Shipping Cycles

Introduction

Shipping markets determines the sale and purchase of ships. This entails how ships are chartered as well as how their prices are established. The main players in the shipping market include the following ones: ship owners, ship builders, shipping companies as well as charterers. Notably, the shipping market is made of four major markets that interplay their roles in the overlapping market.

Shipping Markets

The first shipping market is a new building market. This market is composed of the shipbuilders and brokers. They act as the mediators between the first ones mentioned and those ready to purchase ships. Virtually, in this level, the product being traded does not really exist because the ship has not been created. The payment for the ship is normally made in parts. This facilitates the competition of the ship (Stopford, M 2009). New ship builders are not expensive as it concerns the sale of the second hand ships. Thus, the cost of a new ship can be lower than that second hand ship. This is due to the fact that the time taken to make the ship is available, and the current fluctuations in the supply and demand determine the price of the ship in the market.

 

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The second shipping market is the freight market. This is mainly related to the trading of freight and the means, with which this freight is being transported. In the contemporary world, the freight market transactions are carried out through the internet. Notably, shipping companies sell their ships, while at the same time they agree on the terms which are used for deploying the ships (Stopford, M 2009). This is done irrespectively of whether the charter had either partial or full control of the overall process. However, it is worthy to note that the freight market is normally done by the charter. This involves a contract where the obligations of parties involved are well stipulated. It can be done on the basis of time, voyage, as well as freight. In addition, the party responsible for maintaining and crewing of the ship is being settled.

The third shipping market involves the sale and the purchase. This market integrates all other players in the new building market as well as in the freight market. In this case, the shipbroker usually acts as the middle man when the sales are being carried out (Pamela et al., 2009). However, with the advancement of internet, brokers are being replaced at a higher rate. The price of ship normally varies greatly depending on many factors. The sale is normally done free of any other financial obligations that may be tied to the ship as well as to the instant delivery. The ship being sold could offer the momentary transport and deliverances before it has been completely handed to the buyer. Although the ship’s seller may have debts in the ship being sold; the crew always has the first lien to the total value of ship when the amount of debts is still to be paid.

Another shipping market is the new building market. It is worthy to note that there is a significant difference in the ship being sold in the sale and purchase. The ship being sold in the sale market does not exist. While in the purchase, the ship is being developed. Notably, the payments are normally done in five parts, where ten percent is paid upon signing the contract. The rest parts are paid evenly in different phases, during which the construction continues. These phases include: cutting the steel, laying the keel, launching as well as the delivery (Stopford, M 2009). The final market is known as the demolition market. This is done after the life span of the ship has been exceeded. In this case, such components as steel are dismantled and sold.

The shipping markets are normally integrated. They operate for different purposes. Notably, they create an environment, in which the weak companies involved in shipping are forced out, while leaving the stronger ones. These markets prosper and foster the efficient shipping business. The integration is also evident in the form of competition between owners and the role of the cash flow pressures. Indeed, cycle mechanisms triggered by the world business result in the increase or decline of ships. The high freight rates normally attract new investors in the shipping industry. Moreover, they stimulate the investments in business expanding the shipping capacity. Each market is dependent on the other one, and they work together to accomplish the shipping industry.

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Shipping Cycles

The shipping industry has expressed the fear regarding the extensive order book for the newly built vessels. In this case, there are various shipping cycles that characterize the demand and supply, hence regulating the order book in the shipping industry. Moreover, shipping cycles describe various shipping companies and the respective freight charges regarding the supply and demand. Notably, the four shipping cycles are normally based on the consumers’ demand. They include the following ones: firstly, the trough. This is the first stage where the trough is in excess. At this stage, ships begin accumulating in various trading ports. Therefore, ships queue up at the loading points, while others slow down their shipments (Simon, B 2001). This is done by delaying their arrival to the full ports. On the same, ships that have already carried goods move slower in order to save fuel costs. At this stage, the freight costs begin falling steadily. Eventually, the freight charges decrease directly to the equivalent of the operating costs of the vessel. For this reason, shipping companies begin experiencing the negative cash flow. This results into selling the inefficient fleet. In addition, the selling prices for ships, especially the old ones, start falling. This results in the demolition of market. Indeed, the companies are compelled to sell ships at lower costs because there are few buyers. This leads into the shortage of cash.

