2023 JPJC J2 H2 EC Prelim P1 Suggested Answers

JPJC 2023 J2 H2 P1 Prelim Question 1: A Balancing Act in the Container Shipping Industries (a) With reference to Figure 1, compare the trend in global ship ping freight rates before Sep tember 2021 and after Sep tember 2021 . [2] Suggested Answer: 1st difference: Global shipping freight rates increased before September 2021 wher eas there is a drop in global shipping freight rates after September 2021. 2nd difference: There is a larger extent of change in global shipping freight rates after September 2021. (b) (i) Using evidence from Extract 1, justify the likely value of price elasticity supply of container shipping services. [2] Suggested Answer: Price elasticity of supply (PES) measures the responsiveness of the quantity supplied of a good or service to changes in the price of the good itself. The PES for container shipping services is expected to be less than 1, indicating that the supply for cont ainer shipping services is likely to be price inelastic. The container shipping industry faces significant geographical factor immobilit y, as evidenced in Extract 1. The disruption in the maritime supply chain l eads to a situation where containers cannot be easily moved to the ports that urgently require them. As a result, the quantity supplied of container shipping services increases at a rate that is less than proportionate to the rise in global shipping freight rates caused by increased demand. (b) (ii) Using a demand and supply diagram, explain the causes of the change in global shipping freight rates during Covid-19 pandemic March 2020 to September 2021 . [4] Suggested Answer: Global shipping freight rates increased sharply during the Covid-19 pandemic March 2020 to September 2021. The onset of the Covid-19 pandemic prompted a notable shift in consumer behaviour, with consumers increasingly opting for electronic commerce platforms to acquir e imported manufactured consumer goods. This change in consumer’s tastes and preferences has manifested as a notable shift in consumption patterns towards imports. Consequent ly, as the demand for imported products surged, the necessity for container shipping services to facilitate the transportation of goods via sea routes experienced a significant upswing. This, in turn, resulted in an increase in derived demand for container shipping serv ices which is illustrated by the shift from the initial demand curve (D 0) to the new demand curve (D 1). However, the supply of container shipping services (S i) remained relatively inelastic, unable to quickly adapt to the sudden surge in demand as explained in part (bi). The combination of an inelastic supply and a substantial increase in demand resulted in a sharp increase in global shipping freight rates, represented by the rise from the initial pric e level (P 0) to the new higher price level (P 1).

(c) Explain which market structure best describes the c haracteristics of the co