SHIPPING CYCLE

M E MB ERS :
Logistics II
- -MADELYNE FERNANDE
- - ERICKA VERA
LECTURER: Mr. Max Galarza
- - KAROL TIERRA
GRADE:
- - LISBETH BENITEZ
- -ANGIE RECALE
What is shipping Cycle?
Combination of price incentives and the typical inelasticity of supply within this market.
Economic concept that explains how shipping companies and freight charges respond to supply
and demand.
Operates due to a lack of synchronization in ship production
When prices (freight rates) are low, there is less construction in the maritime sector and
increasing numbers of ships are scrapped.
As demand increases and more transport services are needed, the supply cannot be adjusted
rapidly, freight rates rise and construction begins again, which subsequently produces excess
supply and a lowering of freight rates.
Steps 1 to 3 are the lower phase of the maritime cycle. In the moment that economy starts to rise
(step 4), the fleet grows very slowly, but demand grows more rapidly (because of the inelasticity).
Steps 5 to 10 are the higher phase of the cycle: demand outstrips supply; tonnage is scarce;
freight rates rise while demand continues to exceed supply; orders for new shipbuilding increase
rapidly. In some time, excess in optimism appears: the orders may become too much.
When transport demand begins to stabilize, supply exceeds demand, and signs of excess supply
appear (excess tonnage). The next crisis will start the cycle again.
The side effects arising from processes linked to crises and peaks in the business cycle are tightly
connected to the decisions made by economic agents, particularly in response to crisis periods.
Stakeholders in the maritime sector are affected by economic recessions
Decisions made in the optimistic phase of the cycle can cause imbalances in companies’ results.
 STAGES OF SHIPPING CYCLE
The four stages of the shipping cycle, all based on customer
demand, are trough, recovery, peak and collapse.

Trough
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
Selling prices for ships tend to be lower, with some fleet exchanged at salvage rates.
Recovery
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.
Optimism about the market remains shaky.
Resulting in volatility for trade volume. Cash flow tends to improve steadily during the recovery
stage.
Peak
 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.
Cash flow for shipping companies is quite high.
Collapse
Occurs when 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.
Although the cash flow of shipping companies may remain at high levels, ships begin to slow
down their operations.
They may take longer to deliver goods, and inefficient fleets may not ship goods for some time.
Bibliographical Sources
http://www.cepal.org/sites/default/files/news/files/shipping_cycle_2017.pdf
http://www.ehow.com/info_8466520_four-stages-shipping-cycle.html