The British Maritime economist late Professor Goss (2002) and the Greek Marine Economist Goulielmos (2001) , defined 3 terms determining their sciences: Marine, Maritime and Shipping. Shipping includes two industries: shipping and shipbuilding, and this is a historical fact as the first economists used to deal with ships and their building.

Thereafter, shipping economists recognized the importance of ports and coined the term maritime, by extending the circle of their original science to include Ports (& Canals) and their economics (1965). This extension was successful because it soon attracted the research interest of the shipping economists.

In 1982, UN decided to vote the law of the sea and to determine a number of zones in the sea, beyond territorial one, and also and more important to connect the zones to the coastal nations, which could exploit the resources there. This way marine economies were established in a wider circle to include shipping and maritime sciences.

Namely Marine economy includes 17 industries (listed below). Important, for economic reasons, and especially nowadays (2022), is to pump-out oil and gas trapped in the sea (Picture 1)!

Shipping economists, before 1965, dealt occasionally with Ports! Goss (2002) argued that the economic principles underlying the 3 most important activities of Ports: construction, extension and operation, were unclear 4 decades ago (1965). He also (2002, p. 399) argued that Mr. Price E¹ proposed the term “Maritime” so that the Ports to become a part of the ships.

Shipping appeared together with life on earth, more than 5000 years ago (Stopford, 2009: pp. 3-45) . The 1^st great economists Smith (1991) ², Ricardo (1847) and Marshall (1890) ³, made extensive references to “Shipping” and “Sea Commerce”!

The paper studied primarily Shipbuilding: historically, geographically and economically. We also answered the question: “Why certain global shipbuilding powers, like UK and Japan, had eventually to step back?” In addition, we presented the enlargement of shipping economy towards Ports, in 1965, and the enlargement of Maritime economy towards Marine, in 1982.

Picture 1. An artist’s idea of platforms extracting oil (North Sea, 1990). Source: the 1990 “Platou SA” report.

The paper has 12 parts, after literature review: 1) Why Seaborne Trade mattered to Nations? 2) How the “territorial Sea” determined? 3) The “Marine Economy”. 4) Are there obstacles to economic Growth? 5) The unintentional error of Adam Smith. 6) The “Maritime Economy”. 7) The history of Shipbuilding. 8) The main characteristics of Shipbuilding. 9) The economics of shipbuilding. 10) The “new-building” Price. 11) To build or not to build for export? 12) What are the benefits from having shipyards? Finally, we concluded.

The UK “Physiocrats” (18^th c) influenced economics, and Adam Smith, by their focus on Agriculture. They believed that the “wealth” comes from labor (in conjunction with land) (Quesnay F; 1694-1774)⁴. The early economists, and Adam Smith, had to find-out the sources of “wealth”⁵!

Koopmans (1939) argued that: “a high level of rates leads to large-scale orders (for tankers)…upon their completion, about one year later, they have a depressing influence on the (tanker) freight market…producing cycles” (bolds & parentheses added). Modern tankers need now at least 2+ years to be completed and extra 6 years, if there is an exceptional boom (like in 2003-8) (Goulielmos, 2022) !

Certain scientists defined, indirectly, the content of shipping economics by their writings: the Norwegian Svendsen (1958) , the Swedish Thorburn (1960) and the English Sturmey (1962) . The first wrote a “shipping economics’ textbook” (translated into English), a product of his doctoral thesis. The 2^nd dealt with the Supply & Demand of ships. The 3^rd dealt with UK shipping and the question: “why the tonnage registered in the UK declined from over 45% of world total (in 1900) to about 16% (in 1960)”?

In USA, there were Ferguson et al. (1961) . In Japan, there was Shimojo (1979) . Alderton (1999: p. 225) wrote about ports and argued that the same ship and cargo, in 1988, paid $150,000 in Finland & Southampton and $12,500 in Lisbon! Stopford (2009: p. 81) mentioned ports occasionally. Professor Talley (2012) (editor), however, devoted 1/3 of pages to port economics, and almost nothing to shipbuilding!

Heaver (2012) categorized the 659 papers, written by maritime economists, into 14 segments, during the recent 30 years or so: 1982-2009 ( Figure LR1), in two only journals: Maritime Policy & Management & Maritime Economics.

Four new sub-sectors⁶ appeared for the 1^st time in 2000, reflecting the fresh interest of maritime economists, but also of the international community! Ports gained the lion’s share followed by liner shipping economics. Heaver (2012) underlined that the research of maritime economists remained diverse and certain subdivisions of the field are necessary. For the segment of shipbuilding, Heaver quoted Dikos (2004) and argued that there is a variety of subjects.

