Shipping Market Cycle

Dr. Rasha Fouad

 Concept of Shipping Market Cycle
 The shipping cycle is an economic concept that
explains how shipping companies and freight charges
respond to supply and demand.
 It examines how and why ships build up in sea
trading ports.
 The cycle also seeks to explain what affects the selling
price of ship fleets and what types of ships sell during
slow business periods.
 The four stages of the shipping cycle, all based on
customer demand, are trough, recovery, peak and
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collapse.
 What Causes the Shipping Cycle?
 The shipping market is driven by a competitive process in which supply
and demand interact to determine the freight rate.
 Excessive demand leads to a shortage of ships, which in turn increases the
freight rate.
 On the other hand, excessive supply of ships leads to a reduction in the
freight rate.
 The shipping cycle is a mechanism to coordinate supply and demand in the
shipping market.
 There are no set rules about the length of each stage.
 There is no formula to predict the pattern of the next shipping cycle.
 Business cycles are directly proportional to shipping cycles, these are the
cause of fluctuations in seaborne trade and ship demand and these do not
follow any set pattern therefore predicting them becomes a very complex
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 Stage 1: Trough
Supply > Demand
 An excess in capacity characterizes a trough.
 Ships begin to accumulate at trading ports, while others slow down
shipments by delaying their arrivals at full ports.
 Ships still carrying goods also slow down to save on fuel costs.
 In a trough, freight costs tend to start falling.
 Freight costs will typically decrease to the equivalent of vessel
operating costs.
 Shipping companies start to experience a negative cash flow, which
prompts the selling of inefficient fleet.
 Selling prices for ships tend to be lower.

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 Stage 2: Recovery
Recovery is the second stage of the shipping cycle.
 In this stage, supply and demand move toward equilibrium,
meaning both supply and demand levels match each other closely.
 Freight charges begin to increase, eventually surpassing operating
costs.
 Shipping containers begin to move out of the trading ports, as
demand stimulates new orders.
 During this stage, optimism about the market remains shaky.
 The opinion swings back and forth between optimism and
pessimism, resulting in volatility for trade volume.
 Cash flow tends to improve steadily during the recovery stage.

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 Stage 3: Peak
Supply = Demand
The shipping cycle's third stage is a peak or plateau.
 At this point, the shipping freight rates become quite high ---
often double or triple the amount of fleet operating costs.
 The levels of supply and demand are almost completely
equal.
 Quite a bit of market pressure occurs between supply and
demand levels, which could cause the peak to fall at any time.
 Most of the shipping fleet is in operation, with only the most
inefficient ships left to idle in trading ports.
 Cash flow for shipping companies is quite high.

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 Stage 4: Collapse
Supply > Demand
 Supply levels begin to exceed demand.
 Freight rates begin to decline during a collapse.
 Shipping containers and fleet begin to accumulate in trading
ports once again.
 Ships begin to slow down their operations.
 They may take longer to deliver goods, and inefficient fleets
may not ship goods for some time.

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Assignment
write paper discussing impact of covid
19 on shipping market

 https://glginsights.com/articles/how-coronavirus-might-
impact-the-shipping-industry/
 https://link.springer.com/article/10.1057/s41278-020-
00180-5