Characteristics of Shipping Cycles
Shipping cycles are far more complex than 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 create the business environment in
which weak shipping companies are forced to leave and strong shipping companies
survive and prosper. Fayle (1933) suggested that the shipping cycle starts
with a shortage of ships. The increase in the freight rate stimulates overordering
of new buildings. Finally, it leads to market collapse and a prolonged slump. The
shipping cycle is a mechanism to balance the supply of and demand for ships. If
excessive demand exists, the market rewards investors with high freight rates
until more ships are built. If there is excessive supply, the market squeezes the
revenue with low freight rates until ships are scrapped.