Shipping economists had to take part in the pricing policy of ports⁷ earlier, we believe! As a result, Ports did not adopt the “95% dwt capacity” in deciding tariffs, as they should, and instead adopted the ship’s size (GRT/NRT). This based on the naïve assumption that “the bigger the ship, the more she earns”!

Smith observed that Nations were endowed. More important, however, was that each country had different endowments! Endowments are the “natural resources⁸” laid-down by God! As a result of the different endowments, the theory of economic autarky⁹ could not be applied! This was clear to Adam Smith (1723-1790), writing in 1776 the “Wealth of the Nations” (Picture 2)!

Figure LR1. Papers written by maritime economists on 14 main subjects, 1982-2009. Source: data from Heaver (2012: p. 26) .

Picture 2. Adam Smith’s book cover (London 1776) (left). (*) The liner ships were dearer, faster with own loading/unloading means, keeping a schedule of departures and arrivals, capable to carry cargo and passengers, built by the British to serve the trade with their colonies. Greeks specialized in the simpler and cheaper ships called “tramps”, becoming the “cargo taxis” of the seas; (**) Marx Jr. (1953) analyzed the workings of this (conference) system; (***)¹⁰.

Moreover, “economic autarky” could not bring-in silver &/or gold as “Mercantilists” in UK (and France) wanted (16^th-17^th c)! “Mercantilists” saw the importance of seaborne trade, when they identified silver &/or gold with “wealth”! Mercantilists’ economic philosophy was powerful, however, as held by the merchants and the statesmen of UK. They arrived, however, at a dogma: “exports, (using “navigation acts”, tariffs, subsidies etc.), should exceed imports, so that silver/gold¹¹ to pour-in (the UK)”. Moreover, the trade of colonies had to be exclusively with the mother country (UK)!

The big European nations, and, par excellence, UK, tried to make the manual workers more productive using “machines”. In the late 18^th century the power of machines multiplied that of humans, known as the 1^st “industrial revolution¹²” (Robbins & Coulter, 2018: p. 67) . Management also influenced by mechanization, but mainly since 1911, when the book of Taylor F W, on “scientific management”, published in USA. The Production at home succeeded by the production in “factories”, under the direction of “managers” and/or “supervisors”.

Although this is not known, the pirates are “responsible” for the nations to adopt a territorial sea! Piracy was the ancient threat for coastal nations and/or for their islands. Nowadays (Mejia Jr. et al., 2012) pirates are also a serious threat for ships in Somalia and elsewhere. Places had, in the distant past, for their protection, walls¹³ and cannons. The cannons had a range from 3 to 6 n. miles¹⁴, and this, since then, became the range of territorial sea!

Τhe Marine industries, created by the “law of the sea”, voted in 1982 by UN in its 3^rd meeting, are about 17 so far (Table 1) (Stopford, 2009: 663-666) .

Source: author.

In 1980 the “Marine science” taught²⁰ in the “London School of Economics²¹” (by Professor Watt D C)! The coastal nations have, since 1982, the right either to share the fish catch with those that they carry-out it, or to do it on their own. The Sea, in 1982, became a lawful 2^nd economy²², equally rich as Land, but required a new generation of economists to deal with it, as well as other scientists, so that to…avoid, we reckon, to the maximum possible, the mistakes committed in the management of land and the climate.

UN wanted, especially, to preserve sea environment, and sea resources, which were exhaustible, par excellence fishery, from human greediness! In addition, the EU was also very glad when discovered, for the first time, the “EU Marine Economy” by its transport commissioner Barroso, J. M. (in 2006)!

The Map 1 indicates the expanded territorial sea²³, since 1982, as a property of the coastal state (article 3), and of course its internal waters (article 8). The remaining sea, up to the end of the “Exclusive Economic Zone”, (200 n. miles; ~370 km; article 57) can add to the GDP of the coastal state(s).

The article 76 defined the continental shelf. The impact of the LOS on economies could not be so great apart from fishery, if scientists did not estimate that the oil and/or gas are deposited in the continental shelves!

The above, legal control, of the 2/3 of the planet, became possible when colonial powers decided to liberalize their former colonies, becoming members of UN!

Economists did not believe in dear oil, till 1975, 1979 & 2022! Moreover, Germany did not want to depend on nuclear energy, after the Chernobyl disaster (1986), for political reasons! Japan fights till today to restore the impact from the “Fukushima nuclear disaster” (2011), having already the experience of Nagasaki and Hiroshima (1945), where 355,000 Japanese died!

