Impact of Brexit on Shipping Industry: A Microeconomic Analysis

This report analyzes the impact of Brexit on the shipping industry using microeconomic concepts such as demand and supply, elasticity, and scarcity. It discusses the rise in shipping costs, shortage of supply, and the effect on the prices of trampolines and big swings. The report also presents various examples to understand the concepts effectively.

BUSINESS
ENVIRONMENT

Introduction
 The report of business environment will comprehensively review the article
highlighting the impact of Brexit both in long term and short term for the shipping
industry.
 Business environment refers to all the things which are external to the company that
affects the operation of the business.
 The theory of demand and supply, elasticity will be discussed to develop the
understanding of the microeconomics concepts.
 At last various examples will be used to understand the concepts in effective way.

Main arguments
Rise in the cost of shipping are likely to bring a bounce in the cost of the trampolines.
 Law of supply and demand establishes the relationship between buyer and seller. It
says that when demand of the goods increases, prices tend to rise.
 Because of the high demand of the ships, service cost has risen, according to law
of demand and supply it is causing shortage of supply.
 The demand of Chinese products is getting higher causing shortage of shipping
services.
 As the retailer has a big toy business it needs transportation systems for trampoline
and big swings.

Continued
 The micro economic concept of scarcity say that if the service of the goods is not available then
the cost of the product will be rising.
 In a scenario where shipping services are facing hike in their demand in the industry.
 This will cause the prices higher and leading to the bounce of cost for the consumers as well.
 As the final cost consists of various cost and fix cost, transportation cost falls under the variable
cost.

Continued
major concern raised by the sellers is that will people pay premium prices for such outdoor toys.
 As the recent increase in the shipping and transportation cost has risen the final prices, and
continuing sales at the previous prices would no longer be possible.
 Price points of marketers will be difficult to meet as some local producers are selling goods at
lower prices which is affecting the customer retention.
 People tend to spend more on necessary goods and trampoline is not a necessary good so it is a
point of concern as people will not tend to buy this at any cost.

Application of microeconomic theories
Demand and supply-
 The theory of demand and supply says that there is a negative relationship between price and
demand. And there exist a positive relationship between price and supply.
 If the prices of a product go high, the demand tends to fall as the factors are inversely proportional.
 If the supply of a product is high in the market the prices go down because of the directly
proportional relationship between the factors.

continued
 Short term supply of shipping services are affected and in short run, the shipping service
companies to drive the price and be the only market force.
 Here local haulier charger and international shipping charger both are on rise. For the industry
composite supply is unfavourable. The prevailing circumstances depict poor state of both the
services.

Elasticity
 Elasticity of demand measures how much demand or supply of a product changes based on the
change in prices.
 Trampoline and big swing are the luxury or amusing goods, whose elasticity is more than one this
defines there is some change in price of products then effect o demand is higher.
 But scenario is not the same for the shipping services elasticity, supply elasticity establishes
relationship between change in price of supply and responsiveness to supply of services.

Conclusion
 The above report of business environment summarized the impact of business environment on the
shipping industry.
 Two impactful theories of demand and supply and elasticity were discussed in detail.
 Various examples were depicted which established understanding of the concepts.
 Report presented different impactful arguments from the article given using economic theories.

Reference
 Craighead, C. W. and et.al., 2020. Pandemics and supply chain management research: toward a
theoretical toolbox. Decision Sciences. 51(4). pp.838-866.
 Fernandez, V., 2018. Price and income elasticity of demand for mineral commodities. Resources
Policy. 59. pp.160-183.
 Hafezalkotob, A. and et.al., 2018. Wholesale-retail pricing strategies under market risk and
uncertain demand in supply chain using evolutionary game theory. Kybernetes. 47(6). pp.1178-
1201.
 Kreps, D. M., 2019. Microeconomics for managers. Princeton University Press.