FACULTAD DE ESPECIALIDADES EMPRESARIALES INGENIERÍA EN COMERCIO Y FINANZAS

INTERNACIONALES 

Logistica II

TITLE: Shipping Cycles Grade 10

Vanessa Quille - Jefferson Franco

Shipping cycles are far more complex tan a sequence of cyclical moves in the freight rate. kirkaldy 1914. considered the shipping cycle as a consequence of the market mechanism. The market cycles créate the business enviroment in which

weak shipping companies are forced to leave and strong shipping companies survive and prosper.

The shipping cycle is an economic concept that explains how shipping companies and freight charges respond to supply and demand. It examines

how and why ships build up in sea trading ports. The cycle also seeks to explain what affects the selling price of ship fleets and what types of ships sell during

slow business periods. The four stages of the shipping cycle, all based on customer demand, are trough, recovery, peak and collapse.

THE FOUR STAGES OF THE SHIPPING CYCLE

Trough• The first stage of the shipping cycle is called 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, which prompts the selling of inefficient fleet. Selling prices for ships tend to be lower, with some fleet exchanged at salvage rates.

Recovery• Recovery is the second stage of the

shipping cycle. In this stage, 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. During this stage, optimism about the market remains shaky. The opinion pendulum swings back and forth between optimism and pessimism, resulting in volatility for trade volume. Cash flow tends to improve steadily during the recovery stage.

Peak• The shipping cycle's third stage is a peak or plateau.

At this point, 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. Most of the shipping fleet is in operation, with only the most inefficient ships left to idle in trading ports. Cash flow for shipping companies is quite high.

Collapse• The fourth stage of the shipping cycle,

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.

LEMON PORT

Puerto Limon is a port city that at one time was a vibrant shipping port for the banana trade that flourishes around

Puerto Limon. Abandoned, for the most part for the port of

Moin some 10K to the north of Puerto Limon, the city fell

victim to a savage earthquake in 1991

IS PUERTO LIMON A REAL LIMON?•  In the late 1850s, Puerto Limon became more important as a port. It was opened to foreign trade in the late 1860s. In 1890, it was linked to Costa Rica’s capital, San Jose, by railroad passing through difficult terrain. A banana industry grew up around the tracks, giving Costa Rica a cash cargo, and the United Fruit Company was dominant through the first decades of the 20th Century

•A comparative analysis of the inefficient Puerto Limon in Costa Rica and the efficient port of Cartagena in Colombia, illustrating the influence of port efficiency on the costs of maritime transport and the damaging impact this has upon trade.

The conclusions reveal that Central America's high freight rates cannot be solely attributed to low cargo volumes, as is sometimes claimed; port inefficiencies are also a culprit in that they exert a significant influence in terms of additional fuel costs, as well as the number of ships which carriers deploy, through overly long loading and discharging times.

These all serve to undermine Costa Rica's terms of trade and, in the long run, have a negative effect on the nation's trade, economy and consumer welfare. While the difficulties in doing so are acknowledged, the authors propose that inducing competition, particularly port privatization, is the way towards port reform that will advance Central American nations, such as Costa Rica, whose economies are suffering as a result of an inefficient port sector

RESOURCES• http://marinepedia.blogspot.com/2009/09/shipping-market-

cycles.html• http://www.worldshipping.org/about-the-industry/history-of-

containerization • http://www.puertolimon.net/• https://trid.trb.org/view.aspx?id=1118972