Lecture 2 & 3 Flashcards
L2: What are the 4 shipping markets?
- Freight Market
- Sales & Purchase(2nd hand) Market
- Newbuild Market
- Demolition Market
L3: What are the 4 stages (in chronological order) of a Shipping Market Cycle?
In Order,
1. Trough (lowest point)
2. Expansion/Recovery
3. Peak (highest point)
4. Contraction/Recession
L2: List 3 factors influencing the freight market with explanation?
- Bunker Price
Higher Bunker Price–> Increased Freight Rate to cover bunker cost ( as FR is cost to transport cargo) - Operational Vessel Fleet
More vessel competition –> freight rates fall - Demand & Supply for seaborne trade
e.g DD for iron ore increases in China→ Increase prices of iron ore→ Cargo owners willing to pay
L2: What markets involve cash inflow?
Freight, Sales and Purchase, and Demolition generates cash inflow.
Only New build market not involved, in cash outflow
L3: Can 2nd hand vessels be more expensive than new builds at any point in time?
Usually No, except at peak where 2nd hand vessels price can be higher than new builds.
L2: What are the factors affecting 2nd hand vessels in price?
- Position in a shipping cycle
e.g of peak at 2nd point - Freight rate (FR) is the primary influence on ship prices
Higher FR -> higher demand for second-hand ships to capitalise on profits now as new ships take too long to build and second-hand ships can be used immediately -> higher price for second-hand ships> newbuilds set as ship owners would want more ships to maximise shipping cargo and earn from higher FR , vice versa for low freight rate - Age of Vessel
Old vessels need maintenance→ Price of 2nd hand vessel falls
L2: What are the factors influencing newbuild prices?
- Demand and Supply for Seaborne Trade
DD for iron ore increase→ Freight rate increases→ Increase DD for vessels as S/O more willing to pay - Expectations on freight rate
In a good economy, Freight rate expected to increase, S/O prioritise Demand for 2nd hand vessel - 2nd Hand market
DD increases when economy is good → New build price falls→ Shifts DD to newbuilds - Steel Price(60 % of vessel cost)
Increase steel price→ Increased price for Shipbuilding
L2: What are the factors influencing demand for scraping of vessels ?
- Expectations on freight rate
Good economy→ Freight rate increase→ Scrap DD falls→ as more S/Os do business, do not want to scrap ship - 2nd Hand Market
Good economy→ Increased DD for 2nd hand → Increased likelihood of scrapping as older engines for 2nd hand likely to malfunction→ Scrap Dealer Increases price to scrap ships, to attract S/Os to scrap. - Condition of Vessel
Older vessel→ higher likelihood of scrapping
FYI What are the 5 dominant demolition markets?
- Bangladesh
- India(Largest Market)
- China
- Pakistan
- Turkey
FYI: What are the 3 dominant newbuild markets?
Japan, South Korea, China
L3: Characteristics Of Trough
Hint: In terms of FR, fleet utilisation and Ship Values
Lowest point in shipping cycle
1. Freight rates at its lowest point
2. Low fleet utilisation with surplus capacity and reduced market activity.
3. Depressed prices for new builds and low values for second-hand vessels.
L3: Characteristics Of Recovery/Expansion
Hint: In terms of FR, fleet utilisation, DD/SS gap and Ship Values
Gradual market improvement as demand starts to match supply.
1. Freight rates begin increasing as surplus capacity is reduced.
2. Fleet utilisation increases as more DD for goods
3. DD/SS gap narrows
4. Price of Vessels starts to increase
L3: Characteristics Of Peak
Hint: In terms of FR, Ship values & Fleet utilisation
The highest point in the cycle, where freight rates, vessel utilization, and shipowners’ profits reach their maximum
1. Freights rates surge as DD exceeds Supply
2. Fleet Utilization: Full capacity, with potential vessel shortages.
3. Ship Values: Both newbuild and second-hand vessel prices peak, 2nd hand vessel price potentially higher than newbuilds
L3: Characteristics Of Contraction/Recession
Hint: In terms of FR, Ship values & Fleet utilisation
Dwonturn after peak
- Freight Rates: Decline sharply from peak levels, as DD is less than supply.
- Fleet Utilization: Drops as demand slows while supply remains high.
- Ship Values: Fall/plunge quickly, with a significant drop in second-hand vessel values.
What is the profit equation?
**Revenue- Cost = Profit
