This document discusses the shipping cycle, which is an economic concept that explains how shipping companies and freight charges respond to fluctuations in supply and demand in the shipping industry. The shipping cycle has four main stages: trough, recovery, peak, and collapse. In the trough stage, supply exceeds demand, freight rates are low, and ships accumulate unused in ports. As demand increases in the recovery stage, freight rates begin to rise. Rates peak when supply and demand balance out. The cycle then collapses as supply outpaces demand again, causing freight rates and ship utilization to decline once more.

1. SHIPPING CYCLE
Logistics II
MEMBERS:
- -Madelyne Fernández
- -Ericka vera
- -Karol tierra
- -Lisbeth Benítez
- -Angie Recalde
LECTURER: Mr. Max Galarza
GRADE: 9,5

2. 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

3. What is shipping Cycle?
*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.

4. The Traditional
– Shipping Cycle
Mechanism

5. STEPS
Steps 1 to 3: The
lower phase of the
maritime cycle.
Step 4: In the
moment that economy
starts to rise, 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

6. 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.
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.

7. STAGES OF SHIPPING CYCLE
Ships still carrying goods also slow
down to save on fuel costs. In a
trough, freight costs tend to start
falling.
Shipping companies start to
experience a negative cash flow
Freight costs will
typically decrease
to the equivalent of
vessel operating
costs.
Ships begin to
accumulate at
trading ports,
while others slow
down shipments
by delaying their
arrivals at full
ports.
Selling prices for
ships tend to be
lower, with some
fleet exchanged
at salvage rates.
An excess in capacity
characterizes a trough.
Trough

8. 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.

9. 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.
Cash flow for shipping companies is
quite high.

10. 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.
Cash flow of
shipping
companies may
remain at high
levels, ships
begin to slow
down their
operations.
Inefficient
fleets may
not ship
goods for
some time.

11. 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