Shipping Market Cycles
3
Shipping Market
Cycles
The four most expensive words in the English language are, ‘This time it’s different’.
(Sir John Templeton, quoted in Devil Take the Hindmost,
Chancellor 1999, p. 191)
3.1 INTRODUCING THE SHIPPING CYCLE
Market cycles pervade the shipping industry. As one shipowner put it: ‘When I wake up in the morning and freight rates are high I feel good. When they are low I feel bad’.1
Just as the weather dominates the lives of seafarers, so the waves of shipping cycles ripple through the financial lives of shipowners. Considering the sums of money involved, it is not surprising that they are so prominent. Take the transport of grain from the US Gulf to Rotterdam. After operating expenses a Panamax bulk carrier trading spot would have earned $1 million in 1986, $3.5 million in 1989, $1.5 million in 1992, $2.5 million in 1995 and $16.5 million in 2007! A new Panamax would have cost $13.5 million in 1986, $30 million in 1990, $19 million in 1999 and $48 million in 2007.
These shipping cycles roll out like waves hitting a beach. From a distance they look harmless, but once you are in the surf it’s a different story. No sooner has one finished than another starts and, like surfers waiting for a wave, shipowners cluster in the trough, paddling to keep afloat and anxiously scanning the horizon for the next big roller.
Sometimes it is a long wait. In 1894, in the trough of a recession, a shipbroker wrote: ‘The philanthropy of this great body of traders, the shipowners, is evidently inexhaustible, for after five years of unprofitable work, their energy is as unflagging as ever, and the amount of tonnage under construction and on order guarantees a long continuance of present low freight rates, and an effectual check against increased cost of overseas carriage’.2 He was right. It was 1900 before he could write: ‘The closing year of the century has been a memorable one for the shipping industry. It would be hard to find any year
Shipping Market
Cycles
The four most expensive words in the English language are, ‘This time it’s different’.
(Sir John Templeton, quoted in Devil Take the Hindmost,
Chancellor 1999, p. 191)
3.1 INTRODUCING THE SHIPPING CYCLE
Market cycles pervade the shipping industry. As one shipowner put it: ‘When I wake up in the morning and freight rates are high I feel good. When they are low I feel bad’.1
Just as the weather dominates the lives of seafarers, so the waves of shipping cycles ripple through the financial lives of shipowners. Considering the sums of money involved, it is not surprising that they are so prominent. Take the transport of grain from the US Gulf to Rotterdam. After operating expenses a Panamax bulk carrier trading spot would have earned $1 million in 1986, $3.5 million in 1989, $1.5 million in 1992, $2.5 million in 1995 and $16.5 million in 2007! A new Panamax would have cost $13.5 million in 1986, $30 million in 1990, $19 million in 1999 and $48 million in 2007.
These shipping cycles roll out like waves hitting a beach. From a distance they look harmless, but once you are in the surf it’s a different story. No sooner has one finished than another starts and, like surfers waiting for a wave, shipowners cluster in the trough, paddling to keep afloat and anxiously scanning the horizon for the next big roller.
Sometimes it is a long wait. In 1894, in the trough of a recession, a shipbroker wrote: ‘The philanthropy of this great body of traders, the shipowners, is evidently inexhaustible, for after five years of unprofitable work, their energy is as unflagging as ever, and the amount of tonnage under construction and on order guarantees a long continuance of present low freight rates, and an effectual check against increased cost of overseas carriage’.2 He was right. It was 1900 before he could write: ‘The closing year of the century has been a memorable one for the shipping industry. It would be hard to find any year