabia has a great potential to develop desalinization facilities that could provide much of its freshwater resources in the future.  Threats to the success of such projects include coastal pollution of ocean waters from shipping, land-based industry, or shipping spills.         Some of the most significant threats to marine environmental integrity have already been mentioned because of their direct effect on industry development as a maritime policy.  Pollution ranks as one of the highest threats, affecting aquaculture, tourism, and desalinization efforts.  Pollution of the marine environment can take many forms and can include run-off from industry on land.  Regionally, oil spills constitute a very site specific and dangerous environmental threat to maritime resources.          Holistically, protection of the maritime environment can fall under the auspices of existing agencies charged with such protection, but must also be coordinated with other groups, agencies, and industries that would not normally be involved.  The interdependency of maritime causes and effects, especially when it comes to the health of the marine environment, is important.  As seen, several important and emergent industries are dependent upon the health of the marine environment of Saudi territorial waters.  Long-term exploitation of these resources will depend on the ability to establish immediate safeguards and controls on the protections currently afforded to marine resources in the nation.  Simply put, the “deterioration of our marine environment reduces the potential of the oceans and seas to provide income and jobs.  Economic activities that depend on the quality of the marine environment are particularly affected” ( 2006, p.  10).  There can be no better reason than lost economic development for a concerted protection of the Saudi marine environment. Adopting European Clustering         It should already be apparent that numerous interests are competing for a finite amount of maritime resources, even for Saudi Arabia a nation not traditionally thought of as needing an overarching maritime policy.  Yet, that is obviously not the case.  Saudi Arabia faces common and unique issues in the management of its maritime resources.  Neglecting the importance of roughly 2,640 kilometers of coastline would be a policy disaster (Saudi Arabia 2006).  Fostering a joint understanding of the manner by which the interests and resources available interact, compete, and complement one another can significantly enhance the efficiency and productivity of any maritime policy.         The European Marine Equipment Council recently commented, “Given the high degree of interaction and the interdependency of all players in the [shipbuilding] sector a change of fortune in any one industry will influence others” ( 20060).  In other words, maritime interests are highly interdependent.  New policies or legislation affecting—for example—the types of vessels allowed to travel through territorial waters could well influence the marine ecosystem by introducing different kinds of pollutants or even foreign species.  Introducing policies restricting pollution released from land into marine areas could positively affect attempts to develop freshwater resources via desalinization.  The potential for interaction is almost limitless.         This idea that we can develop a useful understanding of these interdependencies has been referred to as clustering ( 2006).  It is a simple enough process, but one that is especially important for the successful management of Saudi maritime resources and the development of a holistic maritime policy.  Indeed, clustering could be considered the practical expression of the holistic ideal.  It promotes sharing of information, combined training, and collective action.  Clustering provides separate actors to combine their resources and work more efficiently, better able to coordinate their actions and mitigate consequences that might have otherwise gone unnoticed. Concluding Remarks: The Future of Maritime Resources in Saudi Arabia         If Saudi Arabia hopes to rise to the challenge of developing a more productive relationship with its maritime resources, then it must consider a new approach to those resources.  Previous and some contemporary policies were based on fragmented conceptions of the maritime resources of the nation.  The oceans and seas have been viewed on a purely sectored basis.  The future of effective maritime management relies on the development of a Saudi maritime policy that understands the oceans and seas as a whole and successfully integrates many policies into a singular vision.         Thus far, Saudi Arabia’s policies regarding transport, development, energy resources, security, and the environment—to name but a few maritime factors and issues—have been developed separately without must communication between these seemingly disparate policy areas.  This approach to maritime policy must end.         In fact, fragmentation can be a dangerous thing, because it isolates interdependent policy areas from one another.  At best, this means that gross inefficiencies will emerge and persist throughout the maritime management endeavor.  At worst, it can mean that profound negative consequences can occur such as disproportionate constraints on maritime activities or significant environmental degradation.  The potential impact of specific decisions and their consequences may not be understood fully, especially if those consequences occur beyond the boundaries of these fragmented policy areas.  Failing to work with the interdependent nature of maritime management limits significant opportunities for improving productivity and efficiency across multiple policy areas.         The future of maritime policy in Saudi Arabia must be to combine these formerly disparate elements.  Maritime security can no longer be fully divorced from industry development, port expansions, or the quality of the marine environment.  The European Commission report (2006) on maritime policy in the EU notes the importance of integrated governance: Multiple sectoral policies have emerged and exist at all levels of government: EU, national, regional, and local.  Action proposals may be most appropriately taken up by different actors in different agencies and different countries or by international organizations.  In the interest of keeping decisions at a level closest to the stakeholders, action at EU level should be undertaken only where it contributes value-added to the activities of others.  (p.  6) In other words, governance of multiple actors and agencies with competing or complementary interests at the national, regional, and local levels in Saudi Arabia can only be combined into a cohesive maritime policy through good governance and effective management.  Sharing information to discern what actions produce the most value is crucial. Each of these apparently different areas of concern has an effect on the other.  Sometimes these effects can be cumulative, making initial bad situations much worse if not addressed early.  In other cases, the resources available to one interested party may be able to deftly solve a problem that formerly tasked the resources of another party.  For example, marine environmental quality could be greatly improved and protected if scientists and environmentalists actively paired with developers of desalinization plants, the former making the case that improved ocean water quality will be of benefit to efforts to produce freshwater.         All of these maritime activities must be joined together under a single policy umbrella.  This will demand new ways of thinking, new ways of designing policies, and new ways of implementing them.  Policies will have to be enacted at the local and national level and will involve a variety of individuals and agencies that might have competed previously or—worse still—never even heard of the other.  Nonetheless, a holistic understanding of Saudi Arabia’s maritime resources, as well as a holistic conception of the management resources available to the nation, will aid in the development of sustainable policies that will protect the nation’s resources in the decades to come.         The purpose of this study has been to contribute new awareness to the importance of the maritime resources of Saudi Arabia, resources often overlooked by the world and even by the Saudis themselves.  In fact, the nation has significant maritime resources.  These include important shipping lanes, offshore energy deposits, bountiful marine environments potentially ripe for aquaculture development, and even the possibility of desalinization plants to produce freshwater in a predominantly desert nation.  Severe pressures currently threaten all of these resources, pressures from international sources, from extremist groups, and from environmental degradation.  A holistic understanding of the importance of these resources and efficient means of managing them will produce long-term, sustainable benefits to Saudi Arabia.  The preservation of effective management of these resources will produce long-term development and economic benefits for the nation, as well as helping the nation preserve its maritime heritage for generations to come. 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Developing a Rational Maritime Policy for Saudi Arabia

Developing a Rational Maritime Policy for Saudi Arabia Introduction: The Untapped Potential of Saudi Arabia’s Maritime Resources ...