Shipping Market Cycles

The shipping market can change very quickly, so decisions about the sale, purchase, and chartering of vessels depend crucially on timing. The “cycles” in these markets are not regular, and different market segments, especially tankers and bulk carriers, had similar cyclical patterns during some periods, but in others they diverge significantly, so each segment of the market must be treated separately. In this chapter, a cycle is defined as an interval of time during which a sequence of events is completed – typically a peak, followed by a collapse, a trough, a recovery, and then back to another peak. Because these cycles are caused by the delicate interaction of supply and demand for sea transport, they vary enormously, and even similar cycles are quite rare. When there are too few ships for the cargo, freight rates peak, but when there are too many, rates collapse. The rates are highly sensitive to quite small movements in either variable. In view of this irregularity, the best hope of predicting shipping cycles is to analyse the underlying trends in supply and demand and project them forward. Computer models are helpful, and although the “forecasts” are rarely accurate, they give decision makers a structure for thinking about how things might develop – and a way of factoring in variables such as sentiment or stock building which are not easily quantified.