Shipbreaking+very+unlikely+to+fill+supply-demand+gap+in+global+tonnage+by+G+Ping+Lee

//**REMEMBER: DO NOT SUMMARIZE THE ARTICLE!!!**//

=TITLE OF EXTRACT:= Ship breaking very unlikely to fill supply-demand gap in global tonnage

=SOURCE:= The Economic Times, India Times http://articles.economictimes.indiatimes.com/2011-06-27/news/29708920_1_bulk-carrier-freight-markets-vessels

=DATE EXTRACT WAS WRITTEN:= June 27, 2011 05.18am IST

=DATE CURRENT EVENT WAS WRITTEN:= June 27, 2011

=EXPLANATION OF THE ECONOMIC THEORY RELATED TO THE ARTICLE:= In the past, ship breaking and ship making act as complements in supply. As the amount of ships being supplied increases there would also be an increasing amount of ships being demolished. Usually in order to negate the effects of oversupplying or undersupply of ships the amount of ship supplied and amount of ship produced is of equal proportion. However, currently the demand for ships is increasing whilst the supply for the amount of ships being demolished is decreasing. This causes an oversupply of ships, as there is an increased amount of ships, whilst less ships are being demolished. The amount of ships being created and demolished are supposed to be at a 1:1 ratio, however currently it is at a 3:1 ratio. Currently there is too many ships in ports and not enough demolition which causes the oversupplying of ships. With this increase in quantity of ships results in the inefficiency of resources as there is now too much ships for shipping yet not as much resources to trade thus resulting in a very inefficient process where many resources(ships) are not used. The ships also takes up space on the ports which causes trouble for the tanker segment. In attempt to negate this affect, they are attempting to increase the supply for ship breaking. By increasing the supply of ship breaking, it will then equal out the already increased industry of the amount of ships created and thus adjust the ships to ship breaking ratio back to 1:1.

=VOCABULARY TERMS AND DEFINITIONS:=
 * Supply = The amount of a good or service that the producers are willing and able to produce
 * Demand = The desire of buyers for a specific good or service
 * Prices = The amount of money that is required for a good or service
 * Oversupply = Supplying more of a good or service than what is demanded
 * Substitute = Good or service that can easily replace another good or service
 * Compliment = Good or service that is generally used with another good or service
 * Perfect Competition = Competition in which everybody has perfect information, the product is the same

=DIAGRAMS:= Supply and Demand Curve, Ship Shipbreaking

=EVALUATION:= I agree with what the government is attempting to do in order to mend this problem. It is important that they are taking action, as it may save the entire ship industry. As the demand for ships go up, and the supply of shipbreaking goes down,there will eventually be a lot more ships than originally. As the supply of ships continue to grow at the current rate, the uses of ships become inefficient as there are now more ships than ships required. By increasing the supply for ship breaking, the prices will also decrease to the new equilibrium, this will then increase the demand in which more people will be willing to purchase it and thus regulate the amount of ships there are. Another problem that may be encountered is a problem in the long run. Eventually at the rate of increased ship demand, and decreasing supply of ship breaking, there will be an excess amount of ships. The number of ships however would continue to grow until it goes through diseconomies of scale, as they run out of resources(steel) to consume, or prices of steel go up. As ship breaking is the process of recycling the resources(steel) it usually goes through a continuos cycle. Naturally peoples demand for ship breaking will increase, however as the supply of ship breaking will be low, there will be a shortage. This is shown as the amount of demand wanted due to the large quantity of ships is more than the amount of the good or service that is supplied. Another industry that may be affected is the steel industry. This is because the main resource invested in ship building is steel, and the two industries therefore act as compliments. As the demand for steel increases, the demand for steel naturally increases as steel is required in building a ship. As the demand for steel goes up, the curve moves to a new equilibrium with lower prices and more quantity being supplied. However as steel is a natural resource, it may eventually become scarce. As steel becomes more and more scarce, the price naturally increases as the resource is now more rare and valuable. The price increase in steel will then result in a price increase of the ship industry and instead of being able to profit at breakeven, they will suffer losses. (We can assume that they are producing at breakeven as that is the goal for any business.)