Introductory Economic Terms

Scarcity 27shipping-graphic-articleInline.jpg

A state of not having sufficient resources to fill needs (or subjective wants). Not all of society's goals can be met at once. Trade-offs of one opportunity-cost against another are made. The stranglehold that the dwindling supply of inexpensive oil has on all of us profoundly affects the container shipping industry. The fuel alone for one trip across the ocean in a container mega-ship can cost more than a million dollars, although estimates vary. The fluctuating, but ever upward spiraling price of oil has resulted in the companies running the big ships as slowly as possible to conserve this resource. The opportunity cost is their ability to get their goods to market quickly, which decreases the satisfaction of their customers, who have become accustomed to not having to use valuable retail floor and warehouse space with inventory as a result of "just-in-time" delivery.


This is an ideal condition of a market where everything that is made is equivalent in numbers to what is sold with the result of no waste. This is the magical price where same amount that is supplied is the same amount that is demanded. In other words, there is no shortage and no surplus. Buyers like the price enough to buy what is available, and the sellers are making enough profit to continue manufacturing the product. Both leave the table thinking they got good value.

In container shipping, it is not hard to tell when this happy occurrence exists, because it means that ships going one direction will be full, and when returning, will also be full. This means the company is making the best use of its resources, such as fuel, and there is maximum efficiency. This allows them to charge a cost that the customers find attractive, and still make a healthy profit. The terminal benefits from this condition by having increased traffic through its ports and is storing goods rather than empty containers.

If the mega ships are sailing across the oceans with empty containers and nothing to put in them, they have a surplus of containers and are wasting petroleum. This forces their costs up, and then reduces demand for their product if the merchant wanting his goods to be carried overseas decides he can make more money by selling his products closer to home or by using a competitor.

On the other hand, if the world economy is booming, many countries are going to be engaged in trade. The mega-ships were built during good times, when there was so much demand that there was a shortage of containers and ships big enough to move all of the stuff from one country to another. What happens if demand is not met? Market share is lost, and competition moves in. This was the economic state in 2004-5 when the Melford Terminal idea came into being. They saw an opportunity because during a time of expansion, and the weaker Canadian dollar made Nova Scotia a great place to invest. (See chart on the Foreign Trade page)

Gross Domestic Product

GDP = Consumption + investment + government spending + (exports-imports)

A measure (one of many) of an economy. It is the market value of all final goods and services produced within a country within a period of time; basically what hasn't been consumed when all is said and done. The addition of the Melford Maher Terminal Port could contribute to Canada's GDP in a variety of ways by means of the multiplier effect. There are jobs created in constructing the terminal, its supporting transportation infrastructure, and in operating it. The ripple outwards is the jobs in trucking, rail, and highway lines supporting it, and jobs in supplying all of the community services required to support the terminal(covered in more detail in micro-economics and employment). In the long run, the increased efficiency of transport of goods will attract companies that manufacture goods to this area because the proximity of the terminal to manufacturing cuts costs. If there is no manufacturing base here, there needs to be careful consideration of the amount of imports that flood into the area in relation to exports, and also the number of people that will be brought in to fill vacancies that are unfilled if there is a shortage in the local qualified labor pool.


Credit: MacAskill

How good are we at making what we are making? In shipping this is manifested, through invention. Imagine a sailing ship in the 1800’s laden with barrels of goods strapped to its decks arriving in port, some contents rotten from water intrusion, some "stove-in" from rolling about the decks during storms. Imagine sweaty dock workers heaving odd shaped objects around, swearing and dodging dangerously balanced loads.

The invention of the boxy efficiency of the standard container has none of the romance and beauty of the old ways, but greatly increases productivity, because ports around the world now have standard handling equipment, and very little space is wasted.

Cargo Manifest 1870s public domain

This video shows just how precise the saving of space and maximizing of profits can be: Extreme Engineering Building Mega Ships

Computers now make the manifests that were once scribbled in quill. Logisticians determine how to save minutes and seconds in loading and unloading the ships, which are often in-and-out of port in 24-48 hours. All those sweaty workers are now reduced to one highly trained and paid giant crane operator; expertly dropping full containers directly onto truck beds at a clip of one every couple of minutes! Containerization also largely eliminated the need for warehouses.

Of course, what the mega ships and container ports are all about is economy of scale. The bigger the ship the more efficient it is to haul a load per unit of petroleum...that is, if it is full. The container ports are attracted to our location because they think having more land will mean larger sized shipments may be stored here. They believe they it will not cost them as much to operate from here. All of these things contribute to greater out-put and greater aggregate supply of cheaper space and services, which makes happy merchants and consumers, and brings in more business.

credit public domain

credit Public Domain

Many people act like this is our reason for "being"; the reason we work so hard to make money to begin with, but it is simply the act of using something up. The Chinese know this, which is why they sell us cheap things with short life spans. When the product breaks, we have to work harder to replace it...and, in the case of our overconsumption of gasoline, we work hard to have the pleasure of spending more money to just get to work. How much satisfaction are we getting out of this? Is the consumer quest for instant gratification sustainable?

Economics is all about scarcity and, if we cannot marshall our resources, it will not be long before none of us can get to work, and the container shippers will not be bringing us pretty electronics and cars. We will be back to chopping wood, spinning wool, knitting itchy wool socks, and eating turnips. Unfortunately, we won't be eating fish...why? Over consumption…will we ever learn, or is self-interest all that our species is about?


The Melford-Maher proposal was initiated in 2004, when rosy predictions were being made about the growth of container shipping on the wake of various international trade agreements opening channels to global trade expansion, and Canada's weaker dollar made this a good place to invest. However, as a result of the “Great Recession” of 2008, the development had not gotten much beyond a well-researched environmental assessment which was speedily approved. Recent interest and activity in the project may be again drowned if conditions do not continue to improve.

Emma Maersk credit Journal of Commerce

While there is a specific definition of recession (a decline in real output lasting longer than 6 months), the definition of a depression is only defined as a particularly harsh or long time of diminished real output. There is a huge aversion on the part of both politicians and the media to admit that recession has become a depression. The fear is that a mass panic would occur, which would result in a self-fulfilling prophecy. While ships may be moving slower in a recession to economize on fuel costs, a full depression might mean that they never leave port.

The trend of building ever-larger ships is based upon a model of prosperity. These plans assume a shortage of ships and a surplus of containers full of goods needing to be moved. In a depression, a serious slowdown in production means fewer goods are moving. A super-ship and a massive terminal in this case are about as efficient as trying to haul a few ping pong balls in a Ford F150 truck, and storing them in a Quonset hut. Perhaps the builders of the giant ships are equivalent to the US automakers in their inability to make efficient vehicles. Different sizes of cargo need to be efficiently moved to respond to the expansion and contraction of the economy. Will we look back on these huge ships one day and wonder what were we thinking?