Mania

If you look at the history of stock markets, it seems that the world suffers from some kind of bipolar disorder. The housing market, Internet companies or the whole economy of a country gets overvalued in such a grand scale, that the only way to reach equilibrium is to start from scratch. Enormous amounts of money are lost, and made, on the following price moves. About a year after, some people get the blame for what happened, and some gets famous for exploiting the negligence of everyone else, to see what was about to happen.

Why is this relevant? Well, shipping is always one of the industries that suffers the most from any downturn. They might not be leveraged to the breaking point, they may even have contracts guaranteeing their cash flow for many years to come. The problem that arises is that of counter-party-risk and catastrophic day rates. Now some might say that other industries are exposed to the exact same problems, and that is true. There is only one big difference. The pricing of freight is, as all other services, a matter of supply and demand. What differs shipping from other industries is that the demand side of the equation (largely based on change in world trade) is very volatile, while the supply must be planned years before. This means that there will be some years with an oversupply of ships and some years where the cost of freight skyrockets. This is due to the fact that the cost of transport is very low compared to the other costs of manufacturing and selling the product. This means that charterers are willing to pay whatever price the ship owner wants in a tight market.

In other words shipping is either euphoria or depression. Which make it a very interesting industry to follow. Exaggeration is the rule, not the exception - which also make it very profitable if you are able to seen through all the emotions and noise.