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The Interaction of Business and Shipping Cycles in Practice

In: Maritime Economics

Author

Listed:
  • Elias Karakitsos

    (University of Cambridge)

  • Lambros Varnavides

    (Royal Bank of Scotland)

Abstract

Chapter 6 shows that shipping cycles are caused by business cycles. Actual and expected macroeconomic developments shape expectations of shipping market conditions, which affect in turn the outcome of the bargaining between owners and charterers over current freight rates. Given a shipyard delivery lag of two years, the supply of shipping services is largely predetermined by past expectations of current demand for shipping services. As a result, large swings in expectations of demand cause a disproportionate increase in the supply of fleet in the boom years. When the euphoria dissipates, the installed fleet leads to lower fleet capacity utilisation, thereby creating a shipping cycle. Volatile expectations can be rational, as a result of cyclical developments in macroeconomic variables, or irrational, what Keynes called ‘animal spirits’, a situation where economic fundamentals remain unchanged and yet expectations swing from optimism to pessimism or vice versa.

Suggested Citation

  • Elias Karakitsos & Lambros Varnavides, 2014. "The Interaction of Business and Shipping Cycles in Practice," Palgrave Macmillan Books, in: Maritime Economics, chapter 9, pages 293-327, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-38341-9_9
    DOI: 10.1057/9781137383419_9
    as

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