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Stages of The Shipping Cycle

The shipping cycle has four stages: trough, recovery, peak, and collapse. In the trough, freight rates fall to operating costs, forcing companies to sell ships at low prices. In recovery, freight rates rise above costs and laid up tonnage falls. At the peak, supply and demand are balanced with high freight rates and full fleet utilization. In collapse, supply exceeds demand, causing freight rates and ship speeds to decrease again.

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2K views2 pages

Stages of The Shipping Cycle

The shipping cycle has four stages: trough, recovery, peak, and collapse. In the trough, freight rates fall to operating costs, forcing companies to sell ships at low prices. In recovery, freight rates rise above costs and laid up tonnage falls. At the peak, supply and demand are balanced with high freight rates and full fleet utilization. In collapse, supply exceeds demand, causing freight rates and ship speeds to decrease again.

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yesuplus2
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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STAGES OF THE SHIPPING CYCLE

TROUGH- CHARACTERISTICS
1. There will be evidence of surplus of shipping capacity (supply)
ships queue up at loading points
vessels at sea slow steam to save fuel and delay arrival
2. Freight rates fall to the operating cost of the least efficient ships in the fleet which
move into lay-up
3.
Sustained low freight rates and tight credit create a negative net cash flow which
which becomes progressively greater
shipping companies short of cash are forced to sell ships at distress prices, since
there are few buyers
the price of old ships fall to scrap value, leading to active demolition market

RECOVERY
As supply and demand move towards a balance the first sign of a recovery is

positive increase in freight rates above operating cost


fall in laid up tonnage
Market sentiment remains uncertain and unpredictable
as liquidity improves, second-hand prices rise and sentiment firms

PEAK

Supply and demand are balanced


Freight rates are high, often 2 to 3 times operating costs
Only untradable ships are laid up
The fleet operates at full speed
Owners become very liquid
Bank are keen to lend
Public flotation of shipping businesses
Second-hand prices move above book value
Prompt modern ships may sell for more than the newbuilding price
Ship building order book expands

COLLAPSE
When supply overtakes demand the market moves in a collapse phase
Spot ships build up in key port
Freight rates fall
Ships reduce operating speed and the least attractive ships have to wait for cargo
Liquidity remains high
Sentiment is confused, changing with each rally in rate

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