The second stage in the shipping cycle is the recovery. At this stage, the supply and demand begin moving towards the balance. The balancing is evident by the fact that freight rates begin to fall, while at the same time the operating cost moves up. At the equilibrium, shipping containers start to move from the trading ports due to the rise in new orders (Stopford, M 2009). Moreover, at this stage, the level of optimism is not very high as doubts are still high as to whether the recovery is still happening. Thus, there is a change between pessimism and optimism. This leads into the volatility for the volume of trade. Notably, there is a steady cash flow improvement during this stage.

The third stage is the peak. At this level, freight rates progressively become quite high. At this stage, there is a tight balance between the demand and supply. Virtually, the peaks usually last for few weeks or years depending on the equilibrium between the demand and supply. Fleet operates at its full speed, while owners become very liquid as banks begin to lend. Moreover, the press reports the shipping business trends as it prospers (Aleka, M 2001). The same, there are several public flotation of the shipping companies. The ship building order book the increases steadily as the modern ships sell more than the new building price that has been set. The exceeding levels of supply results in a market collapse. The freight rates start declining. Once again, the shipping containers accumulate at the trading ports steadily (Pamela et al., 2009). Despite the fact that the cash flow of the shipping companies remains high, ships begin to take measures to reduce the operating costs. They spend a longer period to deliver goods. Moreover, the ineffective fleets may not be used to ship goods for a quite long time. The final stage is known as the collapse. This level is characterized by the collapse phase as the supply overtakes the demand in the market.

Major Concerns in the Shipping Industry

There are various concerns and implications existing in the shipping industry. The major concern is the problem related to the protection of the Intellectual Property Rights (IPR), especially of the European shipping industry. The shipping industry has been expanded at the higher rate due to the increased order book. This has resulted in a rapid transfer of intellectual property to competitors outside Europe. Moreover, the practical and efficient mechanisms to counter this threat have not been developed. The knowledge driven technology is creating a platform where the ship builders are disclosing the technical details required for the construction of a ship. Indeed, suppliers are able to calculate the technical and commercial demands of the project (Stopford, M 2009). As a result, ship yards are compelled to share their knowledge with other classified societies that perform the related functions. Therefore, there is a direct and broad exchange of information related to the knowledge-based details of the vessel. On the other hand, ship yards are working closely with major universities in the field of the computer aided design as well in other IT related components in ship building. The result is that yards are in the process of permanently violating their Intellectual Property Rights. This may result into the production of copied products which are the main problem in the equipment industry. Thus, sharing the knowledge in ship building is perceived to have permanent dramatic effects (Simon, B 2001). Therefore, the shipping industry has raised its concern over the rapid transfer of intellectual property to other competitors outside Europe. Moreover, internet is also associated with the wide spread of technical knowledge causing more harm to ship yards.

For a long period of time, the shipping industry has been lacking the global rules. Despite the fact that shipping industry offers employment opportunities and a wide range of technologies to other parts of the world, there are no well stipulated global rules to regulate its activities. The ship building market generates the income globally that benefits most parts of the world. For this reason, the ship building ought to be supported by international rules (Simon, B 2001). However, it is only state-supported in all its investments. Moreover, an advancement of internet has replaced shipping brokers. This is an advantage of the shipping industry as services become more efficient, while, on the other hand, brokers are losing their jobs.

Most ship building industries suffering from excess capacity. This sometimes results in a worldwide ship depression. This is especially in United States where shipping industry fears cuts to submarine programs. This has reduced the number of yards that are involved in construction of ships. Moreover, the shipping industries have been threatened by the issue of security as demands for national security had been advancement (Stopford, M 2009). Thus, the capabilities to build ships have been limited to engineering expertise to ensure that the nation is safe. On the other hand, there is high demand of up-to-date technology possible in order to incorporate new capabilities. Therefore, more research has to be done in the area something that is limits the number of ships being developed. Notably, there are fears at the Balmain shipyard as workers face the threat of losing their jobs as the government has expressed a desire to close the facility. This indicates the common phenomena among the workers working in different yards around the globe as they are being reduced by technology or facilities are being closed down.