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Maritime Economics Assignment

Questions Based on Global Financial Crisis 2008-Economic Cost of Supply Chain-Forms of

Cooperative Agreements in Liner Shipping

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Abstract

The consolidation of third of services along the supply chains that is services such as

transportation, storage, and various other have led to the creation of third party logistics.

Third party logistics refers to the process of integrated intra firm logistical services covering

areas of transportation, to warehousing and also distribution delivered at consumers’ desire.

SPLs offer a certain competitive advantage that is the value added aspect of the supply chain,

which is very important in the eye of the consumer (Harrigan, 1985). The company could

reduce cost along stages of the supply chain such as transportation cost could be saved when

the company is to the supply source (Rodrigue, 2010). There is also the benefit of risk

sharing, market control and coverage (Rodrigue, 2010). With the larger market the consumer

network could be expanded quickly.

Economies of scales, is another competitive advantage that liner shipping industry would

experience. Economies of scale results when an extra unit product results in a decrease in

average cost. The major factor responsible for economies of scale is that the total cost which

is comprised of two factors the variable cost and the fixed cost would increase at a decreasing

rate as more number of units are produced and transported. This is because initially both cost

increase, but after a point of time the fixed cost is constant it is the variable cost that increases

with output. Hence, we have economies of scale because of the decrease in total cost when a

large number of goods are produced (Krugman, 1980). Customers also prefer buying more

services from a single service provider, thus services such as cargo handling and delivery or

storage services could be obtained from the service provider. Vertical consolidation improves

the logistic chain and also creates value added services.