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Market view
Difficult to get good balance between supply and demand (time-lags in supply adjustments) Supply generally tends to outstrip demand: long periods of rather depressed freight markets.
Short peaks in the freight market: demand rarely exceeds supply over a long period.
Well-consolidated companies have the luxury of going anti-cyclical. Effective shipping strategy depends on anticipating the turning points
Purchase or sale of ships Withholding capacity (lay-up) Operations and asset play
Customers do the opposite: spot market when prices are high. Try to fix long-term contracts when market is low.
Shipbreaking
Beaching practice in
Bangladesh
Scrapping operations are labour intensive and involve high risks. Vessel owners prefer to sell out the unserviceable vessels to the countries where there is demand for scrapped steel and other items of old ships, where labour cost is relatively low and where there
Hedging
Both tanker and dry bulk shipping markets are in transition toward becoming large financial derivatives markets IMAREX (launched in 2001) provides an exchange for trading and freight derivatives (market broker desk to facilitate such trades + provides trading data) Financial derivatives will become integrated in many of the trading and asset allocation decisions, just as in other commodity markets (oil, electricity, money markets, aluminum, etc..) Derivatives are becoming integrated in the commercial management of many shipping companies Derivatives for hedging are becoming key in commodity spot markets Derivatives for trading in basic commodities (oil, coal, grain) have spillover effects in related shipping markets
Market Sentiments
The variable of most interest to senior decision makers is market sentiment, not a particular freight rate. Market sentiment can be described as the average mood of the shipping community, its degree of optimism and willingness to invest. This mood is strongly influenced by recent earnings and general expectations for the next year or so. Senior shipping executives are intuitively aware of the correlation of different freight rates, and are satisfied if they know when market sentiment will turn. This is all they need to know to help decide on purchase or sale, ordering or scrapping, operation or lay-up. Substitutability among market segments creates one market sentiment: If vessels are scarce in one segment, they will be scarce in others soon, since many ships can be used in different trades. If ship owners face lay-ups in one segment, they will soon spread their woes to other segments by trying to place their surplus vessels there. Authors chose a time charter (TC) freight rate as the main indicator of market sentiment.