After the 2 energy crises, as well the 3^rd one (2022), economists had to, and have to, deal with the issue if out there are “obstacles to growth”? We may remind that Economics as a science born-out to solve one problem: “How humans

will be able to satisfy their innumerable needs having limited means?” This problem, however, put under control though not philanthropically, by the institution of prices, meaning that “who does not work, he/she will, most probably, not eat!”

A more difficult problem emerged, however, for economists in 1986: “how to satisfy infinite human needs, with certain limited, but at the same time, exhaustible, resources?” This means to “reserve” certain means for those that come after us, in accordance with the “sustainability²⁵” principle.

Our kind God allocated natural resources according to his wisdom, but he certainly did not mean that the Arabs, in end-1973, had to use oil as a weapon against Israel, or that Russia, in 2022, had to use gas as a weapon against NATO! Resources are there to be exchanged in peace and solidarity, as Adam Smith the moral philosopher, argued!

More important, however, is water, which easily can become the next more effective “weapon”²⁶! The democratic worldwide community has to supervise, by a new UN body, all the important rivers (e.g., Tiger & Euphrates), and their management, we strongly believe! In fact all rivers need a proper management as the summer of 2022 taught us!

The mechanism of prices, mentioned above, as a moderator of over-consumption, required someone to be “paid” in order to produce! Adam Smith instead “saw” the…“invisible hand”²⁷! A producer, however, needs one to buy his/her products, meaning a demand accompanied by the proper amount of money meaning…a visible hand (an “effective demand” in other words, as mentioned by Keynes)!

Adam Smith meant an economic development based on “natural resources”. So, a country has to grow establishing “resources-based industries”. The Japanese did not follow him. Instead, (free) Japan “copied” and improved the imported knowhow from Americans²⁸, par excellence in the manufacturing of private cars! British, of course, followed Smith! They saw that the raw materials, which they did not have, they were owned by other people (e.g., India). British called cleverly this whole trade relationship with colonies apropos “common-wealth”!

Certain countries, like Japan, could not follow Smith, due to lack of either oil or iron-ore! Alternatively, knowledge does not need resources. It needs know-how, meaning a number of good brains (Goulielmos, 2018) ! This, of course, diminishes by the “brain-drain²⁹”, as this happened with especially Greeks in 2009-2018.

Historically, the right “hand” of ports (& canals) was inside the pocket of ships, and still is, and the left hand was in the pocket of those who import products, and still is. Some port economists claim that the port costs are made for ships’ sake, and so they have to be recouped (“Cost recovery theory”). This is partially true³⁰!

Apropos, it appeared a new term: the “logistics”, which had to be used to reduce consumer’s transport cost, but it did not, we reckon. Logistics is a “branch of maritime economics, and of ship, and port management, which deals with the time, cost, manner & information flow of ships and ports, with a view to optimize the whole process”, but it concerns only containerships.

We turn now to shipbuilding.

Shipbuilding is a heavy engineering industry (Stopford, 2009: 613) , and only industrialized nations⁵¹ could do it. Shipbuilding requires an expertise also in the design of ships. A great competitive advantage is to manufacture locally the steel plates, the main engine and the design plans.

The low new-building price is most essential, provided that ship’s order is placed in perfect timing (Goulielmos, 2021a) . In end 1996, the order book for tankers had its lowest point at about 7% on the existing fleet. Earnings, in $ per day, of a VLCC, had also its lowest point, but with a two-year delay. This means that “orders follow earnings”.

What is the strategy of the majority of shipbuilders in 2021 (Figure 17)?

As shown, 27 shipbuilding countries (out of 36 = 75%), built ships, by as much as 60%, for exports, (in cgt; ships > 300 GT), in 2021 (out of a total of ~76 m GT). Table 7 presents the situation of each shipbuilding country.

Source: data from ISL (2021).

As shown, 12 countries (44%), had export orders by majority (>50%). Among the 3 top ones: S Korea⁶⁴ had ~71%, China PR ~54% and Japan ~19%!

The main benefits from establishing a shipbuilding industry can be (Graph 8).

As shown, one reason for establishing a shipyard industry is to manufacture an export product, and to obtain revenue, and foreign exchange. In Greece sea transport imported 23b euro (est.) (2022). A 2^nd reason is to provide employment, especially in poor coastal regions (Figure 18). In Greece the sea transport employs about 200,000 people and contributes about 7% to GDP.

As shown, the worldwide employment in shipbuilding varied from 515,000 in 1975 to 224,000 in 1987, taking into account only 3 main shipbuilding areas! Japan held the lion’s share in 1975, with 300,000 employees (Figure 19).

