The global economic crisis overview
The global economic crisis has been recorded as the most severe financial and economic crisis experienced across the world. Up to date, its aftermath is still being felt. This global crisis is known to have heard unprecedented effect on capital and credit. It took offshoot from financial markets in the United States. The contagion and impact ended up spreading unevenly all over the world. In this paper, I am going to discuss the effect and aftermath of the global economic crisis on the VLCC market in Nigeria, basing my argument on variables such as flight rate, other books, new buildings, China trade route and US gulf route.
The freight rates
The freight rate refers to the price that a carrier, which is a charterer or a ship-owner, incurs for transporting cargo. The charges for transporting oil in Nigeria, depends on a variety of factors. This includes the initial costs of operating the vessel like fuel, crew wages, maintenance and insurance. Other costs that cover the freight rate also include the cost of the shore-side operation, which covers the rent, marketing and office personnel, and the capital costs of buying the vessel, which covers depreciation, interest and deposit. The global financial crisis had a great influence on all these charges. All the costs were highly raised to source for money in order to save the economic situation of Nigeria. The charges were extremely high and VLCC market in Nigeria was challenged due to loss of its customers at that time.
New buildings
For all the vessels, the price of new buildings was raised in 2010. This was a reflection that the capacity of world at the time of this crisis, was insufficient to meet world trade in the given short term period. The results ended up being mixed in the second-hand market. Only the large oil tankers maintained their value. The specialized product tankers and the smaller tankers declined in value. There was a decrease in the price of medium-sized Panamax vessels in the dry bulk sector. The price of larger and smaller vessels on the other hand increased. There was an increase in price of all second-hand container ships in 2010 as the trade volumes gradually recovered. These changes brought about economic slowdown in Nigeria due to collapse of confidence in customers. It resulted to the biting of credit crunch and deleveraging businesses and consumers depressed activity in the economy of Nigeria. This resulted to the GDP of Nigeria growing at a decreasing rate during this crisis.
The US gulf route
The US gulf route, also referred to as the third Coast or South Coast, comprises the American coasts that are located on the Gulf of Mexico. It includes Louisiana, Texas, Alabama, Florida and Mississippi. They are identified as the Gulf States and are found in southern part of the United States. The US imports oil from Nigeria and this gulf route makes it easy to access all these countries. It forms a connection between the countries supplemented by oil importation from Nigeria to the US. Apart from this importation, Nigeria has extra benefits obtained from the United States. During the global economic crisis, very little or no petroleum was imported from Nigeria into the United States. This was a setback for Nigeria because apart from earning revenue from the oil export, it lost other benefits that came along with the interaction with US.
The China trade route
There is a great bilateral relation between China and Nigeria. There has been a growing strategic cooperation and bilateral trade between these two countries. This great cooperation is facilitated by the China trade route. It facilitated the Chinese development finance to Nigeria. It is approximated that forty Chinese development finance projects were established. During the global crisis the Chinese had less confidence in Nigeria. This resulted to the fall of Nigeria’s economy by negative digits. This retreatment by China had a great impact on the banking sector, capital market, balance of payments and the foreign exchange.
Conclusion
With the oversight benefit of hindsight of almost half of a decade, the prevailing economic situation that was triggered by subprime crisis in the United States mortgage system market could have been controlled if there were effective regulators in their oversight on activities involving financial markets. The chosen variables are the major areas and have the most effective impact on the economic status of Nigeria. A small change on these variables, whether negative or positive, results to a change in the economic status in Nigeria. The devastating blow that crushed Nigerian VLCC markets is still being felt. Currently, Nigeria is trying to recover by linking closely with international economies and markets. This is their time to firmly stem the tide concerning dependence on oil revenue. They need to develop and establish a broad-based economy. They need to be in a position to earn forex from different sources. By doing this, they will be able to mitigate any external shock coming from crude oil market in future, and in the end it will preserve the government’s revenue even in the market of fluctuating oil prices.
References
Frynas, J. G. (2000). Oil in Nigeria: conflict and litigation between oil companies and village communities. Germany: Lit Verlag;.
Zheng, Y., & Tong, S. Y. (2010). China and the global economic crisis. Singapore: World Scientific.
