Answer to Question #56788 in Economics for george

Question

Explain how shipping market cycles work

Answer 1

In shipping the existence of cycles has long been accepted as part of the shipping business.
Here is the explanation of how the shipping cycle works:
1) In the shipping market, price movements provide the cues.
2) Changes in freight rates or ship prices signal the next round of investment decisions.
3) Freight rates work themselves higher and trigger orders.
4) Eventually excess orders undermine freight rates.
5) Lower freight rates stall orders and encourage demolition.
6) At the low point in the cycle, reduced ordering and increased demolition shrink the supply and set the stage for a rise in freight rates.
7) The circle revolves.