Worth noting is that in Japan, the employment provided by the sub-contractors and related industries stayed almost intact at 105,000 employees an additional benefit! Another benefit accrues from the relationship between shipbuilding and ship-repairing, ship-modifications and dry-docking, as well constructions required for defense and other needs beyond shipping (metal bridges, trains etc.)! Shipyards nowadays may obtain a competitive advantage by building ships friendly to sea environment (adding e.g., scrubbers) conforming to IMO’s regulations vis-à-vis the new fuel.

• How much port costs increase CIF price? Should ports charge depreciation for docks, wharves, piers, quays, etc., based on a “cost recovery theory”?

• Do immigrants contribute⁶⁵ to their host-country?

• Is it true that “the larger the fleet owned by nationals, the larger it has to be the national shipbuilding industry”⁶⁶?

• Will the new trade routes, in 2022-23, due to sanctions on Russia favor Mediterranean shipyards?

• Why shipbuilding cycle is much longer 40 years on average than the shipping one (~10 years or so on average)?

• What is really the minimum efficient scale of a shipyard? Micro-economists determined theoretically the minimum (efficient) scale (Besanko et al., 2017: p. 57, 237) ! They argued that if a firm, and thus a shipyard, wishes to exhaust economies of scale, it has to produce there.

• What is the shape of the average cost curve of a Shipyard? Is it like number 1 ( Figure FR1), as often depicted by economists, or like number 2 or 3?

• Is globalization a solution for a mature shipyard, meaning to transfer all portable machinery etc. to a cheaper country (in labor and power) and produce there?

• Why UK did not “copy” the fellows Americans, who, by 1946, built 2710 Liberty ships, of which one⁶⁷ built in ~5 days (4 days, 15 hours and 26 minutes from the time of keel-laying) ( Figure FR2, Figure FR3)?

• Is it true that shipyards can re-obtain their lost competitive advantage by building ships, which now respect sea environment complying with IMO’s regulations, & adding scrubbers on ships e.g., in a rather efficient and cheaper way?

Figure FR1. Two different average cost curves. Sources: inspired by Martin (2010: p. 132) and Besanko et al. (2017) . The MES of a shipyard in CGT equals √F/d, where F stands for the fixed cost and d is the parameter of any diseconomies of scale (proof in Martin, op. cit., p. 300-2).

Figure FR2. The construction of each liberty had to be done within a certain time⁶⁸.

Figure FR3. Various constructions commissioned to 11, at least, yards at the same time! Source: author’s archive.

The “gifts of Nature” gave Adam Smith the idea for nations to specialize in what they were efficient. Mercantilists wanted to create a favorable Balance of Trade, so that the silver/the gold to pour into UK! This meant a strong merchant marine to connect the very distant colonies with Metropolis! The British killed 3 birds with one stone: exporting industrial products “made in G Britain”; importing raw materials from colonies and expanding their liner shipping!

Stopford (2009) (Chap. 15) persistently correlated the destiny of the UK shipbuilding to the destiny of the UK fleet! For this there is only one explanation: “all UK ship-owners ordered ships exclusively in UK shipyards, by trust or tradition!” As they used to do!

The resort to sea economy, in a more fair, legal and organized way, was inevitable to happen, given the steady increase of global population, arriving soon at 8b mouths! Colonies one day, would claim their liberalization, as they did, becoming also UN members! The law of the Sea in 1982 opened to the citizens of the sea (the coastal people), the sea economy.

Shipyards have to see who orders ships worldwide, and from them of course the dearer ones, and try to attract him/her, no matter his/her nationality. Greeks ordered 17.3 m dwt in 2022. Matters of foreign currency are secondary, as well the intention to support domestic ship-owners, if they are not competitive!

Ship-owners, as a rule, during a boom, order ships, do not lay-them-up or scrap-them-up! In a depression, they lay ships-up and scrap them-out and refrain from orders, except for careful and conservative replacements! This scenario proves that the level of the freight rate determines the level of ships on order!

Most important of all is to control the shipbuilding cost and avoid revaluation! This is the most difficult operation as labor will always claim wage rises. It is more profitable if the main engines, steel plates, etc. are not imported.

The author declares no conflicts of interest regarding the publication of this paper.

Goulielmos, A. M. (2023). Shipbuilding: The Neglected Industry among Those of Shipping, Maritime & Marine: The Case-Studies of UK, Japan & S Korea. Modern Economy, 14, 196-229. https://doi.org/10.4236/me.2023.142013